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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 1996
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<S> <C> <C>
Commission File No. 0-27726 Commission File No. 33-80534 Commission File No. 33-80534
CHANCELLOR BROADCASTING CHANCELLOR RADIO CHANCELLOR BROADCASTING
COMPANY BROADCASTING COMPANY LICENSEE COMPANY
(Exact Name of Registrant (Exact Name of Registrant (Exact Name of Registrant
as Specified in Its Charter) as Specified in Its Charter) as Specified in Its Charter)
DELAWARE DELAWARE DELAWARE
(State or other jurisdiction of (State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization) incorporation or organization)
75-2538487 75-2544623 75-2544625
(I.R.S. Employer (I.R.S. Employer (I.R.S. Employer
Identification Number) Identification Number) Identification Number)
</TABLE>
12655 N. CENTRAL EXPRESSWAY, SUITE 405, DALLAS, TEXAS 75243
(Address of Principal Executive Offices, Including Zip Code)
AREA CODE (214) 239-6220
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether Chancellor Broadcasting Company (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes / / No /X/
Indicate by check mark whether Chancellor Radio Broadcasting Company and
Chancellor Broadcasting Licensee Company (1) have filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
As of August 13, 1996, 8,749,481 shares of the Class A Common Stock, par
value $.01 per share, 63,500 shares of the Class B Common Stock, par value
$.01 per share, and 8,484,411 shares of the Class C Common Stock, par value
$.01 per share, of Chancellor Broadcasting Company were outstanding. As of
August 13, 1996, 1,000 shares of common stock, par value $.01 per share, of
Chancellor Radio Broadcasting Company and 1,000 shares of common stock, par
value $.01 per share, of Chancellor Broadcasting Licensee Company were
outstanding.
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TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets as of December 31, 1995 and
June 30, 1996.................................................................... 1
Consolidated Statements of Operations for the three and six months ended
June 30, 1995 and 1996........................................................... 2
Consolidated Statements of Changes in Common Stockholders' Equity for the year
ended December 31, 1995 and the six months ended June 30, 1996................... 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 1995 and 1996..................................................... 4
Notes to Consolidated Financial Statements....................................... 5
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets as of December 31, 1995 and
June 30, 1996.................................................................... 9
Consolidated Statements of Operations for the three and six months ended
June 30, 1995 and 1996........................................................... 10
Consolidated Statements of Changes in Common Stockholder's Equity
for the year ended December 31, 1995 and the six months ended June 30, 1996...... 11
Consolidated Statements of Cash Flows for the six months
ended June 30, 1995 and 1996..................................................... 12
Notes to Consolidated Financial Statements....................................... 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................................ 17
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.............................................................. 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................... 20
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................................ $ 1,314,214 $ 1,951,241
Accounts receivable, net of allowance for doubtful accounts
of $263,528 and $580,076, respectively..................................... 13,243,292 35,707,004
Prepaid expenses and other.................................................. 546,405 2,827,727
------------ ------------
Total current assets.................................................... 15,103,911 40,485,972
Property and equipment, net................................................. 17,925,845 52,294,924
Intangibles and other, net.................................................. 203,808,395 564,468,503
Deferred financing costs, net............................................... 4,284,413 19,004,762
------------ ------------
Total assets............................................................ $241,122,564 $676,254,161
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 1,873,888 $ 2,755,088
Accrued liabilities......................................................... 4,692,948 8,817,451
Accrued interest............................................................ 2,710,891 6,954,218
Current portion of long-term debt........................................... 4,062,500 4,900,000
------------ ------------
Total current liabilities............................................... 13,340,227 23,426,757
Long-term debt................................................................ 168,107,242 353,123,469
Deferred income taxes......................................................... 4,952,361 18,436,384
Other......................................................................... -- 800,211
------------ ------------
Total liabilities....................................................... 186,399,830 395,786,821
------------ ------------
Redeemable Senior Cumulative Exchangeable Preferred Stock of subsidiary,
par value $.01 per share; 1,000,000 shares authorized, issued and
outstanding; preference in liquidation of $100,000,000, plus
accumulated and unpaid dividends and accretion............................... -- 100,563,968
Common stockholders' equity:
Class A common stock, par value $.01 per share, 40,000,000 shares
authorized, 302,289 and 8,749,481 shares issued and outstanding,
respectively............................................................... 3,023 87,495
Class B common stock, par value $.01 per share, 10,000,000 shares
authorized, 63,500 shares issued and outstanding........................... 635 635
Class C common stock, par value $.01 per share, 10,000,000 shares
authorized, 8,484,411 shares issued and outstanding........................ 84,844 84,844
Additional paid-in capital.................................................. 66,271,498 206,992,087
Accumulated deficit......................................................... (11,637,266) (26,223,555)
Treasury stock.............................................................. -- (1,038,134)
------------ ------------
Total common stockholders' equity....................................... 54,722,734 179,903,372
------------ ------------
Total liabilities and stockholders' equity.............................. $241,122,564 $676,254,161
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- --------------------------
1995 1996 1995 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Gross broadcasting revenues. . . . . . . . $20,219,761 $50,758,926 $35,080,729 $79,848,441
Less agency commissions. . . . . . . . . . 2,490,212 6,333,258 4,269,625 9,780,534
----------- ----------- ----------- ------------
Net revenues . . . . . . . . . . . . . 17,729,549 44,425,668 30,811,104 70,067,907
----------- ----------- ----------- ------------
Operating expenses:
Programming, technical and news. . . . . 3,054,247 7,865,007 5,816,492 13,009,767
Sales and promotion. . . . . . . . . . . 5,130,916 12,366,880 8,731,157 19,309,958
General and administrative . . . . . . . 2,071,813 6,001,628 4,245,517 10,405,378
Depreciation and amortization. . . . . . 2,109,425 6,040,331 4,468,080 11,067,939
Corporate expenses . . . . . . . . . . . 486,877 831,609 856,444 1,839,206
Stock option compensation. . . . . . . . 4,460,000 950,000 4,460,000 1,900,000
----------- ----------- ----------- ------------
17,313,278 34,055,455 28,577,690 57,532,248
----------- ----------- ----------- ------------
Income from operations . . . . . . . . 416,271 10,370,213 2,233,414 12,535,659
Other expense:
Interest expense . . . . . . . . . . . . 4,174,740 8,787,846 8,288,247 15,933,352
Other, net . . . . . . . . . . . . . . . 58,149 92,352 50,216 97,976
----------- ----------- ----------- ------------
Income (loss) before provision for
income taxes, minority interest
and extraordinary loss. . . . . . . . (3,816,618) 1,490,015 (6,105,049) (3,495,669)
Provision for income taxes . . . . . . . . 889,620 662,000 2,084,558 1,601,361
Dividends and accretion on preferred
stock of subsidiary . . . . . . . . . . . -- 3,183,069 -- 4,843,338
----------- ----------- ----------- ------------
Net loss before extraordinary loss. . . . (4,706,238) (2,355,054) (8,189,607) (9,940,368)
Extraordinary loss on early
extinguishment of debt. . . . . . . . . . -- -- -- 4,645,921
----------- ----------- ----------- ------------
Net loss . . . . . . . . . . . . . . . (4,706,238) (2,355,054) (8,189,607) (14,586,289)
Loss on repurchase of preferred stock
of subsidiary . . . . . . . . . . . . . . -- -- -- 16,570,065
----------- ----------- ----------- ------------
Net loss attributable to common stock . $(4,706,238) $(2,355,054) $(8,189,607) $(31,156,354)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Loss applicable to common stock:
Loss before extraordinary loss . . . . . $ (0.53) $ (0.14) $ (0.93) $ (1.74)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Extraordinary loss . . . . . . . . . . . $ -- $ -- $ -- $ (0.31)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Net loss . . . . . . . . . . . . . . . . $ (0.53) $ (0.14) $ (0.93) $ (2.05)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Weighted average number of
shares outstanding. . . . . . . . . . . 8,850,033 17,241,728 8,850,033 15,216,677
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
<TABLE>
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK COMMON STOCK
------------------- -------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------- ------ ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995. . . . . . . . 302,289 $ 3,023 63,500 $ 635 8,484,244 $84,842
Stock option compensation . . . . . . . -- -- -- -- -- --
Issuance of common stock on
June 29, 1995. . . . . . . . . . . . . -- -- -- -- 167 2
Net loss. . . . . . . . . . . . . . . . -- -- -- -- -- --
--------- ------- ------ ---- --------- -------
Balance, December 31, 1995. . . . . . . 302,289 3,023 63,500 635 8,484,411 84,844
Stock option compensation . . . . . . . -- -- -- -- -- --
Issuance of common stock on
February 14, 1996. . . . . . . . . . . 8,447,192 84,472 -- -- -- --
Loss on repurchase of preferred stock
of subsidiary on February 21, 1996 . . -- -- -- -- -- --
Repurchase of common stock on
February 21, 1996. . . . . . . . . . . -- -- -- -- -- --
Net loss. . . . . . . . . . . . . . . . -- -- -- -- -- --
--------- ------- ------ ---- --------- -------
Balance, June 30, 1996 . . . . . . . . . 8,749,481 $87,495 63,500 $635 8,484,411 $84,844
--------- ------- ------ ---- --------- -------
--------- ------- ------ ---- --------- -------
