<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 29, 1998
-------------------------------
CAPSTAR RADIO BROADCASTING PARTNERS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-92732 13-3034720
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of incorporation) Identification Number)
600 CONGRESS AVENUE
SUITE 1400 78701
AUSTIN, TEXAS (Zip code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (512) 340-7800
NOT APPLICABLE
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
<PAGE> 2
The registrant, Capstar Radio Broadcasting Partners, Inc. ("Capstar
Radio" or the "Company"), hereby amends Item 7 of its Current Report on Form 8-K
dated February 13, 1998 (the "Form 8-K") to include the required financial
statements of Patterson Broadcasting, Inc. ("Patterson") and the required pro
forma financial information which it was impracticable to provide at the time
the Form 8-K was initially filed.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The following information is included in this report beginning at page
F-1:
Patterson Broadcasting, Inc. and Subsidiaries
o Report of Independent Public Accountants
o Consolidated Balance Sheets as of December 31, 1997 and 1996
o Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 and for the period from May 1, 1995
(inception) through December 31, 1995
o Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1997 and 1996 and for the period from
May 1, 1995 (inception) through December 31, 1995
o Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 and for the period from May 1, 1995
(inception) through December 31, 1995
o Notes to Consolidated Financial Statements
2
<PAGE> 3
(b) PRO FORMA FINANCIAL INFORMATION.
The following unaudited pro forma financial information (the "Pro Forma
Financial Information") is based on the audited historical financial statements
of the Company, Osborn, Benchmark, Madison, Community Pacific, Ameron, Patterson
and SFX (each as defined in "Glossary of Certain Terms") and, in the case of
Patterson, the related notes included elsewhere in this current report.
The pro forma statement of operations for the year ended December 31, 1997
has been prepared to illustrate the effects of the Completed Transactions,
including the Patterson Acquisition, the Other Equity Transactions and the SFX
Transactions and the Financing, as if each had occurred on January 1, 1997. The
pro forma balance sheet as of December 31, 1997 has been prepared as if any such
transaction not yet consummated on that date had occurred on that date. The
unaudited pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. The Pro Forma Financial
Information and accompanying notes should be read in conjunction with the
consolidated financial statements included elsewhere herein pertaining to
Patterson. The Pro Forma Financial Information is not necessarily indicative of
either future results of operations or the results that might have been achieved
if such transactions had been consummated on the indicated dates.
The Patterson Acquisition and all other acquisitions, except
the acquisition of GulfStar, given effect in the Pro Forma Financial
Information, are accounted for using the purchase method of accounting. The
aggregate purchase price of each transaction is allocated to the tangible and
intangible assets and liabilities acquired based upon their respective fair
values. The allocation of the aggregate purchase price reflected in the Pro
Forma Financial Information is preliminary for transactions to be closed
subsequent to December 31, 1997. The final allocation of the purchase price is
contingent upon the receipt of final appraisals of the acquired assets and the
revision of other estimates; however, the allocation is not expected to differ
materially from the preliminary allocation. The acquisition of GulfStar was
accounted for at historical cost, on a basis similar to a pooling of interests,
as the Company and GulfStar were under common control.
3
<PAGE> 4
CAPSTAR RADIO BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
FOR THE FOR THE
COMPLETED COMPLETED ADJUSTMENTS
TRANSACTIONS TRANSACTIONS FOR THE
AND THE AND THE SFX
COMPLETED OTHER OTHER SFX TRANSACTIONS
TRANSACTIONS EQUITY EQUITY TRANSACTIONS AND THE
THE COMPANY COMBINED(A) TRANSACTIONS TRANSACTIONS COMBINED(G) FINANCING
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................... $ 175,445 $113,657 $ -- $289,102 $280,543 $ --
Station operating expenses..... 122,135 85,478 -- 207,613 146,221 --
Depreciation and
amortization................. 26,285 11,731 8,264(B) 46,280 35,722 41,714(B)
Corporate expenses............. 14,221 7,242 -- 21,463 6,837 --
Non-cash compensation
expense...................... 10,575 -- 733(C) 11,308 624 (624)(H)
Other operating expenses....... -- -- -- -- 20,174 (20,174)(H)
------------ -------- -------- -------- -------- ---------
Operating income (loss)...... 2,229 9,206 (8,997) 2,438 70,965 (20,916)
Interest expense............... 30,559 15,725 (15,138)(D) 31,146 64,999 65,139(I)
Gain (loss) on sale of
assets....................... (908) 5,214 -- 4,306 -- --
Increase in fair value of
redeemable warrants.......... -- (2,022) 2,022(E) -- -- --
Other (income) expense......... 1,276 (2,317) -- (1,041) (3,801) --
------------ -------- -------- -------- -------- ---------
Income (loss) before
provision for income
taxes...................... (30,514) (1,010) 8,163 (23,361) 9,767 (86,055)
Provision (benefit) for income
taxes........................ (4,910) 1,818 3,092(F) -- 810 (810)(F)
Dividends, accretion and
redemption of preferred stock
of subsidiary................ -- -- -- -- -- 13,654(J)
------------ -------- -------- -------- -------- ---------
Income (loss) before operations
to be distributed to
shareholders and
extraordinary items.......... (25,604) (2,828) 5,071 (23,361) 8,957 (98,899)
(Income) from operations to be
distributed to shareholders,
net of taxes................. -- -- -- -- (3,814) 3,814(K)
------------ -------- -------- -------- -------- ---------
Income (loss) before
extraordinary item......... (25,604) (2,828) 5,071 (23,361) 12,771 (102,713)
Extraordinary item, loss on
early extinguishment of
debt......................... 2,403 -- -- 2,403 -- --
------------ -------- -------- -------- -------- ---------
Net income (loss)............ (28,007) (2,828) 5,071 (25,764) 12,771 (102,713)
Redeemable preferred stock
dividends and accretion...... 7,071 -- -- 7,071 38,510 (38,510)(J)
------------ -------- -------- -------- -------- ---------
Net income (loss) applicable to
common stock................. $ (35,078) $ (2,828) $ 5,071 $(32,835) $(25,739) $ (64,203)
============ ======== ======== ======== ======== =========
<CAPTION>
PRO FORMA
FOR THE
SFX
TRANSACTIONS
AND THE
FINANCING
------------
<S> <C>
Net revenue.................... $ 569,645
Station operating expenses..... 353,834
Depreciation and
amortization................. 123,716
Corporate expenses............. 28,300
Non-cash compensation
expense...................... 11,308
Other operating expenses....... --
---------
Operating income (loss)...... 52,487
Interest expense............... 161,284
Gain (loss) on sale of
assets....................... 4,306
Increase in fair value of
redeemable warrants.......... --
Other (income) expense......... (4,842)
---------
Income (loss) before
provision for income
taxes...................... (99,649)
Provision (benefit) for income
taxes........................ --
Dividends, accretion and
redemption of preferred stock
of subsidiary................ 13,654
---------
Income (loss) before operations
to be distributed to
shareholders and
extraordinary items.......... (113,303)
(Income) from operations to be
distributed to shareholders,
net of taxes................. --
---------
Income (loss) before
extraordinary item......... (113,303)
Extraordinary item, loss on
early extinguishment of
debt......................... 2,403
---------
Net income (loss)............ (115,706)
Redeemable preferred stock
dividends and accretion...... 7,071
---------
Net income (loss) applicable to
common stock................. $(122,777)
=========
</TABLE>
See accompanying notes to pro forma financial information.
4
<PAGE> 5
CAPSTAR RADIO BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
FOR THE FOR THE
COMPLETED COMPLETED ADJUSTMENTS
TRANSACTIONS TRANSACTIONS FOR THE
AND THE AND THE SFX
COMPLETED OTHER OTHER SFX TRANSACTIONS
TRANSACTIONS EQUITY EQUITY TRANSACTIONS AND THE
THE COMPANY COMBINED(L) TRANSACTIONS TRANSACTIONS COMBINED(S) FINANCING
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ 70,719 $ 4,175 $ (2,944)(M) $ 296,032 $ 24,754 $ (68)(T)
224,082 (N) (315,718)(N)
Accounts receivable, net.............. 40,350 17,656 (3,721)(M) 54,285 72,469 52,772 (T)
Prepaid expenses and other............ 3,699 5,215 (4,453)(M) 14,961 57,605 (42,957)(T)
10,500 (O) 8,100 (U)
---------- -------- --------- ---------- ---------- ----------
Total current assets............ 114,768 27,046 223,464 365,278 154,828 (297,871)
Property and equipment, net............. 105,505 20,192 19,776 (M) 145,473 66,459 17,997 (T)
Intangible and other assets, net........ 876,599 94,878 153,116 (M) 1,124,593 1,018,575 1,547,981 (T)
5,000 (V)
---------- -------- --------- ---------- ---------- ----------
Total assets.................... $1,096,872 $142,116 $ 396,356 $1,635,344 $1,239,862 $1,273,107
========== ======== ========= ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued
expenses............................ $ 29,164 $ 6,761 $ (2,014)(M) $ 33,911 $ 71,956 $ (545)(T)
(2,069)(W)
Current portion of long-term debt..... 1,388 4,149 (4,149)(P) 1,388 610 (509)(W)
---------- -------- --------- ---------- ---------- ----------
Total current liabilities....... 30,552 10,910 (6,163) 35,299 72,566 (3,123)
Long-term debt, less current portion.... 426,192 95,892 (95,892)(P) 284,492 764,092 (466,491)(W)
(141,700)(P) 29,600 (T)
250,000 (X)
641,496 (X)
Other long-term liabilities............. 178,813 1,764 43,161 (M) 223,738 102,681 487,925 (T)
---------- -------- --------- ---------- ---------- ----------
Total liabilities............... 635,557 108,566 (200,594) 543,529 939,339 939,407
Redeemable preferred stock.............. -- 23,723 (23,723)(Q) -- 361,996 (146,049)(Y)
(107,974)(Y)
15,750 (T)
Redeemable warrants..................... -- 13,943 (13,943)(Q) -- -- --
Stockholders' equity (deficit).......... 461,315 (4,116) 4,116 (R) 1,091,815 (61,473) 61,473 (Z)
600,000 (R) 510,500 (AA)
30,500 (R)
---------- -------- --------- ---------- ---------- ----------
Total liabilities and
stockholders' equity.......... $1,096,872 $142,116 $ 396,356 $1,635,344 $1,239,862 $1,273,107
========== ======== ========= ========== ========== ==========
<CAPTION>
PRO FORMA
FOR THE
SFX
TRANSACTIONS
AND THE
FINANCING
------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ 5,000
Accounts receivable, net.............. 179,526
Prepaid expenses and other............ 37,709
----------
Total current assets............ 222,235
Property and equipment, net............. 229,929
Intangible and other assets, net........ 3,696,149
----------
Total assets.................... $4,148,313
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued
expenses............................ $ 103,253
Current portion of long-term debt..... 1,489
----------
Total current liabilities....... 104,742
Long-term debt, less current portion.... 1,503,189
Other long-term liabilities............. 814,344
----------
Total liabilities............... 2,422,275
Redeemable preferred stock.............. 123,723
Redeemable warrants..................... --
Stockholders' equity (deficit).......... 1,602,315
----------
Total liabilities and
stockholders' equity.......... $4,148,313
==========
</TABLE>
See accompanying notes to pro forma financial information.
