<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
December 22, 1997
(December 8, 1997)
Clear Channel Communications, Inc.
(Exact name of registrant as specified in its charter)
Texas
(State of Incorporation)
1-9645 74-1787536
(Commission File Number) (I.R.S. Employer Identification No.)
200 Concord Plaza, Suite 600
San Antonio, Texas 78216
(210) 822-2828
(Address and telephone number of principal executive offices)
<PAGE> 2
Clear Channel Communications, Inc.
Form 8-K
Item 2.(a)
On December 8, 1997, Clear Channel Communications, Inc. (the "Company" or
"Registrant") acquired, by purchase, substantially all of the assets of 43 of
Paxson Communications Corporation ("Paxson") radio stations in Florida and
Tennessee, six radio news and sports networks and approximately 350 advertising
display faces (collectively referred to as "Paxson Radio"). Paxson is not an
affiliate of the Registrant.
The assets acquired consist of items of broadcasting and technical equipment
utilized in the transmission of radio signals, Federal Communications
Commission licenses, real property serving as the site for broadcasting towers
and outdoor advertising display faces, and other items of personal property
associated with the continuing operations of the broadcast and outdoor
advertising facilities. In addition, the accounts receivable and other assets
existing as of the acquisition date pertaining to the operations were acquired.
The purchase price was determined based upon an arms-length negotiation
considering the potential cash flows to be generated by the assets acquired,
consideration of the markets in which the assets are located, management,
personnel, and the overall operation of the facilities as a going concern. As
consideration for the assets acquired, the Company paid cash of approximately
$629 million.
Sources of funds utilized in completing this acquisition were provided by the
Company's revolving long-term line of credit facility by and between
NationsBank of Texas, N.A., as agent, the Registrant and the banks named
therein.
Item 2.(b)
The assets acquired by the registrant's subsidiary were utilized by Paxson
Radio for the purpose of radio broadcasting and outdoor advertising. The
registrant intends to continue such use.
1
<PAGE> 3
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business acquired:
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
of Paxson Communications Corporation:
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and divisional equity and of cash flows
present fairly, in all material respects, the financial position of Paxson
Radio (a division of Paxson Communications Corporation) at December 31, 1996,
and the results of its operations and its cash flows for the year in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the management of Paxson Communications Corporation; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
- -------------------------
PRICE WATERHOUSE LLP
Fort Lauderdale, Florida
November 3, 1997
2
<PAGE> 4
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
COMBINED BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable, less allowance for doubtful accounts of $632,377 $ 20,380,361
Prepaid expenses and other current assets 938,676
------------
Total current assets 21,319,037
Property and equipment, net 43,561,165
Intangible assets, net 100,006,662
Investments in broadcast properties 4,985,141
Other assets 8,631,188
------------
Total assets $178,503,193
------------
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 5,065,524
Accrued interest 470,504
Current portion of long-term debt 35,421
Payable to PCC 18,285,696
------------
Total current liabilities 23,857,145
Long-term debt 149,083
Payable to PCC 16,023,845
Divisional equity 138,473,120
Commitments and contingencies (Note 14) --
------------
Total liabilities and divisional equity $178,503,193
============
</TABLE>
The accompanying notes are an
integral part of these financial statements.
3
<PAGE> 5
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
COMBINED STATEMENT OF OPERATIONS AND DIVISIONAL EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Revenues:
Advertising revenue $ 76,499,099
Retail and other 2,161,527
Trade and barter 3,049,384
-------------
Total revenues 81,710,010
-------------
Operating expenses:
Direct 22,505,353
Programming 12,303,062
Sales and promotion 7,790,144
Technical 3,037,456
General and administrative 11,489,037
Trade and barter 3,136,312
Time brokerage agreement fees 3,695,537
Sports rights fees 3,676,410
Option plan compensation 1,782,075
Depreciation and amortization 10,203,421
Corporate overhead allocation 5,154,739
-------------
Total operating expenses 84,773,546
-------------
Operating loss (3,063,536)
Other income (expense):
Interest expense (1,998,541)
Interest income 123,373
Other income, net 40,101
-------------
Net loss (4,898,603)
Divisional equity, beginning of year 41,888,768
Contributions of capital by Paxson Communications Corporation 101,482,955
-------------
Divisional equity, end of year $ 138,473,120
=============
</TABLE>
The accompanying notes are an
integral part of these financial statements.
4
<PAGE> 6
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (4,898,603)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 10,203,421
Option plan compensation 1,782,075
Provision for doubtful accounts 666,148
Gain on sale or disposal of assets (101,377)
Changes in assets and liabilities:
Increase in accounts receivable (10,019,919)
Increase in prepaid expenses and other
current assets (342,031)
Increase in other assets (27,047)
Increase in accounts payable and
accrued liabilities 2,203,480
Increase in payable to PCC 11,889,333
-------------
Net cash provided by operating activities 11,355,480
-------------
Cash flows from investing activities:
Acquisitions of broadcasting and billboard properties (92,596,440)
Increase in investments in broadcast properties (4,985,141)
Deposits on broadcasting properties (7,850,000)
Purchases of property and equipment (5,774,653)
Proceeds from sale of assets 150,075
-------------
Net cash used in investing activities (111,056,159)
-------------
Cash flows from financing activities:
Contributions of capital by PCC, excluding effect of
stock option compensation 99,700,880
Proceeds from issuance of long-term debt 18,495
Repayments of long-term debt (18,696)
-------------
Net cash provided by financing activities 99,700,679
-------------
(Decrease) increase in cash and cash equivalents --
Cash and cash equivalents, beginning of year $ --
=============
Cash and cash equivalents, end of year $ --
=============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,906,945
=============
Non-cash operating and financing activities:
Accretion of discount on notes payable to PCC $ 19,355
=============
Issuance of PCC common stock in connection with acquisitions $ 1,535,106
=============
Trade and barter revenue $ 3,049,384
=============
Trade and barter expense $ 3,136,312
=============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE> 7
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION, PRINCIPAL BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
Organization and Principal Business Activities
Paxson Radio (a division of Paxson Communications Corporation) is
primarily engaged in the operation of radio broadcasting stations, radio
news and sports networks and billboard advertising. At December 1996,
Paxson Radio consisted of 36 owned and 2 time brokered radio stations, 6
radio networks and 291 billboard faces, owned and operated by Paxson
Communications Corporation ("PCC").
Basis of Presentation
Pursuant to the Asset Purchase Agreements dated August 25, 1997 by and
among Clear Channel Metroplex, Inc., Clear Channel Metroplex Licenses,
Inc., Clear Channel Communications, Inc. (collectively, "Clear Channel")
and PCC and L. Paxson, Inc., Clear Channel agreed to purchase certain
assets of PCC's radio business segment. The accompanying financial
statements include the assets, liabilities, revenues and expenses
relating to those assets to be purchased by Clear Channel from PCC (see
Note 15).
The statement of operations and divisional equity includes all revenues
and expenses directly attributable to Paxson Radio, including expenses
for facilities, functions and services used by Paxson Radio at shared
sites and costs for certain functions and services performed by the PCC
corporate office. The statement of operations and divisional equity also
includes allocations of costs for administrative functions and services
performed on behalf of Paxson Radio by PCC as well as PCC general
corporate expense. These costs have been allocated based upon estimates
of the proportion of time spent by PCC management in connection with
Paxson Radio matters.
