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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 June 30, 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 August 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 June 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations for the six and three months ended June 30, 2002 and 2001 5
Consolidated Statements of Cash Flows for the six months ended June 30, 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)
June 30, December 31,
2002 2001
-------------- --------------
Current Assets
Cash and cash equivalents $ -- $ 11,352
Accounts receivable, less allowance of $17,130 at
June 30, 2002 and $12,883 at December 31, 2001 439,625 404,778
Prepaid expense 13,252 15,124
Other current assets 24,688 28,017
-------------- --------------
Total Current Assets 477,565 459,271
Property, Plant and Equipment
Land, buildings and improvements 173,815 175,814
Transmitter and studio equipment 247,190 240,525
Furniture and other equipment 100,678 97,510
Construction in progress 23,615 19,109
-------------- --------------
545,298 532,958
Less accumulated depreciation (79,013) (54,636)
-------------- --------------
466,285 478,322
Intangible Assets
Definite-lived intangibles, net 163,974 166,662
Indefinite-lived intangibles - licenses 7,285,903 16,146,201
Goodwill 2,796,775 6,744,779
Other Assets
Other assets 50,294 50,712
Other investments 39,884 49,256
-------------- --------------
Total Assets $ 11,280,680 $ 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)
June 30, December 31,
2002 2001
-------------- --------------
Current Liabilities
Accounts payable $ 38,179 $ 34,569
Accrued interest 10,712 18,890
Accrued expenses 104,197 178,540
Accrued income taxes payable to Clear Channel 186,805 94,615
Deferred income 2,205 --
Current portion of long-term debt -- 157,595
-------------- --------------
Total Current Liabilities 342,098 484,209
Long-term debt 1,268,894 1,272,133
Clear Channel promissory note 295,027 487,190
Deferred income taxes 1,692,021 4,994,595
Other long-term liabilities 134,158 133,255
Shareholder's Equity
Common stock 1 1
Additional paid-in capital 17,346,238 17,346,238
Retained deficit (9,797,757) (623,423)
Accumulated other comprehensive income (loss) -- 1,005
-------------- --------------
Total shareholder's equity 7,548,482 16,723,821
-------------- --------------
Total Liabilities and Shareholder's Equity $ 11,280,680 $ 24,095,203
-------------- --------------
See Notes to Consolidated Financial Statements
-4-
AMFM OPERATING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands)
Six Months Ended June 30, Three Months Ended June 30,
------------------------- ---------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenue $ 969,436 $ 952,290 $ 540,254 $ 521,542
Operating expenses:
Divisional operating expenses (excludes non-cash compensation
expenses of $2,777, $8,264, $1,317 and $5,870 for the six
months ended and three months ended June 30, 2002 and 2001,
respectively) 524,307 525,778 277,088 273,842
Non-cash compensation expense 2,777 8,264 1,317 5,870
Depreciation and amortization 33,947 519,976 17,337 257,899
Corporate expenses 25,112 23,064 7,248 11,196
------------ ----------- ----------- ----------
Operating income (loss) 383,293 (124,792) 237,264 (27,265)
Interest expense 61,775 96,489 29,664 49,363
Gain (loss) on sale of assets -- (1,491) -- (4,280)
Gain (loss) on marketable securities 3,991 (86,359) -- (51,000)
Other income (expense) - net 18,913 800 12,526 2,679
------------ ----------- ----------- ----------
Income (loss) before income taxes and cumulative effect of a change in 344,422 (308,331) 220,126 (129,229)
accounting principle
Income tax (expense) benefit (139,491) 61,318 (89,151) 23,246
------------ ----------- ----------- ----------
Income (loss) before cumulative effect of a change in accounting 204,931 (247,013) 130,975 (105,983)
principle
Cumulative effect of a change in accounting principle (9,379,265) -- -- --
------------ ----------- ----------- ----------
Net income (loss) (9,174,334) (247,013) 130,975 (105,983)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) arising during period 1,470 52,613 -- 63,913
Reclassification adjustment for (gains) losses included in net
income (loss) (2,475) 54,579 -- 31,596
------------ ----------- ----------- ----------
Comprehensive income (loss) $ (9,175,339) $ (139,821) $ 130,975 $ (10,474)
------------ ----------- ----------- ----------
See Notes to Consolidated Financial Statements
-5-
AMFM OPERATING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended June 30,
-----------------------------
2002 2001
---- ----
Net cash provided by (used in) operating activities $ 341,863 $ (153,940)
Cash flows from investing activities:
(Investment in) liquidation of restricted cash -- 318,811
Proceeds from divestitures placed in restricted cash -- 3,000
Proceeds from sale of marketable securities 11,827 595,634
Purchases of property and equipment (16,454) (11,933)
Proceeds from disposal of assets -- 11,667
Acquisitions of operating assets (5,029) (307)
Acquisition of radio stations with restricted cash -- (191,279)