5
<PAGE> 6
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(A) The schedule below gives effect to the following for the period from
January 1, 1997 through December 31, 1997: (i) acquisitions by the Company
completed prior to the date of the initial public offering by Capstar
Broadcasting Company of it common stock ("the Offering"); (ii) the
historical acquisitions and dispositions of the indicated entities
consummated prior to December 31, 1997; and (iii) the acquisitions and
dispositions of the indicated entities which were pending at December 31,
1997 and were consummated prior to the date of this current report.
COMPLETED TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL COMMUNITY HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
OSBORN(1) PACIFIC(2) BENCHMARK(3) MADISON(4) AMERON(5) KNIGHT QUASS
---------- ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue................ $3,577 $2,458 $19,566 $4,130 $6,095 $17,017 $3,850
Station operating
expenses................. 2,937 1,315 12,956 2,588 4,352 13,697 3,209
Depreciation and
amortization............. 418 713 3,657 752 506 825 293
Corporate expenses......... 268 373 348 75 -- 2,819 --
------ ------ ------- ------ ------ ------- ------
Operating income
(loss)................. (46) 57 2,605 715 1,237 (324) 348
Interest expense........... 385 469 4,689 686 659 40 352
Gain (loss) on sale of
assets................... 5,348 -- -- -- -- (138) --
Increase in fair value of
redeemable warrants...... -- -- -- -- -- -- --
Other (income) expense..... (212) 3 (64) -- 147 336 (210)
------ ------ ------- ------ ------ ------- ------
Income (loss) before
provision for income
taxes.................. 5,129 (415) (2,020) 29 431 (838) 206
Provision (benefit) for
income taxes............. 32 -- -- -- -- -- 80
------ ------ ------- ------ ------ ------- ------
Net income (loss)........ $5,097 $ (415) $(2,020) $ 29 $ 431 $ (838) $ 126
====== ====== ======= ====== ====== ======= ======
<CAPTION>
OTHER ADJUSTMENTS
COMPLETED FOR COMPLETED
HISTORICAL TRANSACTIONS HISTORICAL TRANSACTIONS
PATTERSON COMBINED(6) TRANSACTIONS(7) COMBINED
---------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Net revenue................ $53,053 $(1,446) $5,357 $113,657
Station operating
expenses................. 38,531 2,882 3,011 85,478
Depreciation and
amortization............. 5,273 (706) -- 11,731
Corporate expenses......... 3,749 (390) -- 7,242
------- ------- ------ --------
Operating income
(loss)................. 5,500 (3,232) 2,346 9,206
Interest expense........... 7,574 871 -- 15,725
Gain (loss) on sale of
assets................... -- 4 -- 5,214
Increase in fair value of
redeemable warrants...... (2,022) -- -- (2,022)
Other (income) expense..... 50 (2,367) -- (2,317)
------- ------- ------ --------
Income (loss) before
provision for income
taxes.................. (4,146) (1,732) 2,346 (1,010)
Provision (benefit) for
income taxes............. 1,704 2 -- 1,818
------- ------- ------ --------
Net income (loss)........ $(5,850) $(1,734) $2,346 $ (2,828)
======= ======= ====== ========
</TABLE>
- ---------------
(1) The column represents the consolidated results of operations of Osborn
from January 1, 1997 through February 20, 1997, the date of the Osborn
Acquisition.
(2) The column represents the results of operations of Community Pacific
from January 1, 1997 through June 30, 1997, prior to the date of the
Community Pacific Acquisition.
(3) The column represents the results of operations of Benchmark from
January 1, 1997 through June 30, 1997, prior to the date of the
Benchmark Acquisition.
(4) The column represents the results of operations of Madison from
January 1, 1997 through June 30, 1997, prior to the date of the
Madison Acquisition.
(5) The column represents the results of operations of Ameron from January
1, 1997 through September 30, 1997, prior to the date of the Ameron
Acquisition.
(6) The column represents the historical results of operations for the
following transactions which were consummated prior to the date of
this current report: (i) the COMCO, Osborn Tuscaloosa, Osborn
Huntsville, Space Coast, WRIS, Cavalier, Griffith, Emerald City,
American General, Booneville, KJEM, McForhun, Livingston, KLAW, Class
Act, Grant, East Penn, IRS, KOSO, Commonwealth, KDOS, Fairbanks and
the Reynolds Acquisitions,(ii) Americom Acquisition, (iii) Americom
Disposition and (iv) Wilmington, Osborn Ft. Myers, Bryan, Allentown,
Jackson, Westchester, Dayton, Salisbury-Ocean City and KASH
Dispositions.
(7) The adjustments give effect to the historical operating results and/or
LMA or JSA expense and/or revenue of the following stations which were
acquired or sold prior to December 31, 1997: WYNU-FM, WTXT-FM,
WSCQ-FM, WZHT-FM, WMCZ-FM, KTRA-FM, KCQL-AM, KDAG-FM, KKFG-FM,
WMEZ-FM, KRDU-AM, KJOI-FM, KSOF-FM and WQFN-FM.
6
<PAGE> 7
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(B) The adjustment reflects (i) a change in depreciation and amortization
resulting from conforming the estimated useful lives of the acquired
stations and (ii) the additional depreciation and amortization expense
resulting from the allocation of the purchase price of the acquired
stations including an increase in property and equipment, FCC licenses and
intangible assets to their estimated fair market value and the recording
of goodwill associated with the acquisitions. Goodwill and FCC licenses
are being amortized over 40 years.
(C) The adjustment gives effect to the non-cash compensation expense
associated with the Warrants issued to R. Steven Hicks in connection with
the Commodore Acquisition, the Osborn Acquisition and the GulfStar
Acquisition, respectively.
(D) The adjustment reflects interest expense associated with (i) the 9 1/4%
Capstar Notes (as defined), (ii) 13 1/4% Capstar Notes, (iii) other
indebtedness of the Company and (iv) the amortization of deferred
financing fees associated with the 9 1/4% Capstar Notes, 13 1/4% Capstar
Notes and the Capstar Credit Facility, net of interest expense related to
the existing indebtedness of the Company and the companies included within
Completed Transactions Combined. Deferred financing fees are amortized
over the term of the related debt.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
9 1/4% Capstar Notes.................... $ 18,430
13 1/4% Capstar Notes................... 10,177
Other indebtedness...................... 425
--------
Interest expense before amortization of
deferred financing fees............... 29,032
Amortization of deferred financing
fees.................................. 2,114
--------
Pro forma interest expense............ 31,146
Historical interest expense for the
Company............................... (30,559)
Historical interest expense for
Completed Transactions Combined....... (15,725)
--------
Net adjustment........................ $(15,138)
========
</TABLE>
(E) The adjustment reflects the elimination of the increase in the fair value
of the redeemable warrants which were repurchased in connection with the
Patterson Acquisition.
(F) The adjustment reflects the elimination of historical income tax expense
(benefit) as the Company would have generated a taxable loss during the
pro forma period.
7
<PAGE> 8
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(G) The column represents the combined income statements for the year ended
December 31, 1997 of the acquisitions and dispositions which (i) SFX
completed during the period, (ii) were pending at December 31, 1997 and
have been consummated by SFX as of the date of this current report and
(iii) were pending at December 31, 1997 and will close subsequent to the
date of this current report in connection with the SFX Transactions.
