<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported):
June 14, 2000
CLEAR CHANNEL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Texas 1-9645 74-1787536
(State or other jurisdiction (Commission File Number) (IRS Employer
incorporation) Identification No.)
200 East Basse Road
San Antonio, Texas 78209
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (210) 822-2828
<PAGE> 2
ITEM 5. OTHER EVENTS.
On October 2, 1999, Clear Channel Communications, Inc., a Texas corporation
(the "Company"), AMFM Inc., a Delaware corporation ("AMFM"), and CCU Merger Sub,
Inc., a Delaware corporation and a wholly-owned subsidiary of the Company
("Sub"), entered into an Agreement and Plan of Merger (the "AMFM Merger
Agreement"), pursuant to which Sub will be merged (the "AMFM Merger") with and
into AMFM, with AMFM surviving the AMFM Merger and continuing its operations as
a wholly-owned subsidiary of the Company. The AMFM Merger will be a tax-free,
stock-for-stock transaction.
Upon the terms and subject to the conditions set forth in the AMFM Merger
Agreement, upon consummation of the AMFM Merger, each share of AMFM common stock
will be converted into the right to receive .94 shares of the Company's common
stock.
On February 28, 2000, the Company, SFX Entertainment, Inc., a Delaware
corporation ("SFX"), and CCU II Merger Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company ("Sub II"), entered into an Agreement and
Plan of Merger (the "SFX Merger Agreement"), pursuant to which Sub II will be
merged (the "SFX Merger") with and into SFX, with SFX surviving the SFX Merger
and continuing its operations as a wholly-owned subsidiary of the Company. The
SFX Merger will be a tax-free, stock-for-stock transaction.
Upon the terms and subject to the conditions set forth in the SFX Merger
Agreement, upon consummation of the SFX Merger, SFX Class A shareholders will
receive 0.6 shares of Clear Channel Communications, Inc. common stock for each
SFX share and SFX Class B shareholders will receive one share of Clear Channel
Communications, Inc. common stock for each SFX share, on a fixed exchange basis.
Company's common stock.
1
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Historical Financial Statements of business acquired.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of
AMFM Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of AMFM
Inc. (formerly Chancellor Media Corporation) and its subsidiaries at December
31, 1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
March 13, 2000
2
<PAGE> 4
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 12,256 $ 59,277
Accounts receivable, less allowance for doubtful accounts
of $15,580 in 1998 and $21,428 in 1999................. 352,646 531,818
Other current assets...................................... 59,909 92,324
---------- -----------
Total current assets.............................. 424,811 683,419
Property and equipment, net................................. 1,388,156 471,508
Intangible assets, net...................................... 5,056,047 10,346,005
Investments in non-consolidated affiliates.................. -- 1,103,442
Other assets, net........................................... 358,893 261,434
---------- -----------
$7,227,907 $12,865,808
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 236,618 $ 293,155
Long-term debt.............................................. 4,096,000 5,890,217
Deferred tax liabilities.................................... 453,134 1,707,023
Other liabilities........................................... 50,325 60,154
---------- -----------
Total liabilities................................. 4,836,077 7,950,549
---------- -----------
Commitments and contingencies (notes 2, 3, 9 and 13)
Minority interest in consolidated subsidiary................ -- 3,694
Redeemable preferred stock:
Redeemable senior exchangeable preferred stock of
subsidiary, par value $.01 per share; 10,000,000 shares
authorized, 1,254,616 shares issued and outstanding;
liquidation preference of $132,989..................... -- 151,982
Stockholders' equity:
Preferred stock, $.01 par value. 2,200,000 shares of 7%
convertible preferred stock authorized, issued and
outstanding............................................ 110,000 110,000
Preferred stock, $.01 par value. 6,000,000 shares
authorized in 1998; 5,990,000 shares of $3.00
convertible exchangeable preferred stock issued and
outstanding in 1998.................................... 299,500 --
Common stock, $.01 par value. 200,000,000 shares and
750,000,000 shares authorized in 1998 and 1999,
respectively; 142,847,674 shares and 210,158,922 shares
issued and outstanding in 1998 and 1999,
respectively........................................... 1,428 2,102
Paid-in capital........................................... 2,259,583 5,115,785
Accumulated deficit....................................... (278,681) (468,304)
---------- -----------
Total stockholders' equity........................ 2,391,830 4,759,583
---------- -----------
$7,227,907 $12,865,808
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Gross revenues............................................ $663,804 $1,440,357 $2,232,765
Less agency commissions................................. 81,726 166,501 254,877
-------- ---------- ----------
Net revenues......................................... 582,078 1,273,856 1,977,888
-------- ---------- ----------
Operating expenses...................................... 316,248 682,061 1,048,711
Depreciation and amortization........................... 185,982 446,338 732,233
Corporate general and administrative.................... 21,442 36,722 57,559
Non-cash compensation................................... -- 16,000 6,443
Merger and non-recurring costs.......................... -- 47,661 81,829
-------- ---------- ----------
Operating income..................................... 58,406 45,074 51,113
-------- ---------- ----------
Interest expense........................................ 85,017 217,136 426,681
Interest income......................................... (1,922) (15,650) (10,644)
Gain on disposition of assets........................... (18,380) (123,845) (221,312)
Gain on disposition of representation contracts......... -- (32,198) (18,173)
Other (income) expense, net............................. 383 (3,221) --
-------- ---------- ----------
Income (loss) before income taxes.................... (6,692) 2,852 (125,439)
Income tax expense (benefit).............................. 7,802 33,751 (6,391)
Dividends and accretion on preferred stock of
subsidiaries............................................ 12,901 17,601 11,846
-------- ---------- ----------
Loss before equity in net loss of affiliates and
minority interest and extraordinary item............. (27,395) (48,500) (130,894)
Equity in net loss of affiliates and minority interest.... -- -- 27,651
-------- ---------- ----------
Loss before extraordinary item.......................... (27,395) (48,500) (158,545)
Extraordinary loss, net of income tax benefit............. 4,350 47,089 15,142
-------- ---------- ----------
Net loss........................................ (31,745) (95,589) (173,687)
Preferred stock dividends................................. 12,165 25,670 15,936
-------- ---------- ----------
Net loss attributable to common stockholders............ $(43,910) $ (121,259) $ (189,623)
======== ========== ==========
Basic and diluted loss per common share:
Before extraordinary item............................... $ (.41) $ (.54) $ (1.01)
Extraordinary item...................................... (.05) (.34) (.09)
-------- ---------- ----------
Net loss........................................ $ (.46) $ (.88) $ (1.10)
======== ========== ==========
Weighted average common shares outstanding................ 95,636 137,979 172,967
======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
---------------------- ------------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- --------- ----------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996...... -- $ -- 78,077,696 $ 781 6,232,132 $ 62 $ 662,080
Issuance of $3.00 convertible
preferred stock................ 5,990,000 299,500 -- -- -- -- (11,692)
Issuance of common stock in
merger......................... -- -- 34,617,460 346 -- -- 536,225
Issuance of common stock options
in merger...................... -- -- -- -- -- -- 34,977
Issuance of 7% preferred stock in
merger......................... 2,200,000 110,000 -- -- -- -- --
Conversion of class B common
stock.......................... -- -- 6,232,132 62 (6,232,132) (62) --
Exercise of common stock
options........................ -- -- 994,526 10 -- -- 5,340
Convertible preferred stock
dividends...................... -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
---------- --------- ----------- ----------- ---------- --------- ----------
Balances at December 31, 1997...... 8,190,000 409,500 119,921,814 1,199 -- -- 1,226,930
Issuance of common stock......... -- -- 21,850,000 219 -- -- 994,423
Exercise of common stock
options........................ -- -- 1,075,860 10 -- -- 22,230
Stock option compensation........ -- -- -- -- -- -- 16,000
Convertible preferred stock
dividends...................... -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
---------- --------- ----------- ----------- ---------- --------- ----------
Balances at December 31, 1998...... 8,190,000 409,500 142,847,674 1,428 -- -- 2,259,583
Issuance of common stock for
Capstar merger................. -- -- 53,553,966 536 -- -- 2,420,182
Conversion of preferred stock.... (5,990,000) (299,500) 11,979,800 120 -- -- 299,375
Assumption of stock options and
warrants -- Capstar merger..... -- -- -- -- -- -- 81,481
Exercise of common stock
options........................ -- -- 1,777,482 18 -- -- 58,059
Stock option compensation........ -- -- -- -- -- -- 6,443
Convertible preferred stock
dividends...................... -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
Other............................ -- -- -- -- -- -- (9,338)
---------- --------- ----------- ----------- ---------- --------- ----------
Balances at December 31, 1999...... 2,200,000 $ 110,000 210,158,922 $ 2,102 -- $ -- $5,115,785
========== ========= =========== =========== ========== ========= ==========
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balances at December 31, 1996...... $(113,512) $ 549,411
Issuance of $3.00 convertible
preferred stock................ -- 287,808
Issuance of common stock in
merger......................... -- 536,571
Issuance of common stock options
in merger...................... -- 34,977
Issuance of 7% preferred stock in
merger......................... -- 110,000
Conversion of class B common
stock.......................... -- --
Exercise of common stock
options........................ -- 5,350
Convertible preferred stock
dividends...................... (12,165) (12,165)
Net loss......................... (31,745) (31,745)
--------- ----------
Balances at December 31, 1997...... (157,422) 1,480,207
Issuance of common stock......... -- 994,642
Exercise of common stock
options........................ -- 22,240
Stock option compensation........ -- 16,000
Convertible preferred stock
dividends...................... (25,670) (25,670)
Net loss......................... (95,589) (95,589)
--------- ----------
Balances at December 31, 1998...... (278,681) 2,391,830
Issuance of common stock for
Capstar merger................. -- 2,420,718
Conversion of preferred stock.... -- (5)
Assumption of stock options and
warrants -- Capstar merger..... -- 81,481
Exercise of common stock
options........................ -- 58,077
Stock option compensation........ -- 6,443
Convertible preferred stock
dividends...................... (15,936) (15,936)
Net loss......................... (173,687) (173,687)
Other............................ -- (9,338)
--------- ----------
Balances at December 31, 1999...... $(468,304) $4,759,583
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (31,745) $ (95,589) $ (173,687)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation........................................... 14,918 47,027 123,850
Amortization........................................... 171,064 399,311 608,383
Non-cash compensation.................................. -- 16,000 6,443
Non-cash interest...................................... -- -- 10,546
Provision for doubtful accounts........................ 5,174 5,684 12,518
Deferred income tax expense (benefit).................. (3,829) 28,718 (20,491)
Gain on disposition of representation contracts........ -- (32,198) (18,173)
Gain on disposition of assets.......................... (18,380) (123,845) (221,312)
Write-off of costs related to terminated
acquisitions........................................ -- -- 16,783
Dividends and accretion on preferred stock of
subsidiaries........................................ 12,901 17,601 11,846
Equity in net loss of affiliates and minority
interest............................................ -- -- 27,651
Extraordinary loss, net of income tax benefit.......... 4,350 47,089 15,142
Other.................................................. -- -- (1,511)
Changes in certain assets and liabilities, net of
effects of acquisitions:
Accounts receivable................................. (29,977) (89,392) (101,285)
Other current assets................................ 733 (7,964) (2,933)
Accounts payable and accrued expenses............... 20,004 58,027 (54,063)
Other assets........................................ (4,283) (6,461) 19,992
Other liabilities................................... (1,416) 3,623 (12,619)
----------- ----------- -----------
Net cash provided by operating activities......... 139,514 267,631 247,080
----------- ----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired....................... (1,631,505) (1,995,991) (498,694)
Issuance of note receivable from affiliate............... -- (150,000) --
Escrow deposits on pending acquisitions.................. (4,655) -- --
Proceeds from sale of assets and outdoor advertising
business............................................... 269,250 -- 743,693
Payments made for purchases of representation
contracts.............................................. (31,456) (32,410) (43,915)
Payments for cost basis investments...................... -- (30,000) --
Payments for equity basis investments.................... -- -- (6,500)
Payments received from sales of representation
contracts.............................................. 9,296 26,500 24,033
Purchases of property and equipment...................... (11,666) (40,086) (59,370)
Construction of advertising structures................... -- (3,375) (14,345)
Other.................................................... (22,273) (65,807) (15,390)
----------- ----------- -----------
Net cash provided by (used by) investing
activities...................................... (1,423,009) (2,291,169) 129,512
----------- ----------- -----------
Cash flows from financing activities:
Proceeds of long-term debt............................... 2,945,250 3,596,000 1,074,459
Payments on long-term debt............................... (1,901,250) (2,476,217) (1,411,475)
Net proceeds from issuance of equity instruments......... 293,158 1,003,784 34,789
Dividends on preferred stock............................. (14,572) (57,039) (23,088)
Payments for debt issuance costs......................... (25,567) (47,318) (3,693)
Repurchase of preferred stock............................ -- -- (1,359)
Other.................................................... -- -- 796
----------- ----------- -----------
Net cash provided by (used by) financing
activities...................................... 1,297,019 2,019,210 (329,571)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents........... 13,524 (4,328) 47,021
Cash and cash equivalents at beginning of year............. 3,060 16,584 12,256
----------- ----------- -----------
Cash and cash equivalents at end of year................... $ 16,584 $ 12,256 $ 59,277
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 8
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
AMFM Inc. together with its subsidiaries ("AMFM" or the "Company"), is 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 the Company'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 December 31, 1999, the AMFM
Radio Group owned and operated, programmed or sold air time for 456 radio
stations (330 FM and 126 AM) in 102 markets in the continental United States and
in Puerto Rico, including 12 radio stations programmed under time brokerage
("LMA") or joint sales agreements. The AMFM Radio Group also includes 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 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.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of AMFM and its
wholly-owned and majority-owned subsidiaries. Significant intercompany balances
and transactions have been eliminated in consolidation. Investments in which the
Company owns 20% to 50% 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.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense as
incurred, whereas betterments which extend the useful lives of property and
equipment are capitalized.
(d) Intangible Assets
Intangible assets consist primarily of broadcast licenses, goodwill and
other identifiable intangible assets. Intangible assets resulting from
acquisitions are valued based upon estimated fair values. The Company amortizes
such intangible assets using the straight-line method over estimated useful
lives ranging from one to 40 years. The Company continually evaluates the
propriety of the carrying amount of goodwill and other intangible assets and
related amortization periods to determine whether current events or
circumstances warrant adjustments to the carrying value and/or revised estimates
of amortization periods. These evaluations consist of the projection of
undiscounted cash flows over the remaining amortization periods of the related
intangible assets. The projections are based on historical trend lines of actual
results, adjusted for expected changes in operating results. To the extent such
projections indicate that undiscounted cash flows are not expected to be
adequate to recover the carrying amounts of the related intangible assets, such
carrying amounts are written down to fair value by charges to expense. At this
time, the Company believes that no
7
<PAGE> 9
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
impairment of goodwill or other intangible assets has occurred and that no
revisions to the amortization periods are warranted.
(e) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast. Barter expense is recorded and the asset relieved when goods or
services are received or used. Barter amounts are not significant to the
Company's consolidated financial statements.
(f) Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts more likely than not to
be realized. Income tax expense is the total of tax payable for the period and
the change during the period in deferred tax assets and liabilities which
impacted operations.
(g) Revenue Recognition
Radio broadcast revenue is derived from the sale of advertising time to
local and national advertisers and is recognized as advertisements are
broadcast. Media representation revenue is derived from commissions on sales of
advertising time for radio and television stations under representation
contracts by the Company's media representation firm, Katz, and is recognized as
advertisements are broadcast. Outdoor advertising revenue was derived from
contracts with advertisers for the rental of outdoor advertising space and
recognized on an accrual basis ratably over the terms of the contracts.
Fees received or paid pursuant to time brokerage or joint sales agreements
are recognized as gross revenues or expensed, respectively, over the term of the
agreement.
(h) Representation Contracts
Representation contracts typically may be terminated by either party upon
written notice. Upon termination, a buyout agreement is typically entered into
for the purchase of the remaining term of such contracts by the successor
representation firm. The purchase price paid by the successor representation
firm is typically based upon the historical commission income projected over the
remaining contract period, including the evergreen or notice period, plus two
months.
Costs of obtaining representation contracts are deferred and amortized over
the related period of benefit. Amortization of costs of obtaining representation
contracts included in depreciation and amortization was $380, $10,862 and
$16,618 for the years ended December 31, 1997, 1998 and 1999, respectively.
Gains on the disposition of representation contracts are recognized on the
effective date of the buyout agreement as a component of other (income) expense.
(i) Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers
temporary cash investments purchased with original maturities of three months or
less to be cash equivalents.
8
<PAGE> 10
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company paid approximately $84,610, $191,674 and $404,102 for interest
in 1997, 1998 and 1999, respectively. Cash payments (refunds) for income taxes
were $11,079, ($79) and $8,418 for 1997, 1998 and 1999, respectively.
(j) Derivative Financial Instruments
The Company's derivative financial instruments are used to manage
well-defined interest rate risks related to interest on the Company's
outstanding debt and are not used for trading purposes.
Under interest rate contracts, the differential to be paid or received is
recognized in income over the life of the contract as an adjustment to interest
expense. The Company's exposure to credit loss is minimal as the majority of its
interest rate swap agreements are with participating banks under its senior
credit facility.
(k) Basic and Diluted Loss Per Common Share
Loss per common share is based on the weighted average shares of common
stock outstanding during each year. Stock options, the $3.00 Convertible
Exchangeable Preferred Stock and the 7% Convertible Preferred Stock are not
included in the calculation as their effect would be antidilutive.
Weighted-average shares excluded from the calculation that related to
potentially dilutive securities amounted to approximately 11.8 million, 23.7
million and 20.1 million for the years ended December 31, 1997, 1998 and 1999,
respectively.
On December 18, 1997, the Company declared a two-for-one stock split
effected in the form of a stock dividend payable on January 12, 1998 to
shareholders of record at the close of business on December 29, 1997. All share
and per share data (other than authorized share data) has been adjusted to give
effect to the stock dividend.
(l) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers and the geographic
diversification of the Company's customer base. The Company performs ongoing
credit evaluations of its customers and believes that adequate allowances for
any uncollectible trade receivables are maintained. At December 31, 1998 and
1999, no receivable from any customer exceeded 5% of stockholders' equity and no
customer accounted for more than 10% of net revenues in 1997, 1998 or 1999.
(m) Stock Option Plans
The Company accounts for its stock-based award plans in accordance with
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations, under which compensation expense is
recorded to the extent that the current market price of the underlying stock
exceeds the exercise price. Note 11(c) provides pro forma net income and pro
forma earnings per share disclosures as if the stock-based awards had been
accounted for using the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation.
9
<PAGE> 11
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(n) Recently Issued and Pending 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.
The Financial Accounting Standards Board is expected to issue an
interpretation of APB No. 25 Accounting for Stock Issued to Employees, during
the second quarter of 2000. The provisions of this Interpretation are expected
to be effective July 1, 2000 and will apply to grants of stock options or
awards, modifications to outstanding grants of stock options or awards, and
changes in employee status that occur after December 15, 1998. If the Clear
Channel merger is completed prior to July 1, 2000, the expected effective date
of the Interpretation, the Company would be required to record a significant
non-cash charge related to certain amendments to the Company's stock option
plans that are expected to be implemented prior to the consummation of the
merger.
(o) Reclassifications
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the current year presentation.
(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 the Company'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
13, 2000, AMFM and Clear Channel have signed definitive agreements to sell 110
of these stations for an aggregate sales price of approximately $4,300,000. Of
these stations, 65 are owned and operated by AMFM. 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. Consummation of the merger is also subject to stockholder approval
by both companies and other conditions. Although there can be no assurance, the
Company expects that the Clear Channel merger will be consummated during the
second half of 2000.
(3) ACQUISITIONS AND DISPOSITIONS
(a) Capstar Merger
On July 13, 1999, the Company acquired Capstar Broadcasting Corporation
("Capstar Broadcasting"), a Delaware corporation, through the merger of a
wholly-owned subsidiary of the Company into Capstar Broadcasting, with Capstar
Broadcasting surviving as a wholly-owned subsidiary of the Company. Concurrent
with the Capstar merger, the Company was renamed AMFM Inc. As a result of the
Capstar merger, all of the then outstanding shares of Capstar Broadcasting
common stock were converted, in a tax-free exchange, into 0.4955 of a share of
the Company's common stock, or approximately 53.6 million shares of the
Company's common stock in the aggregate. The Company added 338 radio stations
(239 FM and 99 AM) to its portfolio
10
<PAGE> 12
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and also assumed the outstanding options, warrants and other equity rights in
Capstar Broadcasting, which represented up to an additional 3.2 million shares
of the Company's common stock. Approximately $2,200,000 of Capstar
Broadcasting's debt and preferred stock remained outstanding after the Capstar
merger. The Company incurred direct acquisition costs of approximately $19,200
in connection with the Capstar merger.
(b) Outdoor Activity and Sale of Outdoor Advertising Business to Lamar
On July 31, 1998, the Company acquired Martin Media L.P., Martin &
MacFarlane, Inc. and certain affiliated companies ("Martin") for a total
purchase price of $615,117 which consisted of $612,848 in cash including various
other direct acquisition costs and the assumption of notes payable of $2,270.
Martin is an outdoor advertising company with over 13,700 billboards and outdoor
displays in 12 states serving 23 markets. As part of the Martin transaction, the
Company acquired an asset purchase agreement with Kunz & Company and paid an
additional $6,000 in cash for a purchase option deposit previously paid by
Martin.
On November 13, 1998, the Company acquired approximately 1,000 billboards
and outdoor display faces from Kunz & Company for $40,264 in cash, including the
$6,000 deposit discussed above. The Company had previously been operating these
properties under a management agreement effective July 31, 1998.
On December 1, 1998, the Company acquired the assets and working capital of
the outdoor advertising division of Whiteco Industries, Inc., including
approximately 22,500 billboards and outdoor displays in 34 states, for $981,698
in cash including various other direct acquisition costs.
Prior to the sale of the Company's outdoor advertising business, the
Company also acquired approximately 700 billboards and outdoor displays in
various transactions during 1998 for approximately $24,000 in cash and
approximately 4,800 billboards and outdoor displays in various transactions
during 1999 for approximately $51,000, including certain working capital and
direct acquisition costs. On May 24, 1999, the Company sold 466 billboards and
outdoor displays in various markets to PNE Media, LLC for approximately $25,600
in cash. These assets were accounted for as assets held for sale and no gain or
loss was recognized by the Company upon consummation of the sale.
On September 15, 1999, the Company completed the sale to Lamar of all of
the outstanding common stock of the subsidiaries of the Company which held all
of the Company's assets used in its outdoor advertising business. The Company
received cash proceeds of approximately $720,000 and 26,227,273 shares of class
A common stock, par value $.01 per share, of Lamar ("Lamar Common Stock"). The
Company recognized a pre-tax gain of $209,970 related to the sale.
(c) Other Completed Transactions
On January 31, 1997, the Company acquired WWWW-FM and WDFN-AM in Detroit
from affiliates of Chancellor Broadcasting Company ("CBC") for $30,000 in cash
plus various other direct acquisition costs. The Company had previously provided
certain sales and promotional functions to WWWW-FM and WDFN-AM under a joint
sales agreement since February 14, 1996 and subsequently operated the stations
under a time brokerage agreement since April 1, 1996.
On January 31, 1997, the Company acquired KKSF-FM and KDFC-FM/AM in San
Francisco from affiliates of the Brown Organization for $115,000 in cash plus
various other direct acquisition costs. The Company had previously been
operating KKSF-FM and KDFC-FM/AM under a time brokerage agreement since November
1, 1996. On July 21, 1997, the Company sold KDFC-FM to Bonneville International
Corporation ("Bonneville") for $50,000 in cash. The assets of KDFC-FM were
classified as assets held for sale in connection with the purchase price
allocation of the acquisition of KKSF-FM and KDFC-FM/AM and no gain or loss was
recognized by the Company upon consummation of the sale. The excess of the
11
<PAGE> 13
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
proceeds over the carrying amount at the date of sale approximated $739 and has
been accounted for as an adjustment to the original purchase price of the
acquisition of KKSF-FM and KDFC-FM/AM.
On April 1, 1997, the Company acquired WJLB-FM and WMXD-FM in Detroit from
Secret Communications, L.P. ("Secret") for $168,000 in cash plus various other
direct acquisition costs. The Company had previously been operating WJLB-FM and
WMXD-FM under time brokerage agreements since September 1, 1996.
On April 3, 1997, the Company exchanged WQRS-FM in Detroit (which the
Company acquired on April 3, 1997 from Secret for $32,000 in cash plus various
other direct acquisition costs), to affiliates of Greater Media Radio, Inc. in
return for WWRC-AM in Washington, D.C. and $9,500 in cash. The exchange was
accounted for as a like-kind exchange and no gain or loss was recognized upon
consummation of the transaction. The net purchase price to the Company of
WWRC-AM was therefore $22,500. The Company had previously been operating WWRC-AM
under a time brokerage agreement since June 17, 1996.
On May 1, 1997, the Company acquired WDAS-FM/AM in Philadelphia from
affiliates of Beasley FM Acquisition Corporation for $103,000 in cash plus
various other direct acquisition costs.
On May 15, 1997, the Company exchanged five of its six stations in
Charlotte, North Carolina (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM) for two FM
stations in Philadelphia (WIOQ-FM and WUSL-FM) owned by EZ Communications, Inc.
("EZ") in Philadelphia (the "Charlotte Exchange"), and also sold the Company's
sixth radio station in Charlotte, WNKS-FM, to EZ for $10,000 in cash and
recognized a gain of $3,536. The Charlotte Exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction.
On May 30, 1997, the Company acquired WPNT-FM in Chicago from affiliates of
Century Broadcasting Company for $75,740 in cash (including $1,990 for the
purchase of the station's accounts receivable) plus various other direct
acquisition costs. On June 19, 1997, the Company sold WPNT-FM in Chicago to
Bonneville for $75,000 in cash and recognized a gain of $529.
On June 3, 1997, the Company sold WEJM-FM in Chicago to affiliates of
Crawford Broadcasting for $14,750 in cash and recognized a gain of $9,258.
On July 2, 1997, the Company acquired WLTW-FM and WAXQ-FM in New York and
WMZQ-FM, WJZW-FM, WZHF-AM and WBZS-AM in Washington, D.C. from Viacom
International, Inc. for approximately $612,388 in cash including various other
direct acquisition costs (the "Viacom Acquisition"). The Viacom Acquisition was
financed with (i) bank borrowings under the senior credit facility of $552,559;
(ii) $53,750 in escrow funds paid by the Company on February 19, 1997 and (iii)
$6,079 financed through working capital. In June 1997, the Company issued
5,990,000 shares of $3.00 Convertible Exchangeable Preferred Stock for net
proceeds of $287,808 which were used to repay borrowings under the senior credit
facility and subsequently were reborrowed on July 2, 1997 as part of the
financing of the Viacom Acquisition. On July 7, 1997, the Company sold WJZW-FM
in Washington, D.C. to affiliates of Capital Cities/ABC Radio for $68,000 in
cash. The assets of WJZW-FM, as well as the assets of WZHF-AM and WBZS-AM, which
were sold on August 13, 1997, were accounted for as assets held for sale in
connection with the purchase price allocation of the Viacom Acquisition and no
gain or loss was recognized by the Company upon consummation of the sales.
On July 7, 1997, the Company sold the FCC authorizations and certain
transmission equipment previously used in the operation of KYLD-FM in San
Francisco to Susquehanna Radio Corporation ("Susquehanna") for $44,000 in cash
and recognized a gain of $1,726. Simultaneously therewith, CBC sold the call
letters "KSAN-FM" (which CBC previously used in San Francisco) to Susquehanna.
On July 7, 1997, the Company and CBC entered into a time brokerage agreement to
enable the Company to operate
12
<PAGE> 14
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
KYLD-FM on the frequency previously assigned to KSAN-FM, and on July 7, 1997,
CBC changed the call letters of KSAN-FM to KYLD-FM.
On July 14, 1997, the Company completed the disposition of WLUP-FM in
Chicago to Bonneville for net proceeds of $80,000 which were held by a qualified
intermediary pending the completion of the deferred exchange of WLUP-FM for
KZPS-FM and KDGE-FM in Dallas. On October 7, 1997, the Company applied the net
proceeds from the disposition of WLUP-FM of $80,000 in cash, plus an additional
$3,500 and various other direct acquisition costs, in a deferred exchange of
WLUP-FM for KZPS-FM and KDGE-FM in Dallas. The exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction. The Company had previously operated KZPS-FM and KDGE-FM under time
brokerage agreements effective August 1, 1997.
On July 21, 1997, the Company entered into a time brokerage agreement with
CBC whereby the Company began managing certain limited functions of CBC's
stations KISQ-FM (formerly KBGG-FM), KNEW-AM and KABL-AM in San Francisco
pending the consummation of the Chancellor Merger (as defined herein), which
occurred on September 5, 1997.
On August 13, 1997, the Company sold WBZS-AM and WZHF-AM in Washington,
D.C. (acquired as part of the Viacom Acquisition) for $13,000 and KDFC-AM in San
Francisco for $5,000 to affiliates of Douglas Broadcasting ("Douglas") for a
total sales price of $18,000 in the form of a note receivable.
On August 27, 1997, the Company sold WEJM-AM in Chicago to Douglas for
$7,500 in cash and recognized a gain of $3,331.
On September 5, 1997, pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of February 19, 1997 and amended and restated on July
31, 1997 (the "Chancellor Merger Agreement"), among CBC, Chancellor Radio
Broadcasting Company ("CRBC"), Evergreen Media Corporation ("Evergreen"),
Evergreen Mezzanine Holdings Corporation ("EMHC") and Evergreen Media
Corporation of Los Angeles ("EMCLA"), (i) CBC was merged (the "Parent Merger")
with and into EMHC, a direct, wholly-owned subsidiary of Evergreen, with EMHC
remaining as the surviving corporation and (ii) CRBC was merged (the "Subsidiary
Merger") with and into EMCLA, a direct, wholly-owned subsidiary of EMHC, with
EMCLA remaining as the surviving corporation (collectively, the "Chancellor
Merger"). Upon consummation of the Parent Merger, the combined company was
renamed Chancellor Media Corporation and EMHC was renamed Chancellor Mezzanine
Holdings Corporation. Upon consummation of the Subsidiary Merger, EMCLA was
renamed Chancellor Media Corporation of Los Angeles ("CMCLA"). Consummation of
the Chancellor Merger added 52 radio stations (36 FM and 16 AM) to the Company's
portfolio of stations, including 13 stations in markets in which the Company
previously operated. The total purchase price allocated to net assets acquired
was approximately $1,998,383 which included (i) the conversion of each
outstanding share of CBC common stock into 0.9091 shares of the Company's common
stock, resulting in the issuance of 34,617,460 shares of the Company's common
stock at $15.50 per share, (ii) the assumption of long-term debt of CRBC of
$949,000 which included $549,000 of borrowings outstanding under the CRBC senior
credit facility, $200,000 of CRBC's 9 3/8% Senior Subordinated Notes due 2004
and $200,000 of CRBC's 8 3/4% Senior Subordinated Notes due 2007 (iii) the
issuance of 2,117,629 shares of CMCLA's 12% Exchangeable Preferred Stock in
exchange for CRBC's substantially identical securities with a fair value of
$215,570 including accrued and unpaid dividends of $3,807, (iv) the issuance of
1,000,000 shares of CMCLA's 12 1/4% Series A Senior Cumulative Exchangeable
Preferred Stock in exchange for CRBC's substantially identical securities with a
fair value of $120,217 including accrued and unpaid dividends of $772, (v) the
issuance of 2,200,000 shares of the Company's 7% Convertible Preferred Stock in
exchange for CBC's substantially identical securities with a fair value of
$111,048 including accrued and unpaid dividends of $1,048, (vi) the assumption
of stock options issued to CBC stock option holders with a fair value of $34,977
and (vii) acquisition costs of $31,000.
13
<PAGE> 15
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 28, 1997, the Company acquired Katz, a full-service media
representation firm, in a tender offer transaction for a total purchase price of
approximately $379,101 (the "Katz Acquisition") which included (i) the
conversion of each outstanding share of Katz common stock into the right to
receive $11.00 in cash, resulting in total cash payments of $149,601, (ii) the
assumption of long-term debt of Katz and its subsidiaries of $222,000 and (iii)
acquisition costs of $7,500.
On December 29, 1997, the Company acquired five radio stations from Pacific
and Southern Company, Inc., a subsidiary of Gannett Co., Inc., consisting of
WGCI-FM/AM in Chicago for $140,000, KKBQ-FM and KBME-AM in Houston for $110,000
and KHKS-FM in Dallas for $90,000, for an aggregate purchase price of $340,000
in cash plus various other direct acquisition costs.
On January 30, 1998, the Company acquired KXPK-FM in Denver from Ever Green
Wireless LLC for $26,000 in cash plus various other direct acquisition costs.
The Company had previously been programming KXPK-FM under a time brokerage
agreement since September 1, 1997.
On April 3, 1998, the Company exchanged WTOP-AM in Washington, KZLA-FM in
Los Angeles and WGMS-FM in Washington plus $63,000 in cash (including $3,000
previously paid by the Company as escrow funds) to Bonneville for WTJM-FM in New
York, KLDE-FM in Houston and KBIG-FM in Los Angeles and recognized a gain of
$123,845. The Company had previously operated KLDE-FM and KBIG-FM under time
brokerage agreements since October 1, 1997 and WTJM-FM since October 10, 1997,
and had sold substantially all of the broadcast time of WTOP-AM, KZLA-FM and
WGMS-FM to Bonneville since October 1, 1997.
On May 29, 1998, the Company exchanged WAPE-FM and WFYV-FM in Jacksonville
(valued at $53,000) for KODA-FM in Houston. As part of the transaction, the
Company also paid cash of $90,250 to the owners of KVET-AM, KVET-FM and KASE-FM,
who simultaneously transferred such stations to Capstar Broadcasting.
On June 1, 1998, the Company acquired WWDC-FM and WWDC-AM (currently
WGAY-AM) in Washington, D.C. from Capitol Broadcasting Company and its
affiliates for $74,062 in cash plus various other direct acquisition costs.
On June 15, 1998, the Company's national radio network, The AMFM Radio
Networks, acquired the syndicated programming shows of Global Satellite Network
for $14,000 in cash plus various other direct acquisition costs. The syndicated
programming shows acquired include Rockline, Modern Rock Live, Reelin' in the
Years and the concert series Live from the Pit.
On August 28, 1998, the Company acquired various syndicated programming
shows of Casey Kasem and the related programming libraries for $7,150 in cash
and $7,000 in the form of a note payable due August 2000, payable in two equal
annual installments of $3,500 each on August 28, 1999 and August 28, 2000.
On October 23, 1998, the Company acquired Primedia Broadcast Group, Inc.
and certain of its affiliates, which owned and operated eight FM radio stations
in Puerto Rico, for a purchase price of $75,619 including various other direct
acquisition costs. The Company subsequently sold the assets of its Puerto Rico
subsidiaries in January 2000, as discussed below.