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED TREASURY
CAPITAL DEFICIT STOCK TOTAL
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995. . . . . . . . $ 59,911,500 $ (105,970) $ -- $ 59,894,030
Stock option compensation . . . . . . . 6,360,000 -- -- 6,360,000
Issuance of common stock on
June 29, 1995. . . . . . . . . . . . . (2) -- -- --
Net loss. . . . . . . . . . . . . . . . -- (11,531,296) -- (11,531,296)
------------ ------------ ----------- ------------
Balance, December 31, 1995. . . . . . . 66,271,498 (11,637,266) -- 54,722,734
Stock option compensation . . . . . . . 1,900,000 -- -- 1,900,000
Issuance of common stock on
February 14, 1996. . . . . . . . . . . 155,390,654 -- -- 155,475,126
Loss on repurchase of preferred stock
of subsidiary on February 21, 1996 . . (16,570,065) -- -- (16,570,065)
Repurchase of common stock on
February 21, 1996. . . . . . . . . . . -- -- (1,038,134) (1,038,134)
Net loss. . . . . . . . . . . . . . . . -- (14,586,289) -- (14,586,289)
------------ ------------ ----------- ------------
Balance, June 30, 1996 . . . . . . . . . $206,992,087 $(26,223,555) $(1,038,134) $179,903,372
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1995 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................................................... $ (8,189,607) $ (14,586,289)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................................. 4,468,080 11,067,939
Provision for doubtful accounts .............................................. 130,159 101,752
Stock option compensation .................................................... 4,460,000 1,900,000
Deferred income taxes ........................................................ 2,084,558 1,539,361
Dividends and accretion on preferred stock of subsidiary ..................... -- 4,843,338
Extraordinary loss ........................................................... -- 4,645,921
Changes in assets and liabilities, net of the effects of acquired businesses:
Accounts receivable ........................................................ (3,030,954) (2,733,580)
Prepaids and other ......................................................... (247,941) (1,379,953)
Accounts payable ........................................................... (805,913) (87,178)
Accrued liabilities ........................................................ 1,172,436 (66,139)
Accrued interest ........................................................... 286,321 4,243,327
------------ -------------
Net cash provided by operating activities ................................ 327,139 9,488,499
------------ -------------
Cash flows from investing activities:
Purchases of broadcasting properties ........................................... (169,542) (406,140,430)
Purchases of other property and equipment ...................................... (690,906) (1,373,601)
------------ -------------
Net cash used in investing activities .................................... (860,448) (407,514,031)
------------ -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ....................................... -- 277,627,630
Proceeds from borrowings under revolving debt facility ......................... 9,202,067 46,763,999
Repayments of long-term debt ................................................... -- (90,884,500)
Repayments of borrowings under revolving debt facility ......................... (8,779,567) (68,432,127)
Issuance of preferred stock of subsidiary ...................................... -- 175,118,543
Repurchase of preferred stock of subsidiary .................................... -- (95,462,423)
Issuance of common stock ....................................................... -- 155,475,126
Repurchase of common stock ..................................................... -- (1,038,134)
Payment of preferred stock dividends ........................................... -- (505,555)
------------ -------------
Net cash provided by financing activities ................................ 422,500 398,662,559
------------ -------------
Net increase (decrease) in cash .......................................... (110,809) 637,027
Cash, at beginning of period ..................................................... 1,516,808 1,314,214
------------ -------------
Cash, at end of period ........................................................... $ 1,405,999 $ 1,951,241
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Chancellor Broadcasting Company ("Chancellor") and its subsidiaries (the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
2. ACQUISITION
On February 14, 1996, the Company acquired all of the outstanding
capital stock of Trefoil Communications, Inc. ("Trefoil") for approximately
$408.0 million, including acquisition costs. Trefoil is a holding company,
the sole asset of which is the capital stock of Shamrock Broadcasting, Inc.
("Shamrock Broadcasting"). The acquisition of Trefoil was financed through
the New Credit Agreement, the New Notes, the IPO and the offering of the
Acquisition Preferred Stock and Class A Common Stock (all as defined).
The acquisition of Trefoil was accounted for as a purchase. Accordingly,
the purchase price was allocated to the net assets acquired based upon their
estimated fair market values. The excess of the purchase price over the
estimated fair value of net assets acquired amounted to approximately $368.0
million, which has been accounted for as goodwill and is being amortized over
40 years using the straight line method. This allocation was based on
preliminary estimates.
Simultaneously with the acquisition of Trefoil, the Company entered into
a joint sales agreement with Evergreen Media Corporation for the outsourcing of
certain limited functions of WWWW-FM and WDFN-AM, both Detroit stations, and an
option to purchase such stations for $30.0 million of cash. Subsequent to the
acquisition of Trefoil, KTBZ-FM, a Houston station acquired from Trefoil, was
operated by Secret Communications, L.P. ("Secret") under a Local Marketing
Agreement ("LMA")/Exchange Agreement with Chancellor. In March of 1996, the
Company entered into an agreement, subject to FCC approval, to exchange KTBZ-FM
and approximately $6.0 million of cash to Secret for KALC-FM and KIMN-FM,
Denver, Colorado. The Company began managing certain limited functions of
these stations, pursuant to an LMA, effective April 1, 1996 and closed on the
exchange of the stations effective July 31, 1996. The Company also manages
certain limited functions pursuant to an LMA and has entered into an asset
purchase agreement to acquire certain assets of WKYN-AM in Florence, Kentucky
for approximately $1.0 million of cash.
On May 15, 1996, the Company entered into an agreement to acquire
substantially all the assets and certain liabilities of OmniAmerica Group
("Omni") for an aggregate price of $178.0 million, including $163.0 million
of cash and $15.0 million of Chancellor Broadcasting Company's Class A Common
shares. Liabilities assumed will be limited to certain ongoing contractual
rights and obligations. On June 24, 1996, the Company entered into an agreement
with American Radio Systems Corporation ("American Radio") whereby it will
exchange the West Palm Beach, Florida stations being acquired pursuant to the
Omni acquisition agreement for American Radio's KSTE-AM and $33.0 million of
cash. KSTE-AM is located in Rancho Cordova, California and is part of the
Sacramento market. On July 1, 1996, Chancellor entered into an agreement
with SFX Broadcasting, Inc. ("SFX") whereby it will exchange the Jacksonville,
Florida stations being acquired pursuant to the Omni acquisition agreement and
$11.0 million of cash for SFX's WBAB-FM, WBLI-FM, WGBB-AM and WHFM-FM,
Nassau-Suffolk, New York. These acquisition and exchange agreements are subject
to FCC approval. Pursuant to various agreements, the Company began managing
certain limited functions of the remaining Omni stations and the SFX stations
beginning July 1, 1996, and station KSTE-AM beginning August 1, 1996.
5
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CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the unaudited consolidated historical and pro
forma data for the six months ended June 30, 1995 and 1996, as though the
Company's acquisitions of KDWB-FM and Trefoil had occurred as of the beginning
of 1995 (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1996
--------------------- ----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenues .......................... $ 30,811 $ 76,213 $ 70,068 $ 77,444
Net loss before extraordinary loss..... (8,190) (18,898) (9,940) (11,127)
Net loss .............................. (8,190) (18,898) (14,586) (11,127)
Net loss per common share ............. (0.93) (1.10) (2.05) (0.65)
</TABLE>
3. LONG-TERM DEBT
The Company's $70.0 million term loan facility and $35.0 million revolving
loan facility were refinanced on February 14, 1996, in conjunction with the
acquisition of Trefoil Communications, Inc. under a new bank credit agreement
(the "New Credit Agreement") with Bankers Trust Company, as administrative
agent, and other institutions party thereto. In connection with the refinancing
of the term loan and revolving loan facility, the Company incurred an
extraordinary charge to write-off deferred finance costs of approximately
$1.8 million. The New Credit Agreement includes a $60.0 million term loan
facility (the "A Term Loan Facility"), a $35.0 million term loan facility (the
"B Term Loan Facility" and , together with the A Term Loan Facility, the "Term
Loans") and a $40.0 million revolving loan facility (the "Revolving Loan
Facility" and, together with the Term Loans, the "New Bank Financing"). The
New Bank Financing is collateralized by (i) a first priority perfected pledge
of all capital stock and notes owned by Chancellor and its subsidiaries and
(ii) a first priority perfected security interest in all other assets (including
receivables, contracts, contract rights, securities, patents, trademarks,
other intellectual property, inventory, equipment and real estate) owned by
Chancellor and its subsidiaries, excluding FCC licenses, leasehold interests
in studio or office space and certain leasehold and partnership interests in
tower or transmitter sites. The A and B Term Loan Facilities are due in
increasing quarterly installments beginning in 1996 and mature in August 2002
and 2003, respectively. All outstanding borrowings under the Revolving Loan
Facility mature in August 2002. The facilities bear interest, at the option
of the Company, at rates based upon the prime rate of Bankers Trust Company,
as announced from time to time, or the London Inter-Bank Offered Rate ("LIBOR")
in effect from time to time, plus an applicable margin rate. The Company pays
quarterly commitment fees in arrears equal to .5% per annum on the unused
portion of the Revolving Loan Facility. As of June 30, 1996, the New Bank
Financing facilities accrued interest at prime rate plus 1.50% (9.75%) on
$4.1 million of borrowings and LIBOR rate plus 2.75% (8.19%) and 3.00% (8.44%)
on $59.0 million and $34.9 million of borrowings, respectively.
