<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)
March 12, 1998
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 5 Other Events.
On October 23, 1997, Clear Channel Communications, Inc., a Texas corporation
(the Company), Universal Outdoor Holdings, Inc., a Delaware corporation
(Universal), and UH Merger Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company (Sub), entered in an Agreement and Plan of Merger (the
Merger Agreement), pursuant to which Sub will be merged with and into Universal,
with Universal surviving the merger and becoming a wholly owned subsidiary of
the Company (the Merger). Upon the terms and subject to the conditions set forth
in the Merger Agreement, at the Effective Time (as defined in the Merger
Agreement) of the Merger, each issued and outstanding share of common stock of
Universal, other than shares owned directly or indirectly by the Company or by
Universal, will be converted into the right to receive 0.67 shares of common
stock of the Company. On February 6, 1998, the Universal common stock
shareholders voted to approve the adoption of the agreement and plan of merger
between Universal and the Company. The Company expects to consummate this merger
during the first half of 1998. It is anticipated that approximately 19.3 million
shares of common stock of the Company will be issued in the merger. In addition,
at December 31, 1997, Universal had $507.6 million in long-term debt
outstanding.
<PAGE> 3
Item 7.(a) Historical Financial Statements.
CLEAR CHANNEL COMMUNICATIONS, INC.
Historical Consolidated Financial Statements
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
SHAREHOLDERS AND
BOARD OF DIRECTORS
CLEAR CHANNEL
COMMUNICATIONS, INC.
We have audited the accompanying consolidated balance sheets of Clear Channel
Communications, Inc. and Subsidiaries (the Company) as of December 31, 1997 and
1996, and the related consolidated statements of earnings, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of Heftel
Broadcasting Corporation, in which the Company has a 32% interest and of
Australian Radio Network Pty Ltd, in which the Company has a 50% interest, have
been audited by other auditors whose reports have been furnished to us; insofar
as our opinion on the consolidated financial statements relates to data included
for Heftel Broadcasting Corporation for 1997 and for the Australian Radio
Network Pty Ltd, for 1996, it is based solely on their reports.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Clear Channel
Communications, Inc. and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
San Antonio, Texas
March 11, 1998
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Heftel Broadcasting Corporation:
We have audited the consolidated balance sheet of Heftel Broadcasting
Corporation and subsidiaries as of December 31, 1997 and the related
statements of operations, stockholders' equity and cash flows for the year
then ended (not presented separately herein). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Heftel
Broadcasting Corporation and subsidiaries as of December 31, 1997 and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 9, 1998
<PAGE> 6
CLEAR CHANNEL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
In thousands of dollars
December 31,
1997 1996
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 24,657 $ 16,701
Accounts receivable, less allowance of
$9,850 in 1997 and $6,067 in 1996 155,962 79,182
Film rights - current 14,826 14,188
Income tax receivable 3,202 3,093
Total Current Assets 198,647 113,164
Property, plant
and equipment
Land, buildings and improvements 84,118 46,550
Structures and site leases 487,857
Transmitter and studio equipment 215,755 153,255
Furniture and other equipment 46,584 21,164
Construction in progress 39,992 4,284
874,306 225,253
Less accumulated depreciation 128,022 77,415
746,284 147,838
Intangible Assets
Network affiliation agreements 33,727 33,727
Licenses and goodwill 2,175,944 764,233
Covenants not-to-compete 24,892 22,992
Other intangible assets 19,593 8,712
2,254,156 829,664
Less accumulated amortization 141,066 78,646
2,113,090 751,018
Other
Notes receivable 35,373 52,750
Film rights 14,171 13,437
Investments in, and advances to,
nonconsolidated affiliates 266,691 230,660
Other assets 30,122 10,807
Other investments 51,259 5,037
Total Assets $3,455,637 $1,324,711
</TABLE>
<PAGE> 7
CLEAR CHANNEL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 11,904 $ 9,865
Accrued interest 9,950 6,272
Accrued expenses 34,489 8,236
Deferred income 1,340 1,300
Current portion of long-term debt 13,294 1,479
Current portion of film rights liability 15,875 16,310
Total Current Liabilities 86,852 43,462
Long-term debt 1,540,421 725,132
Film rights liability 15,551 13,797
Deferred income taxes 10,114 11,283
Deferred income 9,750 11,250
Other long-term liabilities 25,378 --
Minority interest 20,787 6,356
SHAREHOLDERS' EQUITY
Preferred Stock, par value $1.00 per share,
authorized 2,000,000 shares, no shares
issued and outstanding -- --
Common Stock, par value $.10 per share,
authorized 150,000,000 and 100,000,000
shares, issued and outstanding
98,232,893 and 76,992,078 shares in
1997 and 1996, respectively 9,823 7,699
Additional paid-in capital 1,541,865 398,622
Retained earnings 169,631 106,055
Other 2,398 1,226
Unrealized gain on investments 23,754 --
Cost of shares (38,207 in 1997 and 26,878
in 1996) held in treasury (687) (171)
Total Shareholders' Equity 1,746,784 513,431
Total Liabilities And
Shareholders' Equity $ 3,455,637 $ 1,324,711
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 8
CLEAR CHANNEL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
In thousands of dollars, except per share data
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Gross revenue $ 790,178 $ 398,094 $ 283,357
Less: agency commissions 93,110 46,355 33,298
Net revenue 697,068 351,739 250,059
Operating expenses 394,404 198,332 137,504
Depreciation and amortization 114,207 45,790 33,769
Operating income before corporate expenses 188,457 107,617 78,786
Corporate expenses 20,883 8,527 7,414
Operating income 167,574 99,090 71,372
Interest expense 75,076 30,080 20,752
Other income (expense) - net 11,579 2,230 (803)
Income before income taxes 104,077 71,240 49,817
Income taxes 47,116 28,386 20,292
Income before equity in earnings
(loss) of nonconsolidated affiliates 56,961 42,854 29,525
Equity in earnings (loss) of
nonconsolidated affiliates 6,615 (5,158) 2,489
Net income $ 63,576 $ 37,696 $ 32,014
Net income per common share:
Basic $ .72 $ .51 $ .46
Diluted $ .67 $ .51 $ .46
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 9
CLEAR CHANNEL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
In thousands of dollars
Cumulative
Additional Translation Unrealized
Common Paid-in Retained Adjustment Gain on Treasury
Stock Capital Earnings and Other Investments Stock Total
------- ----------- ---------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 $1,723 $92,535 $36,346 $ -- $ -- $ (71) $130,533
Net income for year 32,014 32,014
Exercise of stock options 7 627 (100) 534
Currency translation adjustment 102 102
Unrealized gains on investments,
net of tax 530 530
Stock split 1,729 (1,729) --
------ ---------- -------- ------ ------- ------ ----------
Balances at December 31, 1995 3,459 91,433 68,360 102 530 (171) 163,713
Net income for year 37,695 37,695
Exercise of stock options 5 301 306
Proceeds from sale of Common Stock 385 310,738 311,123
Currency translation adjustment 1,124 1,124
Reversal of unrealized gains on
investments, net of tax (530) (530)
Stock split 3,850 (3,850) --
------ ---------- -------- ------ ------- ------ ----------
Balances at December 31, 1996 7,699 398,622 106,055 1,226 -- (171) 513,431
Net income for year 63,576 63,576
Proceeds from sale of Common Stock 1,409 790,310 791,719
Common Stock and stock option
issued for business acquisition 665 348,023 6,633 355,321
Exercise of stock options 50 4,910 (397) (516) 4,047
Currency translation adjustment (5,064) (5,064)
Unrealized gains on investments,
net of tax 23,754 23,754
------ ---------- -------- ------ ------- ------ ----------
Balances at December 31, 1997 $9,823 $1,541,865 $169,631 $2,398 $23,754 $ (687) $1,746,784
====== ========== ======== ====== ======= ====== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 10
CLEAR CHANNEL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
In thousands of dollars
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash Flows From
Operating Activities:
Net income $ 63,576 $ 37,696 $ 32,014
Reconciling Items:
Depreciation 51,700 19,337 15,380
Amortization of intangibles 62,507 26,453 18,389
Deferred taxes 18,300 5,730 2,953
Amortization of film rights 16,735 15,038 11,263
Payments on film liabilities (17,289) (14,627) (10,353)
Recognition of deferred income (1,460) (810) --
(Gain) loss on disposal of assets (1,129) (41) 405
Gain on sale of other investments (3,819) -- --
Equity in (earnings) loss of non-
consolidated affiliates (2,778) 7,933 --
Dividends received from nonconsolidated
affiliates -- 7,207 --
Decrease minority interest (617) -- --
Changes in operating assets and liabilities:
Increase accounts receivable (20,752) (10,606) (11,545)
Increase deferred income -- 13,360 --
Increase (decrease) accounts payable (5,271) 4,489 (372)
Increase (decrease) accrued interest 3,598 5,764 (233)
Increase (decrease) accrued expenses
and other liabilities 1,628 (320) 3,831
Increase (decrease) accrued income
and other taxes (109) (8,999) 2,598
Net cash provided by operating activities $ 164,820 $ 107,604 $ 64,330
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash Flows From
Investing Activities:
Decrease in restricted cash $ -- $ -- $ 38,500
Decrease (increase) in notes receivable - net 17,377 (52,750) --
Increase in investments in and advances
to nonconsolidated affiliates - net (38,317) (163,295) (81,279)
Purchases of investments (25,101) (3,113) (500)
Proceeds from sale of investments 6,333 -- --
Purchases of property, plant and equipment (30,956) (19,723) (15,110)
Proceeds from disposal of assets 2,410 16 383
Acquisition of broadcasting assets (784,204) (550,630) (105,136)
Acquisition of outdoor assets (490,345) -- --
Increase in other intangible assets (10,881) (2,895) (1,870)
(Increase) decrease in other-net 7,891 (4,374) 5,340
Net cash used in investing activities (1,345,793) (796,764) (159,672)
Cash Flows From
Financing Activities:
Proceeds of long-term debt 2,013,160 718,575 162,600
Payments on long-term debt (1,614,821) (326,400) (64,800)
Payments of current maturities (5,176) (3,134) (4,419)
Proceeds from exercise of stock options 4,047 306 534
Proceeds from issuance of common stock 791,719 311,123 --
Net cash provided by financing activities 1,188,929 700,470 93,915
Net increase (decrease) in cash and
cash equivalents 7,956 11,310 (1,427)
Cash and cash equivalents at
beginning of year 16,701 5,391 6,818
Cash and cash equivalents
at end of year $ 24,657 $ 16,701 $ 5,391
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 12
CLEAR CHANNEL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its subsidiaries, substantially all of which are wholly-owned. Significant
intercompany accounts have been eliminated in consolidation. Investments in
nonconsolidated affiliates are accounted for using the equity method of
accounting. Certain amounts in prior years have been reclassified to conform to
the 1997 presentation.
Cash and Cash Equivalents:
Cash and cash equivalents include all highly liquid investments with an original
maturity of three months or less.
Prepaid Land Lease:
Most of the Company's outdoor advertising structures are located on leased land.
Land rents are typically paid in advance for periods ranging from one to twelve
months. Prepaid land leases are expensed ratably over the related rental term.
Film Rights:
The capitalized costs of film rights are recorded when the license period begins
and the film rights are available for use. The rights are amortized based on the
number of showings or license period.
Unamortized film rights assets are classified as current or noncurrent based on
estimated usage. Amortization of film rights is included in operating expenses.
Film rights liabilities are classified as current or noncurrent based on
anticipated payments.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is computed
principally by the straight-line method at rates that, in the opinion of
management, are adequate to allocate the cost of such assets over their
estimated useful lives, which are as follows:
Buildings - 10 to 30 years
Structures and site leases - 10 to 20 years
Transmitter and studio equipment - 7 to 15 years
Furniture and other equipment - 5 to 10 years
Leasehold improvements - generally life of lease
Expenditures for maintenance and repairs are charged to operations as incurred,
whereas expenditures for renewal and betterments are capitalized.
<PAGE> 13
Intangible Assets:
Intangible assets are stated at cost and are being amortized using the
straight-line method.
Excess cost over the fair value of net assets acquired (goodwill) and certain
licenses are generally amortized over 25 years. Covenants not-to-compete are
amortized over the respective lives of the agreements. Network affiliation
agreements are amortized over 10 years. Leases are amortized over the remaining
lease terms.
The periods of amortization are evaluated annually to determine whether
circumstances warrant revision.
Long-Lived Assets:
Impairment losses on long lived assets (including related goodwill) are
recognized when indicators of impairment are present and the estimated future
undiscounted cash flows are not sufficient to recover the assets' carrying
value.
Other Investments:
Other investments are composed primarily of equity securities. These securities
are classified as available-for-sale and carried at fair value based on quoted
market prices. The unrealized gains or losses on these investments, net of tax,
are reported as a separate component of shareholders' equity. The average cost
method is used to compute the realized gains and losses on sales of equity
securities.
Financial Instruments:
The carrying amounts of financial instruments approximate their fair value.
Income Taxes:
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting bases and tax bases of assets and liabilities and
are measured using the enacted tax rates expected to apply to taxable income in
the periods in which the deferred tax asset or liability is expected to be
realized or settled.
Revenue Recognition:
Radio and television broadcast revenue is recognized as advertisements or
programs are broadcast and is generally billed monthly. Outdoor advertising
provides services under the terms of contracts covering periods up to three
years, which are generally billed monthly. Revenue for outdoor advertising space
rental is recognized ratably over the term of the contract. Revenues from
design, production and certain other services are recognized as the services are
provided. Payments received in advance of billings are recorded as deferred
revenue.
Revenue from barter transactions is recognized when advertisements are broadcast
or outdoor advertising space is utilized. Merchandise or services received are
charged to expense when received or used.
Interest Rate Protection Agreements:
Periodically, the Company enters into interest rate swap agreements to modify
the interest characteristics of its outstanding debt. Each interest rate swap
agreement is designated with all or a portion of the principal balance and term
of a specific debt obligation. These agreements involve the exchange of amounts
based on a fixed interest rate for amounts based on variable interest rates over
the life of the agreement without an exchange of the notional amount upon which
the payments are based. The differential to be paid or received as interest
rates change is accrued and recognized as an adjustment to interest expense
related to the debt. The fair value of the swap agreements and changes in the
fair value as a result of changes in market interest rates are not significant.
Foreign Currency:
Foreign currency translation adjustments, which result from the translation of
financial statement information into U.S. dollars for the Company's investments
in Australian Radio Network Pty Ltd. (ARN) and New Zealand Radio Network (NZRN),
are accounted for as a separate component of shareholders' equity. Transaction
gains or losses are recorded as income or expense as incurred.