Other (139) 36,910
---------- ----------
Net cash (used in) provided by investing activities (9,795) 762,503
Cash flows from financing activities:
Payments on Clear Channel promissory note (192,163) (609,551)
Payments on long-term debt (151,257) --
---------- ----------
Net cash used in financing activities (343,420) (609,551)
Increase (decrease) in cash and cash equivalents (11,352) (988)
Cash and cash equivalents at beginning of period 11,352 18,502
---------- ----------
Cash and cash equivalents at end of period $ -- $ 17,514
---------- ----------
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, all 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, 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 six and three months ended June
30, 2001:
(In thousands)
Six months Three months
ended ended
June 30, 2001 June 30, 2001
------------- -------------
Adjusted Net Income (Loss):
Reported Net Loss $ (247,013) $ (105,983)
Add Back: Goodwill Amortization 141,760 70,930
Add Back: License Amortization 340,203 171,218
Tax Impact (129,277) (65,063)
------------------------------
Adjusted Net Income $ 105,673 $ 71,102
------------------------------
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 and six
months ended June 30, 2002 and for the year ended December 31, 2001 was $5.0
million, $9.3 million and $15.4 million, respectively. The gross carrying value
of the contracts at June 30, 2002 was $188.8 million and accumulated
amortization was $24.8 million. The gross carrying value of the contracts at
December 31, 2001 was $185.7 million and accumulated amortization was $19.0
million. The following table presents the Company's estimate of amortization
expense for each of the five succeeding fiscal years for definite-lived
intangible assets:
(In thousands)
2003 $ 18,874
2004 17,048
2005 16,913
2006 15,232
2007 11,059
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 deferred 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
-8-
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.
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 valuing 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 for the
six-month period ended June 30, 2002:
(In thousands)
Balance as of December 31, 2001 $ 6,744,779
Adjustments (61,083)
Impairment loss related to the
adoption of FAS 142 (3,886,921)
------------
Balance as of June 30, 2002 $ 2,796,775
------------
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 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 June 30,
2002, the restructuring has resulted in the 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)
Severance and lease termination costs:
Accrual at January 1, 2002 $ 36,310
Payments charged against restructuring accrual (4,114)
------------
Remaining severance and lease termination accrual at June 30, 2002 $ 32,196
------------
-9-
The remaining severance and lease accrual is comprised of $23.8 million of
severance and $8.4 million of lease termination. The severance accrual will be
paid over the next several years. The lease termination accrual will be paid
over the next five years. During the first half of 2002, $3.4 million was paid
and charged to the restructuring reserve related to severance. 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
The Clear Channel promissory note and long-term debt consists of the
following:
(In millions)
June 30, December 31,
2002 2001
---- ----
Clear Channel Promissory Note $ 295.0 $ 487.2
----------- -------------
Long-Term Debt:
8% Senior Notes 692.2 693.4
8.125% Notes 381.5 382.7
8.75% Notes 195.2 196.0
12.625% Notes -- 157.1
Other -- .5
----------- -------------
1,268.9 1,429.7
Less: Current portion -- 157.6
----------- -------------
Total long-term debt (a) $ 1,268.9 $ 1,272.1
----------- -------------
(a) Includes $48.0 million and $66.5 million as of June 30, 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 Notes
On November 17, 1998, the Company issued $750.0 million aggregate principal
amount of 8% Senior Notes due 2008 (the "8% Senior Notes"). 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% Notes
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"). 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.
8.75% Notes
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"). 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
-10-
104.375% at June 15, 2002 and declining to 100% on or after June 15, 2005, plus
in each case accrued and unpaid interest.
12.625% Notes
On January 15, 2002, the Company redeemed all of the outstanding 12.625%
Debentures 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 12.625% 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.
We have guaranteed certain Clear Channel debt obligations, including a reducing
revolving long-term line of credit facility, a $1.5 billion five-year
multi-currency revolving credit facility and a $1.5 billion 364-day revolving
credit facility with outstanding balances at June 30, 2002 of $795.0 million,
$570.8 million and $0, respectively. At June 30, 2002, the contingent liability
under these guarantees was limited to $1.0 billion.
