<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1998, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______ to ______.
COMMISSION FILE NUMBER
1-9645
CLEAR CHANNEL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1787539
(State of Incorporation) (I.R.S. Employer Identification No.)
200 Concord Plaza, Suite 600
San Antonio, Texas 78216
Telephone (210) 822-2828
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.10 par value per share.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On March 15, 1999, the aggregate market value of the Common Stock beneficially
held by non-affiliates of the Company was approximately $12.04 billion. (For
purposes hereof, directors, executive officers and 10% or greater shareholders
have been deemed affiliates).
On March 15, 1999, there were 266,039,115 outstanding shares of Common Stock,
excluding 138,474 shares held in treasury.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Definitive Proxy Statement for the 1999 Annual Meeting, expected
to be filed within 120 days of our fiscal year end, are incorporated by
reference into Part III.
<PAGE> 2
CLEAR CHANNEL COMMUNICATIONS, INC.
INDEX TO FORM 10-K
<TABLE>
<CAPTION>
Page
Number
PART I.
<S> <C> <C>
Item 1. Business ................................................................... 3
Item 2. Properties ................................................................. 32
Item 3. Legal Proceedings .......................................................... 33
Item 4. Submission of Matters to a Vote of Security Holders ........................ 33
PART II.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters ....... 34
Item 6. Selected Financial Data .................................................... 35
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................... 36
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ................. 47
Item 8. Financial Statements and Supplementary Data ................................ 48
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................................... 74
PART III.
Item 10. Directors and Executive Officers of the Registrant ......................... 75
Item 11. Executive Compensation ..................................................... 76
Item 12. Security Ownership of Certain Beneficial Owners and Management ............. 76
Item 13. Certain Relationships and Related Transactions ............................. 77
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ........... 78
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
THE COMPANY
Clear Channel Communications, Inc., is a diversified media company with
two business segments: broadcasting and outdoor advertising. We were
incorporated in Texas in 1974. As of December 31, 1998, we owned, programmed, or
sold airtime for 204 domestic radio stations, two international radio stations
and 18 domestic television stations and we were one of the world's largest
outdoor advertising companies based on total advertising display inventory of
89,008 domestic display faces and 213,566 international display faces.
During 1998, we derived approximately 48% of our net revenue from
broadcasting operations and approximately 52% from outdoor advertising
operations.
Our principal executive offices are located at 200 Concord Plaza, Suite
600, San Antonio, Texas 78216 (telephone: 210-822-2828).
BROADCASTING
As of December 31, 1998, we owned, programmed or sold airtime for 69 AM
and 135 FM radio stations, and 18 television stations in 48 domestic markets.
Our radio stations employ a wide variety of programming formats, such as
News/Talk/Sports, Country, Adult Contemporary, Urban and Album Rock. Our two
international radio stations are located in Denmark and broadcast Adult
Contemporary and Oldies formats to the Copenhagen market and one cable audio
channel that reaches most of Denmark. We also operate several radio networks
serving Oklahoma, Texas, Iowa, Kentucky, Virginia, Alabama, Tennessee, Florida
and Pennsylvania. In addition, we currently own the following interests in radio
broadcasting companies:
o a 50% equity interest in the Australian Radio Network Pty., Ltd.,
which operates radio stations in Australia;
o a one-third equity interest in New Zealand Radio Network, which
operates radio stations in New Zealand;
o a 29.1% non-voting equity interest in Heftel Broadcasting Corporation
(Nasdaq: HBCCA) a leading domestic Spanish-language radio broadcaster;
o a 40% equity interest in Grupo Acir Communicaciones, S.A. de C.V., one
of the largest radio broadcasters in Mexico; and
o a 50% equity interest in Radio Bonton, a.s., which owns an FM radio
station in the Czech Republic.
Our television stations are affiliated with various television
networks, including FOX, UPN, ABC, NBC and CBS. The primary sources of
programming for our ABC, NBC and CBS affiliated television stations are their
respective networks, which produce and distribute programming in exchange
3
<PAGE> 4
for each station's commitment to air the programming at specified times and for
commercial announcement time during the programming. We supply the majority of
programming to our FOX and UPN affiliates by selecting and purchasing syndicated
television programs.
OUTDOOR ADVERTISING
As of December 31, 1998, we owned a total of 302,574 advertising
display faces, including 5,783 display faces operated under license management
agreements. We currently provide outdoor advertising services in over 32
domestic markets and 14 international markets. Domestic display faces include
billboards of various sizes and various small display faces on the interior and
exterior of various public transportation vehicles. International display faces
include street furniture, transit displays and billboards of various sizes. We
also operate numerous smaller displays such as cube displays in retail malls and
convenience store window displays. Additionally, we currently own the following
interests in outdoor advertising companies:
o a 50% equity interest in Hainan White Horse Advertising Media
Investment Co. Ltd., which operates street furniture displays in
China;
o a 40% equity interest in Expoplakat AS, which operates billboard
displays in Estonia;
o a 50% equity interest in Sirocco International SA, which is developing
a new 8 square meter format network and obtaining concessions for 2
square meter format panels in France;
o a 50% equity interest in Adshel Street Furniture Pty., Limited, which
operates street furniture displays in Australia and New Zealand;
o a 30% equity interest in Capital City Posters Pty., Ltd, which
operates street furniture and billboard displays in Singapore; and
o a 31.9% equity interest in Master & More Co., Ltd, which operates
billboard displays in Thailand.
COMPANY STRATEGY
Since our inception, we have focused on helping our clients distribute
their marketing messages in the most efficient ways possible. We believe that
our ultimate success is measured by how well we assist our clients in selling
their products and services. To this end, we have assembled a variety of media
assets designed to provide the most efficient and cost-effective ways for our
clients to reach consumers. These assets are comprised of broadcasting assets
and outdoor advertising displays. In the past we have combined these assets with
the talent and motivation of our entrepreneurial personnel to create strong
internal growth. We plan to continue this effort in order to serve our
advertisers, our listeners and viewers, and our equity and debt stakeholders.
In the past, a portion of our growth has been achieved through the
acquisition of additional assets within our two business segments. We have found
that the addition of assets to our portfolio gives our clients more flexibility
in the distribution of their messages, and therefore allows us to provide these
clients with a higher level of service. In addition, given our experience in the
industries in which we operate, we are often able to improve the operations of
assets we acquire, thus further enhancing the value they have as an advertising
venue, as well as the value those assets hold for our stakeholders. We
4
<PAGE> 5
evaluate potential acquisitions based on the returns they can potentially
provide on invested capital by themselves, as well as the positive effects they
might have on our existing business.
Additionally, we seek to create situations in which we own more than
one type of medium in the same market. Aside from the provision of added
flexibility to our clients, this "cross-ownership" allows us ancillary benefits,
such as the use of otherwise vacant outdoor advertising space to promote our
broadcasting assets, or the sharing of on-air talent across radio and television
assets. These are only two examples of the benefits of cross-ownership, but
there are others as well.
Our management believes that growth within the "out-of-home"
advertising segment (predominantly radio and outdoor advertising) will be strong
in coming years. We believe the increasing commute times to which Americans are
subjected is one factor supporting such growth. In addition, we believe that
"in-home" media, including broadcast television, cable and the Internet,
increasingly compete against one another for advertising revenues in the home.
Therefore, we have dramatically expanded the "out-of-home" aspects of our
business recently by entering the outdoor advertising industry and continuing
our growth, both internal and external, in the radio business.
The core to our investment approach has been the pursuit of attractive
business models, which we believe best serve our stakeholders. We think that the
combination of historically stable revenue growth within the industries in which
we operate, coupled with a fixed expense structure and minimal requirements for
ongoing capital expenditures, gives us an excellent forum in which to generate
free cash flow and provide value to our investors. We intend to continue this
creation of value.
BROADCASTING STRATEGY
Our broadcasting strategy entails the ongoing operation of existing
stations as well as the acquisition of under-performing stations, on favorable
terms, for the purpose of improving their performance. Our management seeks to
improve performance of these stations through effective programming, reduction
of costs and aggressive promotion, marketing and sales. We emphasize direct
sales to local customers rather than through advertising agencies and other
intermediaries. We believe that this focus enables our stations to achieve
market revenue shares exceeding their audience shares.
We believe that clustering broadcasting assets together in markets
leads to substantial operating advantages. We attempt to cluster radio stations
in each of our principal markets because we believe that we can offer
advertisers more attractive packages of advertising options if we control a
larger share of the total advertising inventory in a particular market. We also
believe that by clustering we can operate our stations with more highly skilled
local management teams and eliminate duplicative operating and overhead
expenses. We believe that owning multiple broadcasting stations in a market
allows us to provide a more diverse programming selection for our listeners and
a more efficient means for our advertisers to reach those listeners.
OUTDOOR ADVERTISING STRATEGY
Our outdoor advertising strategy involves expanding our market presence
in the outdoor advertising business and improving our operating results through
application of the following principles:
o managing the advertising rates and occupancy levels of our displays to
maximize revenues;
o attracting new categories of advertisers to the outdoor medium through
significant investments in sales, marketing, creative and research
services;
5
<PAGE> 6
o constructing new displays and upgrading our existing displays;
o taking advantage of technological advances which increase sales force
productivity, production department efficiency, and quality of
product;
o acquiring additional displays in our existing markets; and
o expanding into additional markets where we already have a broadcasting
presence as well as into the country's largest media markets and their
surrounding regional areas.
To support our broadcasting and outdoor operating strategies, we have
decentralized our operating structure in order to place authority, autonomy and
accountability at the market level and to provide local management with the
tools necessary to oversee sales, product development, administration and
production and to identify possible acquisition candidates. We also maintain
fully-staffed sales and marketing offices in New York which service national
advertising accounts and support our local sales force in each market. We
believe that one of our strongest competitive advantages is our unique blend of
highly experienced corporate and local market management.
RECENT DEVELOPMENTS
Jacor Communications Merger
On October 8, 1998, we entered into an agreement with Jacor
Communications, Inc. to combine the two companies by merging Jacor with and into
one of our wholly-owned subsidiaries. Jacor is the nation's second largest radio
group in terms of number of radio stations, and the third largest radio group as
measured by revenue. Jacor is also a leading provider of syndicated radio
programming. As of October 7, 1998, Jacor owned, operated, represented or had
entered into agreements to acquire 230 radio stations and one television station
in 55 domestic markets. Jacor also produces more than 50 syndicated programs and
services for more than 4,000 radio stations, including Rush Limbaugh, The Dr.
Laura Schlessinger Show and Dr. Dean Edell, the top three rated radio programs
in the country.
