<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---- ----
COMMISSION FILE NUMBER 33-92732
-------------
CAPSTAR RADIO BROADCASTING PARTNERS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3034720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 CONGRESS AVENUE
SUITE 1400
AUSTIN, TEXAS 78701
(Address of principal executive (Zip Code)
offices)
</TABLE>
(512) 340-7800
(Registrant's telephone number, including area code)
-------------
Indicate by check mark whether Capstar Radio Broadcasting Partners, Inc.
("Capstar Radio" or the "Company") (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of Capstar Radio's
classes of common stock, as of the latest practicable date: As of August 10,
1999, 1,000 shares of Common Stock, par value $.01 per share ("Common Stock"),
of Capstar Radio were outstanding. As of such date, there was no public market
for the Common Stock.
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<PAGE> 2
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets as of December 31, 1998 and
June 30, 1999 (unaudited)........................................ 3
Consolidated Statements of Operations for the three months ended
June 30, 1998 and 1999 (unaudited)............................... 4
Consolidated Statements of Operations for the six months ended
June 30, 1998 and 1999 (unaudited)............................... 5
Condensed Consolidated Statements of Cash Flows for the three
months ended June 30, 1998 and 1999 (unaudited).................. 6
Notes to Consolidated Financial Statements (unaudited)........... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk...... 20
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings................................................ 21
Item 6. Exhibits and Reports on Form 8-K................................. 22
</TABLE>
As used in this Quarterly Report on Form 10-Q, unless the context otherwise
requires, (i) "Capstar Radio" refers to Capstar Radio Broadcasting Partners,
Inc., a direct wholly-owned of Capstar Broadcasting Partners, Inc., (ii) the
"Company" collectively refers to Capstar Radio and its subsidiaries, (iii)
"Capstar Partners" refers to Capstar Broadcasting Partners, Inc., (iv) "Capstar
Broadcasting" refers to Capstar Broadcasting Corporation, the parent company of
Capstar Partners, and (v) "Capstar Communications" refers to Capstar
Communications, Inc., an indirect subsidiary of Capstar Radio.
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements.
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, JUNE 30,
1998 1999
------------ ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................................................. $ 17,117 $ 10,295
Accounts receivable, net of allowance for doubtful accounts of $8,352 and
$7,942, respectively ................................................................ 112,846 118,168
Prepaid expenses and other current assets .............................................. 20,107 29,232
------------ ------------
Total current assets ........................................................... 150,070 157,695
Property and equipment, net ............................................................ 247,875 265,549
Intangibles and other, net ............................................................. 4,233,139 4,416,630
Other non-current assets ............................................................... 10,277 6,420
------------ ------------
Total assets ................................................................... $ 4,641,361 $ 4,846,294
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt ...................................................... $ 29,834 $ 52,631
Accounts payable ....................................................................... 11,615 9,164
Accrued liabilities .................................................................... 68,231 69,854
Income taxes payable ................................................................... 37,776 4,457
------------ ------------
Total current liabilities ...................................................... 147,456 136,106
Long-term debt, net of current portion ................................................. 1,409,708 1,605,258
Due from parent ........................................................................ (1,950) (34)
Deferred income taxes .................................................................. 1,191,213 1,252,611
------------ ------------
Total liabilities .............................................................. 2,746,427 2,993,941
Commitments and contingencies
Redeemable preferred stock of subsidiary:
Capstar Communications, Inc., Series E Cumulative Exchangeable Preferred stock,
$.01 par value, 4,150 shares authorized, 1,266 and 1,346 shares issued and outstanding,
respectively, aggregate liquidation preference of $133,944 and $142,398, respectively .. 148,669 156,444
Stockholder's equity:
Common stock, $.01 par value, 1,500,000 shares authorized;
1,113,068 shares issued and outstanding ......................................... 11,131 11,131
Additional paid-in capital .......................................................... 1,820,229 1,800,916
Unearned compensation ............................................................... (4,893) (3,901)
Accumulated deficit ................................................................. (80,202) (112,237)
------------ ------------
Total stockholder's equity ..................................................... 1,746,265 1,695,909
------------ ------------
Total liabilities and stockholder's equity ..................................... $ 4,641,361 $ 4,846,294
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
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CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Gross broadcast revenue .............................................. $ 124,263 $ 201,712
Less: agency commissions ............................................. (12,341) (19,204)
------------ ------------
Net broadcast revenue .............................................. 111,922 182,508
------------ ------------
Operating expenses:
Programming, technical and news .................................... 19,930 29,411
Sales and promotion ................................................ 30,976 49,513
General and administrative ......................................... 16,830 22,434
Corporate expenses ................................................... 4,039 6,656
Corporate expenses-- noncash compensation ............................ 6,676 4,910
LMA fees ............................................................. 1,450 36
Depreciation and amortization ........................................ 19,304 37,189
Merger, nonrecurring and systems development expense ................. 0 7,825
------------ ------------
Operating income ..................................................... 12,717 24,534
Other income (expense):
Interest expense ................................................... (15,350) (32,273)
Interest income .................................................... 830 0
Other .............................................................. 202 78
------------ ------------
Loss before benefit for income taxes, dividends and accretion on
preferred stock of subsidiary and extraordinary item ............... (1,601) (7,661)
(Provision) benefit for income taxes ................................. (1,573) 1,808
Dividends and accretion on preferred stock of subsidiary ............. 2,403 3,934
------------ ------------
Loss before extraordinary item ....................................... (5,577) (9787)
Extraordinary item, loss on early extinguishment of debt ............. 7,305 0
------------ ------------
Net loss ............................................................. $ (12,882) $ (9,787)
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
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CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Gross broadcast revenue .............................................. $ 194,349 $ 357,433
Less: agency commissions ............................................. (18,352) (32,920)
------------ ------------
Net broadcast revenue .............................................. 175,997 324,513
------------ ------------
Operating expenses:
Programming, technical and news .................................... 35,710 59,266
Sales and promotion ................................................ 48,985 88,572
General and administrative ......................................... 30,801 45,706
Corporate expenses ................................................... 7,614 12,894
Corporate expenses-- noncash compensation ............................ 22,469 6,912
LMA fees ............................................................. 3,321 355
Depreciation and amortization ........................................ 30,272 73,505
Merger, nonrecurring and systems development expense ................. -- 10,373
------------ ------------
Operating income (loss) .............................................. (3,175) 26,930
Other income (expense):
Interest expense ................................................... (25,813) (62,602)
Interest income .................................................... 1,247 99
Other .............................................................. 68 (67)
------------ ------------
Loss before benefit for income taxes, dividends and accretion on
preferred stock of subsidiary and extraordinary item ............... (27,673) (35,640)
Benefit for income taxes ............................................. 1,613 11,381
Dividends and accretion on preferred stock of subsidiary ............. 2,403 7,776
------------ ------------
Loss before extraordinary item ....................................... (28,463) (32,035)
Extraordinary item, loss on early extinguishment of debt ............. 7,305 --
------------ ------------
Net loss ............................................................. $ (35,768) $ (32,035)
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
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CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
------------ ------------
Net cash provided by (used in) operating activities ..... $ 24,278 $ (4,482)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of broadcasting property ..................... 221,429 11,297
Purchase of property and equipment .............................. (15,421) (20,655)
Payments for acquisitions, net of cash acquired ................. (1,380,602) (153,195)
Payments for pending acquisitions ............................... (10,299) (2,428)
Other investing activities, net ................................. (12,162) (59)
------------ ------------
Net cash used in investing activities ................... (1,197,055) (165,040)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt and credit facilities .............. 696,200 280,500
Repayment of long-term debt and credit facilities ............... (650,871) (122,535)
Payments of financing related costs ............................. (8,887) (1,932)
Net proceeds from issuance of common stock ...................... 865,504 --
Equity contributions by Parent .................................. 473,661 7,002
Dividends paid on common stock .................................. (241,751) (335)
------------ ------------
Net cash provided by financing activities ............... 1,133,856 162,700
Net decrease in cash and cash equivalents ......................... (38,921) (6,822)
Cash and cash equivalents at beginning of period .................. 70,719 17,117
------------ ------------
Cash and cash equivalents at end of period ........................ $ 31,798 $ 10,295
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
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CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
Information with respect to the three and six month periods ended June 30,
1998 and 1999 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, the unaudited interim consolidated
financial statements contain all adjustments considered necessary for a fair
presentation. Operating results for the three and six month periods ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999, or for any other interim period. For further
information, refer to the consolidated financial statements and footnotes
thereto for the year ended December 31, 1998 for Capstar Radio included in the
Form 10-K of Capstar Radio (Commission File No. 33-92732).
The consolidated financial statements include the accounts of Capstar
Partners, and its direct and indirect wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
NOTE 2 -- AMFM MERGER
On July 13, 1999, AMFM Inc. (previously known as Chancellor Media
Corporation), a Delaware corporation ("AMFM"), acquired Capstar Broadcasting.
