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