At June 30, 2002, the Company was in compliance with all debt covenants. The
Company expects to remain in compliance throughout 2002. The Company has no
scheduled maturities of long-term debt until 2007.
Note 6: COMMITMENTS AND CONTINGENCIES
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.
-11-
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
------------ ----- --------- ------------ ------------
Six months ended June 30, 2002
- ------------------------------
Revenue $ 894,003 $ 90,012 $ -- $ (14,579) $ 969,436
Divisional operating expenses 459,020 79,866 -- (14,579) 524,307
Non-cash compensation 2,777 -- -- -- 2,777
Depreciation and amortization 20,545 12,052 1,350 -- 33,947
Corporate expenses -- -- 25,112 -- 25,112
-------------- -------------- -------------- -------------- --------------
Operating income (loss) $ 411,661 $ (1,906) $ (26,462) $ -- $ 383,293
-------------- -------------- -------------- -------------- --------------
Identifiable assets $ 10,909,161 $ 291,548 $ 79,971 $ -- $ 11,280,680
Three months ended June 30, 2002
- --------------------------------
Revenue $ 499,050 $ 49,560 $ -- $ (8,356) $ 540,254
Divisional operating expenses 244,944 40,500 -- (8,356) 277,088
Non-cash compensation 1,317 -- -- -- 1,317
Depreciation and amortization 10,434 6,361 542 -- 17,337
Corporate expenses -- -- 7,248 -- 7,248
-------------- -------------- -------------- -------------- --------------
Operating income (loss) $ 242,355 $ 2,699 $ (7,790) $ -- $ 237,264
-------------- -------------- -------------- -------------- --------------
Six months ended June 30, 2001
- ------------------------------
Revenue $ 867,544 $ 96,776 $ -- $ (12,030) $ 952,290
Divisional operating expenses 456,081 81,727 -- (12,030) 525,778
Non-cash compensation 8,264 -- -- -- 8,264
Depreciation and amortization 368,624 7,894 143,458 -- 519,976
Corporate expenses -- -- 23,064 -- 23,064
-------------- -------------- -------------- -------------- --------------
Operating income (loss) $ 34,575 $ 7,155 $ (166,522) $ -- $ (124,792)
-------------- -------------- -------------- -------------- --------------
Identifiable assets $ 24,159,144 $ 263,526 $ 497,455 $ -- $ 24,920,125
Three months ended June 30, 2001
- --------------------------------
Revenue $ 478,846 $ 49,937 $ -- $ (7,241) $ 521,542
Divisional operating expenses 241,134 39,949 -- (7,241) 273,842
Non-cash compensation 5,870 -- -- -- 5,870
Depreciation and amortization 182,229 4,110 71,560 -- 257,899
Corporate expenses -- -- 11,196 -- 11,196
-------------- -------------- -------------- -------------- --------------
Operating income (loss) $ 49,613 $ 5,878 $ (82,756) $ -- $ (27,265)
-------------- -------------- -------------- -------------- --------------
-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 and Six Months Ended June 30, 2002 to Three and Six Months
Ended June 30, 2001 is as follows:
Consolidated
(In thousands)
Three Months Ended June 30, % Six Months Ended June 30, %
------------------------------ -----------------------------
2002 2001 Change 2002 2001 Change
---- ---- ------ ---- ---- ------
Revenue $ 540,254 $ 521,542 4% $ 969,436 $ 952,290 2%
Divisional Operating Expenses 277,088 273,842 1% 524,307 525,778 (0%)
Revenue increased $18.7 million and $17.1 million for the three and six
months ended June 30, 2002 as compared to the same periods of 2001,
respectively. During the six months ended June 30, 2002, we continued to see
positive effects from the increased number of sales and marketing people and
reorganization of our radio business that occurred during the latter part of
2001. These initiatives helped to create more demand on our advertising
inventory, which in turn has improved rates in some of our markets.
As we progressed through the first six months of the current year, we
experienced sequential improvement in radio revenues. This improvement was
partially spurred by the rebound in the radio industry as advertising dollars
continue to return to the medium. We believe we are poised to benefit from the
reorganization we initiated in our radio business and to take advantage of our
market leadership position.
