FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2002 Commission file number 000-22486
AMFM Operating Inc.
(an indirect, wholly-owned subsidiary of
Clear Channel Communications, Inc.)
(Exact name of registrant as specified in its charter)
Delaware 13-3649750
(State of Incorporation) (I.R.S. Employer Identification No.)
200 East Basse Road
San Antonio, Texas 78209
(210) 822-2828
(Address and telephone number
of principal executive offices)
Indicate by check mark whether the registrant (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 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 class of the issuer's
classes of common stock, as of the latest practicable date: As of May 14, 2002,
1,040 shares of common stock of the Registrant's common stock were outstanding.
The registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this report with the
reduced disclosure format.
AMFM OPERATING INC.
INDEX
Page No.
- - - - -
Part I -- Financial Information
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets at March 31, 2002 and December 31, 2001 3
Consolidated Statements of Operations for the three months ended March 31, 2002 and 2001 5
Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Part II -- Other Information
Item 6. Exhibits and reports on Form 8-K 16
(a) Exhibits
(b) Reports on Form 8-K
Signatures 16
Index to Exhibits 17
PART I
Item 1. UNAUDITED FINANCIAL STATEMENTS
AMFM OPERATING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
March 31, December 31,
2002 2001
------------------ -----------------
Current Assets
Cash and cash equivalents $ 7,631 $ 11,352
Accounts receivable, less allowance of $14,385 at
March 31, 2002 and $12,883 at December 31, 2001 360,634 404,778
Prepaids 14,124 --
Other current assets 23,562 43,141
------------------ -----------------
Total Current Assets 405,951 459,271
Property, Plant and Equipment
Land, buildings and improvements 172,730 175,814
Transmitter and studio equipment 242,314 240,525
Furniture and other equipment 98,602 97,510
Construction in progress 20,466 19,109
------------------ -----------------
534,112 532,958
Less accumulated depreciation (66,724) (54,636)
------------------ -----------------
467,388 478,322
Intangible Assets
Definite-lived intangibles, net 170,395 166,662
Indefinite-lived intangibles - licenses 7,285,893 16,146,201
Goodwill 2,796,717 6,744,779
Other Assets
Other assets 49,513 50,712
Other investments 39,884 49,256
------------------ -----------------
Total Assets $ 11,215,741 $ 24,095,203
------------------ -----------------
See Notes to Consolidated Financial Statements
-3-
AMFM OPERATING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
(In thousands)
March 31, December 31,
2002 2001
------------------ -----------------
Current Liabilities
Accounts payable $ 26,845 $ 34,569
Accrued interest 35,590 18,890
Accrued expenses 104,340 178,540
Accrued income taxes payable to Clear Channel 114,523 94,615
Deferred income 4,154 --
Current portion of long-term debt -- 157,595
------------------ -----------------
Total Current Liabilities 285,452 484,209
Long-term debt 1,270,528 1,272,133
Clear Channel promissory note 451,968 487,190
Deferred income taxes 1,660,848 4,994,595
Other long-term liabilities 129,438 133,255
Shareholder's Equity
Common stock 1 1
Additional paid-in capital 17,346,238 17,346,238
Retained deficit (9,928,732) (623,423)
Accumulated other comprehensive income -- 1,005
------------------ -----------------
Total shareholder's equity 7,417,507 16,723,821
------------------ -----------------
Total Liabilities and Shareholder's Equity $ 11,215,741 $ 24,095,203
------------------ -----------------
See Notes to Consolidated Financial Statements
-4-
AMFM OPERATING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands)
Three Months Ended March 31,
-------------------------------------
2002 2001
---- ----
Revenue $ 429,182 $ 430,748
Operating Expenses:
Divisional operating expenses (excludes non-cash compen-
sation expense of $1,460 and $2,394, respectively) 247,219 251,936
Non-cash compensation expense 1,460 2,394
Depreciation and amortization 16,610 262,077
Corporate expenses 17,864 11,868
----------------- -----------------
Operating income (loss) 146,029 (97,527)
Interest expense 32,111 47,126
Gain (loss) on sale of assets -- 2,789
Gain (loss) on marketable securities 3,991 (35,359)
Other income (expense) - net 6,387 (1,879)
----------------- -----------------
Income (loss) before income taxes and cumulative effect of a
change in accounting principle 124,296 (179,102)
Income tax benefit (expense) (50,340) 38,072
----------------- -----------------
Income (loss) before cumulative effect of a change in
accounting principle 73,956 (141,030)
Cumulative effect of a change in accounting principle (9,379,265) --
----------------- -----------------
Net loss (9,305,309) (141,030)
Other comprehensive income (loss), net of tax: Unrealized gain (loss) on
securities:
Unrealized holding gain (loss) arising during period 1,470 (11,300)
Reclassification adjustment for (gains)
losses included in net income (loss) (2,475) 22,983
----------------- -----------------
Comprehensive loss $ (9,306,314) $ (129,347)
----------------- -----------------
See Notes to Consolidated Financial Statements
-5-
AMFM OPERATING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended March 31,
--------------------------------------
2002 2001
---- ----
Net cash provided by (used in) operating activities $ 181,199 $ (288,982)
Cash flows from investing activities:
(Investment in) liquidation of restricted cash -- 311,094
Proceeds from divestitures placed in restricted cash -- 3,000
Proceeds from sale of marketable securities 11,827 275,634
Purchases of property, plant and equipment (5,090) (25,767)
Proceeds from disposal of assets -- 1,305
Acquisitions of operating assets (5,042) (423)
Acquisition of radio stations with restricted cash -- (185,532)
Other (135) 1,483
----------------- ----------------
Net cash provided by investing activities 1,560 380,794
Cash flows from financing activities:
Payments on Clear Channel promissory note (35,222) (104,256)
Payments on long-term debt (151,258) --
----------------- ----------------
Net cash used by financing activities (186,480) (104,256)
Increase (decrease) in cash and cash equivalents (3,721) (12,444)
Cash and cash equivalents at beginning of period 11,352 18,502
----------------- ----------------
Cash and cash equivalents at end of period $ 7,631 $ 6,058
----------------- ----------------
See Notes to Consolidated Financial Statements
-6-
AMFM OPERATING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: PREPARATION OF INTERIM FINANCIAL STATEMENTS
AMFM Operating Inc., (the "Company") together with its subsidiaries, is an
indirect, wholly-owned subsidiary of Clear Channel Communications, Inc., ("Clear
Channel") a diversified media company with operations in radio broadcasting,
outdoor advertising and live entertainment.
The consolidated financial statements have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission ("SEC")
and, in the opinion of management, include all adjustments (consisting of normal
recurring accruals and adjustments necessary for adoption of new accounting
standards) necessary to present fairly the results of the interim periods shown.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such SEC rules and regulations.
Management believes that the disclosures made are adequate to make the
information presented not misleading. Due to seasonality and other factors, the
results for the interim periods are not necessarily indicative of results for
the full year. The financial statements contained herein should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 2001 Annual Report on Form 10-K.
The consolidated financial statements include the accounts of the Company and
its subsidiaries, the majority of which are wholly-owned. All significant
intercompany transactions are eliminated in the consolidation process. Certain
reclassifications have been made to the 2001 consolidated financial statements
to conform to the 2002 presentation.
Note 2: RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Company adopted Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets ("Statement
144"). Statement 144 supersedes Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business. Statement
144 also amends ARB No. 51, Consolidated Financial Statements, to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. Adoption of Statement 144 had no impact on the financial position of
the Company or its results of operations.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections
("Statement 145"). Statement 145 rescinds FASB Statement No. 4, Reporting Gains
and Losses from Extinguishment of Debt, and an amendment of that Statement, and
FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. Statement 145 also rescinds FASB Statement No. 44, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. Statement 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. Early adoption of
Statement 145 is encouraged and may be as of the beginning of the fiscal year or
as of the beginning of the interim period in which the statement issued. The
Company has elected to early adopt this statement effective January 1, 2002.
Management does not believe adoption of this statement materially impacted the
Company's financial position or results of operations.
-7-
Note 3: INTANGIBLE ASSETS AND GOODWILL
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets ("Statement 142").
Statement 142 addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes APB Opinion No. 17, Intangible
Assets. Under the new rules, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized but are subject to annual impairment
tests in accordance with the statement. Other intangible assets will continue to
be amortized over their useful lives.