The acquisition was effected through the merger (the "Merger") of CMC Merger
Sub, Inc., a Delaware corporation and wholly-owned subsidiary of AMFM ("Sub"),
with and into Capstar Broadcasting, with Capstar Broadcasting as the surviving
corporation. Capstar Radio is an indirect subsidiary of Capstar Broadcasting.
The acquisition of Capstar Broadcasting by AMFM resulted in a change of control
of Capstar Broadcasting and Capstar Radio. As a result of the Merger, Capstar
Radio became an indirect subsidiary of AMFM.
As a result of the Merger, all of the then outstanding shares of Class A
common stock, par value $0.01 per share, of Capstar Broadcasting ("Class A
Common Stock"), Class B common stock, par value $0.01 per share, of Capstar
Broadcasting ("Class B Common Stock"), and Class C common stock, par value $0.01
per share, of Capstar Broadcasting ("Class C Common Stock," and collectively
with the Class A Common Stock and the Class B Common Stock, the "Common Stock"),
were converted to the right to receive 0.4955 of a validly issued, fully paid
and nonassessable share of common stock, par value $0.01 per share, of AMFM
("AMFM Common Stock"). Based upon the number of shares of common stock
outstanding on May 19, 1999, the total consideration paid by Parent in the
Merger was approximately 53.5 million shares of AMFM Common Stock. AMFM also
assumed options, warrants and other equity rights of Capstar Broadcasting which
represent up to an additional 3.3 million shares of Parent Common Stock. Since
the acquisition occurred subsequent to June 30, 1999, no adjustments have been
recorded to the financial statements herein to reflect the acquisition.
NOTE 3 -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This pronouncement, as amended by SFAS No. 137, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Management does not
believe the implementation of this accounting pronouncement will have a material
effect on its consolidated financial statements.
7
<PAGE> 8
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 4 -- ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES
During the six months ended June 30, 1999, Capstar Radio acquired 35 FM and
13 AM radio stations and related broadcast equipment through several
acquisitions, all of which have been accounted for under the purchase method of
accounting. Accordingly, the purchase price has been allocated to the assets and
liabilities acquired based upon their fair values at the date of acquisition.
The excess purchase price over the fair value of net tangible assets acquired is
allocated to intangible assets, primarily FCC licenses. The results of
operations associated with the acquired radio stations have been included in the
accompanying consolidated financial statements from the dates of acquisition.
Acquisition activity during the six months ended June 30, 1999 was as
follows. All consideration paid for the acquisitions scheduled below consisted
solely of cash.
<TABLE>
<CAPTION>
STATIONS
ACQUIRED
-----------------
TRANSACTION FM AM DATE OF ACQUISITION PURCHASE OF COST
------------------------ ---- ---- ------------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Appalachian Broadcasting
Company, Inc. 1 -- February 1999 Assets $ 1,056
Noalmark Broadcasting 1 1 March 1999 Assets 3,395
Corp.
Champion Broadcasting
Corporation 9 2 March 1999 Assets 12,539
R. Steven Hicks 1 -- April 1999 Assets 9,857
Triathlon Broadcasting
Company 22 10 April 1999 Stock 143,249
Citadel Broadcasting
Company 1 -- April 1999 Assets 699
----------
$ 170,795
----------
</TABLE>
The acquisitions during the six months ended June 30, 1999 are summarized in
the aggregate as follows:
<TABLE>
<CAPTION>
For The
Six Months
Ended
June 30,
1999
-------------
<S> <C>
Consideration:
Cash..................................................................................................... $ 162,782
Acquisition costs........................................................................................ 7,314
Exchange of Assets....................................................................................... 699
---------
Total............................................................................................ $ 170,795
---------
Assets acquired:
Cash..................................................................................................... $ (858)
Accounts receivable...................................................................................... 7,575
Prepaid expenses and other............................................................................... 980
Property and equipment................................................................................... 17,177
Intangible assets........................................................................................ 285,966
Accounts payable......................................................................................... (5,400)
Long-term debt........................................................................................... (61,892)
Deferred income taxes.................................................................................... (72,753)
---------
Total............................................................................................ $ 170,795
---------
</TABLE>
On March 18, 1999, Capstar Broadcasting contributed to Muzak Holdings LLC
("Muzak Holdings") Capstar Broadcasting's Muzak affiliate territories in
Atlanta, Albany and Macon, Georgia and Ft. Myers, Florida in exchange for voting
membership units in Muzak Holdings. On May 3, 1999, Capstar Broadcasting
contributed to Muzak Holdings its Muzak affiliate territory located in Omaha,
Nebraska
8
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CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
that Capstar Broadcasting acquired from Triathlon Broadcasting Company on April
30, 1999, in exchange for additional voting membership units in Muzak Holdings.
The value of the membership units in Muzak Holdings that Capstar Broadcasting
then held was approximately $20,500, subject to a working capital adjustment
which has not yet been finalized. The investment in Muzak Holdings represents
the book value of the net assets contributed, which approximates fair value.
Upon completion of the contribution of the Omaha affiliate territory, Capstar
Broadcasting then held approximately 22.87% of the then outstanding voting power
of Muzak Holdings.
During the six months ended June 30, 1999, Capstar Radio disposed of 4 FM
and 7 AM radio stations and related broadcast equipment through several
dispositions for aggregate consideration of approximately $18,758, including
$10,500 in cash, $7,559 in dividends to parent and $699 in broadcast properties.
The carrying value of net assets sold related to these stations approximated the
consideration received.
The following unaudited proforma summary presents the consolidated results
of operations for the six months ended June 30, 1998 and 1999 as if all the
acquisitions and dispositions completed through June 30, 1999 had occurred at
the beginning of 1998. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisitions and dispositions been made as of that date or of
results which may occur in the future.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------- --------
1998 1999
-------- --------
<S> <C> <C>
Net revenue........................................... $302,403 $331,724
-------- --------
Loss before extraordinary item........................ (70,327) (40,954)
-------- --------
Net loss.............................................. (77,632) (40,954)
-------- --------
</TABLE>
Subsequent to June 30, 1999, Capstar Radio acquired 3 FM radio stations and
related broadcast equipment through acquisitions for aggregate consideration in
cash of approximately $13,000. These acquisitions were funded with cash
generated from operations.
Additionally, Capstar Radio has entered into the following;
o Three agreements to acquire 3 FM stations for approximately $4,100; and
o Two agreements to dispose of 2 FM and 3 AM stations for approximately
$4,450.
Upon completion of the pending transactions, Capstar Radio will own and
operate 339 stations in primarily mid-sized markets located throughout the
United States. Consummation of each of the pending transactions is subject to
numerous conditions, including governmental approvals. Accordingly, the actual
date of consummation of each of the pending transactions may vary from the
anticipated closing dates. No assurances can be given that any or all of the
pending transactions will be consummated or that, if completed, they will be
successful.
9
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CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
On July 13, 1998, Noddings Investment Group, Inc. and Noddings Warrant
Limited Partnership filed Civil Action No. 16538 in the Court of Chancery of the
State of Delaware in and for New Castle County against Capstar Communications,
Noddings alleges that Capstar Communications breached a warrant agreement that
Noddings contends requires Capstar Communications to permit Noddings to exercise
warrants in exchange for cash and shares of stock of SFX Entertainment, Inc.
Specifically, Noddings alleges that Capstar Communications has violated the
warrant agreement by permitting Noddings to receive cash in exchange for its
warrants, but refusing to convey shares of stock of SFX Entertainment. In
addition to suing on its own behalf, Noddings is seeking to prosecute the action
on behalf of a putative class comprised of all persons who owned equivalent
warrants on April 21, 1998 (the date immediately following the record date of
the distribution of stock of SFX Entertainment to holders of the stock of SFX)
and their transferees and successors in interest. Noddings has requested that
the Court:
o declare that on the exercise of its warrants Capstar Communications
transmit to plaintiffs and members of the class that it seeks to
represent $22.3725 in cash per warrant and 0.2983 shares of common stock
of SFX Entertainment per warrant,
o require Capstar Communications to pay 0.2983 shares of common stock of
SFX Entertainment per warrant and, (if not previously paid) $22.3725 in
cash, to any putative class member that has exercised or exercises
warrants after April 20, 1998,
o in the alternative, award plaintiffs and members of the putative class
monetary damages in an amount to be determined at trial, and
o award costs and attorneys' fees.
In March 1999, the court issued an opinion dismissing two of Noddings'
counts and granted summary judgment in favor of Noddings on one count. The court
held that Noddings is entitled to 0.2983 shares of SFX Entertainment, Inc. stock
per warrant. Both parties have filed appellate briefs with the Supreme Court of
the state of Delaware.