Management believes the statement of operations and divisional equity
includes a reasonable allocation of costs incurred by PCC which benefit
Paxson Radio. Accordingly, the financial information included herein is
not necessarily indicative of the results that would have been reported
if Paxson Radio had operated as a separate unaffiliated entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
Paxson Radio participates in PCC's centralized cash management system.
Under such system, Paxson Radio's cash funding requirements are met by
PCC and all cash generated by Paxson Radio is transferred to PCC. At
December 31, 1996, the net balance as a result of these transactions was
recorded as due to PCC in the accompanying combined balance sheet.
6
<PAGE> 8
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Property and Equipment
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized
at cost and depreciated using the straight line method over their
estimated useful lives as follows (see Note 5):
<TABLE>
<S> <C>
Broadcasting towers and equipment 6-13 years
Office furniture and equipment 6-10 years
Buildings, billboards and building improvements 15-40 years
Leasehold improvements Term of lease
Vehicles and other 5 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged
to expense as incurred.
Intangible Assets
The excess of cost over the fair value of acquired net assets has been
recorded as goodwill. Intangible assets are being amortized using the
straight line method over their estimated useful lives as follows (see
Note 6):
<TABLE>
<S> <C>
FCC licenses 25 years
Goodwill 25 years
Covenants not to compete Generally 3 years
Favorable lease and other contracts Contract term
</TABLE>
Investments in Broadcast Properties
Investments in broadcast properties represent primarily Paxson Radio's
financing of the acquisition by a third party of land on which Paxson
Radio was granted easement rights for the placement of billboards.
Additionally, investments in broadcast properties include an amount due
from a related party in connection with such entity's acquisition of a
radio station (see Notes 4 and 8).
Other Assets
Loan origination costs are stated at cost and are amortized to interest
expense over the life of the loan or agreement using the effective
interest method. Escrow funds represent funds held in escrow on
acquisitions pending FCC approval (see Note 7).
Long-Lived Assets
Management reviews long-lived assets, identifiable intangibles and
goodwill based on estimated undiscounted future cash flows and reserves
for impairment whenever events or changes in circumstances indicate the
carrying amount of the assets may not be fully recoverable.
7
<PAGE> 9
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Revenue Recognition
Revenue is recognized as advertising air time is broadcast.
Trade and Barter Agreements
Paxson Radio enters into trade and barter agreements which give rise to
sales of advertising air time in exchange for products, services and
programming. Sales from trade and barter agreements are recognized at the
fair market value of products, services or programs received as the
related advertising air time is broadcast. Products, services and
programs received are expensed when used or when programs are broadcast.
If Paxson Radio uses trade products or services before advertising air
time is provided, a trade liability is recognized. At times, Paxson Radio
trades air time for property and equipment.
Time Brokerage Agreements
Paxson Radio operates certain stations under time brokerage agreements
("TBA") whereby Paxson Radio has agreed to purchase from the broadcast
station licensee certain broadcast time on the station and to provide
programming to and sell advertising on the station during the purchased
time. Accordingly, Paxson Radio receives all the revenue derived from the
advertising sold during the purchased time, pays certain expenses of the
station and performs other functions. The broadcast station licensee
retains responsibility for ultimate control of the station in accordance
with FCC policies. At December 31, 1996, Paxson Radio operated 2 stations
under TBAs which expired in January 1997 upon purchase of the stations
(see Note 15).
Stock Based Compensation
Certain employees of Paxson Radio participate in the Paxson
Communications Corporation employee stock option plans. Paxson Radio
accounts for compensation expense under these plans using the intrinsic
value method. Paxson Radio has adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" (see Note 12).
Income Taxes
Paxson Radio's operating results have been included in the consolidated
tax return filed by Paxson Communications Corporation.
For purposes of the accompanying financial statements, Paxson Radio's tax
accounts have been prepared on a separate company basis using the asset
and liability method to account for income taxes. Under this method,
deferred tax assets and liabilities are recorded based on the expected
future tax consequences of carryforwards and temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
An allowance is recorded, based upon currently available information,
when it is more likely than not that any or all of a deferred tax asset
will not be realized.
8
<PAGE> 10
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
3. ACQUISITIONS:
Acquisitions
During 1996, Paxson Radio acquired the assets of certain broadcast
properties including:
<TABLE>
<CAPTION>
ACQUISITION/
ACQUISITION/TBA STATION/ INVESTMENT
DATE NETWORK MARKET AMOUNT
--------------- ----------------- ---------------- -------------
<S> <C> <C> <C>
October 1996 WIOD-AM Miami, FL $ 13,000,000
October 1996/ WSHE-FM Orlando, FL 22,000,000
May 1996 (formerly WDIZ-FM)
September 1996 WSNI-FM Tallahassee, FL 21,300,000 (2)
WPAP-FM Panama City, FL
WPBH-FM Panama City, FL
August 1996 WHUB-FM Cookeville, TN 3,800,000
WHUB-AM Cookeville, TN
June 1996 WFSJ-FM Jacksonville, FL 5,000,000
June 1996 WTKS-FM (1) Orlando, FL -
May 1996 WPLL-FM Miami, FL -
(formerly WSHE-FM)(1)
</TABLE>
(1) Operated pursuant to a TBA at December 31, 1996. The acquisitions
of WTKS-FM and WPLL-FM closed during January 1997 for
consideration of $25,000,000 and $55,263,000, respectively.
(2) Represents the purchase price for a total of nine stations
purchased. Paxson Radio also acquired other broadcast properties
during 1996. During 1996, such acquisitions consisted of ten
radio stations for total consideration of approximately
$6,850,000.
During 1996, Paxson Radio purchased the assets of three billboard
companies for total consideration of approximately $21,000,000.
9
<PAGE> 11
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
All of the previously described acquisitions have been accounted for
using the purchase method of accounting. Goodwill recorded in connection
with such transactions (approximately $5,847,000 in 1996) will be
amortized over a period of 25 years. The financial results of TBA
operated stations have been included in Paxson Radio's statement of
operations since the respective date of commencement of the TBA.
Pro Forma (unaudited):
Paxson Radio's results of operations for the years ended December 31,
1996 include the results of operations for acquisitions and investments
in broadcast properties from their respective dates of commencement. The
following unaudited pro forma statement of operations data gives effect
to the previously enumerated acquisitions since January 1, 1996 as if
they had occurred on January 1, 1996. In addition, depreciation and
amortization has been increased each period to reflect the initial
purchase price allocation on all acquisitions and investments (whether
businesses or assets).
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
YEAR ENDED
DECEMBER 31,
1996
<S> <C>
Revenues $92,498,000
-----------
Operating loss $(7,459,000)
-----------
Net loss $(9,997,000)
-----------
</TABLE>
4. CERTAIN TRANSACTIONS:
Paxson Radio has entered into certain operating and financing
transactions with related parties as described below.
Todd Communications, Inc.
During June 1996, Paxson Radio acquired Todd Communications, a company
beneficially owned by family members of the majority shareholder of PCC,
for aggregate consideration of $5,000,000, consisting of the cancellation
of a note held by PCC in the principal amount of $1,822,000, assumption
and immediate repayment by Paxson Radio of a note payable to PCC's
majority shareholder in the principal amount of $1,643,000 and the
issuance of shares of Class A Common Stock valued at approximately
$1,535,000 to the shareholders of Todd Communications.
DP Media, Inc.