The following table presents the impact of Statement 142 on earnings net (loss)
as if the standard had been in effect for the three months ended March 31, 2001:
(In thousands)
For the quarter ended
March 31, 2001
--------------
Adjusted Net Income (Loss):
Reported Net Loss $ (141,030)
Add Back: Goodwill Amortization 70,830
Add Back: License Amortization 168,985
Tax Impact (64,214)
---------------
Adjusted Net Income $ 34,571
---------------
Definite-lived Intangibles
The Company has representation contracts for non-affiliated television and radio
stations, which continue to be amortized in accordance with Statement 142. These
agreements are amortized over their respective lives. In accordance with the
transitional requirements of Statement 142, the Company reassessed the useful
lives of these intangibles and made no material changes to their useful lives.
Total amortization expense from representation contracts for the three months
ended March 31, 2002 and for the year ended December 31, 2001 was $4.3 million
and $15.4 million, respectively. The following table presents the Company's
estimate of amortization expense for each of the five succeeding fiscal years
for definite-lived intangibles as of January 1, 2002:
(In thousands)
2003 $ 19,561
2004 18,050
2005 17,907
2006 16,127
2007 11,709
Indefinite-lived Intangibles
Under the guidance in Statement 142, the Company's FCC licenses are considered
indefinite-lived intangibles. These assets are not subject to amortization, but
will be tested for impairment at least annually.
In accordance with Statement 142, the Company tested these indefinite-lived
intangible assets for impairment as of January 1, 2002 by comparing their fair
value to their carrying value at that date. The Company recognized impairment on
FCC licenses of approximately $5.5 billion, net of tax of $3.4 billion, recorded
as a component of the cumulative effect of a change in accounting principle
during the three months ended March 31, 2002. The Company used the income
approach to value FCC licenses, which involved estimating expected future cash
flows from the licenses, discounted to their present value using a risk-adjusted
discount rate. Terminal values were also estimated and discounted to their
present value. In estimating future cash flows, the Company took into account
the economic slow down in the radio industry at the end of 2001, coupled with
the economic impact of the events of September 11th.
-8-
Goodwill
Statement 142 requires the Company to test goodwill for impairment using a
two-step process. The first step is a screen for potential impairment, while the
second step measures the amount of impairment. The Company completed the
two-step impairment test during the first quarter of 2002. As a result of this
test, the Company recognized an impairment of approximately $3.9 billion as a
component of the cumulative effect of a change in accounting principle during
the three months ended March 31, 2002. Consistent with the Company's approach to
fair value FCC licenses, the income approach was used to determine the fair
value of the Company's reporting unit. Throughout 2001, unfavorable economic
conditions persisted in the industries that the Company serves, which caused its
customers to reduce the number of advertising dollars spent on the Company's
media inventory as compared to prior periods. These conditions adversely
impacted the cash flow projections used to determine the fair value of the
Company's reporting unit, resulting in a write-off of a portion of goodwill. The
following table presents the changes in the carrying amount of goodwill in the
Company's radio segment for the three-month period ending March 31, 2002:
(In thousands)
Balance as of December 31, 2001 $ 6,744,779
Adjustments (61,141)
Impairment loss related to the
adoption of FAS 142 (3,886,921)
-------------
Balance as of March 31, 2002 $ 2,796,717
-------------
Other
Statement 142 does not change the requirements of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, for recognition of
deferred taxes related to FCC licenses and tax-deductible goodwill. As a result
of adopting Statement 142, a deferred tax benefit for the difference between
book and tax amortization on the Company's FCC licenses and tax-deductible
goodwill will no longer be recognized as these assets are no longer amortized
for book purposes. As the majority of the Company's deferred tax liability
recorded on the balance sheet relates to the difference between book and tax
basis on FCC licenses, the current deferred tax liability will not reverse over
time unless future impairment charges are recognized on FCC licenses or the FCC
licenses are sold.
Prior to adopting Statement 142, the Company recorded large amounts of
non-deductible goodwill amortization, which resulted in a corresponding large
permanent tax item, which adversely impacted the Company's effective tax rate.
However, as a result of the Company's adoption of Statement 142, it no longer
amortizes goodwill for book or tax purposes, thus its effective tax rate more
closely approximates statutory tax rates.