SFX TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
SFX SFX
HISTORICAL PENDING SFX
HISTORICAL TRANSACTIONS TRANSACTIONS CHANCELLOR TRANSACTIONS
SFX COMBINED(1) COMBINED(2) EXCHANGE(3) COMBINED
---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net revenue............................. $270,364 $18,240 $(57,486) $49,425 $280,543
Station operating expenses.............. 167,063 15,067 (35,909) -- 146,221
Depreciation and amortization........... 38,232 -- (2,510) -- 35,722
Corporate expenses...................... 6,837 -- -- -- 6,837
Non-cash compensation expense........... 624 -- -- -- 624
Other operating expenses................ 20,174 -- -- -- 20,174
-------- ------- -------- ------- --------
Operating income (loss)............ 37,434 3,173 (19,067) 49,425 70,965
Interest expense........................ 64,506 -- 493 -- 64,999
Other (income) expense.................. (2,821) -- (980) -- (3,801)
-------- ------- -------- ------- --------
Income (loss) before provision for
income taxes..................... (24,251) 3,173 (18,580) 49,425 9,767
Provision for income taxes.............. 810 -- -- -- 810
-------- ------- -------- ------- --------
Income (loss) before extraordinary
item............................. (25,061) 3,173 (18,580) 49,425 8,957
(Income) from operations to be
distributed to shareholders, net of
taxes................................. (3,814) -- -- -- (3,814)
-------- ------- -------- ------- --------
Net income (loss).................. (21,247) 3,173 (18,580) 49,425 12,771
Redeemable preferred stock dividends and
accretion............................. 38,510 -- -- -- 38,510
-------- ------- -------- ------- --------
Net income (loss) applicable to
common stock..................... $(59,757) $ 3,173 $(18,580) $49,425 $(25,739)
======== ======= ======== ======= ========
</TABLE>
- ---------------
(1) The adjustments represent the combined historical results of operations
of acquisitions and dispositions completed by SFX prior to the date of
the SFX Acquisition: WPYX-FM, WHFS-FM, KTXQ-FM, KRRW-FM, WDSY-FM,
WRFX-FM, WWYZ-FM, WISN-AM, WLTQ-FM, WVGO-FM, WLEE-FM, WKHK-FM, WBZU-FM,
WFBQ-FM, WRZX-FM and WNDE-AM.
(2) The adjustments reflect the combined historical operating results of
the pending acquisitions, dispositions and LMAs in connection with the
SFX Transactions: Nashville, Austin, Jacksonville, Greenville, Upper
Fairfield, Daytona Beach-WGNE, Jackson-WJDX, Houston-KODA, Long Island,
Houston-KKPN, Pittsburgh-WTAE and the stations included in the
Chancellor Exchange Agreement.
(3) The adjustment represents the annual LMA revenue attributable to the
SFX stations to be sold to Chancellor Media in connection with the
Chancellor Exchange Agreement. Chancellor Media will provide services
to ten SFX stations in the Dallas, Houston, San Diego and Pittsburgh
markets under separate LMAs until such stations are exchanged.
8
<PAGE> 9
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(H) The adjustment reflects the elimination of non-recurring compensation
expenses and transaction-related charges recorded by SFX in connection
with the SFX Acquisition and the Spin-Off, which will not be included in
the SFX Acquisition.
(I) The adjustment reflects interest expense associated with (i) the 9 1/4%
Capstar Notes, (ii) the 13 1/4% Capstar Notes, (iii) the Capstar Credit
Facility, (iv) the Chancellor Loan, (v) the 10 3/4% SFX Notes, (vi) other
indebtedness of the Company and SFX and (vii) amortization of deferred
financing fees associated with the 9 1/4% Capstar Notes, 13 1/4% Capstar
Notes, the Capstar Credit Facility and the 10 3/4% SFX Notes, all net of
interest expense related to the existing indebtedness of the Company, the
companies included within the Completed Transactions Combined and the SFX
Transactions. Deferred financing fees are amortized over the term of the
related debt.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
9 1/4% Capstar Notes.................... $ 18,430
13 1/4% Capstar Notes................... 10,177
Capstar Credit Facility at 9 3/4%....... 62,610
Chancellor Loan at 12%.................. 30,000
10 3/4% SFX Notes....................... 31,820
Other indebtedness...................... 582
--------
Interest expense before amortization of
deferred financing fees............... 153,619
Amortization of deferred financing
fees.................................. 7,665
--------
Pro forma interest expense............ 161,284
Pro forma interest expense for the
Completed Transactions Combined....... (31,146)
Historical interest expense for the SFX
Transactions Combined................. (64,999)
--------
Net adjustment........................ $ 65,139
========
</TABLE>
(J) The adjustment reflects the elimination of a portion of the redeemable
preferred stock dividends and accretion due to the redemption of $107,974
of the 12 5/8% SFX Preferred Stock.
(K) The adjustment reflects the elimination of the income from operations to
be distributed to SFX shareholders in connection with the Spin-Off, which
is not being acquired in the SFX Acquisition.
9
<PAGE> 10
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(L) The column represents the combined balance sheets as of December 31, 1997
of the acquisitions and dispositions of the Company which were consummated
subsequent to December 31, 1997, but prior to the date of this current
report.
COMPLETED TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER
COMPLETED COMPLETED
HISTORICAL HISTORICAL HISTORICAL TRANSACTIONS TRANSACTIONS
KNIGHT PATTERSON QUASS COMBINED(1) COMBINED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $1,131 $ 1,084 $ 147 $ 1,813 $ 4,175
Accounts receivable, net.................... 3,019 10,506 634 3,497 17,656
Prepaid expenses and other.................. 465 1,667 159 2,924 5,215
------ -------- ------ -------- --------
Total current assets.................. 4,615 13,257 940 8,234 27,046
Property and equipment, net................... 4,218 19,911 1,063 (5,000) 20,192
Intangible and other assets, net.............. 579 123,609 2,295 (31,605) 94,878
------ -------- ------ -------- --------
Total assets.......................... $9,412 $156,777 $4,298 $(28,371) $142,116
====== ======== ====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued
expenses.................................. $ 771 $ 4,269 $ 478 $ 1,243 $ 6,761
Current portion of long-term debt........... 1,403 -- -- 2,746 4,149
------ -------- ------ -------- --------
Total current liabilities............. 2,174 4,269 478 3,989 10,910
Long-term debt, less current portion.......... 6,860 79,500 3,335 6,197 95,892
Other long-term liabilities................... 23 1,511 230 -- 1,764
------ -------- ------ -------- --------
Total liabilities..................... 9,057 85,280 4,043 10,186 108,566
Redeemable preferred stock.................... -- 23,723 -- -- 23,723
Redeemable warrants........................... -- 13,943 -- -- 13,943
Stockholders' equity (deficit)................ 355 33,831 255 (38,557) (4,116)
------ -------- ------ -------- --------
Total liabilities and stockholders'
equity.............................. $9,412 $156,777 $4,298 $(28,371) $142,116
====== ======== ====== ======== ========
</TABLE>
- ---------------
(1) The column reflects the combined balance sheets of the following
transactions consummated subsequent to December 31, 1997, but prior
to this current report: Class Act, Grant, East Penn, IRS, KOSO,
Commonwealth, KDOS, Fairbanks, Americom Acquisition, Reynolds,
Allentown, Jackson, Westchester, Americom Disposition, Dayton,
Salisbury-Ocean City and KASH.
10
<PAGE> 11
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(M) The adjustments reflect (i) the assumption of $2,463 in liabilities in
connection with the Completed Transactions and (ii) the allocation of the
purchase prices, net of the proceeds from the stations disposed of in
connection with the Completed Transactions, of the Completed Transactions,
to the assets acquired and liabilities assumed resulting in adjustments to
property and equipment and FCC licenses to their estimated fair values and
the recording of goodwill associated with the acquisitions as follows:
<TABLE>
<CAPTION>
ALLOCATION OF CARRYING
PURCHASE PRICES VALUE ADJUSTMENTS
--------------- -------- -----------
<S> <C> <C> <C>
Cash and cash equivalents.......................... $ 1,231 $ 4,175 $ (2,944)
Accounts receivable, net........................... 13,935 17,656 (3,721)
Prepaid expenses and other......................... 762 5,215 (4,453)
Property and equipment, net........................ 39,968 20,192 19,776
Intangible and other assets, net................... 247,994 94,878 153,116
Accounts payable and other accrued expenses........ (4,747) (6,761) (2,014)
Other long-term liabilities........................ (44,925) (1,764) 43,161
--------
Total purchase prices......................... $254,218
========
</TABLE>
(N) Adjustments represent available cash which will be used in connection with
the SFX Transactions.
(O) The adjustments represents the loan receivable due to the Company issued in
connection with the Westchester Disposition.
(P) The adjustments reflect (i) the repayment of borrowings under the Capstar
Credit Facility of $141,700 and (ii) the elimination of the historical debt
of the stations acquired in the Completed Transactions of $100,041,
including the current portion of $4,149.
(Q) Adjustment represents the purchase and retirement of the redeemable
preferred stock of $23,723 and redeemable warrants of $13,943 in connection
with the Patterson Acquisition.
(R) The adjustments reflect (i) the net effect of the elimination of the
historical deficit of $4,116 of the Completed Transactions, based on the
purchase method of accounting and (ii) (A) equity investments by Hicks
Muse of $600,000, and (B) the equity investments by Capstar BT Partners,
L.P. and Gerry House of $30,000 and $500, respectively (the "Other Equity
Transactions").
11
<PAGE> 12
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(S) The column represents the combined balance sheets as of December 31, 1997
of SFX and the acquisitions and dispositions which will be completed in
connection with the SFX Transactions.
SFX TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
SFX SFX
HISTORICAL PENDING TRANSACTIONS
SFX TRANSACTIONS(1) COMBINED
---------- --------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 24,686 $ 68 $ 24,754
Accounts receivable, net................ 71,241 1,228 72,469
Prepaid expenses and other.............. 57,531 74 57,605
---------- --------- ----------
Total current assets............ 153,458 1,370 154,828
Property and equipment, net............... 74,829 (8,370) 66,459
Intangible and other assets, net.......... 1,147,328 (128,753) 1,018,575
---------- --------- ----------
Total assets.................... $1,375,615 $(135,753) $1,239,862
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued
expenses............................. $ 71,411 $ 545 $ 71,956
Current portion of long-term debt....... 610 -- 610
---------- --------- ----------
Total current liabilities....... 72,021 545 72,566
Long-term debt, less current portion...... 764,092 -- 764,092
Other long-term liabilities............... 102,681 -- 102,681
---------- --------- ----------
Total liabilities............... 938,794 545 939,339
Redeemable preferred stock................ 361,996 -- 361,996
Stockholders' equity (deficit)............ 74,825 (136,298) (61,473)
---------- --------- ----------
Total liabilities and
stockholders' equity.......... $1,375,615 $(135,753) $1,239,862
========== ========= ==========
</TABLE>
- ---------------
(1) The column reflects the combined balance sheets of the following entities
to be acquired or sold in connection with the SFX Transactions: Nashville,
Austin, Jacksonville, Greenville, Upper Fairfield, Daytona Beach-WGNE,
Jackson-WJDX, Houston-KODA, Long Island, Houston-KKPN, Pittsburgh-WTAE and
station WVGO-FM.