Stock Based Compensation:
The Company uses the intrinsic value method in accounting for its stock based
employee compensation plan.
<PAGE> 14
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Earnings Per Share:
In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, Earnings Per Share. The adoption of this new accounting standard, which
required the restatement of all presented periods' earnings per share data, did
not have a material impact on the Company.
NOTE B - BUSINESS ACQUISITIONS
In April of 1997, the Company acquired approximately 93% of the outstanding
stock of Eller Media, Inc. (Eller). Eller's operations included approximately
50,000 outdoor advertising display faces in 15 major metropolitan markets. As
consideration for the stock acquired, the Company paid cash of approximately
$329 million and issued common stock of the Company in the aggregate value of
approximately $298 million. In addition, the Company issued options on the
Company's common stock with an aggregate value of approximately $51 million in
connection with the assumption of Eller's outstanding stock options. In
addition, the Company assumed approximately $417 million of Eller's long-term
debt, which was refinanced at the closing date using the Company's credit
facility. This acquisition was accounted for as a purchase with resulting
goodwill of approximately $655 million. Subsequent to the acquisition of Eller,
the Company has acquired approximately 3,000 additional display faces and
executed license management agreements for approximately 4,000 display faces,
for an aggregate consideration of $161.7 million.
Also during 1997, the Company acquired substantially all of the broadcasting
assets of 70 radio stations, including four stations that the Company acquired
an 80% interest therein, and six news, sports and agricultural networks in 22
markets. The most significant acquisition was 43 radio stations, six news,
sports and agricultural networks and approximately 350 display faces acquired
from Paxson Communications, Inc. for approximately $629 million during the
fourth quarter of 1997. During 1996 the Company acquired substantially all of
the broadcasting assets of 49 radio stations, and two television stations in 20
markets. During 1995, the Company acquired substantially all of the broadcasting
assets of three radio stations, including two stations that the Company acquired
an 80% interest therein, two television stations and one news and agricultural
network in three markets. At December 31, 1997, the Company programmed 17 radio
stations and seven television stations under a local marketing agreement or a
joint sales agreement and does not own the FCC license.
The following is a summary of the assets acquired and the consideration given
for the above stated acquisitions:
<TABLE>
<CAPTION>
In thousands of dollars
1997 1996 1995
<S> <C> <C> <C>
Property, plant and
equipment $ 629,207 $ 47,579 $ 15,013
Accounts receivable 56,028 15,656 3,095
Licenses, goodwill and
other assets 1,460,505 488,251 93,716
Total assets acquired 2,145,740 551,486 111,824
Less:
Seller financing (1,400) -- --
Liabilities assumed (507,456) (856) (5,288)
Minority interest (15,047) -- --
Common Stock and
stock options issued (348,688) -- --
Cash paid for
acquisitions $ 1,274,549 $ 550,630 $ 105,136
</TABLE>
<PAGE> 15
The results of operations for 1997, 1996, and 1995 include the operations of
each station, for which the Company purchased the license, from the respective
date of acquisition. Unaudited pro forma consolidated results of operations,
assuming each of the acquisitions had occurred at January 1, 1995, would have
been as follows:
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
Year Ended December 31,
In thousands of dollars, except per share data
1997 1996 1995
<S> <C> <C> <C>
Net revenue $ 831,814 $ 670,481 $ 665,015
Net income (loss) $ 29,891 $ (22,773) $ (23,930)
Net income (loss) per
common share-diluted $ .28 $ (.30) $ (.32)
</TABLE>
The pro forma information above is presented in response to applicable
accounting rules relating to business acquisitions and is not necessarily
indicative of the actual results that would have been achieved had each of the
businesses been acquired at the beginning of 1995, nor is it indicative of
future results of operations.
NOTE C - INVESTMENTS
Australian Radio Network:
In May of 1995, the Company purchased a 50% interest in ARN, an Australian
company that owns and operates radio stations, a narrowcast radio broadcast
service and a radio representation company in Australia.
New Zealand Radio Network:
In July 1996 the Company purchased a one-third interest in NZRN, which purchased
all of the stock of Radio New Zealand Commercial, formerly a government-owned
company consisting of 52 radio stations throughout New Zealand.
Heftel Broadcasting Corporation:
In May of 1995, the Company purchased 21.4% of the outstanding common stock of
Heftel Broadcasting Corporation (Heftel) a Spanish-language radio broadcaster in
the United States. In August of 1996, the Company purchased an additional 41.8%
of the outstanding common stock of Heftel. In January of 1997, the Company
purchased an interest from the Tichenor family, which was subsequently exchanged
for Heftel common stock at the time of Heftel's merger with Tichenor Media
System, Inc. (Tichenor), another Spanish-language radio broadcaster with
stations in major Hispanic markets in the United States. In February of 1997,
the Company sold 350,000 shares of its Heftel common stock as a selling
shareholder in a secondary stock offering in which Heftel issued an additional
4.8 million shares of common stock. The Company recognized a gain of
approximately $6.2 million as a result of this transaction. Also, Heftel issued
another 5.6 million shares of its common stock in connection with its merger
with Tichenor. As a result of these transactions, the Company's interest in
Heftel was 32.3% of the total number of shares of Heftel's common stock
outstanding at December 31, 1997.
American Tower Corporation:
In July of 1997 the Company purchased a thirty percent (30%) interest in
American Tower Corporation (ATC), the leading independent domestic owner and
operator of wireless communication towers.
The following table summarizes the Company's investments in these
nonconsolidated affiliates:
<TABLE>
<CAPTION>
In thousands of dollars
ARN NZRN Heftel ATC Total
<S> <C> <C> <C> <C> <C>
At December 31, 1996 $73,242 $29,393 $128,025 $ -- $230,660
Acquisition of 30% of ATC 32,510 32,510
Additional investment, net 8,807 944 (3,989) 45 5,807
Equity in net
earnings (loss) 1,323 (4,202) 6,909 274 4,304
Amortization of
excess cost -- -- (1,097) (429) (1,526)
Foreign currency translation
adjustment (2,763) (2,301) -- -- (5,064)
At December 31, 1997 $80,609 $23,834 $129,848 $32,400 $266,691
</TABLE>
<PAGE> 16
These investments are not consolidated, but are accounted for under the equity
method of accounting, whereby the Company records its investments in these
entities in the balance sheet as "Investments in, and advances to,
nonconsolidated affiliates". The Company's interests in their operations are
recorded in the income statement as "Equity in earnings (loss) of
nonconsolidated affiliates". Other income derived from transactions with
nonconsolidated affiliates consists of interest and management fees which
aggregated $6.4 million in 1997, $4.5 million in 1996 and $1.4 million in 1995,
less applicable income taxes of $2.5 million in 1997, $1.7 million in 1996 and
$.4 million in 1995. Equity in the undistributed earnings (loss) included in
"Retained earnings" for these investments was $2.1 million and $(2.2) million
for December 31, 1997 and 1996, respectively.
Summarized Financial Information:
The following table presents summarized financial information for ARN and
Heftel:
Balance sheet information at December 31, 1997:
<TABLE>
<CAPTION>
In thousands of dollars
ARN(1) Heftel
<S> <C> <C>
Current assets $ 12,633 $36,695
Noncurrent assets 215,119 475,554
Current liabilities 31,263 25,725
Noncurrent liabilities 121,705 96,564
Shareholders' equity 74,784 389,960
Income statement information for period investment held in 1997:
Net revenues $72,116 $136,584
Operating expenses 52,077 82,064
Net income 10,749 18,772
</TABLE>
(1) For presentation purposes only, data for ARN has been translated into U.S.
dollars at the December 31, 1997 exchange rate and has been presented in
conformity with Australian GAAP. The Company's equity in net income of ARN,
which is based on U.S. GAAP, is not directly comparable to net income reported
by ARN. The most significant difference involves the charge against results of
operations for the amortization of radio licenses under U.S. GAAP, which is not
recorded under Australian GAAP. The Company's share of such amortization for its
investment in ARN was $2.9 million for the year ended December 31, 1997.
<PAGE> 17
Notes Receivable:
During 1997 and 1996, the Company provided approximately $35.4 million and $52.8
million respectively, in financing to third parties. The financing provided in
1997 was used to affect the acquisition of radio broadcasting operations. A
total of $21.4 million was relieved as consideration for six FCC licenses
acquired during January 1998. The remaining $14 million will be relieved as
consideration for three FCC licenses expected to be acquired during the first
half of 1998. The financing provided in 1996 was in the form of loans secured by
the assets of certain radio stations. These loans, which were paid in full
during 1997, were accounted for as notes receivable, with the related interest
income recorded in other income.
Other Investments:
Other investments at December 31, 1997 include marketable equity securities
recorded at market value of $62.2 million (cost basis of $23.9 million). During
1997, realized gains of $3.8 million were recorded in "Other income (expense) -
net." At December 31, 1997, unrealized gains, net of tax, of $23.8 million were
recorded as a separate component of shareholders equity.
NOTE D -
LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
In thousands of dollars
December 31,
1997 1996
<S> <C> <C>
Debentures, 7.25%, interest
payable semi-annually on
April 15 and October 15,
beginning April 15, 1998,
principal to be paid in full
on October 15, 2027.(1) $ 300,000 $ --
Revolving long-term line of
credit facility payable to banks,
three years interest only through
September 1999, payable quarterly,
rate based upon prime, LIBOR or
Fed funds rate, (6.3% at December
31, 1997) at the Company's
discretion, principal to be paid
in full by June 2005, $534.8 million
remains undrawn, secured by 100%
of the Common Stock of the Company's
wholly owned subsidiaries (2) 1,215,221 717,175
Other long-term debt 38,494 9,436
1,553,715 726,611
Less: current portion 13,294 1,479
Total long-term debt $1,540,421 $725,132
</TABLE>
(1) Proceeds from issuance of debentures totaled $294.3 million, net of fees and
initial offering discount. The fees and initial offering discount are being
amortized as interest expense over 30 years and at December 31, 1997, were $5.7
million.
(2) This facility converts into a reducing revolving line of credit on the last
business day of September 2000, with quarterly repayment of the principal to
begin on that date and continue quarterly through the last business day of June
2005, when the commitment must be paid in full. Of the $534.8 million undrawn,
$9.6 million is unavailable due to a guarantee and $27.7 million is unavailable
due to letters of credit. This leaves $497.5 million available at December 31,
1997 for future borrowings under the credit facility.
<PAGE> 18
The Company's current line of credit agreement with banks contains certain
covenants that substantially restrict, among other matters, the payment of cash
dividends and the pledging of assets.
Future maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
In thousands of dollars
<S> <C>
1998 $13,294
1999 7,344
2000 2,185
2001 2,200
2002 88,994
2003 and thereafter 1,439,698
$1,553,715
</TABLE>
The Company currently hedges a portion of its outstanding debt with interest
rate swap agreements that effectively fix the interest at rates from 5.5% to
8.5% on $565 million of its current borrowings. These agreements expire from
February 1998 to October 2000. The fair value of these agreements at December
31, 1997 and settlements of interest during 1997 were not material.
NOTE E - COMMITMENTS
The Company leases office space, certain broadcasting facilities, equipment and
the majority of the land occupied by its outdoor advertising structures under
long-term operating leases. Some of the lease agreements contain renewal options
and annual rental escalation clauses (generally tied to the consumer price index
or a maximum of 5%), as well as provisions for the payment of utilities and
maintenance by the Company. As of December 31, 1997, the Company's future
minimum rental commitments, under noncancelable lease agreements with terms in
excess of one year, consist of the following:
<TABLE>
<CAPTION>
In thousands of dollars
<S> <C>
1998 $37,596
1999 32,448
2000 26,714
2001 22,898
2002 18,315
2003 and thereafter 71,064
$209,035
</TABLE>
Rent expense charged to operations for 1997, 1996 and 1995 was $76.5 million,
$5.3 million and $4.5 million, respectively.
The Company's film rights commitments and related film assets are recorded on
the earliest date the rights are available for telecast. At December 31, 1997,
the future payments on these film rights liabilities are as follows:
<TABLE>
<CAPTION>
In thousands of dollars
<S> <C>
1998 $15,875
1999 9,359
2000 5,472
2001 676
2002 44
$31,426
</TABLE>
<PAGE> 19
Commitments for additional film license agreements in the amount of $26.3
million have been executed; however, they are not included in the amounts above
because the programs were not available for telecast as of December 31, 1997. In
addition, commitments for sports rights have been executed in the amount of $8.3
million for future radio and television broadcast of sporting events.
NOTE F - CONTINGENCIES
From time to time, claims are made and lawsuits are filed against the Company,
arising out of the ordinary business of the Company. In the opinion of the
Company's management, liabilities, if any, arising from these actions are either
covered by insurance or adequate reserves, or would not have a material adverse
effect on the financial condition of the Company.
In various areas in which the Company operates, outdoor advertising is the
object of restrictive and, in some cases, prohibitive zoning and other
regulatory provisions, either enacted or proposed. The impact to the Company of
loss of displays due to governmental action has been somewhat mitigated by
federal and state laws mandating compensation for such loss and constitutional
restraints.
NOTE G - INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
In thousands of dollars
1997 1996 1995
<S> <C> <C> <C>
Current - federal $28,321 $22,214 $16,085
Deferred 18,299 5,730 2,953
State 3,012 2,159 1,692
Total $49,632 $30,103 $20,730
</TABLE>
Included in current-federal is $2.5 million, $1.7 million and $.4 million for
1997, 1996 and 1995, respectively, related to taxes on other income from
nonconsolidated affiliates, which has been included as a reduction in "Equity in
earnings (loss) of nonconsolidated affiliates". The remaining $47.1 million,
$28.4 million and $20.3 million for 1997, 1996 and 1995, respectively, have been
reflected as income tax expense.
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
In thousands of dollars
1997 1996
<S> <C> <C>
Deferred Tax Liabilities:
Excess tax depreciation $18,190 $7,409
Excess tax amortization 13,514 4,868
Film amortization 809 809
Basis reduction of
acquired assets 2,670 413
Gain on sale of assets 3,175 --
Other 752 --
Total deferred tax liabilities 39,110 13,499
Deferred Tax Assets:
Gain on sale of assets 386 374
Deferred income 6,291 --
Operating loss carry forwards 11,087 1,581
Accrued expenses 8,603 --
Bad debt reserves 1,903 --
Other 726 261
Total deferred tax assets 28,996 2,216
Net deferred tax liabilities $10,114 $11,283
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
<PAGE> 20
In thousands of dollars
<TABLE>
<CAPTION>
1997 1996 1995
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Income tax expense
at statutory rates $38,772 35% $26,651 35% $17,926 35%
State income taxes, net
of federal tax benefit 1,958 2% 1,403 2% 1,100 2%
Amortization of goodwill 7,093 6% 1,493 2% 1,543 4%
Other - net 1,809 2% 556 1% 161
$49,632 45% $30,103 40% $20,730 41%
</TABLE>
The Company has certain net operating loss carryforwards amounting to
approximately $29.2 million, which expire beginning in the year 2011.