Note 4: RESTRUCTURING
The combined company restructured the former AMFM operations primarily during
2001. The Company communicated to all affected employees the last date of their
employment. The AMFM corporate offices in Dallas and Austin, Texas were closed
on March 31, 2001 and other operations of AMFM have either been discontinued or
integrated into existing similar operations of Clear Channel. As of March 31,
2002, the restructuring has resulted in the actual or pending termination of 430
employees. The Company has recorded a liability in purchase accounting primarily
related to severance for terminated employees and lease terminations as follows:
(In thousands)
March 31,
2002
-----------------
Severance and lease termination costs:
Accrual at January 1 $ 36,310
Payments charged against restructuring accrual (2,123)
-----------------
Remaining severance and lease termination accrual $ 34,187
-----------------
The remaining severance and lease accrual is comprised of $25.6 million of
severance and $8.6 million of lease termination. The severance accrual will be
-9-
paid over the next several years. The lease termination accrual will be paid
over the next five years. During the first quarter of 2002, $1.7 million was
paid and charged to the restructuring reserve related to severance. As the
Company made adjustments to finalize the purchase price allocation related to
the AMFM merger during 2001, any potential excess reserves will be recorded as
an adjustment to the purchase price.
Note 5: CLEAR CHANNEL PROMISSORY NOTE AND LONG-TERM DEBT
Long-term debt consists of the following:
(In millions)
March 31, December 31,
2002 2001
---- ----
Clear Channel Promissory Note $ 452.0 $ 487.2
--------- ---------
Long-Term Debt:
8% Senior Notes 692.8 693.4
8.125% Notes 382.1 382.7
8.75% Notes 195.6 196.0
12.625% Notes -- 157.1
Other -- .5
--------- ---------
1,270.5 1,429.7
Less: Current portion -- 157.6
--------- ---------
Total long-term debt (a) $1,270.5 $1,272.1
--------- ---------
(a) Includes $49.6 million and $66.5 million as of March 31, 2002 and December
31, 2001, respectively, in unamortized fair value purchase accounting
adjustments related to the merger with Clear Channel.
Clear Channel Promissory Note
- -----------------------------
The promissory note bears interest at 7% per annum. Accrued interest plus the
note balance is payable on August 30, 2010 or upon demand. The Company is
entitled to borrow additional funds and to repay outstanding borrowings, subject
to the terms of the promissory note.
8% Senior Note
- --------------
On November 17, 1998, the Company issued $750.0 million aggregate principal
amount of 8% Senior Notes due 2008 (the "8% Senior Notes"). Interest on the 8%
Senior Notes is payable semiannually, commencing on May 1, 1999. The 8% Senior
Notes mature on November 1, 2008 and are redeemable, in whole or in part, at the
option of the Company at a redemption price equal to 100% plus the Applicable
Premium (as defined in the indenture governing the 8% Senior Notes) plus accrued
and unpaid interest.
8.125% Note
- -----------
On December 22, 1997, the Company issued $500.0 million aggregate principal
amount of 8.125% Senior Subordinated Notes due 2007 (the "8.125% Notes").
Interest on the 8.125% Notes is payable semiannually, commencing on June 15,
1998. The 8.125% Notes mature on December 15, 2007 and are redeemable, in whole
or in part, at the option of the Company on or after December 15, 2002, at
redemption prices ranging from 104.063% at December 15, 2002 and declining to
100% on or after December 15, 2005, plus in each case accrued and unpaid
interest.
-10-
8.75% Note
- ----------
Upon consummation of the merger with Chancellor Broadcasting Company on
September 5, 1997, the Company assumed Chancellor Radio Broadcasting Company's
$200.0 million aggregate principal amount of 8.75% Senior Subordinated Notes due
2007 (the "8.75% Notes"). Interest on the 8.75% Notes is payable semiannually,
commencing on December 15, 1997. The 8.75% Notes mature on June 15, 2007 and are
redeemable, in whole or in part, at the option of the Company on or after June
15, 2002, at redemption prices ranging from 104.375% at June 15, 2002 and
declining to 100% on or after June 15, 2005, plus in each case accrued and
unpaid interest. In addition, prior to June 15, 2000, the Company may redeem up
to 25% of the original aggregate principal amount of the 8.75% Notes at a
redemption price of 108.75% plus accrued and unpaid interest with the net
proceeds of one or more public equity offerings.