12
<PAGE> 13
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(T) The adjustment reflects (i) the increase of $29,600 in carrying value of
the 10 3/4% SFX Notes to their estimated fair value of $325,600, (ii) the
increase of $15,750 in carrying value of the 12 5/8% SFX Preferred Stock to
their estimated fair value of $123,723, (iii) the receivable due to SFX
resulting from the Tax Sharing Agreement between SFX and SFX Entertainment
and (iv) the allocation of the purchase prices, net of the proceeds from
the stations disposed of in connection with the SFX Transactions, of the
SFX Transactions to the assets acquired and liabilities assumed resulting
in adjustments to property and equipment and FCC licenses to their
estimated fair values and the recording of goodwill associated with the
acquisitions as follows:
<TABLE>
<CAPTION>
ALLOCATION OF CARRYING
PURCHASE PRICES VALUE ADJUSTMENTS
--------------- ---------- -----------
<S> <C> <C> <C>
Cash and cash equivalents.......................... $ 24,686 $ 24,754 $ (68)
Accounts receivable, net........................... 125,241 72,469 52,772
Prepaid expenses and other......................... 14,648 57,605 (42,957)
Property and equipment, net........................ 84,456 66,459 17,997
Intangible and other assets, net................... 2,566,556 1,018,575 1,547,981
Accounts payable and other accrued expenses........ (71,411) (71,956) (545)
Other long-term liabilities........................ (590,606) (102,681) 487,925
----------
Total purchase prices.................... $2,153,570
==========
</TABLE>
(U) The adjustment represents the loan receivable due to the Company issued in
connection with the disposition of Upper Fairfield of $4,500 and the
disposition of Daytona Beach-WGNE of $3,600.
(V) The adjustment represents the estimated deferred financing costs of $5,000
associated with the amendment of the Capstar Credit Facility.
(W) The adjustments reflect (i) the redemption of the principal amount of the
10 3/4% SFX Notes of $154,000 and the payment of related accrued interest
of $2,069 and (ii) the repayment of borrowings under the SFX Credit
Facility of $313,000.
(X) The adjustments reflect (i) borrowings of $250,000 related to the
Chancellor Loan and (ii) borrowings of $641,496 under the Capstar Credit
Facility with an annual interest rate of 9 3/4%.
(Y) The adjustment reflects (i) the redemption of SFX's Series B Redeemable
Preferred Stock, Series C Redeemable Preferred Stock, and Series D
Cumulative Convertible Exchangeable Preferred Stock of $146,049 in
connection with the SFX Acquisition and (ii) the redemption of the 12 5/8%
SFX Preferred Stock of $107,974 in connection with the Financing.
(Z) The adjustment reflects the net effect of the elimination of the historical
deficit of $61,473 of the SFX Transactions based on the purchase method of
accounting.
(AA) The adjustment reflects proceeds of $510,500 from the Offering, net of
estimated fees and expenses.
13
<PAGE> 14
GLOSSARY OF CERTAIN TERMS
"9 1/4% Capstar Notes" means $200.0 million in aggregate principal amount
of Capstar Radio's 9 1/4% Senior Subordinated Notes due 2007.
"10 3/4% SFX Notes" means $450.0 million in aggregate principal amount of
SFX's 10 3/4% Senior Subordinated Notes due 2006.
"11 3/8% SFX Notes" means $566,000 in aggregate principal amount of SFX's
11 3/8% Senior Subordinated Notes due 2000.
"12 3/4% Capstar Notes" means $277.0 million in aggregate principal amount
at maturity of Capstar Partners' 12 3/4% Senior Discount Notes due 2009.
"13 1/4% Capstar Notes" means $76.8 million in aggregate principal amount
of Capstar Radio's Senior Subordinated Notes due 2003.
"Allentown Disposition" means the disposition of radio stations WODS-FM and
WEEX-AM serving the Easton, Pennsylvania market to Clear Channel.
"American General Acquisition" means the acquisition of radio station
KKCL-FM from American General Media of Texas, Inc. serving the Lubbock, Texas
market.
"Americom Acquisition" means the acquisition from Americom II and Americom
Las Vegas Limited Partnership of five radio stations (four FM and one AM)
serving the Fresno, California market, four of which were acquired for cash and
one of which was acquired in consideration for the disposition of three radio
stations (two FM and one AM) of the Company.
"Americom Disposition" means the disposition of three radio stations (two
FM and one AM) serving the Reno, Nevada market to Americom Las Vegas Limited
Partnership.
"Ameron" means Ameron Broadcasting, Inc.
"Ameron Acquisition" means the acquisition of radio stations WMJJ-FM and
WERC-AM in Birmingham, Alabama and radio station WOWC-FM from Ameron
Broadcasting, Inc. serving the Jasper, Alabama market.
"Austin Acquisition" means the pending acquisition of radio stations
KVET-AM, KASE-FM and KVET-FM from Butler Broadcasting Company, Ltd. serving the
Austin, Texas market.
"Benchmark" means Benchmark Communications Radio Limited Partnership, L.P.
"Benchmark Acquisition" means the acquisitions of, and mergers of directly
and indirectly wholly-owned subsidiaries of HM Fund III with, Benchmark
Communications Radio Limited Partnership, L.P. and certain of its subsidiary
partnerships.
"Booneville Acquisition" means the acquisition of radio station KZBB-FM
from Booneville Broadcasting Company and Oklahoma Communications Company serving
the Ft. Smith, Arkansas market.
"Bryan Disposition" means the disposition of substantially all of its
assets used or useful in the operation of two of the Company's radio stations in
the College Station, Texas market.
"Capstar" or "Company" means Capstar Radio Broadcasting Partners, Inc.
after giving effect to the consummation of the SFX Transactions, unless the
context otherwise requires.
"Capstar Credit Facility" means the credit facility under which Capstar
Broadcasting Corporation is the borrower.
"Capstar Loan" means the $642.2 million to be borrowed by Capstar
Broadcasting Corporation under the Capstar Credit Facility.
14
<PAGE> 15
"Cavalier Acquisition" means the acquisition of substantially all of the
assets of Cavalier Communications, L.P.
"Chancellor Loan" means the $250.0 million loan to be made to Capstar
Broadcasting Corporation by Chancellor Media concurrently with the Offering.
"Chancellor Media" means Chancellor Media Corporation.
"Class Act Acquisition" means the acquisition of KTBQ-FM and KSFA-AM from
Class Act of Texas, Inc. serving the Nacogdoches, Texas market.
"COMCO Acquisition" means the acquisition of substantially all of the
assets of COMCO Broadcasting, Inc.
"Commodore Acquisition" means the acquisition of Commodore Media, Inc.
"Commonwealth Acquisition" means the acquisition of substantially all of
the assets of Commonwealth Broadcasting of Arizona, L.L.C.
"Community Pacific" means Community Pacific Broadcasting Company LP.
"Community Pacific Acquisition" means the acquisition of substantially all
of the assets of Community Pacific Broadcasting Company L.P.
"Completed Acquisitions" means the American General Acquisition, the
Americom Acquisition, the Ameron Acquisition, the Benchmark Acquisition, the
Booneville Acquisition, the Cavalier Acquisition, the Class Act Acquisition, the
COMCO Acquisition, the Commodore Acquisition, the Commonwealth Acquisition, the
Community Pacific Acquisition, the East Penn Acquisition, the Emerald City
Acquisition, the Fairbanks Acquisition, the Grant Acquisition, the Griffith
Acquisition, the GulfStar Acquisition, the KDOS Acquisition, the KJEM
Acquisition, the KLAW Acquisition, the Knight Acquisition, the KOSO Acquisition,
the Livingston Acquisition, the Madison Acquisition, the McForhun Acquisition,
the Osborn Acquisition, the Osborn Huntsville Acquisition, the Osborn Tuscaloosa
Acquisition, the Patterson Acquisition, the Quass Acquisition, the Reynolds
Acquisition, the Space Coast Acquisition and the WRIS Acquisition.
"Completed Dispositions" means the Allentown Disposition, the Americom
Disposition, the Bryan Disposition, the Dayton Disposition, the Jackson
Disposition, the KASH Disposition, the Osborn Ft. Myers Disposition, the
Salisbury-Ocean City Disposition, the Westchester Disposition and the Wilmington
Disposition.
"Completed Transactions" means the Completed Acquisitions and the Completed
Dispositions.
"Dayton Disposition" means the disposition of radio station WING-FM serving
the Dayton, Ohio market.
"Daytona Beach-WGNE Disposition" means SFX's pending disposition of radio
station WGNE-FM serving the Daytona Beach, Florida market.
"East Penn Acquisition" means the acquisition of radio station WKAP-AM from
East Penn Broadcasting, Inc. serving the Allentown, Pennsylvania market.
"Emerald City Acquisition" means the acquisition of radio station WNOK-FM
from Emerald City Radio Partners, L.P. serving the Columbia, South Carolina
market.
15
<PAGE> 16
"Fairbanks Acquisition" means the acquisition of radio station KUAB-FM from
the University of Alaska Fairbanks serving the Fairbanks, Alaska market.
"Financing" means the Offering, the cash in hand, the proceeds from the
sale of certain radio stations, the Chancellor Loan and the Capstar Loan.
"Grant Acquisition" means the acquisition of radio station WZBQ-FM from
Grant Radio Group serving the Tuscaloosa, Alabama market.