NOTE H - CAPITAL STOCK
Stock Splits and Dividends:
In October 1996 and October 1995, the Board of Directors authorized two-for-one
stock splits distributed on December 2, 1996 and November 30, 1995,
respectively, to stockholders of record on November 13, 1996 and November 15,
1995, respectively.
A total of 38.5 million and 17.3 million shares, respectively, were issued in
connection with the 1996 and 1995 stock splits. All share, per share, stock
price and stock option amounts shown in the financial statements (except the
Consolidated Statement of Changes in Shareholders' Equity) and related footnotes
have been restated to reflect the stock splits.
Eller Put/Call Agreement:
The Company granted to the former Eller stockholders certain demand and
piggyback registration rights relating to the shares of common stock received by
them. The holders of the remaining outstanding shares of Eller capital stock,
not purchased by the Company, have the right to put such stock to the Company
for approximately 1.1 million shares of the Company's common stock until April
10, 2002. From and after April 10, 2004, the Company will have the right to call
this minority interest stake in Eller for 1.1 million shares of the Company's
common stock.
<TABLE>
<CAPTION>
Reconciliation Of
Earnings Per Share:
In thousands, except per share data
1997 1996 1995
Numerator:
<S> <C> <C> <C>
Net income $63,576 $37,696 $32,014
Effect of dilutive securities:
Eller put/call agreement (2,577) -- --
Numerator for net income per
common share-diluted $60,999 $37,696 $32,014
Denominator:
Weighted average
common shares 88,480 73,422 69,092
Effect of dilutive securities:
Employee stock options 2,220 1,208 978
Eller put/call agreement 815 -- --
Dilutive potential
common shares 3,035 1,208 978
Denominator for net income
per common
share-diluted 91,515 74,630 70,070
Net income per common share:
Basic $.72 $.51 $.46
Diluted $.67 $.51 $.46
</TABLE>
<PAGE> 21
Stock Options:
The Company has granted options to purchase its common stock to employees and
directors of the Company and its affiliates under various stock option plans at
no less than the fair market value of the underlying stock on the date of grant.
These options are granted for a term not exceeding ten years and are forfeited
in the event the employee or director terminates his or her employment or
relationship with the Company or one of its affiliates. All option plans contain
antidilutive provisions that require the adjustment of the number of shares of
the Company common stock represented by each option for any stock splits or
dividends.
The following table presents a summary of the Company's stock options
outstanding at and stock option activity during the years ended December 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
In thousands, except per share data
Weighted Average Price
Options Per Share
<S> <C> <C>
Options outstanding at
January 1, 1997 1,638 $9.00
Options granted in acquisition 1,468 13.00
Options granted 346 44.00
Options exercised (495) 5.00
Options forfeited (28) 34.00
Options outstanding at
December 31, 1997 (1) 2,929 16.00
Weighted average fair value of
options granted during 1997 35.00
Options outstanding at
January 1, 1996 1,528 6.00
Options granted 233 28.00
Options exercised (107) 3.00
Options forfeited (16) 34.00
Options outstanding at
December 31, 1996 1,638 9.00
Weighted average fair value of
options granted during 1996 12.00
Options outstanding at
January 1, 1995 1,657 5.00
Options granted 195 14.00
Options exercised (264) 2.00
Options forfeited (60) 8.00
Options outstanding at
December 31, 1995 1,528 6.00
Weighted average fair value of
options granted during 1995 6.00
</TABLE>
(1) Vesting dates range from March 1993 to October 2002, and expiration dates
range from January 1998 to April 2007 at exercise prices ranging from $3.26 to
$61.00. There were 1.8 million shares available for future grants under the
various option plans at December 31, 1997.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996: risk-free interest rates of 6.0%; a dividend
yield of 0%. The volatility factors of the expected market price of the
Company's common stock used was 31% and 34% for 1997 and 1996, respectively,
and the weighted-average expected life of the option was five and six years for
1997 and 1996, respectively.
<PAGE> 22
Pro forma net income and earnings per share, assuming that the Company had
accounted for its employee stock options using the fair value method and
amortized such to expense over the options vesting period is as follows:
<TABLE>
<CAPTION>
In thousands, except per share data
1997 1996
<S> <C> <C>
Net Income
As reported $63,576 $37,696
Pro forma $61,739 $37,498
Net income per common share
Basic
As reported $ .72 $ .51
Pro forma $ .70 $ .51
Diluted
As reported $ .67 $ 51
Pro forma $ .67 $ .50
</TABLE>
In February 1991, CCTV, a wholly owned subsidiary of the Company, adopted the
1991 Non-Qualified Stock Option Plan which authorized the granting of options to
purchase 50,000 shares of CCTV Common Stock. In February 1993, CCTV elected to
discontinue the granting of options under this plan. At December 31, 1997, there
were 9,500 options outstanding under this plan, with an exercise date of January
1, 1999.
At December 31, 1997, common shares reserved for future issuance aggregated
approximately six million shares.
NOTE I - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Savings Plan (Plan) for the purpose of providing
retirement benefits for substantially all employees. Both the employees and the
Company make contributions to the Plan. The Company matches a portion of an
employee's deferred compensation to a maximum of $9,500 in 1997. Company matched
contributions vest to the employees based upon their years of service to the
Company. Contributions to this Plan of $1.2 million, $.7 million and $.5 million
were charged to expense for 1997, 1996 and 1995, respectively.
NOTE J - SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
In thousands of dollars
1997 1996 1995
<S> <C> <C> <C>
Supplemental Cash Flow:
Cash paid for interest $71,399 $24,316 $20,985
Cash paid for taxes 49,741 35,669 18,132
Other Income (Expense) - net:
Realized gains on sale
of marketable securities $10,019
Gain on disposal
of fixed assets 2,027
Minority interest (848)
Interest income
from notes receivable $ 1,779
Depreciation and Amortization:
Goodwill and licenses $49,800 $19,700 $9,900
</TABLE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Other Current and Long-Term Liabilities:
Acquisition accrual $15,236
Accrued compensation and benefits 12,159 $6,080
Outdoor advertising structure
takedown accrual 11,539
Accrued insurance 5,915
Accrued property tax 5,089
</TABLE>
<PAGE> 23
NOTE K - SEGMENT DATA
The Company consists of three principal business segments radio broadcasting,
television broadcasting and outdoor advertising. At December 31, 1997, the radio
segment included 156 stations for which the Company is the licensee and 17
stations operated under lease management or time brokerage agreements. These 173
stations operate in 40 markets. The radio segment also operates eight networks
including seven news and agriculture and one sports network.
At December 31, 1997, the television segment included 11 television stations for
which the Company is the licensee and seven stations operated under lease
management or time brokerage agreements. These 18 stations operate in 11
markets.
At December 31, 1997, the outdoor segment operated 57,660 advertising display
faces including 3,697 displays under license management agreements. These
display faces are in 17 markets.
Substantially all revenues are from unaffiliated companies.
<TABLE>
<CAPTION>
In thousands of dollars
1997 1996 1995
<S> <C> <C> <C>
Net revenue
Radio $332,571 $217,189 $144,244
Television 157,062 134,550 105,815
Outdoor 207,435 -- --
Consolidated $697,068 $351,739 $250,059
Operating expenses
Radio $201,182 $126,628 $87,531
Television 85,132 71,704 49,973
Outdoor 108,090 -- --
Consolidated $394,404 $198,332 $137,504
Depreciation
Radio $13,252 $8,916 $6,974
Television 11,563 10,420 8,406
Outdoor 26,885 -- --
Consolidated $51,700 $19,336 $15,380
Amortization of intangibles
Radio $35,215 $18,840 $13,007
Television 6,353 7,614 5,382
Outdoor 20,939 -- --
Consolidated $62,507 $26,454 $18,389
Operating income
Radio $82,922 $62,805 $36,732
Television 54,014 44,812 42,054
Outdoor 51,521 -- --
Consolidated $188,457 $107,617 $78,786
Total identifiable assets
Radio $1,840,908 $1,079,853 $340,685
Television 310,693 244,858 222,326
Outdoor 1,304,036 -- --
Consolidated $3,455,637 $1,324,711 $563,011
Capital expenditures
Radio $8,913 $7,447 $5,243
Television 7,011 12,276 9,867
Outdoor 15,032 -- --
Consolidated $30,956 $19,723 $15,110
</TABLE>
<PAGE> 24
NOTE L -
SUBSEQUENT EVENTS
In January 1998 the Company closed its acquisitions of WMXC-FM, WNTM-AM,
WDWG-FM, WKSJ-AM, WKSJ-FM and WRKH-FM, and signed a joint sales agreement for
WNSP-FM in Mobile, Alabama for approximately $24.0 million, acquired KDON-FM,
KDON-AM, KRQC-FM, KTOM-FM, KTOM-AM and KOCN-FM in Monterey, CA for approximately
$23.2 million and acquired WODE-AM and WEEX-FM in Allentown, PA for
approximately $29.0 million.
In February 1998 the Company closed its acquisitions of WJMI-FM, WKXI-AM/FM, and
WOAD-AM in Jackson, MS, for approximately $20.0 million.
On October 23, 1997 the Company entered into a definitive agreement to merge
with Universal Outdoor Holdings, Inc., (Universal) an international corporation
with over 34,000 display faces in 23 markets. The merger, which is subject to
certain closing conditions and regulatory approvals, is structured as an
exchange of stock; each share of Universal common stock will be exchanged for
.67 shares of the Company's stock. On February 6, 1998, the Universal common
stock shareholders voted to approve the adoption of the agreement and plan of
merger between Universal and the Company. Upon consummation of this merger, the
Company will issue approximately 19.3 million shares of its common stock (valued
at approximately $1,202 million) and assume approximately $566 million in
long-term debt. The Company intends to account for this merger as a purchase
transaction and expects to consummate this merger during the first half of 1998.
On March 5, 1998 the Company announced an agreement with the Board of Directors
of More Group, Plc (More Group) regarding the terms of a recommended cash offer
to acquire all of the issued shares of More Group. The offer values each More
Group share at (pound)10.30 or approximately $17.00. The total value of this
transaction is approximately (pound)475 million or, $735.7 million. More Group,
based in the United Kingdom, operates over 90,000 advertising displays in 22
countries. This transaction is subject to certain regulatory approvals and other
closing conditions. If these conditions are met, this transaction is expected to
close during 1998.
NOTE M - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
In thousands of dollars, except per share data
March 31, June 30, September 30, December 31,
1997 1996 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross revenue $110,831 $70,140 $212,200 $92,406 $209,050 $107,189 $258,097 $128,359
Net revenue $ 98,289 $62,208 $186,779 $81,370 $184,108 $ 94,839 $227,892 $113,322
Operating expenses 63,055 38,230 103,678 43,762 99,809 53,409 127,862 62,931
Depreciation and amortization 15,946 8,755 32,724 10,589 31,546 13,022 33,991 13,424
Operating income before
corporate expenses 19,288 15,223 50,377 27,019 52,753 28,408 66,039 36,967
Corporate expenses 2,854 1,674 5,017 1,804 5,828 2,170 7,184 2,879
Operating income 16,434 13,549 45,360 25,215 46,925 26,238 58,855 34,088
Interest expense 11,046 5,424 21,268 6,322 19,490 8,033 23,272 10,301
Other income
(expense)- net 6,259 206 (1,060) (19) 2,442 480 3,938 1,563
Income before income taxes 11,647 8,331 23,032 18,874 29,877 18,685 39,521 25,350
Income taxes 4,962 2,810 12,345 7,356 14,335 7,261 15,474 10,959
Income before equity in
earnings (loss) of
nonconsolidated affiliates 6,685 5,521 10,687 11,518 15,542 11,424 24,047 14,391
Equity in earnings (loss) of
nonconsolidated affiliates 914 717 4,407 1,030 3,067 (8,375) (1,773) 1,470
Net income $ 7,599 $ 6,238 $ 15,094 $ 12,548 $ 18,609 $ 3,049 $ 22,274 $ 15,861
Net income per
common share: (1)
Basic $ .10 $ .09 $ .18 $ .18 $ .21 $ .04 $ .23 $ .21
Diluted $ .10 $ .09 $ .16 $ .18 $ .19 $ .04 $ .22 $ .20
Stock price: (1)
High $49.6250 $29.5625 $63.3750 $43.3750 $68.7500 $45.2500 $79.4375 $44.5625
Low 34.2500 20.3750 42.7500 26.7500 58.6250 35.6250 60.0000 30.5000
</TABLE>
(1) Adjusted for two-for-one stock split effected in December 1996.
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol CCU.
<PAGE> 25
UNIVERSAL OUTDOOR HOLDINGS, INC.