12.625% Note
- ------------
On November 12, 1999, AMFM Operating completed a consent solicitation to modify
certain timing restrictions on its ability to exchange all shares of its 12.625%
Series E cumulative exchangeable preferred stock for its 12.625% Senior
Subordinated Exchange Debentures due 2006. Consenting holders of 12.625% Series
E cumulative exchangeable preferred stock received payments of $0.25 per share
of 12.625% Series E cumulative exchangeable preferred stock. On November 23,
1999, the Company exchanged all of the shares of its 12.625% Series E cumulative
exchangeable preferred stock for $143.1 million in aggregate principal amount of
its 12.625% Senior Subordinated Exchange Debentures due 2006 (the "12.625%
Notes"). Interest on the 12.625% Notes is payable semiannually, commencing on
January 15, 2000.
On January 15, 2002, the Company redeemed all of the outstanding 12.625%
Exchange Debentures due 2006, originally issued under the Company's prior name,
SFX Broadcasting, Inc. At December 31, 2001 the face value of these notes was
$141.8 million and the unamortized fair value purchase accounting adjustment
premium was $15.3 million. The debentures were redeemed for $150.8 million plus
accrued interest. The redemption resulted in a gain of $6.3 million recorded in
other income (expense) - net.
Other
- -----
Upon the occurrence of a change in control (as defined in the indenture
governing the 8.0%, 8.125% and 8.75% Notes (the "Notes"), the holders of the
Notes have the right to require the Company to repurchase all or any part of the
Notes at a purchase price equal to 101% plus accrued and unpaid interest.
Although the Clear Channel merger resulted in a change of control with respect
to the Notes, the repurchase option has expired.
AMFM Operating's 8.75% Notes and 8.125% Notes (collectively, the "Subordinated
Notes") are unsecured obligations of AMFM Operating. The Subordinated Notes are
subordinated in right of payment to all existing and any future senior
indebtedness of AMFM Operating. The Subordinated Notes are fully and
unconditionally guaranteed, on a joint and several basis, by all of AMFM
Operating's direct and indirect subsidiaries (the "Subsidiary Guarantors"). In
addition, AMFM Operating's independent assets and operations are insignificant,
as the majority of the assets and all of the operations are at the level of the
Subsidiary Guarantors. Additionally, all of the Subsidiary Guarantors are 100%
owned by the Company.
The 8% Senior Notes are senior unsecured obligations of AMFM Operating and rank
equal in right of payment to the obligations of AMFM Operating and all other
indebtedness of AMFM Operating not expressly subordinated to the 8% Senior
Notes. The 8% Senior Notes are fully and unconditionally guaranteed, on a joint
and several basis, by the Subsidiary Guarantors.
AMFM Operating's 8% Senior Notes and the Subordinated Notes contain customary
restrictive covenants, which, among other things and with certain exceptions,
limit the ability of the Company to incur additional indebtedness and liens in
connection therewith, enter into certain transactions with affiliates, pay
dividends, consolidate, merge or effect certain asset sales, issue additional
stock, effect an asset swap and make acquisitions.
The Company has no scheduled maturities of long-term debt until 2006.
-11-
Note 6: COMMITMENTS AND CONTINGENCIES
In September 1998, a stockholder class action complaint was filed in the
Delaware Court of Chancery by a stockholder purporting to act individually and
on behalf of all other persons, other than defendants, who own securities of
AMFM and are similarly situated. The defendants named in the case were AMFM,
Hicks, Muse, Tate & Furst Incorporated, Thomas O. Hicks, Jeffrey A. Marcus,
James E. de Castro, Eric C. Neuman, Lawrence D. Stuart, Jr., Steven Dinetz,
Thomas J. Hodson, Perry Lewis, John H. Massey and Vernon E. Jordan, Jr. The
plaintiff alleged breach of fiduciary duties, gross mismanagement, gross
negligence or recklessness, and other matters relating to the defendants'
actions in connection with the Capstar Broadcasting Corporation merger. The
plaintiff sought to certify the complaint as a class action, enjoin consummation
of the Capstar Broadcasting Corporation merger, order defendants to account to
plaintiff and other alleged class members for damages, and award attorneys' fees
and other costs. The court has dismissed this complaint without prejudice.