We structured the Jacor merger as a stock-for-stock transaction whereby
each share of Jacor common stock will convert into a number of shares of our
common stock. The exchange ratio will be determined by a formula based upon the
average closing price of our common stock during the 25 trading days ending two
days prior to the closing of the merger as follows:
6
<PAGE> 7
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------
IF OUR AVERAGE CLOSING PRICE IS: THEN EACH SHARE OF JACOR COMMON STOCK WILL
CONVERT INTO THE FOLLOWING NUMBER OF SHARES OF
CLEAR CHANNEL COMMON STOCK:
- ------------------------------------------------------------------------------------------------------
Less than or equal to $42.86 1.40
- ------------------------------------------------------------------------------------------------------
Above $42.86 but less 1.40 to 1.35, as determined by dividing
than or equal to $44.44 $60.00 by the Clear Channel average closing price
- ------------------------------------------------------------------------------------------------------
Above $44.44 but less than $50.00 1.35
- ------------------------------------------------------------------------------------------------------
$50.00 or above Less than 1.35, as determined by dividing (A) the sum
of (x) $67.50, plus (y) the product obtained by
multiplying $.675 times the amount by which the Clear
Channel average closing price exceeds $50.00, by (B)
the Clear Channel average closing price.
- ------------------------------------------------------------------------------------------------------
</TABLE>
The average closing price of our common stock during the 25 trading
days ending on February 22, 1999, was $61.06 per share. Assuming the average
closing price at the time of the merger is the same as at February 22, 1999, the
exchange ratio would be 1.228, and we would convert each share of Jacor common
stock into 1.228 shares of our common stock. Assuming an exchange ratio of 1.228
and assuming that no additional shares of Jacor common stock are issued before
the completion of the merger, we will issue approximately 63.3 million shares of
our common stock in the merger to Jacor stockholders and, following the merger,
the Jacor stockholders would own approximately 19.2% of our outstanding common
stock.
In addition, in connection with the Jacor merger, we will assume
approximately $1.23 billion of Jacor's long-term debt, as well as Jacor's Liquid
Yield Option Notes having an accreted value of approximately $302 million.
Numerous conditions must be satisfied before the completion of the
merger, including the receipt of regulatory approvals and shareholder approvals
from the stockholders of both companies and the completion of a review of the
merger by the federal and state antitrust authorities. We intend to account for
this merger as a purchase.
More Group Acquisition
On August 6, 1998, we completed our acquisition of More Group Plc., an
outdoor advertising company based in the United Kingdom. Through a series of
transactions beginning in May 1998, we purchased all the outstanding shares of
More Group for an aggregate of $765.5 million. In addition we assumed $137.7
million in long-term debt from More Group. At the completion of the acquisition,
More Group's operations and joint ventures included approximately 119,000
outdoor advertising display faces in 22 countries. We have accounted for this
acquisition as a purchase, which resulted in $693.7 million additional goodwill.
Majority control of More was reached on June 25, 1998. We consolidated the
assets
7
<PAGE> 8
and liabilities of More as of June 30, 1998 and began consolidating the results
of operations on July 1, 1998.
Universal Outdoor Acquisition
On April 1, 1998, we closed our acquisition of Universal Outdoor
Holdings, Inc. by issuing 19.3 million shares of our common stock valued at $1.2
billion. In addition we assumed $615.3 million of Universal's long-term debt. At
the time of the acquisition, Universal's operations included approximately
34,000 outdoor advertising display faces in 23 major domestic metropolitan
markets. This acquisition was accounted for as a purchase and resulted in
goodwill of approximately $1.2 billion, which is being amortized over 25 years
on a straight-line basis.
Future Acquisitions
We frequently evaluate strategic opportunities both within and outside
our existing lines of business and from time to time enter into letters of
intent. Although we have no definitive agreements with respect to significant
acquisitions not set forth in this report, we expect from time to time to pursue
additional acquisitions and may decide to dispose of certain businesses. Such
acquisitions or dispositions could be material.
Public Offerings
On March 30, 1998, we completed the offering and sale of six million
shares of our common stock and $500.0 million aggregate principal amount of
2.625% Senior Convertible Notes due April 1, 2003 in concurrent public
offerings. On April 28, 1998 we sold an additional $75.0 million aggregate
principal amount of the 2.625% Senior Convertible Notes due April 1, 2003 in
connection with the exercise of an underwriters' over-allotment option. Total
proceeds for the six million shares of common stock and the $575.0 million
aggregated principal amount of 2.625% Senior Convertible Notes totaled $577.2
million and $566.5 million, respectively. On June 16, 1998, we completed the
offering and sale of $125.0 million aggregated principal amount of 6.625% Senior
Notes due June 15, 2008 and $175.0 million aggregated principal amount of 6.875%
Senior Debentures due June 15, 2018 in an underwritten public offering for a
total of $296.0 million in proceeds. On December 23, 1998, we completed the
offering and sale of 15 million shares of our common stock in an underwritten
public offering for $704.2 million in proceeds. The proceeds from the various
offerings were used to repay borrowings outstanding under our revolving credit
facility, to finance acquisitions and for general corporate purposes.
EMPLOYEES
At January 1, 1999, we had approximately 7,000 domestic employees and
1,450 international employees: 5,100 in broadcasting operations, 3,200 in
outdoor operations and 150 in corporate activities.
8
<PAGE> 9
OPERATING SEGMENTS
Clear Channel consists of two principal operating segments --
broadcasting and outdoor advertising. The broadcasting segment includes both
radio and television stations for which we are the licensee and radio and
television stations for which we program and/or sell air time under local
marketing agreements or joint sales agreements. The broadcasting segment also
operates radio networks. The outdoor advertising segment includes advertising
display faces for which we own and/or operate under lease management agreements.
Information relating to the operating segments of our broadcasting and
outdoor advertising operations for 1998 and 1997, and broadcasting for 1996 are
included in "Note K: Segment Data" in the Notes to Consolidated Financial
Statements in Item 8 filed herewith.
BROADCASTING
The following table sets forth certain selected information with regard
to each of our 69 AM and 137 FM radio stations; 18 television stations and two
satellite television stations that we owned, programmed, or for which we sold
airtime, as of December 31, 1998.
<TABLE>
<CAPTION>
RADIO TELEVISION
-------- ------------------------------
AM FM NETWORK
MARKET STATIONS STATIONS TOTAL STATION AFFILIATION
------ -------- -------- ----- ------- -----------
<S> <C> <C> <C> <C> <C>
DOMESTIC:
ALABAMA
Mobile.................................... 2 5 (b) 7 -- --
Mobile, AL/Pensacola, FL.................. -- -- -- WPMI-TV NBC
WJTC-TV (a) UPN
ARIZONA
Tucson.................................... -- -- -- KTTU-TV (f) UPN
ARKANSAS
Little Rock............................... -- 5 5 KLRT-TV FOX
KASN-TV (a) UPN
CALIFORNIA
Monterey.................................. 2 4 6 -- --
CONNECTICUT
New Haven................................. 2 1 3 -- --
FLORIDA
Daytona Beach............................. -- 1 1 -- --
Florida Keys.............................. 1 (a) 6 (c) 7 -- --
Ft. Myers/Naples.......................... 1 4 5 -- --
Jacksonville.............................. 2 4 6 WAWS-TV FOX
WTEV-TV (a) UPN
Miami/Ft. Lauderdale...................... 2 5 7 -- --
Orlando................................... 2 4 6 -- --
Panama City............................... 1 4 5 -- --
Pensacola................................. -- 2 (b) 2 -- --
Tallahassee............................... 1 4 5 -- --
Tampa/St. Petersburg...................... 3 5 8 -- --
West Palm Beach........................... 5 (b) 3 8 -- --
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
RADIO TELEVISION
-------- ------------------------------
AM FM NETWORK
MARKET STATIONS STATIONS TOTAL STATION AFFILIATION
------ -------- -------- ----- ------- -----------
<S> <C> <C> <C> <C> <C>
KANSAS
Hoisington................................ -- -- -- KBDK-TV (g) (h) n/a
Salina.................................... -- -- -- KAAS-TV (h) FOX
Wichita................................... -- -- -- KSAS-TV FOX
KENTUCKY
Louisville................................ 3 4 7 -- --
LOUISIANA
New Orleans............................... 2 5 7 -- --
MASSACHUSETTS
Springfield............................... 2 1 3 -- --
MICHIGAN
Grand Rapids.............................. 2 4 6 -- --
MINNESOTA
Minneapolis............................... -- -- -- WFTC-TV FOX
MISSISSIPPI
Jackson................................... 2 2 4 -- --
NEW YORK
Albany.................................... 1 3 4 -- --
Albany/Schenectady/Troy................... WXXA-TV FOX
NORTH CAROLINA
Greensboro................................ 2 2 4 -- --
Raleigh................................... 1 4 5 -- --
OHIO
Cleveland................................. 1 2 3 -- --
Dayton.................................... 1 2 3 -- --
OKLAHOMA
Oklahoma City............................. 3 (c) 4 7 -- --
Tulsa..................................... 2 (c) 4 (d) 6 KOKI-TV FOX
KTFO-TV (a) UPN
PENNSYLVANIA
Allentown................................. 1 1 2 -- --
Lancaster................................. 1 1 2 -- --
Reading................................... 1 1 2 -- --
Harrisburg/Lebanon/Lancaster/York......... -- -- -- WHP-TV CBS
WLHY-TV (a) UPN
RHODE ISLAND
Providence................................ -- 2 2 WPRI-TV CBS
WNAC-TV (a) FOX
SOUTH CAROLINA
Columbia.................................. 1 3 4 -- --
Greenville................................ 1 3 4 -- --
TENNESSEE
Cookeville................................ 2 2 4 -- --
Memphis................................... 3 4 7 WPTY-TV ABC
WLMT-TV (a) UPN
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
RADIO TELEVISION
-------- ------------------------------
AM FM NETWORK
MARKET STATIONS STATIONS TOTAL STATION AFFILIATION
------ -------- -------- ----- ------- -----------
<S> <C> <C> <C> <C> <C>
TEXAS
Austin.................................... 1 3 4 -- --
El Paso................................... 2 3 5 -- --
Houston................................... 3 (e) 4 (c) 7 -- --
San Antonio............................... 3 (c) 4 7 -- --
VIRGINIA
Norfolk................................... -- 4 4 -- --
Richmond.................................. 3 3 6 -- --
WISCONSIN
Milwaukee................................. 1 3 4 -- --
INTERNATIONAL:
DENMARK
Copenhagen................................ -- 2 2 -- --
---- ---- ---- ----
Total........................... 69 137 206 19
==== ==== ==== ====
</TABLE>
- ----------
(a) Station programmed pursuant to a local marketing agreement (FCC licenses
not owned by us).
(b) Includes one station for which we sell airtime pursuant to a joint sales
agreement (FCC license not owned by us).
(c) Includes one station programmed pursuant to a local marketing agreement
(FCC license not owned by us).
(d) Includes one station programmed pursuant to a local marketing agreement and
one station for which we sell airtime pursuant to a joint sales agreement
(FCC licenses not owned by us).
(e) Includes two stations that are owned by CCC-Houston AM, Ltd., in which we
own an 80% interest.
(f) Station programmed by another party pursuant to a local marketing
agreement.
(g) Satellite station of KSAS-TV in Wichita, Kansas.