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Universal Outdoor Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Universal Outdoor Holdings, Inc. and its subsidiary ("the
Company") at December 31, 1996 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 6, 1998
<PAGE> 27
UNIVERSAL OUTDOOR HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
December 31, December 31,
1996 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 11,631 $ 89
Cash held in escrow 9,455 -
Accounts receivable, less allowance
for doubtful accounts of $2,849 and $2,476 20,927 35,876
Other receivables 1,445 1,761
Prepaid land leases 4,010 9,520
Prepaid insurance and other 4,173 3,521
-------- ---------
Total current assets 51,641 50,767
Property and equipment, net 382,555 622,179
Goodwill and intangible assets, net 233,772 249,485
Other assets, net 25,114 18,417
-------- ---------
Total assets $693,082 $ 940,848
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 26,532 $ 27,177
Current maturities of long-term debt - 12,374
Accounts payable 3,373 5,512
-------- ---------
Total current liabilities 29,905 45,063
-------- ---------
Long-term debt and other obligations 349,141 507,600
Other long-term liabilities 485 -
Long-term deferred income tax liabilities 86,463 91,830
-------- ---------
Commitments and contingencies (Note 14) - -
Stockholders' equity
Preferred stock, $.01 par value, 10,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.01 par value, 75,000,000 shares authorized;
26,814,815 shares issued and outstanding 239 268
Warrants 9,967 9,499
Additional paid in capital 295,162 374,129
Accumulated deficit (78,280) (87,541)
-------- ---------
Total stockholders' equity 227,088 296,355
-------- ---------
Total liabilities and stockholders' equity $693,082 $ 940,848
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 28
UNIVERSAL OUTDOOR HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues $38,101 $84,939 $230,148
Less agency commissions 3,953 8,801 20,509
------- ------- --------
Net revenues 34,148 76,138 209,639
------- ------- --------
Operating expenses:
Direct advertising expenses 12,864 26,468 82,637
General and administrative expenses 4,645 10,648 18,976
Depreciation and amortization 7,402 18,286 59,977
Non-cash compensation expense - 9,000 8,289
------- ------- --------
24,911 64,402 169,879
------- ------- --------
Operating income 9,237 11,736 39,760
------- ------- --------
Other expense:
Interest expense, including amortization
of bond discount of $3,982, $4,256 and $9 12,234 19,567 46,400
Other expenses 706 1,398 2,621
------- ------- --------
Total other expense 12,940 20,965 49,021
------- ------- --------
Loss before extraordinary item (3,703) (9,229) (9,261)
Extraordinary loss on early extinguishment of debt - 26,574 -
------- ------- --------
Net loss $(3,703) $(35,803) $ ( 9,261)
======= ======== ==========
Loss per common and common equivalent share:
Basic loss before extraordinary item $ (0.48) $ (0.58) $ (0.37)
Basic extraordinary loss - (1.68) -
Basic net loss $ (0.48) $ (2.27) $ (0.37)
Average common shares outstanding 7,654 15,787 25,110
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 29
UNIVERSAL OUTDOOR HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,703) $(35,803) $(9,261)
Depreciation 10,354 13,309 42,347
Amortization 1,690 4,977 17,630
Noncash compensation expense - 9,000 8,289
Extraordinary loss - 26,574 -
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable and other receivables (762) (1,200) (14,137)
Prepaid land leases, insurance and other (391) 435 (1,919)
Accounts payable and accrued expenses (188) (3,308) (11,350)
---------- -------- -------
Net cash from operating activities 7,000 13,984 31,599
---------- -------- -------
Cash flows used in investing activities:
Capital expenditures (5,620) (7,178) (16,653)
Payments for acquisitions, net of cash acquired (1,925) (490,813) (263,706)
Payment for consulting agreement (1,400) - -
Other payments (124) 13 -
---------- -------- -------
Net cash used in investing activities (9,069) (497,978) (280,359)
---------- -------- -------
Cash flows from (used in) financing activities:
Proceeds from long-term debt offerings - 325,255 -
Long-term debt repayments (262) (117,815) (2,769)
Deferred financing costs (336) (14,590) (1,751)
Net borrowings under credit agreements 2,671 486,052 274,480
Repayment of credit facilities - (475,713) (102,980)
Proceeds from equity offerings - 292,417 70,238
---------- -------- -------
Net cash from financing activities 2,073 495,606 237,218
---------- -------- -------
Net increase (decrease) in cash and equivalents 4 11,612 (11,542)
Cash and equivalents, at beginning of period 15 19 11,631
---------- -------- -------
Cash and equivalents, at end of period $ 19 $ 11,631 $ 89
========== ======== =======
Supplemental cash flow information:
Interest paid during the period $8,196 $10,910 $43,621
========== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 30
UNIVERSAL OUTDOOR HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Common
Shares of Stock and Total
Shares of Common Additional Stockholders'
Common Stock Paid-In Accumulated Equity
Stock B and C Capital Warrants Deficit (Deficit)
----- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 7,000 $ 1,451 $ 2,500 $(38,774) $ (34,823)
Net loss (3,703) (3,703)
------ ----- ------- -------- -------- ---------
Balance at December 31, 1995 7,000 1,451 2,500 (42,477) (38,526)
Issuance of Class B and C common shares 6,000 30,000 30,000
Issuance of warrants 9,000 9,000
Conversion of Class B and Class C
common stock shares to common shares 6,000 (6,000)
Initial stock offering proceeds, net of costs
associated with issuance of $2,082 4,630 60,353 60,353
Exercise of warrants 613 1,533 (1,533)
Secondary stock offering proceeds, net of costs
associated with issuance of $796 5,750 202,064 202,064
Net loss (35,803) (35,803)
------ ----- ------- -------- -------- ---------
Balance at December 31, 1996 23,993 -- 295,401 9,967 (78,280) 227,088
Issuance of common stock shares,
net of costs associated with issuance of $1,066 2,230 72,524 72,524
Issuance of awards of common stock shares 99 4,738 4,738
Exercise of warrants 493 1,417 (1,417)
Forfeiture of warrants (632) (632)
Non-cash compensation
common stock options and warrants 317 1,581 1,898
Net loss (9,261) (9,261)
------ ----- -------- -------- -------- ---------
Balance at December 31, 1997 26,815 -- $374,397 $ 9,499 $(87,541) $ 296,355
====== ===== ======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 31
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS:
Universal Outdoor Holdings, Inc., was incorporated on May 23, 1991 and through
its principal operating subsidiary, Universal Outdoor, Inc. (collectively, the
"Company") is engaged principally in the rental of advertising space on outdoor
advertising structures. The Company operates in three distinct regions: the
Midwest (Chicago, Minneapolis/St. Paul, Indianapolis, Milwaukee, Des Moines,
Evansville, IN and Dallas), the Southeast (Orlando, Jacksonville, Ocala and the
Atlantic Coast, including Myrtle Beach and the Gulf Coast areas of Florida,
Memphis/Tunica and Chattanooga), and the East Coast (New York, Washington D.C.,
Philadelphia, Northern New Jersey, Wilmington, Salisbury and Hudson Valley, NY).
Historically, manufacturers of tobacco products, principally cigarettes, have
been major users of outdoor advertising displays, including displays operated by
the Company. The following industries generated significant revenues as a
percentage of the Company's total net revenues in 1997: tobacco (10.9%);
automotive (10.5%); retail (11.8%); and entertainment (15.4%).
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
The summary of significant accounting policies is presented to assist the reader
in understanding and evaluating the Company's consolidated financial statements.
These policies are in conformity with generally accepted accounting principles
consistently applied in all material respects.
Basis of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany balances, transactions and profits
have been eliminated.
Revenue recognition
The Company's revenues are generated from contracts with advertisers generally
covering periods of one to twelve months. The Company recognizes revenues
monthly over the period in which advertisement displays are posted on the
advertising structures. A full month's revenue is recognized in the first month
of posting. Costs incurred for the production of outdoor advertising displays
are recognized in the initial month of the contract or as incurred during the
contract period. Payments received in advance of billings are recorded as
deferred revenues.
6
<PAGE> 32
Cash and equivalents
The Company considers all highly-liquid investments with original maturities of
three months or less to be cash equivalents.
Cash held in escrow in 1996 represents a deposit made by Revere Holding Corp.
under an agreement relating to a contemplated acquisition of property. The
property was subsequently not acquired and therefore the funds were returned to
cash and cash equivalents.
Prepaid land leases
Most of the Company's advertising structures are located on leased land. Land
rents are typically paid in advance for periods ranging from one to twelve
months. Prepaid land leases are expensed ratably over the related rental term.
Property and equipment
Property and equipment are stated at cost. Normal maintenance and repair costs
are expensed. Depreciation is computed principally using a straight-line method
over the estimated useful lives of the assets:
Buildings 39 years
Advertising structures 15 years
Vehicles and equipment 5-7 years
Goodwill and intangible assets
Non-compete agreements are amortized over their estimated economic lives,
ranging from three to ten years. Goodwill is amortized over fifteen years on a
straight-line basis. The Company reviews the carrying value of intangibles and
other long-lived assets for impairment when events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. This
review is performed by comparing estimated undiscounted future cash flows from
the use of the asset to the recorded value of the asset.
Other assets
Loan costs incurred in connection with obtaining financing have been deferred
and are being amortized on a straight line basis over the life of the loans.
Acquisition costs are amortized over five years.
Fair value of financial instruments
The fair value of cash and equivalents, accounts receivable and accounts payable
approximate the carrying value because of the immediate or short-term maturity
of these financial instruments. The
7
<PAGE> 33
fair value of the Company's other financial instruments approximates the
carrying value.
Stock-based compensation
In 1996, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation." In accordance with
provisions of SFAS No. 123, the Company applies fair value accounting for its
stock-based compensation.
Earnings per share
The Company adopted SFAS No. 128 "Earnings Per Share" in the fourth quarter of
1997. SFAS No. 128 requires the presentation of basic and diluted earnings per
share, including the restatement of prior years. For the years ended December
31, 1997, 1996, and 1995 the presentation of diluted earnings per share was not
required.
Basic earnings per share is computed by dividing net income by the average
number of common shares outstanding during each year. All per share information
in these financial statements have been adjusted to give effect to a 16-for-one
stock split in July 1996.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform with the current year presentation and to reflect the
finalization of purchase accounting for 1996 acquisitions. These
reclassifications were not significant and had no effect on previously reported
net losses.
8
<PAGE> 34
NOTE 3 - EQUITY OFFERINGS AND DEBT REFINANCINGS:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Proceeds from equity offerings:
Private investors $ 30,000
Initial public offering 60,353
Secondary public offering 202,064 $ 70,238
--------- --------
292,417 70,238
--------- --------
Proceeds from long-term debt offerings:
9 3/4% Senoir Subordinated Debt 223,587
9 3/4% Series B Senior Subordinated Debt 101,500
Paramount note 168
---------
325,255
---------
Proceeds from credit facilities 486,052 274,480
--------- --------
Total proceeds from financings 1,103,724 344,718
--------- --------
Proceeds from financings used for:
14% Senior Secured Discount Notes repayment 32,718
11% Senior Notes repayment 65,000
Penalty on the early retirement of 11% Senior Notes
and 14% Senior Secured Notes 18,424
Mortgage and other 1,673 2,769
--------- --------
117,815 2,769
Repayment of credit facilities 475,713 102,980
Financing costs 14,590 1,751
--------- --------
608,118 107,500
--------- --------
Net financing proceeds $ 495,606 $237,218
========= ========
</TABLE>
In April 1996, the Company sold to private investors 2,984,000 shares of Class B
common stock and 3,016,000 shares of Class C common stock for net proceeds of
approximately $30 million. The proceeds were used to assist in financing the
acquisition of NOA Holding Corp.
In July 1996, the Company completed an initial public offering (IPO) of
approximately 4,630,000 shares of its common stock, at a price of $14.50 per
share for net proceeds of $60,353. In conjunction with the IPO, the Company
effected a 16-for-one stock split. In October 1996, a secondary offering of
approximately 5,750,000 shares of the Company's common stock was issued at an
offering price of $37.50 per share for net proceeds of $202,064.
In August 1997, an offering of approximately 2,109,000 shares of the Company's
common stock was issued at an offering price of $35.00 per share for net
proceeds of approximately $70.2 million.
At December 31, 1997 the Company's credit facility provides for a total loan
commitment of $305
9
<PAGE> 35
million with (i) a revolving line of credit facility providing for borrowings of
up to $12.5 million, (ii) an acquisition credit line in the amount of $212.5
million which is available under a revolving/term loan facility, (iii) a swing
line in the amount of $5 million, and (iv) a term loan agreement totaling $75
million. In 1997, proceeds from credit facilities totaled $274,480, while credit
facility repayments totaled $102,980.
In 1996 the Company completed a public offering of $225 million 9 3/4% Senior
Subordinated Notes due 2006 for net proceeds of $223,587 in October 1996 and a
private offering of $100 million 9 3/4% Series B Subordinated Notes due 2006 for
net proceeds of $101,500 in December 1996 (collectively, "the Notes Offerings").
The net proceeds of the 1996 equity offerings and the Notes Offerings together
with the proceeds under the available credit facilities were used to redeem all
of the outstanding 14% Senior Secured Discount Notes due 2003 at $32,718 and the
11% Senior Notes due 2003 at $65,000, pay the $18,424 related penalty, repay
approximately $285 million of the then outstanding credit facility and pay the
purchase price of $25 million relating to certain acquisitions which occurred in
1996. The redemptions during 1996 resulted in an extraordinary loss of $26,574.
In 1997, the net proceeds of the equity offerings were used to reduce
outstanding indebtedness.
NOTE 4 - ACQUISITIONS:
The Company's wholly owned subsidiary, Universal Outdoor, Inc. ("Universal")
completed the following acquisitions for primarily cash during 1996 and 1997:
<TABLE>
<CAPTION>
Purchase Price
------------------------------
Stock Asset
Acquired Acquisition Acquisition
-------- ----------- -----------
<S> <C> <C> <C>
Ad-Sign, Inc. January 1996 $12,500
NOA Holding Corporation April 1996 $ 83,295
Iowa Outdoor Displays September 1996 1,794
The Chase Company September 1996 5,800
Trans-Ad, Inc. October 1996 239,064
Revere Holding Corporation December 1996 123,794
Tanner-Peck LLC January 1997 71,659
Matthew Outdoor Advertising January 1997 40,931
Ad-Craft, Inc. February 1997 5,507
David Klein Outdoor Advertising, Inc. February 1997 5,258
Trans-Ad, Inc. March 1997 7,980
Penn Advertising of Baltimore, Inc. June 1997 46,500
Swaney Outdoor Advertising LLC July 1997 2,532
Allied Outdoor Advertising, Inc. July 1997 50,938
Visual Outdoor Advertising, Inc. August 1997 2,398
Gaess Outdoor, Inc. October 1997 15,827
</TABLE>
10
<PAGE> 36
<TABLE>
<S> <C> <C>
Royal Outdoor Advertising October 1997 4,034
Paxson Communications Corporation October 1997 4,418
Tagco, Inc. November 1997 2,733
</TABLE>
The aggregate purchase price of the Tanner-Peck, Inc. acquisition also included
100,000 shares of common stock of the Company issued on January 2, 1997, at
market value which approximated $2,306 in total.
In March, 1997 the Company acquired $600 of outdoor advertising properties in
Florida in exchange for 20,000 shares of the Company's common stock.
The purchase price for accounting purposes was allocated as follows to the
assets purchased and the liabilities assumed based upon the estimated fair
values on the dates of acquisition. It is expected that revisions to the assets
purchased and liabilities assumed will be made during 1998 for acquisitions made
in 1997; however, it is not expected that such revisions will have any material
effect.