On July 24, 1998 in connection with the acquisition of Triathlon
Broadcasting Company, Capstar Radio was notified of an action filed on behalf of
all holders of depository shares of Triathlon against Triathlon, its directors,
and Capstar Radio. The action was filed in the Court of Chancery of the State of
Delaware in and for New Castle County, Delaware. The complaint alleges that
Triathlon and its directors breached their fiduciary duties to the class of
depository shareholders by agreeing to a transaction with Capstar Radio that
allegedly favored the Class A common shareholders of Triathlon at the expense of
the depository shareholders. Capstar Radio is accused of knowingly aiding and
abetting the breaches of fiduciary duties allegedly committed by the other
defendants. The complaint seeks to have the action certified as a class action
and seeks to enjoin the Triathlon acquisition or, in the alternative, seeks
monitory damages in an unspecified amount. On February 12, 1999, the parties
signed a Memorandum of Understanding that provides for the settlement of the
lawsuit. The amount of the settlement will equal $0.11 additional consideration
for each depository share owned by any class member at the effective time of the
Triathlon acquisition. Capstar Radio also agreed not to oppose plaintiff's
counsel's application for attorney's fees and expenses in the aggregate amount
of $150. The proposed settlement is contingent upon a confirmatory discovery by
the plaintiff, execution of a definitive settlement agreement and court
approval.
Capstar Radio is involved in various other claims and lawsuits which are
generally incidental to its business. Capstar Partners is also vigorously
contesting all of these matters and believes that the ultimate resolution of
these matters and those mentioned above will not have a material adverse effect
on its consolidated financial position or results of operations.
NOTE 6 -- SEGMENT INFORMATION
In 1998, Capstar Radio adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." Capstar Radio is engaged principally in
one line of business-ownership and management of radio broadcast stations
("Radio") which represents more than 95% of consolidated net revenue. Radio is
Capstar Radio's only reportable segment. Operating segments categorized as
"Other" include results of insignificant operations and income and expense not
allocated to reportable segments.
10
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CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Capstar Radio evaluates the performance of its operating segments and
allocates resources to them based on their net revenue and broadcast cash flow
("BCF") because it is a measure widely used in the broadcasting industry to
evaluate a radio company's operating performance. BCF consists of operating
income before merger, nonrecurring and systems development expense;
depreciation, amortization, LMA fees, non-cash compensation expense, and
corporate expenses.
Capstar Radio has developed an operating structure designed to manage a
large and growing number of radio stations throughout the United States. The
Radio segment is operationally organized into five regions.
The table below presents information about the reportable and "Other"
operating segments. The prior period's segment information has been restated to
conform with the current period's presentation. For the six months ended June
30, 1998 and 1999, segment data includes intersegment revenues.
<TABLE>
<CAPTION>
RADIO OTHER TOTAL
-------------- --------------- ---------------
<S> <C> <C> <C>
1998:
Net revenue....................... $ 168,912 $ 8,146 $ 177,058
BCF............................... 60,002 1,560 61,562
1999:
Net revenue....................... 316,827 11,563 328,390
BCF............................... 133,465 (800) 132,665
</TABLE>
A reconciliation of total segment net revenue to total consolidated net
revenue and of total segment BCF to total consolidated loss before benefit for
income taxes and extraordinary item, for the six months ended June 30, 1998 and
1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
NET REVENUE
Total segment net revenue ........................... $ 177,058 $ 328,390
Elimination of intersegment net revenue ............. (1,061) (3,877)
------------ ------------
Consolidated net revenue ............. $ 175,997 $ 324,513
============ ============
1998 1999
------------ ------------
BCF
Total BCF for reportable segments ................... $ 61,562 $ 132,665
Corporate Expenses .................................. (7,614) (12,894)
Corporate expenses - noncash compensation ........... (22,469) (6,912)
LMA fees ............................................ (3,321) (355)
Depreciation and Amortization ....................... (30,272) (73,505)
Merger, nonrecurring and other expense .............. -- (10,373)
Nonoperating expenses ............................... (24,498) (62,570)
Intercompany profit ................................. (1,061) (1,696)
------------ ------------
Consolidated loss before income taxes,
dividends and accretion on preferred
stock of subsidiary and extraordinary item ...... $ (27,673) $ (35,640)
============ ============
</TABLE>
The table below presents information about the reportable and "Other"
operating segments. The prior period's segment information has been restated to
conform with the current period's presentation. For the three months ended June
30, 1998 and 1999, segment data includes intersegment revenues.
<TABLE>
<CAPTION>
RADIO OTHER TOTAL
-------------- --------------- ---------------
<S> <C> <C> <C>
1998:
Net revenue....................... $ 108,068 $ 4,915 $ 112,983
BCF............................... 43,903 1,344 45,247
</TABLE>
11
<PAGE> 12
CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C> <C> <C>
1999:
Net revenue....................... 179,561 5,231 184,792
BCF............................... 82,746 (292) 82,454
</TABLE>
A reconciliation of total segment net revenue to total consolidated net
revenue and of total segment BCF to total consolidated loss before benefit for
income taxes and extraordinary item, for the three months ended June 30, 1998
and 1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Net revenue
Total segment net revenue ........................... $ 112,983 $ 184,792
Elimination of intersegment net revenue ............. (1,061) (2,284)
------------ ------------
Consolidated net revenue ................. $ 111,922 $ 182,508
============ ============
1998 1999
------------ ------------
BCF
Total BCF for reportable segments ................... $ 45,247 $ 82,454
Corporate Expenses .................................. (4,039) (6,656)
Corporate expenses - noncash compensation ........... (6,676) (4,910)
LMA fees ............................................ (1,450) (36)
Depreciation and Amortization ....................... (19,304) (37,189)
Merger, nonrecurring and other expense .............. -- (7,825)
Nonoperating expenses ............................... (14,318) (32,195)
Intercompany profit ................................. (1,061) (1,304)
------------ ------------
Consolidated loss before income taxes,
dividends and accretion on preferred
stock of subsidiary and extraordinary item ...... $ (1,601) $ (7,661)
============ ============
</TABLE>
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
In Management's Discussion and Analysis, management explains the
general financial condition and the results of operations of Capstar Radio
including:
o what factors affect Capstar Radio' business;
o what Capstar Radio's earnings and costs were for the periods discussed;
o why those earnings and costs were different from the comparable period
in the prior year;
o where Capstar Radio's earnings come from;
o how all of this affects Capstar Radio's overall financial condition;
o what Capstar Radio's expenditures for acquisitions and other capital
needs were in the second quarter of 1999 and what management expects
them to be for the remainder of the year; and
o where cash will come from to pay for future capital expenditures and
debt service obligations.
As you read this Management's Discussion and Analysis, it may be
helpful to refer to Capstar Radio's Consolidated Financial Statements on pages 3
through 12. In Management's Discussion and Analysis, management analyzes and
explains the changes in the specific line items in the consolidated statements
of operations and other data. You should know that these changes are not
historically comparable because of the numerous acquisitions and dispositions
that Capstar Radio has completed since its inception. Management's analysis may
be important to you in making decisions about your investments in Capstar Radio.
On July 13, 1999, AMFM Inc. acquired Capstar Broadcasting. The
acquisition was effected through the Merger. Capstar Radio is an indirect
subsidiary of Capstar Broadcasting. As a result of the Merger, Capstar Radio
became an indirect subsidiary of AMFM. The acquisition of Capstar Broadcasting
by AMFM Inc. may impact many of the matters discussed in this Management's
Discussion and Analysis, including earnings, results of operations, expenses,
liquidity and capital resources.
Management believes that it is important to discuss advertising
revenues and seasonal fluctuations of advertising revenues, two factors that
have a strong influence on Capstar Radio's business performance:
o Advertising Revenues. Capstar Radio's revenues are derived primarily
from the sale of time to local and national advertisers. These revenues
are affected by the advertising rates that Capstar Radio is able to
charge and the number of advertisements that can be broadcast without
jeopardizing listener levels (and resulting ratings). Advertising rates
tend to be based upon demand for a station's advertising inventory and
its ability to attract audiences in targeted demographic groups, as
measured principally by Arbitron. Capstar Radio attempts to maximize
revenues for each of its stations by adjusting rates based upon local
market conditions, controlling advertising inventory and creating
demand and audience ratings.
o Seasonality. Seasonal revenue fluctuations are common in the radio
broadcasting industry and are due primarily to fluctuations in
advertising expenditures by local and national advertisers. Advertising
expenditures are typically lowest in the first calendar quarter and
highest in the second and fourth calendar quarters of each year.
Capstar Radio's operating results in any period may be affected by the
occurrence of advertising and promotion expenses that do not produce
commensurate revenues in the period in which the expenditures are made.
Because Arbitron reports audience ratings on a quarterly basis, Capstar
Radio's ability to realize revenues as a result of increased
advertising and promotional expenses and any resulting audience ratings
improvements may be delayed for several months.
In the following analysis, management discusses broadcast cash flow and
EBITDA (before noncash compensation expense, LMA fees and merger, nonrecurring
and systems development expense) because they are measures widely used in the
broadcasting industry to evaluate a radio company's operating performance.
Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses, LMA fees, noncash compensation expense and
merger nonrecurring and systems development expense. EBITDA (before noncash
compensation expense, LMA fees and merger, nonrecurring and systems development
expense) consists of operating income before depreciation, amortization, LMA
fees, noncash compensation expense fees and merger, nonrecurring and systems
development expense. You should know that broadcast cash flow and EBITDA (before
13
<PAGE> 14
noncash compensation expense, LMA fees and merger, nonrecurring and systems
development expense) are not measures of performance calculated in accordance
with GAAP. Accordingly, you should also review Capstar Radio's operating income,
cash flows from operating activities and other income or cash flow statements
that are prepared in accordance with GAAP.