There are various lawsuits and claims pending against the Company. The Company
believes that any ultimate liability resulting from those actions or claims will
not have a material adverse effect on the results of operations, financial
position or liquidity of the Company.
Note 7: SEGMENT DATA
The Company has one reportable operating segment - radio broadcasting. The
Company's media representation firm is reported in "other". Revenue and expenses
earned and charged between segments are recorded at fair value and eliminated in
consolidation.
(In thousands)
Radio
Broadcasting Other Corporate Eliminations Consolidated
------------ ----- --------- ------------ ------------
Quarter ended March 31, 2002
- ----------------------------
Revenue $ 394,953 $ 40,452 $ -- $(6,223) $ 429,182
Divisional operating expenses 214,076 39,366 -- (6,223) 247,219
Non-cash compensation 1,460 -- -- -- 1,460
Depreciation and amortization 10,111 5,691 808 -- 16,610
Corporate expenses -- -- 17,864 -- 17,864
----------- -------- -------- ------- -----------
Operating income $ 169,306 $ (4,605) $(18,672) $ -- $ 146,029
----------- -------- -------- ------- -----------
Identifiable assets $10,840,973 $292,562 $ 82,206 $ -- $11,215,741
Quarter ended March 31, 2001
- ----------------------------
Revenue $ 388,698 $ 46,839 $ -- $(4,789) $ 430,748
Divisional operating expenses 214,947 41,778 -- (4,789) 251,936
Non-cash compensation 2,394 -- -- -- 2,394
Depreciation and amortization 257,224 3,784 1,069 -- 262,077
Corporate expenses -- -- 11,868 -- 11,868
----------- -------- -------- ------- -----------
Operating income (loss) $ (85,867) $ 1,277 $(12,937) $ -- $ (97,527)
----------- -------- -------- ------- -----------
Identifiable assets $24,372,464 $267,713 $778,376 $ -- $25,418,553
-12-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Abbreviated pursuant to General Instruction H(2)(a) of Form 10-Q)
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 2002 to Three Months Ended March 31,
2001 is as follows:
Consolidated
(In thousands)
Three Months Ended March 31,
---------------------------- % Change
2002 2001 2002 v. 2001
---- ---- ------------
Revenue $ 429,182 $ 430,748 0%
Divisional Operating Expenses 247,219 251,936 (2%)
Revenue was essentially flat quarter over quarter as a result of the
economic recession that persisted throughout 2001 and its impact on advertising
dollars spent on national and local radio advertisements. This decreased demand
for our advertising inventory and negatively impacted the rates we charged for
this inventory throughout 2001. During the later half of 2001, we hired
additional sales people and reorganized our radio segment into trading zones
where our clients can match their trading area to our radio assets.
Additionally, our market clusters benefited from strong ratings and share gains
in some of the markets where we compete. Management believes this
reorganization, combined with strong ratings and sequential improvement in the
radio industry, will lead to the return of demand for our advertising inventory
during 2002.
Divisional operating expenses decreased $4.7 million in the first quarter
of 2002 compared to the same period of 2001 as a result of cost control measures
implemented by management during 2002. These measures resulted in reductions in
promotional related spending within our radio markets during the first quarter
of 2002.
Other Income and Expense Information
Non-cash compensation expense of $1.5 million was recorded during the three
months ended March 31, 2002 due to unvested stock options granted to AMFM
employees that have been assumed by Clear Channel and that are now convertible
into Clear Channel stock. To the extent that these employees' options continue
to vest post-merger, we recognize non-cash compensation expense over the
remaining vesting period. Vesting dates range from January 2002 to April 2005.
If no employees forfeit their unvested options by leaving the company, we expect
to recognize non-cash compensation expense of approximately $6.6 million during
the remaining vesting period.
Depreciation and amortization expense decreased from $262.1 for the first
three months of 2001 to $16.6 for the first three months of 2002, a 94%
decrease. Upon our adoption of FAS 142 on January 1, 2002, we no longer amortize
goodwill and FCC licenses. For the three months ended March 31, 2001, goodwill
and FCC license amortization was approximately $239.8 million.