"Greenville Disposition" means the Company's pending disposition of radio
stations WESC-FM, WESC-AM, WTPT-FM and WJMZ-FM serving the Greenville, South
Carolina market.
"Griffith Acquisition" means the acquisition of radio stations WTAK-FM,
WXQW-FM and WWXQ-FM from Griffith Communications Corporation serving the
Huntsville, Alabama market.
"GulfStar Acquisition" means the merger of GulfStar with and into a
subsidiary of the Company, pursuant to which the subsidiary was the surviving
corporation and was named GulfStar Communications, Inc.
"Houston-KKPN Disposition" means the Company's pending disposition of radio
station KKPN-FM serving the Houston, Texas market.
"Houston-KODA Disposition" means the Company's pending disposition of radio
station KODA-FM serving the Houston, Texas market.
"Jackson Disposition" means the disposition of radio stations WJMI-FM,
WOAD-FM, WKXI-FM and WKXI-AM serving the Jackson, Mississippi market.
"Jackson-WJDX Disposition" means SFX's pending disposition of radio station
WJDX-FM serving the Jackson, Mississippi market.
"Jacksonville Acquisition" means the Company's pending acquisition of radio
stations WAPE-FM and WFYV-FM serving the Jacksonville, Florida market.
"KASH Disposition" means the disposition of radio station KASH-AM serving
the Anchorage, Alaska market to Chinook Concert Broadcasters, Inc.
"KDOS Acquisition" means the acquisition of radio stations KSAB-FM and
KUNO-AM from KDOS, Inc. serving the Corpus Christi, Texas market.
"KJEM Acquisition" means the acquisition of KJEM-FM, a limited partnership.
"KLAW Acquisition" means the acquisition of radio stations KLAW-FM and
KZCD-FM from KLAW Broadcasting, Inc. serving the Lawton, Oklahoma market.
"Knight Acquisition" means the acquisition of substantially all of the
assets of Knight Radio, Inc., Knight Broadcasting of New Hampshire, Inc. and
Knight Communications Corp.
16
<PAGE> 17
"KOSO Acquisition" means the acquisition of radio station KOSO-FM from
KOSO, Inc. serving the Patterson, California market.
"KRNA Acquisition" means the Company's pending acquisitions (under separate
agreements) of radio stations KRNA-FM and KXMX-FM from KRNA, Inc. serving the
Iowa City and Cedar Rapids, Iowa markets.
"Livingston Acquisition" means the acquisition of radio station WBIU-AM
from Livingston Communications, Inc. serving the Denham Springs, Louisiana
market.
"Long Island Disposition" means SFX's pending disposition of radio stations
WBLI-FM, WBAB-FM, WGBB-AM and WHFM-FM serving the Long Island, New York market.
"Madison" means The Madison Radio Group.
"Madison Acquisition" means the acquisition of substantially all of the
assets of The Madison Radio Group which is comprised of the stations formerly
owned by Midcontinent Broadcasting Co. of Wisconsin, Inc. and Point
Communications Limited Partnership.
"McForhun Acquisition" means the acquisition of radio station KRVE-FM from
McForhun, Inc. serving the Brusly, Louisiana market.
"Nashville Disposition" means SFX's pending acquisition of radio stations
WJZC-FM, WLAC-FM and WLAC-AM from Sinclair Broadcasting Group serving the
Nashville, Tennessee market.
"Osborn" means Osborn Communications Corporation.
"Osborn Acquisition" means the acquisition of Osborn Communications
Corporation.
"Osborn Ft. Myers Disposition" means the disposition of substantially all
of the assets used or held for use in connection with the business and
operations of Osborn's stations in the Port Charlotte and Ft. Myers, Florida
markets.
"Osborn Huntsville Acquisition" means the acquisition of Dixie
Broadcasting, Inc. and Radio WBHP, Inc.
"Osborn Tuscaloosa Acquisition" means the acquisition of Taylor
Communications Corporation.
"Patterson Acquisition" means the acquisition of all of the outstanding
capital stock of Patterson Broadcasting, Inc.
"Pittsburgh-WTAE Disposition" means SFX's pending disposition of radio
station WTAE-AM serving the Pittsburgh, Pennsylvania market.
"Quass Acquisition" means the acquisition of all of the outstanding capital
stock of Quass Broadcasting Company.
17
<PAGE> 18
"Reynolds Acquisition" means the acquisition of radio station WMHS-FM from
Joan K. Reynolds, d/b/a Brantley Broadcast Associates serving the Birmingham,
Alabama market.
"Salisbury-Ocean City Disposition" means the disposition of radio stations
WWFG-FM and WOSC-FM serving the Salisbury-Ocean City, Maryland market.
"SFX Acquisition" means the Company's pending acquisition of SFX
Broadcasting, Inc.
"SFX" means SFX Broadcasting, Inc.
"SFX Related Transactions" means the sale of ten SFX stations to Chancellor
Media pursuant to the long-term exchange agreement with Chancellor Media and the
Austin Acquisition, the Daytona Beach-WGNE Disposition, the Greenville
Disposition, the Houston-KKPN Disposition, the Houston-KODA Disposition, the
Jackson-WJDX Disposition, the Jacksonville Acquisition, the Long Island
Disposition, the Nashville Disposition, the Pittsburgh-WTAE Disposition and the
Upper Fairfield Disposition.
"SFX Transactions" means the SFX Acquisition and the SFX Related
Transactions.
"Space Coast Acquisition" collectively refers to the acquisitions of
substantially all of the assets of EZY Com, Inc., City Broadcasting Co., Inc.,
and Roper Broadcasting, Inc.
"Spin-Off" means the distribution of the capital stock of SFX Entertainment
held by SFX to certain stockholders and other securityholders of SFX in
connection with the SFX Acquisition.
"Upper Fairfield Disposition" means the conveyance of radio stations
WKRI-FM, WAXB-FM, WPUT-AM and WINE-AM serving the Fairfield County, Connecticut
market to a limited liability company in exchange for a non-voting membership
interest in such limited liability company.
"Westchester Disposition" means the conveyance of radio stations WFAS-FM,
WFAS-AM and WZZN-FM serving the Westchester-Putnam Counties, New York market to
a limited liability company in exchange for a non-voting membership interest in
such limited liability company.
"Wilmington Disposition" means the conveyance of radio station WJBR-FM
serving the Wilmington, Delaware market to a limited liability company in
exchange for a non-voting membership interest in such limited liability company.
"WRIS Acquisition" means the acquisition of WJLM-FM from WRIS, Inc. serving
the Salem, Virginia market.
18
<PAGE> 19
(c) EXHIBITS.
2.1 -- Stock Purchase Agreement, dated June 12, 1997, by and
among Capstar Acquisition, Capstar Partners,
Patterson and the selling stockholders of Patterson
named therein (incorporated by reference to Capstar
Partner's Amendment No. 1 to Registration on Form
S-4, dated July 8, 1997, File No. 333-25638).
2.2 -- Amendment No. 1 to Stock Purchase Agreement, dated
July 2, 1997, among Capstar Acquisition, The
Dyson-Kissner-Moran Corporation, as representative of
the Patterson stockholders ("DKM"), and Patterson
(incorporated by reference to Capstar Partner's
Amendment No. 2 to Registration Statement on Form
S-4, dated August 5, 1997, File No. 333-25638).
2.3 -- Amendment No. 2 to Stock Purchase Agreement, dated
August 25, 1997 among Capstar Acquisition, DKM and
Patterson.*
2.4 -- Amendment No. 3 to Stock Purchase Agreement, dated
January 19, 1998, among Capstar Acquisition, DKM and
Patterson.*
2.5 -- Amendment No. 4 to Stock Purchase Agreement, dated
January 29, 1998 among Capstar Acquisition, DKM,
Patterson and Capstar Broadcasting Corporation.*
23.1 -- Consent of Independent Accountants
- --------------------
* Previously filed.
19
<PAGE> 20
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Patterson Broadcasting, Inc. and Subsidiaries
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the years ended December 31, 1997 and 1996 and
for the period from May 1, 1995 (inception) through December 31, 1995 . . . . . F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997 and 1996 and for the period from May 1, 1995 (inception)
through December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 and
for the period from May 1, 1995 (inception) through December 31, 1995 . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Patterson Broadcasting, Inc.:
We have audited the accompanying consolidated balance sheets of Patterson
Broadcasting, Inc. and subsidiaries (a Delaware corporation) as of December 31,
1997 and 1996, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years ended December 31, 1997 and
1996, and for the period from May 1, 1995 (inception) through December 31, 1995,
as revised for 1996 (see Note 1). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Patterson
Broadcasting, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
results of their operations and cash flows for the years ended December 31,
1997, 1996, and for the period from May 1, 1995 (inception) to December 31,
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 20, 1998
F-2
<PAGE> 22
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,084,000 $ 3,046,000
Accounts receivable, less allowances for doubtful accounts
of $758,000 at December 31, 1997, and $402,000 at
December 31, 1996...................................... 10,506,000 9,426,000
Prepaid expenses and other current assets................. 1,088,000 932,000
Deferred income taxes (Note 6)............................ 579,000 458,000
------------ ------------
Total current assets.............................. 13,257,000 13,862,000
------------ ------------
PROPERTY, PLANT, AND EQUIPMENT:
Land and land improvements................................ 1,290,000 1,261,000
Buildings and leasehold improvements...................... 3,718,000 3,362,000
Equipment................................................. 17,778,000 15,809,000
------------ ------------
22,786,000 20,432,000
Less accumulated depreciation............................. (2,875,000) (1,305,000)
------------ ------------
Total property, plant and equipment -- net............. 19,911,000 19,127,000
------------ ------------
INTANGIBLE AND OTHER ASSETS:
Cost of purchased businesses in excess of net tangible
assets acquired (Note 2)............................... 119,961,000 109,089,000
Deposits.................................................. 53,000 40,000
Other assets.............................................. 3,595,000 4,315,000
Deferred income taxes (Note 6)............................ -- 196,000
------------ ------------
Total intangible and other assets -- net............... 123,609,000 113,640,000
------------ ------------
Total assets...................................... $156,777,000 $146,629,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 3,606,000 $ 3,503,000
Accrued interest.......................................... 251,000 393,000
Accrued dividends......................................... 302,000 250,000
Note payable (Note 2)..................................... -- 600,000
Accrued income taxes...................................... 110,000 173,000
------------ ------------
Total current liabilities......................... 4,269,000 4,919,000
------------ ------------
DEFERRED INCOME TAXES (Note 6).............................. 1,455,000 --
------------ ------------
LONG-TERM DEBT (Note 3)..................................... 79,500,000 67,000,000
------------ ------------
REDEEMABLE WARRANTS (Note 4)................................ 13,943,000 11,921,000
------------ ------------
OTHER LIABILITIES........................................... 56,000 97,000
------------ ------------
REDEEMABLE PREFERRED STOCK, $1.00 par value, 100,000 shares
authorized 3,016 and 2,700 issued and outstanding at
December 31, 1997 and 1996, respectively (Note 4)......... 23,723,000 19,816,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Note 5):
Class A Common Stock, $.01 par value, 200,000 shares
authorized, 70,571.91 issued and outstanding at
December 31, 1997 and 1996............................. 1,000 1,000
Class B Common Stock, $.01 par value, 200,000 shares
authorized, 4,227 issued and outstanding at December
31, 1997 and 1996......................................