RESULTS OF OPERATIONS
The following table presents summary supplemental historical consolidated
financial data of Capstar Radio for the three months ended June 30, 1998 and
1999 and should be read in conjunction with the consolidated financial
statements of Capstar Radio and the related notes included elsewhere in this
Quarterly Report on Form 10-Q.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
-------------------------------
1998 1999
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Operating Data:
Net revenue ........................................................... $ 111,922 $ 182,508
Station operating expenses ............................................ 67,736 101,358
Corporate expenses .................................................... 4,039 6,656
Noncash compensation expense (1) ...................................... 6,676 4,910
LMA fees .............................................................. 1,450 36
Depreciation and amortization ......................................... 19,304 37,189
Merger, nonrecurring and systems development expense .................. -- 7,825
Operating income (loss) ............................................... 12,717 24,534
Interest expense ...................................................... 15,350 32,273
Net loss .............................................................. $ (12,882) $ (9,787)
Other Data:
Broadcast cash flow ................................................... $ 44,186 $ 81,150
Broadcast cash flow margin ............................................ 39.5% 44.5%
EBITDA (before noncash compensation expense, LMA
fees and merger, nonrecurring and systems development expense) ..... $ 40,147 $ 74,494
</TABLE>
- -------------
(1) Consists of noncash compensation charges resulting from the grant of
warrants, options and stock subscriptions.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Net Revenue. Net revenue increased $70.6 million or 63.1% to $182.5 million
in the three months ended June 30, 1999 from $111.9 million in the three months
ended June 30, 1998. This increase was attributable to the acquisitions of radio
stations and revenue generated from stations being operated by AMFM pursuant to
an LMA. On a same store basis, for stations owned or operated, LMA fees earned
and other non-radio operations as of June 30, 1999, net revenue increased $14.8
million or 8.7% to $185.2 million from $170.4 million in the three months ended
June 30, 1998. The increase was primarily attributable to growth in the sale of
time to local and national advertisers.
Station Operating Expenses. Station operating expenses increased $33.6
million or 49.6% to $101.3 million in the three months ended June 30, 1999 from
$67.7 million in the three months ended June 30, 1998. On a same store basis,
for stations owned or operated, LMA fees earned and other non-radio operations
as of June 30, 1999, operating expenses increased $6.7 million or 6.9% to $103.4
million from $96.7 million in the three months ended June 30, 1998. As a percent
of revenue, historical operating expenses have declined from 60.5% in 1998 to
55.5% in 1999 as a result of cost savings measures implemented by Capstar Radio
in connection with its acquisitions and the spreading of fixed costs over a
larger revenue base.
Corporate Expenses. Corporate expenses increased $2.6 million or 64.8% to
$6.6 million in the three months ended June 30, 1999 from $4.0 million in the
same period during 1998 primarily as a result of higher salary expense for
additional staffing.
Other Operating Expenses. Depreciation and amortization increased $17.9
million or 92.6% to $37.2 million in the three months ended June 30, 1999 from
$19.3 million in the same period in 1998 primarily due to radio station
acquisitions consummated in 1998 and through the second quarter of 1999. Noncash
compensation expense related to certain options, warrants and stockholder
non-recourse notes decreased $1.8 million or 26.5% to
14
<PAGE> 15
$4.9 million in 1999 from $6.7 million in 1998 due to a more significant
increase in the fair value of the Class A Common Stock during the second quarter
of 1998 than in the second quarter of 1999. In the quarter ended June 30, 1999,
Capstar Radio has recorded merger, nonrecurring and systems development expense
of $7.8 million which consisted of $6.5 million of investment banking, legal and
other expense related to the Merger, $1.0 million consisting primarily of
startup costs associated with Capstar Radio's sales training initiative and $0.3
million of business process reengineering and training expense incurred in
connection with Capstar Radio's development of the Galaxy(TM) system.
Other Income (Expense). Interest expense increased $16.9 million or 110.2%
to $32.3 million in the three months ended June 30, 1999 from $15.4 million in
the same period in 1998 primarily due to the interest expense associated with
indebtedness incurred in connection with Capstar Radio's acquisitions.
Net Loss. As a result of the factors described above, net loss decreased by
$3.1 million to a $9.8 million net loss in the three months ended June 30, 1999
from a $12.9 million net loss in the three months ended June 30, 1998.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $37.0 million or 83.7% to $81.2 million in the three months
ended June 30, 1999 from $44.2 million in the three months ended June 30, 1998.
The broadcast cash flow margin was 44.5% in the three months ended June 30, 1999
as compared to 39.5% in the same period in 1998. On a same store basis, for
stations owned or operated, LMA fees earned and other non-radio operations as of
June 30, 1999, broadcast cash flow increased $8.1 million or 11.0% to $81.8
million from $73.7 million in the three months ended June 30, 1998.
EBITDA (before noncash compensation expense, LMA fees and merger,
nonrecurring and systems development expense). As a result of the factors
described above, EBITDA (before noncash compensation expense, LMA fees and
merger, nonrecurring and systems development) increased $34.3 million or 85.6%
to $74.4 million in the three months ended June 30, 1999 from $40.1 million in
the three months ended June 30, 1998. The EBITDA (before noncash compensation
expense, LMA fees and merger, nonrecurring and systems development) margin
increased to 40.8% in 1999 from 35.9% in 1998.
The following table presents summary supplemental historical consolidated
financial data of Capstar Radio for the six months ended June 30, 1998 and 1999
and should be read in conjunction with the consolidated financial statements of
Capstar Radio and the related notes included elsewhere in this Quarterly Report
on Form 10-Q.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------------------
1998 1999
------------ ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Operating Data:
Net revenue ........................................................... $ 175,997 $ 324,513
Station operating expenses ............................................ 115,496 193,544
Corporate expenses .................................................... 7,614 12,894
Noncash compensation expense (1) ...................................... 22,469 6,912
LMA fees .............................................................. 3,321 355
Depreciation and amortization ......................................... 30,272 73,505
Merger, nonrecurring and systems development expense .................. -- 10,373
Operating income (loss) ............................................... (3,175) 26,930
Interest expense ...................................................... 25,813 62,602
Net loss .............................................................. $ (35,768) $ (32,035)
Other Data:
Broadcast cash flow ................................................... $ 60,501 $ 130,969
Broadcast cash flow margin ............................................ 34.4% 40.4%
EBITDA (before noncash compensation expense, LMA
fees and merger, nonrecurring and systems development expense) ..... $ 52,887 $ 118,075
</TABLE>
- -----------
(1) Consists of noncash compensation charges resulting from the grant of
warrants, options and stock subscriptions.
15
<PAGE> 16
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net Revenue. Net revenue increased $148.5 million or 84.4% to $324.5 million
in the six months ended June 30, 1999 from $176.0 million in the six months
ended June 30, 1998. This increase was attributable to the acquisitions of radio
stations and revenue generated from stations being operated by AMFM pursuant to
an LMA. On a same store basis, for stations owned or operated, LMA fees earned
and other non-radio operations as of June 30, 1999, net revenue increased $29.3
million or 9.7% to $331.7 million from $302.4 million in the six months ended
June 30, 1998. The increase was primarily attributable to growth in the sale of
time to local and national advertisers.
Station Operating Expenses. Station operating expenses increased $78.0
million or 67.6% to $193.5 million in the six months ended June 30, 1999 from
$115.5 million in the six months ended June 30, 1998. On a same store basis, for
stations owned or operated, LMA fees earned and other non-radio operations as of
June 30, 1999, operating expenses increased $15.6 million or 8.6% to $198.3
million from $182.7 million in the six months ended June 30, 1998. As a percent
of revenue, historical operating expenses have declined from 65.6% in 1998 to
59.6% in 1999 as a result of cost savings measures implemented by Capstar Radio
in connection with its acquisitions and the spreading of fixed costs over a
larger revenue base.
Corporate Expenses. Corporate expenses increased $5.3 million or 69.3% to
$12.9 million in the six months ended June 30, 1999 from $7.6 million in the
same period during 1998 primarily as a result of higher salary expense for
additional staffing. As a percent of revenue, historical corporate expenses have
declined from 4.3% in 1998 to 4.0% in 1999 as a result of cost savings measures
implemented by Capstar Radio in connection with its acquisitions and the
spreading of fixed costs over a larger revenue base.
Other Operating Expenses. Depreciation and amortization increased $43.2
million or 142.8% to $73.5 million in the six months ended June 30, 1999 from
$30.3 million in the same period in 1998 primarily due to radio station
acquisitions consummated in 1998 and through the second quarter of 1999. Noncash
compensation expense related to certain options, warrants and stockholder
non-recourse notes decreased $15.6 million or 69.2% to $6.9 million in 1999 from
$22.5 million in 1998 due a significant increase in the fair value of the Class
A Common Stock during the first six months of 1998 compared to a less
significant change in the fair value of the Class A Common Stock in the first
six months of 1999. In the quarter ended June 30, 1999, Capstar Radio has
recorded merger, nonrecurring and systems development expense of $10.4 million
which consisted of $7.6 million of investment banking, legal and other expense
related to the Merger, $1.7 million consisting primarily of startup costs
associated with Capstar Radio's sales training initiative and $1.1 million of
business process reengineering and training expense incurred in connection with
Capstar Radio's development of the Galaxy(TM) system.