Corporate expenses increased $6.0 million from $11.9 million to $17.9
million for the three months ended March 31, 2001 and 2002, respectively due to
Clear Channel's methodology of allocating corporate expense, which is based on
head count.
Interest expense was $32.1 million and $47.1 million for the three months
ended March 31, 2002 and 2001, respectively. The decrease is due to the January
15, 2002 redemption of all of the outstanding 12.625% Exchange Debentures due
2006 as well as a decrease in the balance of the Clear Channel Promissory Note.
The gain on sale of marketable securities for the three months ended March
31, 2002 of $4.0 million is related to the sale of 791,000 shares of Entravision
Corporation.
Income tax expense was $50.3 million for the first quarter of 2002 compared
to a benefit of $38.1 million for the first three months of 2001. Income taxes
for the three months ended March 31, 2002 and 2001 were provided
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at the federal and state statutory rates adjusted for the effects of permanent
tax items. During the quarter ended March 31, 2001, as a result of our large
amounts of non-deductible goodwill amortization, our effective tax rate was
adversely impacted. As we no longer amortize goodwill, our effective rate for
the three months ended March 31, 2002, more closely approximates our statutory
tax rates.
Income (loss) before cumulative effect of a change in accounting principle
for the three months ended March 31, 2002 and 2001 was income of $74.0 million
and a loss of $141.0 million, respectively. Income (loss) before cumulative
effect of a change in accounting principle for the three months ended March 31,
2001, if we had adopted Statement 142 as of January 1, 2001, would have been
income of $34.6 million.
The loss recorded as a cumulative effect of a change in accounting
principle during the first three months of 2002 relates to our adoption of
Statement 142 on January 1, 2002. Statement 142 requires us to test goodwill and
indefinite-lived intangibles for impairment using a fair value approach. As a
result of the goodwill test, we recorded a non-cash impairment charge of
approximately $3.9 billion. Also, as a result of the indefinite-lived intangible
test, we recorded a non-cash, net of tax impairment charge on our FCC licenses
of approximately $5.5 billion.
The non-cash impairments of our goodwill and FCC licenses were primarily
caused by unfavorable economic conditions, which persisted in the industries we
serve throughout 2001. This weakness contributed to our customers reducing the
number of advertising dollars spent on our media inventory. These conditions
adversely impacted the cash flow projections used to determine the fair value of
our licenses and reporting unit. These factors resulted in the non-cash
impairment charge of a portion of our licenses and goodwill.
Risks Regarding Forward Looking Statements
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Except for the historical information, this report contains various
forward-looking statements that represent our expectations or beliefs concerning
future events, including the future levels of cash flow from operations.
Management believes that all statements that express expectations and
projections with respect to future matters, including the strategic fit of radio
assets; are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. We caution that these forward-looking
statements involve a number of risks and uncertainties and are subject to many
variables that could have an adverse effect upon our financial performance.
These statements are made on the basis of management's views and assumptions, as
of the time the statements are made, regarding future events and business
performance. There can be no assurance, however, that management's expectations
will necessarily come to pass.
A wide range of factors could materially affect future developments and
performance, including:
o the impact of general economic conditions and political developments in the
U.S. and in other countries in which we currently do business;
o competition and general conditions in the radio broadcasting industry;
o shifts in population and other demographics;
o fluctuations in operating costs;
o technological changes and innovations;
o changes in labor conditions;
o capital expenditure requirements;
o legislative or regulatory requirements, including the policies of the FCC,
DOJ and FTC with respect to the conduct of our business and, the
consummation of future or pending acquisitions;
o interest rates;
o the effect of leverage on our financial position and earnings;
o taxes; and
o certain other factors set forth in our SEC filings.
This list of factors that may affect future performance and the accuracy of
forward-looking statements is illustrative, but by no means exhaustive.
Accordingly, all forward-looking statements should be evaluated with the
understanding of their inherent uncertainty.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Omitted pursuant to General Instruction H(2)(c) of Form 10-Q.
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Part II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See Exhibit Index on Page 17
(b) Reports on Form 8-K
NONE
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMFM OPERATING INC.
Date May 14, 2002 /s/ Herbert W. Hill, Jr.
Herbert W. Hill, Jr.