On January 15, 1999, the Company acquired the music production library and
related license agreements of Brown Bag Productions for a purchase price of
$8,483 including direct acquisition costs.
On January 28, 1999, the Company acquired Wincom Broadcasting Corporation
which owns WQAL-FM in Cleveland. The Company had previously been operating
WQAL-FM under a time brokerage agreement effective October 1, 1998. On February
2, 1999, the Company acquired five additional radio stations in Cleveland
including (i) WDOK-FM and WRMR-AM from Independent Group Limited Partnership,
(ii) WZAK-FM from Zapis Communications and (iii) Zebra Broadcasting Corporation
which
14
<PAGE> 16
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
owned WZJM-FM and WJMO-AM. The six Cleveland stations were acquired for an
aggregate purchase price of $283,758 in cash, including working capital and
direct acquisition costs.
On April 16, 1999, the Company sold WMVP-AM in Chicago to ABC, Inc. for
$21,000 in cash and recognized a pre-tax gain of $14,466. The Company had
previously entered into a time brokerage agreement effective September 10, 1998
to sell the broadcast time of WMVP-AM pending completion of the sale.
On July 1, 1999, the Company acquired KKFR-FM and KFYI-AM in Phoenix from
The Broadcast Group, Inc. for $90,000 in cash. The Company began operating
KKFR-FM and KFYI-AM under a time brokerage agreement effective November 5, 1998.
On September 1, 1999, the Company acquired WTPA-FM and WNCE-FM in
Harrisburg, Pennsylvania from Quaker State Broadcasting Corporation for
approximately $15,443 in cash. Additionally, the Company acquired KRYL-FM (now
known as KASZ-FM) in Killeen, Texas, KKBD-FM in Ft. Smith, Arkansas and WENN-FM
in Birmingham, Alabama and disposed of KKTK-AM in Waco, Texas for a net cost of
approximately $4,369.
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 follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Cash and cash equivalents....................... $ 9,724 $ 7,826 $ 20,845
Accounts receivable, net........................ 129,907 31,223 132,768
Other current assets............................ 27,596 16,098 20,903
Property and equipment.......................... 118,371 1,238,365 306,169
Intangible assets............................... 3,954,746 1,133,062 6,366,458
Other assets.................................... 26,742 1,195 44,752
Accounts payable and accrued expenses........... (100,422) (14,973) (94,326)
Deferred tax liabilities........................ (279,371) (98,042) (1,386,381)
Other liabilities............................... (39,681) (12) 5,918
---------- ---------- -----------
Total net assets acquired............. 3,847,612 2,314,742 5,417,106
Less:
Cash and cash equivalents acquired............ 9,724 7,826 20,845
Prior year escrow payments.................... 17,000 4,655 --
Long-term debt, notes payable and other
liabilities assumed........................ 1,171,000 9,270 2,082,532
Redeemable preferred stock.................... 335,787 -- 312,836
Preferred stock issued........................ 111,048 -- --
Common stock issued........................... 536,571 -- 2,420,718
Stock options and warrants.................... 34,977 -- 81,481
Gain on exchange.............................. -- 123,845 --
Assets transferred in exchange................ -- 173,155 --
---------- ---------- -----------
Cash paid for acquisitions...................... $1,631,505 $1,995,991 $ 498,694
========== ========== ===========
</TABLE>
15
<PAGE> 17
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma condensed consolidated results of operations data
for 1998 and 1999, as if the 1998 and 1999 acquisitions and dispositions
occurred at January 1, 1998, follow:
<TABLE>
<CAPTION>
UNAUDITED
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Net revenues................................................ $1,954,392 $2,145,999
Loss before extraordinary item.............................. (462,360) (335,204)
Net loss.................................................... (509,449) (350,346)
Basic and diluted loss per common share -- before
extraordinary item........................................ (2.55) (1.74)
Basic and diluted loss per common share..................... (2.79) (1.82)
</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.
On January 14, 2000, the Company sold the capital stock of its Puerto Rico
subsidiaries to Spanish Broadcasting System of Puerto Rico, Inc. for $90,560 in
cash. The Company owned and operated eight radio stations in Puerto Rico. At
December 31, 1999, the net assets of the Company's Puerto Rico subsidiaries were
$68,093.
On January 21, 2000, the Company exited Katz's representation business in
England (see Note 16).
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 $4,000 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 $5,150 in
cash. The Company had previously been operating KQOD-FM under a local marketing
agreement effective September 20, 1999.
The accompanying financial statements do not include any adjustments for
acquisitions or dispositions subsequent to December 31, 1999.
(d) 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 assurance, the Company expects to complete the asset exchange in
the second quarter of 2000.
16
<PAGE> 18
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Other Transactions
On May 29, 1998, Capstar Broadcasting sold KKPN-FM in Houston (acquired by
Capstar Broadcasting as part of Capstar Broadcasting's acquisition of SFX
Broadcasting, Inc.) due to the attributable ownership of Hicks, Muse, Tate &
Furst Incorporated ("Hicks Muse") in both Capstar Broadcasting and the Company
in order to comply with the FCC's multiple ownership limits. In connection with
Capstar Broadcasting's sale of KKPN-FM, the Company received a commission from
Capstar Broadcasting of $1,730.
On August 30, 1999, the Company contributed $37,500 and certain rights to
the Company's Internet web sites for an approximate 91.5% interest in AMFM
Interactive Inc. ("AMFMi"). AMFMi was organized to develop the Company's
Internet web sites and stream online broadcasts of the Company's on-air
programming and other media. For 1999, the minority interest share of AMFMi's
results of operations was a net loss of $541, related to the approximate 8.5%
interest in AMFMi owned by third parties.
(f) Corporate Reorganization
On November 19, 1999, the Company completed the combination of the
outstanding bonds, bank indebtedness and preferred stock of its direct and
indirect subsidiaries into two entities, Capstar Broadcasting Partners, Inc.
("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. Capstar Radio Broadcasting Partners, Inc.
("Capstar Radio") and Chancellor Media Corporation of Los Angeles ("CMCLA")
merged into Capstar Communications, Inc. ("Capstar Communications"), 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, which is a wholly-owned subsidiary
of AMFM. 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.
(4) OTHER CURRENT ASSETS
Other current assets consist of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Prepaid expenses and other.................................. $42,451 $79,195
Representation contracts receivable......................... 17,458 13,129
------- -------
$59,909 $92,324
======= =======
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE 1998 1999
--------------------- ---------- --------
<S> <C> <C> <C>
Transmitter and studio equipment............. 3-20 years $ 96,515 $263,722
Buildings and improvements................... 3-35 years 58,491 105,126
Land......................................... -- 46,062 49,866
Furniture and fixtures....................... 5-7 years 24,765 35,137
Construction in progress..................... -- 13,114 13,482
Vehicles..................................... 5-7 years 7,625 9,548
Advertising structures....................... 15 years 1,178,751 --
Other equipment.............................. Various 35,914 83,762
---------- --------
1,461,237 560,643
Less accumulated depreciation................ 73,081 89,135
---------- --------
$1,388,156 $471,508
========== ========
</TABLE>
17
<PAGE> 19
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE 1998 1999
--------------------- ---------- -----------
<S> <C> <C> <C>
Broadcast licenses........................ 15-40 years $4,110,469 $ 9,032,496
Goodwill.................................. 15-40 years 1,086,083 1,992,155
Other..................................... 1-40 years 532,011 538,647
---------- -----------
5,728,563 11,563,298
Less accumulated amortization............. 672,516 1,217,293
---------- -----------
$5,056,047 $10,346,005
========== ===========
</TABLE>
Other intangible assets include: (i) premium advertising revenue base (the
value of the higher radio advertising revenues in certain of the Company's
markets as compared to other markets of similar population); (ii) advertising
client base (the value of the well-established advertising base in place at the
time of acquisition of certain stations); (iii) talent contracts (the value of
employment contracts between certain stations and their key employees); (iv)
fixed asset delivery premium (the benefit expected from the Company's ability to
operate fully constructed and operational stations from the date of
acquisition); (v) premium audience growth pattern (the value of expected
above-average population growth in a given market); (vi) the fair market value
of media representation contracts acquired in connection with the acquisition of
Katz; and (vii) web site development costs.
(7) INVESTMENTS IN NON-CONSOLIDATED AFFILIATES
Investments in non-consolidated affiliates consist of the following at
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---- ----------
<S> <C> <C>
Investment in Lamar......................................... $ -- $1,086,882
Other investments in non-consolidated affiliates............ -- 16,560
---- ----------
$ -- $1,103,442
==== ==========
</TABLE>
As discussed in Note 3(b), the Company received 26,227,273 shares of Lamar
Common Stock upon the sale of its outdoor advertising business on September 15,
1999. The Company owns approximately 30% of the aggregate number of outstanding
shares and approximately 11% of the voting interest of Lamar, based upon the
number of shares of Lamar common stock outstanding as of December 31, 1999.
Lamar, the Company and the controlling stockholder of Lamar entered into a
stockholders agreement under which (1) the Company designated two members of the
Lamar board of directors, increasing the size of Lamar's board to ten members,
(2) the Company agreed not to sell any of the Lamar Common Stock prior to
September 16, 2000 and (3) Lamar agreed, subject to certain exceptions, not to
take any action without the prior written consent of the Company that would
result in a change of control of Lamar or the acquisition or disposition of
assets worth in excess of $500,000. Due to the Company's ability to exercise
significant influence over the operating and financial policies of Lamar, the
Company is accounting for its investment in Lamar using the equity method. Lamar
and the Company entered into a registration rights agreement which gives the
Company the right to require Lamar to register the sale of the Lamar Common
Stock under applicable securities laws in some circumstances.
At December 31, 1999, the market value of the Company's common stock of
Lamar, based on the closing market price of Lamar Common Stock as reported by
The Nasdaq Stock Market, was $1,588,389, and the investment was carried at
$1,086,882. The excess of the Company's carrying value over the underlying
equity
18
<PAGE> 20
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in net assets was approximately $785,600 at September 15, 1999 and is being
amortized over 15 years. The Company's share of undistributed losses of Lamar
totaled $23,008 at December 31, 1999.
The following table presents summarized financial information for Lamar:
Balance sheet information at December 31, 1999:
<TABLE>
<S> <C>
Current assets.......................................... $ 125,493
Noncurrent assets....................................... 3,081,452
Current liabilities..................................... 84,706
Noncurrent liabilities.................................. 1,730,710
Stockholders' equity.................................... 1,391,529
</TABLE>
Income statement information for the year ended December 31, 1999:
<TABLE>
<S> <C>
Net revenues............................................. $444,135
Operating expenses....................................... 414,600
Net loss applicable to common stock...................... (44,900)
</TABLE>
(8) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December
31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Accounts payable............................................ $113,362 $126,476
Accrued interest............................................ 43,221 58,209
Accrued payroll............................................. 36,858 55,806
Representation contracts payable............................ 24,859 22,675
Barter payable.............................................. 10,722 14,985
Other accrued expenses...................................... 7,596 15,004
-------- --------
$236,618 $293,155
======== ========
</TABLE>
(9) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Senior Credit Facility(a)................................... $1,596,000 $2,850,000
8% Senior Notes(b).......................................... 750,000 750,000
9 3/8% Notes(c)............................................. 200,000 200,000
8 3/4% Notes(d)............................................. 200,000 200,000
10 1/2% Notes(e)............................................ 100,000 100,000
8 1/8% Notes(f)............................................. 500,000 500,000
9% Notes(g)................................................. 750,000 750,000
12 3/4% Notes(h)............................................ -- 245,700
12 5/8% Notes(i)............................................ -- 164,954
9 1/4% Notes(j)............................................. -- 129,388
10 3/4% Notes(k)............................................ -- 175
---------- ----------
Total long-term debt.............................. $4,096,000 $5,890,217
========== ==========
</TABLE>
19
<PAGE> 21
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(a) Senior Credit Facility
In connection with the amendment and restatement of CMCLA's senior credit
facility on April 25, 1997, the Company wrote off the unamortized balance of
deferred debt issuance costs of $4,350 (net of a tax benefit of $2,343) as an
extraordinary charge in 1997.
As part of the November 19, 1999 corporate reorganization, the Company
refinanced the senior credit facilities of its subsidiaries with a single senior
credit facility under which AMFM Operating is the borrower. In connection with
the refinancing, the Company recorded an extraordinary charge of $8,000 (net of
a tax benefit of $4,307) consisting of the premiums, estimated transaction costs
and the write-off of the unamortized balance of deferred debt issuance costs.
AMFM Operating's senior credit facility includes commitments for a
revolving loan facility of $600,000 and a term loan facility of $2,600,000.
Borrowings under the senior credit facility 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
0.50% and 1.50%, respectively, until delivery of AMFM Operating's financial
statements for the fiscal quarter ending March 31, 2000, and capped at 0.50% and
1.50%, respectively, thereafter so long as the Clear Channel merger agreement
has not been terminated. Without giving effect to the interest rate swap
agreements described below, the weighted average interest rate on the $2,600,000
outstanding under the term loan facility at December 31, 1999 was approximately
7.72%, based on Eurodollar rates, and the interest rate on the $250,000 of
advances outstanding under the revolving loan facility was approximately 8.06%
at December 31, 1999, based on Eurodollar rates. The Company pays fees ranging
from 0.25% to 0.50% per annum on the aggregate unused portion of the loan
commitment based upon the leverage ratio for the most recent quarter end, in
addition to an annual agent's fee.
At December 31, 1999, interest rate swap agreements covering a notional
balance of $826,000 were outstanding. These outstanding swap agreements mature
through 2001 and require the Company to pay fixed rates of 4.70% to 6.34% while
the counterparty pays a floating rate based on the three-month London Interbank
Borrowing Offered Rate ("LIBOR"). During the years ended December 31, 1997, 1998
and 1999, the Company recognized charges under its interest rate swap agreements
of $2,913, $5,134 and $8,279, respectively. The Company's exposure to credit
loss is minimal as the majority of its interest rate swap agreements are with
participating banks under its senior credit facility.
Both the revolving loan facility and the term loan facility will mature on
November 19, 2001. No scheduled amortization of principal is required prior to
maturity. The senior credit facility is guaranteed by most of the direct and
indirect subsidiaries, other than AMFM Operating, of AMFM Holdings Inc.
(formerly Chancellor Mezzanine Holdings Corporation, "AMFM Holdings"), a direct
subsidiary of the Company, and is collateralized by (a) a non-recourse pledge of
the stock of AMFM Holdings, (b) a recourse pledge of the stock of Capstar
Partners, (c) a recourse pledge of the stock of AMFM Operating and most of the
subsidiaries of AMFM Operating, and (d) a pledge of the common stock of Lamar
held by AMFM Operating. The merger of the Company and Clear Channel would
constitute an event of default under the senior credit facility and will require
refinancing at the effective time of the merger.
(b) 8% Senior Notes
On November 17, 1998, the Company issued $750,000 aggregate principal
amount of 8% Senior Notes due 2008 (the "8% Senior Notes") for net proceeds of
$730,000 in a private placement. Interest on the 8% Senior Notes is payable
semiannually, commencing on May 1, 1999. The 8% Senior Notes mature on November
1, 2008 and are redeemable, in whole or in part, at the option of the Company at
a redemption price equal to 100% plus the Applicable Premium (as defined in the
indenture governing the 8% Senior
20
<PAGE> 22
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes) plus accrued and unpaid interest. In addition, on or prior to November 1,
2001, the Company may redeem up to 25% of the original aggregate principal
amount of the 8% Senior Notes at a redemption price equal to 108% plus accrued
and unpaid interest with the net proceeds of one or more public equity
offerings. Upon the occurrence of a change in control (as defined in the
indenture governing the 8% Senior Notes), the holders of the 8% Senior Notes
have the right to require the Company to repurchase all or any part of the 8%
Senior Notes at a purchase price equal to 101% plus accrued and unpaid interest.
(c) 9 3/8% Notes
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company assumed CRBC's $200,000 aggregate principal amount of 9 3/8% Senior
Subordinated Notes due 2004 (the "9 3/8% Notes"). Interest on the 9 3/8% Notes
is payable semiannually, commencing on April 1, 1996. The 9 3/8% Notes were
scheduled to mature on October 1, 2004. On February 15, 2000, the Company
completed the redemption of all of its outstanding 9 3/8% Notes for an aggregate
repurchase cost of $216,455, which included the principal amount of the notes of
$200,000, premiums on the repurchase of the notes of $9,376, accrued and unpaid
interest on the notes from October 1, 1999 through February 14, 2000 of $6,979
and estimated transaction costs of $100.
(d) 8 3/4% Notes
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company assumed CRBC's $200,000 aggregate principal amount of 8 3/4% Senior
Subordinated Notes due 2007 (the "8 3/4% Notes"). Interest on the 8 3/4% Notes
is payable semiannually, commencing on December 15, 1997. The 8 3/4% Notes
mature on June 15, 2007 and are redeemable, in whole or in part, at the option
of the Company on or after June 15, 2002, at redemption prices ranging from
104.375% at June 15, 2002 and declining to 100% on or after June 15, 2005, plus
in each case accrued and unpaid interest. In addition, prior to June 15, 2000,
the Company may redeem up to 25% of the original aggregate principal amount of
the 8 3/4% Notes at a redemption price of 108.75% plus accrued and unpaid
interest with the net proceeds of one or more public equity offerings. Upon the
occurrence of a change in control (as defined in the indenture governing the
8 3/4% Notes) on or prior to June 15, 2000, the 8 3/4% Notes may be redeemed as
a whole at the option of the Company at a redemption price of 100% plus the
Applicable Premium (as defined in the indenture governing the 8 3/4% Notes) and
accrued and unpaid interest. Upon the occurrence of a change in control after
June 15, 2000, the holders of the 8 3/4% Notes have the right to require the
Company to repurchase all or any part of the 8 3/4% Notes at a purchase price
equal to 101% plus accrued and unpaid interest.
(e) 10 1/2% Notes
Upon consummation of the Katz Acquisition, on October 28, 1997, the Company
assumed Katz Media Corporation's $100,000 aggregate principal amount of 10 1/2%
Senior Subordinated Notes due 2007 (the "10 1/2% Notes"). Interest on the
10 1/2% Notes is payable semiannually, commencing on July 15, 1997. The 10 1/2%
Notes mature on January 15, 2007 and are redeemable, in whole or in part, at the
option of the Company on or after January 15, 2002, at redemption prices ranging
from 105.25% at January 15, 2002 and declining to 100% on or after January 15,
2006, plus in each case accrued and unpaid interest. Upon the occurrence of a
change in control (as defined in the indenture governing the 10 1/2% Notes), the
holders of the 10 1/2% Notes have the right to require the Company to repurchase
all or any part of the 10 1/2% Notes at a purchase price equal to 101% plus
accrued and unpaid interest.
(f) 8 1/8% Notes
On December 22, 1997, the Company issued $500,000 aggregate principal
amount of 8 1/8% Senior Subordinated Notes due 2007 (the "8 1/8% Notes") for net
proceeds of $485,000 in a private placement and
21
<PAGE> 23
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subsequently registered the 8 1/8% Notes on May 8, 1998. Interest on the 8 1/8%
Notes is payable semiannually, commencing on June 15, 1998. The 8 1/8% Notes
mature on December 15, 2007 and are redeemable, in whole or in part, at the
option of the Company on or after December 15, 2002, at redemption prices
ranging from 104.063% at December 15, 2002 and declining to 100% on or after
December 15, 2005, plus in each case accrued and unpaid interest. In addition,
prior to December 15, 2000, the Company may redeem up to 35% of the original
aggregate principal amount of the 8 1/8% Notes at a redemption price of 108.125%
plus accrued and unpaid interest with the net proceeds of one or more public
equity offerings. Also, upon the occurrence of a change in control (as defined
in the indenture governing the 8 1/8% Notes) on or prior to December 15, 2000,
the 8 1/8% Notes may be redeemed as a whole at the option of the Company at a
redemption price of 100% plus the Applicable Premium (as defined in the
indenture governing the 8 1/8% Notes) and accrued and unpaid interest. Upon the
occurrence of a change in control after December 15, 2000, the holders of the
8 1/8% Notes have the right to require the Company to repurchase all or any part
of the 8 1/8% Notes at a purchase price equal to 101% plus accrued and unpaid
interest.
(g) 9% Notes
On September 30, 1998, the Company issued $750,000 aggregate principal
amount of 9% Senior Subordinated Notes due 2008 (the "9% Notes") for net
proceeds of $730,000 in a private placement and subsequently registered the 9%
Notes on December 10, 1998. Interest on the 9% Notes is payable semiannually,
commencing on April 1, 1999. The 9% Notes mature on October 1, 2008 and are
redeemable, in whole or in part, at the option of the Company on and after
October 1, 2003, at redemption prices ranging from 106.5% at October 1, 2003 and
declining to 100% on October 1, 2008, plus in each case accrued and unpaid
interest. In addition, on or prior to October 1, 2000, the Company may redeem up
to 25% of the original aggregate principal amount of the 9% Notes at a
redemption price of 109% plus accrued and unpaid interest with the net proceeds
of one or more public equity offerings. Upon the occurrence of a change in
control (as defined in the indenture governing the 9% Notes), the 9% Notes may
be redeemed, on or prior to October 1, 2000, as a whole at the option of the
Company at a redemption price of 100% plus the Applicable Premium (as defined in
the indenture governing the 9% Notes) and accrued and unpaid interest. Upon the
occurrence of a change in control after October 1, 2000, the holders of the 9%
Notes have the right to require the Company to repurchase all or any part of the
9% Notes at a purchase price equal to 101% plus accrued and unpaid interest.
(h) 12 3/4% Notes
In February 1997, Capstar Partners issued its 12 3/4% Senior Discount Notes
due 2009 (the "12 3/4% Notes") which are carried at a discount from their
aggregate principal amount at maturity of $273,350 at December 31, 1999. The
carrying value of the 12 3/4% Notes will increase through accretion until
February 1, 2002. Beginning on August 1, 2002, the Company will pay interest of
approximately $17,426 semi-annually on February 1 and August 1 of each year
until maturity. The yield to maturity and the effective interest rate of the
12 3/4% Notes is 12 3/4% and 10.5%, respectively, (computed on a semi-annual
bond equivalent basis), calculated from February 20, 1997.
The 12 3/4% Notes mature on February 1, 2009 and may be redeemed at any
time on or after February 1, 2002, in whole or in part, at the option of Capstar
Partners at prices ranging from 106.375% at February 1, 2002 and declining to
100% on February 1, 2007 (expressed as a percentage of the accreted value on the
redemption date), plus in each case accrued and unpaid interest. In addition,
prior to February 1, 2001, Capstar Partners may, at its option, redeem up to 25%
of the principal amount at maturity of its 12 3/4% Notes at a redemption price
of 112.75% of the accreted value, out of the proceeds of one or more public
equity offerings or major asset sales. Upon the occurrence of a change in
control (as defined in the indenture of the 12 3/4% Notes), the holders of the
12 3/4% Notes have the right to require Capstar Partners to purchase all or a
22
<PAGE> 24
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
portion of the 12 3/4% Notes at a purchase price equal to (i) 101% of the
accreted value if the change in control occurs before February 1, 2002 or (ii)
101% of the principal amount at maturity, plus accrued and unpaid interest, if
the change in control occurs after February 1, 2002.
The Capstar merger resulted in a change of control with respect to the
12 3/4% Notes. In August 1999, Capstar Partners repurchased $3,650, or 1.3%, of
the aggregate outstanding principal amount of the 12 3/4% Notes for an aggregate
repurchase cost of $2,728.
(i) 12 5/8% Notes
On November 12, 1999, AMFM Operating completed a consent solicitation to
modify certain timing restrictions on its ability to exchange all shares of its
12 5/8% Series E cumulative exchangeable preferred stock for its 12 5/8% Senior
Subordinated Exchange Debentures due 2006. Consenting holders of 12 5/8% Series
E cumulative exchangeable preferred stock received payments of $0.25 per share
of 12 5/8% Series E cumulative exchangeable preferred stock. On November 23,
1999, AMFM Operating exchanged all of the shares of its 12 5/8% Series E
cumulative exchangeable preferred stock for $143,099 in aggregate principal
amount of its 12 5/8% Senior Subordinated Exchange Debentures due 2006 (the
"12 5/8% Notes"). Interest on the 12 5/8% Notes is payable semiannually,
commencing on January 15, 2000. The 12 5/8% Notes mature on October 31, 2006 and
are redeemable, in whole or in part, at the option of the Company on or after
January 15, 2002, at redemption prices ranging from 106.313% at January 15, 2002
and declining to 100% on or after January 15, 2006, plus in each case accrued
and unpaid interest. Upon the occurrence of a change in control (as defined in
the indenture governing the 12 5/8% Notes), the holders of the 12 5/8% Notes
have the right to require the Company to repurchase all or any part of the
12 5/8% Notes at a purchase price equal to 101% plus accrued and unpaid
interest. As of December 31, 1999, the outstanding principal balance of the
12 5/8% Notes was $143,099.
The November 19, 1999 corporate reorganization resulted in a change of
control with respect to the 12 5/8% Notes. On January 11, 2000, AMFM Operating
completed a tender offer to purchase all of the outstanding debentures at an
offer price in cash equal to 101% of the aggregate principal amount, plus
accrued and unpaid interest. AMFM Operating repurchased $1,231, or 0.9% of the
aggregate outstanding principal amount of the debentures for an aggregate
repurchase cost of $1,264.
(j) 9 1/4% Notes
In June 1997, Capstar Radio issued its 9 1/4% Senior Subordinated Notes due
2007 (the "9 1/4% Notes") which have a principal amount outstanding at December
31, 1999 of $125,775. The Company pays interest of approximately $5,817 on the
9 1/4% Notes semi-annually on January 1 and July 1 of each year.
The 9 1/4% Notes may be redeemed at any time on or after July 1, 2002, in
whole or in part, at the option of AMFM Operating at prices ranging from
104.625% at July 1, 2002 and declining to 100% on or after July 1, 2005, plus in
each case accrued and unpaid interest. In addition, prior to July 1, 2001, AMFM
Operating may redeem up to 25% of the original aggregate principal amount of its
9 1/4% Notes at a redemption price of 109.25% plus accrued and unpaid interest
with net proceeds of one or more public equity offerings or major asset sales.
Upon the occurrence of a change of control (as defined in the indenture of the
9 1/4% Notes), the holders of the 9 1/4% Notes have the right to require AMFM
Operating to purchase all or a portion of its 9 1/4% Notes at a price equal to
101% plus accrued and unpaid interest.
The Capstar merger resulted in a change of control with respect to the
9 1/4% Notes. In August 1999, Capstar Radio repurchased $66,025, or 33.0%, of
the aggregate outstanding principal amount of the 9 1/4% Notes for an aggregate
repurchase cost of $67,623.
23
<PAGE> 25
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 17, 1999 and September 24, 1999, AMFM Operating redeemed
$5,000 and $3,200, respectively, of its 9 1/4% Notes for an aggregate repurchase
cost of $5,160 and $3,308, respectively.
(k) 10 3/4% Notes
On November 12, 1999, AMFM Operating completed a consent solicitation and
cash tender offer to acquire all of its outstanding 10 3/4% Senior Subordinated
Notes due 2006 (the "10 3/4% Notes"). Approximately $293,641 in aggregate
principal amount of the notes, representing 99.9% of the outstanding notes, was
accepted for payment for an aggregate repurchase cost of $343,860 which included
the principal amount of the 10 3/4% Notes of $293,641, premiums on the
repurchase of $25,300, accrued and unpaid interest of $15,169, consent fees of
$8,809 and transaction costs of $941. An extraordinary charge of $7,142 (net of
a tax benefit of $3,846) was recorded in connection with the consent
solicitation and cash tender offer. As of December 31, 1999, the outstanding
principal balance of the 10 3/4% Notes was $175.
(l) Other
The 9 3/8% Notes, the 8 3/4% Notes, the 10 1/2% Notes, the 8 1/8% Notes,
the 9% Notes, the 12 5/8% Notes, the 9 1/4% Notes and the 10 3/4% Notes
(collectively, the "Subordinated Notes") are unsecured obligations of AMFM
Operating, subordinated in right of payment to all existing and any future
senior indebtedness of AMFM Operating. Except for the 9 1/4% Notes, the
Subordinated Notes are fully and unconditionally guaranteed, on a joint and
several basis, by all of AMFM Operating's direct and indirect subsidiaries (the
"Subsidiary Guarantors").
The 8% Senior Notes are senior unsecured obligations of AMFM Operating and
rank equal in right of payment to the obligations of AMFM Operating under its
senior credit facility and existing and all other indebtedness of AMFM Operating
not expressly subordinated to the 8% Senior Notes. However, because the 8%
Senior Notes are unsecured, the 8% Senior Notes are effectively subordinated in
right of payment to AMFM Operating's senior credit facility. The 8% Senior Notes
are fully and unconditionally guaranteed, on a joint and several basis, by the
Subsidiary Guarantors.
The senior credit facility and the indentures governing the 8% Senior
Notes, the Subordinated Notes and the 12 3/4% Notes 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, interest
coverage and fixed charge coverage ratios.
A summary of the future maturities of long-term debt at December 31, 1999
follows:
<TABLE>
<S> <C>
2000..................................................... $ --
2001..................................................... 2,850,000
2002..................................................... --
2003..................................................... --
2004..................................................... 200,000
Thereafter............................................... 2,840,217
----------
$5,890,217
==========
</TABLE>
24
<PAGE> 26
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) REDEEMABLE PREFERRED STOCK
(a) 12% Capstar Partners Preferred Stock
In June 1997, Capstar Partners issued 1,000,000 shares of its 12% Senior
Exchangeable Preferred Stock. Capstar Partners was required to pay dividends on
its 12% Senior Exchangeable Preferred Stock semi-annually on January 1 and July
1 of each year at a rate of $12.00 per share. Until July 1, 2002, dividends were
to be paid, at Capstar Partners' option, either in cash or in additional shares
of 12% Capstar Partners Senior Exchangeable Preferred Stock. Since issuance,
Capstar Partners has paid the required dividend in additional shares.
Effective as of January 1, 2000, Capstar Partners 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.
(b) 12 1/4% CMCLA Preferred Stock
On July 20, 1998, CMCLA completed a consent solicitation to modify certain
timing restrictions on its ability to exchange all shares of its 12 1/4% Series
A Senior Cumulative Exchangeable Preferred Stock (the "12 1/4% Preferred Stock")
for its 12 1/4% Subordinated Exchange Debentures due 2008 (the "12 1/4%
Debentures"). Consenting holders of 12 1/4% Preferred Stock received payments of
$0.05 per share of 12 1/4% Preferred Stock. On July 23, 1998, CMCLA exchanged
the shares of 12 1/4% Preferred Stock for 12 1/4% Debentures.
On August 19, 1998, CMCLA completed a cash tender offer (the "12 1/4%
Debentures Tender Offer") for all of its 12 1/4% Debentures for an aggregate
repurchase cost of $143,836 which included (i) the principal amount of the
12 1/4% Debentures of $119,445, (ii) premiums on the repurchase of the 12 1/4%
Debentures of $22,683, (iii) accrued and unpaid interest on the 12 1/4%
Debentures from July 23, 1998 through August 19, 1998 of $1,138 and (iv)
transaction costs of $570. In connection with the 12 1/4% Debentures Tender
Offer, CMCLA recorded an extraordinary charge of $15,224 (net of a tax benefit
of $8,199) consisting of the premiums, transaction costs and the write-off of
the unamortized balance of deferred debt issuance costs.
(c) 12% CMCLA Preferred Stock
On May 8, 1998, CMCLA completed a consent solicitation to modify certain
timing restrictions on its ability to exchange all shares of its 12%
Exchangeable Preferred Stock (the "12% Preferred Stock") for its 12%
Subordinated Exchange Debentures due 2009 (the "12% Debentures"). Consenting
holders of 12% Preferred Stock received payments of $0.05 per share of 12%
Preferred Stock. On May 13, 1998, CMCLA exchanged the shares of 12% Preferred
Stock for 12% Debentures.
On June 10, 1998, CMCLA completed a cash tender offer (the "12% Debentures
Tender Offer") for all of its 12% Debentures for an aggregate repurchase cost of
$262,495 which included (i) the principal amount of the 12% Debentures of
$211,763, (ii) premiums on the repurchase of the 12% Debentures of $47,798,
(iii) accrued and unpaid interest on the 12% Debentures from May 13, 1998
through June 10, 1998 of $1,976 and (iv) transaction costs of $958. In
connection with the 12% Debentures Tender Offer, CMCLA recorded an extraordinary
charge of $31,865 (net of a tax benefit of $17,158) consisting of the premiums,
transaction costs and the write-off of the unamortized balance of deferred debt
issuance costs.
25
<PAGE> 27
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) STOCKHOLDERS' EQUITY
(a) Preferred Stock
(i) $3.00 Convertible Exchangeable Preferred Stock
In June 1997, the Company issued 5,990,000 shares of its $3.00 Convertible
Exchangeable Preferred Stock (the "$3.00 Convertible Preferred Stock") for net
proceeds of $287,808. The liquidation preference of each share of the $3.00
Convertible Preferred Stock was $50.00 plus accrued and unpaid dividends.
Dividends on the $3.00 Convertible Preferred Stock were cumulative and payable
quarterly commencing September 15, 1997 at a rate per annum of $3.00 per share,
when, as and if declared by the Board of Directors of the Company. On August 6,
1999, the Company gave notice to the holders of its $3.00 Convertible Preferred
Stock of the Company's election to redeem all of the outstanding shares of its
$3.00 Convertible Preferred Stock at a per share redemption price of $52.40,
plus accrued and unpaid dividends. Each holder had the right to convert each
share of $3.00 Convertible Preferred Stock held by it into two shares of common
stock of the Company in lieu of being redeemed. On August 24, 1999, preferred
holders converted 5,989,900 shares of $3.00 Convertible Preferred Stock into
11,979,800 shares of the Company's common stock, and the Company redeemed the
remaining 100 shares of $3.00 Convertible Preferred Stock for $5 in the
aggregate.
(ii) 7% Convertible Preferred Stock
Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company issued 2,200,000 shares of its 7% Convertible Preferred Stock (the "7%
Convertible Preferred Stock") in exchange for Chancellor's substantially
identical securities with a fair value of $111,048 including accrued and unpaid
dividends of $1,048. The liquidation preference of each share of 7% Convertible
Preferred Stock was $50.00 plus accrued and unpaid dividends of $1,604 at
December 31, 1998 and 1999. Dividends on the 7% Convertible Preferred Stock were
cumulative and payable quarterly, commencing July 15, 1997.
On December 8, 1999, the Company gave notice to the holders of its 7%
Convertible Preferred Stock of its election to redeem all of the outstanding
shares of 7% Convertible Preferred Stock at a per share redemption price of
$52.45, plus accrued and unpaid dividends. Each holder had the right to convert
each share of the 7% Convertible Preferred Stock held by it into approximately
2.76 shares of the Company's common stock in lieu of being redeemed. On January
19, 2000, preferred holders converted all 2,200,000 shares of 7% Convertible
Preferred Stock into 6,078,995 shares of the Company's common stock.