(h) Clear Channel holds a construction permit for this station, which is not
yet operating.
We also own the Kentucky News Network based in Louisville, Kentucky,
the Virginia News Network based in Richmond, Virginia, the Oklahoma News Network
based in Oklahoma City, Oklahoma, the Voice of Southwest Agriculture Network
based in San Angelo, Texas, the Clear Channel Sports Network based both in
College Station, Texas, and Des Moines, Iowa, the Alabama Radio Network based in
Birmingham, Alabama, the Tennessee Radio Network based in Nashville, Tennessee,
the University of Miami Sports Network based in Miami, Florida, the Florida
Radio Network based in Orlando, Florida, the University of Florida Sports
Network based in Gainesville, Florida and Orlando, Florida, and the Penn State
Sports Network based in State College, Pennsylvania.
11
<PAGE> 12
In addition, we own a 50% equity interest in the Australian Radio
Network Pty., Ltd., which operates ten radio stations in Australia, a one-third
equity interest in the New Zealand Radio Network, which operates 52 radio
stations throughout New Zealand, a 50% equity interest in Radio Bonton, a.s.,
which operates a radio station in the Czech Republic, a 40% equity interest in
Group Acir Communicaciones, S.A. de C. V., which operates or is affiliated with
157 radio stations in Mexico and a 29.1% non-voting equity interest in Heftel
Broadcasting Corporation, a leading domestic Spanish-language broadcaster which
operates 39 radio stations in 12 domestic markets.
Our radio stations employ various formats for their programming. A
station's format is important in determining the size and characteristics of its
listening audience. Advertising rates charged by a radio station are based
primarily on the station's ability to attract audiences having certain
demographic characteristics in the market area which advertisers want to reach,
as well as the number of stations competing in the market. Advertisers often
tailor their advertisements to appeal to selected population or demographic
segments. We pay the cost of producing the programming for each station.
Generally, we design formats for our own stations, but have also used outside
consultants and program syndicators for program material. Most of our radio
revenue is generated from the sale of local advertising. Additional revenue is
generated from the sale of national advertising, network compensation payments
and barter and other miscellaneous transactions.
We have focused our radio sales effort on selling directly to local
advertisers. Direct contact with our customers has aided our sales personnel in
developing long-standing customer relationships that we believe are a
competitive advantage. Our sales personnel are paid on a commission basis, which
emphasizes this direct local focus. We believe that this focus has enabled some
of our stations to achieve market revenue shares exceeding their audience shares
in a given year. Each of our radio stations also engages independent sales
representatives to assist us in obtaining national advertising. The
representatives obtain advertising through national advertising agencies and
receive a commission from us based on our net revenue from the advertising
obtained. In February 1996, we formed an alliance with one of the nation's
largest national advertising representation firms, whereby the firm will
dedicate certain personnel to work exclusively for our radio stations. We
believe this arrangement has helped our stations achieve higher shares of
national advertising revenue.
We purchase the broadcast rights for the majority of our television
programming for our FOX and UPN affiliates from various syndicators. We compete
with other television stations within each market for these broadcast rights.
These programming costs are expected to increase slightly in the foreseeable
future
The primary sources of programming for our ABC, CBS and NBC affiliated
television stations are their respective networks, which produce and distribute
programming in exchange for each station's commitment to air the programming at
specified times and for commercial announcement time during the programming. For
1998, the FOX, NBC and ABC networks' primary programming was intended to appeal
primarily to a target audience of 18-49 year old adults, while the CBS network's
primary programming was intended to appeal primarily to a target audience of
25-54 year old adults.
The second source of programming is the production of local news
programming on the FOX, CBS, ABC and NBC affiliate stations in Jacksonville,
Florida; Harrisburg, Pennsylvania; Memphis, Tennessee; Mobile, Alabama;
Providence, Rhode Island; and Albany, New York. Local news programming
traditionally has appealed to a target audience of adults 25 to 54 years of age.
Because these viewers generally have increased buying power relative to viewers
in other demographic groups,
12
<PAGE> 13
they are one of the most sought-after target audiences for advertisers. With
such programming, these stations are able to attract advertisers to which they
otherwise would not have access.
Each FOX station other than WXXA-TV Albany, New York, which expires in
December 1999, is currently operating under the current contract, which expired
December 31, 1998. However, we are currently negotiating a new ten year contract
that we anticipate signing in 1999. Based on the performance of our
FOX-affiliated stations to date, we expect we will continue to be able to renew
our FOX contracts, although no assurances in this regard can be given. The
network affiliation agreements with ABC (for WPTY-TV in Memphis, Tennessee,
effective December 1, 1995), CBS (for WHP-TV in Harrisburg, Pennsylvania,
renewed and effective December 18, 1995), NBC (for WPMI-TV in Mobile, Alabama,
effective January 1, 1996) and UPN (for KTTU-TV in Tucson, Arizona, entered into
in 1995) run for ten-year terms.
Television revenue is generated primarily from the sale of local and
national advertising, as well as from fees received from the affiliate
television networks. Advertising rates depend primarily on the quantitative and
qualitative characteristics of the audience we can deliver to the advertiser.
Local advertising is sold by our sales personnel, while national advertising is
sold by independent national sales representatives. Our broadcasting revenue is
seasonal, with the fourth quarter typically generating the highest level of
revenue and the first quarter typically generating the lowest. The fourth
quarter generally reflects higher advertising in preparation for the holiday
season and the effect of political advertising in election years.
Our broadcasting results are dependent on a number of factors,
including the general strength of the economy, population growth, ability to
provide popular programming, relative efficiency of radio and television
broadcasting compared to other advertising media, signal strength, technological
capabilities and developments and governmental regulations and policies.
The major costs associated with radio and television broadcasting are
related to personnel and programming. In an effort to monitor these costs,
corporate management routinely reviews staffing levels and programming costs.
Combined with the centralized accounting functions, this monitoring enables us
to effectively control expenses. Corporate management also advises local station
managers on programming and other broad policy matters and is responsible for
long-range planning, allocating resources and financial reporting and controls.
OUTDOOR ADVERTISING
The following table sets forth certain selected information with regard to our
outdoor advertising display faces as of December 31, 1998.
<TABLE>
<CAPTION>
TOTAL
DISPLAY
MARKET FACES (a)
------ ---------
<S> <C>
DOMESTIC:
ARIZONA
Phoenix........................................ 360
Tucson......................................... 1,450
CALIFORNIA
Los Angeles (b)................................ 12,412
North California (c)........................... 5,177
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
TOTAL
DISPLAY
MARKET FACES (a)
------ ---------
<S> <C>
DELAWARE
Wilmington...................................... 1,084
FLORIDA
Tampa (d)....................................... 1,999
Atlantic Coast.................................. 659
Orlando......................................... 1,968
Jacksonville.................................... 1,075
Gulf Coast...................................... 625
Miami........................................... 1,972
Ocala........................................... 1,058
GEORGIA
Atlanta......................................... 2,068
ILLINOIS
Chicago......................................... 7,088
INDIANA
Indianapolis.................................... 1,383
IOWA
Des Moines...................................... 649
MARYLAND
Baltimore....................................... 1,413
Salisbury....................................... 1,060
Washington, DC.................................. 669
MINNESOTA
Minneapolis..................................... 1,751
NEW YORK
Yonkers......................................... 711
Hudson Valley................................... 401
OHIO
Cleveland (e)................................... 2,276
PENNSYLVANIA
Philadelphia.................................... 2,661
SOUTH CAROLINA
Myrtle Beach.................................... 1,234
TENNESSEE
Chattanooga..................................... 1,487
Memphis......................................... 2,507
TEXAS
Dallas.......................................... 4,758
San Antonio..................................... 3,480
Houston......................................... 5,083
El Paso......................................... 1,293
WISCONSIN
Milwaukee....................................... 1,664
OTHER OUT-OF-HOME
Various......................................... 9,750
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
TOTAL
DISPLAY
MARKET FACES (a)
------ ---------
<S> <C>
UNION PACIFIC SOUTHERN PACIFIC(F)
Various......................................... 5,783
INTERNATIONAL:
Belgium......................................... 2,943
Canada.......................................... 36
Denmark......................................... 19,996
Estonia......................................... 220
Finland......................................... 1,242
France.......................................... 27,526
Great Britain................................... 43,279
Ireland......................................... 5,055
Latvia.......................................... 200
Lithuania....................................... 200
Norway.......................................... 4,790
Russia.......................................... 650
Sweden.......................................... 19,917
Taiwan.......................................... 577
Small Transit displays (g) ..................... 86,935
-------
Total................................. 302,574
=======
</TABLE>
- ----------
(a) Domestic display faces primarily include 20'x60' bulletins, 14'x48'
bulletins, 12'x25' Premier Panels(TM), 25'x25' Premier Plus Panels(TM),
12'x25' 30-sheet posters, 6'x12' 8-sheet posters, and various transit
displays. International display faces include street furniture, various
transit displays and billboards of various sizes.
(b) Includes Los Angeles, San Diego, Orange, Riverside, San Bernardino and
Ventura counties.
(c) Includes San Francisco, Oakland, San Jose, Santa Cruz, Sacramento and
Solano counties.
(d) Includes Sarasota and Bradenton.
(e) Includes Akron and Canton.
(f) Represents licenses managed under Union Pacific Southern Pacific License
Management Agreement.
(g) Represents small display faces on the interior and exterior of various
public transportation vehicles.
The outdoor advertising industry is comprised of several large outdoor
advertising and media companies with operations in multiple markets, as well as
many smaller and local companies operating a limited number of structures in a
single or few local markets. While the industry has experienced some
15
<PAGE> 16
consolidation within the past few years, the OAAA estimates that there are still
approximately 800 companies in the outdoor advertising industry operating
approximately 396,000 billboard displays. We expect the trend of consolidation
in the outdoor advertising industry to continue.
We focus our efforts on local sales. Local advertisers tend to have
smaller advertising budgets and require greater assistance from our production
and creative personnel to design and produce advertising copy. In local sales,
we often expend more sales efforts on educating customers regarding the benefits
of outdoor media and helping potential customers develop an advertising strategy
using outdoor advertising. While price and availability are important
competitive factors, service and customer relationships are also critical
components of local sales.