In connection with the IPO (defined), the Company redeemed 25% of its
Existing Notes (defined) for approximately $22.2 million. The redemption was
completed in March 1996 and resulted in an extraordinary charge of $2.8 million.
The remaining $60 million 12 1/2% Senior Subordinated Notes due 2004 (the
"Existing Notes") mature October 1, 2004, and bear interest at 12.5% per annum.
On February 14, 1996, in conjunction with the acquisition of Trefoil
Communications, Inc., the Company issued $200 million aggregate principal
amount of 9 3/8% Senior Subordinated Notes due 2004 (the "New Notes" and,
together with the Existing Notes, the "Notes"), which mature on October 1, 2004,
and bear interest at 9.375% per annum. Interest on the Notes is paid
semi-annually. The Existing and New Notes are redeemable, in whole or in part,
at the option of the Company on or after October 1, 1999 and February 1, 2000,
respectively. In addition, prior to January 31, 1999, the company may redeem
up to 25% of the original aggregate principal amount of the New Notes with the
net proceeds of one or more public equity offerings. The Notes are unsecured
obligations of the Company, ranking subordinate in right of payment to all
senior debt of the Company. The New Notes rank PARI PASSU in right of payment
to the Existing Notes. The Notes are guaranteed on a senior subordinated basis
by Chancellor Radio Broadcasting Company's subsidiaries.
6
<PAGE>
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Both the Bank Financing and Notes indenture contain certain covenants,
including, among others, limitations on the incurrence of additional debt, in
the case of the Bank Financing; requirements to maintain certain financial
ratios; and restrictions on the payment of dividends.
4. CAPITAL STRUCTURE
In February 1996, Chancellor sold 7.7 million shares of Class A common
stock in an initial public offering (the "IPO"), which generated net proceeds
of $142.4 million, and in a private placement, issued $100.0 million of
exchangeable redeemable preferred stock (the "Acquisition Preferred Stock")
of Chancellor Radio Broadcasting Company and 742,192 shares of Class A common
stock of Chancellor to an affiliated entity and other investors.
In February 1996, subsequent to the IPO, the Company commenced a private
placement of $100.0 million of newly authorized Senior Cumulative
Exchangeable Preferred Stock (the "Old Preferred Stock"). Upon completion,
the proceeds of the Old Preferred Stock were used to redeem the Acquisition
Preferred Stock and 55,664 shares of Class A common stock. The redemption
resulted in a charge to net loss applicable to common stock of approximately
$16.6 million.
In March 1996, the Company commenced an exchange offering to exchange
the Old Preferred Stock for 1,000,000 shares of public, 12 1/4% Senior
Cumulative Exchangeable Preferred Stock (the "New Preferred Stock"). The
terms of the New Preferred Stock are substantially identical to those of the
Old Preferred Stock. Dividends on the New Preferred Stock will accrue from
its date of issuance and will be payable quarterly commencing May 15, 1996,
at a rate per annum of 12 1/4% of the then effective liquidation preference
per share. Dividends may be paid, at the Company's option, on any dividend
payment date occurring on or prior to February 15, 2001 either in cash or by
adding such dividends to the then effective liquidation preference of the New
Preferred Stock. The initial liquidation preference of the New Preferred
Stock will be $100.00 per share. The New Preferred Stock is redeemable at
the Company's option, in whole or in part at any time on or after February
15, 2001, at various redemption prices (as defined), plus, accumulated and
unpaid dividends to the date of redemption. In addition, prior to February
15, 1999, the Company may, at its option, redeem the New Preferred Stock with
the net cash proceeds from one or more Public Equity Offerings (as defined),
at various redemption prices (as defined), plus, accumulated and unpaid
dividends to the redemption date; provided, however, that after any such
redemption there is outstanding at least 75% of the number of shares of New
Preferred Stock originally issued.
The Company is required, subject to certain conditions, to redeem all of
the New Preferred Stock outstanding on February 15, 2008, at a redemption
price equal to 100% of the then effective liquidation preference thereof,
plus, accumulated and unpaid dividends to the date of redemption. Upon the
occurrence of a change of control (as defined), the Company will offer to
purchase all of the then outstanding shares of New Preferred Stock at a price
equal to 101% of the then effective liquidation preference thereof, plus,
accumulated and unpaid dividends to the date of purchase. Subject to certain
conditions, the New Preferred Stock is exchangeable in whole, but not in
part, at the option of the Company, on any dividend payment date for the
Company's 12 1/4% subordinated exchange debentures due 2008.
In addition to the accrued dividends discussed above, the recorded value
of the Old Preferred Stock includes an amount for the accretion of the
difference between the Old Preferred Stock's fair value at date of issuance
and its mandatory redemption amount, calculated using the effective interest
method.
Immediately prior to the IPO, Chancellor effected a recapitalization of
its current capital stock. Pursuant to the recapitalization, each six shares
of Chancellor's Nonvoting Stock were reclassified into one share of Class A
Common Stock. Each six shares of Chancellor's Voting Stock were reclassified
into one share of Class B Common Stock and each six shares of Convertible
Nonvoting Stock were reclassified into one share of Class C Common Stock. In
connection with the recapitalization, 63,333 shares of Class A Common Stock
were exchanged for an equal number of shares of Class B Common Stock, and an
additional 8,483,078 shares of Class A Common Stock were exchanged for an
equal number of shares of Class C Common Stock. The recapitalization has
been given retroactive effect in the financial statements.
7
<PAGE>
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In June 1996, the owner's of the Class C Common Stock filed an
application with the FCC to convert the stock into Chancellor's Class A
Common Stock. This conversion is subject to FCC approval as it results in a
change of control. On August 9, 1996, the Company sold 1,185,521 shares of
Chancellor's Class A common stock to HM Fund II for cash proceeds of $23.0
million, pursuant to the agreement made at the time of Chancellor's IPO.
5. EMPLOYEE STOCK OPTION PLAN
On February 9, 1996, Chancellor's Board of Directors adopted a stock
award plan for the Company's management, employees and non-employee directors
providing for the grant of options and stock awards for up to 5% of
Chancellor's Common Stock (on a fully-diluted basis). During 1996, the Board
of Directors has granted options to purchase a total of 537,500 shares of
Class A Common Stock with various exercise prices equal to the fair market
value of the stock on the respective dates of grant.
6. INCOME TAXES
Income tax expense differs from the amount computed by applying the
federal statutory income tax rate of 34% to loss before income taxes and
dividends and accretion on preferred stock of subsidiary for the following
reasons:
<TABLE>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1995 1996 1995 1996
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. federal income tax at statutory rate.... $(1,297,650) $506,605 $(2,075,717) $(1,188,527)
State income taxes, net of federal benefit... (228,997) 89,401 (366,303) (209,740)
Valuation allowance provided for loss
carryforward generated during the current
period...................................... 2,376,266 (59,006) 4,446,576 2,749,628
Other........................................ 40,001 125,000 80,002 250,000
----------- -------- ----------- -----------
$ 889,620 $662,000 $ 2,084,558 $ 1,601,361
----------- -------- ----------- -----------
----------- -------- ----------- -----------
</TABLE>
The deferred tax valuation allowance has been established due to the
uncertainty surrounding the Company's ability to generate taxable income in
the immediate future. While the Company currently expects that its long-term
profitability should ultimately be sufficient to enable it to realize full
benefit of its future tax deductions, considering all factors to be relevant,
the Company believes that a portion of the gross deferred tax assets may not
currently meet a "more likely than not" realizability test.
7. RELATED PARTY TRANSACTION
Effective April 1, 1996, the Company entered into a revised financial
monitoring and oversight agreement with Hicks Muse & Co. Partners, L.P. and
HM2/Management Partners, L.P., each of which is an affiliate of Hicks, Muse,
Tate & Furst Incorporated. The annual fee for financial oversight and
monitoring services to the Company has been adjusted to $500,000. The annual
fee is adjustable each January 1, to an amount equal to the budgeted
consolidated annual net sales of the Company for the then-current fiscal
year, multiplied by 0.25%; provided, however, that in no event shall the
annual fee be less than $500,000.
8. NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock Based Compensation" was issued in October 1995, which establishes
financial accounting and reporting standards for stock based employee
compensation plans, including stock purchase plans, stock options, restricted
stock, and stock appreciation rights. The Company has elected to continue
accounting for stock based compensation under Accounting Principles Board
Opinion No. 25. The disclosure requirements of SFAS No. 123 will be
effective for the Company's financial statements beginning with the annual
report for 1996. Management does not believe that the implementation of SFAS
123 will have a material effect on its financial statements.