In connection with the acquisition by DP Media, Inc. (DP Media) of WEBZ-FM
(formerly WMTO-FM), during September 1996, Paxson Radio agreed to loan up
to $750,000 to DP Media, a company beneficially owned by a family member
of the majority shareholder of PCC. The loan bears interest at the rate of
10%, requires monthly principal and interest payments and matures in
November 2003. The loan is secured by the assets of DP Media. At December
31, 1996, the outstanding balance on this loan was approximately $525,000
and is included in investment in broadcast properties.
10
<PAGE> 12
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
In 1996, Paxson Radio entered into a five-year agreement with DP Media
under which Paxson Radio agreed to pay a net minimum monthly fee of
$22,000 for all of the thirty and sixty second spot time of WEBZ-FM. The
agreement is cancellable upon six months written notice by either party.
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996
<S> <C>
Broadcasting towers and equipment $34,395,200
Office furniture and equipment 6,003,749
Buildings, billboards and leasehold improvements 9,960,713
Land and land improvements 8,677,936
Vehicles and other 2,512,064
-----------
61,549,662
Accumulated depreciation (17,988,497)
-----------
Property and equipment, net $43,561,165
-----------
</TABLE>
Depreciation expense aggregated $4,951,256 for the year ended December
31, 1996.
11
<PAGE> 13
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
6. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1996
<S> <C>
FCC licenses $ 74,755,120
Goodwill 29,010,940
Covenants not to compete 12,261,375
Favorable lease and other contracts 8,162,248
Other intangible assets 1,447,034
-------------
125,636,717
Accumulated amortization (25,630,055)
-------------
Intangible assets, net $ 100,006,662
-------------
</TABLE>
Amortization expense related to intangible assets aggregated $5,252,165
for the year ended December 31, 1996.
7. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1996
<S> <C>
Loan origination costs $ 509,419
Escrow funds for station acquisitions 7,850,000
Deposits on building and equipment 242,878
Other 28,891
----------
Other assets $8,631,188
----------
</TABLE>
During 1996, Paxson Radio recorded amortization of loan origination costs
of $72,773 and classified such amortization as interest expense.
12
<PAGE> 14
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
8. INVESTMENTS IN BROADCAST PROPERTIES:
Investments in broadcast properties represent primarily Paxson Radio's
financing of broadcasting and other asset acquisitions by third parties.
In October 1996, Paxson Radio financed the acquisition by a third party
of 48 acres of land through a $4,500,000 secured loan which matures in
April 1998. In connection with such financing, Paxson Radio was granted
an option to acquire easements on such property to construct eighteen
billboard faces in exchange for $1,500,000 which is payable through the
forgiveness of an equivalent principal amount of the loan. At December
31, 1996, the balance of $4,460,000 of this secured loan is recorded as
an investment in broadcast properties (see Note 4).
9. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996
<S> <C>
Auto loan payable, interest at 7.75% per annum, principal and interest
payment of $440 due monthly through
March 2000, repaid in full in 1997 $ 16,726
Mortgage note payable, interest at 10% per annum, principal and interest
payment of $3,000 due monthly through April 1999, remaining balance due
April 1999 167,778
---------
184,504
Less current portion (35,421)
---------
$ 149,083
---------
Aggregate maturities of long-term debt at December 31, 1996 are as
follows:
1997 $ 35,421
1998 22,819
1999 126,264
---------
$ 184,504
---------
</TABLE>
13
<PAGE> 15
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
10. PAYABLE TO PCC:
Paxson Radio's liability to PCC is comprised of the following at December
31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Current account balance $ 18,285,696
Notes payable 16,023,845
------------
34,309,541
Less: current portion (18,285,696)
------------
$ 16,023,845
------------
</TABLE>
Paxson Radio's current account balance with PCC reflects its
participation in PCC's centralized cash management system as well as the
payment by PCC of certain expenses attributable to Paxson Radio and the
allocation of a portion of PCC's corporate overhead to Paxson Radio.
During September 1995, PCC issued certain senior subordinated notes. A
portion of such notes, along with a proportionate amount of the original
issue discount and the loan origination costs, were allocated to Paxson
Radio based on the use of the proceeds from the issuance of the notes.
Interest on the portion of the notes allocated to Paxson Radio accrues to
PCC at a rate of 11.625% per annum which, with the amortization of the
allocated original issue discount, results in an annual yield of 11.875%.
Amounts due to PCC under the allocation of these debt balances mature
October 1, 2002. The senior subordinated notes will remain an obligation
of PCC upon the sale of the assets of Paxson Radio to Clear Channel.
14
<PAGE> 16
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
11. INCOME TAXES:
At December 31, 1996, Paxson Radio's deferred tax assets and deferred tax
liabilities reflect the tax effect of differences between financial
statement carrying amounts and tax bases of assets and liabilities on a
separate company basis as follows:
<TABLE>
<CAPTION>
1996
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $10,075,225
Deferred compensation 334,580
Allowance for doubtful accounts 240,303
-----------
10,650,108
Deferred tax asset valuation
allowance (8,017,742)
-----------
Deferred tax assets, net 2,632,366
Deferred tax liabilities:
Tax over book depreciation
and amortization (2,632,366)
-----------
Total $ --
-----------
</TABLE>
On a separate company basis, Paxson Radio has net operating loss
carryforwards for income tax purposes subject to certain carryforward
limitations of approximately $26,514,000 at December 31, 1996. Net
operating losses amounting to approximately $7,900,000 are limited as to
utilization. Management has recorded a valuation allowance for the full
amount of Paxson Radio's net deferred tax assets as a result of the
uncertainty surrounding the realization of such deferred tax assets on a
separate company basis. As a result of such valuation allowance, no
deferred tax provision has been recorded in the accounts of Paxson Radio.
Further limitations on the utilization of Paxson Radio's net operating
tax loss carryforwards could result in the event of certain changes in
Paxson Radio's ownership.
15
<PAGE> 17
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
12. EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS:
Savings and Profit Sharing Plan
The employees of Paxson Radio participate in the established Paxson
Communications Corporation retirement savings and cafeteria plans
pursuant to Sections 401(k) and 125 of the Internal Revenue Code.
Employer contributions to the retirement savings plan are discretionary.
Under the cafeteria plan, employees may elect to participate in health,
dental, life and disability insurance benefit plans funded through
employee payroll deductions and company contributions.
These costs are not necessarily indicative of the retirement savings plan
costs that would have been incurred if Paxson Radio had operated as a
separate entity.
Stock Incentive Plans
Certain employees of Paxson Radio participate in the stock incentive
plans of Paxson Communications Corporation. In November 1994 and October
1996, Paxson Communications Corporation established the Stock Incentive
Plan (the "1994 Plan") and the 1996 Stock Incentive Plan (the "1996
Plan"), respectively, to provide incentives, through issuance of options
and restricted stock, to officers, employees and others who perform
services for Paxson Communications Corporation. The number of options,
exercise prices and exercise dates granted under each plan are at the
discretion of PCC's Compensation Committee and may be in the form of
either incentive or nonqualified stock options or awards of restricted
stock.
When options are granted, a non cash charge representing the difference
between the exercise price and the fair market value of the common stock
underlying the vested options on the date of grant is recorded as option
plan compensation expense with the balance deferred and amortized over
the remaining vesting period. For the year ended December 31, 1996,
Paxson Radio recognized approximately $1,782,075 of option plan
compensation expense.