We operate the following types of outdoor advertising billboards and
displays:
o Bulletins generally are 14 feet high by 48 feet wide or 20 feet high
by 60 feet wide and consist of panels on which advertising copy is
displayed. Bulletin advertising copy is either printed with
computer-generated graphics on a single sheet of vinyl that is
"wrapped" around an outdoor advertising structure, or is hand painted
and attached to the structure. Bulletins also include "wallscapes"
that are painted on vinyl surfaces or directly on the sides of
buildings, typically four stories or less. Because of their greater
impact and higher cost, bulletins are usually located on major
highways and freeways. In addition, wallscapes are located on major
freeways, commuter and tourist routes and in downtown business
districts.
o Premier Panels(TM) generally are 12 feet high by 25 feet wide and have
vinyl wrapped around the display face. Premier Panels (TM) are built
on superior 30-sheet poster locations that deliver a "bulletin-like"
display. We also offer unique Premier Plus (TM) panels, 25 feet high
by 25 feet wide (625 square feet), that consist of two stacked
30-sheet posters that are converted into one larger individual display
face.
o Thirty-sheet posters are generally 12 feet high by 25 feet wide and
are the most common type of billboard. Advertising copy for 30-sheet
posters consists of lithographed or silk-screened paper sheets
supplied by the advertiser that are pasted and applied like wallpaper
to the face of the display. Thirty-sheet posters are typically
concentrated on major highway arteries.
o Eight-sheet posters are usually 6 feet high by 12 feet wide. Displays
are prepared and mounted in the same manner as 30-sheet posters. Most
8-sheet posters, because of their smaller size, are concentrated on
city streets targeting pedestrian traffic.
o Transit displays are lithographed or silk-screened paper sheets
located on bus and commuter train exteriors, commuter rail terminals,
interior train cars, bus shelters and subway platforms.
o Street furniture displays are back illuminated, typically two square
meter, display faces located on bus and tram shelters, newsstands,
bicycle racks, information kiosks, recycling bins and automatic public
toilets.
Billboards are generally mounted on structures we own and are located
on sites that are either owned or leased by us or on which we have acquired a
permanent easement. Bus shelters are usually constructed, owned and maintained
by the outdoor service provider under revenue-sharing arrangements with a
municipality or transit authority. During 1998 and 1997, we invested
approximately $74.8 million and $14.2 million, respectively for new display
construction and ongoing enhancement of our existing
16
<PAGE> 17
display inventory. Over 90% of our bulletin inventory has been retrofitted for
vinyl. Advertising rates are based on a particular display's exposure, or number
of "impressions" delivered, in relation to the demographics of the particular
market and its location within that market. The number of "impressions"
delivered by a display is measured by the number of vehicles passing the site
during a defined period and is weighted to give effect to such factors as its
proximity to other displays, the speed and viewing angle of approaching traffic,
the national average of adults riding in vehicles and whether the display is
illuminated. The number of impressions delivered by a display is verified by
independent auditing companies.
We have a diversified customer base in our outdoor advertising segment
of over 8,000 advertisers and advertising agency clients. The size and
geographic diversity of our markets allow us to attract national advertisers,
often by packaging displays in several of our markets in a single contract to
allow a national advertiser to simplify its purchasing process and present its
message in several markets. National advertisers generally seek wide exposure in
major markets and therefore tend to make larger purchases. We compete for
national advertisers primarily on the basis of price, location of displays,
availability and service.
COMPETITION
Our two business segments are in highly competitive industries, and we
may not be able to maintain or increase our current audience ratings and
advertising revenues. Our radio and television stations and outdoor advertising
properties compete for audiences and advertising revenues with other radio and
television stations and outdoor advertising companies, as well as with other
media, such as newspapers, magazines, cable television, and direct mail, within
their respective markets. Audience ratings and market shares are subject to
change, which could have an adverse effect on our revenues in that market. Other
variables that could affect our financial performance include:
o economic conditions, both general and relative to the broadcasting
industry;
o shifts in population and other demographics;
o the level of competition for advertising dollars;
o fluctuations in operating costs;
o technological changes and innovations;
o changes in labor conditions; and
o changes in governmental regulations and policies and actions of
federal regulatory bodies.
REGULATION OF OUR BUSINESS
Existing Regulation and 1996 Legislation
Television and radio broadcasting are subject to the jurisdiction of
the FCC under the Communications Act of 1934. The Communications Act prohibits
the operation of a television or radio broadcasting station except under a
license issued by the FCC and empowers the FCC, among other things, to:
17
<PAGE> 18
o issue, renew, revoke and modify broadcasting licenses;
o assign frequency bands;
o determine stations' frequencies, locations, and power;
o regulate the equipment used by stations;
o adopt other regulations to carry out the provisions of the
Communications Act;
o impose penalties for violation of such regulations; and
o impose fees for processing applications and other administrative
functions.
The Communications Act prohibits the assignment of a license or the transfer of
control of a licensee without prior approval of the FCC. Under the
Communications Act, the FCC also regulates certain aspects of the operation of
cable television systems and other electronic media that compete with
broadcasting stations.
The Telecommunications Act of 1996 represented the most comprehensive
overhaul of the country's telecommunications laws in more than 60 years. The
Communications Act originated at a time when telephone and broadcasting
technologies were quite distinct and addressed different consumer needs. As a
consequence, both the statute and its implementing regulatory scheme were
designed to compartmentalize the various sectors of the telecommunications
industry. The 1996 Act removed or relaxed the statutory barriers to telephone
company entry into the video programming delivery business, to cable company
provision of telephone service, and to common ownership of broadcast television
and cable properties.
The 1996 Act also significantly changed both the process for renewal of
broadcast station licenses and the broadcast ownership rules. First, the 1996
Act established a "two-step" renewal process that limits the FCC's discretion to
consider applications filed in competition with an incumbent's renewal
application. The 1996 Act also substantially liberalized the national broadcast
ownership rules, eliminating the national radio limits and easing the national
restrictions on TV ownership. The 1996 Act also relaxed local radio ownership
restrictions, but left local TV restrictions in place pending further FCC
review.
This new regulatory flexibility has engendered aggressive local,
regional, and/or national acquisition campaigns. Removal of previous station
ownership limitations on leading media companies, such as existing networks and
major station groups, has increased sharply the competition for and the prices
of attractive stations.
License Grant and Renewal
Prior to the passage of the 1996 Act, television and radio broadcasting
licenses generally were granted or renewed for periods of five and seven years,
respectively, upon a finding by the FCC that the "public interest, convenience,
and necessity" would be served thereby. At the time an application is made for
renewal of a television or radio license, parties in interest may file petitions
to deny the application, and such parties, including members of the public, may
comment upon matters related to whether renewal is warranted including the
service the station has provided during the preceding license term. Prior to
passage of the 1996 Act, any person also was permitted to file a competing
application for authority to operate on the station's channel and replace the
incumbent licensee. Renewal applications were granted without a hearing if there
were no competing applications and if issues raised by petitioners to deny such
applications were not serious enough to cause the FCC to order a hearing. If
competing applications were filed, or if sufficiently serious issues were raised
by a petitioner, a full comparative hearing was required.
18
<PAGE> 19
Under the 1996 Act, the statutory restriction on the length of
broadcast licenses has been amended to allow the FCC to grant broadcast licenses
to both television and radio stations for terms of up to eight years. The 1996
Act also requires renewal of a broadcast license if the FCC finds that
o the station has served the public interest, convenience, and
necessity;
o there have been no serious violations of either the Communications Act
or the FCC's rules and regulations by the licensee; and
o there have been no other serious violations which taken together
constitute a pattern of abuse.
In making its determination, the FCC may still consider petitions to deny but
cannot consider whether the public interest would be better served by a person
other than the renewal applicant. Instead, under the 1996 Act, competing
applications for the same frequency may be accepted only after the FCC has
denied an incumbent's application for renewal of license.
Although in the vast majority of cases broadcast licenses are granted
by the FCC even when petitions to deny are filed against their renewals, there
can be no assurance that any of our stations' licenses will be renewed.
Multiple Ownership Restrictions
The FCC has promulgated rules that, among other things, limit the
ability of individuals and entities to own or have an "attributable interest" in
broadcast stations, as well as other specified mass media entities. An
attributable interest is defined as an official position or ownership interest
above a certain level. Prior to the passage of the 1996 Act, these rules
included limits on the number of radio and television stations that could be
owned on both a national and local basis. On a national basis, the rules
generally precluded any individual or entity from having an attributable
interest in more than 20 AM radio stations, 20 FM radio stations and 12
television stations. Moreover, the aggregate audience reach of the co-owned
television stations could not exceed 25% of all U.S. television households.
The 1996 Act completely revised the television and radio ownership
rules via changes the FCC implemented in two orders issued on March 8, 1996.
With respect to television, the 1996 Act and the FCC's subsequently issued
orders eliminated the 12-station limit for station ownership and increased the
national audience reach limitation from 25% to 35%. On a local basis, however,
the 1996 Act did not alter current FCC rules prohibiting an individual or entity
from holding an attributable interest in more than one television station in a
market. The 1996 Act did require the FCC to conduct a rulemaking proceeding,
however, to determine whether to retain or modify this so-called "TV duopoly
rule," including narrowing the rule's geographic scope and permitting some
two-station combinations at least in certain (large) markets. At the time of the
passage of the 1996 Act, the FCC had already initiated a rulemaking to consider
whether the television duopoly rule should be retained, modified or eliminated.
That proceeding remains pending.
With respect to radio licensees, the 1996 Act and the FCC's
subsequently issued rule changes eliminated the national ownership restriction,
allowing one entity to own nationally any number of AM or FM broadcast stations.
The 1996 Act and the FCC's new rules also greatly eased local radio ownership
restrictions. The maximum allowable number of stations that can be commonly
owned in a market varies depending on the number of radio stations within that
market, as determined using a method prescribed by the FCC. In markets with more
than 45 stations, one company may own, operate, or control eight stations, with
no more than five in any one service (AM or FM). In markets of 30-44 stations,
one company may own seven stations, with no more than four in any one service;
in markets with 15-29 stations, one entity may own six stations, with no more
than four in any one service. In markets with 14 commercial stations or less,
one
19
<PAGE> 20
company may own up to five stations or 50% of all of the stations, whichever is
less, with no more than three in any one service. These new rules permit common
ownership of substantially more stations in the same market than did the FCC's
prior rules, which at most allowed ownership of no more than two AM stations and
two FM stations even in the largest markets. Accordingly, the new rules have
enabled us to garner larger shares of radio advertising revenue in our markets
and offer more attractive advertising rates and packages to our commercial
advertisers, and have enhanced our ability to realize cost savings from
consolidation of operational expenses and functions.
Irrespective of FCC rules governing radio ownership, however, the
Antitrust Division of the United States Department of Justice and the Federal
Trade Commission have the authority to determine that a particular transaction
presents antitrust concerns. Following the passage of the 1996 Act, the
Antitrust Division has become more aggressive in reviewing proposed acquisitions
of radio stations, particularly in instances where the proposed acquirer already
owns one or more radio stations in a particular market and seeks to acquire
another radio station in the same market. The Antitrust Division has, in some
cases, obtained consent decrees requiring radio station divestitures in a
particular market based on allegations that acquisitions would lead to
unacceptable concentration levels. The FCC has also been more aggressive in
independently examining issues of market concentration when considering radio
station acquisition. The FCC has delayed its approval of several pending radio
station purchases by various parties because of market concentration concerns,
and generally will not approve radio acquisitions where the Antitrust Division
has expressed concentration concerns, even if the acquisition complies with the
FCC's numerical station limits. Moreover, in recent months the FCC has followed
a policy of giving specific public notice of its intention to conduct additional
ownership concentration analysis, and soliciting public comment on "the issue of
concentration and its effect on competition and diversity," with respect to
certain applications for consent to radio station acquisitions based on
advertising revenue shares or other criteria.