(b) Common Stock
On September 5, 1997, the Company issued 34,617,460 shares of common stock
at $15.50 per share in connection with the Chancellor Merger. In addition, upon
consummation of the Chancellor Merger, each share of the Company's formerly
outstanding class A common stock and class B common stock was reclassified,
changed and converted into one share of common stock.
On March 13, 1998, the Company completed an offering of 21,850,000 shares
of its common stock for net proceeds of approximately $994,642. The net proceeds
were used to reduce bank borrowings under the revolving credit portion of the
senior credit facility and the excess proceeds were initially invested in short-
term investment grade securities. The Company subsequently used the excess
proceeds for general corporate purposes, including the financing of certain
acquisitions and exchanges.
On July 13, 1999, the Company issued 53,553,966 shares of common stock at
$44.75 per share in connection with the Capstar merger.
The Company has not declared a cash dividend on its common stock since it
became a public company. The Company is not permitted to pay any dividends by
the terms of the Clear Channel merger agreement. Furthermore, since AMFM is a
holding company, the only way it can pay dividends in the future is by
26
<PAGE> 28
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indirectly receiving funds from AMFM Operating, AMFM's principal operating
subsidiary. AMFM Operating is restricted from paying dividends by the terms of
its debt instruments.
(c) Stock Options
The Company has established the 1992, 1993, 1995, 1998 and 1999 Employee
Stock Option Plans (the "Employee Option Plans") which provide for the issuance
of stock options to officers and other key employees of the Company and its
subsidiaries. The Employee Option Plans make available for issuance an aggregate
of 25,105,000 shares of common stock, including 7,000,000 Value Options (the
"Value Options") available under the 1999 Employee Option Plan. The Value
Options become exercisable after the date on which the average fair market value
of a share of the Company's common stock, calculated on a daily basis, exceeds
$100.00 per share for 30 consecutive days or, for Value Options granted
subsequent to June 1, 1999, the average fair market value of a share of the
Company's common stock, calculated on a daily basis, exceeds the higher of
$100.00 per share or 200% of the option's exercise price for 30 consecutive days
or upon a change in control of the Company. Options issued under the 1992, 1993,
1995 and 1998 Employee Option Plans have varying vesting periods as provided in
separate stock option agreements and generally carry an expiration date of ten
years subsequent to the date of issuance. The 1999 Employee Option Plan provides
for options which vest one year subsequent to the date of issuance and generally
carry an expiration date of three years subsequent to the date of issuance and
Value Options which vest over a five-year period and generally carry an
expiration date of five years subsequent to the date of issuance. Options issued
under the 1993, 1995, 1998 and 1999 Employee Option Plans are required to have
exercise prices equal to or in excess of the fair market value of the Company's
common stock on the date of issuance unless approved by the Compensation
Committee of the Company's Board of Directors.
In May 1995, the Company also established the Stock Option Plan for
Non-Employee Directors (the "Director Plan") which provides for the issuance of
stock options to non-employee directors of the Company. The Director Plan makes
available for issuance an aggregate of 900,000 shares of common stock. Options
issued under the Director Plan have exercise prices equal to the fair market
value of the Company's common stock on the date of issuance, vest over a
three-year period and have an expiration date of ten years subsequent to the
date of issuance.
In connection with the acquisition of Broadcasting Partners, Inc. ("BPI")
in May 1995, the Company assumed outstanding options to purchase 310,276 shares
of the Company's common stock (the "BPI Options"). The BPI Options vested and
became exercisable on May 12, 1996 and have an expiration date of ten years
subsequent to the original date of issuance by BPI.
In connection with the Chancellor Merger, the Company assumed outstanding
options to purchase 3,526,112 shares of the Company's common stock (the
"Chancellor Options") with a fair value of $34,977. The Chancellor Options have
varying vesting periods as provided in separate stock option agreements and
generally carry an expiration date of ten years subsequent to the original date
of issuance by CBC.
In connection with the Capstar merger, the Company assumed outstanding
options and warrants to purchase 3,220,775 shares of the Company's common stock
(the "Capstar Options") with a fair value of $81,481. The Capstar Options have
varying vesting periods as provided in separate stock option and warrant
agreements and generally carry an expiration date of ten years subsequent to the
original date of issuance by Capstar.
The total options available for grant were 2,171,939 and 2,324,758 at
December 31, 1998 and 1999, respectively.
27
<PAGE> 29
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following is a summary of activity in the employee option plans and
agreements discussed above for the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year... 3,559,984 $ 5.97 8,826,696 $12.98 14,825,989 $26.03
Granted............................ 2,773,590 22.89 7,392,000 39.28 10,355,986 49.34
Assumed in acquisitions............ 3,526,112 9.29 -- -- 3,220,775 32.08
Exercised.......................... (994,526) 5.43 (1,075,860) 9.55 (1,795,413) 19.28
Canceled........................... (38,464) 19.46 (316,847) 20.82 (208,162) 37.44
--------- ---------- ----------
Outstanding at end of year......... 8,826,696 $12.98 14,825,989 $26.03 26,399,175 $35.53
========= ========== ==========
Options and warrants exercisable at
year end......................... 5,687,960 10,211,090 16,090,295
========= ========== ==========
</TABLE>
The following table summarizes information about stock options and warrants
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS AND WARRANTS
OPTIONS AND WARRANTS OUTSTANDING EXERCISABLE
-------------------------------------------------- -------------------------------
NUMBER NUMBER
OUTSTANDING AT WEIGHTED AVERAGE WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF DECEMBER 31, REMAINING AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1999 CONTRACTUAL LIFE EXERCISE PRICE 1999 EXERCISE PRICE
--------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$0.01.................. 445,000 2.6 years $ 0.01 445,000 $ 0.01
$4.13 to 6.17.......... 1,415,094 4.5 years 4.55 1,415,094 4.55
$8.90 to 13.00......... 1,785,249 6.1 years 11.12 1,726,751 11.13
$13.38 to 19.30........ 1,939,925 7.5 years 15.85 1,915,909 15.92
$20.18 to 29.88........ 3,644,476 7.8 years 24.24 3,170,242 24.26
$30.57 to 44.75........ 6,778,155 8.3 years 40.83 5,109,299 41.75
$46.13 to 63.88........ 10,218,784 5.7 years 49.22 2,308,000 46.93
$70.69 to 78.25........ 172,492 3.1 years 75.35 -- --
---------- ----------
26,399,175 $35.53 16,090,295 $28.26
========== ==========
</TABLE>
The weighted-average fair value of options granted during 1997, 1998 and
1999 which have exercise prices equal to the market value of the Company's
common stock on the date of issuance was $10.25, $17.50 and $23.78,
respectively. The weighted-average fair value of options granted during 1998 and
1999 which have exercise prices less than the market value of the Company's
common stock on the date of issuance was $28.19 and $23.50, respectively. The
weighted-average fair value of options granted during 1999 which have exercise
prices greater than the market value of the Company's common stock on the date
of issuance was $25.89.
The Company applies APB Opinion No. 25 in accounting for its Employee
Option Plans and, accordingly, no compensation cost is recognized in the
consolidated financial statements for stock options which have exercise prices
equal to or in excess of the market value of the Company's common stock on the
date of issuance.
On April 14, 1998, Scott K. Ginsburg resigned as President and Chief
Executive Officer of the Company, and on April 20, 1998, Mr. Ginsburg resigned
as director of the Company and from all appointments and positions with its
respective subsidiaries. In connection with Mr. Ginsburg's resignation, the
Company incurred non-cash compensation expense of $16,000 in 1998 related to the
grant of 800,000 stock options to
28
<PAGE> 30
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mr. Ginsburg at an exercise price of $23.25 per share. The Company recognized
non-cash compensation expense of $6,443 during 1999 related to stock options
granted to employees, primarily corporate personnel.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Net loss:
As reported...................................... $(31,745) $ (95,589) $(173,687)
Pro forma........................................ (44,639) (160,687) (260,213)
Basic and diluted loss per common share:
As reported...................................... (.46) (.88) (1.10)
Pro forma........................................ (.59) (1.35) (1.60)
</TABLE>
The fair value for the stock options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1998 and 1999: expected stock volatility ranging from
39.9% to 45.2%; risk-free interest rates ranging from 4.7% to 6.7%; dividend
yields of 0%; and expected lives ranging from three to seven years.
(12) INCOME TAXES
Income tax expense from continuing operations consists of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Current tax expense:
Federal.............................................. $ 6,840 $ -- $ --
State................................................ 4,791 5,033 13,100
Foreign.............................................. -- -- 1,000
------- ------- --------
Total current tax expense.............................. 11,631 5,033 14,100
Deferred tax expense (benefit)......................... (3,829) 28,718 (20,491)
------- ------- --------
Total income tax expense (benefit)..................... $ 7,802 $33,751 $ (6,391)
======= ======= ========
</TABLE>
During 1997, 1998 and 1999, the Company incurred extraordinary losses in
connection with various refinancings. The tax benefit related to the
extraordinary losses were approximately $2,343, $25,357 and $8,153 for the years
ended December 31, 1997, 1998 and 1999, respectively. This tax benefit is
separately allocated to the extraordinary item. During 1998 and 1999, the
Company recognized a tax benefit of $13,098 and $23,760, respectively, due to
the exercise of certain stock options.
29
<PAGE> 31
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total income tax expense differed from the amount computed by applying the
U.S. federal statutory income tax rate of 35% to income or loss from continuing
operations for the years ended December 31, 1997, 1998 and 1999 as a result of
the following:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit).............. $(2,342) $ 998 $(53,582)
Amortization of goodwill............................... 5,744 11,728 28,225
State income taxes, net of federal benefit............. 2,533 4,919 8,515
Foreign income taxes................................... -- -- 1,000
Non-deductible compensation............................ -- 13,221 3,500
Non-deductible meals and entertainment................. 1,028 2,312 3,205
Other, net............................................. 839 573 2,746
------- ------- --------
$ 7,802 $33,751 $ (6,391)
======= ======= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
1999 are presented below:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss and credit carryforwards............... $ 76,755 $ 231,019
Accrued executive compensation and stock options.......... 10,452 15,342
Differences in book and tax bases related to media
representation contracts............................... 27,233 19,966
Differences in book and tax bases of lease liabilities.... 4,727 4,727
Differences in book and tax bases of long-term debt....... -- 39,407
Other..................................................... 1,754 7,242
--------- -----------
Total deferred tax assets......................... 120,921 317,703
--------- -----------
Deferred tax liabilities:
Property and equipment and intangibles, primarily related
to acquisitions........................................ (567,221) (1,938,985)
Investment in Lamar....................................... -- (75,761)
Other..................................................... (6,834) (9,980)
--------- -----------
Total deferred tax liabilities.................... (574,055) (2,024,726)
--------- -----------
Net deferred tax liability........................ $(453,134) $(1,707,023)
========= ===========
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal and state income tax rate in effect to the gross amounts of temporary
differences and other tax attributes, such as net operating loss carryforwards.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. The Company expects the
deferred tax assets at December 31, 1999 to be realized as a result of the
reversal during the carryforward period of existing taxable temporary
differences giving rise to deferred tax liabilities and the generation of
taxable income in the carryforward period.
30
<PAGE> 32
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, the Company has net operating loss carryforwards
available to offset future taxable income of approximately $542,100, expiring
from 2000 to 2019 and has alternative minimum tax credit carryforwards of
approximately $4,700 that do not expire. Approximately $164,100 and $2,800 of
the net operating loss and tax credit carryforwards, respectively, at December
31, 1999 are subject to annual use limitations under tax rules governing changes
of ownership.
(13) COMMITMENTS AND CONTINGENCIES
The Company has long-term operating leases for office space and certain
broadcasting facilities and equipment which expire at various dates, generally
during the next ten years, and have varying options to renew and cancel. Rental
expense for operating leases (excluding those with lease terms of one month or
less that were not renewed) was approximately $10,913, $39,427 and $70,725 for
1997, 1998 and 1999, respectively. Future minimum lease payments under
noncancelable operating leases (with initial or remaining lease terms in excess
of one year) as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000...................................................... $ 40,572
2001...................................................... 40,371
2002...................................................... 36,352
2003...................................................... 34,534
2004...................................................... 32,228
Thereafter................................................ 217,586
--------
$401,643
========
</TABLE>
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. 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 the
Company and are similarly situated. The defendants named in the case are the
Company, Hicks Muse, Thomas O. Hicks, Jeffrey A. Marcus, James E. de Castro,
Eric C. Neuman, Lawrence D. Stuart, Jr., Steven Dinetz, Thomas J. Hodson, Perry
Lewis, John H. Massey and Vernon E. Jordan, Jr. The plaintiff alleges breach of
fiduciary duties, gross mismanagement, gross negligence or recklessness, and
other
31
<PAGE> 33
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
The Company offers substantially all of its employees voluntary
participation in a 401(k) Plan. The Company may make discretionary contributions
to the plans; however, no such contributions were made by the Company during
1997, 1998 or 1999.
(14) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(a) Interest Rate Risk Management
The Company enters into interest rate swaps to diversify its risk
associated with interest rate fluctuations. Under interest rate swaps, the
Company agrees with other parties to exchange, at specified intervals, the
difference between fixed rate and floating rate interest amounts calculated by
reference to an agreed notional principal amount.
(b) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1998 and 1999. The fair
value of a financial instrument is defined as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1998 1999
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Long-term debt -- Senior Credit Facility.... $1,596,000 $1,596,000 $2,850,000 $2,850,000
Long-term debt -- 8% Senior Notes........... 750,000 761,250 750,000 742,500
Long-term debt -- 9 3/8% Notes.............. 200,000 208,000 200,000 206,000
Long-term debt -- 8 3/4% Notes.............. 200,000 204,000 200,000 203,000
Long-term debt -- 10 1/2% Notes............. 100,000 110,000 100,000 108,000
Long-term debt -- 8 1/8% Notes.............. 500,000 495,000 500,000 497,500
Long-term debt -- 9% Notes.................. 750,000 787,500 750,000 772,500
Long-term debt -- 12 3/4% Notes............. -- -- 245,700 243,282
Long-term debt -- 12 5/8% Notes............. -- -- 164,954 161,702
Long-term debt -- 9 1/4% Notes.............. -- -- 129,388 129,863
Long-term debt -- 10 3/4% Notes............. -- -- 175 189
Interest rate swaps and collars asset
(liability)............................... -- (12,799) -- 9,843
Redeemable preferred stock -- 12% Capstar
Partners Preferred Stock.................. -- -- 151,982 141,145
Preferred stock -- $3.00 Convertible
Exchangeable Preferred Stock.............. 299,500 567,553 -- --
Preferred stock -- 7% Convertible Preferred
Stock..................................... 110,000 285,626 110,000 475,688
</TABLE>
32
<PAGE> 34
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and cash equivalents, accounts receivable and accounts payable: The
carrying amount of these assets and liabilities approximates fair value because
of the short maturity of these instruments.
Long-term debt: The fair values of the Company's notes are based on quoted
market prices at December 31, 1998 and 1999. As amounts outstanding under the
senior credit facility bear interest at current market rates, their carrying
amounts approximate fair market value.
Interest rate swaps and collars: The fair value of the interest rate swap
and collar contracts is estimated by obtaining quotations from brokers. The fair
value is an estimate of the amounts that the Company would receive (pay) at the
reporting date if the contracts were transferred to other parties or canceled by
either party.
Redeemable preferred stock: The fair value of Capstar Partners' 12% Senior
Exchangeable Preferred Stock is based on December 31, 1999 quoted market prices.
Preferred stock: The fair value of the Company's $3.00 Convertible
Exchangeable Preferred Stock is based on quoted market prices at December 31,
1998 and the fair value of the 7% Convertible Preferred Stock is based on quoted
market prices at December 31, 1998 and 1999.
(15) RELATED PARTY AND OTHER TRANSACTIONS
As of December 31, 1999, Thomas O. Hicks and affiliates of Hicks Muse
beneficially owned an aggregate 59,489,681 shares of common stock of the
Company. Mr. Hicks is Chairman of the Board and a director of the Company.
The Company is subject to a financial monitoring and oversight agreement,
dated April 1, 1996, as amended on September 4, 1997 with Hicks, Muse & Co.
Partners, L.P., an affiliate of Hicks Muse. In connection with the financial
monitoring and oversight agreement, the Company paid to Hicks, Muse & Co.
Partners, L.P. an annual fee of not less than $1,000, subject to increase or
decrease (but not below $1,000) based upon changes in the consumer price index.
Hicks, Muse & Co. Partners, L.P. is also entitled to reimbursement for any
out-of-pocket expenses incurred in connection with rendering services under the
financial monitoring and oversight agreement. The financial monitoring and
oversight agreement provides that the agreement will terminate at such time as
Thomas O. Hicks and his affiliates collectively cease to beneficially own at
least two-thirds of the number of shares of the Company's common stock
beneficially owned by them, collectively, at the effective time of the
Chancellor Merger. Effective March 15, 1999, Hicks, Muse & Co. Partners, L.P.
agreed to waive the annual fee payment under the financial monitoring and
oversight agreement, although it will still be entitled to the reimbursement of
certain expenses incurred and the benefit of certain indemnity obligations of
the Company in connection with the performance of its obligations thereunder.
The Company paid Hicks, Muse & Co. Partners, L.P. a total of $333, $1,019 and
$259 in 1997, 1998 and 1999, respectively, in connection with the financial
monitoring and oversight agreement which is included in corporate general and
administrative expense.
In connection with the consummation of the Chancellor Merger, a financial
advisory agreement among CBC, CRBC and HM2/Management Partners, L.P.
("HM2/Management"), an affiliate of Hicks Muse, was terminated. In consideration
thereof, in lieu of any payments required to be made under the financial
advisory agreement in respect of the transactions contemplated by such merger,
HM2/Management was paid a fee of $10,000 in cash upon consummation of the
transaction which was accounted for as a direct acquisition cost. As part of the
termination of the financial advisory agreement, the Company paid Hicks, Muse &
Co. Partners, L.P. $1,500 for financial advisory services in connection with the
acquisition of Katz in 1997 which was accounted for as a direct acquisition
cost.
33
<PAGE> 35
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon consummation of the Capstar merger, Capstar Broadcasting made payments
to Hicks, Muse & Co. Partners, L.P. of $10,000 in cash and the Company granted
Hicks, Muse & Co. Partners, L.P. options to purchase up to 969,616 shares of the
Company's common stock at a per share exercise price of $52.00 in connection
with the termination of monitoring and oversight and financial advisory
agreements with Capstar Broadcasting and its subsidiaries and in satisfaction of
the services performed by Hicks, Muse & Co. Partners, L.P. in connection with
the Capstar merger. Affiliates of Hicks Muse had a controlling interest in
Capstar Broadcasting prior to the Capstar merger.
The Company is subject to an Amended and Restated Stockholders Agreement,
dated as of February 14, 1996, as amended on September 4, 1997 and July 13,
1999, among the Company and certain holders of the Company's common stock held
by former stockholders of CBC, which provides for registration rights for the
shares of the Company's common stock held by such holders. The stockholders
agreement relates to shares of the Company's common stock held by certain
affiliates of Hicks Muse. Affiliates of Hicks Muse that are parties to the
stockholders agreement have agreed to the termination of such agreement at the
effective time of the Clear Channel merger.
On July 7, 1998, the Company entered into a merger agreement with the
indirect parent of LIN Television Corporation to acquire LIN in a
stock-for-stock transaction. Effective March 15, 1999, LIN and the Company
terminated the LIN merger agreement. Affiliates of Hicks Muse have a controlling
interest in LIN and a substantial investment in the Company.
In October and November 1998, LIN purchased two airplanes and subsequently
entered into two lease agreements with respect to those airplanes with the
Company. In June 1999, LIN sold one of the airplanes to an unrelated third party
and the lease was terminated. The Company purchased the other airplane from LIN
in June 1999 and the lease was terminated. In 1998 and 1999, the Company paid to
LIN approximately $415 and $1,218, respectively, under the leases.
In connection with the resignation by Jeffrey A. Marcus as President and
Chief Executive Officer of the Company in March 1999, Mr. Marcus entered into a
termination agreement, which provided, among other things, that (i) Mr. Marcus
received a one-time cash payment of $6,250 and a pro-rated bonus for fiscal year
1998 of $2,333; (ii) Mr. Marcus was granted options to purchase 800,000 shares
of the Company's common stock at an exercise price of $47.0625 per share; and
(iii) unvested options to acquire 625,000 shares of the Company's common stock
previously granted to Mr. Marcus automatically vested and became immediately
exercisable.
Vernon E. Jordan, Jr., a director of the Company, served on the board of
directors of Bankers Trust Company and Bankers Trust Corporation until June
1999. Deutsche Bank Securities, Inc., formerly BT Alex. Brown Incorporated, an
affiliate of Bankers Trust Company and Bankers Trust Corporation, was engaged by
the Company in January 1999 as a financial advisor to explore strategic
alternatives in an effort to maximize shareholder value. Deutsche Bank
Securities Inc. has been engaged as a financial advisor in connection with the
Clear Channel merger and served as a co-lead arranger for the Company's senior
credit facility. In addition, affiliates of Bankers Trust Company and Bankers
Trust Corporation have in the past provided a variety of commercial banking,
investment banking and financial advisory services to the Company, and will
continue to provide services to the Company in the future, including as
administrative agent for the Company's senior credit facility. Fees paid to
Deutsche Bank Securities Inc. in 1998 were approximately $10,275 and fees paid
in 1999 while Mr. Jordan served on the board of directors of Bankers Trust
Company and Bankers Trust Corporation until June 1999 were minimal.
In May 1998, CMCLA (i) began programming ten radio stations owned by
Capstar Communications under time brokerage agreements and in 1998 and 1999
through the date of the Capstar merger CMCLA paid fees of $28,831 and $26,832,
respectively, to Capstar Communications related to these agreements and (ii)
provided a loan to Capstar Broadcasting in the principal amount of $150,000
included in other assets at
34
<PAGE> 36
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1998. The note receivable from Capstar Broadcasting was
extinguished in 1999 in conjunction with the Capstar merger. Interest income on
this note receivable was $10,600 and $9,650 in 1998 and 1999, respectively,
through the date of the Capstar merger. CMCLA also began operating Capstar
Broadcasting's station WKNR-AM in Cleveland, Ohio under a time brokerage
agreement effective February 1, 1999.
In connection with the retirement of James E. de Castro, the Company's
former Vice Chairman and President and Chief Executive Officer of the AMFM Radio
Group, on February 16, 2000, Mr. de Castro entered into a separation agreement
with the Company. The agreement provided, among other things, that (i) Mr. de
Castro receive a one-time cash severance payment of $5,000; (ii) unvested
options to acquire 1,120,000 shares of the Company's common stock previously
granted to Mr. de Castro will automatically vest and become immediately
exercisable upon completion of the Clear Channel merger; and (iii) an additional
160,000 stock options of the 640,000 stock options granted to Mr. de Castro on
April 17, 1999 will vest on April 17, 2000 and an additional 200,000 stock
options granted to Mr. de Castro on April 9, 1999 will vest on April 9, 2000.
The Company's statement of operations for the year ended December 31, 1999 does
not reflect any charges related to the retirement of Mr. de Castro.
(16) MERGER AND NON-RECURRING COSTS
Merger and non-recurring costs consist of the following for the year ended
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Write-off of LIN merger and Petry transaction costs, Capstar
internal acquisition costs and Clear Channel merger
costs(a).................................................. $ -- $19,110
Executive severance costs(b)................................ 47,661 12,196
Personnel changes and contractual obligations in exiting
certain non-core business ventures(c)..................... -- 25,003
Personnel changes, format changes and other non-recurring
costs incurred
in connection with the implementation of the Company's
market strategy(d)........................................ -- 14,291
Other(e).................................................... -- 11,229
------- -------
$47,661 $81,829
======= =======
</TABLE>
---------------
(a) On July 7, 1998, the Company entered into a merger agreement with the
indirect parent of LIN Television Corporation, a Delaware corporation
("LIN"), to acquire LIN by merger. On April 8, 1998, the Company entered
into an agreement to acquire Petry Media Corporation ("Petry"), a leading
independent television representation firm, for approximately $127,000.
Effective March 15, 1999, the Company and LIN agreed to terminate the LIN
merger agreement. The Company subsequently assigned to LIN its contract to
acquire Petry. The Company recorded a charge of $16,783 to write off
transaction costs incurred in connection with the LIN merger agreement and
Petry transaction.
The Company also incurred various internal costs related to the Capstar and
Clear Channel mergers totaling $2,327.
(b) On April 14, 1998, Scott K. Ginsburg resigned as President and Chief
Executive Officer of the Company, and on April 20, 1998, Mr. Ginsburg
resigned as director of the Company and from all appointments and positions
with its respective subsidiaries. On April 20, 1998, Mr. Ginsburg and the
Company entered into a separation and consulting agreement. Following Mr.
Ginsburg's resignation, the Company entered into new employment agreements
with James E. de Castro, the Company's Chief Operating Officer, and Matthew
E. Devine, the Company's Chief Financial Officer, each effective April 17,
1998. In connection with Mr. Ginsburg's resignation, the Company incurred a
one-time executive severance charge of $43,475 which consists of (i) a lump
sum severance payment of $20,000 to Mr. Ginsburg; (ii) fees of
35
<PAGE> 37
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$12,500 to be paid to Mr. Ginsburg over five years, (iii) one-time cash
payments of $5,000 and $2,000 to Mr. de Castro and Mr. Devine,
respectively, (iv) execution bonuses of $1,000 each paid to Mr. de Castro,
Mr. Devine and Mr. Marcus and (v) other costs incurred in connection with
Mr. Ginsburg's resignation of $975. Subsequently, Matthew E. Devine
resigned as Senior Vice President and Chief Financial Officer of the
Company and from all appointments and positions with its respective
subsidiaries and entered into a termination agreement with the Company. In
connection with Mr. Devine's resignation, the Company incurred a one-time
executive severance charge of $4,186 which consists of (i) a one-time cash
payment of $2,000, (ii) bonus payments totaling $2,033 and (iii) other
costs of $153.
On March 15, 1999, the Company announced an executive realignment which
included (i) the resignation of Jeffrey A. Marcus as the Company's
President and Chief Executive Officer; (ii) the resignation of Thomas P.
McMillin as the Company's Chief Financial Officer; (iii) the departure of
Richard A. B. Gleiner as the Company's General Counsel; and (iv) the
resignation of Eric C. Neuman as the Company's Senior Vice
President -- Strategic Development, each effective March 15, 1999. In
connection with the executive realignment, the Company recorded a charge of
$12,196 for executive severance and other costs.
(c) In connection with the Company's decision to sharpen its focus on domestic
radio and new media operations, management decided to discontinue Katz
Media's international operations and streamline its television
representation business, sell its outdoor advertising business, terminate
its contracts to acquire Grupo Radio and assign to LIN its contract to
acquire Petry. Of the $25,003 incurred, $4,285 related to personnel costs
and the remainder related to the termination of contractual obligations,
such as leases, and legal and advisory fees. At December 31, 1999, $2,899
of the total costs are accrued and are expected to be paid during the first
quarter of 2000.
(d) In 1999, the Company announced its new 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. Of the total costs incurred, $13,411 related to personnel
costs. At December 31, 1999, $9,539 of the total costs were accrued and the
majority of such costs are expected to be paid during the first half of
2000.
(e) During the third and fourth quarters of 1999, developmental costs of
$11,229 were incurred related to the Galaxy(TM) system and Star Performance
Group, AMFM's proprietary traffic system and sales training program, and
for development of AMFMi.
(17) SEGMENT DATA
During the year ended December 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 on September 15, 1999, the Company operates in only the radio
broadcasting and new media segments. Intersegment revenue is included in the
segment totals for internal reporting. This intercompany revenue is eliminated
in consolidation. The accounting policies of the segments are the same as those
described in Note 1. Information about each of the operating segments follows:
(a) AMFM Radio Group -- radio broadcasting
The AMFM Radio Group portfolio consisted of 456 radio stations (330 FM and
126 AM) at December 31, 1999, including 12 stations operated under time
brokerage or joint sales agreements. As of December 31, 1999, the AMFM Radio
Group owned superduopolies (clusters of four or five FM stations) in 11 of the
nation's 15 largest radio markets -- Los Angeles, New York, Chicago, San
Francisco, Dallas/ Ft. Worth, Washington, D.C., Houston, Philadelphia, Detroit,
Denver and Minneapolis-St. Paul and in five
36
<PAGE> 38
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other large markets -- Phoenix, Cleveland, Orlando, Pittsburgh and Puerto Rico.
The AMFM Radio Group 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,
and Chancellor Marketing Group, a full-service sales promotion firm developing
integrated marketing programs for Fortune 1000 companies.
(b) AMFM New Media Group -- media representation and Internet
The AMFM New Media Group includes 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. Katz is retained on an exclusive basis by radio and
television stations in over 200 designated market areas throughout the United
States, including at least one radio or television station in each of the 50
largest designated market areas. The Company's Internet initiative through AMFMi
focuses on developing the Company's Internet web sites, streaming online
broadcasts of the Company's on-air programming and other media, and promoting
emerging Internet and new media businesses.
(c) Chancellor Outdoor Group -- outdoor advertising
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.,
acquired on December 1, 1998. On September 15, 1999, the Company completed the
sale of its outdoor advertising business to Lamar, as discussed in Note 3(b).
The Chancellor Outdoor Group segment data includes the results of operations of
the outdoor advertising business through September 15, 1999.
37
<PAGE> 39
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO 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>
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
AMFM Radio Group -- radio broadcasting:
Net revenues................................. $ 548,856 $1,057,044 $ 1,669,638
Operating expenses........................... 297,085 551,037 856,376
Depreciation and amortization................ 168,597 376,833 583,932
Merger and non-recurring costs............... -- -- 12,388
Operating income............................. 75,450 122,188 203,498
Capital expenditures......................... 10,544 18,736 32,484
Identifiable assets.......................... 4,265,038 4,649,127 10,934,387
AMFM New Media Group -- media representation
and Internet:
Net revenues................................. 35,901 192,794 198,304
Operating expenses........................... 21,842 131,106 139,685
Depreciation and amortization................ 4,210 29,630 36,514
Merger and non-recurring costs............... -- -- 14,501
Operating income............................. 8,399 25,299 611
Capital expenditures......................... 436 15,190 10,027
Identifiable assets.......................... 495,951 528,238 641,537
Chancellor Outdoor Group -- outdoor
advertising:
Net revenues................................. -- 47,605 156,627
Operating expenses........................... -- 23,505 84,583
Depreciation and amortization................ -- 25,986 94,062
Merger and non-recurring costs............... -- -- 2,154
Operating loss............................... -- (3,871) (31,007)
Capital expenditures......................... -- 5,344 22,716
Identifiable assets.......................... -- 1,743,254 --
</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, merger and
non-recurring costs, corporate capital expenditures and general corporate assets
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>
1997 1998 1999
-------- ------- ----------
<S> <C> <C> <C>
Intersegment net revenues........................... $ 2,679 $23,587 $ 46,681
Intersegment operating expenses..................... 2,679 23,587 31,933
Unallocated depreciation and amortization........... 13,175 13,889 17,725
Unallocated corporate general and administrative
expenses.......................................... 12,268 20,992 30,287
Unallocated non-cash compensation................... -- 16,000 6,443
Unallocated merger and non-recurring costs.......... -- 47,661 52,786
Unallocated corporate capital expenditures.......... 686 4,191 8,488
Unallocated general corporate assets................ 207,886 307,288 1,289,884
</TABLE>
38
<PAGE> 40
AMFM INC. AND SUBSIDIARIES
(FORMERLY CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(18) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1998:
Net revenues................................ $ 233,557 $321,710 $343,829 $ 374,760
Operating income (loss)..................... (13,201) (18,072) 38,010 38,337
Income (loss) before extraordinary item..... (68,571) 40,401 6,262 (26,592)
Net income (loss) attributable to common
stockholders............................. (74,988) 2,118 (15,379) (33,010)
Basic and diluted income (loss) per common
share:
Before extraordinary item................ (0.60) 0.23 -- (0.23)
Net income (loss)........................ (0.60) 0.01 (0.11) (0.23)
1999:
Net revenues................................ $ 350,265 $434,146 $592,437 $ 601,040
Operating income (loss)..................... (52,782) 56,951 1,487 45,457
Income (loss) before extraordinary item..... (103,445) (16,089) 49,782 (88,793)
Net income (loss) attributable to common
stockholders............................. (109,862) (22,507) 48,606 (105,860)
Basic income (loss) per common share:
Before extraordinary item................ (0.77) (0.16) 0.25 (0.43)
Net income (loss)........................ (0.77) (0.16) 0.25 (0.50)
Diluted income (loss) per common share:
Before extraordinary item................ (0.77) (0.16) 0.23 (0.43)
Net income (loss)........................ (0.77) (0.16) 0.23 (0.50)
</TABLE>
Basic and diluted loss per common share for the years ended December 31,
1998 and 1999 differs from the sum of basic and diluted loss per common share
for the quarters during the respective year due to the different periods used to
calculate weighted average shares outstanding.
39
<PAGE> 41
AMFM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 59,277 $ 68,804
Accounts receivable, less allowance for doubtful accounts
of $21,428 in 1999 and $27,385 in 2000................. 531,818 455,380
Other current assets...................................... 92,324 60,920
----------- -----------
Total current assets.............................. 683,419 585,104
Property and equipment, net................................. 471,508 459,693
Intangible assets, net...................................... 10,346,005 10,079,653
Investments in non-consolidated affiliates.................. 1,103,442 1,081,115
Other assets, net........................................... 261,434 252,031
----------- -----------
$12,865,808 $12,457,596
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 293,155 $ 310,970
Long-term debt.............................................. 5,890,217 5,783,388
Deferred tax liabilities.................................... 1,707,023 1,663,262
Other liabilities........................................... 60,154 52,023
----------- -----------
Total liabilities................................. 7,950,549 7,809,643
----------- -----------
Commitments and contingencies
Minority interest in consolidated subsidiary................ 3,694 3,435
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 --
Stockholders' equity:
Preferred stock, $.01 par value 2,200,000 shares of 7%
convertible preferred stock authorized, issued and
outstanding in 1999.................................... 110,000 --
Common stock, $.01 par value 750,000,000 shares
authorized; 210,158,922 shares and 216,613,724 shares
issued and outstanding in 1999 and 2000,
respectively........................................... 2,102 2,166
Paid-in capital........................................... 5,115,785 5,272,597
Accumulated deficit....................................... (468,304) (630,245)
----------- -----------
Total stockholders' equity........................ 4,759,583 4,644,518
----------- -----------
$12,865,808 $12,457,596
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
40
<PAGE> 42
AMFM 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............................... 147,744 212,491
Corporate general and administrative........................ 17,814 15,302
Non-cash compensation....................................... -- 34,878
Merger and non-recurring costs.............................. 28,979 11,115
--------- ---------
Operating loss............................................ (52,782) (60,604)
Interest expense, net....................................... 84,392 123,645
Loss (gain) on disposition of assets........................ 82 (22,819)
Gain on disposition of representation contracts............. (3,685) (16,217)
--------- ---------
Loss before income taxes.................................. (133,571) (145,213)
Income tax benefit.......................................... 30,126 10,749
Credit on exchange of preferred stock of subsidiary......... -- 3,310
--------- ---------
Loss before equity in net loss of affiliates and minority
interest and extraordinary item........................ (103,445) (131,154)
Equity in net loss of affiliates and minority interest...... -- 24,372
--------- ---------
Loss before extraordinary item............................ (103,445) (155,526)
Extraordinary loss, net of income tax benefit............... -- 6,094
--------- ---------
Net loss.......................................... (103,445) (161,620)
Preferred stock dividends................................... 6,417 321
--------- ---------
Net loss attributable to common stockholders.............. $(109,862) $(161,941)
========= =========
Basic and diluted loss per common share:
Before extraordinary item................................. $ (0.77) $ (0.72)
Extraordinary item........................................ -- (0.03)
--------- ---------
Net loss.......................................... $ (0.77) $ (0.75)
========= =========
Weighted average common shares outstanding.................. 142,960 215,116
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
41
<PAGE> 43
AMFM 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 $ 189,569
--------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired........................ (349,542) (5,255)
Proceeds from sale of assets.............................. -- 93,711
Purchases of property and equipment....................... (9,771) (9,544)
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..................................................... (8,383) 9,787
--------- ---------
Net cash provided by (used by) investing
activities...................................... (375,342) 86,046
--------- ---------
Cash flows from financing activities:
Proceeds of long-term debt................................ 329,000 212,500
Payments on long-term debt................................ (47,000) (475,327)
Net proceeds from issuance of equity instruments.......... 3,336 6,192
Dividends on preferred stock.............................. (6,417) (9,453)
--------- ---------
Net cash provided by (used by) financing
activities...................................... 278,919 (266,088)
--------- ---------
Increase (decrease) in cash and cash equivalents............ (5,187) 9,527
Cash and cash equivalents at beginning of period............ 12,256 59,277
--------- ---------
Cash and cash equivalents at end of period.................. $ 7,069 $ 68,804
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
42
<PAGE> 44
AMFM 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 AMFM Inc. and its wholly-owned and majority-owned subsidiaries
(collectively, the "Company" or "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.