Our revenue increased across all of our revenue categories, with national
and local revenue up 4% and 3%, respectively, in the second quarter of 2002 as
compared to the same period of the prior year. For the first six months of the
year, national and local revenue were up 3% and 1%, respectively, as compared to
the same time period of the prior year. These two categories represent
approximately 88% of our total radio revenue. We also saw growth in our barter
revenue during the second quarter of 2002.
Growth from our revenue derived from national advertising outpaced growth
from local advertising. Both categories benefited from the increased demand on
our advertising inventory that began during the first quarter of this year.
Similar with the first quarter of 2002, we continued to see improvement in
national accounts such as retail, consumer products, auto, telecom/utility, and
fast food.
Divisional operating expenses increased $3.2 million for the three months
ended June 30, 2002 as compared to the same period of 2001. This increase was
primarily due to increased expenses within our syndicated radio programs.
Divisional operating expenses decreased $1.5 million in the first six months of
2002 compared to the same period of 2001 as a result of reductions in
promotional related spending within our radio markets during the first six
months of 2002.
Other Income and Expense Information
Non-cash compensation expense relates 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 vary through April 2005. If no
employees forfeit their unvested options by leaving the company, we expect to
recognize non-cash compensation expense of approximately $5.0 million during the
remaining vesting period.
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Depreciation and amortization expense decreased $240.6 million and $486.0
million for the three and six months ended June 30, 2002 as compared to the same
periods of 2001, respectively. Upon our adoption of FAS 142 on January 1, 2002,
we no longer amortize goodwill and FCC licenses. For the three and six months
ended June 30, 2001, goodwill and FCC license amortization was approximately
$242.1 million and $482.0 million, respectively.
Corporate expenses increased $2.0 million for the six months ended June 30,
2002 from the same period of 2001, primarily resulting from additional sales
force hired in late 2001. Clear Channel's methodology of allocating corporate
expense is based on head count, thus increasing the corporate allocation.
Interest expense was $29.7 million and $49.4 million for the three months
ended June 30, 2002 and 2001 respectively, a decrease of $19.7 million, or 40%.
The decrease is due to the January 15, 2002 redemption of all of the outstanding
12.625% Debentures as well as a decrease in the balance of the Clear Channel
Promissory Note.
The gain on sale of marketable securities for the six months ended June 30,
2002 of $4.0 million is related to the sale of 791,000 shares of Entravision
Corporation.
Income tax expense was $89.2 million and $139.5 million for the three and
six months ended June 30, 2002, respectively, compared to a benefit of $23.2
million and $61.3 million for the three and six months ended June 30, 2001,
respectively. Income taxes for the six months ended June 30, 2002 and 2001 were
provided at the federal and state statutory rates adjusted for the effects of
permanent tax items. During the six months ended June 30, 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 six months ended June 30, 2002, more closely approximates our
statutory tax rates.
Income (loss) before cumulative effect of a change in accounting principle
for the three and six months ended June 30, 2002 was income of $131.0 million
and $204.9 million, respectively, as compared to loss of $106.0 million and
$247.0 million for the same periods of 2001, respectively. Income (loss) before
cumulative effect of a change in accounting principle for the three and six
months ended June 30, 2001, if we had adopted Statement 142 as of January 1,
2001, would have been income of $71.1 million and $105.7 million, respectively.
The loss recorded as a cumulative effect of a change in accounting
principle during the first six 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
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 expansion of market share;
availability of capital resources; and expected changes in radio industry
advertising revenues; 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
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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:
.. the impact of general economic conditions and political developments in the
U.S. and in other countries in which we currently do business;
.. competition and general conditions in the radio broadcasting industry;
.. shifts in population and other demographics;
.. fluctuations in operating costs;
.. technological changes and innovations;
.. changes in labor conditions;
.. capital expenditure requirements;
.. litigation settlements;
.. legislative or regulatory requirements, including the policies of the FCC,
DOJ and FTC with respect to the conduct of our business;
.. legislative proposals;
.. interest rates;
.. the effect of leverage on our financial position and earnings;
.. taxes; and
.. certain other factors set forth in our SEC filings, including our Annual
Report on Form 10-K for the year ended December 31, 2001.
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.
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.
August 13, 2002 /s/ RANDALL T. MAYS
------------------------
Randall T. Mays
Executive Vice President and
Chief Financial Officer
August 13, 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.
99.1 -- Certification of Chief Executive Officer and Chief Financial
Officer of AMFM Operating Inc.
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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.
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(3) Incorporated by reference to Exhibits to the Current Report on Form 8-K of
SFX Broadcasting, Inc., filed on January 27, 1997.
(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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