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Current assets, other than cash 22,567 $ 2,278
Property and equipment 323,624 249,160
Goodwill and other intangibles 219,406 33,773
Other assets 4,847 229
Current liabilities (32,497) (13,072)
Net deferred taxes (71,700) (8,200)
Long-term debt - (547)
-------- --------
$466,247 $263,621
======== ========
</TABLE>
All acquisitions have been accounted for under the purchase method of accounting
and, accordingly, the operating results of the acquired businesses are included
in the Company's consolidated financial statements from the respective dates of
acquisition. Where required, net deferred taxes were recorded representing the
temporary difference between the tax attributes assumed and the recorded fair
value as of the date of acquisition. Since it is not deductible for tax
purposes, no deferred taxes are required to be recorded for amounts allocated to
goodwill.
In conjunction with the 1996 and 1997 acquisitions, the Company recorded
reserves of approximately $15.1 million to cover anticipated costs of combining
its existing business with the acquired outdoor advertising businesses. The
reserves relate to liabilities incurred for facility charges ($6.3 million),
professional fees ($3.2 million), relocation ($2.3 million), severance ($1.9
million) and other related expenditures ($1.4 million). At December 31, 1997
recorded reserves were approximately $3.3 million.
The following unaudited pro forma financial information includes the results of
operations of the 1996 and significant 1997 acquisitions as if the transactions
had been consummated as of the beginning of the periods presented after
including the impact of certain adjustments such as
11
<PAGE> 37
depreciation of advertising structures, amortization of goodwill and other
intangibles, reduction of corporate expenses and interest expense on debt
assumed to have been incurred to complete the transactions.
<TABLE>
<CAPTION>
1996 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Net revenues $189,915 $212,929
Depreciation and amortization 56,228 61,830
Operating income 35,916 47,886
Interest expense 50,634 48,376
Loss before income taxes and extraordinary item $(25,116) $(11,400)
Basic loss per share before income taxes and
extraordinary item $ (2.06) $ (0.45)
</TABLE>
These unaudited pro forma results are not necessarily indicative of what
actually would have occurred if the acquisitions had been in effect for the
entire periods presented and are not intended to project future results.
NOTE 5 - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Outdoor advertising structures $390,963 $657,928
Land and capitalized land lease costs 12,130 14,317
Vehicles and equipment 12,744 18,462
Building and leasehold improvements 11,087 14,123
Display faces under construction 748 2,831
-------- --------
427,672 707,661
Less accumulated depreciation 45,117 85,482
-------- --------
$382,555 $622,179
======== ========
</TABLE>
NOTE 6 - GOODWILL AND INTANGIBLE ASSETS:
Goodwill and intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Non-compete agreements $ 6,642 $ 9,084
Goodwill 236,672 260,504
-------- --------
243,314 269,588
Less accumulated amortization 9,542 20,103
-------- --------
$233,772 $249,485
======== ========
</TABLE>
12
<PAGE> 38
NOTE 7 - OTHER ASSETS:
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Financing costs $24,980 $17,722
Deposits 5,073 457
Other 4,815 6,987
------- -------
34,868 25,166
Less accumulated amortization 9,754 6,749
------- -------
$25,114 $18,417
======= =======
</TABLE>
NOTE 8 - ACCRUED EXPENSES:
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Interest payable $ 5,667 $ 6,641
State and other taxes payable 4,070 4,216
Merger costs - 3,100
Employee compensation and related taxes 2,479 2,582
Deferred revenue 2,114 2,366
Accrued leases 1,599 2,640
Severance and relocation 2,121 -
Professional services 1,935 -
Lease and maintenance 2,392 2,317
Other 4,155 3,315
-------- --------
$ 26,532 $ 27,177
======== ========
</TABLE>
NOTE 9 - LONG-TERM DEBT AND OTHER OBLIGATIONS:
Long-term debt and other obligations consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
9 3/4% Senior Subordinated Notes due 2006, net of
discount of $1,389 $223,611 $223,752
9 3/4% Series B Senior Subordinated Notes due 2006,
net of premium of $1,487 101,487 101,337
Revolving Credit Loan - 122,500
Acquisition Term Loan 20,000 69,000
Other obligations 4,043 3,385
--------- --------
349,141 519,974
Less current maturities of long-term
debt and other obligations - 12,374
--------- --------
$ 349,141 $507,600
========= ========
</TABLE>
13
<PAGE> 39
9 3/4% Senior Subordinated Notes
The Senior Notes mature on October 15, 2006 and bear interest at 9 3/4% payable
semiannually on April 15 and October 15, beginning on April 15, 1997. The
Company is required to meet certain financial tests which include those relating
to the maintenance of a minimum fixed charge ratio, minimum adjusted EBITDA
(earnings before interest, taxes, depreciation and amortization) and a senior
leverage ratio.
The Senior Notes are general unsecured obligations of the Company and are
subordinated to all existing and future Senior Debt, including the indebtedness
under the credit facilities. The indenture governing the Senior Notes contains
certain restrictive covenants including, among others, limitations on additional
debt incurrence, restrictions on distributions to shareholders, the creation of
liens, the merger or sale of substantially all of the Company or its operating
subsidiaries assets and engaging in certain transactions with affiliates.
9 3/4% Series B Senior Subordinated Notes
The Series B Senior Notes mature on October 15, 2006 and bear interest at 9 3/4%
payable semiannually on April 15 and October 15, beginning on April 15, 1997.
The Company is required to meet certain financial tests which include those
relating to the maintenance of a minimum fixed charge ratio and minimum adjusted
EBITDA.
The Series B Senior Notes are general unsecured obligations of the Company and
are subordinated to all existing and future Senior Debt, including indebtedness
under the credit facilities. The indenture governing the Series B Senior Notes
contains certain restrictive covenants including, among others, limitations on
additional debt incurrence, restrictions on distributions to shareholders, the
creation of liens, the merger or sale of substantially all of the Company's
assets and engaging in certain transactions with affiliates.
Credit Facilities
In October 1996, the Company amended and restated its existing credit facilities
to provide for a total loan commitment of $230 million with (i) a revolving line
of credit facility providing for borrowings of up to $12.5 million, (ii) an
acquisition credit line in the amount of $212.5 million which is available under
a revolving/term loan facility and (iii) a swing line in the amount of $5
million. In May 1997, the Company entered into a term loan agreement totaling
$75 million, increasing the total loan commitment to $305 million. $3 million of
the term loan matures every quarter through September 30, 2003, with the
remaining maturing on September 30, 2004. Approximately $212.5 million of the
credit facility matures on September 30, 2003 with the remaining amount maturing
on September 30, 2004. As of December 31, 1997, the Company had drawn down
$122.5 million under the acquisition credit facility, $69 million under the term
loan and had no borrowings under the revolving credit facility or the swing line
of credit.
14
<PAGE> 40
The loans under the revolving credit facility and acquisition term loan bear
interest at the rate per annum equal to the prime rate or euro dollar rate, plus
an additional 0% to 2.75% depending on the leverage ratio of the Company as
defined in the credit facility agreement. The interest rate in effect during
1997 ranged from 7.5 % to 10%. Interest on the credit facility is payable upon
the date of maturity.
Each of the revolving credit facility and the acquisition credit facility are
secured by a first priority lien on the assets of the Company and upon the
existence of certain conditions, a pledge of the common stock of the Company
held by certain management shareholders, as well as the pledge of the Company's
stock. Borrowings under the new credit facility are subject to certain
restrictive covenants including, among others, a minimum fixed charge ratio, a
minimum adjusted EBITDA and maximum senior leverage ratio. The new credit
facility contains certain restrictive covenants including, among others,
limitations on additional debt incurrence, restrictions on distributions to
shareholders, the creation of liens, the merger or sale of substantially all of
the Company's assets and engaging in certain transactions with affiliates.
Commitment fees are 1/2 percent on the unused portion of the acquisition credit
line and the revolving credit facility.
Net debt issuance costs of $14,100 were capitalized in 1996 and are being
amortized on a straight-line basis over the term of the debt.
Future maturities of long-term debt and other obligations as of December 31,
1997 are as follows:
<TABLE>
<S> <C>
1998 $ 12,374
1999 179,809
2000 364
2001 201
2002 157
2003 and thereafter 327,069
---------
Total $ 519,974
=========
</TABLE>
15
<PAGE> 41
NOTE 10 - LEASE COMMITMENTS:
Rent expense totaled $4,600, $13,002 and $36,660 in 1995, 1996 and 1997,
respectively. Minimum annual rentals under the terms of noncancelable operating
leases with terms in excess of one year in effect at December 31, 1997 are
payable as follows:
<TABLE>
<CAPTION>
Year Capital Operating
---- ------- ---------
<S> <C> <C>
1998 $ 59 $ 620
1999 118 613
2000 159 542
2001 - 359
2002 and thereafter - 733
----- -----
Total minimum lease payments 336
Less: current portion 59
-----
Long-term capitalized lease obligations $ 277 $2,867
===== ======
</TABLE>
NOTE 11- INCOME TAXES:
The Company incurred a net operating loss in 1995, 1996 and 1997; therefore, no
provision for income taxes was required.
Deferred tax assets (liabilities) consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Deferred tax liabilities:
Property and equipment $(99,212) $(101,820)
-------- ---------
Total deferred tax liabilities $(99,212) $(101,820)
-------- ---------
Deferred tax assets:
Bad debts 897 1,153
Non-deductible accrued expenses 2,140 969
Goodwill and intangibles 6,112 3,941
Warrants 3,600 3,927
Operating loss and credit carryforwards 19,865 19,865
-------- --------
Total deferred tax assets 32,614 29,855
-------- --------
Valuation allowance (19,865) (19,865)
-------- --------
Net deferred tax liabilities $(86,463) $(91,830)
======== ========
</TABLE>
The Company has established a valuation allowance against its operating loss and
credit carryforwards following an assessment of the likelihood of realizing such
amounts. In arriving at the determination as to the amount of the valuation
allowance required, the Company considered its past operating history as well as
the cost of integrating significant acquisitions made in 1996 and 1997 statutory
restrictions on the use of operating losses from acquisitions acquired during
the year, tax planning strategies and its expectation of the level and timing of
future taxable income.
16
<PAGE> 42
At December 31, 1997, the Company had net operating loss and credit
carryforwards for federal income tax purposes of approximately $76 million.
Included in total net operating loss carryforwards is approximately $35 million
of operating loss and credit carryforwards generated by certain acquired
companies prior to their acquisition by the Company. Total carryforwards expire
between 2005 and 2011. During the current fiscal year, the Company did not
utilize any net operating loss or credit carryforwards.
The Company experienced an ownership change within the meaning of Section 382 of
the Internal Revenue Code. As such, the utilization of net operating loss
carryforwards are subject to an annual limitation based upon the value of the
Company on the change date. The acquisition of Outdoor Advertising Holdings,
Inc. and Revere Holding Corp. resulted in an "ownership change" and a limitation
is imposed on the acquired net operating loss carryforwards in these
acquisitions. Furthermore, the Company's use of the net operating loss
carryforwards are subject to limitations applicable to corporations filing
consolidated federal income tax returns.
NOTE 12 - WARRANTS AND OPTIONS:
The following table summarizes the Company's warrant activity:
<TABLE>
<CAPTION>
Exercise
1996 Price 1997
---- ----- ----
<S> <C> <C> <C>
Number of shares under warrants:
Beginning of year 1,000,000 $.000625 2,857,808
Granted 2,470,608 $5.00 44,000
Exercised (612,800) (510,730)
Canceled/expired - (173,499)
--------- ---------
Warrants outstanding at end of year 2,857,808 2,217,579
========= =========
Warrants exercisable at end of year 2,857,808 2,217,579
========= =========
</TABLE>
In 1994, the Company issued 1,000,000 warrants which expire on July 1, 2004.
The warrants were assigned, based on market conditions at the time of grant, a
value of $2,500. Each warrant entitles the holder to purchase one share of
common stock (the "warrant share"). In July 1996, a total of 612,800 warrants
were exercised into warrant shares. In July 1997, the remaining 387,200 warrants
were exercised into warrant shares.
In April 1996, key executives and employees were granted 2,470,608 warrants to
purchase common shares (the "1996 Warrant Plan"). Each warrant is fully
exercisable into one share of common stock at a warrant exercise price of $5.00
per share. In June 1997, the Company filed a Registration Statement on Form S-8
to register 500,000 shares of the Company's common stock to be issued under the
Company's Equity Incentive Plan. During 1997, the Company issued 44,000 options
for common stock at an exercise price of $0.01 per share. In addition, the
Company issued 93,300 options for common stock at an exercise price of $35.00
per share. The 44,000 shares vested
17
<PAGE> 43
immediately and the 93,300 shares vest ratably over a three year period. At
December 31, 1997 no options have been exercised under the Company's Equity
Incentive Plan.
In December 1997, the Company issued 147,838 shares of restricted stock to
senior level employees. The restricted stock vests after one year from the date
of the grant.
The fair value of each warrant, option or restricted stock was estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1996 and 1997.
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Risk free interest rate 6.28% 5.59%
Expected lives (years) 7 1-3
Volatility 39.42% 58.52%
Dividend yield 0 0
</TABLE>
NOTE 13 - COMMON STOCK OFFERING:
On August 15, 1997, the Company completed an offering of 5,912,500 shares of
Common Stock of which 2,109,105 were primary shares and 3,803,395 were secondary
shares (the "August Offering"). Proceeds to the Company from the August Offering
totaled approximately $70.2 million. All of the proceeds were used to reduce
outstanding indebtedness.
NOTE 14 - CONTINGENCIES:
The Company is subject to various other claims and routine litigation arising in
the ordinary course of business. Based on the advice of counsel, management does
not believe that the result of such other claims and litigation, individually or
in the aggregate, will have a material effect on the Company's business or its
results of operations, cash flows or financial position.
NOTE 15 - DEFINED CONTRIBUTION PLAN:
The Company sponsors a qualified 401(k) plan available to substantially all
full-time employees. Participants may contribute up to 15% of their annual
salary to the plan. The Company matches 50% of the first $2,000 contributed by
the participant at the end of the plan year.
18
<PAGE> 44
NOTE 16 - QUARTERLY FINANCIAL DATA (unaudited):
Summarized quarterly financial data for 1997 is as follows:
<TABLE>
<CAPTION>
(In thousands, except per share data) First Second Third Fourth
----- ------ ----- ------
1997
- ----
<S> <C> <C> <C> <C>
Net revenues $44,008 $53,105 $55,635 $56,891
Operating income 8,303 14,069 12,058 5,330
Loss before extraordinary item (2,250) 3,148 (402) (9,757)
Net loss (2,250) 3,148 (402) (9,757)
Per Share:
Basic income (loss) before extraordinary item ($.09) $.12 ($.01) ($.37)
Basic net income (loss) ($.09) $.12 ($.01) ($.37)
Weighted average shares outstanding 24,096 25,872 26,942 26,716
</TABLE>
In the third quarter of 1997, the Company recorded a non-cash compensation
charge in the amount of $1.6 million relating to management warrants.