Options granted under the 1994 Plan are pursuant to a five year vesting
cycle commencing retroactively to the participant's date of employment or
are exercisable in full at the date of grant. Options granted under the
1996 Plan are pursuant to a five year vesting cycle commencing January 1,
1996, if the participant was employed by Paxson Communications
Corporation at January 1, 1996 and January 1, 1997, if the participant
commenced employment with Paxson Communications Corporation subsequent to
January 1, 1996, or, in certain instances, are exercisable in full at
date of grant. All options granted expire ten years from the date of
grant.
The cost of these stock incentive plans was allocated to Paxson Radio on
a specific identification basis. These costs are not necessarily
indicative of the stock option compensation that would have been incurred
if Paxson Radio had operated as a separate entity.
16
<PAGE> 18
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
A summary of the activity under Paxson Communications Corporation's
1994 and 1996 stock option plans relating to Paxson Radio for the year
ended December 31, 1996 is presented below:
<TABLE>
<CAPTION>
1996
----------------------------------
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
------- -------
<S> <C> <C>
Outstanding, beginning
of year 400,444 $ 3.42
Granted 610,202 3.29
Forfeited -- --
Exercised 46,928 2.77
------- -------
Outstanding, end of
year 963,718 $ 3.41
------- -------
Weighted average fair
value of options granted
during the year $ 7.54
-------
</TABLE>
The majority of Paxson Radio's option grants have been at exercise prices
of $3.42, a price which has historically been below the fair market value
of the underlying common stock at the date of grant.
Fair Value Disclosures
Had compensation expense under the option plans been determined using the
fair value method, Paxson Radio's net loss would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
<S> <C>
Net loss:
As reported $(4,898,603)
Pro forma (5,846,470)
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model assuming a dividend yield of
0.0%, expected volatility of 70%, a risk free interest rate of 6% and
weighted average expected option terms of 7.5 years or 5 years depending
upon the specific grant.
17
<PAGE> 19
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Outstanding and Exercisable Options
<TABLE>
<CAPTION>
WEIGHTED
DECEMBER 31, 1996 AVERAGE WEIGHTED
--------------------------- REMAINING AVERAGE
NUMBER NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICES OUTSTANDING EXERCISABLE LIFE PRICE
--------------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
$ 0.01 13,650 13,650 7.5 $ 0.01
$ 3.42 950,068 466,129 7.16 $ 3.42
</TABLE>
Employment Agreements
Paxson Radio has employment agreements with individuals under which the
individuals are paid a base salary and may receive annual incentives
based on revenue amounts and stock options based on the cash flow of the
stations they manage.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments has been determined by
management using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that
Paxson Radio could realize in a current market exchange. The fair value
estimates presented herein are based on pertinent information available
to management as of December 31, 1996. Although management is not aware
of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of
fair value may differ significantly from the amounts presented herein.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate such value:
Accounts receivable, accounts payable and accrued expenses. The fair
values approximate the carrying values due to their short term nature.
Investments in broadcast properties. The fair value of investments in
broadcast properties is estimated based on the net present value of the
future cash flows using a discount rate approximating current market
rates. The fair value approximates the carrying value.
Long-term debt and payable to PCC. The fair values of long-term debt and
the payable to PCC are estimated based on current market rates and
instruments with the same risk and maturities. The fair values
approximate the carrying value.
18
<PAGE> 20
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
14. COMMITMENTS AND CONTINGENCIES:
Paxson Radio incurred total expenses of approximately $3,656,440 for the
year ended December 31, 1996 under operating leases for broadcasting
facilities and equipment, employment agreements and on-air talent
agreements. Future minimum annual payments under these non-cancelable
operating leases and agreements, as of December 31, 1996, are as follows:
<TABLE>
<S> <C> <C>
1997 $ 4,047,157
1998 3,619,711
1999 3,150,912
2000 2,010,641
2001 1,444,713
Thereafter 1,121,343
-----------
$15,394,477
-----------
</TABLE>
Paxson Radio has entered into commitments for radio broadcast rights
related to sporting events that are not currently available for broadcast
and are therefore not included in the financial statements. Paxson Radio
incurred total sports rights expenses of approximately $3,676,000 for the
year ended December 31, 1996 and had total commitments of approximately
$4,061,000 as of December 31, 1996.
Acquisition Commitments
At December 31, 1996, Paxson Radio had agreements to purchase significant
assets of, or to enter into time brokerage and financing arrangements
with respect to, the following properties, which were subject to various
conditions, including the receipt of regulatory approvals. These
purchases were completed during 1997 and the related assets will be sold
to Clear Channel (see Note 15).
<TABLE>
<CAPTION>
STATION MARKET SERVED (1) COMMITMENT AMOUNT
PAXSON RADIO:
<S> <C> <C>
WPLL-FM Ft. Lauderdale, FL (2) $ 55,263,000
WKES-FM Tampa, FL (3) 35,323,000
WTKS-FM Orlando, FL (4) 25,000,000
WFKZ-FM, Plantation Key, FL (5) 3,500,000
WAVK-FM and Marathon, FL
WKRY-FM Key West, FL
</TABLE>
(1) Each station is licensed by the FCC to serve a specific community,
which is included in the listed market.
(2) Paxson Radio began operating the station pursuant to a time brokerage
agreement on May 1, 1996 and completed the purchase in January 1997
(see Note 15).
(3) Paxson Radio completed the purchase of this station in July 1997 (see
Note 15)
(4) Paxson Radio began operating WTKS-FM pursuant to a time brokerage
agreement on June 17, 1996 and completed the purchase in January 1997
(see Note 15).
(5) Paxson Radio completed the purchase of these stations in May 1997
(see Note 15).
19
<PAGE> 21
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Legal Proceedings
Paxson Radio is involved in litigation from time to time in the ordinary
course of its business. In the opinion of management, the ultimate
resolution of these matters will not have a material effect on Paxson
Radio's consolidated financial position or results of operations and cash
flows.
15. SUBSEQUENT EVENTS:
Purchases of Broadcast Properties
During 1997, Paxson Radio completed its purchases of WPLL-FM (formerly
WSHE-FM), WTKS-FM, WKES-FM, WFKZ-FM, WAVK-FM and WKRY-FM for aggregate
cash consideration of $119,086,000.
Sale to Clear Channel
On June 23, 1997, PCC announced that it entered into a letter of intent
to sell certain assets of its radio business segment, including radio
stations under acquisition contracts, to Clear Channel. On August 25,
1997, PCC entered into Asset Purchase Agreements (as amended, the "Asset
Purchase Agreements") with Clear Channel and L. Paxson, Inc. ("LPI")
pursuant to which PCC agreed to sell substantially all of the assets of
its radio business segment, in five groups, and stations under
acquisition contracts for approximately $629 million. LPI is controlled
by Lowell W. Paxson ("Mr. Paxson"), the Chairman of the Board, Chief
Executive Officer and controlling shareholder of PCC. The sale of certain
of the assets was structured as a tax free exchange, potentially
permitting the PCC to defer the gain on the sale of those assets for tax
purposes.