8
<PAGE>
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
ASSETS
Current assets:
Cash........................................... $ 1,314,214 $ 1,951,241
Accounts receivable, net of allowance for
doubtful accounts of $263,528 and $580,076,
respectively.................................. 13,243,292 35,707,004
Prepaid expenses and other..................... 546,405 2,827,727
------------ ------------
Total current assets......................... 15,103,911 40,485,972
Property and equipment, net.................... 17,925,845 52,294,924
Intangibles and other, net..................... 203,808,395 564,468,503
Deferred financing costs, net.................. 4,284,413 19,004,762
------------ ------------
Total assets................................. $241,122,564 $676,254,161
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................... $ 1,873,888 $ 2,755,088
Accrued liabilities............................ 4,692,948 8,817,451
Accrued interest............................... 2,710,891 6,954,218
Current portion of long-term debt.............. 4,062,500 4,900,000
------------ ------------
Total current liabilities.................... 13,340,227 23,426,757
Long-term debt................................... 168,107,242 353,123,469
Deferred income taxes ........................... 4,952,361 18,436,384
Other ........................................... -- 800,211
------------ ------------
Total liabilities ........................... 186,399,830 395,786,821
------------ ------------
Redeemable Senior Cumulative Exchangeable
Preferred Stock, par value $.01 per share;
1,000,000 shares authorized, issued and
outstanding; preference in liquidation of
$100,000,000, plus accumulated and unpaid
dividends and accretion......................... -- 100,563,968
Common stockholder's equity:
Common stock, par value $.01 per share, 1,000
shares authorized, issued and outstanding..... 10 10
Additional paid-in capital..................... 66,359,990 201,283,579
Accumulated deficit............................ (11,637,266) (21,380,217)
------------ ------------
Total common stockholder's equity............ 54,722,734 179,903,372
------------ ------------
Total liabilities and stockholder's equity.. $241,122,564 $676,254,161
------------ ------------
------------ ------------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- --------------------------
1995 1996 1995 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Gross broadcasting revenues......... $20,219,761 $50,758,926 $35,080,729 $ 79,848,441
Less agency commissions............. 2,490,212 6,333,258 4,269,625 9,780,534
----------- ----------- ----------- ------------
Net revenues.................... 17,729,549 44,425,668 30,811,104 70,067,907
----------- ----------- ----------- ------------
Operating expenses:
Programming, technical and news... 3,054,247 7,865,007 5,816,492 13,009,767
Sales and promotion............... 5,130,916 12,366,880 8,731,157 19,309,958
General and administrative........ 2,071,813 6,001,628 4,245,517 10,405,378
Depreciation and amortization..... 2,109,425 6,040,331 4,468,080 11,067,939
Corporate expenses................ 486,877 831,609 856,444 1,839,206
Stock option compensation......... 4,460,000 950,000 4,460,000 1,900,000
----------- ----------- ----------- ------------
17,313,278 34,055,455 28,577,690 57,532,248
----------- ----------- ----------- ------------
Income from operations.......... 416,271 10,370,213 2,233,414 12,535,659
Other expense:
Interest expense.................. 4,174,740 8,787,846 8,288,247 15,933,352
Other, net........................ 58,149 92,352 50,216 97,976
----------- ----------- ----------- ------------
Income (loss) before provision
for income and extraordinary
loss........................... (3,816,618) 1,490,015 (6,105,049) (3,495,669)
Provision for income taxes.......... 889,620 662,000 2,084,558 1,601,361
----------- ----------- ----------- ------------
Net loss before extraordinary
loss........................... (4,706,238) 828,015 (8,189,607) (5,097,030)
Extraordinary loss on early
extinguishment of debt............. -- -- -- 4,645,921
----------- ----------- ----------- ------------
Net income (loss)............... (4,706,238) 828,015 (8,189,607) (9,742,951)
Dividends and accretion on
preferred stock................... -- 3,183,069 -- 4,843,338
Loss on repurchase of preferred
stock............................. -- -- -- 16,570,065
----------- ----------- ----------- ------------
Net loss attributable to
common stock.................. $(4,706,238) $(2,355,054) $(8,189,607) $(31,156,354)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER'S EQUITY
<TABLE>
COMMON STOCK ADDITIONAL
--------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995..................... 2,000 $ 20 $ 59,999,980 $ (105,970) $ 59,894,030
Capital contributions........................ -- -- 6,360,000 -- 6,360,000
Contribution of stock held by affiliate
of Hicks, Muse, Tate & Furst................ (1,000) (10) 10 -- --
Net loss..................................... -- -- -- (11,531,296) (11,531,296)
------ ---- ------------- ------------ ------------
Balance, December 31, 1995................... 1,000 10 66,359,990 (11,637,266) 54,722,734
Loss on repurchase of preferred stock........ -- -- (16,570,065) -- (16,570,065)
Dividends and accretion on preferred stock... -- -- (4,843,338) -- (4,843,338)
Capital contributions........................ -- -- 156,336,992 -- 156,336,992
Net loss..................................... -- -- -- (9,742,951) (9,742,951)
------ ---- ------------- ------------ ------------
Balance, June 30, 1996....................... 1,000 $ 10 $ 201,283,579 $(21,380,217) $179,903,372
------ ---- ------------- ------------ ------------
------ ---- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1995 1996
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................................... $(8,189,607) $ (9,742,951)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................................... 4,468,080 11,067,939
Provision for doubtful accounts.................................................. 130,159 101,752
Stock option compensation........................................................ 4,460,000 1,900,000
Deferred income taxes............................................................ 2,084,558 1,539,361
Extraordinary loss............................................................... -- 4,645,921
Changes in assets and liabilities, net of the effects of acquired businesses:
Accounts receivable............................................................ (3,030,954) (2,733,580)
Prepaids and other............................................................. (247,941) (1,379,953)
Accounts payable............................................................... (805,913) (87,178)
Accrued liabilities............................................................ 1,172,436 (66,139)
Accrued interest............................................................... 286,321 4,243,327
----------- ------------
Net cash provided by operating activities.................................... 327,139 9,488,499
----------- ------------
Cash flows from investing activities:
Purchases of broadcasting properties............................................... (169,542) (406,140,430)
Purchases of other property and equipment.......................................... (690,906) (1,373,601)
----------- ------------
Net cash used in investing activities........................................ (860,448) (407,514,031)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........................................... -- 277,627,630
Proceeds from borrowings under revolving debt facility............................. 9,202,067 46,763,999
Repayments of long-term debt....................................................... -- (90,884,500)
Repayments of borrowings under revolving debt facility............................. (8,779,567) (68,432,127)
Issuance of preferred stock........................................................ -- 175,118,543
Repurchase of preferred stock...................................................... -- (95,462,423)
Additional capital contributions................................................... -- 155,475,126
Distribution of additional paid in capital......................................... -- (1,038,134)
Payment of preferred stock dividends............................................... -- (505,555)
----------- ------------
Net cash provided by financing activities.................................... 422,500 398,662,559
----------- ------------
Net increase (decrease) in cash.............................................. (110,809) 637,027
Cash, at beginning of period......................................................... 1,516,808 1,314,214
----------- ------------
Cash, at end of period............................................................... $ 1,405,999 $ 1,951,241
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Chancellor Radio Broadcasting Company ("Chancellor Radio Broadcasting") and
its subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. Chancellor Radio Broadcasting is a wholly owned
subsidiary of Chancellor Broadcasting Company ("Chancellor").
2. ACQUISITION
On February 14, 1996, the Company acquired all of the outstanding
capital stock of Trefoil Communications, Inc. ("Trefoil") for approximately
$408.0 million, including acquisition costs. Trefoil is a holding company,
the sole asset of which is the capital stock of Shamrock Broadcasting, Inc.
("Shamrock Broadcasting"). The acquisition of Trefoil was financed through
the New Credit Agreement, the New Notes, the IPO and the offering of the
Acquisition Preferred Stock and Class A Common Stock (all as defined).
The acquisition of Trefoil was accounted for as a purchase.
Accordingly, the purchase price was allocated to the net assets acquired
based upon their estimated fair market values. The excess of the purchase
price over the estimated fair value of net assets acquired amounted to
approximately $368.0 million, which has been accounted for as goodwill and is
being amortized over 40 years using the straight line method. This
allocation was based on preliminary estimates and may be revised at a later
date.
Simultaneously with the acquisition of Trefoil, the Company entered into
a joint sales agreement with Evergreen Media Corporation for the outsourcing
of certain limited functions of WWWW-FM and WDFN-AM, both Detroit stations,
and an option to purchase such stations for $30.0 million of cash.
Subsequent to the acquisition of Trefoil, KTBZ-FM, a Houston station acquired
from Trefoil, was operated by Secret Communications, L.P. ("Secret") under a
Local Marketing Agreement ("LMA")/Exchange Agreement with Chancellor. In
March of 1996, the Company entered into an agreement, subject to FCC
approval, to exchange KTBZ-FM and approximately $6.0 million of cash to
Secret for KALC-FM and KIMN-FM, Denver, Colorado. The Company began managing
certain limited functions of these stations, pursuant to an LMA, effective
April 1, 1996 and intends to close on the exchange of the stations effective
July 31, 1996. Additionally, the Company also manages certain limited
functions pursuant to an LMA and has entered into an asset purchase agreement
to acquire certain assets of WKYN-AM in Florence, Kentucky for approximately
$1.0 million of cash.