In the fourth quarter of 1997, the Company recorded a non-cash compensation
charge in the amount of $7.3 million related to management awards and options.
Summarized quarterly financial data for 1996 is as follows:
<TABLE>
<CAPTION>
(In thousands, except per share data) First Second Third Fourth
----- ------ ----- ------
1996
- ----
<S> <C> <C> <C> <C>
Net revenues $8,427 $17,812 $18,643 $31,256
Operating income 1,597 (1,638) 5,874 5,903
Income (loss) before extraordinary item (2,008) (8,148) 1,991 (1,064)
Net income (loss) (2,008) (8,148) 591 (26,238)
Per Share:
Basic income (loss) before extraordinary item ($.26) ($1.06) $.10 ($ .04)
Basic net income (loss) ($.26) ($1.06) $.03 ($1.08)
Weighted average shares outstanding 7,654 7,654 19,297 24,343
</TABLE>
In the third quarter of 1996, the Company recorded a non-cash compensation
charge in the amount of $9 million relating to management warrants.
In 1996, the Company recorded an extraordinary loss of $26,574 related to the
early retirement of the 11% Senior Notes and the 14% Senior Secured Notes.
19
<PAGE> 45
NOTE 17 - SUBSEQUENT EVENTS:
In January 1998, the Company acquired approximately 16 advertising display faces
located in and around New York City, New York. The purchase price was
approximately $8.5 million in cash.
In February 1998, the Company acquired a total of 2,500 display faces for $32.5
million in cash with ad rights at airports in Chicago, Atlanta, Dallas, Denver,
Newark, Boston, and Aspen.
In October 1997, the Company announced an agreement to merge with Clear Channel
Communications, Inc., a San Antonio based diversified media company. The Company
received shareholder approval for the merger on February 6, 1998. The merger is
expected to be completed in the first quarter of 1998.
20
<PAGE> 46
Item 7.(b) Pro forma financial information.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements give
effect to the Merger. For accounting purposes the Merger will be accounted for
as a purchase of Universal by the Company; accordingly the net assets of
Universal have been adjusted to their estimated fair values based upon a
preliminary purchase price allocation.
The unaudited pro forma combined condensed statements of operations for the year
ended December 31, 1997 give effect to the Merger as if it had occurred at
January 1, 1997. The unaudited pro forma combined condensed balance sheet at
December 31, 1997 gives effect to the Merger as if it occurred on December 31,
1997.
The unaudited pro forma combined condensed statements of operations were
prepared based upon the historical statement of operations of the Company
adjusted to reflect the acquisition of Eller Media and the Paxson Radio
Acquisition as if such acquisitions had occurred at January 1, 1997 (Clear
Channel Pro Forma) and the historical statement of operations of Universal. The
unaudited pro forma combined condensed balance sheet was prepared based upon the
historical balance sheets of the Company and Universal.
The unaudited pro forma combined condensed financial statements do not give
effect to any potential divestitures or regulatory costs that may be imposed by
a Governmental entity as a condition for their approval of the Merger.
The unaudited pro forma combined condensed financial statements should be read
in conjunction with the historical financial statements of the Company and
Universal included herein.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of the actual results of operations or financial position
that would have occurred had the Merger and the above described acquisitions by
the Company and Universal occurred on the dates indicated nor are they
necessarily indicative of future operating results or financial position.
<PAGE> 47
CLEAR CHANNEL AND UNIVERSAL
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(Dollars in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Clear Channel
Pro Forma and Universal
Clear Channel Universal Merger Pro Forma
Historical Historical Adjustments Merger
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,657 $ 89 $ (15,000) $ 9,746
Accounts receivable, net 155,962 35,876 -- 191,838
Film rights - current 14,826 -- -- 14,826
Other current assets 3,202 14,802 -- 18,004
----------- ----------- ----------- -----------
Total Current Assets 198,647 50,767 (15,000) 234,414
Property, plant & equipment, net 746,284 622,179 -- 1,368,463
Intangible assets:
Network affiliation agreements 33,727 -- -- 33,727
Licenses and goodwill 2,175,944 260,504 902,290 3,338,738
Covenants not-to-compete 24,892 9,084 -- 33,976
Other intangible assets 19,593 -- -- 19,593
----------- ----------- ----------- -----------
2,254,156 269,588 902,290 3,426,034
Less accumulated amortization (141,066) (20,103) 18,213 (142,956)
----------- ----------- ----------- -----------
2,113,090 249,485 920,503 3,283,078
Other assets:
Notes receivable 35,373 -- -- 35,373
Film rights 14,171 -- -- 14,171
Investments in and advances
to, nonconsolidated affiliates 266,691 -- -- 266,691
Other assets 30,122 18,417 -- 48,539
Other investments 51,259 -- -- 51,259
----------- ----------- ----------- -----------
TOTAL ASSETS $ 3,455,637 $ 940,848 $ 905,503 $ 5,301,988
=========== =========== =========== ===========
LIABILITIES
Current liabilities:
Accounts payable $ 11,904 $ 5,512 $ -- $ 17,416
Accrued interest 9,950 -- -- 9,950
Accrued expenses 34,489 27,177 -- 61,666
Deferred income 1,340 -- -- 1,340
Current portion of long-term debt 13,294 12,374 -- 25,668
Current portion of film rights liability 15,875 -- -- 15,875
----------- ----------- ----------- -----------
Total Current Liabilities 86,852 45,063 -- 131,915
Long-term debt 1,540,421 507,600 -- 2,048,021
Film rights liability 15,551 -- -- 15,551
Deferred income taxes 10,114 91,830 -- 101,944
Deferred income - long-term 9,750 -- -- 9,750
Other long-term liabilities 25,378 -- -- 25,378
Minority interest 20,787 -- -- 20,787
Shareholders' equity:
Preferred stock -- -- -- --
Common stock 9,823 268 1,661 11,752
Additional paid-in capital 1,541,865 374,129 825,800 2,741,794
Retained earnings/
(accumulated deficit) 169,631 (87,541) 87,541 169,631
Other 2,398 9,499 (9,499) 2,398
Unrealized gain on investments 23,754 -- -- 23,754
Cost of shares held in treasury (687) -- -- (687)
----------- ----------- ----------- -----------
Total Shareholders' Equity 1,746,784 296,355 905,503 2,948,642
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 3,455,637 $ 940,848 $ 905,503 $ 5,301,988
=========== =========== =========== ===========
</TABLE>
<PAGE> 48
CLEAR CHANNEL AND UNIVERSAL
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
(In thousands, except per share data)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Clear Channel
Pro Forma and Universal
Clear Channel Universal Merger Pro Forma
Pro Forma Historical Adjustments Merger
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $ 831,814 $ 209,639 $ -- $ 1,041,453
Operating expenses 490,324 101,613 -- 591,937
Depreciation and amortization 152,206 59,977 30,881 243,064
Noncash compensation for
incentive options -- 8,289 (8,289) --
Corporate expenses 23,201 -- -- 23,201
----------- ----------- ----------- -----------
Operating income (loss) 166,083 39,760 (22,592) 183,251
Interest expense 116,805 46,400 -- 163,205
Other income (expense) - net 6,463 (2,621) -- 3,842
----------- ----------- ----------- -----------
Income (loss) before income taxes 55,741 (9,261) (22,592) 23,888
Income tax (expense) benefit (32,465) -- -- (32,465)
----------- ----------- ----------- -----------
Income before equity in earnings
(loss) of nonconsolidated affiliates 23,276 (9,261) (22,592) (8,577)
Equity in earnings (loss) of
nonconsolidated affiliates 6,615 -- -- 6,615
----------- ----------- ----------- -----------
Net income (loss) $ 29,891 $ (9,261) $ (22,592) $ (1,962)
=========== =========== =========== ===========
Net income (loss) per common share:
Basic $ .33 $ (0.02)
=========== ===========
Diluted $ .28 $ (0.05)
=========== ===========
Other Data:
After tax cash flow (1) $ 217,759 $ 59,005 $ -- $ 276,764
=========== =========== =========== ===========
After tax cash flow per
common share - Diluted (2) $ 2.33 $ 2.45
=========== ===========
</TABLE>
(1) After-tax cash flow is defined as net income (loss) before unusual items
plus depreciation, amortization of intangible (including non-consolidated
affiliates) and deferred tax. After-tax cash flow is not presented as a
measure of operating results and does not purport to represent cash provided
by operating activities. After-tax cash flow should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(2) After-tax cash flow per share is defined as after-tax cash flow divided by
weighted average common shares and common share equivalents outstanding
assuming dilution.
<PAGE> 49
CLEAR CHANNEL AND UNIVERSAL
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The Company and Universal unaudited pro forma combined condensed financial
statements reflect the Merger, accounted for as a purchase, as follows (In
thousands, except per share amounts):
<TABLE>
<S> <C>
Universal Common Stock outstanding at December 31, 1997 adjusted
to reflect the exercise of all outstanding options and warrants 28,787,442
Exchange ratio .67
------------
Shares of the Company's Common Stock assumed to be issued in connection
with the Merger 19,287,586
Estimated value per share x $62.3125
------------
$ 1,201,858
Estimated transaction costs 15,000
------------
Total estimated purchase price $ 1,216,858
============
</TABLE>
For purpose of these statements the total estimated purchase price was allocated
as follows:
<TABLE>
<S> <C>
Total estimated purchase price $ 1,216,858
Universal's net assets at December 31,1997 adjusted for the
elimination of existing goodwill of $242,291 54,064
------------
Estimated excess purchase price (allocated to goodwill) $ 1,162,794
============
</TABLE>
The estimated excess purchase price allocated to goodwill of $1,162,794 will be
amortized over a 25 year period using the straight line method which will result
in annual goodwill amortization of $46,512.
The pro forma merger adjustments at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Increase (Decrease)
In Thousands
------------
<S> <C>
Cash and cash equivalents $ (15,000)
Licenses and goodwill 902,290
Common stock 1,661
Additional paid-in capital 825,800
Retained earnings (accumulated deficit) 87,541
Other shareholders' equity (9,499)
</TABLE>
The pro forma merger adjustments for the year ended December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Increase (Decrease)
Income
In Thousands
------------
<S> <C>
Depreciation and amortization $ (30,881)
Noncash compensation for incentive options 8,289
</TABLE>
<PAGE> 50
CLEAR CHANNEL
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(In thousands, except per share data)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Clear Channel Paxson
Clear Channel Eller Media Pro Forma Eller Media Radio Pro Forma Clear Channel
Historical Historical Adjustment(1) Pro Forma Historical Adjustment(2) Pro Forma
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue $ 697,068 $ 56,642 -- $ 753,710 $ 78,104 $ -- $ 831,814
Operating expenses 394,404 33,804 -- 428,208 63,362 (1,246) 490,324
Depreciation and amortization 114,207 10,547 $ 5,974 130,728 12,101 9,377 152,206
Corporate expenses 20,883 2,318 -- 23,201 4,059 (4,059) 23,201
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss) 167,574 9,973 (5,974) 171,573 (1,418) (4,072) 166,083
Interest expense 75,076 8,565 2,518 86,159 1,370 29,276 116,805
Other income (expense) - net 11,579 (4,082) -- 7,497 (1,034) -- 6,463
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes 104,077 (2,674) (8,492) 92,911 (3,822) (33,348) 55,741
Income tax (expense) benefit (47,116) (3) 1,315 (45,804) -- 13,339 (32,465)
--------- --------- --------- --------- --------- --------- ---------
Income before equity in earnings
(loss) of nonconsolidated affiliates 56,961 (2,677) (7,177) 47,107 (3,822) (20,009) 23,276
Equity in earnings (loss) of non-
consolidated affiliates 6,615 -- -- 6,615 -- -- 6,615
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ 63,576 $ (2,677) $ (7,177) $ 53,722 $ (3,822) $ (20,009) $ 29,891
========= ========= ========= ========= ========= ========= =========
Net income (loss) per common share:
Basic $ .72 $ .60 $ .33
========= ========= =========
Diluted $ .67 $ .54 $ .28
========= ========= =========
</TABLE>
<PAGE> 51
CLEAR CHANNEL
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, 1997
ELLER MEDIA ACQUISITION
(1) 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 $(5,974)
goodwill created by the acquisition and a decrease in amortizable life from 40
years (Eller Media) to 25 years (The Company) and additional depreciation of $769
related to the adjustment of fixed assets to fair value.
(b) Increase in interest expense due to a higher amount of average debt outstanding (2,518)
which was partially offset by a lower average interest rate (6% average rate for
The Company and 8.8% for Eller Media during the first three months of 1997).
(c) Tax effect of the above adjustments to depreciation and interest expense at The 1,315
Company's estimated effective tax rate of 40%
</TABLE>
PAXSON RADIO ACQUISITION
(2) Represents the pro forma effect of the acquisition of Paxson Radio
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 $ 1,246
the plan.
(b) Increase in amortization expense resulting from the additional goodwill created (9,377)
by the acquisition.
</TABLE>
<PAGE> 52
<TABLE>
<S> <C>
(c) Elimination of corporate general and administrative expenses resulting from the 4,059
elimination of the Paxson corporate office.
(d) Increase in interest expense (at an average interest rate of 6.5% for the first (29,276)
nine months of 1997) due to additional borrowing on the Company's credit facility
to finance the acquisition cost.
(e) Tax effect of the above adjustment at the Company's estimated effective
tax rate of 40%. 13,339
</TABLE>
<PAGE> 53
Item 7(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1 -- Agreement and Plan of Merger dated as of October 23, 1997,
among Universal Outdoor Holdings, Inc., the Company, and UH
Merger Sub, Inc. (previously filed on the Company's Current
Report on Form 8-K dated November 3, 1997.)
2.2 -- Resale Agreement dated as of October 23, 1997, by and among
the Company and Daniel L. Simon. (previously filed on the
Company's Registration Statement on Form S-4 (File No.
333-43747)).
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of KPMG.
23.3 -- Consent of KPMG Peat Marwick LLP.
23.4 -- Consent of Price Waterhouse LLP.
99.1 -- Management's Discussion and Analysis of financial condition
and results of operations
</TABLE>
<PAGE> 54
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.