Loss per common share is based on the weighted average shares of common
stock outstanding during the period. Weighted average shares excluded from the
calculation that related to potentially dilutive securities amounted to
approximately 24.9 million and 10.1 million for the three months ended March 31,
1999 and 2000, respectively. Such shares have been excluded as their inclusion
would have been antidilutive.
Certain reclassifications have been made to prior period condensed
consolidated financial statements to conform to the current period presentation.
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 the Company'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 AMFM. 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. 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.
43
<PAGE> 45
AMFM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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........................ (174,901) (154,920)
Net loss.............................................. (174,901) (161,014)
Basic and diluted loss per common share -- before
extraordinary item.................................. (0.92) (0.72)
Basic and diluted loss per common share............... (0.92) (0.75)
</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
44
<PAGE> 46
AMFM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payable by Bison Media. Although there can be no assurance, the Company expects
to complete the asset exchange in the second quarter of 2000.
4. PREFERRED STOCK CONVERSIONS AND REDEMPTION OF DEBT
On December 8, 1999, the Company gave notice to the holders of its 7%
Convertible Preferred Stock of its election to redeem all of the outstanding
shares of 7% Convertible Preferred Stock at a per share redemption price of
$52.45, plus accrued and unpaid dividends. Each holder had the right to convert
each share of the 7% Convertible Preferred Stock held by it into approximately
2.76 shares of the Company's common stock in lieu of being redeemed. On January
19, 2000, preferred holders converted all 2,200,000 shares of 7% Convertible
Preferred Stock into 6,078,995 shares of the Company's common stock.
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 of
subsidiary.
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 Corporation'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 the
Company and are similarly situated. The defendants named in the case are the
Company, Hicks Muse, Thomas O. Hicks, Jeffrey A. Marcus, James E. de Castro,
Eric C. Neuman, Lawrence D. Stuart, Jr., Steven Dinetz, Thomas J. Hodson, Perry
Lewis, John H. Massey and Vernon E. Jordan, Jr. The
45
<PAGE> 47
AMFM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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)....................................... 16,783 2,716
------- -------
$28,979 $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
46
<PAGE> 48
AMFM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
Effective March 15, 1999, the Company and LIN Television Corporation
("LIN") agreed to terminate the LIN merger agreement. The Company
subsequently assigned to LIN its contract to acquire Petry Media
Corporation ("Petry"). The Company recorded a charge of $16,783 to write
off transaction costs incurred in connection with the LIN merger agreement
and 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, AMFM'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. 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 and Internet:
Net revenues.............................................. 39,695 49,784
Operating expenses........................................ 30,748 37,646
Depreciation and amortization............................. 7,783 14,132
Merger and non-recurring costs............................ -- 1,053
Operating loss............................................ (344) (5,875)
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>
47
<PAGE> 49
AMFM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 6,032
Unallocated corporate general and administrative expenses... 10,207 9,402
Unallocated non-cash compensation........................... -- 34,878
Unallocated merger and non-recurring costs.................. 28,979 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 the Company'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.
48
<PAGE> 50
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SFX Entertainment, Inc.
We have audited the accompanying consolidated balance sheets of SFX
Entertainment, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of SFX Entertainment, Inc. at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 28, 2000
49
<PAGE> 51
SFX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 382,640 $ 48,021
Accounts receivable, net ................................................... 113,074 53,162
Prepaid event expenses ..................................................... 41,154 23,043
Investments in and receivables from theatrical and other productions ....... 13,134 12,222
Other prepaid expenses ..................................................... 23,686 4,475
Notes receivables from related parties and employees ....................... 1,749 972
Other current assets ....................................................... 12,405 6,838
---------- ----------
Total current assets ........................................................ 587,842 148,733
Property and equipment, net ................................................. 686,246 292,626
Goodwill, net ............................................................... 1,503,981 874,783
Investments in and receivables from investees ............................... 64,374 18,450
Notes receivable from related parties and employees, less current portion ... 29,225 12,464
Debt issuance costs, net .................................................... 49,888 23,650
Other assets ................................................................ 27,317 12,746
---------- ----------
TOTAL ASSETS ................................................................ $2,948,873 $1,383,452
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 23,714 $ 17,712
Accrued expenses ........................................................... 109,163 50,887
Accrued interest payable ................................................... 23,972 17,241
Deferred revenue ........................................................... 139,393 60,142
Current portion of long-term debt .......................................... 7,826 5,581
Current portion of deferred purchase consideration ......................... 57,610 11,851
---------- ----------
Total current liabilities ................................................... 361,678 163,414
Long-term debt, less current portion ........................................ 1,384,992 768,195
Deferred purchase consideration, less current portion ....................... 18,617 7,983
Deferred income taxes ....................................................... 45,403 38,826
Other liabilities ........................................................... 9,273 1,940
---------- ----------
TOTAL LIABILITIES ........................................................... 1,819,963 980,358
Minority interest ........................................................... 10,065 8,058
Temporary equity -- stock subject to redemption ............................. 18,876 16,500
Shareholders' equity:
Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued
and outstanding as of December 31, 1999 and 1998 ........................... -- --
Class A Common Stock, $.01 par value, 100,000,000 shares authorized,
63,873,657 and 42,919,791 shares issued and outstanding as of
December 31, 1999 and 1998, respectively .................................... 639 430
Class B Common Stock, $.01 par value, 10,000,000 shares authorized,
2,545,557 shares issued and outstanding as of December 31, 1999 and
1998 ....................................................................... 25 25
Additional paid-in capital .................................................. 1,238,186 449,484
Deferred compensation ....................................................... (3,775) (6,533)
Accumulated deficit ......................................................... (133,106) (64,870)
Less: Cost of Class A Common Stock in treasury, 112,528 shares as of
December 31, 1999 .......................................................... (2,000) --
---------- ----------
TOTAL SHAREHOLDERS' EQUITY .................................................. 1,099,969 378,536
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................................. $2,948,873 $1,383,452
========== ==========
</TABLE>
See accompanying notes.
50
<PAGE> 52
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue ............................................... $ 1,679,452 $ 884,286 $ 96,144
Income from equity investments ........................ 4,903 4,630 509
----------- ----------- -----------
Total revenue ........................................ 1,684,355 888,916 96,653
Operating expenses:
Cost of revenues ...................................... 1,253,647 678,756 73,881
Selling, general and administrative expenses .......... 225,166 111,748 9,536
Depreciation and amortization, including integration
and start-up costs of $12,701 in 1999 and $2,406 in
1998 ................................................. 142,583 62,197 5,431
Corporate expenses .................................... 18,524 11,194 2,206
Non-recurring charges ................................. -- 5,600 --
Non-cash charges ...................................... 7,250 34,051 --
----------- ----------- -----------
1,647,170 903,546 91,054
----------- ----------- -----------
Income (loss) from operations ......................... 37,185 (14,630) 5,599
Interest expense ...................................... (100,825) (50,759) (1,590)
Investment income ..................................... 12,594 4,491 295
Minority interest ..................................... (6,017) (2,036) --
Gains on sales of assets, net ......................... 760 -- --
----------- ----------- -----------
(Loss) income before income taxes and extraordinary
item ................................................. (56,303) (62,934) 4,304
Provision for income taxes(1) ......................... (1,597) (3,000) (490)
----------- ----------- -----------
(Loss) income before extraordinary item ............... (57,900) (65,934) 3,814
Extraordinary item-loss on early extinguishment of
debt, net of $1,800 of income taxes .................. (2,490) -- --
----------- ----------- -----------
Net (loss) income ..................................... (60,390) (65,934) 3,814
Accretion on stock subject to redemption .............. (3,522) (2,750) --
----------- ----------- -----------
Net (loss) income applicable to common shares ......... $ (63,912) $ (68,684) $ 3,814
=========== =========== ===========
Net (loss) income per basic and dilutive common
share before extraordinary item ...................... $ (1.06) $ (1.83) $ .18
Extraordinary loss on early extinguishment of debt,
net of taxes per common share ........................ ( 0.04) -- --
----------- ----------- -----------
Net (loss) income per basic and dilutive common
share ................................................ $ (1.10) $ (1.83) $ .18
=========== =========== ===========
Weighted average basic and dilutive common shares
outstanding .......................................... 58,204,408 37,467,620 21,667,500
=========== =========== ===========
</TABLE>
(1) The provision for income taxes for the year ended December 31, 1997 would
have been $2,540 if such provision had been calculated on a stand-alone
basis (see Note 13).
See accompanying notes.
51
<PAGE> 53
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
Operating activities:
Net (loss) income ........................................................ $ (60,390) $ (65,934) $ 3,814
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization ........................................... 129,882 59,791 5,431
Income (loss) from equity investments, net of amounts received .......... 3,614 2,809 (479)
Non-cash charges ........................................................ 7,250 34,051 --
Minority interest ....................................................... 6,017 2,036 --
Gains on sales of assets, net ........................................... (760) -- --
Extraordinary item-loss on early extinguishment of debt, net of
taxes ................................................................. 2,490 -- --
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable, net ................................................ (508) 8,463 (923)
Prepaid event expenses, other prepaid expenses and other current
assets ................................................................ (32,825) (23,496) 419
Other assets ............................................................ (874) 882 (275)
Notes receivable from related parties and employees ..................... (17,538) (1,132) --
Accounts payable, accrued expenses and other liabilities ................ (14,318) (1,550) 165
Accrued interest payable ................................................ 8,103 17,204 --
Deferred revenue ........................................................ 4,736 (5,683) (7,147)
---------- ---------- ---------
Net cash provided by operating activities ................................ 34,879 27,441 1,005
---------- ---------- ---------
Investing activities:
Purchases of businesses, net of cash acquired ........................... (834,001) (827,147) (71,213)
Proceeds from sales of assets ........................................... 12,038 -- --
Purchases of property and equipment ..................................... (61,193) (64,773) (2,083)
---------- ---------- ---------
Net cash used in investing activities .................................... (883,156) (891,920) (73,296)
---------- ---------- ---------
Financing activities:
Capital contributed by SFX Broadcasting ................................. -- -- 79,093
Receipts from (payments made) to SFX Broadcasting pursuant to
the Spin-Off .......................................................... 1,500 (135,679) --
Proceeds from issuance of senior subordinated notes and
borrowings under the senior credit facilities ......................... 1,091,720 951,500 --
Proceeds from sale of common stock ...................................... 612,877 328,568 --
Payment for treasury stock .............................................. (2,000) -- --
Repayment of senior credit facilities and capital lease obligations ..... (484,685) (215,212) (823)
Other, principally debt issuance costs .................................. (34,858) (22,656) --
---------- ---------- ---------
Net cash provided by financing activities ................................ 1,184,554 906,521 78,270
Effect of exchange rate changes in cash .................................. (1,658) -- --
---------- ---------- ---------
Net increase in cash and cash equivalents ................................ 334,619 42,042 5,979
Cash and cash equivalents at beginning of period ......................... 48,021 5,979 --
---------- ---------- ---------
Cash and cash equivalents at end of period ............................... $ 382,640 $ 48,021 $ 5,979
========== ========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................................... $ 89,156 $ 33,604 $ 1,504
========== ========== =========
Cash paid for income taxes ............................................... $ 8,477 $ 501 $ --
========== ========== =========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
o Issuance of equity securities, including deferred equity security issuance
and assumption of debt in connection with certain acquisitions (see
Note 4).
o Agreements to pay future cash consideration in connection with certain
acquisitions (see Note 4).
o The balance sheet includes certain assets and liabilities which were
contributed by SFX Broadcasting in 1998 (Note 1).
See accompanying notes.
52
<PAGE> 54
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL ACCUMULATED TOTAL
COMMON COMMON PAID-IN DEFERRED EARNINGS TREASURY SHAREHOLDERS'
STOCK STOCK CAPITAL COMPENSATION (DEFICIT) STOCK EQUITY
--------- --------- -------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997 ....... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Capital contributed by SFX
Broadcasting ................... 204 15 98,111 -- -- -- 98,330
Net income ...................... -- -- -- -- 3,814 -- 3,814
----- ---- ---------- --------- ---------- --------- -----------
Balances, December 31, 1997 ..... 204 15 98,111 -- 3,814 -- 102,144
Net liabilities assumed,
principally income taxes
and shares issued to
employees in the Spin-Off ...... 20 -- (109,762) -- -- -- (109,742)
Sale of 12,075,000 shares of
Class A Common Stock ........... 121 -- 328,447 -- -- -- 328,568
Issuance of 8,177,046 shares
of Class A Common Stock
for acquisitions ............... 82 -- 95,516 -- -- -- 95,598
Issuance of Class A and Class
B Common Stock pursuant
to employment agreements ....... 3 10 34,422 (8,625) -- -- 25,810
Amortization of deferred
compensation ................... -- -- -- 2,092 -- -- 2,092
Accretion on stock subject to
redemption ..................... -- -- 2,750 -- (2,750) -- --
Net loss ........................ -- -- -- -- (65,934) -- (65,934)
----- ---- ---------- --------- ---------- --------- -----------
Balances, December 31, 1998 ..... 430 25 449,484 (6,533) (64,870) -- 378,536
----- ---- ---------- --------- ---------- --------- -----------
Adjustment to Working
Capital in the Spin-Off ........ -- -- 1,500 -- -- -- 1,500
Sale of 16,048,000 shares of
Class A Common Stock ........... 160 -- 598,400 -- -- -- 598,560
Issuance of 4,158,650 shares
and options to purchase
Class A Common Stock for
acquisitions ................... 42 -- 169,504 (508) -- -- 169,038
Issuance of 727,800 shares of
Class A Common Stock
pursuant to the exercise of
employee stock options ......... 7 -- 14,310 -- -- -- 14,317
Repurchase of 112,528 shares
of Class A Common Stock ........ -- -- -- -- -- (2,000) (2,000)
Amortization of deferred
compensation ................... -- -- -- 3,266 -- -- 3,266
Accretion on stock subject to
redemption ..................... -- -- 3,522 -- (3,522) -- --
Reduction of stock subject to
redemption ..................... -- -- 1,466 -- -- -- 1,466
Net loss ........................ -- -- -- -- (60,390) -- (60,390)
Foreign currency translation
adjustment ..................... -- -- -- -- (4,324) -- (4,324)
----- ---- ---------- --------- ---------- --------- -----------
Comprehensive loss .............. -- -- -- -- (64,714) -- (64,714)
----- ---- ---------- --------- ---------- --------- -----------
Balances, December 31, 1999 ..... $ 639 $ 25 $1,238,186 $ (3,775) $ (133,106) $ (2,000) $ 1,099,969
===== ==== ========== ========= ========== ========= ===========
</TABLE>
See accompanying notes.
53
<PAGE> 55
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
SFX Entertainment, Inc. ("SFX" or the "Company") is the world's largest
diversified promoter, producer and venue operator for live entertainment
events. In addition, SFX is a leading fully integrated sports marketing and
management company specializing in the representation of sports athletes and
broadcasters, integrated event management, television programming and
production and marketing consulting services. SFX owns, partially or entirely,
and/or operates under lease or exclusive booking arrangements, the largest
network of venues used principally for music concerts and other live
entertainment events. SFX operates in four major business segments within the
live entertainment industry: music, theater, sports and family entertainment
and other.
The Company was formed as a wholly-owned subsidiary of SFX Broadcasting,
Inc. ("SFX Broadcasting") in December 1997 and as the parent company of SFX
Concerts, Inc ("Concerts"). Concerts was formed in January 1997 to acquire and
hold SFX Broadcasting's live entertainment operations.
In August 1997, SFX Broadcasting agreed to the merger among SBI Holdings,
Inc. (the "Buyer"), SBI Radio Acquisition Corporation, a wholly-owned
subsidiary of the Buyer, and SFX Broadcasting (the "Broadcasting Merger") and
to the spin-off of the Company to the shareholders of SFX Broadcasting (the
"Spin-Off") (See Note 5). The Spin-Off was completed on April 27, 1998 and the
Broadcasting Merger was completed on May 29, 1998. Prior to the Spin-Off, SFX
Broadcasting provided various administrative services to the Company. SFX
Broadcasting allocated these expenses on the basis of direct usage. In the
opinion of management, this method of allocation was reasonable and allocated
expenses approximated what the Company would have incurred on a stand-alone
basis. The Company recorded the Spin-Off at the historical cost of the assets
and liabilities contributed by SFX Broadcasting.
Certain 1998 and 1997 amounts have been reclassified to conform to the
1999 presentation.
2. PROPOSED MERGER WITH CLEAR CHANNEL COMMUNICATIONS, INC.
On February 29, 2000, SFX announced that it entered into a definitive
merger agreement with Clear Channel Communications, Inc. Under the terms of the
merger agreement, the Class A shareholders of SFX will receive 0.6 shares of
Clear Channel Communications, Inc. common stock for each SFX share, and Class B
shareholders of SFX will receive one share of Clear Channel Communications,
Inc. common stock for each SFX share, on a fixed exchange basis. The proposed
merger would require an amendment to SFX's certificate of incorporation to
allow the unequal consideration being paid to the holders of Class A and Class
B Common Stock. The transaction is expected to be consummated early in the
third quarter of 2000, subject to the approval of the Class A and Class B
shareholders of SFX, customary regulatory approvals and other closing
conditions.
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
SFX and its majority-owned subsidiaries. Investments in other companies that
SFX does not control, but has the ability to exercise significant influence
over operating and financial policies, are accounted for by the equity method.
Investments in other companies that the Company does not control or possess
significant influence are accounted for by the cost method. All intercompany
transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all investments with an original maturity of three
months or less when purchased to be cash equivalents.
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<PAGE> 56
PREPAID EVENT EXPENSES
Prepaid event expenses include show advances and deposits and other costs
directly related to future events. Such costs are charged to operations upon
completion of the related events. As of December 31, 1999 and 1998, prepaid
event expenses included advertising costs of approximately $872,000 and
$480,000, respectively. The Company recognized event advertising expense of
approximately $83,002,000, $51,865,000, and $7,109,000 in 1999, 1998, and 1997,
respectively.
PROPERTY AND EQUIPMENT
Land, buildings, improvements and furniture and equipment are stated at
cost. Depreciation is provided on a straight-line basis over the estimated
useful lives of the assets as follows:
Buildings and improvements ......... 4-40 years
Furniture and equipment, including
internal use software ............ 3-7 years
Leasehold improvements primarily represent the capitalized costs to
renovate leased venues. These costs are being amortized over the shorter of the
useful life of the improvement or the term of their respective leases.
Maintenance and repairs which do not extend the useful lives of the respective
assets are expensed as incurred. Depreciation of assets under capital leases is
included in depreciation and amortization expense.
GOODWILL
Goodwill represents the excess of the purchase price, including deferred
and contingent purchase consideration, over the fair market value of the assets
acquired, and is amortized using the straight-line method over 10-15 years.
It is the Company's policy to account for goodwill at the lower of
amortized cost or estimated realizable value. As part of an ongoing review of
the valuation and amortization of goodwill of the Company and its subsidiaries,
management assesses the carrying value of goodwill if facts and circumstances
suggest that there may be impairment. If this review indicates that goodwill
will not be recoverable as determined by a non-discounted cash flow analysis of
the operating results over the remaining amortization period, the carrying
value of the goodwill would be reduced to estimated realizable value.
Certain of the agreements entered into in connection with the Company's
acquisitions require that the Company pay the sellers additional amounts based
upon the achievement of a certain level of operating results as defined in the
respective acquisition agreements. It is the Company's policy to record these
additional amounts when, in management's opinion, it is probable that the
results will be achieved. These amounts are recorded as additional purchase
price or as compensation expense in accordance with EITF 95-8, "Accounting for
Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in
a Purchase Business Combination."
DEBT ISSUANCE COSTS
Debt issuance costs are amortized over the term of the related debt and
are included as non-cash interest expense in the consolidated statement of
operations. Debt issuance costs of $49.9 million and $23.7 million, net of
accumulated amortization of $5.2 million and $1.9 million, were recorded as of
December 31, 1999 and 1998, respectively.
REVENUE RECOGNITION
Music, Theatrical and Family Entertainment
Revenue from the presentation and production of an event is recognized on
the date of the performance. Advance ticket sales are recorded as deferred
revenue until the event occurs. Sponsorship and other revenues that are not
related to any single event are classified as deferred revenue and are
generally amortized on a straight-line basis over the operating season during
the term of the contract.
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<PAGE> 57
Sports
Revenue from talent representation arises primarily from percentage fees
or commissions received for the negotiation of professional sporting contracts
and marketing endorsements. The Company recognizes such revenue in the period
when the service is rendered and the fee is determinable. Revenue from the
presentation and production of an event is recognized on the date of the
performance. Advance ticket sales are recorded as deferred revenue until the
event occurs. Sponsorship and other revenues that are not related to any single
event are classified as deferred revenue and are amortized on a straight-line
basis over the term of the agreement. Revenue from television programming and
production services are recognized when the programs are available for
broadcast. For syndicated shows, revenues are recognized when the programs are
available for broadcast and the license period has begun.
Other
Revenue is recognized as services are performed or as goods are shipped.
RISKS AND UNCERTAINTIES
Accounts receivable are due principally from ticket companies and venue
box offices. These amounts are typically collected within 20 days of a
performance. Generally, management considers these accounts receivable to be
fully collectible; accordingly, no allowance for doubtful accounts is required.
Certain other accounts receivable, arising from the normal course of business,
are reviewed for collectibility and allowances for doubtful accounts are
recorded as required. The Company has recorded an allowance for doubtful
accounts of $2.4 million and $1.7 million as of December 31, 1999 and 1998,
respectively, related to these accounts receivable.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share is based upon the net income (loss)
applicable to common shares after the accretion of stock subject to redemption
and upon the weighted average of common shares outstanding during the period.
Diluted income (loss) per common share adjusts for the effect of convertible
securities and stock options only in the periods presented in which such effect
would have been dilutive. As the Company incurred losses in 1999 and 1998,
there were no dilutive securities during those periods. During 1997, there were
no dilutive securities. For the periods prior to the Spin-Off, the calculation
of income per common share reflects the recapitalization of the Company.
In July 1999, SFX completed a 3-for-2 split of its Class A and Class B
Common Stock. The financial information presented herein has been restated to
reflect the effect of the stock split.
INTEGRATION AND START-UP COSTS
Integration and start-up cost represent costs associated with combining
the acquired entities and introducing new products and services. During 1999,
SFX recorded $12.7 million of integration and start-up costs relating primarily
to the cost of implementing SFX's branding and ticketing strategy, new Internet
initiatives, the opening of a themed exhibit and the write-off of abandoned
transaction costs. During 1998, SFX incurred $2.4 million of integration and
start-up costs primarily relating to the cost of implementing SFX's national
sponsorship program.
COMPREHENSIVE LOSS: FOREIGN CURRENCY TRANSLATION
The financial position and operating results of all foreign subsidiaries
are consolidated using the local currency as the functional currency. Local
currency assets and liabilities are translated at the rate of exchange on the
consolidated balance sheet date and local currency revenues and expenses are
translated
56
<PAGE> 58
at average rates of exchange during the period, resulting in translation loss.
As of December 31, 1999, the Company recorded a translation loss of
approximately $4.3 million as a component of other comprehensive loss in
accumulated earnings (deficit) in the statement of shareholders' equity.
4. ACQUISITIONS
1997 ACQUISITIONS
In January 1997, SFX Broadcasting acquired Delsener/Slater, a concert
promotion company which has long-term leases or is the exclusive promoter for
seven of the major concert venues in the New York City metropolitan area. Total
aggregate consideration was approximately $26.8 million. In March 1997, the
Company acquired certain companies which own and operate the Meadows Music
Theater, an indoor/outdoor complex located in Hartford, Connecticut for
$900,000 in cash, 370,757 shares of SFX Broadcasting Class A common stock with
a value of approximately $7.5 million and the assumption of approximately $15.4
million in debt. In June 1997, the Company acquired the stock of Sunshine
Promotions, Inc. and certain other related companies, an owner-operator of
venues and a concert promoter in the Midwest for $57.5 million in cash and
assumed debt, shares of SFX Broadcasting Class A Common Stock issued with a
value of approximately $4.0 million.
The 1997 Acquisitions were financed through capital contributions from SFX
Broadcasting.
1998 ACQUISITIONS
PACE and Pavilion Partners
On February 25, 1998, the Company acquired PACE Entertainment Corporation,
a diversified producer and promoter of live entertainment in the United States,
for total consideration of approximately $150.1 million, including issuance
upon the Spin-Off of 2,250,000 shares of the Company's Class A Common Stock
valued by the parties at $20.0 million. In a related transaction, the Company
acquired, for total consideration of approximately $90.6 million, the 66 2/3%
ownership in the Pavilion Partners venue partnership not already owned by PACE.
As a result, the Company owns 100% of Pavilion Partners.
The PACE Acquisition agreement further provides that each seller of PACE
shall have an option, exercisable during a period beginning on the fifth
anniversary of the closing of the PACE Acquisition and ending 90 days
thereafter, to require the Company to purchase up to one-third of the PACE
consideration stock received by such PACE seller for a cash purchase price of
$22.00 per share. With certain limited exceptions, these option rights are not
assignable by the PACE sellers. The stock, which is subject to redemption, has
been recorded as temporary equity on the accompanying consolidated balance
sheet and is being accreted over a five-year period. In connection with the
signing of new employee agreements during 1999, 66,624 shares of the PACE
consideration stock was released from this requirement during 1999.
In addition, on March 25, 1998, SFX paid $4.0 million to acquire a 67%
interest in certain assets and liabilities of USA Motor Sports, a producer and
promoter of motor sports events. The remaining 33% interest was already owned
by SFX.
Contemporary
On February 27, 1998, SFX acquired Contemporary Group and the remaining
50% interest in the Riverport Amphitheatre Joint Venture not owned by
Contemporary. The total consideration for the Contemporary acquisition was
approximately $82.7 million, including $72.8 million in cash, a payment for
working capital of $9.9 million, and the issuance of 1,894,275 shares of Class
A Common Stock having a negotiated value of approximately $16.2 million. SFX
financed the purchase price with borrowings under the then-existing senior
credit facility and with a portion of the proceeds from the February 1998 note
offering.
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<PAGE> 59
BGP
On February 24, 1998, SFX acquired BGP for a total consideration of $72.8
million in cash and assumed debt, including the issuance of 844,500 shares of
Class A Common Stock having a negotiated value of approximately $7.5 million.
SFX financed the purchase price with borrowings under the then-existing senior
credit facility and with a portion of the proceeds from the February 1998 note
offering.
Network
On February 27, 1998, SFX acquired all of the outstanding capital stock of
each of The Album Network, Inc. and SJS Entertainment Corporation (collectively
"Network") and purchased substantially all of the assets and properties and
assumed substantially all of the liabilities and obligations of The Network 40,
Inc. The total purchase price was approximately $75.4 million, including
approximately $59.2 million in cash and assumed debt, and the issuance of
approximately 1,284,000 shares of Class A Common Stock having a negotiated
value of approximately $16.2 million. The purchase price was subject to an
increase based on Network's operating results, as defined in the acquisition
agreement. The Company paid $8.6 million related to this agreement in 1999. In
October 1999, SFX sold a portion of the business acquired for $11.7 million and
recognized a $3.4 million gain. SFX financed the initial purchase price with
borrowings under the then-existing senior credit facility and with a portion of
the proceeds from the February 1998 note offering.
FAME
On June 4, 1998, SFX acquired the Falk Associates Management Enterprises,
Inc. ("FAME"). The aggregate purchase price for FAME was approximately $85.5
million in cash and 1.5 million shares of Class A Common Stock having a
negotiated value of approximately $36.0 million. The sellers were entitled to a
potential additional purchase price of $15.0 million if FAME met or exceeded
defined earnings targets through 2003 of which $2.5 million was paid during
1999. Further, in December 1999 and February 2000, SFX paid approximately $10.0
million to the sellers in settlement of their potential rights to future
payments under the contingent purchase price agreement. An earnings charge of
$4.1 million will be recorded in the first quarter of 2000 relating to the
payment made in such quarter as it is considered to be compensation expense.
SFX financed the initial purchase price with a portion of the proceeds from the
1998 Equity Offering.
Don Law
On July 2, 1998, SFX acquired certain assets of Don Law, for an aggregate
cash consideration of approximately $92.2 million, including the repayment of
approximately $7.0 million in debt. SFX financed the purchase price with a
portion of the proceeds of the 1998 Equity Offering.
Magicworks
On September 11, 1998, SFX purchased all of the outstanding shares of
Common Stock of Magicworks, a publicly traded company, for a total
consideration of approximately $115.7 million in cash. SFX consummated the
acquisition by means of a tender offer. SFX financed the acquisition with
available cash and borrowings under the then-existing senior credit facility.
Other Acquisitions
In 1998, SFX completed the acquisition of thirteen additional companies.
The thirteen acquisitions included four concert promotion and venue
owner/operators, two concert promotion companies, two theatrical presenters, a
theatrical presenter and venue owner/operator, a motor sports promoter and
presenter, a concert merchandising company and the equity owner of an SFX
amphitheater. The aggregate purchase price for these acquisitions was $194.8
million in cash, $10.0 million (present value at $8.2 million) in deferred
purchase consideration and 562,529 shares of Class A Common Stock having a
negotiated value of approximately $11.0 million. On December 16, 1999, the
Company repurchased
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<PAGE> 60
112,528 shares of Class A Common Stock for $2.0 million in connection with the
one of these acquisitions. SFX may be required to make additional payments to
the sellers of certain of the acquired companies based on the companies'
operating results (as defined in the acquisition agreements) for the years 1998
through 2000. SFX has accrued an additional $5.9 million of contingent purchase
price as of December 31, 1999. SFX paid $14.6 million related to these
agreements in 1999. SFX financed the initial purchase prices with available
cash and a portion of the proceeds of the 1998 Equity Offering.
1999 ACQUISITIONS
Cellar Door
On February 19, 1999, SFX purchased all of the issued and outstanding
capital stock of the Cellar Door group of companies for a purchase price of
$70.0 million in cash, 519,357 shares of Class A Common Stock with a value of
$20.0 million, and $8.5 million (present value of $6.8 million) payable in five
equal annual installments beginning on the first anniversary of the closing
date. In addition, SFX agreed to issue to the seller options to purchase
150,000 shares of Class A Common Stock in equal installments over the five-year
period following the closing date at fair market value. SFX financed the
acquisition with a portion of the net proceeds from its February 1999 Equity
Offering.
Nederlander
On March 16, 1999, SFX acquired certain interests in seven venues and
other assets of Nederlander for an aggregate purchase price of approximately
$93.8 million in cash. The agreement relating to the Mesa del Sol Centre for
the Performing Arts provides for additional payments based on the financial
performance of this venue. In the third quarter of 1999, SFX renegotiated the
agreement with respect to the Firstar Arena whereby SFX relinquished its
financial interest in the venue in exchange for a revised long-term venue
management agreement. SFX financed this acquisition with a portion of the net
proceeds of its February 1999 equity offering and borrowings under SFX's
then-existing senior credit facility. In addition, during the fourth quarter of
1999, SFX purchased the remaining 50% interest in a partnership which holds the
long-term leases to two amphitheaters for $32.6 million. SFX financed the
initial acquisition with a portion of the net proceeds of the February 1999
Equity Offering and borrowings under SFX's then-existing senior credit
facility.
Marquee
On March 16, 1999, a subsidiary of SFX was merged with and into The
Marquee Group, Inc. and Marquee become a wholly owned subsidiary of SFX. In
connection with the merger, SFX issued approximately 2.1 million shares of SFX
Class A Common Stock with a value of approximately $81.7 million on the date of
the merger and repaid $33.5 million of Marquee's debt. SFX financed the cash
portion of the acquisition with borrowings under its then-existing senior
credit facility. In addition to the above, SFX paid $20.5 million of contingent
purchase price which arose from purchases made by Marquee during 1999 and has
accrued an additional $22.9 million of contingent purchase price as of December
31, 1999. These amounts were recorded as additional purchase price and were
financed with a portion of the net proceeds from its August 1999 equity
offering. Under certain circumstances, the Company may be required to make
additional payments arising from Marquee's acquisition agreements.
As a result of the Marquee acquisition, the Company may be obligated to
repurchase 69,978 shares of Class A Common Stock issued in connection with the
acquisition. In January 2000, the Company repurchased 36,080 of such shares for
$1.9 million.
In the third quarter of 1999, SFX disposed of the operations of QBQ
Entertainment, Inc., whose primary business is the representation of artists in
the music industry as agent. No gain or loss was recognized on the transaction.
SFX does not have a management or ownership interest in the newly formed
company. In connection with the disposition, as of December 31, 1999, SFX had
loaned the newly formed company $7.2 million, which has been recorded as an
other asset on the consolidated balance sheet. SFX also rendered advisory
services to QBQ for which $1.0 million was recognized as revenue by the Company
in the consolidated statement of operations. The newly formed company is in the
process of obtaining independent financing.
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Livent
On August 27, 1999, SFX purchased certain assets of Livent, Inc., and its
affiliates, including three theaters and the intellectual property rights to
several current and future Broadway productions, including Ragtime, Fosse,
Phantom of the Opera and Seussical. The purchase price for this acquisition was
approximately $100.8 million, consisting of $79.3 million in cash, $18.4
million of deferred purchase consideration and $3.1 million in assumption of
debt, subject to post-closing adjustments. SFX financed the cash portion of the
acquisition with a portion of the net proceeds from its August 1999 Equity
Offering.