20
<PAGE> 22
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
PAXSON RADIO
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited) (*)
------------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Accounts receivable, net $ 17,927,320 $ 20,380,361
Prepaid expenses 1,356,314 938,676
------------- ------------
Total Current Assets 19,283,634 21,319,037
Property, Plant and Equipment, net 53,846,134 43,561,165
Intangible Assets, net 207,435,366 100,006,662
OTHER ASSETS
Investments in broadcast properties 2,960,000 4,985,141
Other assets 1,827,799 8,631,188
------------- ------------
TOTAL ASSETS $ 285,352,933 $178,503,193
============= ============
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 3,272,213 $ 5,065,524
Accrued interest 24,360 470,504
Current portion of long-term debt 159,999 35,421
Payable to PCC 22,910,031 18,285,696
------------- ------------
Total Current Liabilities 26,366,603 23,857,145
Long-term debt 274,995 149,083
Payable to PCC -- 16,023,845
Divisional equity 258,711,335 138,473,120
------------- ------------
TOTAL LIABILITIES AND
DIVISIONAL EQUITY $ 285,352,933 $178,503,193
============= ============
</TABLE>
* From audited financial statements
See Notes to Combined Financial Statements
21
<PAGE> 23
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
PAXSON RADIO
COMBINED STATEMENTS OF OPERATIONS AND DIVISIONAL EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Advertising revenue $ 72,136,365 $ 48,421,071
Retail and other 2,917,734 1,623,706
Trade and barter 3,049,407 2,129,080
------------ ------------
Total revenues 78,103,506 52,173,857
Operating expenses:
Direct 21,500,149 14,248,606
Programming 13,430,012 8,160,037
Sales and promotion 7,542,775 5,046,677
Technical 3,136,239 1,899,000
General and administrative 11,813,653 7,354,889
Trade and barter 2,912,722 1,615,707
Time brokerage agreement fees 226,276 2,386,803
Sports rights fees 1,552,833 1,114,826
Option plan compensation 1,246,000 1,306,107
Depreciation and amortization 12,101,254 7,681,358
Corporate overhead allocation 4,059,357 3,866,054
------------ ------------
Total operating expenses 79,521,270 54,680,064
------------ ------------
Operating income (loss) (1,417,764) (2,506,207)
Other (expense):
Interest expense (1,370,765) (1,504,572)
Other (expense), net (1,033,864) 109,066
------------ ------------
Net income (loss) $ (3,822,393) $ (3,901,713)
============ ============
</TABLE>
See Notes to Combined Financial Statements
22
<PAGE> 24
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
PAXSON RADIO
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,822,393) $ (3,901,713)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 12,101,254 7,681,358
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable, net 2,453,041 (4,378,582)
Increase in prepaid expense (417,638) (427,067)
Decrease (increase) in other assets 6,803,389 (329,799)
(Decrease) increase in accounts
payable and accrued liabilities (1,793,311) 1,044,533
(Decrease) increase in accrued
interest (446,144) 470,505
Decrease in related party liability -- (127,074)
------------- -------------
Net cash provided by operating
activities 14,878,198 32,161
Cash flows from investing activities:
Acquisition and purchases of
broadcasting and billboard properties (129,814,927) (56,756,002)
Decrease (increase) in investments in
broadcast properties 2,025,141 (500,000)
------------- -------------
Net cash flows used in investing
activities (127,789,786) (57,256,002)
Cash flows from financing activities:
Contributions of capital by PCC 124,060,608 64,258,498
Decrease in payable to PCC (11,399,510) (6,382,067)
Proceeds from issuance of
long-term debt 587,125 756,761
Repayments of long-term debt (336,635) (139,674)
------------- -------------
Net cash provided by financing
activities 112,911,588 58,493,518
------------- -------------
Increase in cash and cash equivalents -- 1,269,677
Cash at beginning of period -- --
------------- -------------
Cash at end of period $ -- $ 1,269,677
============= =============
</TABLE>
See Notes to Combined Financial Statements
23
<PAGE> 25
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
PAXSON RADIO
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: PREPARATION OF INTERIM FINANCIAL STATEMENTS
The combined financial statements have been prepared by Paxson Radio
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and, in the opinion of management, include all adjustments
(consisting only 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. 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 audited combined financial statements and notes thereto dated December 31,
1996 included in Item 7(a).
The combined financial statements include the assets, liabilities,
revenues and expenses relating to those assets purchased by Clear Channel
Communications from Paxson Communications Corporation ("PCC").
Note 2: RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, which is required to be adopted (but may not be
adopted early) for fiscal years ending after December 15, 1997, which is
applicable to Paxson Radio's fiscal year ended December 31, 1997.
Also in February 1997, the Financial Accounting Standards Board issued
Statement No. 129, Disclosure of Information about Capital Structure, which is
effective for fiscal years ending after December 15, 1997. Statement 129
requires an explanation, in summary form within the financial statements, of
the pertinent rights, privileges, and characteristics of the Paxson Radio's
various outstanding securities.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income, which is effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements.
Also in June 1997, the Financial Accounting Standards Board issued Statement
No. 131, Disclosures about Segments of an Enterprise and Related Information,
which is effective for fiscal years beginning after December 15, 1997. This
Statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders.
24
<PAGE> 26
PAXSON RADIO
(A DIVISION OF PAXSON COMMUNICATIONS CORPORATION)
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Note 3: RECENT DEVELOPMENTS
During the nine months ended September 30, 1997, Paxson Radio acquired
the assets of certain broadcast properties including:
<TABLE>
<CAPTION>
Acquisition/
Acquisition Investment
Date Station/Network Market Amount
---- --------------- ------ ------
<S> <C> <C> <C>
January 10, 1997 WPLL-FM Miami $54,454,000
January 31, 1997 WTKS-FM Orlando 25,800,000
July 11, 1997 WKES-FM Tampa 35,323,000
May 7, 1997 WKRY-FM, WFKZ-FM Florida Keys 3,509,000
and WAVK-FM
</TABLE>
25
<PAGE> 27
(b) Pro forma financial information:
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements
give effect to the acquisition of Paxson Radio, herein after referred to as
("the Acquisition"). For accounting purposes the Acquisition has been accounted
for as a purchase of Paxson Radio by the Company; accordingly the assets of
Paxson Radio have been adjusted to their estimated fair values based upon a
preliminary purchase price allocation.
The unaudited pro forma condensed consolidated statements of operations for the
nine months ended September 30, 1997 and for the year ended December 31, 1996
give effect to the Acquisition as if it had occurred at the beginning of each
period presented. The unaudited pro forma condensed consolidated balance sheet
at September 30, 1997 gives effect to the Acquisition as if it occurred on
September 30, 1997.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the historical financial statements of The Company as
filed in the Company's Annual Report on Form 10-K for the year ended December
31, 1996, and the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, and the historical financial statements of Paxson Radio
included under Item 7 (a).
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of the actual results of operations or financial
position that would have occurred had the Acquisition and transactions of The
Company and Paxson Radio occurred on the dates indicated nor are they
necessarily indicative of future operating results or financial position.