<TABLE>
<S> <C> <C>
Date March 12, 1998 By /s/L. LOWRY MAYS
L. Lowry Mays, Chairman/
Chief Executive Officer
Date March 12, 1998 By /s/HERBERT W. HILL, JR.
Herbert W. Hill, Jr.
Senior Vice President/
Chief Accounting Officer
</TABLE>
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1 -- Agreement and Plan of Merger dated as of October 23, 1997,
among Universal Outdoor Holdings, Inc., the Company, and UH
Merger Sub, Inc. (previously filed on the Company's Current
Report on Form 8-K dated November 3, 1997.)
2.2 -- Resale Agreement dated as of October 23, 1997, by and among
the Company and Daniel L. Simon. (previously filed on the
Company's Registration Statement on Form S-4 (File No.
333-43747)).
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of KPMG.
23.3 -- Consent of KPMG Peat Marwick LLP.
23.4 -- Consent of Price Waterhouse LLP.
99.1 -- Management's Discussion and Analysis of financial condition
and results of operations
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the shelf Registration Statement
(Form S-3 No. 333-33371) and the Registration Statement (Form S-4 No. 333-43747)
of Clear Channel Communications, Inc. of our report dated March 11, 1998 with
respect to the historical consolidated financial statements of Clear Channel
Communications, Inc. included in this Current Report (Form 8-K) dated March 12,
1998 filed with the Securities and Exchange Commission.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8) pertaining to the 1984 Incentive Stock Option Plan of
Clear Channel Communications, Inc. (No. 33-14193); the Clear Channel
Communications, Inc. Nonqualified Stock Option Plan (No. 33-59772); the Clear
Channel Communications, Inc. 1994 Incentive Stock Option Plan, the Clear
Channel Communications, Inc. 1994 Nonqualified Stock Option Plan, the Clear
Channel Communications, Inc. Directors' Nonqualified Stock Option Plan; the
Option Agreement for Officer (No. 33-64463); and the Non-Qualified Option Grant
to Karl Eller dated April 10, 1997, the Non-Qualified Option Grant to Paul J.
Meyer dated April 10, 1997, the Non-Qualified Option Grant to Timothy J.
Donmoyer dated April 10, 1997, and the Eller Media Company Senior Management
Incentive Plan of Clear Channel Communications, Inc. (333-29717) of our report
dated March 11, 1998 with respect to the historical consolidated financial
statements of Clear Channel Communications, Inc. included in this Current
Report (Form 8-K) dated March 12, 1998 filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
San Antonio, Texas
March 12, 1998
<PAGE> 1
EXHIBIT 23.2
Board of Directors
Clear Channel Communications, Inc.
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 333-033371), in Registration Statements on Form S-8 (Nos.
33-14193, 33-59772, 33-64463 and 333-29717), and in the Registration Statement
on Form S-4 (No. 333-43747) of our report dated March 4, 1997, relating to the
1996 consolidated financial statements of Australian Radio Network Pty Limited
and its controlled entities (such consolidated financial statements not
separately presented in this Form 8-K), which report appears in the Annual
Report of Clear Channel Communication, Inc. on Form 10-K for the year ended
December 31, 1996.
/s/ KPMG
KPMG
Sydney, Australia
March 12, 1998
<PAGE> 1
EXHIBIT 23.3
Independent Auditor's Consent
The Board of Directors
Clear Channel Communications, Inc.:
We consent to (a) the incorporation by reference in this Registration Statement
on Form S-3 (No. 333-33371) and the Registration Statement on Form S-4 (No.
333-43747) of our report on the consolidated financial statements of Heftel
Broadcasting Corporation and subsidiaries as of and for the year ended December
31, 1997, which report is included in the Current Report on Form 8-K of Clear
Channel Communications, Inc. dated March 12, 1998 and (b) the reference to our
firm under the heading "Experts" in the Prospectus.
We also consent to the incorporation by reference of the aforementioned report
in the Registration Statements on Form S-8 of the 1984 Stock Option Plan of
Clear Channel Communications, Inc. (No. 33-14193); the Clear Channel
Communications, Inc. Nonqualified Stock Option Plan (No. 33-59772); the Clear
Channel Communications, Inc. 1994 Incentive Stock Option Plan, the Clear Channel
Communications, Inc. 1994 Nonqualified Stock Option Plan, the Clear Channel
Communications, Inc. Directors' Nonqualified Stock Option Plan, the Option
Agreement for Officer (No. 33-64463); and the Non-Qualified Option Grant to Karl
Eller dated April 10, 1997, the Non-Qualified Option Grant to Paul J. Meyer
dated April 10, 1997, the Non-Qualified Option Grant to Timothy J. Donmoyer
dated April 10, 1997; and the Eller Media Company Senior Management Incentive
Plan of Clear Channel Communications, Inc. (333-297177).
KPMG Peat Marwick LLP
Dallas, Texas
March 12, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT 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), Registration Statement on Form S-8
(No. 333-29717) and Registration Statement on Form S-4 (No. 333-43747) of Clear
Channel Communications, Inc. of our report dated March 6, 1998 relating to the
consolidated financial statements of Universal Outdoor Holdings, Inc. which
appears in the Current Report on Form 8-K of Clear Channel Communications, Inc.
dated March 12, 1998.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 12, 1998
<PAGE> 1
EXHIBIT 99.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF 1997 VS. 1996
CONSOLIDATED
Consolidated net revenue in 1997 increased 98% to $697.1 million from
$351.7 million. Operating expenses increased 99% to $394.4 million, compared to
$198.3 million for 1996. Operating income before depreciation and amortization
in 1997 increased to $302.7 million from $153.4 million, or 97%. Depreciation
and amortization increased 149% to $114.2 million from $45.8 million. Interest
expense increased to $75.1 million from $30.1 million, or 150%. Other income
(expense) -- net increased to $11.6 million from $2.2 million. Net income was
$63.6 million for 1997, compared to $37.7 million in 1996. The corresponding
earnings per common share-diluted was $.67 and $.51 for 1997 and 1996,
respectively. Income tax expense (based on income before equity in earnings
(loss) of nonconsolidated affiliates) in 1997 was $47.1 million, reflecting an
annual average effective tax rate of 45%, compared to $28.4 million, or a 40%
effective rate in 1996. Equity in earnings (loss) of nonconsolidated affiliates
increased to $6.6 million in 1997 from $(5.2) million in 1996.
The predominant reasons for the increase in net revenue and operating
expenses are two fold: first, the revenue and expenses associated with the
operations of Eller Media Corporation (Eller), an outdoor media company acquired
in April of 1997. This new outdoor segment, including subsequent acquisitions
and license management agreements of approximately 7,000 display faces,
contributed 30% of the Company's revenue and 27% of the Company's operating
expenses during 1997. Second, net revenue and operating expense increased from
radio stations and networks acquired during 1997 and a full year of operations
for those radio and television stations acquired during 1996. Station and
network acquisitions are as follows:
<TABLE>
<CAPTION>
ACQUIRED BEGAN
LICENSE(1) OPERATIONS(2) STATION OR NETWORK LOCATION
- ---------- ------------- ------------------ --------
<C> <C> <S> <C>
11/97 11/97 KQSY-FM (now KMRX-FM) Tulsa, OK
10/97 10/97 KMVK-FM (now KDDK-FM),
KSSN-FM and KOLL-FM Little Rock, AR
10/97 10/97 Penn State Sports Network State College, PA
10/97 10/97 Miami Hurricane Sports Network Coral Gables, FL
10/97 10/97 Florida Gators Sports Network Gainesville, FL
10/97 10/97 Tennessee Radio Network Nashville, TN
10/97 10/97 Florida Radio Network Maitland, FL
10/97 10/97 Alabama Radio Network Birmingham, AL
10/97 10/97 WZTR-FM Milwaukee, WI
12/97 10/97 Paxson Radio (Paxson)
WHUB-AM, WPTN-AM,
WGIC-FM and WGSQ-FM Cookeville, TN
WAVK-FM, WKRY-FM and WFKZ-FM Florida Keys, FL
WZNZ-AM, WNZS-AM, WFSJ-FM
WROO-FM, WPLA-FM and WTLK-FM Jacksonville, FL
WFTL-AM, WINZ-AM, WIOD-AM
WPLL-FM, WLVE-FM and WZTA-FM Miami, FL
WTKX-FM Pensacola, FL
WWNZ-AM, WQTM-AM, WSHE-FM
WJRR-FM, WMGF-FM and WTKS-FM Orlando, FL
WDIZ-AM, WSHF-FM, WPBH-FM,
</TABLE>
1
<PAGE> 2
<TABLE>
<CAPTION>
ACQUIRED BEGAN
LICENSE(1) OPERATIONS(2) STATION OR NETWORK LOCATION
- ---------- ------------- ------------------ --------
<C> <C> <S> <C>
WFSY-FM and WPAP-FM Panama City, FL
WNLS-AM, WJZT-FM, WTNT-FM
WSNI-FM and WXSR-FM Tallahassee, FL
WKES-FM (now WILV-FM),
WZTM-AM, WSJT-FM and WHPT-FM Tampa, FL
WBZT-AM, WKGR-FM
and WOLL-FM West Palm Beach, FL
10/97 WYCL-FM Pensacola, FL
10/97 WHNZ-AM Tampa/St. Petersburg, FL
9/97 9/97 WDUR-AM, WFXC-FM
and WFXK-FM Raleigh, NC
9/97 KTOM-AM/FM, KDON-AM/FM,
KOCN-FM and KRQC-FM Monterey, CA
8/97 8/97 WMFX-FM, WOIC-AM Columbia, SC
4/97 4/97 WKII-AM, WOLZ-FM
and WFSN-FM (now WXRM-FM) Fort Myers, FL
3/97 3/97 WMIL-FM and WOKY-AM Milwaukee, WI
2/97 2/97 KHOM-FM (now KUMX-FM) New Orleans, LA
2/97 2/97 WAKX-FM (now WVTI-FM) Grand Rapids, MI
1/97 1/97 WQMF-FM and WHKW-FM Louisville, KY
12/96 12/96 Radio Equity Partners, LP (REP)
WRXQ-FM, WEGR-FM, WREC-AM Memphis, TN
WWBB-FM and WWRX-FM Providence, RI
12/96 12/96 KJMS-FM and KWAM-AM Memphis, TN
10/96 10/96 WHKW-AM (now WKJK-AM),
WWKY-AM and WTFX-FM Louisville, KY
8/97 10/96 WLAN-AM/FM Lancaster, PA
8/96 8/96 Radio Equity Partners, LP (REP)
WARQ-FM, WWDM-FM Columbia, SC
WXRM-FM (now WQNU-FM)
and WCKT-FM Ft. Myers/Naples, FL
WSJS-AM, WTQR-FM, WXRA-FM Greensboro, NC
WNOE-FM, KLJZ-FM (now KKND-FM) New Orleans, LA
WHYN-AM/FM Springfield, MA
KXXY-AM (now KEBC-AM),
KXXY-FM and KTST-FM Oklahoma City, OK
3/97 8/96 Radio Enterprises, Inc.(3)
WQBJ-FM, WXCR-FM,
WQBK-AM (now WTMM-AM),
and WQBK-FM Albany, NY
7/96 7/96 WPRI-TV Providence, RI
7/96 WNAC-TV Providence, RI
6/96 6/96 WTVR-AM/FM Richmond, VA
1/97 5/96 WZZU-FM (now WNNL-FM) Raleigh, NC
2/97 5/96 KJOJ-AM Houston, TX
5/96 5/96 US Radio, Inc. (USR)
KHEY-AM/FM and KPRR-FM El Paso, TX
KJOJ-FM Houston, TX
KMJX-FM, KDDK-FM (now KQAR-FM) Little Rock, AR
WHRK-FM and WDIA-AM Memphis, TN
WKKV-FM Milwaukee, WI
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
ACQUIRED BEGAN
LICENSE(1) OPERATIONS(2) STATION OR NETWORK LOCATION
- ---------- ------------- ------------------ --------
<C> <C> <S> <C>
WJCD-FM and WOWI-FM Norfolk, VA
WQOK-FM Raleigh, NC
WRAW-AM, WRFY-FM Reading, PA
10/96 5/96 WSVY-FM Norfolk, VA
10/96 5/96 WCUZ-AM (now WTKG-AM)
and WCUZ-FM Grand Rapids, MI
11/96 5/96 WMYK-FM (now WSVV-FM) Norfolk, VA
5/96 KQLL-AM/FM and KOAS-FM Tulsa, OK
2/96 2/96 WOOD-AM/FM, WBCT-FM Grand Rapids, MI
10/95 10/95 Voice of Southwest Agriculture
Radio Network San Angelo, TX
10/95 10/95 WHP-TV Harrisburg, PA
10/95 WLYH-TV Harrisburg, PA
7/95 WKY-AM Oklahoma City, OK
6/95 WTEV-TV Jacksonville, FL
1/95 1/95 KMJQ-FM Houston, TX
1/95 1/95 KPRC-AM and KSEV-AM(3) Houston, TX
5/96 11/94 WENZ-FM Cleveland, OH
8/96 3/93 KEYI-FM and KFON-AM Austin, TX
</TABLE>
- ---------------
(1) Represents the date in which the Company consummated the purchase of the
FCC license.
(2) Represents the date from which the results of the stations operations are
included with the results of the Company. This date may precede the
acquisition date as a result of the Company executing a local marketing
agreement (LMA) or joint sales agreement (JSA) as broker for the station.
(3) The Company acquired an 80% interest in these stations.
The tangible and intangible assets acquired through the purchases of Eller
and the above mentioned stations and networks account for the majority of the
increase in depreciation and amortization for 1997. Interest expense increased
as a result of greater average borrowing levels and higher average borrowing
rates, 6.3% in 1996 to 6.6% in 1997. Other income increased primarily as a
result of a $6.2 million gain from the sale of 350,000 shares of common stock in
Heftel Broadcasting. Income tax expense rose due to the increase in taxable
earnings as well as an increase in the average effective tax rate from 40% in
1996 to 45% in 1997. The effective tax rate increased as a result of the
increase in nondeductible amortization expense principally associated with the
acquisition of Eller.
Equity in earnings (loss) of nonconsolidated affiliates increased in 1997
primarily as a result of the solid financial performance by Heftel. An
additional increase resulted from the purchase of a 30% interest in American
Tower Corporation, the leading independent domestic owner and operator of
wireless communication towers. These increases were partially offset by an
eroding currency valuation in Australia and New Zealand. Equity in earnings
(loss) of nonconsolidated affiliates is included in the results of operations
for the Company's radio segment.