Additional paid-in capital................................ 52,901,000 52,137,000
Accumulated deficit....................................... (19,071,000) (9,262,000)
------------ ------------
Total stockholders' equity........................ 33,831,000 42,876,000
------------ ------------
Total liabilities and stockholders' equity........ $156,777,000 $146,629,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 23
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
YEAR ENDED (INCEPTION)
DECEMBER 31, THROUGH
-------------------------- DECEMBER 31,
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Net revenues........................................ $53,053,000 $41,369,000 $ 4,613,000
----------- ----------- -----------
Operating expenses.................................. 37,271,000 29,725,000 3,623,000
LMA fee............................................. 63,000 500,000 --
Corporate expense................................... 3,749,000 2,374,000 1,217,000
Regional expense.................................... 947,000 143,000 --
Patterson planning management fee................... 250,000 250,000 146,000
Depreciation and amortization....................... 5,273,000 3,537,000 391,000
----------- ----------- -----------
47,553,000 36,529,000 5,377,000
----------- ----------- -----------
Income (loss) from operations....................... 5,500,000 4,840,000 (764,000)
----------- ----------- -----------
Other income (expense):
Interest expense.................................. (7,574,000) (5,052,000) (458,000)
Increase in fair value of redeemable warrants
(Note 4)....................................... (2,022,000) (5,499,000) --
Interest income................................... 13,000 70,000 148,000
Other -- net...................................... (63,000) (33,000) (3,000)
----------- ----------- -----------
Loss before income taxes............................ (4,146,000) (5,674,000) (1,077,000)
Income tax (expense) benefit (Note 6)............... (1,704,000) 282,000 --
----------- ----------- -----------
Net loss............................................ $(5,850,000) $(5,392,000) $(1,077,000)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 24
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, May 1, 1995 (inception)......... $ -- $ -- $ -- $ --
Equity contribution.................... 1,000 35,099,000 -- 35,100,000
Net loss............................... -- -- (1,077,000) (1,077,000)
------- ----------- ------------ -----------
BALANCE, December 31, 1995............... 1,000 35,099,000 (1,077,000) 34,023,000
Equity contribution, net of issuance
costs............................... -- 17,038,000 -- 17,038,000
Accretion of redeemable preferred
stock............................... -- -- (543,000) (543,000)
Dividends declared on redeemable
preferred stock..................... -- -- (2,250,000) (2,250,000)
Net loss............................... -- -- (5,392,000) (5,392,000)
------- ----------- ------------ -----------
BALANCE, December 31, 1996............... 1,000 52,137,000 (9,262,000) 42,876,000
Accretion of redeemable preferred
stock............................... -- -- (747,000) (747,000)
Dividends declared on redeemable
preferred stock..................... -- -- (3,212,000) (3,212,000)
Contingent award of common stock
pursuant to compensation plan....... -- 764,000 -- 764,000
Net loss............................... -- -- (5,850,000) (5,850,000)
------- ----------- ------------ -----------
BALANCE, December 31, 1997............... $ 1,000 $52,901,000 $(19,071,000) $33,831,000
======= =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 25
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
YEAR ENDED (INCEPTION)
DECEMBER 31, THROUGH
--------------------------- DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss......................................... $ (5,850,000) $ (5,392,000) $ (1,077,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation.................................. 1,580,000 1,175,000 166,000
Amortization.................................. 3,693,000 2,362,000 225,000
Deferred financing costs...................... 636,000 429,000 --
Contingent award of common stock.............. 764,000 -- --
Increase in fair value of redeemable
warrants.................................... 2,022,000 5,499,000 --
Loss on disposal of property, plant, and
equipment................................... 71,000 31,000 --
Changes in assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable........................... (1,080,000) (5,243,000) (2,492,000)
Prepaid expenses and other current assets..... (156,000) (53,000) (279,000)
Accounts payable and accrued expenses......... 103,000 955,000 1,219,000
Accrued interest.............................. (142,000) 359,000 34,000
Accrued income taxes.......................... (63,000) 173,000 --
Deferred income taxes......................... 1,530,000 (455,000) --
Other......................................... (53,000) 35,000 (28,000)
------------ ------------ ------------
Net cash provided by (used in) operating
activities.................................. 3,055,000 (125,000) (2,232,000)
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of media properties, net of cash
acquired...................................... (16,213,000) (92,915,000) (36,923,000)
Purchases of property, plant, and equipment...... (1,233,000) (1,036,000) (107,000)
Disposal of property, plant, and equipment,
net........................................... (71,000) 21,000 --
Deposits in escrow............................... -- -- (2,900,000)
Net proceeds on disposal of media property....... -- 2,100,000 --
Deferred acquisition costs....................... -- (84,000) (768,000)
Other............................................ -- -- (156,000)
------------ ------------ ------------
Net cash used in investing activities......... (17,517,000) (91,914,000) (40,854,000)
------------ ------------ ------------
FINANCING ACTIVITIES:
Equity contributions............................. -- 17,500,000 35,100,000
Issuance of redeemable preferred stock and
warrants...................................... -- 25,000,000 --
Borrowings under bank credit facility............ 17,500,000 86,500,000 10,000,000
Repayment of borrowings under bank credit
facility...................................... (5,000,000) (29,500,000) --
Financing and issuance costs..................... -- (4,629,000) (1,800,000)
------------ ------------ ------------
Net cash provided by financing activities..... 12,500,000 94,871,000 43,300,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH.................... (1,962,000) 2,832,000 214,000
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD........................................ 3,046,000 214,000 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD........... $ 1,084,000 $ 3,046,000 $ 214,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 26
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Patterson Broadcasting, Inc. was organized in May 1995 for the purpose of
owning and operating radio stations. At December 31, 1997, the Company owned and
operated radio stations in Savannah, Georgia; Allentown, Pennsylvania; Honolulu,
Hawaii; Fresno, California; Grand Rapids, Michigan; Battle Creek, Michigan;
Reno, Nevada; Harrisburg, Pennsylvania; Pensacola, Florida; and Springfield,
Illinois.
Of the 70,572 issued shares of Class A common stock, 65.9% are held by The
Dyson-Kissner-Moran Corporation (DKM).
Revision to 1996 Financial Statements
Previously issued financial statements for 1996 included a $2,062,000
deferred tax asset attributable to the expense of $5,499,000 recognized for the
increase in the fair value of redeemable warrants (Note 4). Based on additional
analysis of the potential federal income tax consequences of redeeming the
warrants, management has concluded that the Company can not derive a federal
income tax benefit from redeeming the warrants. Accordingly, the 1996 financial
statements have been revised to eliminate the $2,062,000 deferred tax asset
thereby increasing the 1996 net loss from the $3,330,000 previously reported to
$5,392,000.
Principles of Consolidation
The consolidated financial statements include the accounts of Patterson
Broadcasting, Inc. and its wholly-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions are eliminated in
consolidation.
Revenue Recognition
Radio advertising revenues are recognized when the related advertisements
are broadcast and are recorded net of advertising agency commissions. Exchanges
of advertising time for products and services are recorded at the estimated fair
value of the products or services received.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, money market funds, overnight
deposits, and investments with original maturities of three months or less when
purchased.
Property, Plant, and Equipment
Property, plant, and equipment is stated at cost. Depreciation is computed
by the straight-line method using estimated useful lives of the individual
assets which range from 5 to 40 years.
Deferred Financing Costs
Costs associated with obtaining debt financing are capitalized and
amortized over the term of the related debt.
Intangible and Other Assets
Costs of purchased businesses in excess of net tangible assets acquired are
stated at cost less accumulated amortization and primarily consist of FCC
broadcast licenses and goodwill. The FCC licenses and goodwill, recorded at
$122,520,000 and $110,306,000 at December 31, 1997 and 1996, respectively, are
being amortized using the straight-line method over periods not exceeding 40
years. Noncompete agreements and other intangibles, recorded at $3,708,000 and
$1,358,000 at December 31, 1997 and 1996, respectively, are being
F-7
<PAGE> 27
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortized using the straight-line method over two to five years. Accumulated
amortization at December 31, 1997 and 1996, was $6,267,000 and $2,575,000,
respectively.
On a continuing basis, the Company reviews the financial statement carrying
amounts of its operating units for impairment. Specifically, this process
includes a comparison of the carrying amounts of the operating units to their
estimated fair values, an analysis of estimated future cash flows and an
evaluation as to whether an operating unit might be sold in the near future. If
this process concludes that the carrying amount of an operating unit's assets
will not be recovered from either future operations or sale, a write down of the
operating unit's assets is recognized through a charge to operations.