26
<PAGE> 28
CLEAR CHANNEL COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
September 30, 1997
<TABLE>
<CAPTION>
Clear Channel and
Clear Channel Paxson Radio Pro Forma Paxson Radio
Historical Historical Adjustment (1) Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35,178 $ -- $ -- $ 35,178
Accounts receivable, net 126,756 17,927 -- 144,683
Film rights - current 16,124 -- -- 16,124
Other current assets -- 1,356 (1,356) --
----------- ----------- ----------- -----------
Total Current Assets 178,058 19,283 (1,356) 195,985
Property, plant & equipment, net 667,831 53,846 -- 721,677
Intangible assets:
Network affiliation agreements 33,727 -- -- 33,727
Licenses and goodwill 1,601,062 240,078 317,149 2,158,289
Covenants not-to-compete 24,592 -- -- 24,592
Other intangible assets 13,002 -- -- 13,002
----------- ----------- ----------- -----------
1,672,383 240,078 317,149 2,229,610
Less accumulated amortization (120,198) (32,642) 32,642 (120,198)
----------- ----------- ----------- -----------
1,552,185 207,436 349,791 2,109,412
Other assets:
Deferred tax asset 10,520 -- -- 10,520
Film rights - noncurrent, net
of accumulated amortization 16,182 -- -- 16,182
Equity investments in, and advances
to, nonconsolidated affiliates 273,326 -- -- 273,326
Other assets 65,760 1,828 (1,828) 65,760
Other investments 27,343 2,960 (2,960) 27,343
----------- ----------- ----------- -----------
TOTAL ASSETS $ 2,791,205 $ 285,353 $ 343,647 $ 3,420,205
=========== =========== =========== ===========
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
Clear Channel and
Clear Channel Paxson Radio Pro Forma Paxson Radio
Historical Historical Adjustment (1) Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
LIABILITIES
Current liabilities:
Accounts payable $ 12,877 $ 3,272 $ (3,272) $ 12,877
Accrued interest 2,037 24 (24) 2,037
Accrued expenses 37,523 -- -- 37,523
Accrued income and other taxes 3,742 -- -- 3,742
Deferred income 1,380 -- -- 1,380
Current portion of long-term debt 13,067 160 (160) 13,067
Current portion of film rights liability 16,989 -- -- 16,989
Payable due to Paxson Corp. -- 22,911 (22,911) --
----------- ----------- ----------- -----------
Total Current Liabilities 87,615 26,367 (26,367) 87,615
Long-term debt 897,588 275 628,725 1,526,588
Film rights liability 17,857 -- -- 17,857
Deferred income taxes 15,840 -- -- 15,840
Deferred income - long-term 10,075 -- -- 10,075
Other liabilities 43,241 -- -- 43,241
Minority interest 21,113 -- -- 21,113
Shareholders' equity:
Preferred stock -- -- -- --
Common stock 9,809 -- -- 9,809
Additional paid-in capital 1,540,072 -- -- 1,540,072
Retained earnings 147,356 -- -- 147,356
Divisional equity -- 258,711 (258,711) --
Other 1,226 -- -- 1,226
Cost of shares held in treasury (587) -- -- (587)
----------- ----------- ----------- -----------
Total Shareholders' Equity 1,697,876 258,711 (258,711) 1,697,876
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 2,791,205 $ 285,353 $ 343,647 $ 3,420,205
=========== =========== =========== ===========
</TABLE>
28
<PAGE> 30
CLEAR CHANNEL COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(In thousands, except per share data)
Year ended December 31, 1996
<TABLE>
<CAPTION>
Clear Channel
Clear Channel Eller Media Pro Forma Eller Media
Historical Historical Adjustment(2) Pro Forma
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net revenue $ 351,739 $ 237,032 -- $ 588,771
Operating expenses 198,332 141,839 -- 340,171
Depreciation and amortization 45,790 40,269 23,895 109,954
Corporate general and admin expense 8,527 10,204 -- 18,731
--------- --------- -------- ---------
Operating income (loss) 99,090 44,720 (23,895) 119,915
Interest expense 30,080 35,626 10,071 75,777
Other income (expense) 2,230 (6,721) -- (4,491)
--------- --------- -------- ---------
Income (loss) before income taxes 71,240 2,373 (33,966) 39,647
Income tax (expense) benefit (28,386) (977) 5,259 (24,104)
--------- --------- -------- ---------
Income (loss) before equity in net
income (loss) of, and other income
from, nonconsolidated affiliates 42,854 1,396 (28,707) 15,543
Equity in net income (loss) of, and
other income from, nonconsolidated
affiliates (5,158) -- -- (5,158)
--------- --------- -------- ---------
Income (loss) from continuing
operations $ 37,696 $ 1,396 $(28,707) $ 10,385
========= ========= ======== =========
Income (loss) from continuing
operations per common share $ .50 $ .13
Weighted average common
and common share
equivalents outstanding 74,649 7,835 82,484
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Clear Channel,
Eller Media and
Paxson Radio Pro Forma Paxson Radio
Historical Adjustment(4) Pro Forma
--------- --------- ---------
<S> <C> <C> <C>
Net revenue $ 81,710 $ -- $ 670,481
Operating expenses 69,415 (1,782) 407,804
Depreciation and amortization 10,203 17,037 137,194
Corporate general and admin expense 5,155 (5,155) 18,731
--------- --------- ---------
Operating income (loss) (3,063) (10,100) 106,752
Interest expense 1,999 36,999 114,775
Other income (expense) 163 -- (4,328)
--------- --------- ---------
Income (loss) before income taxes (4,899) (47,099) (12,351)
Income tax (expense) benefit -- 18,840 (5,264)
--------- --------- ---------
Income (loss) before equity in net
income (loss) of, and other income
from, nonconsolidated affiliates (4,899) (28,259) (17,615)
Equity in net income (loss) of, and
other income from, nonconsolidated
affiliates -- -- (5,158)
--------- --------- ---------
Income (loss) from continuing
operations $ (4,899) $ (28,259) $ (22,773)
========= ========= =========
Income (loss) from continuing
operations per common share $ (.28)
=========
Weighted average common
and common share
equivalents outstanding 82,484
=========
</TABLE>
29
<PAGE> 31
Nine Months ended September 30, 1997
<TABLE>
<CAPTION>
Clear Channel
Clear Channel Eller Media Pro Forma Eller Media
Historical Historical Adjustment(3) Pro Forma
--------- -------- -------- ---------
<S> <C> <C> <C>
Net revenue $ 469,176 $ 56,642 -- $ 525,818
Operating expenses 266,542 33,804 -- 300,346
Depreciation and amortization 80,216 10,547 $ 5,974 96,737
Corporate general and admin. expense 13,699 2,318 -- 16,017
--------- -------- -------- ---------
Operating income (loss) 108,719 9,973 (5,974) 112,718
Interest expense 51,804 8,565 2,518 62,887
Other income (expense) 7,641 (4,082) -- 3,559
--------- -------- -------- ---------
Income (loss) before income taxes 64,556 (2,674) (8,492) 53,390
Income tax (expense) benefit (31,642) (3) 1,315 (30,330)
--------- -------- -------- ---------
Income (loss) before equity in net
income (loss) of,and other income
from, nonconsolidated affiliates 32,914 (2,677) (7,177) 23,060
Equity in net income(loss) of, and
other income from, nonconsol-
idated affiliates 8,388 -- -- 8,388
--------- -------- -------- ---------
Income (loss) from continuing
operations $ 41,302 $ (2,677) $ (7,177) $ 31,448
========= ======== ======== =========
Income (loss) from continuing
operations per common share $ .47 $ .35
========= =========
Weighted average common
and common share
equivalents outstanding 87,564 3,303 90,867
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Clear Channel
Eller Media and
Paxson Radio Pro Forma Paxson Radio
Historical Adjustment(5) Pro Forma
-------- -------- ---------
<S> <C> <C> <C>
Net revenue $ 78,104 $ -- $ 603,922
Operating expenses 63,362 (1,246) 362,462
Depreciation and amortization 12,101 9,377 118,215
Corporate general and admin. expense 4,059 (4,059) 16,017
-------- -------- ---------
Operating income (loss) (1,418) (4,072) 107,228
Interest expense 1,370 29,276 93,533
Other income (expense) (1,034) -- 2,525
-------- -------- ---------
Income (loss) before income taxes (3,822) (33,348) 16,220
Income tax (expense) benefit -- 13,339 (16,991)
-------- -------- ---------
Income (loss) before equity in net
income (loss) of,and other income
from, nonconsolidated affiliates (3,822) (20,009) (771)
Equity in net income(loss) of, and
other income from, nonconsol-
idated affiliates -- -- 8,388
-------- -------- ---------
Income (loss) from continuing
operations $ (3,822) $(20,009) $ 7,617
======== ======== =========
Income (loss) from continuing
operations per common share $ .08
=========
Weighted average common
and common share
equivalents outstanding 90,867
=========
</TABLE>
30
<PAGE> 32
CLEAR CHANNEL
NOTES TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(1) Represents the pro forma effect of the acquisition of Paxson Radio.