Other Income (Expense). Interest expense increased $36.8 million or 142.5%
to $62.6 million in the six months ended June 30, 1999 from $25.8 million in the
same period in 1998 primarily due to the interest expense associated with
indebtedness incurred in connection with Capstar Radio's acquisitions.
Net Loss. As a result of the factors described above, net loss decreased by
$3.7 million to a $32.0 million net loss in the six months ended June 30, 1999
from a $35.7 million net loss in the six months ended June 30, 1998.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $70.5 million or 116.5% to $131.0 million in the six months
ended June 30, 1999 from $60.5 million in the six months ended June 30, 1998.
The broadcast cash flow margin was 40.4% in the six months ended June 30, 1999
as compared to 34.4% in the same period in 1998. On a same store basis, for
stations owned or operated, LMA fees earned and other non-radio operations as of
June 30, 1999, broadcast cash flow increased $13.7 million or 11.4% to $133.4
million from $119.7 million in the six months ended June 30, 1998.
EBITDA (before noncash compensation expense, LMA fees and merger,
nonrecurring and systems development expense). As a result of the factors
described above, EBITDA (before noncash compensation expense, LMA fees and
merger, nonrecurring and systems development) increased $65.2 million or 123.3%
to $118.1 million in the six months ended June 30, 1999 from $52.9 million in
the six months ended June 30, 1998. The EBITDA (before noncash compensation
expense, LMA fees and merger, nonrecurring and systems development) margin
increased to 36.4% in 1999 from 30.0% in 1998.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Capstar Radio's acquisition strategy requires a great deal of capital.
Capstar Radio has historically used the proceeds of bank debt, debt offerings,
equity offerings and cash flow from operations to fund the implementation of its
acquisition strategy. Capstar Radio's business has generated sufficient cash
flow from operations to finance its existing operations and debt service
requirements, and management anticipates that this will continue to be the case.
A brief summary of each of Capstar Radio's outstanding debt or preferred equity
instruments follows.
In June 1997, Capstar Radio issued its 9 1/4% Senior Subordinated Notes due
2007 (the "9 1/4% Capstar Radio Notes"). As of June 30, 1999, the outstanding
principal balance was $199.3 million. Capstar Radio pays interest payments of
$9.25 million on the 9 1/4% Capstar Radio Notes semi-annually on January 1 and
July 1 of each year. The 9 1/4% Capstar Radio Notes mature on July 1, 2007.
Capstar Communications has outstanding its 10 3/4% Senior Subordinated Notes
due 2006 (the "10 3/4% CCI Notes") and its 11 3/8% Senior Subordinated Notes due
2000 (the "11 3/8% CCI Notes"). Capstar Communications pays interest of
approximately $15.8 million on the 10 3/4% CCI Notes semi-annually on May 15 and
November 15 of each year. The 10 3/4% CCI Notes mature on May 15, 2006. Capstar
Communications pays interest of approximately $32,000 on the 11 3/8% CCI Notes
semi-annually on April 1 and October 1 of each year. The 113/8% CCI Notes mature
on October 1, 2000. As of June 30, 1999, the outstanding principal balances were
$321.8 million and $566,000 on the 10 3/4% CCI Notes and 113/8% CCI Notes,
respectively.
Capstar Communications has outstanding its Series E Cumulative Exchangeable
Preferred Stock ("CCI Series E Preferred Stock"). Capstar Communications is
required to pay dividends on the CCI Series E Preferred Stock semi-annually on
January 15 and July 15 of each year at the rate per share of $12.625 per year.
Until January 15, 2002, Capstar Communications may pay dividends either in cash
or in additional shares of CCI Series E Preferred Stock. Since July 15, 1998,
Capstar Communications has paid the required dividend by issuing additional
shares. Capstar Communications intends to continue to pay the dividend in
additional shares, rather than cash, through January 15, 2002. As of August 1,
1999, 1,431,062 shares of the CCI Series E Preferred Stock were issued and
outstanding with a liquidation preference equal to $100.00 per share or
approximately $143.1 million, excluding accrued dividends of $800,000.
The Merger resulted in a change of control under Capstar Radio's and its
subsidiaries indebtedness and preferred stock, and Capstar Radio or its
subsidiaries is obligated to purchase the notes and the preferred stock from the
holders thereof at an offer price in cash equal to 101% of the aggregate
principal amount, accreted value or liquidation preference, as applicable, plus
accrued and unpaid interest or dividends, as applicable, if any, thereon.
Capstar Radio has sent change of control offers to offer to purchase the
outstanding notes and preferred stock and will close the acquisition of accepted
tenders in August and September 1999. Capstar Radio anticipates that it will pay
for the change of control offers from cash from operating activities.
In addition to the debt and equity described above, Capstar Radio is a party
to a credit facility under which Capstar Radio is the borrower. The credit
facility consists of a $500 million revolving loan, a $450 million A Term Loan
and a $400 million B Term Loan. Pursuant to the credit facility and subject to
bank availabilities and approvals, Capstar Radio may request additional term
loans and revolving credit loans in an aggregate amount up to $550 million. The
interest rate under the Capstar Radio credit facility is a floating rate. On
August 1, 1999, Capstar Radio had borrowings of approximately $1,164.0 million
outstanding under the Capstar Radio credit facility comprised of $318.0 million
in revolving loans, $450.0 million under the A Term Loan and $396.0 million
under the B Term Loan, with a weighted average effective interest rate of 7.27%
per annum. On August 1, 1999, $180.9 million was available for borrowing,
subject to financial covenants contained in the credit facility and the
indentures that govern the indebtedness of Capstar Radio' subsidiaries.
Beginning August 31, 1999, the A Term Loan will require scheduled annual
principal payments, payable quarterly, of $45 million for the first year, $67.5
million in the second and third years, $90 million for the fourth and fifth
years, and two quarterly payments of $45 million during the final year
commencing August 31, 2004. The B Term Loan requires scheduled annual principal
payments, payable quarterly, of $4 million in years 1999 through 2003, $180
million in 2004 and $200 million in 2005. In April 1999, the credit facility was
amended to, among other things, permit the merger with AMFM and related
transactions to be consummated; increase the leverage ratio required to be
maintained by Capstar Radio during the period from April 1, 1999 through
September 30, 2000; increase the pricing of the credit facility beginning
January 1, 2000; and permit the proposed amendment of a $150 million note
payable by Capstar Broadcasting to AMFM.
Chancellor Media Corporation of Los Angeles ("CMCLA"), a subsidiary of AMFM,
is providing services for eleven large market stations under separate LMAs with
Capstar Broadcasting for approximately $49.4 million per year. In addition,
CMCLA has agreed to acquire such stations in exchange for radio stations to be
identified by Capstar Broadcasting over a three-year period beginning in May
1998, with corresponding decreases in the amount of the LMA fees as stations are
exchanged. From January 1, 1999 to June 30, 1999, CMCLA has paid Capstar
Broadcasting approximately $24.7 million in LMA fees. For the remainder of 1999,
Capstar Broadcasting expects to receive approximately $24.7 million in LMA fees
from CMCLA. CMCLA is assessing, in light of the Merger, whether any changes will
be made to the exchange agreement between Capstar Broadcasting and CMCLA.
In addition to debt service and tax liabilities, Capstar Radio's principal
liquidity requirements in 1999 will be for working capital and general corporate
purposes, including capital expenditures estimated at $46.7 million, to
consummate its pending acquisitions and, as appropriate opportunities arise, to
acquire additional radio stations or complementary broadcast-related businesses.
Capstar Radio believes that the disposition of certain assets, cash from
operating activities, LMA fees from CMCLA, together with available revolving
credit borrowings under the its credit facility, should be sufficient to permit
17
<PAGE> 18
Capstar Radio to meet its obligations. In the future, Capstar Radio may require
additional financing, either in the form of additional debt or equity
securities. Capstar Radio evaluates potential acquisition opportunities on an
on-going basis and has had, and continues to have, preliminary discussions
concerning the purchase of additional stations. Capstar Radio expects that in
connection with the financing of future acquisitions, it may consider disposing
of stations in its current markets.
Capstar Radio is a holding company with no significant assets other than the
capital stock of its direct and indirect subsidiaries. Consequently, its sole
source of cash from which to service indebtedness is dividends distributed or
other payments made to it by its operating subsidiaries. The instruments
governing Capstar Radio's indebtedness contain certain covenants that restrict
or prohibit the ability of subsidiaries to pay dividends and make other
distributions. These restrictions are not anticipated to have an impact on
Capstar Radio's ability to meet its cash obligations.
Net cash provided by (used in) operating activities was approximately $24.3
million and $(4.5) million for the six months ended June 30, 1998 and 1999,
respectively. Changes in Capstar Radio's net cash provided by operating
activities are primarily the result of completed acquisitions and station
operating agreements entered into during the periods and their effects on income
from operations and working capital requirements.