Senior Vice President and
Chief Accounting Officer
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INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
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3.1(1) -- Amended and Restated Certificate of Incorporation of AMFM Operating Inc.
3.2(2) -- Bylaws of AMFM Operating Inc.
4.1(3) -- Certificate of Designation for 12 5/8% Series E Cumulative Exchangeable Preferred Stock of AMFM
Operating Inc.
4.2(4) -- Certificate of Amendment to Certificate of Designation for 12 5/8% Series E Cumulative
Exchangeable Preferred Stock of AMFM Operating Inc.
4.3(5) -- Indenture, dated as of November 19, 1999, governing the 12 5/8% Senior Subordinated Exchange
Debentures due 2006, of AMFM Operating Inc.
4.4(6) -- Indenture, dated as of June 24, 1997, governing the 8 3/4% Senior Subordinated Notes due 2007 of
AMFM Operating Inc. (the "8 3/4% Notes Indenture").
4.5(7) -- First Supplemental Indenture, dated as of September 5, 1997, to the 8 3/4% Notes Indenture.
4.6(8) -- Second Supplemental Indenture, dated as of October 28, 1997, to the 8 3/4% Notes Indenture.
4.7(8) -- Third Supplemental Indenture, dated as of August 23, 1999, to the 8 3/4% Notes Indenture.
4.8(8) -- Fourth Supplemental Indenture, dated as of November 19, 1999, to the 8 3/4% Notes Indenture.
4.9(8) -- Fifth Supplemental Indenture, dated as of January 18, 2000, to the 8 3/4% Notes Indenture.
4.10(9) -- Indenture, dated as of December 22, 1997, governing the 8 1/8% Senior Subordinated Notes due
2007 of AMFM Operating Inc. (the "8 1/8% Notes Indenture").
4.11(8) -- First Supplemental Indenture, dated as of August 23, 1999, to the 8 1/8% Notes Indenture.
4.12(8) -- Second Supplemental Indenture, dated as of November 19, 1999, to the 8 1/8% Notes Indenture.
4.13(8) -- Third Supplemental Indenture, dated as of January 18, 2000, to the 8 1/8% Notes Indenture.
4.14(10) -- Indenture, dated as of November 17, 1998, governing the 8% Senior Notes due 2008 of AMFM
Operating Inc. (the "8% Notes Indenture").
4.15(8) -- First Supplemental Indenture, dated as of August 23, 1999, to the 8% Notes Indenture.
4.16(8) -- Second Supplemental Indenture, dated as of November 19, 1999, to the 8% Notes Indenture.
4.17(8) -- Third Supplemental Indenture, dated as of January 18, 2000, to the 8% Notes Indenture.
4.18(11) -- Intercompany Promissory Note between AMFM Operating Inc. and Clear Channel Communications, Inc.
dated August 30, 2000.
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(1) Incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form
10-Q of Capstar Communications, Inc. for the quarterly period ending June
30, 1999.
(2) Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K
of Capstar Communications, Inc. for the year ended December 31, 1998.
(3) Incorporated by reference to Exhibits to the Current Report on Form 8-K of
SFX Broadcasting, Inc., filed on January 27, 1997.
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(4) Incorporated by reference to Exhibits to SFX Broadcasting, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997.
(5) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of AMFM Operating Inc. filed on November 19, 1999.
(6) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company filed on July 17, 1997.
(7) Incorporated by reference to Exhibits to CMCLA's Registration Statement on
Form S-4, initially filed on September 26, 1997, as amended (Registration
Number 333-36451).
(8) Incorporated by reference to Exhibits to the Annual Report on Form 10-K of
AMFM Inc. for the year ended December 31, 1999.
(9) Incorporated by reference to Exhibits to CMCLA's Registration Statement on
Form S-4, initially filed on April 22, 1998, as amended (Registration
Number 333-50739).
(10) Incorporated by reference to Exhibits to CMCLA's Registration Statement on
Form S-4, initially filed on November 9, 1998, as amended (Registration
Number 333-66971).
(11) The Company has not filed long-term debt instruments where the total amount
under such instruments is less than ten percent of the total assets of the
Company and its subsidiaries on a consolidated basis. However, the Company
will furnish a copy of such instruments to the Commission upon request.
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