In 1992, the FCC adopted rules with respect to so-called local
marketing agreements, or "LMAs", through which the licensee of one radio station
provides the programming for another licensee's station in the same market.
Under these rules, in determining the number of radio stations that a single
entity may control, an entity that owns one or more radio stations in a market
and programs a station in the same market pursuant to an LMA is required, under
certain circumstances, to count the LMA station toward its local radio ownership
limits even though it does not own the station. As a result, in a market where
we own one or more radio stations, we generally cannot provide programming under
an LMA to another radio station if we cannot acquire that station under the
local radio ownership rules. In a pending rulemaking, the FCC is seeking comment
on issues of control and attribution with respect to time brokerage agreements
or LMAs entered into by television stations. In that rulemaking, the FCC is
considering adopting rules for television LMAs similar to those that govern
radio LMAs. It is unclear whether we will be able to program stations under our
existing agreements for the remainder of their current terms, extend these
agreements, or enter into new LMAs in other markets in which we own or operate
television stations. If our LMAs are not allowed to continue or to be extended,
we could be required to cease operating those television stations which we
currently operate pursuant to such LMAs and to begin programming those
television stations that we own which are currently programmed by third parties
pursuant to such LMAs.
A number of cross-ownership rules pertain to licensees of television
and radio stations. FCC rules, the Communications Act or both generally prohibit
an individual or entity from having an attributable interest in both a
television station and a radio station, daily newspaper or cable television
20
<PAGE> 21
system that is located in the same market served by the television station. The
FCC has employed a liberal waiver policy with respect to the TV/radio so-called
"one-to-a-market rule" cross-ownership restriction, presumptively permitting
common ownership of one AM, one FM and one TV station in any of the 25 largest
markets, provided there are at least 30 separately owned stations remaining
after the proposed sale. The 1996 Act directed the FCC to extend this
presumptive waiver policy to the top 50 markets, consistent with the public
interest, convenience and necessity. Moreover, the FCC has in a number of cases
granted one-to-a-market waivers under a case-by-case standard to allow common
ownership of a TV station and as many as the maximum permissible number of radio
stations in the same market. In its pending rulemaking proceeding relating to
the TV ownership rules, however, the FCC is reexamining the one-to-a-market
rule. The options being considered by the FCC range from total elimination of
the rule to express limitations on the number of radio stations that may be
owned in common with a TV station in the same market. We have been granted
temporary waivers of the one-to-a-market rule in markets in which we currently
operate both radio and television stations. These temporary waivers are subject
to the outcome of the pending rulemaking. There can be no assurance that these
temporary waivers will be made permanent. If they are not made permanent, we
could be required to sell some or all of the stations in that market. Moreover,
similar issues could arise in the future in connection with potential
acquisitions.
The 1996 Act eliminated a statutory prohibition against common
ownership of television broadcast stations and cable systems serving the same
area, but left the current FCC rule in place. The 1996 Act stipulates that the
FCC should not consider the repeal of the statutory ban in any review of its
applicable rules. The legislation also eliminated the FCC's former network/cable
cross-ownership limitations, but allowed the FCC to adopt regulations if
necessary to ensure carriage, appropriate channel positioning, and
nondiscriminatory treatment of non-affiliated broadcast stations on
network-owned cable systems. The FCC eliminated the restriction and determined
that additional safeguards were not necessary at this time.
The 1996 Act does not alter the FCC's newspaper/broadcast
cross-ownership restrictions. However, the FCC is considering whether to change
the policy pursuant to which it considers waivers of the radio/newspaper
cross-ownership rule. Finally, the 1996 Act and the FCC's subsequently issued
rule changes revised the long-standing "dual network" rule to permit television
broadcast stations to affiliate with an entity that maintains two or more
networks, unless the combination is composed of (a) two of the four existing
networks (ABC, CBS, NBC or FOX) or (b) any of the four existing networks and one
of the two emerging networks (WB or UPN).
Expansion of our broadcast operations in particular areas and
nationwide will continue to be subject to the FCC's ownership rules and any
further changes the FCC or Congress may adopt. Significantly, the 1996 Act
requires the FCC to review its remaining ownership rules biennially as part of
its regulatory reform obligations to determine whether its various rules are
still necessary. The first such biennial review commenced March 13, 1998, with
the FCC's adoption of a notice of inquiry soliciting comment on its ownership
rules. In this notice of inquiry, the FCC has requested specific comment on
o the manner in which the FCC counts stations for purposes of the local
radio multiple ownership rule;
o the "UHF discount," under which UHF television stations are attributed
with only 50% of their reach for purposes of the national television
audience reach limit;
o the prohibition on common ownership of a daily newspaper and a radio
or TV broadcast station in the same market; and
o the prohibition on common ownership of a television station and a
cable system in the same market.
21
<PAGE> 22
We cannot predict the impact of the biennial review process or any other agency
or legislative initiatives upon the FCC's broadcast rules. Further, the 1996
Act's relaxation of the FCC's ownership rules has increased the level of
competition in many markets in which our stations are located.
Under the FCC's ownership rules, a direct or indirect purchaser of
certain types of our securities could violate FCC regulations or policies if
that purchaser owned or acquired an "attributable" or "meaningful" interest in
other media properties in the same areas as stations owned by us or in a manner
otherwise prohibited by the FCC. All officers and directors of a licensee and
any direct or indirect parent, as well as general partners, limited partners who
are not properly "insulated" from management activities, and stockholders who
own five percent or more of the outstanding voting stock of a licensee, either
directly or indirectly, generally will be deemed to have an attributable
interest in the license. Certain institutional investors who exert no control or
influence over a licensee may own up to ten percent of such outstanding voting
stock before attribution occurs. Under current FCC regulations, debt
instruments, non-voting stock, properly insulated limited partnership interests
as to which the licensee certifies that the limited partners are not "materially
involved" in the management and operation of the subject media property, and
voting stock held by minority stockholders in cases in which there is a single
majority stockholder generally are not subject to attribution. The FCC's
"cross-interest" policy, which precludes an individual or entity from having a
"meaningful," even though not attributable, interest in one media property and
an attributable interest in a broadcast, cable or newspaper property in the same
area, may be invoked in certain circumstances to reach interests not expressly
covered by the multiple ownership rules. Under the "cross-interest" policy, the
FCC may consider significant nonattributable equity or debt interests in a media
outlet combined with an attributable interest in another media outlet in the
same market, joint ventures, and common key employees among competitors.
The FCC has pending a rulemaking proceeding designed to permit a
"thorough review of its broadcast media attribution rules." Among the issues the
FCC is considering include
o whether to change the voting stock attribution benchmarks from five
percent to ten percent and, for passive investors, from ten percent to
twenty percent;
o whether there are any circumstances in which non-voting stock
interests, which are currently considered non-attributable, should be
considered attributable;
o whether the FCC should eliminate its single majority shareholder
exception pursuant to which voting interests in excess of five percent
are not considered attributable if a single shareholder owns more than
fifty percent of the voting power;
o whether to relax insulation standards for business development
companies and other widely-held limited partnerships;
o how to treat limited liability companies and other new business forms
for attribution purposes;
o whether to eliminate or codify the cross-interest policy; and
o whether to adopt a new policy which would consider whether multiple
cross interests or other significant business relationships (such as
time brokerage agreements, debt relationships or holdings of
nonattributable equity interests), which individually do not raise
concerns, raise issues with respect to diversity and competition.
The FCC also is considering whether to make debt attributable in
certain instances as well as the circumstances, if any, in which television LMAs
and radio and television joint sales agreements should be considered to be an
attributable interest. We cannot predict with certainty when this proceeding
will be concluded or whether or to what extent any of the FCC's attribution
standards will be changed. Should
22
<PAGE> 23
the attribution rules be changed, we are unable to predict what effect, if any,
such changes would have on us or our activities. To the best of our knowledge at
present, none of our officers, directors or five percent stockholders holds an
interest in another television station, radio station, cable television system
or daily newspaper that is inconsistent with the FCC's ownership rules and
policies.
Alien Ownership Restrictions
The Communications Act restricts the ability of foreign entities or
individuals to own or hold certain interests in broadcast licenses. Foreign
governments, representatives of foreign governments, non-U.S. citizens,
representatives of non-U.S. citizens, and corporations or partnerships organized
under the laws of a foreign nation are barred from holding broadcast licenses.
Non-U.S. citizens, collectively, may directly or indirectly own or vote up to
twenty percent of the capital stock of a corporate licensee. In addition, a
broadcast license may not be granted to or held by any corporation that is
controlled, directly or indirectly, by any other corporation more than
one-fourth of whose capital stock is owned or voted by non-U.S. citizens or
their representatives, by foreign governments or their representatives, or by
non-U.S. corporations, if the FCC finds that the public interest will be served
by the refusal or revocation of such license. The FCC has interpreted this
provision of the Communications Act to require an affirmative public interest
finding before a broadcast license may be granted to or held by any such
corporation, and the FCC has made such an affirmative finding only in limited
circumstances. Since we serve as a holding company for subsidiaries that serve
as licensees for our stations, we may be restricted from having more than
one-fourth of our stock owned or voted directly or indirectly by non-U.S.
citizens, foreign governments, representatives of non-foreign governments, or
foreign corporations.
Other Regulations Affecting Broadcast Stations
General. The FCC has significantly reduced its past regulation of
broadcast stations, including elimination of formal ascertainment requirements
and guidelines concerning amounts of certain types of programming and commercial
matter that may be broadcast. There are, however, FCC rules and policies, and
rules and policies of other federal agencies, that regulate matters such as
network-affiliate relations, the ability of stations to obtain exclusive rights
to air syndicated programming, cable systems' carriage of syndicated and network
programming on distant stations, political advertising practices, application
procedures and other areas affecting the business or operations of broadcast
stations.
Children's Television Programming. The FCC has adopted rules to
implement the Children's Television Act of 1990, which, among other provisions,
limits the permissible amount of commercial matter in children's programs and
requires each television station to present "educational and informational"
children's programming. The FCC also has adopted renewal processing guidelines
effectively requiring television stations to broadcast an average of three hours
per week of children's educational programming.
Closed Captioning. The FCC has adopted rules requiring closed
captioning of all broadcast television programming. The rules require generally
that (i) 95% of all new programming first published or exhibited on or after
January 1, 1998 must be closed captioned within eight years, and (ii) 75% of
"old" programming which first aired prior to January 1, 1998 must be closed
captioned within 10 years, subject to certain exemptions.