Net cash used in investing activities was $1,197.1 million and $165.0
million for the six months ended June 30, 1998 and 1999, respectively. Net cash
provided by financing activities was $1,133.9 million and $162.7 million for the
six months ended June 30, 1998 and 1999, respectively. These cash flows
primarily reflect borrowings, capital contributions and expenditures for
stations acquisitions and dispositions.
FORWARD LOOKING STATEMENTS
Certain statements used in the preceding and following discussion and
elsewhere in this Quarterly Report on Form 10-Q are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These forward-
looking statements about the financial condition, prospects, operations and
business of the Company are generally accompanied by words such as "believes,"
"expects," "plans," "anticipates," "intends," "likely," "estimates," or similar
expressions. These forward-looking statements are subject to risks,
uncertainties and other factors, some of which are beyond the control of the
Company, that could cause actual results to differ materially from those
forecast or anticipated in such forward-looking statements.
These risks, uncertainties and other factors include, but are not limited
to: the potential negative consequences of the substantial indebtedness of the
Company; the restrictions imposed on the Company and its subsidiaries by the
agreements governing its debt instruments; the competitive nature of the radio
broadcasting; the potential adverse effects on licenses and ownership of
regulation of the radio broadcasting industry; the difficulty of integrating
substantial acquisitions and entering new lines of business; and the control of
the Company by affiliates of Hicks, Muse, Tate & Furst Incorporated and
potential conflicts of interest relating thereto.
Because such forward-looking statements are subject to risks and
uncertainties, readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's view only as of the date
of this Quarterly Report on Form 10-Q. The Company undertakes no obligation to
update such statements or publicly release the result of any revisions to these
forward-looking statements which it may make to reflect events or circumstances
after the date of this report or to reflect the occurrence of unanticipated or
unforeseen events.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This pronouncement, as amended by SFAS No. 137, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Management does not
believe the implementation of this accounting pronouncement will have a material
effect on its consolidated financial statements.
18
<PAGE> 19
IMPACT OF THE YEAR 2000 ISSUE
BACKGROUND: The Year 2000 ("Y2K") issue is whether the Company's computer
systems will properly recognize a date sensitive information when the year
changes to 2000, or "00." Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
STATE OF READINESS: The Company has substantially completed an inventory
and assessment of its systems and operations to identify any software or
hardware systems, equipment with embedded chips or processors, and
non-information technology systems, such as telephone, voicemail and HVAC
systems, which do not properly recognize dates after December 31, 1999.
Concurrent with its company-wide assessment, the Company has developed and is in
the process of implementing its Y2K compliance program. The Company is utilizing
both internal and external resources to identify its mission critical systems
and, upon identification, to remediate or replace and test systems for Y2K
compliance.
The Company has identified its corporate financial reporting and radio
broadcasting operations (including advertising scheduling and billing systems)
systems as its mission critical systems to evaluate for Y2K compliance. The
Company has received Y2K compliance certificates from these application vendors
indicating that they are Y2K compliant. The Company is in the process of testing
these systems to ensure their Y2K compliance. In addition, the Company had
identified StarSystem(TM), its digital automation systems, as one of its
critical systems. Management of Capstar Broadcasting had determined that the
software underlying StarSystem(TM) is Y2K compliant, but is dependent on the
systems of the Company's telecommunications service providers, over which the
Company has no control. The Company has been assured by its vendors that the
Company's other digital automation systems are Y2K compliant. The Company has
tested substantially all of these systems to ensure their Y2K compliance.
The list of the Company's mission critical systems may be expanded upon
completion of the Company's inventory and assessment. As part of its acquisition
and consolidation strategy, the Company also assesses and, as necessary,
remediates or replaces the systems of acquired companies and stations with Y2K
compliant systems.
THIRD PARTY RELATIONSHIPS: In addition to identifying, assessing and
remediating or replacing its mission critical systems, the Company continues to
assess its exposure from external sources to Y2K. The Company relies on third
party providers for key services such as telecommunications and utilities.
Interruption of these services could, in management's view, have a material
adverse impact on the operations of the Company. The ability of third parties
with which the Company does business to adequately address their Y2K issues is
outside of the Company's control. Therefore, there can be no assurance that the
failure of such third parties to adequately address their Y2K issues will not
have a material adverse effect on the Company's business, financial condition,
cash flows and results of operations. The Company has sent questionnaires to
many of its third party providers, and continues to do so, asking them to update
the Company on the status of their Y2K compliance. Until all questionnaires are
returned and reviewed, the Company will be unable to fully assess the potential
for disruption in its programming and operations arising from this third party
risk. If the Company does not receive reasonable assurance regarding Y2K
compliance from any provider of these services, the Company will then develop
contingency plans, to the extent possible, to address its exposure.
COSTS: Costs specifically associated with the Company's Y2K efforts are
currently expected to be approximately $1.3 million, of which $850 thousand has
been incurred to date. These cost estimates are subject to change once the
Company has fully assessed its systems and as responses are obtained from third
party vendors and service providers. Any change in cost may be material. Funding
of these costs is anticipated to come from cash flows generated by business
operations and/or borrowings under the Company's credit facilities.
RISKS: The Company is in the process of identifying the most reasonably
likely worst case scenarios that may affect its operations due to Y2K
noncompliance of the Company's systems or the systems of third parties.
Initially, the Company believes that the failure of its radio broadcast systems
and the temporary loss of power at some of its stations due to Y2K noncompliance
are the most reasonably likely worst case scenarios. Many of the Company's
stations and transmitter sites currently have on-site generators in the event of
power outages. As part of the Company's capital improvement program, management
has begun installation of generators at many of its remaining stations and
transmitter sites. The Company believes that the upgrade of the hardware on its
existing radio broadcast systems and the installation of generators at many of
its stations will resolve possible material disruptions in the business
operations of the Company that would result from such risks. The Company may
identify additional worst case scenarios once it has fully assessed its mission
critical systems and obtained responses from the remaining third party vendors
and service providers.
Based on the nature of the Company's business and dispersed geographical
locations, the Company believes that it may experience some disruption in its
business due to the impact of the Y2K issue. Management presently believes,
however, that the Company is taking appropriate steps to assess and control its
Y2K issues. The Company cannot guarantee that there will be no Y2K issues in
spite of these efforts. If the Company does not complete all phases of its Y2K
compliance program and remediations or replacements are not made, are not
completed on time, or are insufficient to prevent systems failures or other
disruptions, the Y2K issue could have a material adverse impact on the Company's
results of operations and financial condition.
CONTINGENCY PLANS: The Company has begun to develop contingency plans to
mitigate the possible disruption in business operations that may result from the
Company's systems or the systems of third parties that are not Y2K compliant.
The Company has not finished the contingency planning phase. The Company is
continually assessing the status of completion of its Year 2000 compliance
program and, as necessary, will determine the level of contingency plans
necessary.
19
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Management monitors and evaluates changes in market conditions on a regular
basis. Based upon a review of information available as of the Company's most
recent interim balance sheet, management of the Company has determined that
there have been no material changes in market risks since year end. For further
information regarding market risk as of year end, refer to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
20
<PAGE> 21
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On August 29, 1997, two lawsuits were commenced against SFX Broadcasting
Inc. (currently Capstar Communications, Inc., an indirect subsidiary of Capstar
Radio) and its directors in the Court of Chancery of the State of Delaware (New
Castle County). The plaintiffs in the lawsuits are Harbor Finance Partners (C.A.
No. 15891) and Steven Lieberman (C.A. No. 15901). The complaints are identical
and allege that the consideration to be paid as a result of the SFX acquisition
to the holders of the CCI Class A Common Stock is unfair and that the individual
defendants have breached their fiduciary duties. Both complaints seek to have
the actions certified as class actions and seek to enjoin the SFX acquisition
or, in the alternative, monetary damages. The defendants have filed answers
denying the allegations, and discovery has commenced. The parties have agreed
that the lawsuits may be consolidated in one action entitled In Re SFX
Broadcasting, Inc. Shareholders Litigation (C.A. No. 15891). On March 17, 1998,
the parties entered into a Memorandum of Understanding, pursuant to which the
parties reached an agreement providing for a settlement of the action. Pursuant
to the settlement, SFX agreed not to seek an amendment to the SFX merger
agreement to reduce the consideration to be received by the stockholders of SFX
in the SFX acquisition in order to offset the indemnity obligations of SFX
Entertainment Inc., a former subsidiary of SFX. The settlement also provides for
SFX to pay plaintiff's counsel an aggregate of $950,000, including all fees and
expenses as approved by the court. The settlement is conditioned on the
consummation of the SFX acquisition (which has been consummated), completion of
the confirmatory discovery (which has been completed) and approval of the court.
Pursuant to the settlement, the defendants have denied, and continue to deny,
that they have acted in bad faith or breached any fiduciary duty. The parties
expect to submit the settlement documents soon to the court for its approval.
However, there can be no assurance that the court will approve the settlement.