On May 15, 1996, the Company entered into an agreement to acquire
substantially all the assets and certain liabilities of OmniAmerica Group
("Omni") for an aggregate price of $178.0 million, including $163.0 million
of cash and $15.0 million of Chancellor Broadcasting Company's Class A Common
shares. Liabilities assumed will be limited to certain ongoing contractual
rights and obligations. On June 24, 1996, the Company entered into an
agreement with American Radio Systems Corporation ("American Radio") whereby
it will exchange the West Palm Beach, Florida stations being acquired
pursuant to the Omni acquisition agreement for American Radio's KSTE-AM and
$33.0 million of cash. KSTE-AM is located in Rancho Cordova, California and
is part of the Sacramento market. On July 1, 1996, Chancellor entered into
an agreement with SFX Broadcasting, Inc. ("SFX") whereby it will exchange the
Jacksonville, Florida stations being acquired pursuant to the Omni
acquisition agreement and $11.0 million of cash for SFX's WBAB-FM, WBLI-FM,
WGBB-AM and WHFM-FM, Nassau-Suffolk, New York. These acquisition and
exchange agreements are subject to FCC approval. Pursuant to various
agreements, the Company began managing certain limited functions of the
remaining Omni stations and the SFX stations beginning July 1, 1996, and
station KSTE-AM beginning August 1, 1996.
13
<PAGE>
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the unaudited consolidated historical and pro
forma data for the six months ended June 30, 1995 and 1996, as though the
Company's acquisitions of KDWB-FM and Trefoil had occurred as of the beginning
of 1995 (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1996
--------------------- ---------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenues........................... $30,811 $ 76,213 $70,068 $77,444
Net loss before extraordinary loss..... (8,190) (12,601) (5,097) (4,830)
Net loss............................... (8,190) (12,601) (9,743) (4,830)
</TABLE>
3. LONG-TERM DEBT
The Company's $70.0 million term loan facility and $35.0 million
revolving loan facility were refinanced on February 14, 1996, in conjunction
with the acquisition of Trefoil Communications, Inc. under a new bank credit
agreement (the "New Credit Agreement") with Bankers Trust Company, as
administrative agent, and other institutions party thereto. In connection
with the refinancing of the term loan and revolving loan facility, the
Company incurred an extraordinary charge to write-off deferred finance costs
of approximately $1.8 million. The New Credit Agreement includes a $60.0
million term loan facility (the "A Term Loan Facility"), a $35.0 million term
loan facility (the "B Term Loan Facility" and, together with the A Term Loan
Facility, the "Term Loans") and a $40.0 million revolving loan facility (the
"Revolving Loan Facility" and, together with the Term Loans, the "New Bank
Financing"). The New Bank Financing is collateralized by (i) a first
priority perfected pledge of all capital stock and notes owned by Chancellor
and its subsidiaries and (ii) a first priority perfected security interest in
all other assets (including receivables, contracts, contract rights,
securities, patents, trademarks, other intellectual property, inventory,
equipment and real estate) owned by Chancellor and its subsidiaries,
excluding FCC licenses, leasehold interests in studio or office space and
certain leasehold and partnership interests in tower or transmitter sites.
The A and B Term Loan Facilities are due in increasing quarterly installments
beginning in 1996 and mature in August 2002 and 2003, respectively. All
outstanding borrowings under the Revolving Loan Facility mature in August
2002. The facilities bear interest, at the option of the Company, at rates
based upon the prime rate of Bankers Trust Company, as announced from time to
time, or the London Inter-Bank Offered Rate ("LIBOR") in effect form time to
time, plus an applicable margin rate. The Company pays quarterly commitment
fees in arrears equal to 5% per annum on the unused portion of the Revolving
Loan Facility. As of June 30, 1996, the New Bank Financing facilities
accrued interest at prime rate plus 1.50% (9.75%) on $4.1 million of
borrowings and LIBOR rate plus 2.75% (8.19%) and 3.00% (8.44%) on $59.0
million and $34.9 million of borrowings, respectively.
In connection with the IPO (defined), the Company redeemed 25% of its
Existing Notes (defined) for approximately $22.2 million. The redemption was
completed in March 1996 and resulted in an extraordinary charge of $2.8
million. The remaining $60 million 12 1/2% Senior Subordinated Notes due
2004 (the "Existing Notes") mature October 1, 2004, and bear interest at
12.5% per annum. On February 14, 1996, in conjunction with the acquisition
of Trefoil Communications, Inc., the Company issued $200 million aggregate
principal amount of 9 3/8% Senior Subordinated Notes due 2004 (the "New
Notes" and, together with the Existing Notes, the "Notes"), which mature on
October 1, 2004, and bear interest at 9.375% per annum. Interest on the
Notes is paid semi-annually. The Existing and New Notes are redeemable, in
whole or in part, at the option of the Company on or after October 1, 1999
and February 1, 2000, respectively. In addition, prior to January 31, 1999,
the company may redeem up to 25% of the original aggregate principal amount
of the New Notes with the net proceeds of one or more public equity
offerings. The Notes are unsecured obligations of the Company, ranking
subordinate in right of payment to all senior debt of the Company. The New
Notes rank PARI PASSU in right of payment to the Existing Notes. The Notes
are guaranteed on a senior subordinated basis by Chancellor Radio
Broadcasting Company's subsidiaries.
Both the Bank Financing and Notes indenture contain certain covenants,
including, among others, limitations on the incurrence of additional debt, in
the case of the Bank Financing; requirements to maintain certain financial
ratios; and restrictions on the payment of dividends.
14
<PAGE>
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. CAPITAL STRUCTURE
In February 1996, Chancellor sold 7.7 million shares of Class A common
stock in an initial public offering (the "IPO"), which generated net proceeds
of $142.4 million, and in a private placement, issued $100.0 million of
exchangeable redeemable preferred stock (the "Acquisition Preferred Stock")
of Chancellor Radio Broadcasting and 742,192 shares of Class A common stock
of Chancellor to an affiliated entity and other investors.
In February 1996, subsequent to the IPO, the Company commenced a private
placement of $100.0 million of newly authorized Senior Cumulative
Exchangeable Preferred Stock (the "Old Preferred Stock"). Upon completion,
the proceeds of the Old Preferred Stock were used to redeem the Acquisition
Preferred Stock and 55,664 shares of Class A common stock. The redemption
resulted in a charge to net loss applicable to common stock of approximately
$16.6 million and an additional reduction of paid-in capital of approximately
$1.0 million
In March 1996, the Company commenced an exchange offering to exchange
the Old Preferred Stock for 1,000,000 shares of public, 12 1/4% Senior
Cumulative Exchangeable Preferred Stock (the "New Preferred Stock"). The
terms of the New Preferred Stock are substantially identical to those of the
Old Preferred Stock. Dividends on the New Preferred Stock will accrue from
its date of issuance and will be payable quarterly commencing May 15, 1996,
at a rate per annum of 12 1/4% of the then effective liquidation preference
per share. Dividends may be paid, at the Company's option, on any dividend
payment date occurring on or prior to February 15, 2001 either in cash or by
adding such dividends to the then effective liquidation preference of the New
Preferred Stock. The initial liquidation preference of the New Preferred
Stock will be $100.00 per share. The New Preferred Stock is redeemable at
the Company's option, in whole or in part at any time on or after February
15, 2001, at various redemption prices (as defined), plus, accumulated and
unpaid dividends to the date of redemption. In addition, prior to February
15, 1999, the Company may, at its option, redeem the Senior exchangeable
Preferred Stock with the net cash proceeds from one or more Public Equity
Offerings (as defined), at various redemption prices (as defined), plus,
accumulated and unpaid dividends to the redemption date; provided, however,
that after any such redemption there is outstanding at least 75% of the
number of shares of New Preferred Stock originally issued.
The Company is required, subject to certain conditions, to redeem all of
the New Preferred Stock outstanding on February 15, 2008, at a redemption
price equal to 100% of the then effective liquidation preference thereof,
plus, accumulated and unpaid dividends to the date of redemption. Upon the
occurrence of a change of control (as defined), the Company will offer to
purchase all of the then outstanding shares of New Preferred Stock at a price
equal to 101% of the then effective liquidation preference thereof, plus,
accumulated and unpaid dividends to the date of purchase. Subject to certain
conditions, the New Preferred Stock is exchangeable in whole, but not in
part, at the option of the Company, on any dividend payment date for the
Company's 12 1/4% subordinated exchange debentures due 2008.
In addition to the accrued dividends discussed above, the recorded value
of the Old Preferred Stock includes an amount for the accretion of the
difference between the Old Preferred Stock's fair value at date of issuance
and its mandatory redemption amount, calculated using the effective interest
method.
In June 1996, the owner's of Chancellor's Class C Common Stock filed an
application with the FCC to convert the stock into Chancellor's Class A
Common Stock. This conversion is subject to FCC approval as it results in a
change of control.
5. EMPLOYEE STOCK OPTION PLAN
On February 9, 1996, Chancellor's Board of Directors adopted a stock
award plan for the Company's management, employees and non-employee directors
providing for the grant of options and stock awards for up to 5% of
Chancellor's Common Stock (on a fully-diluted basis). During 1996, the Board
of Directors has granted options to purchase a total of 537,500 shares of
Class A Common Stock with various exercise prices equal to the fair market
value of the stock on the respective dates of grant.