Television Violence. The 1996 Act contains a number of provisions
relating to television violence. First, pursuant to the 1996 Act, the television
industry has developed a ratings system which the FCC has approved. Furthermore,
also pursuant to the 1996 Act, the FCC has adopted rules requiring
23
<PAGE> 24
certain television sets to include the so-called "V-chip," a computer chip that
allows blocking of rated programming. Under these rules, half of all television
receiver models with picture screens 13 inches or greater will be required to
have the "V-chip" by July 1, 1999, and all such models will be required to have
the "V-chip" by January 1, 2000. In addition, the 1996 Act requires that all
television license renewal applications filed after May 1, 1995 contain
summaries of written comments and suggestions received by the station from the
public regarding violent programming.
Recent Developments, Proposed Legislation and Regulation
Equal Employment Opportunity. In April 1998, the U.S. Court of Appeals
for the D.C. Circuit struck down the FCC's Equal Employment Opportunity
regulations as unconstitutional. Recently, the FCC commenced a proceeding in
which it proposed new rules that it suggests would not share the constitutional
flaws of the former rules. It has invited public comment on its proposals. We
cannot predict whether new rules will be adopted, the form of any such rules, or
the impact of the rules on our operations.
Distribution of Video Services by Telephone Companies. Recent actions
by Congress, the FCC and the courts all presage significant future involvement
in the provision of video services by telephone companies. We cannot predict
either the timing or the extent of such involvement. These developments all
relate to a former provision of the Communications Act that prohibited a local
telephone company from providing video programming directly to subscribers
within the company's telephone service areas. As applied by government
regulators historically, the former provision prevented telephone companies from
providing cable service over either the telephone network or a separate cable
system located within the telephone service area. That provision has now been
superseded by the 1996 Act, which provides for telephone company entry into the
distribution of video services either under the laws and rules applicable to
cable systems as operators of so-called "wireless cable systems", as common
carriers or under new rules devised by the FCC for "open video systems" subject
to certain common carrier requirements.
The 1996 Act also eliminated the FCC's "video dialtone" rules, which
allowed telephone companies to provide a transport "platform" to multiple video
programmers, including, potentially, competing program packages, on a
non-discriminatory, common carrier basis. The legislation does not affect any
video dialtone systems approved prior to enactment of the 1996 Act. Congress
instead has determined that telephone companies may offer video programming
either as a traditional cable operator, as a so-called "wireless cable"
operator, as a common carrier, or through operation of an "open video system."
Although Congress specifically preempted the FCC's video dialtone rules, the
legislation's directives for open video systems resemble the rules adopted or
proposed for video dialtone systems in certain respects. These include the
requirements that the operator of an open video system offer carriage capacity
to various video programming providers under nondiscriminatory rates, terms, and
conditions; and if demand for carriage exceeds the channel capacity of the open
video system, the operator generally is barred from devoting more than one-third
of the system's capacity to programming provided by itself or an affiliate.
The 1992 Cable Act. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992, which, among other
matters, includes provisions respecting the carriage of television stations'
signals by cable television systems. The signal carriage, or "must carry,"
provisions of the 1992 Cable Act require cable operators to carry the signals of
local commercial and non-commercial television stations and certain low power
television stations. Systems with 12 or fewer usable activated channels and more
than 300 subscribers must carry the signals of at least three local commercial
television stations. A cable system with more than 12 usable activated channels,
regardless
24
<PAGE> 25
of the number of subscribers, must carry the signals of all local commercial
television stations, up to one-third of the aggregate number of usable activated
channels of such a system. The 1992 Cable Act also includes a retransmission
consent provision that prohibits cable operators and other multi-channel video
programming distributors from carrying broadcast signals without obtaining the
station's consent in certain circumstances. The "must carry" and retransmission
consent provisions are related in that a local television broadcaster, on a
cable system-by-cable system basis, must make a choice once every three years
whether to proceed under the "must carry" rules or to waive the right to
mandatory but uncompensated carriage and negotiate a grant of retransmission
consent to permit the cable system to carry the station's signal, in most cases
in exchange for some form of consideration from the cable operator. Cable
systems and other multi-channel video programming distributors must obtain
retransmission consent to carry all distant commercial stations other than
"super stations" delivered via satellite.
In March 1997, the U.S. Supreme Court upheld the constitutionality of
the must-carry provisions of the 1992 Cable Act. As a result, the regulatory
scheme promulgated by the FCC to implement the must-carry provisions of the 1992
Cable Act remains in effect. Whether and to what extent such must-carry rights
will extend to the new digital television signals (see below) to be broadcast by
licensed television stations, including those owned by us, over the next several
years is still a matter to be determined in an ongoing rulemaking proceeding
initiated by the FCC in July 1998. Our television stations are highly dependent
on their carriage by cable systems in the areas they serve. Thus, FCC rules that
impose no or limited obligations on cable systems and other multi-channel video
programming distributors to carry the digital signals of television broadcast
stations in their local markets could adversely affect our operations.
The 1992 Cable Act was amended in several important respects by the
1996 Act. Most notably, as discussed above, the 1996 Act repealed the
cross-ownership ban between cable and telephone entities and the FCC's current
video dialtone rules. These actions, among other regulatory developments, permit
involvement by telephone companies in providing video services. We cannot
predict the impact that telephone company entry into video programming will have
upon the broadcasting industry.
The 1996 Act also repealed or curtailed several cable-related ownership
and cross-ownership restrictions. For example, as noted above, the 1996 Act
eliminated the broadcast network/cable cross-ownership limitations and the
statutory prohibition on TV/cable cross-ownership.
Advanced Television Service. The FCC has taken a number of steps to
implement digital television broadcasting service in the United States. In
December 1996, the FCC adopted a digital television broadcast standard and, in
April 1997, adopted decisions in several pending rulemaking proceedings that
establish service rules and a plan for implementing digital television. The FCC
adopted a digital television table of allotments that provides all authorized
television stations with a second channel on which to broadcast a digital
television signal. In February 1998, the FCC made slight revisions to the
digital television rules and table of allotments in acting upon a number of
appeals in the digital television proceeding. The FCC has attempted to provide
digital television coverage areas that are comparable to stations' existing
service areas. The FCC has ruled that television broadcast licensees may use
their digital channels for a wide variety of services such as high-definition
television, multiple standard definition television programming, audio, data,
and other types of communications, subject to the requirement that each
broadcaster provide at least one free video channel equal in quality to the
current technical standard.
25
<PAGE> 26
Digital television channels will generally be located in the range of
channels from channel 2 through channel 51. The FCC is requiring that affiliates
of ABC, CBS, Fox and NBC in the top 10 television markets begin digital
broadcasting by May 1, 1999. Many stations have already begun digital
broadcasting. Affiliates of the four major networks in the top 30 markets must
begin digital broadcasting by November 1, 1999, and all other broadcasters must
follow suit by May 1, 2002. Under this schedule, our WFTC-TV in Minneapolis,
Minnesota, must begin digital broadcasting by November 1999. All of our other
television stations have until 2002.
The FCC's plan calls for the digital television transition period to
end in the year 2006, at which time the FCC expects that television broadcasters
will cease non-digital broadcasting and return one of their two channels to the
government, allowing that spectrum to be recovered for other uses. Under the
Balanced Budget Act, however, the FCC is authorized to extend the December 31,
2006 deadline for reclamation of a television station's non-digital channel if,
in any given case:
o one or more television stations affiliated with ABC, CBS, NBC or Fox
in a market is not broadcasting digitally, and the FCC determines that
such stations have "exercised due diligence" in attempting to convert
to digital broadcasting; or
o less than 85% of the television households in the station's market
subscribe to a multichannel video service that carries at least one
digital channel from each of the local stations in that market, and
less than 85% of the television households in the market can receive
digital signals off the air using either a set-top converter box for
an analog television set or a new digital television set.
The FCC is currently considering whether cable television system operators
should be required to carry stations' digital television signals in addition to
the currently required carriage of stations' analog signals. In July 1998, the
FCC issued a Notice of Proposed Rulemaking posing seven different options for
the carriage of digital signals and solicited comments from all interested
parties. The FCC has yet to issue a decision on this matter.
Implementation of digital television will improve the technical quality
of television signals received by viewers. However, the implementation of
digital television will also impose substantial additional costs on television
stations because of the need to replace equipment and because some stations will
need to operate at higher utility costs and there can be no assurance that our
television stations will be able to increase revenue to offset such costs. The
FCC is also considering imposing new public interest requirements on television
licensees in exchange for their receipt of digital television channels. In
addition, the 1996 Act allows the FCC to charge a spectrum fee to broadcasters
who use the digital spectrum to offer subscription-based services. The FCC has
adopted rules that require broadcasters to pay a fee of 5% of gross revenues
received from ancillary or supplementary uses of the digital spectrum for which
they charge subscription fees. We cannot predict what future actions the FCC
might take with respect to digital television, nor can we predict the effect of
the FCC's present digital television implementation plan or such future actions
on our business. We will incur considerable expense in the conversion of digital
television and are unable to predict the extent of timing of consumer demand for
any such digital television services.
Digital Audio Radio Service. In January 1995, the FCC adopted rules to
allocate spectrum for satellite digital audio radio service. Satellite digital
audio radio service systems potentially could provide for regional or nationwide
distribution of radio programming with fidelity comparable to compact disks. The
FCC has issued two authorizations to launch and operate satellite digital audio
radio service . The FCC also has undertaken an inquiry into the terrestrial
broadcast of digital audio radio service signals,
26
<PAGE> 27
addressing, among other things, the need for spectrum outside the existing FM
band and the role of existing broadcasters. We cannot predict the impact of
either satellite digital audio radio service or terrestrial digital audio radio
service on our business.
Direct Broadcast Satellite Systems. There are currently in operation
several direct broadcast satellite systems that serve the United States, and it
is anticipated that additional systems will become operational over the next
several years. Direct broadcast satellite systems provide programming on a
subscription basis to those who have purchased and installed a satellite signal
receiving dish and associated decoder equipment. Direct broadcast satellite
systems claim to provide visual picture quality comparable to that found in
movie theaters and aural quality comparable to digital audio compact disks. We
cannot predict the impact of direct broadcast satellite systems on our business.
Congress and the FCC currently have under consideration, and may in the
future adopt, new laws, regulations and policies regarding a wide variety of
matters that could affect, directly or indirectly, the operation and ownership
of our broadcast properties. In addition to the changes and proposed changes
noted above, such matters include, for example, the license renewal process,
spectrum use fees, political advertising rates, and potential restrictions on
the advertising of certain products such as beer and wine. Other matters that
could affect our broadcast properties include technological innovations and
developments generally affecting competition in the mass communications
industry, such as direct broadcast satellite service, the continued
establishment of wireless cable systems and low power television stations,
digital television and radio technologies, the proposed establishment of a low
power FM radio service, and the advent of telephone company participation in the
provision of video programming service.
The foregoing is a brief summary of certain provisions of the
Communications Act, the 1996 Act, the 1992 Cable Act, and specific regulations
and policies of the FCC thereunder. This description does not purport to be
comprehensive and reference should be made to the Communications Act, the 1996
Act, the 1992 Cable Act, the FCC's rules and the public notices and rulings of
the FCC for further information concerning the nature and extent of federal
regulation of broadcast stations. Proposals for additional or revised
regulations and requirements are pending before and are being considered by
Congress and federal regulatory agencies from time to time. Also, various of the
foregoing matters are now, or may become, the subject of court litigation, and
we cannot predict the outcome of any such litigation or the impact on our
broadcast business.