On July 13, 1998, Noddings Investment Group, Inc. and Noddings Warrant
Limited Partnership filed Civil Action No. 16538 in the Court of Chancery of the
State of Delaware in and for New Castle County against Capstar Communications,
Noddings alleges that Capstar Communications breached a warrant agreement that
Noddings contends requires Capstar Communications to permit Noddings to exercise
warrants in exchange for cash and shares of stock of SFX Entertainment, Inc.
Specifically, Noddings alleges that Capstar Communications has violated the
warrant agreement by permitting Noddings to receive cash in exchange for its
warrants, but refusing to convey shares of stock of SFX Entertainment. In
addition to suing on its own behalf, Noddings is seeking to prosecute the action
on behalf of a putative class comprised of all persons who owned equivalent
warrants on April 21, 1998 (the date immediately following the record date of
the distribution of stock of SFX Entertainment to holders of the stock of SFX)
and their transferees and successors in interest. Noddings has requested that
the Court:
o declare that on the exercise of its warrants Capstar Communications
transmit to plaintiffs and members of the class that it seeks to
represent $22.3725 in cash per warrant and 0.2983 shares of common stock
of SFX Entertainment per warrant,
o require Capstar Communications to pay 0.2983 shares of common stock of
SFX Entertainment per warrant and, (if not previously paid) $22.3725 in
cash, to any putative class member that has exercised or exercises
warrants after April 20, 1998,
o in the alternative, award plaintiffs and members of the putative class
monetary damages in an amount to be determined at trial, and
o award costs and attorneys' fees.
In March 1999, the court issued an opinion dismissing two of Noddings' counts
and granted summary judgment in favor of Noddings on one count. The court held
that Noddings is entitled to 0.2983 shares of SFX Entertainment, Inc. stock per
warrant. Both parties have filed appellate briefs with the Supreme Court of the
State of Delaware.
On July 24, 1998 in connection with the acquisition of Triathlon
Broadcasting Company, Capstar Radio was notified of an action filed on behalf of
all holders of depository shares of Triathlon against Triathlon, its directors,
and Capstar Radio. The action was filed in the Court of Chancery of the State of
Delaware in and for New Castle County, Delaware. The complaint alleges that
Triathlon and its directors breached their fiduciary duties to the class of
depository shareholders by agreeing to a transaction with Capstar Radio that
allegedly favored the Class A common shareholders of Triathlon at the expense of
the depository shareholders. Capstar Radio is accused of knowingly aiding and
abetting the breaches of fiduciary duties allegedly committed by the other
defendants. The complaint seeks to have the action certified as a class action
and seeks to enjoin the Triathlon acquisition or, in the alternative, seeks
monitory damages in an unspecified amount. On February 12, 1999, the parties
signed a Memorandum of Understanding that provides for the settlement of the
lawsuit. The amount of the settlement will equal $0.11 additional consideration
for each depository share owned by any class member at the effective time of the
Triathlon acquisition. Capstar Radio also agreed not to oppose plaintiff's
counsel's application for attorney's fees and expenses in the aggregate amount
of $150,000. The proposed settlement is contingent upon a confirmatory discovery
by the plaintiff, execution of a definitive settlement agreement and court
approval.
21
<PAGE> 22
On September 9, 1998, Capstar Radio was notified of an action filed on
behalf of all owners of securities of AMFM Inc. against AMFM Inc., Hicks, Muse,
Tate & Furst, Incorporated ("Hicks, Muse") and the individual directors of
Hicks, Muse in the Court of Chancery of the State of Delaware in and for New
Castle County, Delaware. While the complaint does not name Capstar Radio as a
defendant, the complaint alleges that AMFM Inc. and its directors breached their
duties to the alleged class by entering into an "overly generous offer for
Capstar assets." The action is relevant to Capstar Radio because inter alia, the
plaintiff seeks an injunction prohibiting the proposed merger of Capstar
Broadcasting with AMFM Inc.. As Capstar Radio is not a defendant in this action,
Capstar Radio has no obligation to appear or participate.
Capstar Radio is also involved in various other claims and lawsuits which
are generally incidental to its business. Capstar Radio is vigorously contesting
all of these matters and believes that the ultimate resolution of these matters
and those mentioned above will not have a material adverse affect on its
consolidated financial position or results of operation.
See Part I Item 1 Note 5 to the June 30, 1999 unaudited financial
statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Amended and Restated Agreement and Plan of
Merger, dated as of April 29, 1999, among
Chancellor Media Corporation, Capstar
Broadcasting Corporation, CBC Acquisition
company, Inc. and CMC Merger Sub, Inc. (1)
2.2 First Amendment to Amended and Restated Agreement
and Plan of Merger, dated as of June 30, 1999,
among Chancellor Media Corporation, Capstar
Broadcasting Corporation and CMC Merger Sub, Inc.
(2)
3.1 Certificate of Amendment to Certificate of
Incorporation of Capstar Radio.*
10.1 Termination and Release Agreement, dated July 13,
1999, by and among Capstar Broadcasting, Capstar
Radio and Hicks, Muse & Co. Partners, L.P.*
27.1 Financial Data Schedule.*
</TABLE>
- ----------
* Filed herewith.
(1) Incorporated by reference to Exhibit 2.55 to the Quarterly Report on form
10-Q of Chancellor Media Corporation for the quarterly period ending March
31, 1999, file No. 000-21570.
(2) Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form S-4 of Chancellor Media Corporation, dated
July 1, 1999, File No. 333-80173.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Capstar Radio during the three months
ended June 30, 1999.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Capstar
Radio Broadcasting Partners, Inc. has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CAPSTAR RADIO BROADCASTING PARTNERS, INC.
By: /s/ PAUL D. STONE
--------------------------------------
Paul D. Stone
Executive Vice President and
Chief Financial Officer
Date: August 13, 1999
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Amended and Restated Agreement and Plan of
Merger, dated as of April 29, 1999, among
Chancellor Media Corporation, Capstar
Broadcasting Corporation, CBC Acquisition
company, Inc. and CMC Merger Sub, Inc. (1)
2.2 First Amendment to Amended and Restated Agreement
and Plan of Merger, dated as of June 30, 1999,
among Chancellor Media Corporation, Capstar
Broadcasting Corporation and CMC Merger Sub, Inc.
(2)
3.1 Certificate of Amendment to Certificate of
Incorporation of Capstar Radio.*
10.1 Termination and Release Agreement, dated July 13,
1999, by and among Capstar Broadcasting, Capstar
Radio and Hicks, Muse & Co. Partners, L.P.*
27.1 Financial Data Schedule.*
</TABLE>
- ----------
* Filed herewith.
(1) Incorporated by reference to Exhibit 2.55 to the Quarterly Report on form
10-Q of Chancellor Media Corporation for the quarterly period ending March
31, 1999, file No. 000-21570.
(2) Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form S-4 of Chancellor Media Corporation, dated
July 1, 1999, File No. 333-80173.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CAPSTAR RADIO BROADCASTING PARTNERS, INC.
(Incorporated on August 5, 1980)
(Pursuant to Section 242 of the General Corporation Law
of the State of Delaware)
- --------------------------------------------------------------------------------
Capstar Radio Broadcasting Partners, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), hereby certifies:
FIRST, that the Board of Directors of the Corporation duly adopted a
resolution proposing and declaring advisable the following amendment to the
Amended and Restated Certificate of Incorporation of the Corporation in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware:
RESOLVED, that the Board of Directors of the Corporation deems
and declares advisable an amendment to the Amended and Restated
Certificate of Incorporation of the Corporation to amend Article Four
to read in its entirety as follows, and that such amendment be
submitted to the stockholders of the Corporation for their
consideration and approval:
ARTICLE FOUR
AUTHORIZED STOCK
The total number of shares of all classes of stock which the
corporation shall have authority to issue is 3,000 shares of common
stock of the par value of One Cent ($.01) per share (the "Common
Stock").
Upon the filing of this Certificate of Amendment to the
Amended and Restated Certificate of Incorporation with the Delaware
Secretary of State, each share of Common Stock (the "Old Shares")
issued and outstanding immediately prior to such filing shall, without
any action on the part of the holder thereof, be converted and
reclassified into, and immediately represent 0.0000008941755014 validly
issued, fully paid, and nonassessable share of Common Stock. Any
fraction of a share of Common Stock that would otherwise result
pursuant to the preceding sentence (after aggregating all fractional
shares held by each stockholder) shall automatically be eliminated.
Each certificate representing Old Shares shall thereafter represent
that number of shares of Common Stock determined by the previous
sentences; provided, however, that each person holding of record a
stock certificate or
<PAGE> 2
certificates representing Old Shares shall receive, upon surrender of
such certificate or certificates, a new certificate or certificates
evidencing and representing the number of shares of Common Stock to
which such person is entitled.
SECOND, that in lieu of a meeting and vote of the sole stockholder of
the Corporation, the stockholder of the Corporation has given written consent to
said amendment in accordance with the provisions of Section 228(a) of the
General Corporation Law of the State of Delaware.