15
<PAGE>
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. INCOME TAXES
Income tax expense differs from the amount computed by applying the
federal statutory income tax rate of 34% to loss before income taxes for the
following reasons:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ----------------------------
1995 1996 1995 1996
------------ -------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. federal income tax at statutory rate.............. $(1,297,650) $506,605 $(2,075,717) $(1,188,527)
State income taxes, net of federal benefit............. (228,997) 89,401 (366,303) (209,740)
Valuation allowance provided for loss
carryforward generated during
the current period.................................... 2,376,266 (59,006) 4,446,576 2,749,628
Other.................................................. 40,001 125,000 80,002 250,000
----------- -------- ----------- -----------
$ 889,620 $662,000 $ 2,084,558 $ 1,601,361
----------- -------- ----------- -----------
----------- -------- ----------- -----------
</TABLE>
The deferred tax valuation allowance has been established due to the
uncertainty surrounding the Company's ability to generate taxable income in
the immediate future. While the Company currently expects that its long-term
profitability should ultimately be sufficient to enable it to realize full
benefit of its future tax deductions, considering all factors to be relevant,
the Company believes that a portion of the gross deferred tax assets may not
currently meet a "more likely than not" realizability test.
7. RELATED PARTY TRANSACTION
Effective April 1, 1996, Chancellor and the Company entered into a
revised financial monitoring and oversight agreement with Hicks Muse & Co.
Partners, L.P. and HM2/Management Partners, L.P., each of which is an
affiliate of Hicks, Muse, Tate & Furst Incorporated. The annual fee for
financial oversight and monitoring services to Chancellor and the Company has
been adjusted to $500,000. The annual fee is adjustable each January 1, to
an amount equal to the budgeted consolidated annual net sales of the Company
for the then-current fiscal year, multiplied by 0.25%; provided, however,
that in no event shall the annual fee be less than $500,000.
8. NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock Based Compensation" was issued in October 1995, which establishes
financial accounting and reporting standards for stock based employee
compensation plans, including stock purchase plans, stock options, restricted
stock, and stock appreciation rights. The Company has elected to continue
accounting for stock based compensation under Accounting Principles Board
Opinion No. 25. The disclosure requirements of SFAS No. 123 will be
effective for the Company's financial statements beginning with the annual
report for 1996. Management does not believe that the implementation of SFAS
123 will have a material effect on its financial statements.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis of results of operations and
financial condition of the Company should be read in conjunction with the
consolidated financial statements and related notes thereto of the Company
included elsewhere in this document. Periodically, the Company makes forward
looking statements that are not historical facts. Actual results may differ
materially from those projected in the forward looking statements. These
forward looking statements involve risks and uncertainties, including but not
limited to, the following: business conditions and growth in the radio
broadcasting industry and general economy; competitive factors; that interest
rates may increase rather than remain stable or decrease; that one or more of
the Company's broadcasting licenses may not be renewed; and the risk factors
listed from time to time in documents filed by the Company with the
Securities and Exchange Commission.
Chancellor Broadcasting Company and its subsidiaries (the "Company")
have grown largely through acquisitions, as well as through internally
generated growth. Upon completion of its pending acquisition, exchange and
sales agreements, the Company will own and operate 41 radio stations serving
the following top 40 markets: New York, New York; Los Angeles, California;
San Francisco, California; Atlanta, Georgia; Riverside-San Bernardino,
California; Minneapolis-St. Paul, Minnesota; Nassau-Suffolk (Long Island),
New York; Phoenix, Arizona; Pittsburgh, Pennsylvania; Denver, Colorado;
Cincinnati, Ohio; Sacramento, California; and Orlando, Florida. See the
"Acquisition" note to the financial statements for a more detailed
description of the pending agreements.
In the following analysis, management discusses the "broadcast cash
flow" of the combined station group. Broadcast cash flow consists of
operating income before depreciation and amortization, corporate expenses and
non-cash stock option compensation expense. Although broadcast cash flow is
not a measure of performance calculated in accordance with generally accepted
accounting principles ("GAAP"), management believes that it is useful to an
investor in evaluating the Company because it is a measure widely used in the
broadcast industry to evaluate a radio company's operating performance.
However, broadcast cash flow should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with GAAP or as a
measure of liquidity or profitability. The discussion of broadcast cash flow
appears as the last paragraph in the discussion of the results of operations.
For ease of comprehension, the following table and analysis presents and
discusses the combined historical net revenues, operating expenses and
broadcast cash flow of the Company, Midcontinent Radio of Minnesota Inc.
related to radio station KDWB-FM (where not already included in the Company's
results of operations per the terms of the LMA), Shamrock Broadcasting and
Secret related to radio stations KIMN-FM and KALC-FM (where not already
included in the Company's results of operations per the terms of the LMA) for
the three and six months ended June 30, 1995 and 1996. Results related to
the Company's Detroit and Houston stations are limited to those revenues and
expenses attributable to the Company per the terms of the LMA agreements in
1996. No data for these stations prior to the LMA agreements in February
1996 or for 1995 have been included. This combined "same station basis"
information is presented in a manner similar to a "pooling of interests";
however, it is not in accordance with GAAP which does not allow for the
aggregation of financial data for entities which are not under common
management and control. Nevertheless, management believes the financial
information shown below is helpful in understanding past and current
operations of the Company's stations. In the following information, the
KDWB-FM LMA fee of $180,000, paid by the Company to Midcontinent Radio of
Minnesota Inc. in 1995, for the three and six months ended June 30, 1995, has
been eliminated from net revenues and operating expenses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- --------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues............... $41,564,363 $44,425,668 $74,180,591 $79,239,431
Operating expenses......... 29,483,264 26,233,515 53,888,784 50,701,496
----------- ----------- ----------- -----------
Broadcast cash flow...... $12,081,099 $18,192,153 $20,291,807 $28,537,935
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
17
<PAGE>
Because the Company incurred substantial indebtedness for its
acquisitions for which it has significant debt service requirements, and
because the Company has significant non-cash charges for stock option
compensation and depreciation and amortization expense related to the fixed
assets and intangibles acquired in the acquisitions, the Company expects that
it will report net losses for the foreseeable future, which losses may be
greater than those historically experienced by the Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Net revenues increased 150.6% to $44.4 million for the three months
ended June 30, 1996 from $17.7 million for the same period in 1995. The
majority of this increase was due to the acquisition of Shamrock
Broadcasting. On a same station basis, net revenues increased 6.9% to $44.4
million for the second quarter of 1996 from $41.6 million for the second
quarter of 1995.
Station operating expenses increased 155.8% to $26.2 million for the
quarter ended June 30, 1996 from $10.3 million for the quarter ended June 30,
1995. The majority of this increase was due to the acquisition of Shamrock
Broadcasting. On a same station basis, station operating expenses decreased
11.0% to $26.2 million for the three months ended June 30, 1996 from $29.5
million over the same period of 1995.
Depreciation and amortization increased 186.3% to $6.0 million for the
second quarter of 1996 from $2.1 million for the same period in the prior
year. Corporate expenses increased 70.8% to $832,000 for the second quarter
of 1996 from approximately $294,000 for the same period in 1995, as a result
of additional personnel and overhead costs associated with the acquisition of
Shamrock Broadcasting. Interest expense increased 110.5% to $8.8 million from
$4.2 million for the same period. These increases were primarily
attributable to the acquisition of Shamrock Broadcasting and the resulting
change in capital structure from its financing. See the discussion of
"Liquidity and Capital Resources" below.
During the second quarter of 1995, the Company developed an estimate of
the fair value of its outstanding stock options in the amount of $19.0
million. Based upon this estimate and the applicable vesting periods, the
Company recognized $4.5 million of non-cash stock option compensation
expense, with the remaining amount to be amortized over an approximate four
year period. During the second quarter of 1996, the Company recognized
non-cash stock option compensation expense of $950,000 and non-cash charges
for dividends and accretion on the preferred stock of its subsidiary of $3.2
million.
As a result of the foregoing, income from operations for the second
quarter of 1996 was $10.4 million compared to $416,000 for the same period in
1995. Chancellor Broadcasting Company had a net loss of $2.4 million
compared with a net loss of approximately $4.7 million for the second quarter
of the prior year.
On a same station basis, broadcast cash flow increased 50.6% to $18.2
million for the three months ended June 30, 1996, from $12.1 million over the
comparable 1995 period. Same station broadcast cash flow as a percentage of
net revenues increased to 40.9% for 1996 from 29.1% for 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net revenues increased 127.4% to $70.1 million for the six months ended
June 30, 1996 from $30.8 million over the same period in 1995. The majority
of this increase was due to the acquisition of Shamrock Broadcasting. On a
same station basis, net revenues increased 6.8% to $79.2 million for the
first half of 1996 from $74.2 million over the first half of 1995.
Station operating expenses increased 127.3% to $42.7 million for the six
months ended June 30, 1996 from $18.8 million for the same period in 1995.
The majority of this increase was due to the acquisition of Shamrock
Broadcasting. On a same station basis, station operating expenses decreased
5.9% to $50.7 million for the six months ended June 30, 1996 from $53.9
million for the same period in 1995.
Depreciation and amortization increased 147.7% to $11.1 million for the
first half of 1996 from $4.5 million over the same period in the prior year.
Corporate expenses increased 114.7% to $1.8 million for the first six months
of 1996 from approximately $856,000 over the same period in 1995, as a result
of additional personnel and overhead costs associated with the acquisition of
Shamrock Broadcasting. Interest expense increased 92.2% to $15.9 million
from $8.3 million for the same period. These increases, and the
extraordinary loss on early extinguishment of debt of $4.6 million, were
primarily attributable to the acquisition of Shamrock Broadcasting and
18
<PAGE>
the resulting change in capital structure from its financing. See the
discussion of "Liquidity and Capital Resources" below.