Outdoor Advertising
The outdoor advertising industry is subject to extensive governmental
regulation at the federal, state and local level. Compliance with existing and
future regulations could have a significant financial impact on us. Federal law,
principally the Highway Beautification Act of 1965, encourages states to
implement legislation to restrict billboards located within 660 feet of, or
visible from, highways except in commercial or industrial areas. Every state has
implemented regulations at least as restrictive as the Highway Beautification
Act, including a ban on the construction of new billboards along federally-aided
highways and the removal of any illegal signs on these highways at the owner's
expense and without any compensation.
States and local jurisdictions have, in some cases, passed additional
regulations on the construction, size, location and, in some instances,
advertising content of outdoor advertising structures adjacent to
federally-aided highways and other thoroughfares. From time to time governmental
authorities order the removal of billboards by the exercise of eminent domain
and certain jurisdictions
27
<PAGE> 28
have also adopted amortization of billboards in varying forms. Amortization
permits the billboard owner to operate its billboard only as a non-conforming
use for a specified period of time, after which it must remove or otherwise
conform its billboards to the applicable regulations at its own cost without any
compensation. We or our acquired companies have agreed to remove certain
billboards in Jacksonville, Florida. Furthermore, Tampa, Houston and San
Francisco, which are municipalities within our existing markets, have adopted
amortization ordinances. We can give no assurance that we will be successful in
negotiating acceptable arrangements in circumstances in which our displays are
subject to removal or amortization, and what effect, if any, such regulations
may have on our operations.
In addition, we are unable to predict what additional regulations may
be imposed on outdoor advertising in the future. Legislation regulating the
content of billboard advertisements and additional billboard restrictions have
been introduced in Congress from time to time in the past. Changes in laws and
regulations affecting outdoor advertising at any level of government, including
laws of the foreign jurisdictions in which we operate, could have a material
adverse effect on us.
Tobacco and Alcohol Advertising
Regulations, potential legislation and recent settlement agreements
related to outdoor tobacco advertising could have a material adverse effect on
our operations. The major U.S. tobacco companies that are defendants in numerous
class action suits throughout the country recently reached an out-of-court
settlement with 46 states that includes a ban on outdoor advertising of tobacco
products. The settlement agreement was finalized on November 23, 1998, but must
be ratified by the courts in each of the 46 states participating in the
settlement. In addition to the mass settlement, the tobacco industry previously
had come to terms with the remaining four states individually. The terms of such
individual settlements also included bans on outdoor advertising of tobacco
products. The elimination of billboard advertising by the tobacco industry will
cause a reduction in our direct revenues from such advertisers and may
simultaneously increase the available space on the existing inventory of
billboards in the outdoor advertising industry. This industry-wide increase in
space may in turn result in a lowering of outdoor advertising rates or limit the
ability of industry participants to increase rates for some period of time. For
the year ended December 31, 1998, approximately 3% of our revenues came from the
outdoor advertising of tobacco products.
In addition to the above settlement agreements, state and local
governments are also regulating the outdoor advertising of alcohol and tobacco
products. For example, several states and cities have laws restricting tobacco
billboard advertising near schools and other locations frequented by children.
Some cities have proposed even broader restrictions, including complete bans on
outdoor tobacco advertising on billboards, kiosks, and private business window
displays. It is possible that state and local governments may propose or pass
similar ordinances to limit outdoor advertising of alcohol and other products or
services in the future. Legislation regulating tobacco and alcohol advertising
has also been introduced in a number of European countries in which we conduct
business, and could have a similar impact.
Antitrust Matters
An important element of our growth strategy involves the acquisition of
additional radio and television stations and outdoor advertising display faces,
many of which are likely to require preacquisition antitrust review by the
Federal Trade Commission and the Antitrust Division. Following passage of the
1996 Act, the Antitrust Division has become more aggressive in reviewing
proposed acquisitions of radio stations and radio station networks, particularly
in instances where the proposed
28
<PAGE> 29
acquiror already owns one or more radio stations in a particular market and the
acquisition involves another radio station in the same market. Recently, the
Antitrust Division, in some cases, has obtained consent decrees requiring radio
station divestitures in a particular market based on allegations that
acquisitions would lead to unacceptable concentration levels. There can be no
assurance that the Antitrust Division or the FTC will not seek to bar us from
acquiring additional radio and television stations or outdoor advertising
display faces in any market where our existing stations or display faces already
have a significant market share. In addition, the anitirust laws of foreign
jurisdictions will apply if we acquire international broadcasting properties.
Environmental Matters
As the owner, lessee or operator of various real properties and
facilities, we are subject to various federal, state and local environmental
laws and regulations. Historically, compliance with such laws and regulations
has not had a material adverse effect on our business. There can be no
assurance, however, that compliance with existing or new environmental laws and
regulations will not require us to make significant expenditures in the future.
FINANCIAL LEVERAGE
We currently use a significant portion of our operating income for debt
service. Our leverage could make us vulnerable to an increase in interest rates
or a downturn in the operating performance of our broadcast properties or
outdoor advertising properties or a decline in general economic conditions. At
December 31, 1998, we had borrowings under our credit facility and other
long-term debt outstanding of approximately $1.0 billion and shareholders'
equity of $4.5 billion. We expect to continue to borrow funds to finance
acquisitions of broadcasting and outdoor advertising properties, as well as for
other purposes. We may borrow up to $2 billion under our domestic credit
facility at floating rates currently equal to the London InterBank Offered Rate
plus 0.25%.
DEPENDENCE ON KEY PERSONNEL
Our business is dependent upon the performance of certain key
employees, including our chief executive officer and other executive officers.
We also employ or independently contract with several on-air personalities with
significant loyal audiences in their respective markets. Although we have
entered into long-term agreements with certain of our executive officers and key
on-air talent to protect their interests in those relationships, we can give no
assurance that all such key personnel will remain with us or will retain their
audiences.
INTERNATIONAL BUSINESS RISKS
Doing business in foreign countries carries with it certain risks that
are not found in doing business in the United States. We currently derive a
portion of our revenues from international radio and outdoor operations in
Europe, Mexico, Australia and New Zealand. The risks of doing business in
foreign countries which could result in losses against which we are not insured
include:
o potential adverse changes in the diplomatic relations of foreign
countries with the United States;
o hostility from local populations;
o the adverse effect of currency exchange controls;
29
<PAGE> 30
o restrictions on the withdrawal of foreign investment and earnings;
o government policies against businesses owned by foreigners;
o expropriations of property;
o the potential instability of foreign governments;
o the risk of insurrections;
o risks of renegotiation or modification of existing agreements with
governmental authorities;
o foreign exchange restrictions; and
o changes in taxation structure.
EXCHANGE RATE RISK
Because we own assets overseas and derive revenues from our
international operations, we may incur currency translation losses due to
changes in the values of foreign currencies and in the value of the U.S. dollar.
We cannot predict the effect of exchange rate fluctuations upon future operating
results. To reduce a portion of our exposure to the risk of international
currency fluctuations, we maintain a hedge by incurring debt in some other
currencies. We review this hedge position monthly. We currently maintain no
other derivative instruments to reduce the exposure to translation and/or
transaction risk, but may adopt other hedging strategies in the future.
OUR ACQUISITION STRATEGY COULD POSE RISKS
Operational Risks. We intend to grow through the acquisition of
broadcasting companies and assets, outdoor advertising companies, individual
outdoor advertising display faces, and other assets that we believe will assist
our customers in marketing their products and services. Our acquisition strategy
involves numerous risks, including:
o Certain of such acquisitions may prove unprofitable and fail to
generate anticipated cash flows;
o To successfully manage a rapidly expanding and significantly larger
portfolio of broadcasting and outdoor advertising properties, we may
need to recruit additional senior management and expand corporate
infrastructure;
o We may encounter difficulties in the integration of operations and
systems;
o Our management's attention may be diverted from other business
concerns; and
o We may lose key employees of acquired companies or stations.
Capital Requirements Necessary for Additional Acquisitions. We will face
stiff competition from other broadcasting and outdoor advertising companies for
acquisition opportunities. If
30
<PAGE> 31
the prices sought by sellers of these companies continue to rise, we may find
fewer acceptable acquisition opportunities. In addition, the purchase price of
possible acquisitions could require additional debt or equity financing on our
part. We can give no assurance that we will obtain the needed financing or that
we will obtain such financing on attractive terms. Additional indebtedness could
increase our leverage and make us more vulnerable to economic downturns and may
limit our ability to withstand competitive pressures. Additional equity
financing could result in dilution to our stockholders.
NEW TECHNOLOGIES MAY AFFECT OUR BROADCASTING OPERATIONS
The FCC is considering ways to introduce new technologies to the radio
broadcasting industry, including satellite and terrestrial delivery of digital
audio broadcasting and the standardization of available technologies which
significantly enhance the sound quality of AM broadcasts. We are unable to
predict the effect such technologies will have on our broadcasting operations,
but the capital expenditures necessary to implement such technologies could be
substantial. We also face risks in implementing the conversion of our television
stations to digital television, which the FCC has ordered and for which it has
established a timetable. We will incur considerable expense in the conversion to
digital television and are unable to predict the extent or timing of consumer
demand for any such digital television services. Moreover, the FCC may impose
additional public service obligations on television broadcasters in return for
their use of the digital television spectrum. This could add to our operational
costs. One issue yet to be resolved is the extent to which cable systems will be
required to carry broadcasters' new digital channels. Our television stations
are highly dependent on their carriage by cable systems in the areas they serve.
Thus, FCC rules that impose no or limited obligations on cable systems to carry
the digital television signals of television broadcast stations in their local
markets could adversely affect our television operations.
OUR SYSTEMS MUST BE YEAR 2000 COMPLIANT
We are exposed to the risk that the year 2000 issue could cause system
failures or miscalculations in our broadcasting, outdoor and corporate locations
which could cause disruptions of operations, including, among other things, a
temporary inability to produce broadcast signals, process financial
transactions, or engage in similar normal business activities. As a result, we
have determined that we will be required to modify or replace portions of our
software and certain hardware so that those systems will properly utilize dates
beyond December 31, 1999. We presently believe that with modifications or
replacements of existing software and certain hardware, the year 2000 issue can
be mitigated. To date, the amounts incurred and expensed for developing and
carrying out the plans to complete the year 2000 modifications have not had a
material effect on our operations. We plan to complete the year 2000
modifications, including testing, by July 1, 1999. The total remaining cost for
addressing year 2000 is not expected to be material to our operations. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000." If such modifications and replacements are not made,
are not completed on time, or are insufficient to prevent systems failures or
other disruptions, the year 2000 issue could have a material impact on our
operations.