Apollo
On September 17, 1999, SFX acquired Apollo Leisure Group plc, the largest
live theater operator as well as one of the largest providers of entertainment
and leisure management services in the United Kingdom. The total purchase price
for the acquisition was approximately $256.4 million, comprised of
approximately $196.4 million in cash, 979,667 shares of Class A Common Stock
with a value of approximately $37.5 million and the assumption of net
liabilities of approximately $22.5 million, subject to post-closing
adjustments. Apollo operates, among other venues, 3 arenas and a network of 23
theaters. In connection with the Apollo acquisition, SFX acquired 100% of Barry
Clayman Concerts, which is a leading promoter of concert and other live
entertainment events throughout the U.K. SFX financed the cash portion of the
acquisition with borrowings under the Senior Credit Facility.
EMA Telstar
On October 4, 1999, SFX purchased EMA Telstar, a venue owner and a
promoter and producer of live entertainment events in Sweden, for approximately
$27.9 million in cash. The purchase price was paid with a portion of the net
proceeds from the August 1999 Equity Offering. Under certain conditions, the
Company may be required to make significant additional payments based upon
EMA's achievement of certain earnings targets.
Mojo Works
On October 21, 1999, SFX purchased 80% of the Mojo Works group of
companies, a promoter and producer of live entertainment in the Netherlands for
approximately $40.6 million in cash, including working capital, subject to
post-closing adjustments. The purchase price was paid with a portion of the net
proceeds from the August 1999 Equity Offering. Under certain circumstances, the
sellers have the right to sell the remaining 20% interest to SFX and SFX has
the right to purchase the remaining 20% interest from the sellers.
Other Acquisitions
During the first quarter of 1999, SFX also completed the acquisitions of
The Entertainment Group, Inc., a concert and theatrical producer, RZO, a
concert promoter, producer of international music concert tours and music
publishing business and the assets of Integrated Sports International, L.P., a
full-service sports marketing company and a music venue. The total
consideration for these acquisitions and the long-term marketing and consulting
agreement consisted of $73.2 million in cash and 142,766 shares of Class A
Common Stock valued at $5.2 million. In addition, SFX has accrued $4.0 million
of contingent purchase price as of December 31, 1999. SFX financed these
transactions with the proceeds from the February 1999 Equity Offering and
borrowings under SFX's then-existing senior credit facility. In addition, SFX
may be required to make additional payments of up to $13.0 million in cash and
75,000 shares of Class A Common Stock based on the financial performance of
certain of these acquired companies.
During the second quarter of 1999, SFX completed the acquisitions of
Hendricks Management Company, Inc., which represents and provides financial
consulting services to team sports athletes, primarily in professional baseball
and a 50% interest in A.H. Enterprises, a leading promoter of urban music. SFX
increased its ownership interest in A. H. Enterprises to 60% in January 2000.
The total
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consideration for these acquisitions was approximately $29.6 million in cash
and $4.1 million in deferred purchase consideration. SFX financed these
acquisitions with borrowings under SFX's then-existing senior credit facility
and cash on hand. In addition, SFX may be required to make additional payments,
in shares of SFX Class A Common Stock, based on the cumulative financial
performance of Hendricks Management Company, Inc. through December 31, 2002. In
addition, SFX invested approximately $11.2 million in certain entertainment and
sports related Internet companies.
During the third quarter of 1999, SFX completed the acquisitions of Candid
Productions, Inc., a producer of professional figure skating events, a 50%
interest in Cardenas Fernandez & Associates, Inc, a leading concert promoter
and producer of music concerts by Hispanic artists, Tellem & Associates, which
represents team sports athletes, primarily in professional baseball and
basketball and Midland Concert Promotions Group Limited, a concert promoter and
motorsports venue operator in the United Kingdom. The total consideration for
these acquisitions was approximately $66.4 million consisting of $49.2 million
in cash, and 253,666 shares of Class A Common Stock valued at $10.5 million and
$6.7 million in deferred purchase consideration. SFX financed these
acquisitions with a portion of the net proceeds of the August 1999 Equity
Offering and borrowings under the Senior Credit Facility.
During the fourth quarter of 1999, SFX completed the acquisitions of SME
Power Branding, a sports brand identity company, the rights to a 10-year lease
of Tabernacle, a music venue in Atlanta, Georgia and the assets of a sport
talent representation company in Australia. The total cash consideration for
these acquisitions was approximately $12.6 million. SFX financed these
acquisitions with a portion of the net proceeds of the August 1999 Equity
Offering and borrowings under the Senior Credit Facility.
The purchase price for all these acquisitions have been preliminarily
allocated to the assets acquired and liabilities assumed and are subject to
change. Operating results for these acquisitions are included herein from their
respective acquisition dates.
The following unaudited pro forma summary represents the consolidated
results for the years ended December 31, 1999, 1998 and 1997 as if the
acquisitions completed in 1999 had occurred as of January 1, 1998 and the
acquisitions completed in 1998 had occurred as of January 1, 1997. These pro
forma results have been included for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisitions been
made as of such date or of results which may occur in the future (in
thousands).
<TABLE>
<CAPTION>
PROFORMA YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Total revenues ......................... $ 2,020,092 $ 1,651,693 $ 883,901
Loss before extraordinary item ......... (74,981) (60,084) (49,414)
Net loss ............................... (77,471) (60,084) (49,414)
Loss applicable to basic and dilutive
common shares ......................... $ (1.23) $ (0.97) $ (1.17)
</TABLE>
5. SPIN-OFF
Pursuant to the terms of the Spin-Off, SFX Broadcasting contributed to the
Company all of the assets relating to its live entertainment businesses and the
Company assumed all of SFX Broadcasting's liabilities pertaining to the live
entertainment businesses, as well as certain other liabilities including the
obligation to make change of control payments to certain employees of SFX
Broadcasting of approximately $5.0 million, as well as the obligation to
indemnify one-half of certain of these employees' excise tax. SFX received $2.0
million of net Working Capital (as defined in the Broadcasting Merger
Agreement). In connection with the Spin-Off, the Company entered into a tax
sharing agreement with SFX Broadcasting. Pursuant to the tax sharing agreement,
as amended, the Company was responsible for certain taxes incurred by SFX
Broadcasting, including income taxes imposed with respect to income generated
by the Company for periods prior to the Spin-Off and taxes resulting from gain
recognized by SFX Broadcasting
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in the Spin-Off. The Company paid $109.7 million of estimated payments related
to this agreement during 1998. In 1999, the Company received $1.5 million in
cash from the Buyer as the settlement of the net Working Capital and certain
tax indemnities. The Company remains liable for certain other tax indemnities
(see Note 13).
6. PROPERTY AND EQUIPMENT
The Company's property and equipment as of December 31, 1999 and 1998
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -------------
<S> <C> <C>
Land and improvements ............................................. $ 43,550 $ 20,379
Building and improvements ......................................... 475,821 145,438
Furniture and equipment, including internal use software .......... 70,339 38,416
Leasehold improvements ............................................ 145,468 98,483
Assets under capital lease ........................................ 6,456 6,898
--------- ---------
741,634 309,614
Accumulated depreciation .......................................... (55,388) (16,988)
--------- ---------
$ 686,246 $ 292,626
========= =========
</TABLE>
7. GOODWILL
The Company's goodwill as of December 31, 1999 and 1998 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Goodwill .......................... $1,639,182 $ 919,618
Accumulated amortization .......... (135,201) (44,835)
---------- ---------
$1,503,981 $ 874,783
========== =========
</TABLE>
8. FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents and short-term,
long-term, and variable-rate debt approximate fair value as of December 31,
1999 and 1998. The Company estimates the fair value of its long-term,
fixed-rate debt generally by obtaining the applicable market quotation. The
estimated fair value of the Company's fixed rate notes ($350.0 million and
$200.0 million Senior Subordinated Notes) was $522.1 million and $507.3 million
at December 31, 1999 and 1998, respectively.
9. LONG-TERM DEBT
As of December 31, 1999 and 1998, the Company's long-term debt consisted
of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------- ------------
<S> <C> <C>
Senior credit facility ............................... $ 807,720 $ 196,000
Senior subordinated notes due February 2008 .......... 350,000 350,000
Senior subordinated notes due December 2008 .......... 200,000 200,000
Other debt ........................................... 18,215 14,996
Capital lease obligations (see Note 17) .............. 16,883 12,780
---------- ---------
1,392,818 773,776
Less: current portion ................................ (7,826) (5,581)
---------- ---------
$1,384,992 $ 768,195
========== =========
</TABLE>
Senior Credit Facility
On August 23, 1999, SFX entered into a new seven-year $1.1 billion Senior
Credit Facility which replaced SFX's then-existing $350.0 million senior credit
facility, which was entered into on February 26,
62
<PAGE> 64
1998. The new Senior Credit Facility is comprised of a $250.0 million
multi-draw, multi-currency term loan maturing on December 31, 2005 (the "Term A
Loan"), a single-draw, $600.0 million U.S. dollar term loan maturing on June
30, 2006 (the "Term Loan B") and a $250.0 million reducing revolver having a
letter of credit sub-limit of $75.0 million maturing on December 31, 2005. The
Company recorded a $2.5 million extraordinary loss on the early extinguishment
of debt, net of taxes of $1.8 million, related to the replaced facility.
Loans outstanding under the Senior Credit Facility bear interest, at SFX's
option, at certain spreads over LIBOR or the greater of the Federal Funds rate
plus 0.50% or the lender's prime rate. The interest rate spreads on the term
loan and the revolver are adjusted based on SFX's total leverage ratio, as
defined. SFX pays an annual commitment fee ranging from 0.50% to 0.75% on the
unused availability under the revolver. SFX pays an annual commitment fee
ranging from 0.8125% to 1.5625% on the unused availability under Team Loan A.
SFX also pays an annual letter of credit fee equal to the applicable LIBOR
margin, as defined, for the revolver then in effect. Loans outstanding under
the Senior Credit Facility at December 31, 1999 accrued interest at 9.23%.
Commitments to lend under the revolver are required to be reduced in equal
quarterly installments commencing March 31, 2003 according to the following
schedule: by 25.0% in 2003; by 25.0% in 2004; and by the remaining 50% upon
final maturity. Term Loan A is required to be repaid in equal quarterly
installments commencing March 31, 2001 according to the following schedule:
15.0% in 2001, 15.0% in 2002, 20.0% in 2003, 25.0% in 2004, and the remaining
balance of 25.0% upon maturity. Term Loan B is required to be repaid in equal
quarterly installments commencing September 30, 2001 totalling: 1.0% from
September 30, 2001 to June 30, 2002, 1.0% from September 30, 2002 to June 30,
2003, 1.0% from September 30, 2003 to June 30, 2004, 1.0% from September 30,
2004 to June 30, 2005, and the remaining balance of 96.0% from September 30,
2005 to June 30, 2006. It is expected that amounts outstanding under the Senior
Credit Facility will be subject to, among others, the following mandatory
prepayments, which will also permanently reduce commitments; a) 100.0% of the
net cash proceeds received from permitted Asset Sales (as defined in the Senior
Credit Facility), subject to standard reinvestment provisions; b) 50.0% of
Excess Cash Flow (as defined in the Senior Credit facility), calculated for
each fiscal year beginning with the year ending December 31, 2001; and c)
100.0% of the proceeds of casualty insurance or condemnation not used to repair
or replace the properties with respect to which the loss occurred within one
year from the receipt of such proceeds.
Borrowings under the new Senior Credit Facility are secured by
substantially all of the assets of SFX, including a pledge of the outstanding
stock of substantially all of its subsidaries, and are guaranteed by
substantially all of SFX's subsidiaries. The Senior Credit Facility contains
certain covenants that, among other things, limits the ability of SFX and its
subsidiaries to incur additional indebtedness, issue certain equity interests,
pay dividends and sell certain assets. In addition, the Senior Credit Facility
requires SFX to maintain compliance with certain specified financial covenants.
The new Senior Credit Facility also prohibits prepayment of any subordinated
notes.
Senior Subordinated Notes
On February 11, 1998, SFX completed an offering of $350.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due February 1, 2008 (the
"February 1998 Notes"). Interest is payable on the notes on February 1 and
August 1 of each year.
On November 25, 1998, SFX completed an offering of $200.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due December 1, 2008 (the
"November 1998 Notes" and together with the February 1998 Notes, the "Senior
Subordinated Notes"). Interest is payable on the notes on June 1 and December 1
of each year.
The Senior Subordinated Notes are general unsecured obligations of SFX,
subordinate in right to all senior debt, whether outstanding on the date of
issuance of the Senior Subordinated Notes or thereafter incurred, of SFX and
senior in right of payment to or with all other indebtedness of the Company.
The February 1998 Notes are not redeemable at SFX's option before February
1, 2003, and the November 1998 Notes are not redeemable at SFX's option before
December 1, 2003. Thereafter, each
63
<PAGE> 65
series of notes will be subject to redemption at any time at the option of SFX,
in whole or in part, at specified redemption prices plus accrued and unpaid
interest, and liquidated damages (as defined), if any. In addition, at any time
prior to February 1, 2001 with respect to the February 1998 Notes and December
1, 2001 with respect to the November 1998 Notes, SFX may on any one or more
occasions redeem up to 35.0% of the original aggregate principal amount of each
series of notes at a redemption price of 109.125% of the principal amount
thereof, plus accrued and unpaid interest and liquidated damages, if any, with
the net proceeds of one or more offerings of common equity of SFX.
The Senior Subordinated Note indentures contain certain covenants that,
among other things, significantly limit the ability of SFX and its subsidiaries
to incur additional indebtedness, issue certain equity interests, pay dividends
and sell certain assets.
In July 1999, SFX completed a consent solicitation with respect to its
outstanding Senior Subordinated Notes whereby it obtained approval from the
holders of the notes to modifications of certain covenants in the indentures
governing the notes. The modifications, among other things, provided SFX with
more flexibility to make investments and acquisitions internationally and
permit SFX's foreign subsidiaries to incur indebtedness, subject to certain
limitations. Fees associated with the transaction totaling approximately $13.7
million have been recorded as debt issuance costs as of December 31, 1999.
Upon a change of control under the indentures, SFX will be required to
make an offer to repurchase the Senior Subordinated Notes at a price equal to
101% of their principal amount, together with accrued and unpaid interest, if
any, to the date of purchase.
Principal maturities of the long-term debt, excluding capital leases and
deferred purchase consideration, over the next five years as of December 31,
1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000 ...................... $ 6,094
2001 ...................... 41,320
2002 ...................... 44,833
2003 ...................... 56,449
2004 ...................... 69,103
2005 & Thereafter ......... 1,158,136
-----------
Total ..................... $ 1,375,935
===========
</TABLE>
The Company is a holding company that has no operating assets or
operations of its own. Substantially all of the Company's subsidiaries are
wholly owned and have jointly and severally guaranteed the Company's Senior
Subordinated Notes (the "Guarantors"). A certain subsidiary which is not wholly
owned (the "Non-Wholly Owned Guarantor Subsidiary") guarantees such
indebtedness and certain subsidiaries (the "Non-Guarantor Subsidiaries") do not
guarantee such indebtedness.
Full financial statements of the Guarantors, Non-Guarantor Subsidiaries or
the Non-Wholly Owned Guarantor Subsidiary have not been included because,
pursuant to their respective guarantees, the Guarantors are jointly and
severally liable with respect to the Senior Subordinated Notes and management
believes that the Non-Guarantor Subsidiaries and Non-Wholly Owned Guarantor are
not material to the Company on a consolidated basis. Accordingly, the Company
does not believe that the information contained in separate full financial
statements of the Guarantors, Non-Guarantor Subsidiaries or the Non-Wholly
Owned Guarantor Subsidiary would be material to investors.
64
<PAGE> 66
The following are summarized unaudited statements setting forth certain
financial information concerning the Guarantors, the Non-Guarantor Subsidiaries
and the Non-Wholly Owned Guarantor Subsidiary as of and for the years ended
December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------
SFX
ENTERTAINMENT, NON-GUARANTOR
INC. GUARANTORS SUBSIDIARIES
---------------- -------------- ---------------
<S> <C> <C> <C>
Current assets ................ $ 290,164 $ 223,122 $ 74,380
Property and
equipment, net ............... 17,293 464,513 204,347
Goodwill, net ................. -- 1,284,059 210,346
Investment in
subsidiaries ................. 1,936,237 58,195 6,179
Other ......................... 74,948 17,123 10,148
----------- ----------- ---------
Total assets ................. $ 2,318,642 $ 2,047,012 $ 505,400
=========== =========== =========
Current liabilities ........... $ 68,183 $ 175,484 $ 118,185
Long-term debt, less
current ...................... 1,119,442 264,604 9,101
Other ......................... 12,172 56,960 4,161
Minority interest ............. -- 4,285 3,892
Temporary equity .............. 18,876 -- --
Shareholders' equity .......... 1,099,969 1,545,679 370,061
----------- ----------- ---------
Total liabilities and
shareholders' equity ......... $ 2,318,642 $ 2,047,012 $ 505,400
=========== =========== =========
Revenue ....................... $ -- $ 1,512,881 $ 115,357
Operating expenses ............ 20,238 1,465,981 107,678
Interest expense, net ......... 59,520 25,576 4,272
Minority interest ............. -- 5,203 299
Gains on sales of assets,
net .......................... (3,387) 2,586 41
(Benefit) provision for
income taxes ................. (2,194) 1,993 1,798
Extraordinary loss ............ 2,490 -- --
----------- ----------- ---------
Net (loss) income ............. $ (76,667) $ 11,542 $ 1,269
=========== =========== =========
Cash flow (used in)
provided by operations ....... $ (91,596) $ 126,659 $ (367)
Cash flow used in
investing .................... (837,393) (42,741) (2,906)
Cash flow provided by
(used in) financing .......... 1,189,213 (4,659) --
Effect of exchange rate ....... -- -- (1,658)
Cash at the beginning
of the period ................ 3,685 (9,298) 53,541
Cash at the end of the
period ....................... $ 263,909 $ 69,961 $ 48,610
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------
SFX
NON-WHOLLY, ENTERTAINMENT,
OWNED GUARANTOR INC.
SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------------- ----------------- ---------------
<S> <C> <C> <C>
Current assets ................ $ 176 $ -- $ 587,842
Property and
equipment, net ............... 93 -- 686,246
Goodwill, net ................. 9,576 -- 1,503,981
Investment in
subsidiaries ................. -- (1,936,237) 64,374
Other ......................... 4,211 -- 106,430
-------- ------------- ----------
Total assets ................. $ 14,056 $ (1,936,237) $2,948,873
======== ============= ==========
Current liabilities ........... $ 31 $ (205) $ 361,678
Long-term debt, less
current ...................... -- (8,155) 1,384,992
Other ......................... -- -- 73,293
Minority interest ............. 1,888 -- 10,065
Temporary equity .............. -- -- 18,876
Shareholders' equity .......... 12,137 (1,927,877) 1,099,969
-------- ------------- ----------
Total liabilities and
shareholders' equity ......... $ 14,056 $ (1,936,237) $2,948,873
======== ============= ==========
Revenue ....................... $ 56,117 $ -- $1,684,355
Operating expenses ............ 53,273 -- 1,647,170
Interest expense, net ......... (58) (1,079) 88,231
Minority interest ............. 515 -- 6,017
Gains on sales of assets,
net .......................... -- -- (760)
(Benefit) provision for
income taxes ................. -- -- 1,597
Extraordinary loss ............ -- -- 2,490
-------- ------------- ----------
Net (loss) income ............. $ 2,387 $ 1,079 $ (60,390)
======== ============= ==========
Cash flow (used in)
provided by operations ....... $ 183 $ -- $ 34,879
Cash flow used in
investing .................... (116) -- (883,156)
Cash flow provided by
(used in) financing .......... -- -- 1,184,554
Effect of exchange rate ....... -- -- (1,658)
Cash at the beginning
of the period ................ 93 -- 48,021
Cash at the end of the
period ....................... $ 160 $ -- $ 382,640
</TABLE>
65
<PAGE> 67
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------
SFX
ENTERTAINMENT, NON-GUARANTOR
INC. GUARANTORS SUBSIDIARIES
---------------- -------------- ---------------
<S> <C> <C> <C>
Current assets ................ $ 19,587 $ 122,118 $ 6,836
Property and
equipment, net ............... 10,390 272,243 9,993
Goodwill, net ................. -- 844,722 19,853
Investment in
subsidiaries ................. 1,161,103 18,450 --
Other assets .................. 28,911 17,377 2,572
----------- ---------- --------
Total assets ................. $ 1,219,991 $1,274,910 $ 39,254
=========== ========== ========
Current liabilities ........... $ 41,071 $ 118,766 $ 7,541
Long-term debt, less
current portion .............. 747,746 20,449 7,855
Other liabilities ............. 36,138 12,321 290
Minority interest ............. -- 5,505 428
Temporary equity .............. 16,500 -- --
Shareholders' equity .......... 378,536 1,117,869 23,140
----------- ---------- --------
Total liabilities
and shareholders'
equity ..................... $ 1,219,991 $1,274,910 $ 39,254
=========== ========== ========
Revenue ....................... $ -- $ 837,236 $ 25,245
Operating expenses ............ 50,963 805,418 22,174
Interest expense, net ......... 44,626 895 1,649
Minority interest ............. -- 644 989
Provision for income
taxes ........................ 1,350 1,650 --
----------- ---------- --------
Net (loss) income ............. $ (96,939) $ 28,629 $ 433
=========== ========== ========
Cash flow (used in)
provided by
operations ................... $ (44,932) $ 73,877 $ (962)
Cash flow used in
investing activities ......... (861,341) (30,005) (574)
Cash flow provided by
(used in) financing
activities ................... 909,958 (2,021) (1,416)
Cash at the beginning
of the period ................ -- 2,281 3,063
Cash at the end of the
period ....................... $ 3,685 $ 44,132 $ 111
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------
SFX
NON-WHOLLY, ENTERTAINMENT,
OWNED GUARANTOR INC.
SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------------- ----------------- ---------------
<S> <C> <C> <C>
Current assets ................ $ 192 $ -- $ 148,733
Property and
equipment, net ............... -- -- 292,626
Goodwill, net ................. 10,208 -- 874,783
Investment in
subsidiaries ................. -- (1,161,103) 18,450
Other assets .................. -- -- 48,860
-------- ------------- -----------
Total assets ................. $ 10,400 $ (1,161,103) $ 1,383,452
======== ============= ===========
Current liabilities ........... 76 $ (4,040) $ 163,414
Long-term debt, less
current portion .............. -- (7,855) 768,195
Other liabilities ............. -- -- 48,749
Minority interest ............. 2,125 -- 8,058
Temporary equity .............. -- -- 16,500
Shareholders' equity .......... 8,199 (1,149,208) 378,536
-------- ------------- -----------
Total liabilities
and shareholders'
equity ..................... $ 10,400 $ (1,161,103) $ 1,383,452
======== ============= ===========
Revenue ....................... $ 26,435 $ -- $ 888,916
Operating expenses ............ 24,991 -- 903,546
Interest expense, net ......... (33) (869) 46,268
Minority interest ............. 403 -- 2,036
Provision for income
taxes ........................ -- -- 3,000
-------- ------------- -----------
Net (loss) income ............. $ 1,074 $ 869 $ (65,934)
======== ============= ===========
Cash flow (used in)
provided by
operations ................... $ (542) $ -- $ 27,441
Cash flow used in
investing activities ......... -- -- (891,920)
Cash flow provided by
(used in) financing
activities ................... -- -- 906,521
Cash at the beginning
of the period ................ 635 -- 5,979
Cash at the end of the
period ....................... $ 93 $ -- $ 48,021
</TABLE>
10. CAPITAL STOCK
The authorized capital stock of the Company consists of 110,000,000 shares
of Common Stock (comprised of 100,000,000 shares of Class A Common Stock and
10,000,000 shares of Class B Common Stock), and 25,000,000 shares of preferred
stock, par value $.01 per share.
In the Spin-Off, (a) 20,368,536 shares of Class A Common Stock were
distributed to holders on the Spin-Off record date of SFX Broadcasting's Class
A common stock and Series D preferred stock, including 914,784 shares of Class
A common stock issued upon the exercise of certain warrants of SFX.
66
<PAGE> 68
Broadcasting and (b) 1,570,556 shares of Class B Common Stock were distributed
to holders on the Spin-Off record date of SFX Broadcasting Class B Common
Stock. The financial statements have been retroactively adjusted to reflect
this transaction.
Holders of Class A Common Stock and Class B Common Stock vote as a single
class on all matters submitted to a vote of the stockholders, with each share
of Class A Common Stock entitled to one vote and each share of Class B Common
Stock entitled to ten votes, except (a) for the election of directors, (b) with
respect to any "going private" transaction between the Company and Mr.
Sillerman or any of his affiliates and (c) as otherwise provided by law.
The Board of Directors has the authority to issue preferred stock and will
assign the designations and rights at the time of issuance.
During January 1998, in connection with the expectation of certain
executive officers entering into employment agreements with the Company, the
Board of Directors, upon recommendation of the Compensation Committee, approved
the sale of an aggregate of 975,000 shares of the Company's Class B Common
Stock and 285,000 shares of the Company's Class A Common Stock to certain
officers for a purchase price of $1.33 per share. Such shares were issued in
April 1998.
During 1998, the Board of Directors also approved the issuance of shares
of the Company's Class A Common Stock to holders of stock options or stock
appreciation rights ("SARs") of SFX Broadcasting as of the Spin-Off record
date, whether or not vested. The issuance was approved to allow such holders of
these options or SARs to participate in the Spin-Off in a similar manner to
holders of SFX Broadcasting's Class A Common Stock. Additionally, many of the
option holders were expected to become officers, directors and employees of the
Company.
On May 27, 1998, SFX consummated an offering of 12,075,000 shares of Class
A Common Stock at an offering price of $28.83 per share and received net
proceeds of approximately $329.0 million. SFX used the proceeds to consummate
certain of its 1998 acquisitions, to fund $93.7 million of tax indemnity
payments and to pay fees and other expenses.
In February 1999, SFX consummated an offering of 7,423,500 shares of Class
A Common Stock at an offering price of $37.00 per share and received net
proceeds of approximately $260.7 million. SFX used the proceeds to finance
certain of the 1999 Acquisitions.
In July of 1999, the Company completed a three-for-two split of SFX's
Class A and Class B Common Stock. The financial information presented herein
has been restated to reflect the effect of the stock split.
In August 1999, SFX consummated an offering of 8,625,000 shares of the
Company's Class A Common Stock at an offering price of $41.00 per share and
received net proceeds of approximately $337.9 million. SFX used a portion of
the net proceeds to finance certain of the 1999 Acquisitions and intends to use
the remaining portion of the net proceeds for general corporate purposes,
including potential future acquisitions.
On December 16, 1999, the Company repurchased 112,528 shares of Class A
Common Stock for $2.0 million in connection with the Westbury Music Fair, Inc.
acquisition. These shares were recorded as Class A Common Stock in treasury in
the consolidated balance sheet as of December 31, 1999.
11. STOCK OPTIONS
During January 1998, the Board of Directors and SFX Broadcasting, as sole
stockholder, approved and adopted a stock option plan providing for the
issuance of options to purchase shares of the Company's Class A Common Stock
totaling up to approximately 3.0 million shares. Under the stock option plan,
options to acquire Class A Common Stock have been granted to certain officers,
key employees and other individuals who perform services for the Company.
Options granted under these plans are generally granted at option prices equal
to the fair market value of the Class A Common Stock on the date of the
approval of the grant. Terms of the options, determined by the Company,
provided that the maximum term of each option shall not exceed ten years and
the options become fully exercisable within five years of continued employment
with the exception of certain options which were fully vested at the date of
grant.
67
<PAGE> 69
On November 4, 1998, the Board of Directors approved the grant of options
covering 4,500,000 shares of Class A Common Stock under the 1999 Plan to
employees, directors and consultants of SFX. Options granted under these plans
are generally granted at option prices equal to the fair market value of the
Class A Common Stock on the date of the approval of the grant. Terms of the
options, determined by the Company, provided that the maximum term of each
option shall not exceed ten years and the options become fully exercisable
within five years of continued employment with the exception of certain options
which were fully vested at the date of grant. As of December 31, 1999,
4,224,866 options had been granted under this Plan.
In addition, the Company granted an additional 575,312 options pursuant to
certain acquisition agreements.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options, as opposed to the
fair value accounting provided for under FAS Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement 123").
Pro forma information regarding net loss and loss per basic and dilutive
common share is required by Statement 123, and has been determined as if the
Company had accounted for its employee stock options under the fair value
method of that statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1999: risk-free interest rate of 5.29%; no
dividend yield; volatility factor of the expected market price of the Company's
Common Stock of 76.4%; and a weighted-average expected life of the options of 5
years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Therefore,
the impact on the pro forma results of operations in 1999 and 1998 may not be
representative of the impact in future periods should additional options be
granted. The Company's pro forma information follows (in thousands, except for
loss per share information).
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Pro forma net loss applicable to common shares ............... $ (77,741) $ (74,477)
Pro forma loss per basic and dilutive common share: .......... $ (1.34) $ (1.99)
</TABLE>
68
<PAGE> 70
A summary of the Company's stock options activity (adjusted for the stock
split), and related information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------- -------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- ---------------- --------- -----------------
<S> <C> <C> <C> <C>
Outstanding: beginning of year ................... 2,990,574 $ 21.84 -- $ --
Granted .......................................... 4,800,178 21.64 2,990,574 21.84
Exercised ........................................ (778,951) 18.25 -- --
Cancelled ........................................ (51,009) 18.93 -- --
--------- -------- --------- -------
Outstanding: end of year ......................... 6,960,792 $ 22.13 2,990,574 $ 21.84
========= ======== ========= =======
Exercisable at end of year ....................... 1,717,309 $ 26.48 -- $ --
========= ======== ========= =======
Weighted average fair value of options
granted during the year:
Stock price equal to exercise Price ............. $ 21.56 $ 25.60
Stock price in excess of exercise price ......... $ 31.68 $ 26.81
Stock price less than exercise price ............ $ 25.47 $ --
</TABLE>
A summary of the Company's options as of December 31, 1999 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ -----------------------------
WEIGHTED AVERAGE
NUMBER OF REMAINING CONTRACTUAL WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE
RANGE OF EXERCISE PRICE OPTIONS LIFE (YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
---------------------------- ----------- ----------------------- ------------------ ----------- -----------------
<S> <C> <C> <C> <C> <C>
$3.67 to $8.89.............. 452,500 8.0 $ 3.76 107,500 $ 4.03
$16.08 to $19.42............ 3,943,225 8.7 16.67 694,391 16.47
$20.45 to $29.14............ 1,589,607 8.4 28.47 475,994 27.87
$30.13 to $42.67............ 788,027 9.2 38.25 258,650 36.57
$48.05 to $67.48............ 187,433 8.8 59.85 180,774 60.18
--------- --- -------- ------- --------
$3.67 to $67.48............. 6,960,792 8.6 $ 22.13 1,717,309 $ 26.48
========= === ======== ========= ========
</TABLE>
12. BUSINESS SEGMENTS
SFX classifies its operations into four major business segments in the
live entertainment industry: music, theatrical, sports, and family
entertainment and other. The music segment primarily consists of the promotion
and production of live entertainment events, most significantly for concert and
other music performances in venues owned (partially or entirely) and/or
operated by SFX and in third party venues. The theatrical segment develops and
manages touring Broadway shows and other theatrical productions and owns and
operates theatrical venues. The sports segment acts as a full-service marketing
and management company specializing in the representation of athletes, as well
as promoting specialized motor sports events. The family entertainment and
other segment primarily consist of the promotion and marketing of
family-oriented events, marketing and consulting of local, regional and
national live marketing programs, the subscription or fee based radio and music
industry data compilation and distribution, the creation and distribution of
network radio special events and live concert programming and merchandising at
live events.
The Company evaluates performance based on several factors, of which the
primary financial measure is EBITDA, since this measure approximates the cash
flow generated by each segment. EBITDA is defined as earnings before interest,
taxes, minority interest, gains on sales of assets, non-cash and non-recurring
charges and depreciation and amortization, including start-up and integration
costs. The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The segment performance for
1997 is not presented as the Company did not have operations other than the
music segment during 1997.
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<PAGE> 71
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS)
-------------------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL
----------- ---------- --------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues ....................... $ 976,203 $ 289,671 $ 141,706 $ 276,775 $ -- $ 1,684,355
=========== ========= ========= ========= ========== ===========
EBITDA ......................... $ 118,693 $ 31,924 $ 33,281 $ 21,644 $ (18,524) $ 187,018
Depreciation and amortization,
including integration and
start-up costs of $12,701 ..... 77,669 14,368 24,313 18,295 7,938 142,583
Non-cash charges ............... -- -- -- -- 7,250 7,250
----------- --------- --------- --------- ---------- -----------
Income (loss) from operations .. $ 41,024 $ 17,556 $ 8,968 $ 3,349 $ (33,712) $ 37,185
=========== ========= ========= ========= ========== ===========
Total assets ................... $ 1,417,984 $ 568,705 $ 379,418 $ 188,998 $ 393,768 $ 2,948,873
=========== ========= ========= ========= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
------------------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL
--------- ---------- --------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues ....................... $ 604,469 $ 150,970 $ 24,899 $ 108,578 $ -- $ 888,916
========= ========= ========= ========= ========== ===========
EBITDA ......................... $ 61,204 $ 15,576 $ 2,466 $ 19,166 $ (11,194) $ 87,218
Depreciation and amortization,
including integration and
start-up costs of $2,406 ...... 36,606 5,557 5,363 9,071 5,600 62,197
Non-cash and non-recurring
charges ....................... -- 5,600 -- -- 34,051 39,651
--------- --------- --------- --------- ---------- -----------
Income (loss) from operations... $ 24,598 $ 4,419 $ (2,897) $ 10,095 $ (50,845) $ (14,630)
========= ========= ========= ========= ========== ===========
Total assets ................... $ 841,139 $ 220,865 $ 134,810 $ 122,262 $ 64,376 $ 1,383,452
========= ========= ========= ========= ========== ===========
</TABLE>
The regional reporting as of and for the year ended December 31, 1999 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
REGION REVENUES LONG-LIVED ASSETS
------------------------------- ---------- -----------------
<S> <C> <C>
North America ............... $1,593,335 $1,972,805
Europe ...................... 91,020 386,167
Other ....................... -- 2,059
---------- ----------
Total ....................... $1,684,355 $2,361,031
========== ==========
</TABLE>
The Company did not maintain operations outside of North America prior to
the year ended December 31, 1999.