Income Taxes
Deferred income taxes are recorded using Statements of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS No. 109 requires
the Company to compute deferred income taxes based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS, DISPOSITIONS AND PRO FORMA FINANCIAL INFORMATION:
In July 1995, the Company purchased radio station WCHY-AM/FM in Savannah,
Georgia, for $5,200,000 in cash. In September 1995, the Company purchased radio
stations WEEX-AM and WODE-FM in Allentown, Pennsylvania, radio stations KRZR-FM
and KTHT-FM in Fresno, California, and radio stations KSSK-AM/FM and KUCD-FM in
Honolulu, Hawaii, for $30,590,000 in cash.
In January 1996, the Company purchased radio stations WLHT-FM, WGRD-FM and
WRCV-AM in Grand Rapids, Michigan, and radio stations WBCK-AM, WBXX-FM, WRCC-AM
and WWKN-FM in Battle Creek, Michigan, for $21,400,000 in cash.
In January 1996, the Company purchased radio stations KCBN-AM, KRNO-FM and
KWNZ-FM in Reno, Nevada, for $4,100,000 in cash.
In January 1996, the Company purchased radio stations KCBL-AM and KBOS-FM
in Fresno, California, for $6,250,000 in cash.
In January 1996, the Company sold radio station KTHT-FM in Fresno,
California, for $2,200,000 in cash.
In March 1996, the Company purchased radio stations WTCY-AM, WNNK-FM in
Harrisburg, Pennsylvania, and radio station WXBM-FM in Pensacola, Florida, for
$31,200,000 in cash, including accounts receivable.
In April 1996, the Company purchased radio station WYKZ-FM in Savannah,
Georgia, for $1,500,000 in cash.
In August 1996, the Company purchased radio stations WFMB-AM/FM, WCVS-FM in
Springfield, Illinois, for $7,000,000 in cash.
F-8
<PAGE> 28
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1996, the Company purchased radio stations KIKI-AM/FM, KKLV-FM
and KHVH-AM in Honolulu, Hawaii, for $9,100,000 in cash, of which $600,000 was
paid in January 1997. Such amount is recorded as a note payable at December 31,
1996.
In November 1996, the Company purchased radio stations WAEV-FM, WLVH-FM and
WSOK-AM in Savannah, Georgia, for $11,000,000 in cash, including accounts
receivable.
In November 1996, the Company purchased radio station WWSF-FM in Pensacola,
Florida, for $1,820,000 in cash, including accounts receivable.
In June 1997, the Company purchased radio station WMEZ-FM in Pensacola,
Florida, for $7,000,000 in cash.
In August 1997, the Company purchased radio stations KSOF-FM and KRDU-AM in
Fresno, California, for $6,000,000 in cash. The Company began to operate these
stations under LMA agreements in April 1997.
In October 1997, the Company purchased radio station WQFN-FM in Grand
Rapids, Michigan, for approximately $1,900,000 in cash. The Company began to
operate this station under an LMA agreement in May 1997.
The acquisitions have been accounted for using the purchase method of
accounting. The consolidated statements of operations include the operations of
the acquired businesses since their respective date of acquisition.
The following unaudited pro forma financial information gives effect to the
above acquisitions and disposition as if such transactions had occurred at the
beginning of the period presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues............................... $53,934,000 $51,514,000 $47,281,000
Income from operations..................... 6,093,000 6,638,000 5,640,000
Net loss................................... (2,446,000) (6,578,000) (1,831,000)
</TABLE>
The pro forma information also reflects adjustments to interest expense and
income taxes resulting from the transactions and is not necessarily indicative
of either results of operations that would have been achieved if such
transactions had occurred at the beginning of the periods presented or of future
results of operations.
The Company has operated stations under time brokerage agreements (TBA's)
or local marketing agreements (LMA's) whereby the Company agreed to purchase
from the broadcast station licensee certain broadcast time on the station and to
provide programming to and sell advertising on the station during the purchased
time. Accordingly, the Company received all the revenue derived from the
advertising sold during the purchased time, paid certain expenses of the station
and performed other functions. The broadcast station licensee retains
responsibility for ultimate control of the station in accordance with FCC
policies. As of December 31, 1997, the Company had acquired all stations
operated under LMA's during 1997.
3. LONG-TERM DEBT:
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Bank Credit Facility..................................... $79,500,000 $67,000,000
</TABLE>
F-9
<PAGE> 29
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 20, 1996, the Company amended and restated its variable rate loan
agreement (the "Credit Facility"). The agreement was amended to increase the
available credit up to $150,000,000 by adding new lenders and amending certain
other provisions. The interest rate on the Credit Facility floats with the prime
rate established by the agent but can be fixed by the Company for up to six
months based upon a Eurodollar rate. The interest rate includes a borrowing
premium which varies from 1/4% to 3 1/4% depending on the Company's ratio of
total indebtedness to annualized operating cash flow for revolving credit loans,
as defined in the Credit Facility, and based on the interest rate option
selected. The Credit Facility also includes a commitment fee of 1/2% on the
unused portion of the Credit Facility. The Company may incur borrowings under
the Credit Facility until June 30, 2003; however, commitment reductions begin
December 31, 1997, with a final commitment reduction date of June 30, 2003. In
addition, beginning in 1998, the Company is required to prepay outstanding
borrowings to the extent of any excess cash flow as defined. The Credit Facility
is secured by a pledge of the stock of and is guaranteed by all subsidiaries of
the Company and contains certain restrictive covenants, including the
maintenance of cash flow ratios and limitations on additional borrowings,
mergers, acquisitions, dispositions, and certain restricted payments.
In connection with the sale of the Company (Note 13), the debt was repaid
in January 1998.
4. REDEEMABLE PREFERRED STOCK AND WARRANTS:
In April 1996, the Company issued 2,500 shares of Series A Cumulative
Redeemable Preferred Stock (the Preferred Stock) along with warrants for total
proceeds of $25,000,000. The Preferred Stock carries a 12% per annum cumulative
dividend rate and is redeemable April 2005, at $25,000,000 plus accrued and
unpaid dividends. The proceeds were allocated between the Preferred Stock and
warrants based on their estimated fair values. The Preferred Stock is being
increased to its redemption price during the period from date of issuance until
April 2005. The dividends are payable in cash or at the option of the Company in
additional shares of Preferred Stock at a rate of 3/100 of one share for each
$300 of such dividends paid. The dividend payment date is each March 1, June 1,
September 1, and December 1, beginning June 1, 1996. During 1997, the Company
paid $3,160,000 in dividends by issuing 316 additional shares, and during 1996,
the Company paid $2,000,000 in dividends by issuing 200 additional shares. In
addition, the shares of Preferred Stock are subject to mandatory redemption upon
the occurrence of certain specified events and are subject to optional
redemption by the Company at any time and upon the occurrence of certain
specified events, in each case at specified redemption prices based upon the
date of any such event. There are no redemption requirements for the next five
years.
The warrants, which are exercisable upon issuance, entitle the holder to
receive 12,177 shares of Class A Common Stock at an exercise price of $.01 per
share. The warrants expire April 2006. In addition, subject to certain
conditions, the warrants (and any shares of Common Stock issued upon the
exercise thereof) may be put to the Company at any one time after April 1, 2001,
and may be called at the option of the Company after April 1, 2002. The warrants
are measured at their fair value at December 31, 1997 and 1996, and, as a
result, a change in the fair value of $2,022,000 and $5,499,000 was recorded as
other expense during 1997 and 1996, respectively.
In connection with the sale of the Company (Note 13), the Preferred Stock
was redeemed and the warrants were exercised in January 1998.
5. STOCKHOLDERS' EQUITY:
In February 1996, the Company reclassified the initial Common Stock to
Class A Common Stock and increased the authorized shares to 200,000, $.01 par
value per share. The Company also created a new class of non-voting Common Stock
known as Class B Common Stock, with 200,000 shares authorized, $.01 par value
per share.
F-10
<PAGE> 30
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company issued Class A Common Stock of 7,221.25 shares for $5,125,000
in February 1996, 3,452.16 shares for $2,450,000 in July 1996, and 9,757.59
shares for $6,925,000 in October 1996. The Company also issued 4,227 shares of
Class B Common Stock for $3,000,000 in February 1996.
One of the shareholders has the right to purchase up to 1,160 additional
shares of Class A Common Stock at a price of $.01 per share on the earlier of
the occurrence of certain specified events or February 27, 1999. These
additional shares were issued in January 1998 in connection with the sale of the
Company (Note 13).