Adjustments to reflect the application of the purchase method of
accounting and the payment of the related consideration as if the
acquisition had been consummated September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Increase
(Decrease)
----------
<S> <C>
Other current assets $ (1,356)
Licenses and goodwill 317,149
Accumulated amortization 32,642
Other assets (1,828)
Other investments (2,960)
Accounts payable (3,272)
Accrued interest (24)
Current portion of long-term debt (160)
Payable due to Paxson Corp. (22,911)
Long-term debt 628,725
Divisional equity (258,711)
</TABLE>
31
<PAGE> 33
CLEAR CHANNEL
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
ELLER MEDIA ACQUISITION
YEAR ENDED DECEMBER 31, 1996
(2) Represents the pro forma effect of the acquisition of Eller Media assuming
it was acquired January 1, 1996.
<TABLE>
<CAPTION>
Increase
(Decrease)
Income
(in Thousands)
-------------
<S> <C>
(a) Increase in amortization of goodwill of $20,818 resulting from the
additional goodwill created by the acquisition and a decrease in
amortizable life from 40 years (Eller Media) to 25 years (Clear
Channel) and additional depreciation of $3,077 related to the
adjustment of fixed assets to fair value. $(23,895)
(b) Increase in interest expense due to a higher amount of average debt
outstanding which was partially offset by a lower average interest rate
(6.2% average rate for Clear Channel and 8.8% for Eller Media in 1996). (10,071)
(c) Tax effect of the above adjustments to depreciation and interest expense
at Clear Channel's effective tax rate of 40% 5,259
(d) Increase in weighted average common and common share equivalents
outstanding resulting from the issuance of shares of Clear Channel's
common stock and the issuance of options to purchase shares of Clear
Channel's common stock to shareholders of Eller Media to effect the
acquisition. 7,835
</TABLE>
Clear Channel granted to the former Eller Media stockholders certain demand and
piggyback registration rights relating to the shares of common stock received by
them. The holders of the approximately 7% of the outstanding capital stock of
Eller Media, not purchased by Clear Channel, have the right to put such stock to
Clear Channel for 1,081,469 shares of Clear Channel's common stock until April
10, 2002. From and after April 10, 2004, Clear Channel will have the right to
call in this minority interest stake in Eller Media for 1,081,469 shares of its
common stock. If such right would have been exercised on April 10, 1997, Clear
Channel would have issued additional shares of its common stock with an
aggregate value of $48.5 million (assuming a price of $44.8625 per share) and
recorded a corresponding increase in goodwill. The annual amortization of
goodwill associated therewith would decrease Clear Channel's net income by $1.9
million or $.02 per share; however such would have no effect on after tax cash
flow. A $1 per share change in the market price of Clear Channel's common stock
would cause a $1.1 million change in goodwill.
The pro forma statement of operations excludes the effect of nonrecurring
charges related to the acquisition.
32
<PAGE> 34
NINE MONTHS ENDED SEPTEMBER 30, 1997
(3) Represents the pro forma effect of the acquisition of Eller Media assuming
it was acquired January 1, 1997.
<TABLE>
<CAPTION>
Increase
(Decrease)
Income
(in Thousands)
------------
<S> <C>
(a) Increase in amortization of goodwill of $5,205 resulting from the
additional goodwill created by the acquisition and a decrease in
amortizable life from 40 years (Eller Media) to 25 years (Clear
Channel) and additional depreciation of $769 related to the adjustment
of fixed assets to fair value. $(5,974)
(b) Increase in interest expense due to a higher amount of average debt
outstanding which was partially offset by a lower average interest rate
(6% average rate for Clear Channel and 8.8% for Eller Media during the
first three months of 1997). (2,518)
(c) Tax effect of the above adjustments to depreciation and interest expense
at Clear Channel's effective tax rate of 40% 1,315
(d) Increase in weighted average common and common share equivalents
outstanding resulting from the issuance of shares of Clear Channel's
common stock and the issuance of options to purchase shares of Clear
Channel's common stock to shareholders of Eller Media to effect the
acquisition. 3,303
</TABLE>
PAXSON RADIO ACQUISITION
YEAR ENDED DECEMBER 31, 1996
(4) Represents the pro forma effect of the acquisition of Paxson Radio
assuming it was acquired January 1, 1996
<TABLE>
<CAPTION>
Increase
(Decrease)
Income
(in Thousands)
------------
<S> <C>
(a) Elimination of option plan compensation expense resulting from the elimination
of the plan. 1,782
(b) Increase in amortization expense resulting from the additional goodwill created
by the acquisition. $(17,037)
(c) Elimination of corporate general and administrative expenses resulting from the
elimination of the Paxson corporate office. 5,155
(d) Increase in interest expense (at an average interest rate of 6.2% in
1996) due to additional borrowing on the Company's credit facility to
finance the acquisition cost. (36,999)
(e) Tax effect of the above adjustments at the Company's effective tax rate of 40% 18,840
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997
(5) Represents the pro forma effect of the acquisition of Paxson assuming it
was acquired January 1, 1997
<TABLE>
<CAPTION>
Increase
(Decrease)
Income
(in Thousands)
------------
<S> <C>
(a) Elimination of option plan compensation expense resulting from the elimination
of the plan. 1,246
(b) Increase in amortization expense resulting from the additional goodwill created
by the acquisition. $(9,377)
(c) Elimination of corporate general and administrative expenses resulting from the
elimination of the Paxson corporate office. 4,059
(d) Increase in interest expense (at an average interest rate of 6.5% for the first
nine months of 1997) due to additional borrowing on the Company's credit facility
to finance the acquisition cost. (29,276)
(e) Tax effect of the above adjustments at the Company's effective tax rate of 40% 13,339
</TABLE>
33
<PAGE> 35
(c) Index to Exhibits
2.1 -- Asset Purchase Agreement by and among Paxson Communications
Corporation, Clear Channel Metroplex, Inc., Clear Channel
Metroplex Licenses, Inc., and Clear Channel Communications,
Inc., dated August 25, 1997. (Incorporated by reference to the
Registrant's Amendment No. 1 to Form S-3 Reg No. 333-33371
dated September 2, 1997.)
2.2 -- Asset Purchase Agreement by and among Paxson Communications
Corporation, L. Paxson, Inc., Clear Channel Metroplex, Inc.,
Clear Channel Metroplex Licenses, Inc., and Clear Channel
Communications, Inc., dated August 25, 1997. (Incorporated by
reference to the Registrant's Amendment No. 1 to Form S-3 Reg
No. 333-33371 dated September 2, 1997.)
2.3 -- Amendment, dated October 1, 1997, to Asset Purchase Agreement
by and among Paxson Communications Corporation, Clear Channel
Metroplex, Inc., Clear Channel Metroplex Licenses, Inc., and
Clear Channel Communications, Inc., dated August 25, 1997.