During the second quarter of 1995, the Company developed an estimate of
the fair value of its outstanding stock options in the amount of $19.0
million. Based upon this estimate and the applicable vesting periods, the
Company recognized $4.5 million of non-cash stock option compensation expense
during the first half of 1995, with the remaining amount to be amortized over
an approximate four year period. During the first half of 1996, the Company
recognized non-cash stock option compensation expense of $1.9 million, a
one-time loss of $16.6 million on the repurchase of preferred stock of its
subsidiary and incurred non-cash charges for dividends and accretion on the
repurchased and newly issued preferred stock of its subsidiary of $4.8
million.
As a result of the foregoing, income from operations for the first half
of 1996 was $12.5 million compared to $2.2 million for the same period in
1995. Chancellor Broadcasting Company had a net loss of $14.6 million
compared with a net loss of $8.2 million for the first half of the prior year.
On a same station basis, broadcast cash flow increased 40.6% to $28.5
million for the six months ended June 30, 1996, from $20.3 million over the
comparable 1995 period. Same station broadcast cash flow as a percentage of
net revenues increased to 36.0% for 1996 from 27.4% for 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources have been significantly
impacted by the acquisition, and the financing thereof, of Shamrock
Broadcasting, on February 14, 1996. The acquisition of Shamrock Broadcasting
was financed through the New Credit Agreement, the New Notes, the IPO and the
offering of the Acquisition Preferred Stock and Class A Common Stock (all as
defined and described in the notes to the financial statements included
herewith). In connection with this financing, the Company refinanced its
existing bank financing and redeemed 25% of its Existing Notes (as defined),
resulting in a combined extraordinary charge of $4.6 million.
HM Fund II had advised Chancellor and Chancellor Broadcasting that on or
before September 30, 1996, it would sell all of its capital stock in its
affiliate, HMW, or would cause HMW to sell all or substantially all of its
assets (which consist primarily of eight radio broadcast stations), and that
it or HMW would invest the net proceeds of such sale in Class A Common Stock
of Chancellor. On August 9, 1996, the Company sold 1,185,521 shares of
Chancellor's Class A common stock to HM Fund II for cash proceeds of $23.0
millon, pursuant to this agreement made at the time of Chancellor's IPO.
Management believes that these proceeds, cash from operating activities and
available revolving credit borrowings under its bank credit agreement should
be sufficient to permit the Company to meet its financial obligations and fund
its operations.
The Company anticipates that it will consummate all of its pending
acquisition, exchange and disposition agreements by January 1997. However,
the closing of each of the transactions is subject to FCC approval and
certain closing conditions, certain of which are beyond the Company's
control, and there can be no assurance as to when such transactions will be
completed or that they will be completed on the terms described herein, or at
all. The Company intends to fund the cash portion of its pending
acquisitions with the HM Fund II investment proceeds, the proceeds from the
sale of the Detroit stations, cash flow from operations, financing under its
current credit agreement and new bank financing. There can be no assurance
regarding the availability of cash flow from operations or that financing
will be available to the Company on commercially acceptable terms, if at all.
19
<PAGE>
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On February 14, 1996, Chancellor Broadcasting Company ("Chancellor")
consummated an initial public offering (the "IPO") of its Class A Common Stock,
par value $.01 per share. In connection with such offering, Chancellor
reclassified its previously outstanding capital stock immediately prior to the
IPO. Pursuant to such reclassification, Chancellor's Non-Voting Stock, Voting
Stock and Convertible Non-Voting Stock were reclassified into its Class A Common
Stock, Class B Common Stock, and Class C Common Stock, respectively, on a
six-for-one basis. The holders of the Class A Common Stock are entitled to one
vote per share on all matters submitted to the stock holders of Chancellor and,
except as otherwise specified in the Second Restated Certificate of
Incorporation of Chancellor, to elect, voting as a class, two members of the
Board of Directors of Chancellor.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
------- -----------------------
2.1 Asset Purchase Agreement dated as of April 19, 1994, between American
Media, Inc. and Chancellor Holdings Corp. (formerly, MBD Broadcasting,
Inc.) (1)
2.2 Asset Purchase Agreement dated as of April 19, 1994, among SanRiver
Radio, Inc., Mid-Florida Radio, Inc. and Chancellor Holdings Corp.
(formally MBD Broadcasting, Inc.) (1)
2.3 Asset Purchase Agreement dated as of April 19, 1994, between National
Radio Partners, L.P. and Chancellor Holdings Corp. (formerly, MBD
Broadcasting, Inc.) (1)
2.4 Asset Purchase Agreement dated as of April 19, 1994, between National
Radio Partners, L.P. and Chancellor Communications Corporation (1)
2.5 Local Programming and Marketing Agreement dated February 1, 1995,
between Midcontinent Radio of Minnesota, Inc., as Licensee, Radio
Station, KDWB-FM, and Chancellor Broadcasting Company(2)
2.6 Asset Purchase Agreement dated February 1, 1995, between Midcontinent
Radio of Minnesota, Inc., Chancellor Broadcasting Company and
Chancellor Broadcasting Licensee Company (2)
2.7 Escrow Agreement dated February 7, 1995, between Midcontinent Radio of
Minnesota, Inc., Chancellor Broadcasting Company and NationsBank of
Texas, N.A. (2)
2.8 Stock Purchase Agreement dated as of August 3, 1995, among Chancellor
Broadcasting Company, Trefoil Communications, Inc., and the Selling
Securityholders named therein (3)
2.9 Option Agreement dated January 9, 1996 by and between Chancellor
Broadcasting Company and Evergreen Media Corporation (3)
2.10 Option Agreement dated January 9, 1996 by and between Chancellor
Broadcasting Company and Secret Communications (3)
2.11 Asset Purchase Agreement, dated as of May 14, 1996, among OmniAmerica
Group, WAPE-FM License Partnership, WFYV-FM License Partnership,
WEAT-FM License Partnership, WEAT-AM License Partnership, WXXL License
Partnership, WOLL License Partnership, WJHM-FM License Partnership,
Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company (7)
2.12 Local Marketing Agreement, dated as of June 28, 1996, among
OmniAmerica Group, Chancellor Broadcasting Company and Chancellor
Radio Broadcasting Company (7)
2.13 Exchange Agreement, dated as of July 1, 1996, among WBLI-FM,
Inc., WHFM, Inc., WBAB, Inc., WGBB, Inc., SFX Broadcasting, Inc.
and Chancellor Radio Broadcasting Company (7)
2.14 Local Marketing Agreement, dated as of July 1, 1996, among WBLI, Inc.,
WBLI-FM, Inc., WHFM, Inc., WBAB, Inc., WGBB, Inc. and Chancellor Radio
Broadcasting Company (7)
20
<PAGE>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------- -----------------------
3.1 Certificate of Incorporation of Chancellor Broadcasting Company, as
amended and restated (1)(4)
3.2 Certificate of Incorporation of Chancellor Radio
Broadcasting Company, as amended (1)(4)
3.3 Certificate of Incorporation of Chancellor Broadcasting
Licensee Company (1)
3.4 Bylaws of Chancellor Broadcasting Company, as amended and restated (1)(4)
3.5 Bylaws of Chancellor Radio Broadcasting Company, as amended (1)(4)
3.6 Bylaws of Chancellor Broadcasting Licensee Company (1)
3.7 Certificate of Designations for the 14% Redeemable
Exchangeable Preferred Stock (5)
3.8 Certificate of Amendment to Certificate of Designations for
the 14% Redeemable Exchangeable Preferred Stock (4)
3.9 Certificate of Designation for the Old Preferred Stock (4)
3.10 Form of Certificate of Designations for the New Preferred Stock (7)
4.1 Indenture, dated October 1, 1994, governing the outstanding
12-1/2% Senior Subordinated Notes due 2004 (1)
4.2 First Supplemental Indenture, dated as of February 14, 1996,
to the Indenture dated October 1, 1994, governing the 12-1/2% Senior
Subordinated Notes due 2004 (4)
4.3 Second Supplemental Indenture, dated as of February 14, 1996,
to the Indenture dated October 1, 1994, governing the 12-1/2%
Senior Subordinated Notes due 2004 (4)
4.4 Indenture, dated as of February 26, 1996, governing the
outstanding 9-3/8% Senior Subordinated Notes due 2004 (5)
4.5 First Supplemental Indenture, dated as of February 14, 1996,
to the Indenture dated February 14, 1996, governing the 9-3/8%
Senior Subordinated Notes due 2004 (4)
4.6 Indenture, dated as of February 26, 1996, governing the
Exchange Debentures (4)
10.1 Credit Agreement, including certain ancillary documents
thereto, dated October 12, 1994 among Chancellor Holdings Corp.,
Chancellor Broadcasting Company and Bankers Trust Company, as
agent, and the lenders party thereto (2)
10.2 Lease Agreement dated as of May 22, 1989, between Kruse
Microwave and SanRiver Radio, Inc., as amended (1)
10.3 License Agreement dated as of March 1, 1974, between City of
New Hope, Minnesota and National Radio Partners, L.P., as assignee
of American Media, Inc. (1)
10.4 Tower Lease Agreement dated as of November 23, 1988, between
United Television and Shoreview FM Group, a Minnesota general
partnership (1)
10.5 Partnership Agreement dated as of November 23, 1988, of
Shoreview FM Group, a Minnesota general partnership (1)
10.6 Employment Agreement between Chancellor Holdings Corp.,
Chancellor Broadcasting Company and Seven Dinetz (2)
10.7 Employment Agreement between Chancellor Broadcasting Company
and George C. Toulas (2)
10.8 Employment Agreement date as of january 10, 1994 between
Chancellor Communications Corporation and Rick Eytcheson, as
amended (1)
21
<PAGE>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------- -----------------------
10.9 Financial Monitoring and Oversight Agreement among Chancellor Holdings
Corp., Chancellor Broadcasting Company and Hicks, Muse & Co. Partners,
L.P. (2)
10.10 Tax Sharing Agreement between Chancellor Holdings Corp. and Chancellor
Broadcasting Company(2)
10.11 Financial Advisory Agreement among Chancellor Broadcasting Company,
Chancellor Radio Broadcasting Company and HM2/Management Partners,
L.P. (4)
10.12 Credit Agreement dated as February 14, 1996, among Chancellor
Broadcasting Company, Chancellor Radio Broadcasting Company, various
banks and Bankers Trust Company, as agent (5)
10.13 Amended and Restated Monitoring and Oversight Agreement between
Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company
and HM2/Management Partners, L.P. (4)
10.14 Amended and Restated Stockholders Agreement dated February 14, 1996
among Chancellor Broadcasting Company and certain Holders named
therein (4)
10.15 Stockholders Agreement dated as of October 12, 1994 between Chancellor
Broadcasting Company and the Holders named therein (6)
10.16 Registration Rights Agreement dated October 12, 1994 between
Chancellor Broadcasting Company and the Holders named therein (6)
10.17 Letter Agreement dated February 9, 1996 regarding Hicks Muse Equity
Investment among Chancellor Broadcasting Company and HM Fund II (4)
10.18 Sales Agreement, dated as of July 1, 1996, among OmniAmerica Group,
Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company (7)
10.19 Program Consulting Agreement, dated as of June 28, 1996, among
OmniAmerica Group, Chancellor Broadcasting Company and Chancellor
Radio Broadcasting Company (7)
10.20 Consulting Agreement, dated as of May 14, 1996, among Chancellor
Broadcasting Company, Chancellor Radio Broadcasting Company and
Anthony S. Ocepek (7)
10.21 Consulting Agreement, dated as of May 14, 1996, among Chancellor
Broadcasting Company, Chancellor Radio Broadcasting Company and
Carl E. Hirsch (7)
10.22 Consulting Agreement, dated as of May 14, 1996, among Chancellor
Broadcasting Company, Chancellor Radio Broadcasting Company and H.