THIRD, that the previously stated amendment to the Amended and Restated
Certificate of Incorporation of the Corporation was duly adopted by the sole
stockholder of the Corporation in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
[Remainder of page intentionally left blank]
<PAGE> 3
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
10th day of August, 1999.
CAPSTAR RADIO BROADCASTING
PARTNERS, INC.
By: /s/ KATHY ARCHER
-----------------------------
Name: Kathy Archer
-----------------------------
Title: Vice President
-----------------------------
<PAGE> 1
EXHIBIT 10.1
TERMINATION AND RELEASE AGREEMENT
This TERMINATION AND RELEASE AGREEMENT (this "Agreement") is made and
entered into as of July 13, 1999, by and among Capstar Broadcasting Corporation
(the "Company"), a Delaware corporation, Capstar Broadcasting Partners, Inc.
("Partners"), a Delaware corporation, and Hicks, Muse & Co. Partners, L.P.
(together with its successors, "HMCo"), a Texas limited partnership, and, for
the limited purposes set forth in Sections 4 and 5 of this Agreement, is joined
in by Chancellor Media Corporation, a Delaware corporation to be renamed AMFM
Inc. ("Chancellor"), with respect to (i) that certain Financial Advisory
Agreement, dated July 1, 1997, between the Company and HMCo attached hereto as
Exhibit A (the "Company Financial Advisory Agreement"); (ii) that certain
Monitoring and Oversight Agreement, dated July 1, 1997, between the Company and
HMCo attached hereto as Exhibit B (the "Company M&O Agreement" and, together,
with the Company Financial Advisory Agreement, the "Company Financial Services
Agreements"); (iii) that certain Financial Advisory Agreement, dated October 16,
1996, between Partners and HMCo attached hereto as Exhibit C ("Partners
Financial Advisory Agreement"); and (iv) that certain Monitoring and Oversight
Agreement, dated October 16, 1996, between Partners and HMCo attached hereto as
Exhibit D ("Partners M&O Agreement" and, together, with the Partners Financial
Advisory Agreement, the "Partners Financial Services Agreements," and, together,
with the Company Financial Services Agreements, the "Financial Services
Agreements").
WHEREAS, pursuant to the terms of the Amended and Restated Agreement
and Plan of Merger (the "Merger Agreement"), dated as of April 29, 1999 and
amended on June 30, 1999, by and among Chancellor, CBC Acquisition Company,
Inc., a Delaware corporation, CMC Merger Sub, Inc., a Delaware corporation, and
the Company, it is a condition precedent to Chancellor's obligation to
consummate the Merger that the parties hereto terminate the Financial Services
Agreements. Each capitalized term not defined herein shall have the meaning
assigned to such term in the Merger Agreement.
NOW, THEREFORE, intending to be legally bound and in consideration for
the mutual covenants and agreements contained in this Agreement and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Company, Partners, and HMCo hereby agree that the Financial
Services Agreements and any exhibits thereto shall terminate and be of no
further force and effect on any of the parties thereto, effective as of the
Effective Time, except that (i) Section 4 of each of the Financial Services
Agreements shall survive the termination of such agreements to the extent that
HMCo is entitled to an expense reimbursement for any services rendered in
accordance with the terms thereof prior to the Effective Time; (ii) Section 5 of
each of the Financial Services Agreements shall survive the termination of such
agreements, and HMCo shall be entitled to indemnity under Section 5, with
respect to any services rendered by HMCo prior to the Effective Time in
accordance with the terms of such agreements; and (iii) Section 6 of each of the
Financial Services Agreements shall survive the termination of such agreements.
<PAGE> 2
2. Except for any claim that the Company or Partners or their
respective successors or assigns may in the future have against HMCo under
Section 6 of each of the Financial Services Agreements, each of the Company and
Partners hereby irrevocably and unconditionally releases, acquits and forever
discharges HMCo, and each of its past, present or future successors, assigns,
employees, agents, stockholders, partners, subsidiaries, parent companies, other
affiliates (corporate or otherwise), and legal representatives, including their
past, present or future officers and directors, and each of them, of and from
any and all Released Claims (as defined herein), arising out of, based upon,
resulting from or relating to the negotiation, execution, performance, breach or
otherwise related to or arising out of each of the Financial Services
Agreements. "Released Claims" as used herein shall mean any and all charges,
complaints, claims, causes of action, promises, agreements, rights to payment,
rights to any equitable remedy, rights to any equitable subordination, demands,
debts, liabilities, express or implied contracts, obligations of payment or
performance, rights of offset or recoupment, accounts, damages, costs, losses or
expenses (including attorneys' and other professional fees and expenses) held by
any party hereto, whether known or unknown, matured or unmatured, suspected or
unsuspected, liquidated or unliquidated, absolute or contingent, direct or
derivative.
3. Except to the extent that Sections 4 and 5 of each of the Financial
Services Agreements survives the termination of such agreements as provided in
clauses (i) and (ii) of Section 1 hereof, HMCo hereby irrevocably and
unconditionally releases, acquits and forever discharges the Company and
Partners, and each of their respective past, present or future successors,
assigns, employees, agents, stockholders, partners, subsidiaries, parent
companies, other affiliates (corporate or otherwise), and legal representatives,
including their past, present or future officers and directors, and each of
them, of and from any and all Released Claims, arising out of, based upon,
resulting from or relating to the negotiation, execution, performance, breach or
otherwise related to or arising out of the Financial Services Agreements.
4. At the Effective Time and in consideration for the termination of
the Company M&O Agreement and, subject to Paragraph 1 hereof, in full
satisfaction of all obligations under the Company M&O Agreement, Chancellor
shall enter into a stock option agreement with HMCo, in substantially the form
attached hereto as Exhibit E, which grants HMCo an option to purchase up to
634,517 shares of common stock, par value $.01 per share ("Chancellor Common
Stock"), of Chancellor at a per share exercise price of $52.00.
5. At the Effective Time and in consideration for the termination of
the Company Financial Advisory Agreement and, subject to Paragraph 1 hereof, in
full satisfaction of all obligations under the Company Financial Advisory
Agreement, the Company shall pay, or cause to be paid, to HMCo an amount equal
to $10,000,000, payable in cash or by wire transfer of immediately available
funds to an account designated by HMCo, and Chancellor shall enter into a stock
option agreement with HMCo, in substantially the form attached hereto as Exhibit
E, which grants HMCo an option to purchase up to 335,099 shares of Chancellor
Common Stock at a per share exercise price of $52.00.
2
<PAGE> 3
6. Should any provision of this Agreement be declared or be determined
to be illegal, invalid, or otherwise unenforceable, the validity of the
remaining parts, terms, and provisions hereof will not be affected thereby but
such will remain valid and enforceable, and said illegal or invalid parts,
terms, or provisions shall be deemed not to be a part of this Agreement.
7. This Agreement shall be construed, interpreted, and enforced in
accordance with the laws of the State of Texas, excluding any choice-of-law
provisions thereof.
8. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument, and the signature of any party to any
counterpart shall be deemed a signature to, and may be appended, any other
counterpart.
[REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed, all as of the date first written above.
CAPSTAR BROADCASTING CORPORATION
By: /s/ WILLIAM S. BANOWSKY, JR.
-------------------------------------
Name: William S. Banowsky, Jr.
-----------------------------------
Title: Executive Vice President &
General Counsel
-----------------------------------
CAPSTAR BROADCASTING PARTNERS, INC.
By: /s/ WILLIAM S. BANOWSKY, JR.
-------------------------------------
Name: William S. Banowsky, Jr.
-----------------------------------
Title: Executive Vice President &
General Counsel
-----------------------------------
HICKS, MUSE & CO. PARTNERS, L.P.
By: HM PARTNERS INC., ITS GENERAL PARTNER
By: /s/ JACK D. FURST
-------------------------------------
Name: Jack D. Furst
-----------------------------------
Title: Partner
-----------------------------------
This Agreement is joined in by Chancellor
for the limited purposes set forth in
Sections 4 and 5 of this Agreement:
CHANCELLOR MEDIA CORPORATION
By: /s/ THOMAS O. HICKS
-------------------------------------
Name: Thomas O. Hicks
-----------------------------------
Title: Chief Executive Officer
-----------------------------------
S-1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,295
<SECURITIES> 0
<RECEIVABLES> 126,110
<ALLOWANCES> 7,942
<INVENTORY> 0
<CURRENT-ASSETS> 157,695
<PP&E> 305,224
<DEPRECIATION> 39,675
<TOTAL-ASSETS> 4,846,294
<CURRENT-LIABILITIES> 136,106
<BONDS> 1,605,256
156,444
0
<COMMON> 11,131
<OTHER-SE> 1,684,778
<TOTAL-LIABILITY-AND-EQUITY> 1,695,909
<SALES> 0
<TOTAL-REVENUES> 324,513
<CGS> 0
<TOTAL-COSTS> 191,073
<OTHER-EXPENSES> 104,007
<LOSS-PROVISION> 2,471
<INTEREST-EXPENSE> 62,602
<INCOME-PRETAX> (35,640)
<INCOME-TAX> (11,381)
<INCOME-CONTINUING> (32,035)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,035)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