(Filed herewith.)
23 -- Consent of Price Waterhouse LLP. (Filed herewith)
34
<PAGE> 36
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 hereunto duly authorized.
Clear Channel Communications, Inc.
Date December 22, 1997 By: /s/L. LOWRY MAYS
----------------------
L. Lowry Mays, Chairman/
Chief Executive Officer
Date December 22, 1997 By: /s/HERBERT W. HILL, Jr.
----------------------
Herbert W. Hill, Jr.
Senior Vice President/
Chief Accounting Officer
35
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
2.1 -- Asset Purchase Agreement by and among Paxson Communications
Corporation, Clear Channel Metroplex, Inc., Clear Channel
Metroplex Licenses, Inc., and Clear Channel Communications,
Inc., dated August 25, 1997. (Incorporated by reference to the
Registrant's Amendment No. 1 to Form S-3 Reg No. 333-33371
dated September 2, 1997.)
2.2 -- Asset Purchase Agreement by and among Paxson Communications
Corporation, L. Paxson, Inc., Clear Channel Metroplex, Inc.,
Clear Channel Metroplex Licenses, Inc., and Clear Channel
Communications, Inc., dated August 25, 1997. (Incorporated by
reference to the Registrant's Amendment No. 1 to Form S-3 Reg
No. 333-33371 dated September 2, 1997.)
2.3 -- Amendment, dated October 1, 1997, to Asset Purchase Agreement
by and among Paxson Communications Corporation, Clear Channel
Metroplex, Inc., Clear Channel Metroplex Licenses, Inc., and
Clear Channel Communications, Inc., dated August 25, 1997.
(Filed herewith.)
23 -- Consent of Price Waterhouse LLP. (Filed herewith.)
</TABLE>
<PAGE> 1
EXHIBIT 2.3
[PAXSON COMMUNICATIONS CORPORATION LETTERHEAD]
October 1, 1997
Clear Channel Metroplex, Inc.
Clear Channel Metroplex Licenses, Inc.
Clear Channel Communications, Inc.
200 Concord Plaza
San Antonio, Texas 78216
Ladies and Gentlemen:
Reference is hereby made to that certain Asset Purchase Agreement dated as
of August 25, 1997 (the "Purchase Agreement"), by and among Paxson
Communications Corporation, a Delaware corporation ("Seller"), Clear Channel
Metroplex, Inc., a Nevada corporation ("CCM"), Clear Channel Metroplex
Licenses, Inc., a Nevada corporation ("CCL;" CCM and CCL being referred to
herein, collectively, as "Buyer"), and Clear Channel Communications, Inc., a
Texas corporation ("Guarantor"). Capitalized terms used herein but not
otherwise defined herein shall have the meanings assigned to such terms under
the Purchase Agreement.
1. Sections 8.2(b), 8.2(c), 8.3(b) and 8.3(c) are hereby amended by
deleting the phrases "the President" and "the Secretary" therein and
replacing them with the phrase "an authorized officer," and the Section
titles to Section 8.2(c) and 8.3(c) are hereby amended by substituting
therefor the Section titles "Officer's Certificate."
2. All references in Section 10.2(b) and 10.3(b) of the Purchase Agreement to
the amount "$56,967,153" are hereby amended by deleting such references and
replacing them with the amount "$56,742,153."
3. Billboard site O-71, listed in Schedule 3.5 of the Purchase Agreement as a
"Paxson-Owned" property interest ("Parcel O-71"), in fact is not an owned
site. Seller occupies Parcel O-71 pursuant to an agreement which provides
that Seller shall be required to remove Seller's billboard structure
located on Parcel O-71 within ten days after receipt of notice from Orange
County, Florida, that a contract for road
<PAGE> 2
Clear Channel Metroplex, Inc.
Clear Channel Metroplex, Licenses, Inc.
Clear Channel Communications, Inc.
Page 2
construction has been let on Parcel O-71. In consideration for a reduction
in the Purchase Price in the amount of $7,500, Buyer hereby waives, and
releases Seller from, any claims Buyer has or may have as a result of the
mischaracterization of Parcel O-71 in Schedule 3.5 of the Purchase
Agreement.
4. Notwithstanding anything to the contrary contained in the Purchase
Agreement, Buyer and Seller hereby acknowledge and agree that on and after
the LPI Sale Date, Seller and those employees, which are parties to
employment agreements which are Assumed Contracts, may enter into
aggrements to effectuate the deletion of the provisions of such Assumed
Contracts providing for the employee to be eligible to receive options to
purchase common stock of PCC ("Stock Option Consideration") and may, in
separate agreements, provide Stock Option Consideration to such employees
as Seller may elect. For purposes of the Purchase Agreement, any such
Stock Option Consideration shall not constitute an Assumed Liability.
5. The Terms and provisions of this letter and the amendments to the Purchase
Agreement effected hereby shall become effective as of the date first
above written upon execution of this letter by Buyer, Seller and
Guarantor.
6. The Purchase Agreement, as amended hereby, is hereby ratified, approved
and confirmed in all respects.
7. From and after the date hereof, each reference in the Purchase Agreement
to "this Agreement", "hereof", or "hereunder" or words of like import,
and all references to the Purchase Agreement in any and all agreements,
instruments, documents, notes, certificates and other writings of
every kind and nature shall be deemed to mean the Purchase Agreement,
as amended by this letter.
8. This letter and the amendments to the Purchase Agreement effected hereby
shall be governed in all respects by the laws of the State of Florida
(without giving effect to the provisions thereof relating to conflicts of
law).
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 3
Clear Channel Metroplex, Inc.
Clear Channel Metroplex, Licenses, Inc.
Clear Channel Communications, Inc.
Page 3
If the foregoing accurately reflects your understanding and constitutes an
agreement, please sign below and the enclosed counterpart of this letter,
evidencing your acceptance and agreement with the foregoing, and return one
counterpart of this letter to the undersigned. This letter may be signed in
counterparts, all of which taken together shall constitute an instrument, and
any of the parties hereto may execute this letter by signing any such
counterpart.
Very truly yours,
PAXSON COMMUNICATIONS
CORPORATION
By: /s/ ANTHONY L. MORRISON
--------------------------
Name: Anthony L. Morrison
Title: Vice President
Accepted and agreed to as of the date set forth above:
CLEAR CHANNEL METROPLEX, INC.
By: /s/ KENNETH E. WYKER
----------------------------
Name: Kenneth E. Wyker
Title: Senior Vice President
CLEAR CHANNEL METROPLEX
LICENSES, INC.
By: /s/ KENNETH E. WYKER
----------------------------
Name: Kenneth E. Wyker
Title: Senior Vice President
CLEAR CHANNEL COMMUNICATIONS
INC.
By: /s/ KENNETH E. WYKER
----------------------------
Name: Kenneth E. Wyker
Title: Senior Vice President
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-33371), Registration Statement on Form S-8 (No.
33-14193), Registration Statement on Form S-8 (No. 33-59772), Registration
Statement on Form S-8 (No. 33-64463) and Registration Statement on Form S-8
(No. 333-29717) of Clear Channel Communications, Inc. of our report dated
November 3, 1997 relating to the financial statements of Paxson Radio (a
division of Paxson Communications Corporation) which appears in the Current
Report on Form 8-K of Clear Channel Communications, Inc. dated December 22,
1997.
/s/ PRICE WATERHOUSE LLP
- ------------------------------------
Price Waterhouse LLP
Fort Lauderdale, Florida
December 19, 1997