RADIO
Net revenue in 1997 increased 53% to $332.6 million from $217.2 million.
Operating expenses increased 59% to $201.2 million, compared to $126.6 million
for 1996. Operating income before depreciation and amortization in 1997
increased to $131.4 million from $90.6 million, or 45%. Depreciation and
amortization increased 74% to $48.5 million from $27.8 million in 1996.
Operating income increased 32% to $82.9 million in 1997 from $62.8 million in
1996.
3
<PAGE> 4
The majority of the increase in net revenue, operating expenses and
depreciation and amortization was due to the aforementioned radio and network
acquisitions. At December 31, 1997, the radio segment included 156 stations for
which the Company owned the Federal Communications Commission (FCC) license and
17 stations programmed under local marketing or time brokerage agreements. These
173 radio stations operate in 40 different markets.
TELEVISION
Net revenue in 1997 increased 17% to $157.1 million from $134.6 million.
Operating expenses in 1997 increased 19% to $85.1 million compared to $71.7
million for 1996. Operating income before depreciation and amortization in 1997
increased to $71.9 million from $62.8 million, or 14%. Depreciation and
amortization decreased .6% to $17.9 million from $18.0 million. Operating income
increased 21% to $54.0 million in 1997 from $44.8 million in 1996.
The increase in net revenue was primarily due to a full year of operations
for the aforementioned television acquisitions that occurred in July of 1996 and
from improved ratings at several of the television stations. Operating expenses
rose predominately due to the inclusion of a full year of operations for the
aforementioned television station acquisitions and the increase in selling
expenses related to the increase in revenue. At December 31, 1997, the
television segment included 11 television stations for which the Company owned
the FCC license and seven stations for which the Company programmed under time
sales or time brokerage agreements. These 18 television stations operate in 11
different markets.
OUTDOOR
Net revenue and operating expenses in 1997 was $207.4 million and $108.1
million, respectively. Operating income before depreciation and amortization in
1997 was $99.3 million. Depreciation and amortization was $47.8 million
resulting in operating income of $51.5 million in 1997.
Assuming the acquisition of Eller was effective at the beginning of 1996,
pro forma net revenue in 1997 would have increased 11% to $264.1 million from
1996 pro forma of $237.0 million. Pro forma operating expenses in 1997 increased
.1% to $141.9 million compared to $141.8 million for 1996 pro forma. Pro forma
operating income before depreciation and amortization in 1997 increased to
$122.2 million from $95.2 million, or 28%. Pro forma depreciation and
amortization increased .2% to $64.3 million from $64.2 million. Pro forma
operating income increased 86% to $57.8 million in 1997 from $31.0 million in
1996.
Pro forma revenue increased primarily due to improved occupancy and
increased rates for usage of display faces. This also resulted in the increased
pro forma operating income before depreciation and amortization and pro forma
operating income. At December 31, 1997, the outdoor segment operated 57,660
display faces in 17 different markets.
COMPARISON OF 1996 VS. 1995
CONSOLIDATED
Consolidated net revenue in 1996 increased 41% to $351.7 million from
$250.1 million. Operating expenses in 1996 increased 44% to $198.3 million,
compared to $137.5 million for 1995. Operating income before depreciation and
amortization in 1996 increased to $153.4 million from $112.6 million, or 36%.
Depreciation and amortization increased 36% to $45.8 million from $33.8 million.
Interest expense increased to $30.1 million from $20.8 million, or 45%. Other
income (expense) increased from $(.8) million to $2.2 million. Net income was
$37.7 million for 1996, compared to $32.0 million in 1995. Income tax expense
(based on income before equity in net income/loss of, and other income from,
nonconsolidated affiliates) in 1996 was $28.4 million, reflecting an annual
average effective tax rate of 40%, compared to $20.3 million, or a 41% effective
rate in 1995. Equity in net income (loss) of, and other income from,
nonconsolidated affiliates decreased to $(5.2) million in 1996 from $2.5 million
in 1995.
4
<PAGE> 5
The majority of the increase in net revenue was due to the additional
revenue associated with the radio and television stations acquired in 1996 and
the inclusion of a full year of operations for those stations acquired in 1995.
These stations are listed in the aforementioned table.
Operating expenses rose due to the increase in selling expenses associated
with this revenue increase and the additional operating expenses associated with
the above acquisitions. The major cause of the increase in depreciation and
amortization was the acquisition of the tangible and intangible assets
associated with the purchases of the above mentioned stations. The majority of
the increase in interest expense was due to an increase in the average amount of
debt outstanding which was partially offset by a decrease in the average
interest rate from 6.8% in 1995 to 6.3% in 1996. Income tax expense increased
because of the increase in earnings.
The equity in net income (loss) of, and other income from, nonconsolidated
affiliates resulted from: one, the Company's purchase in May 1995 of a 50%
interest in the Australian Radio Network Pty. Ltd. (ARN), which owns and
operates radio stations and a radio representation company in Australia; two,
the purchase in May 1995 of 21.4%, and the purchase in August 1996 of an
additional 41.8%, of the outstanding common stock of Heftel Broadcasting
Corporation (Heftel), a publicly-traded Spanish-language radio broadcaster in
the United States; and three, the purchase in July 1996 of a 33.33% (one-third)
interest in the New Zealand Radio Network (NZRN), which owns and operates 52
radio stations in New Zealand. The majority of the decrease in equity in net
income (loss) of, and other income from, nonconsolidated affiliates was due to
the Company's equity interest in certain employment contract payments, severance
costs, and other write-offs totaling $44.7 million related to Heftel's
reorganization. All of these equity investments are included in results of
operations for the Company's radio segment.
RADIO
Net revenue in 1996 increased 51% to $217.2 million from $144.2 million.
Operating expenses increased 45% to $126.6 million, compared to $87.5 million
for 1995. Operating income before depreciation and amortization in 1996
increased to $90.6 million from $56.7 million, or 60%. Depreciation and
amortization increased 39% to $27.8 million from $20 million. Operating income
increased 71% to $62.8 million in 1996 from $36.7 million in 1995.
The majority of the increase in net revenue, operating expenses and
depreciation and amortization was due to the aforementioned radio and network
acquisitions. At December 31, 1996, the radio segment included 91 stations for
which the Company owned the FCC license and 15 stations programmed under local
marketing or time brokerage agreements, all of which operated in 26 different
markets.
With the passage of the Telecommunications Act (the Act) in February 1996,
the limit on the maximum number of licenses that one company may own in the
United States was eliminated, and the limit on the number of licenses that one
company may own in any given market was changed. This limit depends on the size
of the market; in the largest markets, for example, one company may not own more
than eight licenses total, with no more than five licenses of one service (AM or
FM). This allows the Company significant flexibility in future growth in its
radio broadcasting operations.
TELEVISION
Net revenue in 1996 increased 27% to $134.6 million from $105.8 million.
Operating expenses in 1996 increased 43% to $71.7 million compared to $50.0
million for 1995. Operating income before depreciation and amortization in 1996
increased to $62.8 million from $55.8 million, or 13%. Depreciation and
amortization increased 31% to $18.0 million from $13.8 million. Operating income
increased 7% to $44.8 million in 1996 from $42.1 million in 1995.
The majority of the increase in net revenue was due to the inclusion of the
aforementioned television acquisitions in 1996 and 1995. Operating expenses rose
due to the increase in selling expenses associated with these revenue increases,
the inclusion of the aforementioned television acquisitions in 1996 and 1995,
and the start-up costs of the news departments at four television stations.
5
<PAGE> 6
The major cause of the increase in depreciation and amortization was the
acquisition of tangible and intangible assets associated with the purchase of
the aforementioned television stations. At December 31, 1996, the television
segment included eleven television stations for which the Company owned the FCC
license and seven stations, which the Company programmed under time sales or
time brokerage agreements, all of which operated in eleven different markets.
With passage of the Act in February 1996, the restrictions on ownership of
television stations include a national ownership limit of stations that reach no
more than 35% of the total United States television audience and the limit of
one license per market for any one broadcaster. This allows the Company greater
opportunity to expand into additional markets in television broadcasting.
LIQUIDITY AND CAPITAL RESOURCES
The major sources of capital for the Company have been cash flow from
operations, advances on its revolving long-term line of credit facility (the
Credit Facility), other borrowings, and funds provided by the initial stock
offering in 1984 and subsequent stock offerings in July 1991, October 1993, June
1996, May 1997 and September 1997. Historically, cash flow has exceeded earnings
by a significant amount due to high amortization and depreciation expense.
Effective April 10, 1997, the Company refinanced the Credit Facility,
increasing the borrowing limit to $1.75 billion. The Credit Facility converts
into a reducing revolving line of credit on the last business day of September
2000, with quarterly repayment of the outstanding principal balance to begin the
last business day of September 2000 and continue during the subsequent five year
period, with the entire balance to be repaid by the last business day of June
2005.
On September 9, 1997, the Company filed a shelf registration statement on
Form S-3 covering a combined $1.5 billion of debt securities, junior
subordinated debt securities, preferred stock, common stock, warrants, stock
purchase contracts and stock purchase units (the shelf registration statement).
The shelf registration statement also covers preferred securities which may be
issued from time to time by the Company's three Delaware statutory business
trusts and guarantees of such preferred securities by the Company.
On October 9, 1997 the Company completed an offering of $300 million, 7.25%
debentures due October 15, 2027 resulting in net proceeds to the Company of
$294.3 million. Interest on the debentures is payable semiannually on each April
15 and October 15, beginning April 15, 1998. The Company, at its option, may at
any time redeem all or any portion of the debentures at a redemption price equal
to 100% of the principal amount, or the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted to the
date of redemption on a semiannual basis at the applicable Treasury Yield plus
25 basis points, plus accrued interest to the date of redemption, whichever is
greater.
On May 14, 1997, the Company completed an offering of 6,093,790 shares of
Common Stock. On September 12, 1997, the Company completed an offering of
8,000,000 shares of Common Stock. The net proceeds to the Company were
approximately $288.4 million and $503.3 million, respectively.
During 1997, the Company used the Credit Facility and cash flow from
operations to purchase broadcasting assets (radio stations) totaling $784.2
million, outdoor assets (display faces and license management agreements)
totaling $490.3 million and equity interest in American Tower Corporation for
$32.5 million. In addition to these acquisitions, the Company loaned $35.4
million to third parties in order to facilitate the purchase of certain
broadcast assets and refinanced $417 million of long-term debt assumed as a part
of the acquisition of Eller. Advances on the Credit Facility totaled $1,695.4
million. The Company made principal payments on the Credit Facility totaling
$1,197.3 million, including $748.0 million, which represents a portion of the
proceeds from the Company's stock offerings in May 1997 and September 1997, and
$292.7 million, which represents a portion of the proceeds from the Company's
debt offering in October 1997.
Through mid-February of 1998, the Company purchased the broadcasting assets
of certain radio stations in Mobile, AL, Monterey, CA, Allentown, PA and in
Jackson, MS for approximately $24.0 million, $23.2 million, $29.0 million, and
$20.0 million, respectively. The Credit Facility and cash flow from operations
6
<PAGE> 7
provided funding. After giving effect to the above-mentioned transactions and
other borrowings of $16.8 million, the Company had $1,328.2 million outstanding
under the Credit Facility, with $384.5 million available for future borrowings.
Interest rates on most of the borrowings adjust every 30 days. Based on the
$1,215.2 million outstanding debt under the Credit Facility at December 31,
1997, a 1% increase in interest rates would result in a net after tax charge to
the Company's earnings of approximately $7.5 million. In addition, other notes
payable amounting to $38.5 million were outstanding at December 31, 1997. The
Company also had $24.7 million in unrestricted cash and cash equivalents at
December 31, 1997.
The Company expects that cash flow from operations in 1998 will be
sufficient to make all required interest and principal payments on long-term
debt.
On October 23, 1997 the Company entered into a definitive agreement to
merge with Universal Outdoor Holdings, Inc., (Universal) an international
corporation with over 34,000 display faces in 23 markets. The merger, which is
subject to certain closing conditions and regulatory approvals, is structured as
an exchange of stock; each share of Universal common stock will be exchanged for
.67 shares of the Company's stock. On February 6, 1998, the Universal common
stock shareholders voted to approve the adoption of the agreement and plan of
merger between Universal and the Company. Upon consummation of this merger, the
Company will issue approximately 19.3 million shares of its common stock and
assume approximately $566 million in long-term debt. The Company intends to
account for this merger as a purchase transaction and expects to consummate this
merger during the first half of 1998.
On March 5, 1998 the Company announced an agreement with the Board of
Directors of More Group Plc (More Group), an outdoor advertising company based
in the United Kingdom, regarding the terms of a recommended cash offer to
acquire all of the issued shares of More Group. The offer values each More Group
share at L10.30 or approximately $17.00. The total value of this transaction
will be approximately $735.7 million. This transaction is subject to certain
regulatory approvals and other closing conditions. If these conditions are met,
this transaction is expected to close during 1998. The Company intends to fund
this transaction through the Credit Facility and additional funds generated from
either equity and/or debt offerings.
CAPITAL EXPENDITURES AND PROGRAM COMMITMENTS
Capital expenditures in 1997 increased 57% to $31.0 million from $19.7
million in 1996. The majority of the increase was attributable to the purchase
of display structures in the outdoor segment.
Capital expenditures made during 1997 were as follows:
<TABLE>
<CAPTION>
RADIO TELEVISION(1) OUTDOOR
----- ------------- -------
IN MILLIONS OF DOLLARS
<S> <C> <C> <C>
Land and buildings.......................................... $4.6 $2.5 $ 1.7
Broadcasting and other equipment............................ $4.4 $4.5 --
Display structures and other equipment...................... -- -- $13.3
---- ---- -----
$9.0 $7.0 $15.0
</TABLE>
- ---------------
(1) Capital expenditures related to the conversion to digital television are
expected to begin in the last quarter of 1998 and to be completed by the end
of 2002.
The Company's television stations and sports networks have entered into
programming commitments to purchase the broadcast rights to various feature
films, syndicated shows, sports events and other programming. Total commitments
for such programming at December 31, 1997 were $38.8 million. These commitments
were not available for broadcast at December 31, 1997, but are expected to
become available over the next few years, at which time the commitments will be
recorded. Most commitments are payable over a period not exceeding five years.
The Company anticipates funding any subsequent broadcasting or outdoor capital
expenditures and program commitments with the Credit Facility and cash flow
generated from operations.
7