70
<PAGE> 72
13. INCOME TAXES
The provisions for income taxes for the years ended December 31, 1999,
1998 and 1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- ----------
<S> <C> <C> <C>
Income from continuing operations before taxes and
extraordinary item:
Domestic .................................................. $ (55,846) $ (62,934) $ 4,304
Foreign ................................................... (457) -- --
---------- ---------- -------
(Loss) income before taxes and extraordinary item ......... $ (56,303) $ (62,934) $ 4,304
========== ========== =======
Provision (benefit) for income taxes:
Current:
Federal .................................................. $ 217 $ -- $ --
State and local .......................................... 1,693 3,000 420
Foreign .................................................. 1,880 -- --
---------- ---------- -------
3,790 3,000 420
---------- ---------- -------
Deferred:
Federal .................................................. (2,734) -- --
State and local .......................................... 541 -- 70
Foreign .................................................. -- -- --
---------- ---------- -------
(2,193) -- 70
---------- ---------- -------
Total provision for income taxes .......................... $ 1,597 $ 3,000 $ 490
========== ========== =======
</TABLE>
No federal benefit was recorded in 1998 as the Company was not assured it
would realize a tax benefit from the loss. No federal income taxes were
provided in 1997 as a result of the Company's inclusion in the consolidated
federal income tax return with SFX Broadcasting. If the Company had filed on a
stand-alone basis, its federal tax provision would have been approximately
$2,050,000, consisting of $1,760,000 in current taxes and approximately
$290,000 of deferred taxes.
During the period January 1, 1998 through April 27, 1998 the Company was a
member of the SFX Broadcasting consolidated federal income tax return.
Subsequent to April 27,1998, the date of the Spin-Off, the Company filed
separate tax returns. The Company has provided income taxes for all of 1999 and
1998 on a stand-alone basis.
71
<PAGE> 73
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax asset and liabilities as of December
31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Deferred compensation ....................................... $ 2,528 $ 783
Accounts receivable ......................................... 216 --
Depreciation and amortization ............................... 5,364 --
Deferred revenue ............................................ 5,345 6,274
Net operating loss carryforward ............................. 15,330 16,010
---------- ----------
Total deferred tax asset ..................................... 28,783 23,067
Valuation allowance ......................................... (2,631) (2,789)
---------- ----------
Total deferred tax asset, net of valuation allowance ......... 26,152 20,278
Deferred tax liabilities:
Assets acquired in business combinations .................... (71,437) (59,104)
Other ....................................................... (118) --
---------- ----------
Deferred tax liability ....................................... $ (45,403) $ (38,826)
========== ==========
</TABLE>
At December 31, 1999, 1998, and 1997 the tax provision differs from tax
provided at the statutory federal income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- ----------
<S> <C> <C> <C>
Statutory rate ............................... $ (19,706) $ (21,398) $ 1,463
State taxes, net of federal benefit .......... 1,452 3,000 490
Nondeductible stock compensation ............. -- 11,513 --
Minority interest ............................ 2,106 -- --
Goodwill amortization ........................ 17,658 3,869 800
Meals & entertainment ........................ 667 175 20
Effect of consolidated return loss ........... -- -- (2,283)
Valuation allowance .......................... (1,270) 2,789 --
Tax loss prior to Spin-Off ................... -- 3,052 --
Other ........................................ 690 -- --
---------- ---------- --------
$ 1,597 $ 3,000 $ 490
========== ========== ========
</TABLE>
The Company made numerous acquisitions during 1999 and 1998. As a result
of the purchase accounting for these acquisitions, the Company has recorded
deferred taxes of $15.3 million and $59.1 million, respectively, associated
with the excess of financial statement basis over the tax basis in the acquired
assets.
In conjunction with the Spin-Off, the Company paid approximately $109.7
million in tax of which approximately $90.2 million was recorded through equity
and the remaining $19.5 million was recorded as a deferred tax asset. The
deferred tax asset relates to basis differences in the assets received in the
Spin-Off. In addition, SFX remains liable for certain tax indemnities.
Management's estimates of the amount of the indemnity payment are based on
assumptions which management believes are reasonable. However, such assumptions
could be modified, including any potential tax audit adjustments, in a manner
that would result in a significant variance in the actual amount of the tax
indemnity. As of December 31, 1999, the Company has approximately $42.7 million
of net operating loss ("NOL") carryforwards. The Company's NOL carryforwards
will expire in the year 2019. The Company is currently reviewing whether these
losses can be carried back to an earlier year for a refund of federal income
taxes previously paid.
72
<PAGE> 74
14. NON-CASH AND NON-RECURRING CHARGES
In 1999, non-cash charges of $7.3 million consisted of (a) $3.3 million
related to the issuance of stock options to certain executive officers pursuant
to the employment agreements exercisable for an aggregate of 517,500 shares of
Class A Common Stock; (b) $2.0 million related to the write off of a concert
tour (c) $1.6 million related to the issuance of stock options, and (d)
$400,000 related to other non-cash charges.
In 1998, non-cash charges of $34.1 million consisted of (a) $23.9 million
of compensation related to the sale of 975,000 shares of Class B Common Stock
and 285,000 shares of Class A Common Stock at a purchase price of $1.33 per
share to certain executive officers (Note 10), (b) $7.5 million associated with
the issuance of 370,766 shares of Class A Common Stock to Mr. Robert F.X.
Sillerman, Executive Chairman of the Company, in connection with the repurchase
of shares of SFX Broadcasting issued to the sellers of the Meadows (Note 15);
(c) $2.4 million related to the issuance of stock options to certain executive
officers pursuant to employment agreements exercisable for an aggregate of
528,750 shares of Class A Common Stock; and (d) $300,000 related to the
deferred compensation plan for each non-employee director, adopted in January
1998, whereby each director was credited with the right to receive 8,183 shares
of Class A Common Stock based upon a $3.67 stock price per share.
In 1998, the non-recurring charges of $5.6 million consisted of certain
deposits paid for the Ragtime and Showboat touring productions and certain
related deferred expenses which, as a result of the Livent bankruptcy, were not
recovered.
15. RELATED PARTY TRANSACTIONS
Relationship between Howard J. Tytel and Baker & McKenzie
Howard J. Tytel, who is the Executive Vice President, General Counsel,
Secretary, Member of the Office of the Chairman and a director of SFX, was "Of
Counsel" to the law firm of Baker & McKenzie from the inception of the Company
to May 31, 1998. Mr. Tytel was also an executive vice president, the general
counsel and a director of SFX Broadcasting. Baker & McKenzie served as counsel
to SFX Broadcasting and Marquee and currently serves as counsel to SFX and
certain other affiliates of Mr. Sillerman. Baker & McKenzie formerly
compensated Mr. Tytel based, in part, on the fees it received from providing
legal services to SFX Broadcasting, SFX, Marquee, other affiliates of Mr.
Sillerman and other clients introduced to the firm by Mr. Tytel. Baker &
McKenzie has agreed to a severance arrangement with Mr. Tytel, which is not
based on fees received by Baker & McKenzie. In 1997, the Company incurred fees
of approximately $2.9 million for legal services. Such fees were funded by SFX
Broadcasting on behalf of the Company. In February 1998, the Company reimbursed
SFX Broadcasting for these fees. From April 27, 1998, the date of the Spin-Off,
until May 31, 1998, SFX incurred and paid Baker & McKenzie approximately $1.5
million for legal services. Management believes that this arrangement was as
fair to SFX as any that could have been obtained from an unrelated party on an
arms-length basis.
Triathlon Fees
Under the terms of an agreement to provide marketing services to Triathlon
Broadcasting, Inc., until June 1, 2005, for an annual fee of $500,000, together
with a refundable advance of $500,000 per year against fees earned in respect
to consulting and of transactional investment banking services, the Company
recorded fees of $132,000, $530,000 and $1,794,000 for the year ended December
31, 1999, 1998 and 1997, respectively. In 1999, Triathlon was acquired by a
third party and ceased paying consulting fees.
Meadows Repurchase
In connection with the acquisition of the Meadows, SFX Broadcasting
obtained an option to repurchase 370,766 shares of its Class A common stock for
$8.2 million. Pursuant to the terms of the Broadcasting Merger Agreement, if
the Meadows Shares were outstanding at the effective time of the Broadcasting
Merger, working capital paid to SFX would be decreased by approximately $10.3
million. However, SFX Broadcasting was restricted from exercising the Meadows
Repurchase by certain loan covenants and other restrictions.
73
<PAGE> 75
In January 1998, Robert F.X. Sillerman, the Executive Chairman of SFX,
financed the $8.2 million exercise price of the Meadows Repurchase to offset
the $10.3 million reduction to working capital. In consideration, Mr. Sillerman
received the Class A shares in the Spin-Off.
16. DEFINED CONTRIBUTION PLAN
The Company sponsors a 401(k) defined contribution plan in which most
full-time employees are eligible to participate. The plan presently provides
for discretionary employer contributions. During 1999 and 1998, each subsidiary
maintained its own pension/profit sharing plan. The amounts charged to
operations under these separate plans in 1999 and 1998 was approximately
$1,543,000 and $627,870, respectively. There were no contributions in 1997.
17. LEASES
The Company's leases primarily relate to venues, office space and land.
The lease terms range from 1 to 38 years for operating leases and 1 to 49 years
for capital leases. A number of the leases provide for escalating rent over the
lease term. Rental expense on operating leases is recognized on a straight-line
basis over the life of such leases. The majority of the amphitheater leases
provide for contingent rentals, generally based upon a percentage of gross
revenues, as defined in the respective lease agreements. Rental expense
associated with operating leases for 1999, 1998 and 1997 was approximately
$26,137,000, $19,496,000 and $2,753,000, respectively. Contingent rental
expense associated with operating leases for 1999 and 1998 was approximately
$5,887,000 and $4,282,000, respectively. There was no contingent rental expense
for 1997. Interest rates on capital leases range form 6.5% to 14%.
Minimum rental commitments on long-term capital and operating leases at
December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
------------------ ---------------
<S> <C> <C>
2000 ........................... $ 21,256 $ 3,546
2001 ........................... 19,935 3,440
2002 ........................... 18,005 3,033
2003 ........................... 17,506 1,257
2004 ........................... 15,426 1,257
2005 and thereafter ............ 179,136 23,878
--------- -------
$ 271,264 36,411
=========
Less: Interest ................. 19,528
-------
16,883
Less: Current portion .......... 1,732
-------
$15,151
=======
</TABLE>
On March 13, 2000, the Company entered into a lease agreement covering the
Candler Tower, a 24 story building in New York. The bottom three floors will be
subleased for retail uses. The balance of the building, consisting of
approximately 180,000 square feet will be used as the Company's world
headquarters. The lease is for a 20 year term with two consecutive 10 year
options. The landlord has committed to contribute in excess of $7.0 million
toward the tenant build-out work. In addition, the City and State of New York
have committed to provide economic development benefits to the Company in
connection with its initial and ongoing capital purchases.
74
<PAGE> 76
18. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
While the Company is involved in several lawsuits and claims arising in
the ordinary course of business, the Company is not currently a party to any
legal proceeding that management believes would have a material adverse effect
on its business, financial position or results of operations.
The Company has employment agreements and arrangements with its executive
officers and certain management personnel. The agreements provide for various
minimum annual base compensation packages with terms varying between 1-5 years,
expiring on various dates, as well as insurance coverage and discretionary
bonus clauses. The future minimum payments for all noncancelable employee
agreements at December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
EMPLOYMENT
AGREEMENTS
-----------
<S> <C>
2000 ........................ $ 32,757
2001 ........................ 30,523
2002 ........................ 26,694
2003 ........................ 16,716
2004 ........................ 6,975
2005 and thereafter ......... --
---------
Total ....................... $ 113,665
=========
</TABLE>
Certain employment contracts, primarily those of the executive officers,
contain provisions for payments in the event of a change in control, as defined
in the employment agreements. In July 1999, SFX adopted an executive loan
program which is intended to incentivize certain executives to enter into new
employment agreements with the Company upon the expiration of their existing
agreements. During the third quarter of 1999, the Company loaned certain senior
executives $14.1 million pursuant to this plan. The loans, which bear interest
at a rate of 6.0% per annum, are included in notes receivable from related
parties and employees on the consolidated balance sheet. Under the terms of the
loans, if any of the participants in the loan program enter into new long-term
employment agreements with SFX, effective upon termination of the existing
employment agreement, the participant's loan would be forgiven ratably over the
term of the new employment agreement.
On January 15, 2000, in connection with the renegotiation of employment
agreements with members of the Company's senior management group, the Company
issued fully-vested options to purchase an aggregate of 2,102,500 shares of the
Company's Class A Common Stock at prices that were below the then-current
market price, which will result in a non-cash compensation charge of $54.2
million in the first quarter of 2000. These options were issued as an
inducement to cause each executive officer to enter into an amended long-term
employment agreement. In addition, the Company forgave amounts due under the
executive loan program of certain executives which will result in future
charges in the Company's statement of operations.
Pursuant to a real estate purchase agreement with the sellers of Oakdale
Theater, the Company has agreed to purchase the land, building and improvements
of the Oakdale Theater at the end of the Company's fifteen-year lease of the
premises in June 2013 for $15.4 million. In June 1998, the Company extended an
$11.4 million note receivable to the sellers which is secured by the property
which has been recorded in notes receivable from related parties and employees
in the accompanying consolidated balance sheet.
The Company has committed to construct three new amphitheaters in the
Seattle, Washington, Sacramento, California and the Albuquerque, New Mexico
markets. SFX expects to spend an additional $46.5 million on these projects in
2000. In addition, the Company has committed to other capital projects totaling
approximately $15.0 million in 2000. The committed capital expenditures do not
include amounts that may be required for construction of major new venues,
major renovations at existing venues or leasehold improvements that may be
required at SFX's new world headquarters at the Candler Building.
75
<PAGE> 77
As of December 31, 1999, 1998 and 1997, outstanding letters of credit for
$39,727,000, $2,597,000 and $1,110,000, respectively, were issued by banks on
behalf of the Company as security for loans and the rental of theaters.
In 1994, the Connecticut Development Authority ("CDA") entered into a
non-recourse assistance agreement with the Company whereby the CDA provided
grant funds of $8,863,000 for the construction and development of the Meadows
through the issuance of State of Connecticut General Fund Obligation Bonds
("GFO Bonds"). The annual tax revenues derived from the operation of the
amphitheater are utilized to satisfy the annual service requirements of the GFO
Bonds. If the annual tax revenues are less than the annual service
requirements, the Company must deposit the lesser of the operating shortfall,
as defined, or 10.0% of the annual service requirements under the GFO Bonds. An
operating shortfall has not existed since the inception of the CDA. The GFO
Bonds mature on October 15, 2024 and have an average coupon rate of 6.33%.
The agreement governing the partnership through which PACE holds its
interest in the Lakewood Amphitheater in Atlanta, Georgia contains a provision
that purports to restrict PACE and its affiliates from directly or indirectly
owning or operating another amphitheater in Atlanta. In management's view, this
provision will not materially affect the business or prospects of the Company.
However, the Company acquired an interest in the Chastain Park Amphitheater,
also in Atlanta, in the Concert/Southern acquisition. The Company intends to
seek a waiver.
Pursuant to certain acquisition agreements certain sellers have the right
to repurchase certain of the businesses sold to SFX.
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
year ended December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
1999 QUARTER
----------------------------------------------------------- YEAR ENDED
1ST 2ND 3RD 4TH DECEMBER 31, 1999
------------ ------------ -------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Total revenue ............................ $ 276,121 $ 407,685 $ 527,185 $ 473,364 $ 1,684,355
Gross profit ............................. 27,030 55,702 100,430 22,380 205,542
(Loss) income before extraordinary
item .................................... (17,625) (10,052) 15,245 (45,468) (57,900)
Net (loss) income ........................ (17,625) (10,052) 12,625 (45,338) (60,390)
Net (loss) income per basic common
share before extraordinary item ......... $ (0.55) $ (0.20) $ 0.23 $ (0.70) $ (1.06)
Extraordinary loss on early
extinguishment of debt per basic
common share ............................ -- -- ( 0.04) -- ( 0.04)
--------- --------- ---------- --------- -----------
Net (loss) income per basic common
share ................................... $ (0.55) $ (0.20) $ 0.19 $ (0.70) $ (1.10)
========= ========= ========== ========= ===========
Net (loss) income per dilutive
common share before
extraordinary item ...................... $ (0.55) $ (0.20) $ 0.22 $ (0.70) $ (1.06)
Extraordinary loss on early
extinguishment of debt per dilutive
common share ............................ -- -- ( 0.04) -- ( 0.04)
--------- --------- ---------- --------- -----------
Net (loss) income per dilutive
common share ............................ $ (0.55) $ (0.20) $ 0.18 $ (0.70) $ (1.10)
========= ========= ========== ========= ===========
</TABLE>
76
<PAGE> 78
20. SUBSEQUENT EVENTS (UNAUDITED)
2000 ACQUISITIONS
In the first quarter of 2000, SFX completed the acquisitions of Speakers
of Sport, which represents team sports athletes, primarily in professional
baseball and the Electric Factory Concerts group of companies, the primary
concert promoter in the Philadelphia, Pennsylvania area. The total
consideration for these acquisitions was approximately $65.4 million. These
acquisitions were financed through a portion of the proceeds of the August 1999
Equity Offering.
See Note 2 regarding proposed merger with Clear Channel Communications,
Inc.
77
<PAGE> 79
SFX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 276,142 $ 382,640
Accounts receivable, net 112,683 120,230
Prepaid event expenses 86,976 41,154
Investments in and receivables from theatrical and other productions 4,718 5,978
Other prepaid expenses 22,655 23,686
Notes receivables from related parties and employees 2,276 1,749
Other current assets 12,732 12,405
----------- -----------
Total current assets 518,182 587,842
Property and equipment, net of accumulated depreciation of $68,674 and
$55,388 at March 31, 2000 and December 31, 1999, respectively 688,738 686,246
Goodwill, net of accumulated amortization of $166,577 and
$135,201 at March 31, 2000 and December 31, 1999, respectively 1,601,329 1,503,981
Investment in and receivables from investees 100,527 64,374
Notes receivable from related parties and employees, less current portion 14,055 29,225
Debt issuance costs, net 48,211 49,888
Other assets 38,839 27,317
----------- -----------
TOTAL ASSETS $ 3,009,881 $ 2,948,873
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,357 $ 23,714
Accrued expenses 133,740 109,163
Accrued interest payable 20,932 23,972
Deferred revenue 234,243 139,393
Current portion of long-term debt 14,480 7,826
Current portion of deferred purchase consideration 47,270 57,610
----------- -----------
Total current liabilities 473,022 361,678
Long-term debt, less current portion 1,418,088 1,384,992
Deferred purchase consideration, less current portion 17,621 18,617
Deferred income taxes 27,817 45,403
Other liabilities 10,431 9,273
----------- -----------
TOTAL LIABILITIES 1,946,979 1,819,963
Minority interest 9,506 10,065
Temporary equity - stock subject to redemption 17,026 18,876
Shareholders' equity:
Preferred Stock, $.01 par value, 25,000,000 shares authorized, none issued
and outstanding as of March 31, 2000 and December 31, 1999, respectively -- --
Class A Common Stock, $.01 par value, 100,000,000 shares authorized,
63,918,492 and 63,873,657 shares issued and outstanding as of March 31,
2000 and December 31, 1999, respectively 639 639
Class B common stock, $.01 par value, 10,000,000 shares authorized,
2,545,557 shares issued and outstanding as of March 31, 2000 and
December 31, 1999, respectively 25 25
Additional paid in capital 1,295,718 1,238,186
Deferred compensation (2,857) (3,775)
Accumulated deficit (253,280) (133,106)
Less: cost of Class A Common Stock in treasury (3,875) (2,000)
----------- -----------
Total shareholders' equity 1,036,370 1,099,969
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,009,881 $ 2,948,873
=========== ===========
</TABLE>
See accompanying notes.
78
<PAGE> 80
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenue $ 427,609 $ 275,147
Income from equity investments 280 974
------------ ------------
Total revenue 427,889 276,121
Operating expenses:
Cost of revenues 304,211 210,190
Selling, general and administrative expenses 87,257 37,962
Corporate expenses 6,322 5,180
Depreciation and amortization, including integration and start-up
costs of $3,734 and $1,428 in 2000 and 1999, respectively 49,019 26,228
Other charges 82,020 983
------------ ------------
528,829 280,543
------------ ------------
Loss from operations (100,940) (4,422)
Interest expense (36,576) (18,805)
Investment and other income 3,802 590
Minority interest (634) (84)
------------ ------------
Loss before income taxes (134,348) (22,721)
Benefit for income taxes 17,257 5,096
------------ ------------
Net loss (117,091) (17,625)
Accretion on stock subject to redemption (709) (825)
------------ ------------
Net loss applicable to common shares $ (117,800) $ (18,450)
============ ============
Basic and dilutive net loss per common share $ (1.77) $ (0.37)
============ ============
Weighted average basic and dilutive common shares outstanding 66,416,438 50,390,513
============ ============
</TABLE>
See accompanying notes.
79
<PAGE> 81
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
--------- ---------
Operating activities:
<S> <C> <C>
Net loss $(117,091) $ (17,625)
Adjustment to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 45,285 24,800
Income from equity investments, net of amounts received 3,103 212
Non-cash charges 69,897 983
Minority interest 634 84
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable, net 1,732 (2,138)
Prepaid event expenses (30,161) (20,222)
Other prepaid expenses and other current assets (6,068) (10,093)
Other assets and notes receivable from related parties (5,001) 11,633
Accounts payable, accrued expenses and other liabilities (14,471) (5,112)
Accrued interest payable (3,258) (3,054)
Deferred revenue 79,324 25,854
--------- ---------
Net cash provided by operating activities 23,925 5,322
--------- ---------
Investing activities:
Purchases of businesses, net of cash acquired (156,960) (264,598)
Purchases of property and equipment (14,506) (11,053)
--------- ---------
Net cash used in investing activities (171,466) (275,651)
--------- ---------
Financing activities:
Borrowings under the senior credit facilities 44,000 181,000
Proceeds from the issuance of common stock -- 261,804
Payment for treasury stock (1,875) --
Repayment of debt and capital lease obligations (752) (139,188)
Other, principally the exercise of stock options in 2000 704 (78)
--------- ---------
Net cash provided by financing activities 42,077 303,538
--------- ---------
Effect of exchange rate changes on cash (1,034) --
--------- ---------
Net (decrease) increase in cash and cash equivalents (106,498) 33,209
Cash and cash equivalents at beginning of period 382,640 48,021
--------- ---------
Cash and cash equivalents at end of period $ 276,142 $ 81,230
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 37,305 $ 20,923
========= =========
Cash paid for income taxes $ 1,228 $ 2,034
========= =========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
o Issuance of equity securities, the assumption of debt and the agreements to
pay future cash consideration in connection with certain acquisitions (see
Note 4).
o Cash and cash equivalents included $3.65 million of cash at March 31, 1999
which had been deposited in a separate account and was used to fund
committed capital expenditures.
See accompanying notes.
80
<PAGE> 82
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Class A Class B Additional
Common Common Paid-In Deferred Accumulated Treasury
Stock Stock Capital Compensation Deficit Stock Total
----- ----- ------- ------------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 2000 $ 639 $ 25 $ 1,238,186 $ (3,775) $ (133,106) $ (2,000) $ 1,099,969
Issuance of 44,835 shares of Class A
Common Stock pursuant to the
exercise of employee stock options -- -- 704 -- -- -- 704
Issuance of options to purchase
2,102,500 shares of Class A Common
Stock pursuant to employment agreements -- -- 54,244 -- -- -- 54,244
Repurchase of 30,563 shares of Class A
Common Stock -- -- 1,875 -- -- (1,875) --
Accretion on stock subject to
redemption -- -- 709 -- (709) -- --
Amortization of deferred compensation -- -- -- 918 -- -- 918
Net loss -- -- -- -- (117,091) -- (117,091)
Comprehensive loss
foreign currency translation -- -- -- -- (2,374) -- (2,374)
------- ------- ----------- ----------- ----------- ----------- -----------
Comprehensive loss -- -- -- -- (119,465) -- (119,465)
------- ------- ----------- ----------- ----------- ----------- -----------
Balances, March 31, 2000 (unaudited) $ 639 $ 25 $ 1,295,718 $ (2,857) $ (253,280) $ (3,875) $ 1,036,370
======= ======= =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
81
<PAGE> 83
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
SFX Entertainment, Inc. ("SFX") is the world's largest diversified
promoter, producer and venue operator for live entertainment events. In
addition, SFX is a leading fully integrated sports marketing and management
company specializing in the representation of sports athletes and broadcasters,
integrated event management, television programming and production and marketing
consulting services. SFX owns, partially or entirely, and/or operates under
lease or exclusive booking arrangements the largest network of venues used
principally for music concerts and other live entertainment events in the United
States, with 92 venues in 31 of the top 50 markets, including 17 amphitheaters
in the top 10 markets and 9 venues used principally for theatrical
presentations. In addition, SFX owns or operates 28 international venues used
primarily for theatrical presentations.
In July of 1999, SFX completed a three-for-two split of its Class A and
B Common Stock. The financial and share information presented herein has been
restated, to the extent applicable, to reflect the effect of the stock split.
Certain 1999 amounts have been reclassified to conform to their 2000
presentation.
Information with respect to the three months ended March 31, 2000 and
1999 is unaudited. The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the unaudited interim consolidated financial statements contain
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the consolidated financial position, results of operations and
cash flows of SFX, for the periods presented.
2. PROPOSED MERGER WITH CLEAR CHANNEL COMMUNICATIONS, INC.
On February 29, 2000, SFX announced that it entered into a definitive
merger agreement with Clear Channel Communications, Inc. Under the terms of the
merger agreement, the Class A stockholders of SFX will receive 0.6 shares of
Clear Channel Communications, Inc. common stock for each SFX share, and Class B
stockholders of SFX will receive one share of Clear Channel Communications, Inc.
common stock for each SFX share, on a fixed exchange basis. The proposed merger
would require an amendment to SFX's certificate of incorporation to allow the
unequal consideration being paid to the holders of Class A and Class B Common
Stock. The transaction is expected to be consummated early in the third quarter
of 2000, subject to the approval of Class A and B stockholders of SFX and
customary regulatory approvals and closing conditions. On May 4, 2000, the
U.S. Federal Trade Commission granted early termination on the statutory
waiting period under Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended.
Under the terms of the merger agreement between Clear Channel and SFX,
certain payments and other distributions will be made to employees and senior
management of SFX in connection with the merger, which would result in SFX
recording significant compensation expense.
Between approximately February 29 and March 10, 2000, 11 lawsuits were
filed by various plaintiffs against SFX, its directors and Clear Channel with
respect to the proposed merger. On May 12, 2000, SFX and counsel to the
plaintiffs in the shareholder litigation entered into a memorandum of
understanding regarding a proposed settlement that would result in a
modification of the consideration payable to such holders in the merger (See
Note 9).
3. FINANCINGS
February 1999 Equity Offering
In February 1999, SFX consummated an offering of 7,423,500 shares of
its Class A Common Stock at an offering price of $37.00 per share and received
net proceeds of approximately $260.7 million. SFX used the proceeds to finance
certain of the 1999 acquisitions.
August 1999 Equity Offering
In August 1999, SFX consummated an offering of 8,625,000 shares of its
Class A Common Stock at an offering price of $41.00 per share and received net
proceeds of approximately $337.9 million. SFX used the proceeds to consummate
certain of its 1999 and 2000 acquisitions.
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<PAGE> 84
Senior Credit Facility
On August 23, 1999, SFX entered into a new seven-year $1.1 billion
senior credit facility which replaced SFX's then-existing $350.0 million senior
credit facility. The new senior credit facility is comprised of a $250.0 million
multi-draw, multi-currency term loan maturing on December 31, 2005, a
single-draw, $600.0 million U.S. dollar term loan maturing on June 30, 2006 and
a $250.0 million reducing revolver having a letter of credit sub-limit of $75.0
million maturing on December 31, 2005. SFX used a portion of the net proceeds to
finance certain of its 1999 and 2000 acquisitions and intends to use the
remaining portion of the net proceeds for general corporate purposes and
potential future acquisitions.
4. ACQUISITIONS
2000 ACQUISITIONS
During the first quarter of 2000, SFX completed the acquisitions of
Speakers of Sport, which represents team sports athletes, primarily professional
baseball players; the Electric Factory Concerts group of companies, the leading
concert promoter in the Philadelphia, Pennsylvania area; and certain other
companies. The total consideration for these acquisitions was approximately
$91.6 million, including $20.0 million of deferred consideration payable in
stock. In addition, SFX paid $36.1 million in cash for certain equity
investments. SFX financed these acquisitions with borrowings under its senior
credit facility and cash on hand.
1999 ACQUISITIONS
The following table is a brief description of the acquisitions
completed by SFX in 1999. A detailed description of the 1999 acquisitions is
included in SFX's Annual Report on Form 10-K for the year ended December 31,
1999, as amended.
<TABLE>
<CAPTION>
(in thousands) Cash Number
Consideration Value of Of
Date And Assumed Stock Shares Business
Company Acquired Debt (1) Issued Issued Segment
------------------- ----------- ---------------- --------- ---------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cellar Door 2/19/99 $ 79,396 $20,000 519 Music
Nederlander 3/16/99 126,423 - - Music
Marquee 3/16/99 76,945 81,728 2,103 Sports
Livent 8/27/99 100,809 - - Theatrical
Apollo 9/17/99 218,942 37,472 980 Theatrical, Family Entertainment & Other and Music
EMA Telstar 10/4/99 27,857 - - Music
Mojo Works 10/21/99 40,654 - - Music
Other Acquisitions Various 178,839 15,745 397 All segments
--------- --------- -----
Total $ 849,865 $ 154,945 3,999
========= ========= =====
</TABLE>
(1) Includes cash paid related to deferred contingent purchase price agreements.
Certain of the agreements relating to SFX's acquisitions provide for
purchase price adjustments and other future contingent payments based on the
financial performance of the acquired companies. As of March 31, 2000, SFX had
accrued $19.5 million related to such contingent cash payments which are
included as deferred purchase consideration on the consolidated balance sheet.
SFX will continue to accrue additional amounts related to such contingent
payments if and when it is determinable beyond a resonable doubt that the
applicable financial performance targets will be met.
SFX's 1999 and 2000 acquisitions were accounted for using the purchase
method of accounting. The purchase price of certain of the 1999 and 2000
acquisitions have been preliminarily allocated to the assets acquired and
liabilities assumed and are subject to change. Operating results for the 1999
and 2000 acquisitions are included herein from their respective acquisition
dates.
The following pro forma summary represents the consolidated results of
operations for the three months ended March 31, 2000 and the year ended December
31, 1999 as if the 1999 and 2000 acquisitions and related financings had
occurred as of January 1, 1999. These pro forma results have been included for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisitions and related financings been made as of those dates
or of the results which may occur in the future (in thousands, except per share
data).
83
<PAGE> 85
<TABLE>
<CAPTION>
Pro Forma
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Total revenue $ 431,009 $393,654
Net loss (117,226) (37,136)
Basic and dilutive net loss per
common shares $ (1.79) $ (0.58)
</TABLE>
5. BUSINESS SEGMENTS
SFX classifies its operations into four major business segments in the
live entertainment industry: music, theater, sports and family entertainment &
other. The music segment primarily consists of the promotion and production of
live entertainment events, most significantly for concerts in venues owned
(partially or entirely) and/or operated by SFX and in third party venues. The
theater segment develops and manages touring Broadway shows and other theatrical
productions and owns and operates theatrical venues. The sports segment acts as
a full-service marketing and management company specializing in the
representation of team sports athletes, as well as promoting specialized motor
sports events. The family entertainment & other segment primarily consists of
the promotion and marketing of family-oriented events, marketing and consulting
for local, regional and national live marketing programs, the subscription or
fee based radio and music industry data compilation and distribution, the
creation and distribution of network radio special events and live concert
programming and merchandising at live events.
SFX's operations and revenues have been largely seasonal in nature,
with generally higher revenues generated in the second and third quarters. SFX's
outdoor venues are primarily used in the summer months and do not generate
substantial revenue in the late fall, winter and early spring. SFX's
entertainment marketing and consulting in connection with such outdoor venues
also predominantly generate revenues in the second and third quarters.
Therefore, the seasonality of SFX's business causes, and will continue to cause,
a significant variation in SFX's quarterly operating results.
SFX evaluates performance based on several factors, of which the
primary financial measure is EBITDA, because this measure approximates the cash
flow generated by each segment. EBITDA is defined as earnings before interest,
taxes, investment and other income, minority interest, other charges and
depreciation and amortization, including integration and start-up costs. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies contained in SFX's Annual Report on
Form 10-K, for the year ended December 31, 1999, as amended.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 (IN THOUSANDS)
------------------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS & OTHER CORPORATE TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $ 170,121 $ 112,146 $ 83,835 $ 61,787 $ -- $ 427,889
=========== =========== =========== =========== =========== ===========
EBITDA $ (30) $ 14,487 $ 17,799 $ 4,165 $ (6,322) $ 30,099
Depreciation and amortization,
including integration and
start-up costs of $3,734 23,868 5,945 11,359 5,979 1,868 49,019
Other charges -- -- -- -- 82,020 82,020
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations $ (23,898) $ 8,542 $ 6,440 $ (1,814) $ (90,210) $ (100,940)
=========== =========== =========== =========== =========== ===========
Total assets as of March 31, 2000 $ 1,640,852 $ 576,448 $ 429,901 $ 191,871 $ 170,809 $ 3,009,881
=========== =========== =========== =========== =========== ===========
</TABLE>
84
<PAGE> 86
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 (IN THOUSANDS)
------------------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS & OTHER CORPORATE TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $ 106,103 $ 80,383 $ 55,749 $ 33,886 $ -- $ 276,121
=========== =========== =========== =========== =========== ===========
EBITDA $ 2,203 $ 7,587 $ 14,452 $ 3,727 $ (5,180) $ 22,789
Depreciation and amortization,
including integration and
start-up costs of $1,428 15,286 2,472 3,046 4,637 787 26,228
Other charges -- -- -- -- 983 983
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations $ (13,083) $ 5,115 $ 11,406 $ (910) $ (6,950) $ (4,422)
=========== =========== =========== =========== =========== ===========
----------- ----------- ----------- ----------- ----------- -----------
Total assets as of March 31, 1999 $ 1,059,957 $ 144,419 $ 336,528 $ 255,656 $ 65,306 $ 1,861,866
=========== =========== =========== =========== =========== ===========
</TABLE>
6. OTHER CHARGES
Other charges for the three months ended March 31, 2000 were $82.0
million consisting of $69.9 million of non-cash charges, $7.6 million of merger
related expenses, primarily investment banking and legal fees related to the
proposed merger of SFX with a subsidiary of Clear Channel Communications, Inc.
and $4.5 million of cash payments, principally to settle potential rights to
future payments under a contingent purchase price agreement.
The $69.9 million of non-cash charges consisted primarily of $54.2
million related to the issuance of fully-vested options to purchase 2,102,500
shares of SFX's Class A Common Stock at prices that were below the then current
market price. The options were issued to members of SFX's senior management
group in connection with new long-term employment agreements entered into on
January 15, 2000. The non-cash charges also included $14.7 million related to
the forgiveness of loans granted under an executive loan program and $1.0
million related to the issuance of stock options. In connection with the above
agreements, each executive agreed to forfeit his change of control stock options
provided for under his previous employment agreement.
Other charges for the three months ended March 31, 1999 of $983,000
consisted of charges related to the issuance of stock options.