Dean Thacker (7)
10.23 Non-Competition Agreement, dated as of May 14, 1996, among Chancellor
Broadcasting Company, Chancellor Radio Broadcasting Company and Carl
E. Hirsch (7)
10.24 First Consent and Amendment, dated as of May 13, 1996, among
Chancellor Radio Broadcasting Company, the Banks party thereto and
Bankers Trust Company, as managing agent (7)
10.25 Employment Agreement, dated as of February 1, 1996, between Chancellor
Radio Broadcasting Company and Samuel Weller (7)
11.1 Statement RE Computation of Per Share Earnings of Chancellor
Broadcasting Company*
21.1 Subsidiary of Chancellor Broadcasting Company (4)
27.1 Financial Data Schedule for Chancellor Broadcasting Company*
27.2 Financial Data Schedule for Chancellor Radio Broadcasting Company*
27.3 Financial Data Schedule for Chancellor Broadcasting Licensee Company*
22
<PAGE>
- ----------------
* Filed herewith.
(1) Incorporated by reference to Amendment No. 3 to the Registration Statement
on Form S-1 (File No. 33-98334) of Chancellor Broadcasting as filed with
the Securities and Exchange Commission.
(2) Incorporated by reference to the Registration Statement on Form S-1 (File
No. 33-80534) of Chancellor Broadcasting as filed with the Securities and
Exchange Commission.
(3) Incorporated by reference to the Annual Report on Form 10-K of Chancellor,
Chancellor Broadcasting and Broadcasting Licensee for the fiscal year 1995.
(4) Incorporated by reference from the Form 8-K of Chancellor (File
No. 33-98336) and Chancellor Broadcasting (File No. 33-98334) as filed with
the Securities and Exchange Commission on February 29, 1996.
(b) REPORTS ON FORM 8-K.
A Current Report on Form 8-K dated February 14, 1996 was filed with the
Securities and Exchange Commission on February 29, 1996 on behalf of Chancellor
and Chancellor Broadcasting relating to the acquisition by Chancellor
Broadcasting of Trefoil Communications, Inc. and its subsidiaries. The audited
financial statements of Trefoil Communications, Inc. and Subsidiaries as of
December 31, 1994 and 1995, and for each of the three years ended December 31,
1995 and Malrite Communications Group, Inc. Radio Operation as of July 30, 1993
and the seven-month period then ended were filed with such report. In addition,
an unaudited pro forma condensed statement of operations for the year ended
December 31, 1995 and an unaudited pro forma balance sheet dated December 31,
1995 for Holdings and Trefoil Communications, Inc. combined were filed with
such report.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant and each co-registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHANCELLOR BROADCASTING COMPANY
AND EACH CO-REGISTRANT
Date: August 13, 1996 By /s/ Jacques D. Kerrest
--------------------------------------------------
Jacques D. Kerrest
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial and
Accounting Officer of Registrant and each co-registrant)
24
<PAGE>
EXHIBIT 11.1
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- -----------------------------
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computation for statements of operations:
Net loss before extraordinary loss ............ $ (4,706,238) $ (2,354,054) $ (8,189,607) $ (9,940,368)
Loss on repurchase of preferred
stock of subsidiary ......................... -- -- -- (16,570,065)
------------ ------------ ------------ ------------
Loss before extraordinary loss
applicable to common stock ............... (4,706,238) (2,354,054) (8,189,607) (26,510,433)
Extraordinary loss............................. -- -- -- (4,645,921)
------------ ------------ ------------ ------------
Net loss applicable to common stock ....... $ (4,706,238) $ (2,354,054) $ (8,189,607) $(31,156,354)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Computation for weighted average common shares outstanding:
Weighted average common shares
outstanding ................................. 8,850,033 17,241,728 8,850,033 15,216,677
Incremental common shares applicable
to common stock options based on
the estimated fair value of the stock ....... 16,557 1,060,357 354,299 944,121
Common stock options excluded based
on anti-dilutive effect .................... (16,557) (1,060,357) (354,299) (944,121)
------------ ------------ ------------ ------------
Weighted average common shares ................ 8,850,033 17,241,728 8,850,033 15,216,677
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Loss per common share:
Primary and fully diluted
Loss before extraordinary loss $ (0.53) $ (0.14) $ (0.93) $ (1.74)
Extraordinary loss -- -- -- (0.31)
------------ ------------ ------------ ------------
Net loss $ (0.53) $ (0.14) $ (0.93) $ (2.05)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001002909
<NAME> CHANCELLOR BROADCASTING CO.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,951,241
<SECURITIES> 0
<RECEIVABLES> 36,287,080
<ALLOWANCES> 580,076
<INVENTORY> 0
<CURRENT-ASSETS> 40,485,972
<PP&E> 58,939,158
<DEPRECIATION> 6,644,234
<TOTAL-ASSETS> 676,254,161
<CURRENT-LIABILITIES> 23,426,757
<BONDS> 260,000,000
100,563,968
0
<COMMON> 172,974
<OTHER-SE> 179,730,398
<TOTAL-LIABILITY-AND-EQUITY> 676,254,161
<SALES> 0
<TOTAL-REVENUES> 70,067,907
<CGS> 0
<TOTAL-COSTS> 57,532,248
<OTHER-EXPENSES> 97,976
<LOSS-PROVISION> 313,949
<INTEREST-EXPENSE> 15,933,352
<INCOME-PRETAX> (3,495,669)
<INCOME-TAX> 1,601,361
<INCOME-CONTINUING> (9,940,368)
<DISCONTINUED> 0
<EXTRAORDINARY> 4,645,921
<CHANGES> 0
<NET-INCOME> (14,586,289)
<EPS-PRIMARY> (2.05)
<EPS-DILUTED> (2.05)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000925744
<NAME> CHANCELLOR RADIO BROADCASTING COMPANY
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,951,241
<SECURITIES> 0
<RECEIVABLES> 36,287,080
<ALLOWANCES> 580,076
<INVENTORY> 0
<CURRENT-ASSETS> 40,485,972
<PP&E> 58,939,158
<DEPRECIATION> 6,644,234
<TOTAL-ASSETS> 676,254,161
<CURRENT-LIABILITIES> 23,426,757
<BONDS> 260,000,000
100,563,968
0
<COMMON> 10
<OTHER-SE> 179,903,362
<TOTAL-LIABILITY-AND-EQUITY> 676,254,161
<SALES> 0
<TOTAL-REVENUES> 70,067,907
<CGS> 0
<TOTAL-COSTS> 57,532,248
<OTHER-EXPENSES> 97,976
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000925752
<NAME> CHANCELLOR BROADCASTING LICENSEE COMPANY
<S> <C>
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100,563,968
0
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