6. INCOME TAXES:
Income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current:
Federal........................... $ -- $ -- $ --
State............................. 173,000 173,000 --
---------- --------- ---------
Total................... 173,000 173,000 --
---------- --------- ---------
Deferred:
Federal........................... 1,410,000 108,000 (374,000)
State............................. 121,000 (143,000) (46,000)
Change in valuation allowance..... -- (420,000) 420,000
---------- --------- ---------
Total................... 1,531,000 (455,000) --
---------- --------- ---------
Income tax expense (benefit)...... $1,704,000 $(282,000) $ --
========== ========= =========
</TABLE>
Income tax expense (benefit) computed using the federal statutory tax rate
is reconciled to the reported income tax expense (benefit) as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Federal statutory tax rate........ $(1,451,000) $(1,986,000) $(377,000)
State income taxes, net of federal
tax benefit..................... 90,000 (183,000) (46,000)
Change in valuation allowance..... -- (420,000) 420,000
Nondeductible amortization........ 1,171,000 131,000 --
Nondeductible depreciation........ 264,000 -- --
Nondeductible meals and
entertainment................... 97,000 59,000 --
Nondeductible adjustment to NOL... 455,000 -- --
Nondeductible increases in fair
value of warrants............... 768,000 2,062,000 --
Nondeductible transaction costs... 205,000 -- --
Other -- net...................... 105,000 55,000 3,000
----------- ----------- ---------
Total................... $ 1,704,000 $ (282,000) $ --
=========== =========== =========
</TABLE>
F-11
<PAGE> 31
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant items comprising the Company's net deferred
tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets
Accruals not currently deductible....................... $ 441,000 $ 374,000
Compensation accruals not currently deductible.......... 125,000 84,000
Operating loss carryforward............................. 6,134,000 4,053,000
Other................................................... 13,000 5,000
----------- -----------
Total deferred tax assets....................... 6,713,000 4,516,000
Deferred tax liabilities:
Difference in book and tax basis of property............ (2,601,000) (1,503,000)
Difference in book and tax basis of intangible assets... (3,542,000) (913,000)
----------- -----------
Total deferred tax liabilities.................. (6,143,000) (2,416,000)
----------- -----------
Valuation allowance....................................... (1,446,000) (1,446,000)
----------- -----------
Net deferred tax asset (liability)........................ $ (876,000) $ 654,000
=========== ===========
</TABLE>
For 1995, the Company was included in the consolidated federal income tax
return of DKM. Effective February 27, 1996, the Company was no longer included
in DKM's consolidated federal income tax return. This deconsolidation resulted
from additional equity contributions which lowered DKM's stock ownership below
eighty percent.
The Company and DKM have a tax sharing agreement addressing the utilization
of the Company's net operating losses in DKM's consolidated federal tax return.
Per this agreement, the Company computed its tax liability as if it filed a
separate tax return. DKM will reimburse the Company when the Company would have
utilized the net operating loss carryforward generated through February 27,
1996, on a stand alone basis. DKM's obligation to reimburse remains in effect
although the Company no longer files a consolidated return with DKM.
At February 27, 1996, the net operating loss carryforward included in DKM's
consolidated federal income tax return was estimated at $2,180,000. This net
operating loss carryforward is subject to separate return limitations as the
result of the deconsolidation discussed above.
At December 31, 1997 and 1996, the Company had approximately $16,143,000
and $10,509,000, respectively, in net operating loss carryforwards for federal
income tax purposes. Such amounts include the portion attributable to losses
included in DKM's consolidated return. These loss carryforwards, unless
utilized, will expire between 2008 and 2011. At December 31, 1997, $3,982,000 of
these loss carryforwards result from an acquisition and are subject to separate
return limitations as well as certain limitations under Section 382 described
below. Limitations imposed by Section 382 of the Internal Revenue Code, after a
change of control, will limit the amount of net operating loss which will be
available to offset future taxable income at December 31, 1997, the Company has
a valuation allowance against such restricted net operating loss for the excess
of the net operating loss over the amount of taxable temporary differences which
will reverse during the permitted carryover period.
7. EMPLOYEE BENEFIT PLAN:
Effective January 1, 1997, the Company sponsors a 401(k) Plan for the
benefit of eligible employees. The Company matches 25% of the first 6% of each
participant's salary contributed to the plan. The Company expense under the plan
was $166,000 for the year ended December 31, 1997.
F-12
<PAGE> 32
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
The Company leases office facilities, transmitter sites, and various items
of equipment under noncancelable operating leases. Many of these lease
agreements contain renewal options. Total rental expense was $1,369,000,
$1,062,000 and $179,000, for the years ended December 31, 1997 and 1996, and for
the period from May 1, 1995, through December 31, 1995, respectively.
The following summary sets forth annual commitments under noncancelable
leases, net of sublease rentals of $136,000, $125,000, $80,000, and $36,000 for
the years ending December 31, 1998, 1999, 2000, and 2001, respectively.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998........................................................ $1,097,000
1999........................................................ 820,000
2000........................................................ 547,000
2001........................................................ 318,000
2002........................................................ 328,000
Thereafter.................................................. 6,669,000
----------
$9,779,000
==========
</TABLE>
The Company has employment agreements with its two top executive officers.
Pursuant to the agreements, which expire in 2000, the executives receive an
aggregate annual salary of $500,000, plus, beginning in 1996, an incentive bonus
based upon the Company achieving certain operating objectives. Bonus amounts for
1995 were determined at the discretion of the Board of Directors of the Company.
At December 31, 1997 and 1996, amounts accrued under these agreements were
$182,000 and $294,000, respectively.
The Company, from time to time, is involved in litigation incidental to the
conduct of its business. The Company is not a party to any lawsuit or legal
proceedings that, in the opinion of the management, is likely to have a material
adverse effect on the Company's financial position or results of operations.
9. STATEMENTS OF CASH FLOWS, SUPPLEMENTAL INFORMATION:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
YEAR ENDED YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -------------------
<S> <C> <C> <C>
Cash paid for interest........... $7,080,000 $4,264,000 $313,000
Cash paid for income taxes....... 301,000 -- --
</TABLE>
10. RELATED-PARTY TRANSACTIONS:
The Company is a party to a management agreement with an affiliate of DKM.
Under the agreement, the Company pays an annual fee of $250,000 for various
financial services.
As discussed in Note 6, the Company has a tax sharing agreement with DKM.
In May 1995, the Company received a 5 1/2% promissory note, payable on
demand, from DKM, representing a portion of DKM's initial capital contribution.
This note was repaid in October 1995. The Company recorded $107,000 in interest
income related to this note for the period from May 1, 1995 (inception) through
December 31, 1995.
F-13
<PAGE> 33
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK-BASED COMPENSATION:
Pursuant to the formation of the Company, certain members of the Company's
management were granted the right to receive up to a total of 2,840 additional
shares of Common Stock on the earlier of the occurrence of certain events or May
3, 2000. The number of shares to be granted is based upon the appreciation in
the fair value of the Company. As of December 31, 1996, no compensation expense
was recorded due to the uncertainty associated with estimating the total
ultimate value of the shares to be granted.
Based upon the sale transaction (Note 13), for the year ended December 31,
1997, the Company recorded $764,000 of compensation expense based on the total
ultimate number of shares granted. This amount is included in corporate expense.
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". In accordance with the provisions of SFAS No. 123, the Company
has applied the provisions of APB Opinion 25 in accounting for its stock
compensation plans. If the Company had elected to recognize compensation cost
based on the fair value of the stock compensation granted as prescribed by SFAS
No. 123, there would have been no impact on net income for the years and period
ended December 31, 1997, 1996 and 1995, respectively.
12. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amount.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents... $ 1,084,000 $ 1,084,000 $ 3,046,000 $ 3,046,000
Liabilities:
Long-term debt.............. 79,500,000 79,500,000 67,000,000 67,000,000
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of these instruments.
Long-Term Debt
The fair value of long-term debt is estimated based on financial
instruments with similar terms, credit characteristics, and expected maturities.
The fair value estimates presented herein are based on pertinent
information available to the Company as of December 31, 1997 and 1996. Although
the Company is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
reevaluated for
F-14
<PAGE> 34
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purposes of these financial statements since that date, and current estimates of
fair value may differ significantly from the amounts presented herein.
13. SUBSEQUENT EVENT:
In June 1997, the Company and its stockholders signed an agreement pursuant
to which all of the outstanding common stock and common stock equivalents would
be sold to Capstar Acquisition Company, Inc. and Capstar Broadcasting Partners,
Inc. for $215,000,000 plus cash on hand, subject to certain conditions.
Completion of the transaction occurred in January 1998. In connection with this
transaction, the Company recorded expense of $540,000 during 1997 which is
included in corporate expense in the accompanying consolidated statements of
operations.
In connection with the transaction, the long-term debt (Note 3) of the
Company was repaid. The preferred stock (Note 4) was repaid for $33,025,000,
including $25,000,000 principal, plus $2,262,000 premium and $5,763,000 in
dividends. The warrants (Note 4) were exercised for $13,943,000. The 1,160
additional shares (Note 5) were issued for $1,328,000. The management contingent
stock (Note 11) was issued for 666 additional shares totaling $764,000.
F-15
<PAGE> 35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPSTAR RADIO BROADCASTING PARTNERS, INC.
(Registrant)
By:/s/ Kathy Archer
----------------------------------------
Name: Kathy Archer
Title: Vice President
Date: April 14, 1998
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title Page
--------- ------------- ----
<S> <C> <C>
2.1 - Stock Purchase Agreement, dated June 12, 1997, by and among
Capstar Acquisition, Capstar Partners, Patterson and the selling
stockholders of Patterson named therein (incorporated by
reference to Capstar Partner's Amendment No. 1 to Registration on
Form S-4, dated July 8, 1997, File No. 333- 25638).
2.2 - Amendment No. 1 to Stock Purchase Agreement, dated July 2,
1997, among Capstar Acquisition, The Dyson-Kissner-Moran
Corporation, as representative of the Patterson stockholders
("DKM"), and Patterson (incorporated by reference to Capstar
Partner's Amendment No. 2 to Registration Statement on Form S-4,
dated August 5, 1997, File No. 333-25638).
2.3 - Amendment No. 2 to Stock Purchase Agreement, dated August 25,
1997 among Capstar Acquisition, DKM and Patterson.*
2.4 - Amendment No. 3 to Stock Purchase Agreement, dated January 19,
1998, among Capstar Acquisition, DKM and Patterson.*
2.5 - Amendment No. 4 to Stock Purchase Agreement, dated January 29,
1998 among Capstar Acquisition, DKM, Patterson and Capstar
Broadcasting Corporation.*
23.1 - Consent of Independent Accountants
</TABLE>
- --------------------
* Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 20, 1998, on the financial statements of Patterson
Broadcasting, Inc. and subsidiaries, included in or made part of this Form
8-K/A. It should be noted that we have not audited any financial statements of
the company subsequent to December 31, 1997 or performed any audit procedures
subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 13, 1998