7. DILUTIVE EARNINGS PER SHARE
Outstanding stock options at March 31, 2000 and 1999 had no dilutive
effect on basic earnings per share during the three months ended March 31, 2000
and 1999 due to the SFX's net loss position.
8. GUARANTEES BY SUBSIDIARIES
SFX is a holding company that has no operating assets or operations of
its own. Substantially all of SFX's subsidiaries are wholly owned and have
jointly and severally guaranteed SFX's senior subordinated notes (the
"Guarantors"). A certain subsidiary which is not wholly owned (the "Non-Wholly
Owned Guarantor Subsidiary") guarantees such indebtedness and certain
subsidiaries (the "Non-Guarantor Subsidiaries") do not guarantee such
indebtedness.
Full financial statements of the Guarantors, Non-Guarantor Subsidiaries
and the Non-Wholly Owned Guarantor Subsidiary have not been included because,
pursuant to their respective guarantees, the Guarantors are jointly and
severally liable with respect to the senior subordinated notes and management
believes that the Non-Guarantor Subsidiaries and Non-Wholly Owned Guarantor are
not material to SFX on a consolidated basis. Accordingly, SFX does not believe
that the information contained in separate full financial statements of the
Guarantors, Non-Guarantor Subsidiaries or the Non-Wholly Owned Guarantor
Subsidiary would be material to investors. The following are summarized
unaudited statements setting forth certain financial information concerning the
Guarantors, the Non-Guarantor Subsidiaries and the Non-Wholly Owned Guarantor
Subsidiary as of and for the three months ended March 31, 2000 and 1999 (in
thousands).
85
<PAGE> 87
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------------------------------------
NON-WHOLLY SFX
SFX OWNED ENTERTAINMENT,
ENTERTAINMENT, NON-GUARANTOR GUARANTOR INC.
INC. GUARANTORS SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 145,888 $ 294,298 $ 77,455 $ 541 $ -- $ 518,182
Property and equipment, net 18,118 472,678 197,852 90 -- 688,738
Goodwill, net -- 1,386,064 205,863 9,402 -- 1,601,329
Investment in subsidiaries 2,295,179 93,209 7,318 -- (2,295,179) 100,527
Other assets 61,622 17,558 18,153 3,772 -- 101,105
----------- ----------- ----------- ----------- ----------- -----------
Total assets $ 2,520,807 $ 2,263,807 $ 506,641 $ 13,805 $(2,295,179) $ 3,009,881
=========== =========== =========== =========== =========== ===========
Current liabilities $ 63,656 $ 287,605 $ 121,781 $ 185 $ (205) $ 473,022
Long-term debt, less current portion 1,391,414 24,798 10,031 -- (8,155) 1,418,088
Other liabilities 12,341 39,272 4,256 -- -- 55,869
Minority interest -- 3,711 3,907 1,888 -- 9,506
Temporary equity 17,026 -- -- -- -- 17,026
Shareholders' equity 1,036,370 1,908,421 366,666 11,732 (2,286,819) 1,036,370
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities $ 2,520,807 $ 2,263,807 $ 506,641 $ 13,805 $(2,295,179) $ 3,009,881
=========== =========== =========== =========== =========== ===========
Revenue $ -- $ 370,280 $ 56,495 $ 1,114 $ -- $ 427,889
Operating expenses 87,475 383,166 56,667 1,521 -- 528,829
Interest expense, net 30,832 1,940 274 (2) (270) 32,774
Minority interest -- 440 194 -- -- 634
(Benefit) provision for
income taxes (17,291) (6) 40 -- -- (17,257)
----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income $ (101,016) $ (15,260) $ (680) $ (405) $ 270 $ (117,091)
=========== =========== =========== =========== =========== ===========
Cash flows (used in) provided by
operating activities $ (29,396) $ 55,285 $ (2,332) $ 368 $ -- $ 23,925
Cash flows (used in) provided by
investing activities (158,522) (16,086) 3,145 (3) -- (171,466)
Cash flows provided by (used in)
financing activities 42,829 (764) 12 -- -- 42,077
Effect of exchange rate -- (1,034) -- -- -- (1,034)
Cash at the beginning of the period 263,909 68,384 50,187 160 -- 382,640
Cash at the end of the period $ 118,820 $ 105,785 $ 51,012 $ 525 $ -- $ 276,142
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------------------------------------------------------
NON-WHOLLY SFX
SFX OWNED ENTERTAINMENT,
ENTERTAINMENT, NON-GUARANTOR GUARANTOR INC.
INC. GUARANTORS SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ -- $ 272,960 $ 805 $ 2,356 $ -- $ 276,121
Operating expenses 4,432 269,898 3,553 2,660 -- 280,543
Interest expense, net 18,009 (782) 1,224 -- (236) 18,215
Minority interest -- 147 -- (63) -- 84
Provision for income taxes (6,441) 1,345 -- -- -- (5,096)
----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income $ (16,000) $ 2,352 $ (3,972) $ (241) $ 236 $ (17,625)
=========== =========== =========== =========== =========== ===========
Cash flows (used in ) provided by
operating activities $ (26,561) $ 29,809 $ 1,144 $ 930 $ -- $ 5,322
Cash flows used in investing
activities (265,025) (10,089) (537) -- -- (275,651)
Cash flows provided by (used in)
financing activities 302,680 1,398 (540) -- -- 303,538
Cash at the beginning of the period 3,685 44,132 111 93 -- 48,021
Cash at the end of the period $ 14,779 $ 65,250 $ 178 $ 1,023 $ -- $ 81,230
</TABLE>
86
<PAGE> 88
The summarized consolidating balance sheet concerning the Guarantors,
the Non-Guarantor Subsidiaries and the Non-Wholly Owned Guarantor Subsidiaries
as of December 31, 1999 is included in SFX's Annual Report on Form 10-K for the
year ended December 31, 1999, as amended.
9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
While SFX is involved in several lawsuits and claims arising in the
ordinary course of business, SFX is not currently a party to any legal
proceeding that management believes would have a material adverse effect on its
business, financial position or results of operations.
Between approximately February 29 and March 10, 2000, 11 lawsuits were
filed in the Court of Chancery in the State of Delaware, New Castle County, by
various plaintiffs, all claiming to be holders of SFX Class A Common Stock,
against SFX, its directors and Clear Channel. The complaints all seek
essentially the same relief, i.e., certification as a class action, an
injunction enjoining consummation of the merger and/or damages in an amount to
be determined. The complaints allege that the difference in consideration for
the Class A and Class B Common Stock of SFX constitutes unfair consideration to
the Class B common stockholders. The complaints allege that SFX's directors have
breached their fiduciary duty in agreeing to such terms and conditions and
further allege that Clear Channel aided and abetted the actions of the directors
of SFX. To date, no answers have been filed by any of the defendants. A
plaintiff in one of the lawsuits has filed a motion for summary judgment. The
defendants have replied to that motion and it is currently pending before the
court. SFX and the other defendants intend to defend the actions vigorously and
believe they are without merit.
On May 12, 2000, SFX and counsel to the plaintiffs in the shareholder
litigation entered into a memorandum of understanding regarding a proposed
settlement that would result in a modification of the consideration payable to
such holders in the merger. Under the proposed settlement, Clear Channel would
pay to the holders of the SFX Class A Common Stock an aggregate of $34.5
million, less the amount of fees and expenses awarded to plaintiffs' counsel by
the court. Neither SFX nor Clear Channel would be liable for any additional
legal fees or expenses of counsel for the plaintiffs. Amounts payable under the
proposed settlement may be paid either in cash or Clear Channel common stock.
The proposed settlement is subject to certain conditions, including court
approval. Accordingly, there can be no assurance that the terms of the proposed
settlement will not change or that the settlement will, in fact, occur. The
shareholder litigation was the sole factor in SFX and Clear Channel agreeing to
the modifications in the terms of the merger contemplated by the proposed
settlement.
87
<PAGE> 89
(b) Pro forma financial information
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed consolidated financial
statements give effect to the SFX merger and AMFM merger. For accounting
purposes, Clear Channel will account for the SFX merger and AMFM merger as a
purchase of SFX and AMFM respectively; accordingly, the net assets of SFX and
AMFM have been adjusted to their estimated fair values based upon a preliminary
purchase price allocation.
The unaudited pro forma combined condensed consolidated balance sheet at
March 31, 2000 gives effect to the SFX merger and AMFM merger as if they
occurred on March 31, 2000. The unaudited pro forma combined condensed
consolidated statements of operations for the year ended December 31, 1999 and
for the three months ended March 31, 2000 give effect to the SFX merger and
AMFM merger as if they had occurred on January 1, 1999.
The unaudited pro forma combined condensed consolidated balance sheet was
prepared based upon the historical balance sheets of Clear Channel and SFX. The
unaudited pro forma combined condensed consolidated statements of operations for
year ended December 31, 1999 and for the three months ended March 31, 2000 was
prepared based upon the historical statement of operations of Clear Channel,
adjusted to reflect the merger with Jacor Communications, Inc. as if such merger
had occurred on January 1, 1999 ("Clear Channel Pro Forma") and the historical
statements of operations of SFX.
Additionally, with respect to the AMFM merger, the unaudited pro forma
combined condensed consolidated balance sheet at March 31, 2000 was prepared
based upon the historical balance sheet of AMFM, adjusted for certain financing
transactions, as if such transactions had occurred on March 31, 2000. The
unaudited pro forma combined condensed consolidated statement of operations for
the year ended December 31, 1999, with respect to the AMFM merger, was prepared
based upon the historical statement of operations of AMFM, adjusted to reflect
the merger with Capstar Broadcasting Corporation, the acquisition of KKFR-FM and
KFYI-AM from The Broadcast Group, Inc., the disposition of WMVP-AM to ABC, Inc.,
the disposition of AMFM's outdoor advertising business to Lamar Advertising
Company and certain financing transactions as if such transactions had occurred
on January 1, 1999 ("1999 AMFM Merger Effect"). The unaudited pro forma combined
condensed consolidated statement of operations for the three months ended March
31, 2000, with respect to the AMFM merger, was prepared based upon the
historical statement of operations of AMFM, adjusted to reflect certain
financing transactions as if such transactions had occurred on January 1, 1999
("2000 AMFM Merger Effect"). Additionally, the AMFM Merger Effect 1999 and 2000
financial statements have been adjusted for the expected divestitures of 112
radio stations in markets where the combined AMFM and Clear Channel radio
stations exceed the number necessary to obtain regulatory approvals for the
merger. These divestitures have been recorded based upon managements' best
estimates as to the expected cash sales proceeds for the stations involved.
Certain amounts in the SFX historical financial statements and the AMFM
Merger Effect financial statements have been reclassified to conform to Clear
Channel's presentation. The unaudited pro forma combined condensed consolidated
financial statements exclude the effect of certain acquisitions of Clear
Channel, SFX and AMFM as these transactions were insignificant, individually and
in the aggregate, to the financial position or results of operations of each
respective company.
The unaudited pro forma combined condensed consolidated financial
statements should be read in conjunction with the historical financial
statements of Clear Channel, SFX and AMFM.
The unaudited pro forma combined condensed consolidated financial
statements are not necessarily indicative of the actual results of operations or
financial position that would have occurred had the mergers and the above
described acquisitions, dispositions, financing and merger transactions of Clear
Channel, SFX and AMFM occurred on the dates indicated nor are they necessarily
indicative of future operating results or financial position.
88
<PAGE> 90
CLEAR CHANNEL SFX AND AMFM
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
AT MARCH 31, 2000
ASSETS
<TABLE>
<CAPTION>
CLEAR CHANNEL,
MERGER AMFM SFX AND AMFM
CLEAR CHANNEL SFX PRO FORMA MERGER PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS(A) EFFECT MERGER
------------- ---------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.......... $ 320,129 $ 276,142 $ (70,000) $ 68,804 $ 595,075
Accounts receivable, net........... 712,375 112,683 -- 455,380 1,280,438
Other current assets............... 140,277 129,357 -- 60,920 330,554
----------- ---------- ---------- ----------- -----------
Total Current Assets......... 1,172,781 518,182 (70,000) 585,104 2,206,067
Property, plant & equipment, net..... 2,595,254 688,738 -- 373,791 3,657,783
Intangible assets, net............... 12,067,774 1,601,329 2,278,340 23,416,593 39,364,036
Other assets:
Restricted cash.................... 136 -- -- -- 136
Notes receivable................... 53,675 14,055 -- -- 67,730
Equity investments in, and advances
to, nonconsolidated affiliates... 380,933 100,527 (21,341) 1,125,373 1,585,492
Other assets....................... 298,114 87,050 -- 252,031 637,195
Other investments.................. 953,964 -- (122,437) -- 831,527
----------- ---------- ---------- ----------- -----------
TOTAL ASSETS................. $17,522,631 $3,009,881 $2,064,562 $25,752,892 $48,349,966
=========== ========== ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued expenses
and other current liabilities.... $ 642,588 $ 458,542 $ -- $ 310,970 $ 1,412,100
Current portion of long-term
debt............................. 42,235 14,480 -- -- 56,715
----------- ---------- ---------- ----------- -----------
Total Current Liabilities.... 684,823 473,022 -- 310,970 1,468,815
Long-term debt....................... 4,698,997 1,418,088 42,438 2,955,416 9,114,939
Liquid yield options notes........... 492,309 -- -- -- 492,309
Deferred income taxes................ 1,349,217 27,817 (13,145) 4,894,226 6,258,115
Other long-term liabilities.......... 139,375 28,052 -- 52,023 219,450
Minority interest.................... 17,275 9,506 -- 3,435 30,216
Temporary equity..................... -- 17,026 -- -- 17,026
Shareholders' Equity:
Common stock....................... 33,890 664 3,237 20,362 58,153
Additional paid-in capital......... 9,227,641 1,295,718 1,796,431 17,031,419 29,351,209
Common stock warrants.............. 250,587 -- -- -- 250,587
Retained earnings (accumulated
deficit)......................... 256,731 (253,280) 253,280 485,041 741,772
Other comprehensive income......... 370,416 -- (24,411) -- 346,005
Other.............................. 2,304 (2,857) 2,857 -- 2,304
Cost of shares held in treasury.... (934) (3,875) 3,875 -- (934)
----------- ---------- ---------- ----------- -----------
Total Shareholders' Equity... 10,140,635 1,036,370 2,035,269 17,536,822 30,749,096
----------- ---------- ---------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY....... $17,522,631 $3,009,881 $2,064,562 $25,752,892 $48,349,966
=========== ========== ========== =========== ===========
</TABLE>
89
<PAGE> 91
CLEAR CHANNEL SFX AND AMFM
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 CLEAR CHANNEL,
PRO FORMA AMFM SFX AND AMFM
CLEAR CHANNEL SFX MERGER MERGER PRO FORMA
PRO FORMA HISTORICAL ADJUSTMENTS(B) EFFECT MERGER
------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Net revenue...................... $2,949,807 $1,684,355 $ (8,340) $1,675,607 $6,301,429
Operating expenses............... 1,824,192 1,478,813 9,264 916,534 4,228,803
Depreciation and amortization.... 817,060 142,583 80,104 951,351 1,991,098
Noncash compensation expense..... -- 7,250 -- 26,727 33,977
Merger and nonrecurring costs.... -- -- -- 77,978 77,978
Corporate expenses............... 77,519 18,524 -- 64,750 160,793
---------- ---------- -------- ---------- ----------
Operating income (loss).......... 231,036 37,185 (97,708) (361,733) (191,220)
Interest expense................. 232,979 100,825 (5,664) 256,756 584,896
Gain on disposition of assets.... 1,734 760 -- 12,289 14,783
Gain on disposition of
representation contracts....... -- -- -- 18,173 18,173
Other income -- net.............. 20,046 6,577 -- 1,250 27,873
---------- ---------- -------- ---------- ----------
Income (loss) before income
taxes, equity in earnings
(loss) of nonconsolidated
affiliates and extraordinary
item........................... 19,837 (56,303) (92,044) (586,777) (715,287)
Income tax (expense) benefit..... (85,393) (1,597) (2,266) 175,879 86,623
---------- ---------- -------- ---------- ----------
Income (loss) before equity in
earnings (loss) of
nonconsolidated affiliates and
extraordinary item............. (65,556) (57,900) (94,310) (410,898) (628,664)
Equity in earnings (loss) of
nonconsolidated affiliates..... 16,077 -- 4,903 (68,466) (47,486)
---------- ---------- -------- ---------- ----------
Income (loss) before
extraordinary item............. $ (49,479) $ (57,900) $(89,407) $ (479,364) $ (676,150)
========== ========== ======== ========== ==========
Income (loss) before
extraordinary item per common
share:
Basic.......................... $ (0.15) $ (1.06) $ (1.16)
========== ========== ==========
Diluted........................ $ (0.15) $ (1.06) $ (1.16)
========== ========== ==========
</TABLE>
90
<PAGE> 92
CLEAR CHANNEL SFX AND AMFM
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
2000 CLEAR CHANNEL,
PRO FORMA AMFM SFX AND AMFM
CLEAR CHANNEL SFX MERGER MERGER PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS(B) EFFECT MERGER
------------- ---------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Net revenue.................... $782,539 $ 427,889 $ (2,031) $ 341,046 $1,549,443
Operating expenses............. 519,961 391,468 1,983 171,985 1,085,397
Depreciation and
amortization................. 220,054 49,019 13,386 218,067 500,526
Noncash compensation expense... -- 69,897 -- 34,878 104,775
Merger and nonrecurring
costs........................ -- 12,123 (7,602) 11,115 15,636
Corporate expenses............. 24,578 6,322 -- 15,302 46,202
-------- --------- -------- --------- ----------
Operating income (loss)........ 17,946 (100,940) (9,798) (110,301) (203,093)
Interest expense............... 55,549 36,576 (1,302) 67,662 158,485
Gain on disposition of
assets....................... -- -- -- 22,819 22,819
Gain on disposition of
representation contracts..... -- -- -- 16,217 16,217
Other income -- net............ 398 3,168 -- 697 4,263
-------- --------- -------- --------- ----------
Income (loss) before income
taxes, equity in earnings
(loss) of nonconsolidated
affiliates and extraordinary
item......................... (37,205) (134,348) (8,496) (138,230) (318,279)
Income tax (expense) benefit... (5,133) 17,257 (521) 11,844 23,447
-------- --------- -------- --------- ----------
Income (loss) before equity in
earnings (loss) of
nonconsolidated affiliates
and extraordinary item....... (42,338) (117,091) (9,017) (126,386) (294,832)
Equity in earnings (loss) of
nonconsolidated affiliates... 2,936 -- 280 (19,565) (16,349)
-------- --------- -------- --------- ----------
Income (loss) before
extraordinary item........... $(39,402) $(117,091) $ (8,737) $(145,951) $ (311,181)
======== ========= ======== ========= ==========
Income (loss) before
extraordinary item per common
share:
Basic........................ $ (0.12) $ (1.77) $ (0.54)
======== ========= ==========
Diluted...................... $ (0.12) $ (1.77) $ (0.54)
======== ========= ==========
</TABLE>
91
<PAGE> 93
CLEAR CHANNEL
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Clear Channel and SFX unaudited pro forma combined condensed consolidated
financial statements reflect the merger, accounted for as a purchase, as
follows:
<TABLE>
<S> <C>
SFX Class A common shares outstanding March 31, 2000 less
shares held in treasury................................... 63,775,401
Less: Class A shares held by Clear Channel at March 31,
2000...................................................... (3,000,000)
-----------
Adjusted Class A common stock outstanding................... 60,775,401
Share conversion number..................................... 0.60
-----------
Clear Channel's common stock to be issued to Class A
holders................................................... 36,465,241
SFX Class B common shares outstanding March 31, 2000 (1:1
conversion)............................................... 2,545,557
-----------
Total Clear Channel common stock to be issued in the
merger.................................................... 39,010,798
Estimated value per share (based on the average price
between February 23, 2000 and March 2, 2000).............. $ 74.0089
-----------
$ 2,887,146
Estimated value of common stock options and other equity.... 208,904
Historical cost of SFX common shares held by Clear
Channel................................................... 84,881
Estimated transaction costs................................. 70,000
-----------
Total estimated purchase price.................... $ 3,250,931
===========
</TABLE>
For purposes of these statements the total estimated purchase price was
allocated as follows:
<TABLE>
<S> <C>
Total estimated purchase price.............................. $3,250,931
Plus -- estimated fair value of long-term debt in excess of
carrying value............................................ 42,438
Less -- SFX net assets at March 31, 2000.................... 1,036,370
Plus -- Historical cost of SFX investment not purchased..... 21,341
Plus -- elimination of SFX's existing net goodwill and other
intangible assets......................................... 1,601,329
----------
Estimated purchase price allocated to goodwill and other
intangible assets......................................... $3,879,669
==========
</TABLE>
The estimated purchase price allocated to goodwill and other intangible
assets of $3,879,669 will be amortized over a 20 year period using the
straight-line method, which will result in annual amortization of $193,983.
Clear Channel will be required to refinance certain outstanding SFX
long-term debt.
The unaudited pro forma combined condensed consolidated balance sheet is
based on the assumption that SFX's debt holders will not tender their debt
securities based on a change of control of SFX, although Clear Channel must
offer to tender all of SFX's senior notes and notes at prices ranging from 100%
to 101% of the principal amount of the notes. It is expected that the debt
holders will not accept Clear Channel's tender offer, as the fair value of this
debt is expected to be greater than the required offer at the time of the offer.
92
<PAGE> 94
CLEAR CHANNEL
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(A) The pro forma merger adjustments at March 31, 2000 are as follows:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
----------
<S> <C> <C>
(1) Decrease in cash resulting from estimated merger expenses
including the $34.5 million proposed settlement to SFX
shareholder suits........................................... $ (70,000)
(2) Increase in intangible assets, net equal to the excess
purchase price of the merger and the elimination of SFX's
pre-existing intangible assets.............................. 2,278,340
(3) Decrease in equity investment in, and advances to,
nonconsolidated affiliates resulting from the elimination of
SFX investments not purchased............................... (21,341)
(4) Decrease in other investments resulting from the elimination
of Clear Channel's investment in SFX common stock........... (122,437)
(5) Increase in long-term debt resulting from the mark-up of
SFX's debt to fair value in excess of carrying value........ 42,438
(6) Decrease in deferred income taxes resulting from the
elimination of deferred tax on unrealized gain related to
Clear Channel's investment in SFX common stock.............. (13,145)
(7) Increase in common stock to account for Clear Channel common
stock given in the merger, net of SFX's outstanding shares,
at $0.10 par value.......................................... 3,237
(8) Increase in additional paid-in capital to account for Clear
Channel common stock given in the merger at $74.0089 per
share less $0.10 par value ($2,883,245) plus the value of
SFX stock options included in the merger ($208,904) less
SFX's additional paid-in capital balance ($1,295,718)....... 1,796,431
(9) Increase in retained earnings (accumulated deficit) to
eliminate SFX's existing accumulated deficit balance........ 253,280
(10) Decrease in other comprehensive income resulting from the
elimination of Clear Channel's unrealized gain on their
investment in SFX common stock.............................. (24,411)
(11) Increase in other equity resulting from the elimination of
SFX's deferred compensation................................. 2,857
(12) Increase in cost of shares held in treasury resulting from
the cancelation of SFX's shares held in treasury............ 3,875
</TABLE>
93
<PAGE> 95
CLEAR CHANNEL
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(B) The pro forma merger adjustments for the year ended December 31, 1999 and
for the three months ended March 31, 2000 are as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
TO INCOME
--------------------
12/31/99 3/31/00
--------- --------
<S> <C> <C> <C>
(13) Decrease in revenue due to the elimination of services
SFX provided to Clear Channel and services Clear Channel
provided to SFX and the reclassification of earnings from
equity method investments out of net revenue (SFX's
policy) into equity in earnings of nonconsolidated
affiliates (Clear Channel's policy)...................... $ (8,340) $ (2,031)
(14) Decrease in operating expense due to the elimination of
services SFX provided to Clear Channel and services Clear
Channel provided to SFX of $3,437 and $1,751 for 12/31/99
and 3/31/00, respectively, offset by the increase in
operating expenses resulting from change in
classification of integration and start-up costs of
$12,701 and $3,734 for 12/31/99 and 3/31/00,
respectively, from treatment as depreciation expense
(SFX's policy) to treatment as operating expense (Clear
Channel's policy)........................................ (9,264) (1,983)
(15) Increase in amortization expense resulting from the
additional goodwill created by the merger, other
intangible assets acquired in the merger and a change in
the life of intangible assets amortization from an
average of 15 years (SFX's policy) to an average of 20
years (Clear Channel's policy) of $92,805 and $17,120 for
12/31/99 and 3/31/00, respectively, partially offset by
the reclassification of $12,701 and $3,734 for 12/31/99
and 3/31/00, respectively, from depreciation expense to
operating expense........................................ (80,104) (13,386)
(16) Decrease in merger and non-recurring costs due to the
elimination of direct merger related expenses............ -- 7,602
(17) Decrease in interest expense resulting from the
amortization of premium on long-term debt resulting from
the mark-up to fair value................................ 5,664 1,302
(18) Increase in income tax expense associated with the tax
effect of adjustment (15) at Clear Channel's assumed tax
rate of 40%.............................................. (2,266) (521)
(19) Increase in equity in earnings (loss) of nonconsolidated
affiliates resulting from the reclassification of
earnings from equity method investments out of revenue
(SFX's policy) into equity in earnings of nonconsolidated
affiliates (Clear Channel's policy)...................... 4,903 280
</TABLE>
94
<PAGE> 96
CLEAR CHANNEL
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma basic and diluted share information is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------
12/31/99 3/31/00
--------- --------
<S> <C> <C> <C>
Basic:
Clear Channel pro forma weighted-average shares
outstanding............................................... 340,249 338,803
SFX weighted-average shares outstanding...................... 58,204 66,416
Decrease weighted-average common stock outstanding to account
for Clear Channel's common stock given in the merger at
the share conversion number of 0.60 for SFX's Class A
common stock and 1.0 for SFX's Class B common stock....... (19,202) (27,406)
-------- --------
Clear Channel and SFX pro forma merger weighted-average
shares outstanding........................................ 379,251 377,813
======== ========
Diluted:
Clear Channel pro forma weighted-average shares
outstanding............................................... 358,149 374,994
SFX weighted-average shares outstanding...................... 61,542 71,108
Decrease weighted-average common stock outstanding to account
for Clear Channel's common stock given in the merger and
to account for the dilution effect SFX's common stock
warrants, employee stock options and other dilutive shares
have on the Company at the share conversion number of 0.60
for SFX's Class A common stock and 1.0 for SFX's Class B
common stock.............................................. (20,538) (29,282)
-------- --------
Clear Channel and SFX pro forma merger weighted-average
shares outstanding........................................ 399,153 416,820
======== ========
</TABLE>
95
<PAGE> 97
CLEAR CHANNEL
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
JACOR
CLEAR HISTORICAL CLEAR
CHANNEL 1/1 TO 5/4 PRO FORMA CHANNEL
HISTORICAL 1999 ADJUSTMENT(A) PRO FORMA
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Net revenue.................................. $2,678,160 $271,647 $ -- $2,949,807
Operating expenses........................... 1,632,115 192,077 -- 1,824,192
Depreciation and amortization................ 722,233 46,951 47,876 817,060
Corporate expenses........................... 70,146 7,373 -- 77,519
---------- -------- --------- ----------
Operating income (loss)...................... 253,666 25,246 (47,876) 231,036
Interest expense............................. 192,321 39,731 927 232,979
Gain on disposition of assets................ 138,659 130,385 (267,310) 1,734
Other income (expense) -- net................ 20,209 (163) -- 20,046
---------- -------- --------- ----------
Income (loss) before income taxes, equity in
earnings (loss) of nonconsolidated
affiliates and extraordinary item.......... 220,213 115,737 (316,113) 19,837
Income tax (expense) benefit................. (150,635) (52,300) 117,542 (85,393)
---------- -------- --------- ----------
Income (loss) before equity in earnings of
nonconsolidated affiliates and
extraordinary
item....................................... 69,578 63,437 (198,571) (65,556)
Equity in earnings of nonconsolidated
affiliates................................. 16,077 -- -- 16,077
---------- -------- --------- ----------
Income (loss) before extraordinary item...... $ 85,655 $ 63,437 $(198,571) $ (49,479)
========== ======== ========= ==========
Income (loss) before extraordinary item per
common share:
Basic...................................... $ 0.27 $ (0.15)
========== ==========
Diluted.................................... $ 0.26 $ (0.15)
========== ==========
</TABLE>
96
<PAGE> 98
CLEAR CHANNEL
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
JACOR MERGER
The Jacor acquisition pro forma adjustments exclude the effect of any
divestiture of stations, which were required for regulatory approval, as Clear
Channel intends the funds received from any divestiture to be reinvested in
acquisitions of similar stations in other markets.
(A) The pro forma merger adjustments for the year ended December 31, 1999
are as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
TO INCOME
-------------------
<S> <C> <C>
(1) Increase in amortization expense resulting from the
additional goodwill created by the merger and a change
in the life of goodwill amortization from 40 years
(Jacor's policy) to 25 years (Clear Channel's policy).
This amortization expense results in a permanent
difference and will not be deductible for federal
income tax purposes................................... $ (47,876)
(2) Increase in interest expense associated with the
increased long-term debt resulting from the estimated
merger expenses of $50,000............................ (927)
(3) Decrease in gain on disposition of assets as this gain
is associated directly with the merger of Jacor and is
a non-recurring item.................................. (267,310)
(4) Decrease in income tax expense associated with the tax
effect of adjustments (2) and (3) at Clear Channel's
assumed tax rate of 40%............................... 117,542
</TABLE>
97
<PAGE> 99
AMFM MERGER EFFECT
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
AT MARCH 31, 2000
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA
AMFM PRO FORMA AMFM CLEAR CHANNEL AMFM MERGER
HISTORICAL ADJUSTMENTS(A) PRO FORMA DIVESTITURES(B) DIVESTITURES(C) ADJUSTMENTS(D)
----------- -------------- ----------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 68,804 $ -- $ 68,804 $ -- $ -- $ --
Accounts receivable, net..... 455,380 -- 455,380 -- -- --
Other current assets......... 60,920 -- 60,920 -- -- --
----------- -------- ----------- --------- ----------- -----------
Total current assets....... 585,104 -- 585,104 -- -- --
Property and equipment, net.... 459,693 -- 459,693 (22,352) (63,550) --
Intangible assets, net......... 10,079,653 -- 10,079,653 (385,959) (1,658,763) 15,381,662
Other assets:
Investments in
nonconsolidated
affiliates................. 1,081,115 -- 1,081,115 -- -- 44,258
Other assets................. 252,031 -- 252,031 -- -- --
----------- -------- ----------- --------- ----------- -----------
TOTAL ASSETS............... $12,457,596 $ -- $12,457,596 $(408,311) $(1,722,313) $15,425,920
=========== ======== =========== ========= =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued
expenses................... $ 310,970 $ -- $ 310,970 $ -- $ -- $ --
----------- -------- ----------- --------- ----------- -----------
Total current
liabilities.............. 310,970 -- 310,970 -- -- --
Long-term debt................. 5,783,388 10,000(1) 5,793,388 (860,246) (2,266,613) 288,887
Deferred tax liabilities....... 1,663,262 (3,500)(1) 1,649,783 (33,106) (272,065) 3,549,614
(9,979)(2)
Other liabilities.............. 52,023 -- 52,023 -- -- --
Minority interest.............. 3,435 -- 3,435 -- -- --
Stockholders' equity:
Common stock................. 2,166 -- 2,166 -- -- 18,196
Additional paid-in capital... 5,272,597 28,511(2) 5,301,108 -- -- 11,730,311
Retained earnings
(accumulated deficit)...... (630,245) (6,500)(1) (655,277) 485,041 816,365 (161,088)
(18,532)(2)
----------- -------- ----------- --------- ----------- -----------
Total stockholders'
equity................... 4,644,518 3,479 4,647,997 485,041 816,365 11,587,419
----------- -------- ----------- --------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY..... $12,457,596 $ -- $12,457,596 $(408,311) $(1,722,313) $15,425,920
=========== ======== =========== ========= =========== ===========
<CAPTION>
AMFM
MERGER
EFFECT
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 68,804
Accounts receivable, net..... 455,380
Other current assets......... 60,920
-----------
Total current assets....... 585,104
Property and equipment, net.... 373,791
Intangible assets, net......... 23,416,593
Other assets:
Investments in
nonconsolidated
affiliates................. 1,125,373
Other assets................. 252,031
-----------
TOTAL ASSETS............... $25,752,892
===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued
expenses................... $ 310,970
-----------
Total current
liabilities.............. 310,970
Long-term debt................. 2,955,416
Deferred tax liabilities....... 4,894,226
Other liabilities.............. 52,023
Minority interest.............. 3,435
Stockholders' equity:
Common stock................. 20,362
Additional paid-in capital... 17,031,419
Retained earnings
(accumulated deficit)...... 485,041
-----------
Total stockholders'
equity................... 17,536,822
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY..... $25,752,892
===========
</TABLE>
98
<PAGE> 100
AMFM MERGER EFFECT
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA CAPSTAR AS PRO FORMA
ADJUSTMENTS ADJUSTED FOR ADJUSTMENTS
LAMAR FOR THE THE COMPLETED FOR THE
AMFM TRANSACTION LAMAR CAPSTAR CAPSTAR
HISTORICAL(E) HISTORICAL(F) TRANSACTION(F) TRANSACTIONS(G) MERGER(H)
------------- ------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Net revenue................................ $1,977,888 $(156,627) $ -- $ 347,290 $(31,397)(26)
Operating expenses......................... 1,048,711 (84,583) -- 207,001 (4,221)(26)
Depreciation and amortization.............. 732,233 (94,062) -- 78,338 (26,832)(26)
146,977(27)
Noncash compensation expense............... 6,443 -- -- 20,284 --(27)
Merger and non-recurring costs............. 81,829 (2,154) -- 51,288 (47,510)(28)
Corporate expenses......................... 57,559 (6,835) -- 14,026 --
---------- --------- --------- --------- --------
Operating income (loss).................... 51,113 31,007 -- (23,647) (99,811)
Interest expense........................... 426,681 (171) (36,128)(22) 90,075 (9,650)(26)
1,406(29)
Interest income............................ 10,644 -- -- 302 (9,650)(26)
Gain on disposition of assets.............. 221,312 947 (209,970)(23) -- --
Gain on disposition of representation
contracts................................ 18,173 -- -- -- --
Other income............................... -- -- -- (46) --
---------- --------- --------- --------- --------
Income (loss) before income taxes, equity
in earnings (loss) of nonconsolidated
affiliates and extraordinary item........ (125,439) 32,125 (173,842) (113,466) (101,217)
Income tax (expense) benefit............... 6,391 (8,867) 60,845(24) 26,759 35,426(30)
Dividends and accretion on preferred stock
of subsidiaries.......................... 11,846 -- -- 17,390 --
---------- --------- --------- --------- --------
Income before equity in earnings (loss) of
nonconsolidated affiliates and
extraordinary item....................... (130,894) 23,258 (112,997) (104,097) (65,791)
Equity in earnings (loss) of
nonconsolidated
affiliates............................... (27,651) -- (57,599)(25) (2,444) --
---------- --------- --------- --------- --------
Net income (loss) before extraordinary
item..................................... (158,545) 23,258 (170,596) (106,541) (65,791)
Preferred stock dividends.................. 15,936 -- -- -- --
---------- --------- --------- --------- --------
Income (loss) attributable to common shares
outstanding.............................. $ (174,481) $ 23,258 $(170,596) $(106,541) $(65,791)
========== ========= ========= ========= ========
Net income (loss) before extraordinary item
per common share:
Basic and diluted........................ $ (1.01)
==========
Weighted-average common shares
outstanding........................... 172,967 28,464
========== ========
</TABLE>
99
<PAGE> 101
AMFM MERGER EFFECT
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Continuation of above table)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE OTHER
OTHER COMPLETED PRO FORMA AMFM CLEAR CHANNEL
TRANSACTIONS(I) ADJUSTMENTS(J) PRO FORMA DIVESTITURES(K)
--------------- -------------- ---------- ---------------
<S> <C> <C> <C> <C>
Net revenue................................ $ (705) $ -- $2,136,449 $(120,840)
Operating expenses......................... (116) -- 1,166,792 (57,857)
Depreciation and amortization.............. 2,839 -- 839,493 (17,987)
Noncash compensation expense............... -- -- 26,727 --
Merger and non-recurring costs............. -- -- 83,453 --
Corporate expenses......................... -- -- 64,750 --
------- -------- ---------- ---------
Operating income (loss).................... (3,428) -- (44,766) (44,996)
Interest expense........................... 2,815 12,944(31) 487,972 (47,723)
Interest income............................ -- -- 1,296 --
Gain on disposition of assets.............. -- -- 12,289 --
Gain on disposition of representation
contracts................................ -- -- 18,173 --
Other income............................... -- -- (46) --
------- -------- ---------- ---------
Income (loss) before income taxes, equity
in earnings (loss) of nonconsolidated
affiliates and extraordinary item........ (6,243) (12,944) (501,026) 2,727
Income tax (expense) benefit............... 2,185 4,530(32) 127,269 (178)
Dividends and accretion on preferred stock
of subsidiaries.......................... -- (29,236)(33) -- --
------- -------- ---------- ---------
Income before equity in earnings (loss) of
nonconsolidated affiliates and
extraordinary item....................... (4,058) 20,822 (373,757) 2,549
Equity in earnings (loss) of
nonconsolidated
affiliates............................... -- -- (87,694) --
------- -------- ---------- ---------
Net income (loss) before extraordinary
item..................................... (4,058) 20,822 (461,451) 2,549
Preferred stock dividends.................. -- (15,936)(34) -- --
------- -------- ---------- ---------
Income (loss) attributable to common shares
outstanding.............................. $(4,058) $ 36,758 $(461,451) $ 2,549
======= ======== ========== =========
Net income (loss) before extraordinary item
per common share:
Basic and diluted........................ $ (2.14)(35)
==========
Weighted-average common shares
outstanding........................... 13,792 215,223
======== ==========
<CAPTION>
(Continuation of above table)
1999
AMFM PRO FORMA MERGER AMFM
DIVESTITURES(L) ADJUSTMENTS(M) MERGER EFFECT
--------------- ---------------- -------------
<S> <C> <C> <C>
Net revenue................................ $ (320,455) $ (19,547) $1,675,607
Operating expenses......................... (179,245) (13,156) 916,534
Depreciation and amortization.............. (133,137) 262,982 951,351
Noncash compensation expense............... -- -- 26,727
Merger and non-recurring costs............. -- (5,475) 77,978
Corporate expenses......................... -- -- 64,750
---------- --------- ----------
Operating income (loss).................... (8,073) (263,898) (361,733)
Interest expense........................... (165,315) (18,178) 256,756
Interest income............................ -- -- 1,296
Gain on disposition of assets.............. -- -- 12,289
Gain on disposition of representation
contracts................................ -- -- 18,173
Other income............................... -- -- (46)
---------- --------- ----------
Income (loss) before income taxes, equity
in earnings (loss) of nonconsolidated
affiliates and extraordinary item........ 157,242 (245,720) (586,777)
Income tax (expense) benefit............... (23,110) 71,898 175,879
Dividends and accretion on preferred stock
of subsidiaries.......................... -- -- --
---------- --------- ----------
Income before equity in earnings (loss) of
nonconsolidated affiliates and
extraordinary item....................... 134,132 (173,822) (410,898)
Equity in earnings (loss) of
nonconsolidated
affiliates............................... -- 19,228 (68,466)
---------- --------- ----------
Net income (loss) before extraordinary
item..................................... 134,132 (154,594) (479,364)
Preferred stock dividends.................. -- -- --
---------- --------- ----------
Income (loss) attributable to common shares
outstanding.............................. $ 134,132 $(154,594) $ (479,364)
========== ========= ==========
Net income (loss) before extraordinary item
per common share:
Basic and diluted........................
Weighted-average common shares
outstanding...........................
</TABLE>
100
<PAGE> 102
AMFM MERGER EFFECT
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER PRO FORMA
AMFM PRO FORMA AMFM CLEAR CHANNEL AMFM MERGER
HISTORICAL ADJUSTMENTS(J) PRO FORMA DIVESTITURES(K) DIVESTITURES(L) ADJUSTMENTS(M)
---------- -------------- --------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue................... $ 521,270 $ -- $ 521,270 $(27,531) $(72,226) $(80,467)
Operating expenses............ 308,088 -- 308,088 (14,405) (43,312) (78,386)
Depreciation and
amortization................ 212,491 -- 212,491 (4,084) (30,500) 40,160
Noncash compensation
expense..................... 34,878 -- 34,878 -- -- --
Merger and non-recurring
costs....................... 11,115 -- 11,115 -- -- --
Corporate expenses............ 15,302 -- 15,302 -- -- --
--------- ------- --------- -------- -------- --------
Operating income (loss)....... (60,604) -- (60,604) (9,042) 1,586 (42,241)
Interest expense.............. 124,342 (1,014)(31) 123,328 (9,801) (41,082) (4,783)
Interest income............... 697 -- 697 -- -- --
Gain on disposition of
assets...................... 22,819 -- 22,819 -- -- --
Gain on disposition of
representation contracts.... 16,217 -- 16,217 -- -- --
--------- ------- --------- -------- -------- --------
Income (loss) before income
taxes, equity in earnings
(loss) of nonconsolidated
affiliates and extraordinary
item........................ (145,213) 1,014 (144,199) 759 42,668 (37,458)
Income tax (expense)
benefit..................... 10,749 (355)(32) 10,394 (924) (8,385) 10,759
Credit on exchange of
preferred stock of
subsidiary.................. 3,310 (3,310)(33) -- -- -- --
--------- ------- --------- -------- -------- --------
Income (loss) before equity in
earnings (loss) of
nonconsolidated affiliates
and extraordinary item...... (131,154) (2,651) (133,805) (165) 34,283 (26,699)
Equity in earnings (loss) of
nonconsolidated
affiliates.................. (24,372) -- (24,372) -- -- 4,807
--------- ------- --------- -------- -------- --------
Net income (loss) before
extraordinary item.......... (155,526) (2,651) (158,177) (165) 34,283 (21,892)
Preferred stock dividends..... 321 (321)(34) -- -- -- --
--------- ------- --------- -------- -------- --------
Income (loss) attributable to
common shares outstanding... $(155,847) $(2,330) $(158,177) $ (165) $ 34,283 $(21,892)
========= ======= ========= ======== ======== ========
Basic and diluted loss before
extraordinary item per
common share................ $ (0.72) $ (0.73)(35)
========= =========
Weighted-average common shares
outstanding................. 215,116 1,269 216,385
========= ======= =========
<CAPTION>
2000 AMFM
MERGER EFFECT
-------------
<S> <C>
Net revenue................... $ 341,046
Operating expenses............ 171,985
Depreciation and
amortization................ 218,067
Noncash compensation
expense..................... 34,878
Merger and non-recurring
costs....................... 11,115
Corporate expenses............ 15,302
---------
Operating income (loss)....... (110,301)
Interest expense.............. 67,662
Interest income............... 697
Gain on disposition of
assets...................... 22,819
Gain on disposition of
representation contracts.... 16,217
---------
Income (loss) before income
taxes, equity in earnings
(loss) of nonconsolidated
affiliates and extraordinary
item........................ (138,230)
Income tax (expense)
benefit..................... 11,844
Credit on exchange of
preferred stock of
subsidiary.................. --
---------
Income (loss) before equity in
earnings (loss) of
nonconsolidated affiliates
and extraordinary item...... (126,386)
Equity in earnings (loss) of
nonconsolidated
affiliates.................. (19,565)
---------
Net income (loss) before
extraordinary item.......... (145,951)
Preferred stock dividends..... --
---------
Income (loss) attributable to
common shares outstanding... $(145,951)
=========
Basic and diluted loss before
extraordinary item per
common share................
Weighted-average common shares
outstanding.................
</TABLE>
101
<PAGE> 103
AMFM MERGER EFFECT
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS OF DOLLARS)
(A) Adjustments to the Unaudited Pro Forma Combined Condensed Consolidated
Balance Sheet regarding transactions that occurred relating to AMFM business
(1) Reflects the purchase of $100,000 of aggregate principal amount of
AMFM's 10 1/2% Senior Subordinated Notes due 2007 and estimated fees and
expenses pursuant to a tender offer which was commenced on April 28, 2000,
funded with borrowings under the credit agreement. The adjustment to accumulated
deficit represents the related extraordinary loss on the early extinguishment of
debt of $6,500, net of a tax benefit of $3,500.
(2) Reflects the adjustment to record estimated stock option compensation
expense of $18,532, net of a tax benefit of $9,979, relating to certain
executive stock options which will become exercisable upon the Clear Channel
merger.
Clear Channel and AMFM unaudited pro forma combined condensed consolidated
financial statements reflect the merger, with AMFM accounted for as a purchase,
as follows:
<TABLE>
<S> <C>
AMFM common shares outstanding March 31,2000................ 216,613,724
------------
Share conversion number..................................... 0.94
------------
Clear Channel's common stock to be issued in the merger..... 203,616,901
Estimated value per share (based on the average price
between September 29, 1999 and October 6, 1999)........... $ 77.3229
------------
$ 15,744,249
Estimated value of common stock options and other equity.... 1,307,532
Estimated transaction costs................................. 100,000
------------
Total estimated purchase price.................... $ 17,151,781
============
</TABLE>
For purposes of these statements the total estimated purchase price was
allocated as follows:
<TABLE>
<S> <C>
Total estimated purchase price.............................. $17,151,781
Plus -- deferred tax liability.............................. 3,549,614
Plus -- fair value of debt in excess of carrying value...... 188,887
Less -- estimated fair value adjustment to investment in and
advances to nonconsolidated affiliates.................... 44,258
Less -- AMFM net assets at March 31, 2000................... 5,464,362
Plus -- elimination of AMFM's existing net licenses and
goodwill.................................................. 8,420,890
-----------
Estimated purchase price allocated to licenses and
goodwill.................................................. $23,802,552
===========
</TABLE>
102
<PAGE> 104
AMFM MERGER EFFECT
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated purchase price allocated to licenses and goodwill of
$23,802,552 will be amortized over a 25 year period using the straight-line
method, which will result in annual licenses and goodwill amortization of
$952,102.
The pro forma information does not include adjustments related to the
antitrust issues raised by the DOJ concerning the approximate 30% equity (11%
voting) interest in Lamar currently owned by AMFM. Clear Channel or AMFM will be
required to divest some or all of the investment in Lamar over some undetermined
period of time. The total income effect of the Lamar investment included in pro
forma balances is a loss of $61,379 and $16,894 at December 31, 1999 and March
31, 2000, respectively. If divestiture of all of the Lamar investment is
required by the DOJ, pro forma net loss before extraordinary items would be
$471,985 and $129,057 at December 31, 1999 and March 31, 2000, respectively.
Additionally, when Clear Channel or AMFM is required to divest some or all of
the Lamar investment, proceeds from the divestiture would be used to reduce
debt, which would reduce pro forma interest expense. See Footnote 25 on page
105 for more information regarding this investment.
Clear Channel will be required to refinance certain outstanding AMFM
long-term debt.
The unaudited pro forma combined condensed consolidated balance sheet is
based on the assumption that AMFM's debt holders will not tender their debt
securities based on a change of control of AMFM, although Clear Channel must
offer to tender all of AMFM's senior notes and notes at prices ranging from 100%
to 101% of the principal amount of the notes. It is expected that the debt
holders will not accept Clear Channel's tender offer, as the fair value of this
debt is expected to be greater than the required offer at the time of the offer.
The total number of actual divested stations is still subject to regulatory
approval. Based on the current status of regulatory approvals, the final total
of stations to be divested is expected to be between 110 and 115 stations. The
pro forma adjustments at March 31, 2000 relating to the sale of radio stations
Clear Channel and AMFM anticipate divesting, assuming a total of 112 radio
stations in the aggregate will be divested, are as follows:
(B) Clear Channel Divestitures
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
----------
<C> <S> <C>
(5) Decrease in property, plant and equipment, net of
accumulated depreciation.................................... $ (22,352)
(6) Decrease in intangible assets, net.......................... (385,959)
(7) Decrease in long-term debt resulting from the use of net
proceeds.................................................... (860,246)
(8) Decrease in deferred income taxes........................... (33,106)
(9) Increase in retained earnings resulting from the gain on the
sale of stations, net of tax at Clear Channel's assumed tax
rate of 40%................................................. 485,041
</TABLE>
103
<PAGE> 105
AMFM MERGER EFFECT
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(C) AMFM Divestitures
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
-----------
<C> <S> <C>
(10) Decrease in property, plant and equipment, net of
accumulated depreciation.................................... $ (63,550)
(11) Decrease in intangible assets, net.......................... (1,658,763)
(12) Decrease in long-term debt resulting from the use of net
proceeds.................................................... (2,266,613)
(13) Decrease in deferred income taxes........................... (272,065)
(14) Increase in retained earnings resulting from the gain on the
sale of stations, net of tax at AMFM's assumed tax rate of
39%......................................................... 816,365
</TABLE>
(D) The pro forma merger adjustments at March 31, 2000 are as follows:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
-----------
<S> <C> <C>
(15) Increase in intangible assets, net equal to the excess
purchase price of the merger and the elimination of AMFM's
existing accumulated amortization of goodwill............... $15,381,662
(16) Increase in investment in and advances to, nonconsolidated
affiliates due to the mark-up to fair value of AMFM's
investments................................................. 44,258
(17) Increase in long-term debt resulting from estimated merger
expenses and mark-up of AMFM's debt to fair value........... 288,887
(18) Increase in deferred income tax due to fair value write-up
of FCC licenses............................................. 3,549,614
(19) Increase in common stock to account for Clear Channel common
stock given in the merger at $0.10 par value................ 18,196
(20) Increase in additional paid-in capital to account for Clear
Channel common stock given in the merger at $77.3229 per
share less $0.10 par value ($15,723,888) plus the value of
AMFM stock options included in the merger ($1,307,531) less
AMFM's pro forma additional paid-in capital balance
($5,301,108)................................................ 11,730,311
(21) Decrease in retained earnings to eliminate AMFM's existing
pro forma retained earnings balance......................... (161,088)
</TABLE>
ADJUSTMENTS TO THE UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS REGARDING TRANSACTIONS THAT OCCURRED RELATING TO AMFM
BUSINESS
(E) AMFM began operating KKFR-FM and KFYI-AM in Phoenix under a time brokerage
agreement effective November 5, 1998. Therefore, the results of operations of
KKFR-FM and KFYI-AM are included in AMFM's historical operations for the year
ended December 31, 1999.
AMFM entered into a time brokerage agreement to sell substantially all of the
broadcast time of WMVP-AM in Chicago effective September 10, 1998. Therefore,
substantially all of the results of operations of WMVP-AM are excluded from
AMFM's historical operations for the year ended December 31, 1999.
(F) On September 15, 1999, AMFM completed the sale to Lamar of all of the
outstanding common stock of the subsidiaries which held all of AMFM's assets
used in its outdoor advertising business. AMFM received net cash proceeds of
approximately $700,000 and 26,227,273 shares of class A common stock, par
104
<PAGE> 106
AMFM MERGER EFFECT
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value $.01 per share, of Lamar. This adjustment removes the historical results
of operations of AMFM's outdoor advertising business.
(22) Reflects the net decrease in interest expense of $36,128 for the year
ended December 31, 1999 in connection with the additional bank
borrowings related to the outdoor advertising acquisitions completed
during 1999 and the paydown of debt resulting from the net proceeds of
$700,000 received from Lamar.
(23) Reflects the elimination of the nonrecurring gain of $209,970 incurred
in connection with AMFM's sale of its outdoor advertising business.
(24) Reflects the tax effect of the pro forma adjustments.
(25) The adjustment to reflect AMFM's 30% equity (11% voting) interest in
Lamar and amortization of the investment basis in excess of underlying
equity in the net assets of Lamar over an estimated life of 15 years
is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1 TO
SEPTEMBER 15, 1999
------------------
<S> <C>
Lamar historical net loss applicable to common stock for the
nine months ended September 30, 1999...................... $(19,533)
Pro forma adjustments for the acquisition by Lamar of AMFM's
outdoor business.......................................... (49,383)
--------
Lamar pro forma net loss applicable to common
stockholders.............................................. (68,916)
AMFM equity interest........................................ 30%
--------
Equity in pro forma net loss of Lamar....................... (20,675)
Less historical equity in net loss of Lamar................. (174)
--------
Pro forma adjustment for equity in net loss of Lamar........ (20,501)
Amortization of investment basis in excess of underlying
equity in the net assets of Lamar......................... (37,098)
--------
Total equity in net loss of nonconsolidated
affiliate....................................... $(57,599)
========
</TABLE>
The Lamar pro forma net loss applicable to common stockholders was
estimated by AMFM based on information obtained from publicly filed
financial statements. These estimates, including the allocation of
purchase price, are preliminary and subject to change.
105
<PAGE> 107
AMFM MERGER EFFECT
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(G) Adjustments to Capstar's Historical Condensed Consolidated Statement of
Operations
Capstar's historical condensed consolidated statement of operations for the
period from January 1 to July 13, 1999 and pro forma adjustments are summarized
below:
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1 CAPSTAR PRO FORMA CAPSTAR
TO JULY 13, 1999 HISTORICAL ADJUSTMENTS PRO FORMA
--------------------- ---------- ----------- ---------
<S> <C> <C> <C>
Net revenues.................................... $ 347,290 $ -- $ 347,290
Operating expenses.............................. 207,001 -- 207,001
Depreciation and amortization................... 78,338 -- 78,338
Corporate general and administrative............ 14,026 -- 14,026
Noncash compensation expense.................... 20,284 -- 20,284
LMA fees........................................ 387 (387)(a) --
Merger and non-recurring costs.................. 51,288 -- 51,288
--------- ----- ---------
Operating income................................ (24,034) 387 (23,647)
Interest expense................................ 90,075 -- 90,075
Interest income................................. (302) -- (302)
Other (income) expense.......................... 46 -- 46
--------- ----- ---------
Income (loss) before income taxes............... (113,853) 387 (113,466)
Income tax expense (benefit).................... (26,894) 135(b) (26,759)
Dividends and accretion on preferred stock of
subsidiary.................................... 17,390 -- 17,390
--------- ----- ---------
Income (loss) before equity in net loss of
nonconsolidated affiliates.................... (104,349) 252 (104,097)
Equity in net loss of nonconsolidated
affiliates.................................... (2,444) -- (2,444)
--------- ----- ---------
Income (loss) attributable to common
stockholders.................................. $(106,793) $ 252 $(106,541)
========= ===== =========
</TABLE>
---------------
(a) Reflects the elimination of $387 of time brokerage (LMA) fees paid by
Capstar for the period from January 1 to July 13, 1999 related to
acquired radio stations that were previously operated under time
brokerage agreements.
(b) Reflects the tax effect of the pro forma adjustments.
(H) Adjustments to Unaudited Pro Forma Combined Condensed Consolidated Statement
of Operations Related to the Capstar Merger
(26) Reflects the elimination of intercompany transactions between AMFM and
Capstar for AMFM's media representation services provided to Capstar,
Capstar's participation in The AMFM Radio Networks, fees paid by AMFM
to Capstar under time brokerage (LMA) agreements and interest on
Capstar's note payable to AMFM of $150,000 for the period from January
1 to July 13, 1999.
106
<PAGE> 108
AMFM MERGER EFFECT
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(27) Reflects incremental amortization related to the Capstar merger and is
based on the allocation of the total consideration as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1 TO
JULY 13, 1999
-------------
<S> <C>
Amortization expense on $5,892,486 of intangible assets..... $210,602
Less: historical amortization expense....................... (63,625)
--------
Adjustment for net increase in amortization expense......... $146,977
========
</TABLE>
Historical depreciation expense of Capstar as adjusted for the completed
Capstar transactions is assumed to approximate depreciation expense on a
pro forma basis. Actual depreciation and amortization may differ based
upon final purchase price allocations.
(28) Reflects the elimination of financial advisory and other expenses of
Capstar in connection with the Capstar merger of $47,510 for the
period from January 1 to July 13, 1999.
(29) Reflects the adjustment to record interest expense of $1,406 for the
year ended December 31, 1999 on additional bank borrowings related to
estimated financial advisors, legal, accounting and other professional
fees incurred by AMFM and Capstar.
(30) Reflects the tax effect of the pro forma adjustments.
(I) Adjustments to Unaudited Pro Forma Combined Condensed Consolidated Statement
of Operations Related to the Other Completed Transactions
On April 16, 1999, AMFM sold WMVP-AM in Chicago to ABC, Inc. for $21,000 in
cash. AMFM entered into a time brokerage agreement to sell substantially all of
the broadcast time of WMVP-AM effective September 10, 1998.
On July 1, 1999, AMFM acquired KKFR-FM and KFYI-AM in Phoenix from The
Broadcast Group, Inc. for $90,000 in cash. AMFM began operating KKFR-FM and
KFYI-AM under a time brokerage agreement effective November 5, 1998.
The combined condensed statement of operations for the other completed
transactions for the year ended December 31, 1999 is summarized below:
<TABLE>
<CAPTION>
CHICAGO PRO FORMA
DISPOSITION ADJUSTMENTS FOR OTHER
YEAR ENDED HISTORICAL THE OTHER COMPLETED COMPLETED
DECEMBER 31, 1999 1/1-4/16 TRANSACTIONS TRANSACTIONS
----------------- ----------- ------------------- ------------
<S> <C> <C> <C>
Net revenues................................ $(705) $ -- $ (705)
Operating expenses.......................... (116) -- (116)
Depreciation and amortization............... -- 2,839(a) 2,839
----- ------- -------
Operating income (loss)..................... (589) (2,839) (3,428)
Interest expense............................ -- 2,815(b) 2,815
----- ------- -------
Income (loss) before income taxes........... (589) (5,654) (6,243)
Income tax expense (benefit)................ -- (2,185)(c) (2,185)
----- ------- -------
Income (loss)............................... $(589) $(3,469) $(4,058)
===== ======= =======
</TABLE>
107
<PAGE> 109
AMFM MERGER EFFECT
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
---------------
(a) Reflects incremental amortization related to the assets acquired in the
Phoenix acquisition and is based on the allocation of the total
consideration as follows:
<TABLE>
<CAPTION>
INCREMENTAL INTANGIBLE HISTORICAL ADJUSTMENT
YEAR ENDED AMORTIZATION ASSETS, AMORTIZATION AMORTIZATION FOR NET
DECEMBER 31, 1999 PERIOD(I) NET EXPENSE(I) EXPENSE INCREASE
----------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Phoenix acquisition..... 1/1-7/1 $85,160 $2,839 $ -- $2,839
</TABLE>
(i) Intangible assets are amortized on a straight-line basis over an
estimated average 15 year life. The incremental amortization period
represents the period of the year that the acquisition was not
completed.
Historical depreciation expense for the Phoenix acquisition is assumed
to approximate depreciation expense on a pro forma basis. Actual
depreciation and amortization may differ based upon final purchase price
allocations.
(b) Reflects the adjustment to interest expense as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Additional bank borrowings related to other completed
transactions.............................................. $69,000
-------
Interest expense at 7.25%................................... 5,003
Less: historical interest expense recognized subsequent to
the completed
transaction............................................... 2,188
-------
Net increase in interest expense............................ $ 2,815
=======
</TABLE>
(c) Reflects the tax effect of the pro forma adjustments.
(J) Other Pro Forma Adjustments
(31) Reflects (i) the net decrease in interest expense resulting from the
November 19, 1999 refinancing of the existing credit agreements of two
of AMFM's subsidiaries into a single new credit agreement with an
estimated average interest rate of 7.25%, (ii) the net decrease in
interest expense related to the purchase of $293,641 of aggregate
principal amount of AMFM's 10 3/4% Senior Subordinated Notes due 2006
and estimated fees and expenses pursuant to a tender offer which was
completed on November 12, 1999, funded with borrowings under the
credit agreement, (iii) the net decrease in interest expense related
to the purchase of $200,000 of aggregate principal amount of AMFM's
9 3/8% Senior Subordinated Notes due 2004 and estimated fees and
expenses which was completed on February 15, 2000, funded with
borrowings under the credit agreement, (iv) the net decrease in
interest expense related to the purchase of $100,000 aggregate
principal amount of AMFM's 10 1/2% Senior Subordinated Notes due 2007
and estimated fees and expenses pursuant to a tender offer which was
commenced on April 28, 2000, funded with borrowings under the credit
agreement, (v) the net increase in interest expense related to the
exchange of the 12 5/8% Series E Cumulative Exchangeable Preferred
Stock of AMFM for 12 5/8% Senior Subordinated Exchange Debentures due
2006 on November 23, 1999 and (vi) the net increase in interest
expense related to the exchange of the 12% Senior Exchangeable
Preferred Stock of AMFM for 12% Subordinated Exchange Debentures due
2009 completed effective January 1, 2000.
(32) Reflects the tax effect of the pro forma adjustments.
108
<PAGE> 110
AMFM MERGER EFFECT
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(33) Reflects the elimination of 1999 dividends and credit on exchange of
preferred stock of subsidiary for the three months ended March 31,
2000 related to the exchange of the 12 5/8% Series E Cumulative
Exchangeable Preferred Stock of AMFM for 12 5/8% Senior Subordinated
Exchange Debentures due 2006 completed on November 23, 1999 and the
exchange of the 12% Senior Exchangeable Preferred Stock of AMFM for
12% Subordinated Exchange Debentures due 2009 completed effective
January 1, 2000.
(34) Reflects the elimination of preferred stock dividends related to (i)
the conversion of AMFM's $3.00 Convertible Exchangeable Preferred
Stock to AMFM common stock on August 24, 1999, pursuant to a notice of
redemption issued to holders and (ii) the conversion of AMFM's 7%
Convertible Preferred Stock to AMFM common stock on January 19, 2000
pursuant to a notice of redemption issued to holders.
(35) The pro forma combined loss per common share data is computed by
dividing pro forma loss attributable to common stockholders by the
weighted-average common shares assumed to be outstanding. A summary of
shares used in the pro forma combined loss per common share
calculation follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Historical weighted-average shares
outstanding.................................. 172,967 215,116
Incremental weighted-average shares relating
to:
53,553,966 shares of common stock issued in
connection with the Capstar merger on July
13, 1999.................................. 28,464 --
11,979,800 shares of common stock issued upon
the conversion of AMFM's $3.00 Convertible
Exchangeable Preferred Stock on August 24,
1999...................................... 7,713 --
6,079,088 shares of common stock issued upon
the conversion of AMFM's 7% Convertible
Preferred Stock on January 19, 2000....... 6,079 1,269
------- -------
Shares used in the pro forma combined earnings
per share calculation........................ 215,223 216,385
======= =======
</TABLE>
109
<PAGE> 111
AMFM MERGER EFFECT
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma adjustments for the year ended December 31, 1999 and for the
three months ended March 31, 2000 relating to the sale of radio stations Clear
Channel and AMFM anticipate divesting, assuming a total of 112 radio stations in
the aggregate will be divested, are as follows:
(K) Clear Channel Divestitures
<TABLE>
<CAPTION>
INCREASE (DECREASE)
TO INCOME
--------------------
12/31/99 3/31/00
--------- --------
<S> <C> <C> <C>
(36) Decrease in revenue...................................... $(120,840) $(27,531)
(37) Decrease in operating expenses........................... 57,857 14,405
(38) Decrease in depreciation and amortization, of which
$3,173 and $1,151 for 12/31/99 and 3/31/00, respectively,
results in a permanent difference and will not be
deducted for federal income tax purposes................. 17,987 4,084
(39) Decrease in interest expense associated with the
reduction of long-term debt resulting from the use of net
proceeds................................................. 47,723 9,801
(40) Increase in income tax expense associated with the tax
effect of adjustments (36) through (39) at Clear
Channel's assumed tax rate of 40%........................ (178) (924)
</TABLE>
(L) AMFM Divestitures
<TABLE>
<CAPTION>
INCREASE (DECREASE)
TO INCOME
---------------------
12/31/99 03/31/00
--------- ---------
<S> <C> <C> <C>
(41) Decrease in revenue.................................... $(320,455) $(72,226)
(42) Decrease in operating expenses......................... 179,245 43,312
(43) Decrease in depreciation and amortization, of which
$97,986 and $21,169 for 12/31/99 and 3/31/00,
respectively, results in a permanent difference and
will not be deducted for federal income tax purposes... 133,137 30,500
(44) Decrease in interest expense associated with the
reduction of long-term debt resulting from the use of
net proceeds........................................... 165,315 41,082
(45) Increase in income tax expense associated with the tax
effect of adjustments (41) through (44) at AMFM's
assumed tax rate of 39%................................ (23,110) (8,385)
</TABLE>
110
<PAGE> 112
AMFM MERGER EFFECT
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(M) The pro forma merger adjustments for the year ended December 31, 1999 and
for the three months ended March 31, 2000 are as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
TO INCOME
---------------------
12/31/99 03/31/00
--------- ---------
<S> <C> <C> <C>
(46) Decrease in revenue due to the elimination of services AMFM
provided to Clear Channel and services Clear Channel
provided to AMFM............................................ $ (19,547) $(80,467)
(47) Decrease in operating expense due to the elimination of
services AMFM provided to Clear Channel and services Clear
Channel provided to AMFM of $19,547 and $80,467 for 12/31/99
and 3/31/00, respectively, partially offset by the increase
in operating expense resulting from change in classification
for start-up and development costs of ($6,391) for 12/31/99
from treatment as depreciation expense and as merger and
non-recurring costs (AMFM's policy) to treatment as
operating expense (Clear Channel's policy).................. 13,156 78,386
(48) Increase in amortization expense resulting from the
additional licenses and goodwill created by the merger and a
change in the life of licenses and goodwill amortization
from 15 years (AMFM's policy) to 25 years (Clear Channel's
policy). Of the $263,898 and $42,241 for 12/31/99 and
3/31/00, respectively, additional amortization expense,
$65,975 and $10,560 for 12/31/99 and 3/31/00, respectively,
results in a permanent difference and will not be deductible
for federal income tax purposes. This is partially offset by
the decrease in amortization expense resulting from the
change of classification of start-up and development costs
of ($916) and $2,081 for 12/31/99 and 3/31/00, respectively,
from treatment as depreciation expense (AMFM's policy) to
treatment as operating expense (Clear Channel's policy)..... (262,982) (40,160)
(49) Decrease in merger and non-recurring costs resulting from
the change in classification for start-up and development
costs from treatment as merger and non-recurring costs
(AMFM's policy) to treatment as operating expense (Clear
Channel's policy)........................................... 5,475 --
(50) Decrease in interest expense resulting from the amortization
of premium on long-term debt resulting from the mark-up to
fair value, partially offset by the increase in interest
expense associated with the increased long-term debt
resulting from the estimated merger expenses of $100,000.... 18,178 4,783
(51) Decrease in income tax expense associated with the tax
effect of the adjustments in note (48) and (50) at Clear
Channel's assumed tax rate of 40%........................... 71,898 10,759
(52) Increase in equity in earnings of nonconsolidated affiliates
caused by changing the life of excess cost amortization from
15 years (AMFM's policy) to 25 years (Clear Channel's
policy). This increase is partially offset by the
amortization of the markup of excess cost to fair value..... 19,228 4,807
</TABLE>
111
<PAGE> 113
AMFM MERGER EFFECT
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma basic and diluted share information is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------
12/31/99 3/31/00
-------- -------
<S> <C> <C>
Basic:
Clear Channel pro forma weighted-average shares
outstanding............................................ 340,249 338,803
AMFM pro forma weighted-average shares outstanding........ 215,223 216,385
Decrease weighted-average common stock outstanding to
account for Clear Channel's common stock given in the
merger at the share conversion number of 0.94.......... (11,959) (12,768)
------- -------
Clear Channel and AMFM Pro Forma merger weighted-average
shares outstanding..................................... 543,513 542,420
======= =======
Diluted:
Clear Channel pro forma weighted-average shares
outstanding............................................ 358,149 374,994
AMFM pro forma weighted-average shares outstanding........ 222,433 225,226
Decrease weighted-average common stock outstanding to
account for Clear Channel's common stock given in the
merger and to account for the dilution effect AMFM's
common stock warrants, employee stock options and other
dilutive shares have on the Company at the share
conversion number of 0.94.............................. (13,262) (13,299)
------- -------
Clear Channel and AMFM Pro Forma merger weighted-average
shares outstanding..................................... 567,320 586,921
======= =======
</TABLE>
112
<PAGE> 114
(c) Exhibits.
22.1 Agreement and Plan of Merger dated October 2, 1999, among Clear
Channel Communications, Inc., AMFM Inc., and CCU Merger Sub, Inc.
(Previously filed on the Company's Current Report on Form 8-K
dated October 5, 1999.)
22.2 Agreement and Plan of Merger dated February 28, 2000, among Clear
Channel Communications, Inc., SFX Entertainment, Inc., and CCU
Merger Sub, Inc. (Previously filed on the Company's Current
Report on Form 8-K dated February 29, 2000.)
23.1 Consent of Pricewaterhouse LLP
23.2 Consent of Ernst & Young LLP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Clear Channel Communications, Inc.
Date: June 14, 2000 By: /s/ HERBERT W. HILL, JR.
-------------------------------------
Herbert W. Hill, Jr.
Senior Vice President and
Chief Reporting Officer
<PAGE> 115
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
22.1 Agreement and Plan of Merger dated October 2, 1999, among
Clear Channel Communications, Inc., AMFM Inc., and CCU
Merger Sub, Inc. (Previously filed on the Company's Current
Report on Form 8-K dated October 5, 1999.)
22.2 Agreement and Plan of Merger dated February 28, 2000, among
Clear Channel Communications, Inc., SFX Entertainment, Inc.,
and CCU Merger Sub, Inc. (Previously filed on the Company's
Current Report on Form 8-K dated February 29, 2000.)
23.1 Consent of Pricewaterhouse LLP
23.2 Consent of Ernst & Young LLP
</TABLE>