In addition, the possibility of interruption exists in the event that
the information systems of our significant vendors are not year 2000 compliant.
The inability of such vendors to complete their year 2000 resolution process in
a timely fashion could materially impact us. The effect of non-compliance by
such vendors is not determinable. In addition, disruptions in the economy
generally resulting from the year 2000 issues could also materially adversely
affect us. We could be subject to litigation for computer systems failures, for
example, equipment shutdowns or failure to properly date business records. The
amount of potential liability and lost revenue cannot be reasonably estimated at
this time.
31
<PAGE> 32
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This report contains certain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 about us. Although
we believe that, in making any such statements, our expectations are based on
reasonable assumptions, any such statement may be influenced by factors that
could cause actual outcomes and results to be materially different from those
projected. When used in this document, the words "anticipates," "believes,"
"expects," "intends," and similar expressions, as they relate to us or our
management, are intended to identify such forward-looking statements. These
forward-looking statements are subject to numerous risks and uncertainties.
Important factors that could cause actual results to differ materially from
those in forward-looking statements, certain of which are beyond our control,
include:
o the impact of general economic conditions in the U.S. and in other
countries in which we currently do business;
o industry conditions, including competition;
o fluctuations in exchange rates and currency values;
o capital expenditure requirements;
o legislative or regulatory requirements;
o interest rates;
o taxes; and
o access to capital markets.
Our actual results, performance or achievements could differ materially
from those expressed in, or implied by, these forward-looking statements.
Accordingly, we cannot be certain that any of the events anticipated by the
forward-looking statements will occur or, if any of them do, what impact they
will have on us.
ITEM 2. PROPERTIES
Our corporate headquarters is in San Antonio, Texas. The lease
agreement for the approximately 18,000 square feet of office space in San
Antonio expires on February 28, 2000.
The types of properties required to support each of our radio and
television stations and outdoor advertising branches listed in Item 1 above
include offices, studios, transmitter sites, antenna sites and production
facilities. A radio or television station's studios are generally housed with
its offices in downtown or business districts. A radio or television station's
transmitter sites and antenna sites are generally located in a manner that
provides maximum market coverage. An outdoor branch and production facility is
generally located in an industrial/warehouse district.
The studios and offices of our radio and television stations and
outdoor advertising branches are located in leased or owned facilities. These
leases generally have expiration dates that range from one to
32
<PAGE> 33
twenty years. We either own or lease our transmitter and antenna sites. These
leases generally have expiration dates that range from five to fifteen years. We
do not anticipate any difficulties in renewing those leases that expire within
the next several years or in leasing other space, if required. We own
substantially all of the equipment used in our broadcasting and outdoor
businesses.
We own or have permanent easements on relatively few parcels of real
property that serve as the sites for our outdoor displays. Our remaining outdoor
display sites are leased. Our leases are for varying terms ranging from
month-to-month or year-to-year to terms of ten years or longer, and many provide
for renewal options. There is no significant concentration of displays under any
one lease or subject to negotiation with any one landlord. We believe that an
important part of our management activity is to negotiate suitable lease
renewals and extensions.
As noted in Item 1 above, as of December 31, 1998, we own or program
206 radio stations and 18 television stations, and own or lease approximately
302,574 outdoor advertising display faces in various markets throughout the
world. See "Business -- Industry Segments." Therefore, no one property is
material to our overall operations. We believe that our properties are in good
condition and suitable for our operations.
ITEM 3. LEGAL PROCEEDINGS
From time to time we become involved in various claims and lawsuits
incidental to our business, including defamation actions. In the opinion of our
management, after consultation with counsel, any ultimate liability arising out
of currently pending claims and lawsuits will not have a material effect on our
financial condition or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders in the
fourth quarter of fiscal year 1998.
33
<PAGE> 34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the New York Stock Exchange under the symbol "CCU."
There were approximately 622 shareholders of record as of March 15, 1999. This
figure does not include an estimate of the indeterminate number of beneficial
holders whose shares may be held of record by brokerage firms and clearing
agencies. The following table sets forth, for the calendar quarters indicated,
the reported high and low sales prices of the common stock as reported on the
NYSE. The prices have been adjusted to reflect a two-for-one stock split in July
1998.
<TABLE>
<CAPTION>
CLEAR CHANNEL
COMMON STOCK
----------------------
MARKET PRICE
HIGH LOW
-------- --------
<S> <C> <C>
1997
First Quarter.................. $24.8125 $17.1250
Second Quarter................. 31.6875 21.3750
Third Quarter.................. 34.3750 29.3125
Fourth Quarter................. 39.7188 30.0000
1998
First Quarter.................. 50.0315 36.7190
Second Quarter................. 54.5625 44.0625
Third Quarter.................. 61.7500 40.3750
Fourth Quarter................. 54.5000 36.1250
</TABLE>
DIVIDEND POLICY
Presently, we expect to retain our earnings for the development and
expansion of our business and do not anticipate paying cash dividends in 1999.
However, any future decision by our Board of Directors to pay cash dividends
will depend on, among other factors, our earnings, financial position, capital
requirements and loan covenant restrictions. Our current bank credit agreement
allows for the payment of dividends subject to certain loan covenant
restrictions. There are no restrictions on dividends payable wholly in our
capital stock. At March 15, 1999 the market price of our common stock was
$65.6875 per share.
34
<PAGE> 35
ITEM 6. SELECTED FINANCIAL DATA
Results of operations information
In thousands of dollars, except per share data
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Gross revenue $ 1,522,551 $ 790,178 $ 398,094 $ 283,357 $ 200,695
============ ============ ============ ============ ============
Net revenue 1,350,940 697,068 351,739 250,059 178,053
Operating expenses 767,265 394,404 198,332 137,504 105,380
Depreciation and amortization 304,972 114,207 45,790 33,769 24,669
Corporate expenses 37,825 20,883 8,527 7,414 5,100
------------ ------------ ------------ ------------ ------------
Operating income 240,878 167,574 99,090 71,372 42,904
Interest expense 135,766 75,076 30,080 20,752 7,669
Other income (expense) - net 12,810 11,579 2,230 (803) 1,161
------------ ------------ ------------ ------------ ------------
Income before income taxes 117,922 104,077 71,240 49,817 36,396
Income taxes 72,353 47,116 28,386 20,292 14,387
------------ ------------ ------------ ------------ ------------
Income before equity in earnings (loss)
of nonconsolidated affiliates 45,569 56,961 42,854 29,525 22,009
Equity in earnings (loss) of non-
consolidated affiliates 8,462 6,615 (5,158) 2,489 --
------------ ------------ ------------ ------------ ------------
Net income $ 54,031 $ 63,576 $ 37,696 $ 32,014 $ 22,009
============ ============ ============ ============ ============
Net income per common share (1)
Basic $ .23 $ .36 $ .26 $ .23 $ .16
============ ============ ============ ============ ============
Diluted $ .22 $ .33 $ .25 $ .23 $ .16
============ ============ ============ ============ ============
Cash dividends per share -- -- -- -- --
============ ============ ============ ============ ============
Balance Sheet Data:
Current assets $ 409,960 $ 210,742 $ 113,164 $ 70,485 $ 53,945
Property, plant and equipment - net 1,915,787 746,284 147,838 99,885 85,318
Total assets 7,539,918 3,455,637 1,324,711 563,011 411,594
Current liabilities 258,144 86,852 43,462 36,005 27,679
Long-term debt, net of current maturities 2,323,643 1,540,421 725,132 334,164 238,204
Shareholders' equity 4,483,429 1,746,784 513,431 163,713 130,533
</TABLE>
(1) All per share amounts have been adjusted to reflect stock splits effected on
the following dates and in the following ratios:
<TABLE>
<CAPTION>
Date of Split Ratio of Split
------------- --------------
<S> <C>
July 1998 two-for-one
December 1996 two-for-one
November 1995 two-for-one
February 1994 five-for-four
</TABLE>
The Selected Financial Data should be read in conjunction with Management's
Discussion and Analysis.
35
<PAGE> 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Following is a discussion of the key factors that have affected our
business over the last three years. This commentary should be read in
conjunction with our financial statements and our five-year summary of
operations that appear in this report.
RESULTS OF OPERATIONS
Management's discussion and analysis of results of operations for 1998
vs. 1997 and 1997 vs. 1996, have been presented on an as-reported basis except
for net revenue, operating expenses, operating income before depreciation and
amortization, depreciation and amortization, and operating income explanations,
which have been presented on an as-reported and a pro forma basis. The pro forma
results for the 1998 vs. 1997 assumes our acquisitions of More Group Plc.,
Universal Outdoor Holdings, Inc., Paxson Radio and Eller Media Corporation had
occurred on January 1, 1997. The pro forma results for the 1997 vs. 1996 assumes
our acquisitions of Paxson, Eller, US Radio, Inc. and Radio Equity Partners had
occurred on January 1, 1996. A complete list of material acquisitions during the
three-year period ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Date Included in
Business Acquired Segment As-Reported
----------------- ------- ----------------
<S> <C> <C>
More Group Outdoor July 1998
Universal Outdoor April 1998
Paxson Broadcasting October 1997
Eller Outdoor April 1997
Radio Equity Partners Broadcasting August 1996
US Radio Broadcasting May 1996
</TABLE>
CONSOLIDATED
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1998 vs. 1997 1997 vs. 1996
------------------------ ------------------------
Years Ended December 31, As-Reported Pro Forma As-Reported Pro Forma
----------------------------- % Increase % Increase % Increase % Increase
1998 1997 1996 (Decrease) (Decrease) (Decrease) (Decrease)
---- ---- ---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue $1,350,940 $697,068 $351,739 93.8 % 21.7% 98.2% 14.3 %
Operating expenses 767,265 394,404 198,332 94.5 % 21.2% 98.9% 10.4 %
Operating income before
depreciation and amortization 583,675 302,664 153,407 92.8 % 22.5% 97.3% 20.2 %
Depreciation and amortization 304,972 114,207 45,790 167.0 % 22.7% 149.4% (1.6)%
Operating income 240,878 167,574 99,090 43.7 % 20.9% 69.1% 59.0 %
Interest expense 135,766 75,076 30,080 80.8 % 149.6%
Other income (expense) - net 12,810 11,579 2,230 10.6 % 419.2%
Income taxes 72,353 47,116 28,386 53.6 % 66.0%
Equity in earnings (loss) of
nonconsolidated affiliates 8,462 6,615 (5,158) 27.9 % 228.2%
Net income 54,031 63,576 37,696 (15.0)% 68.7%
Net income per share: (1)
Basic $ .23 $ .36 $ .26 (36.1)% 38.5%
Diluted $ .22 $ .33 $ .25 (33.3)% 32.0%
Effective tax rate 58% 45% 40%
</TABLE>
(1) Adjusted for a two-for-one stock split effective July 28, 1998
36
<PAGE> 37
The majority of the growth from 1997 to 1998 in "as-reported" net
revenue and operating expenses was due to the additional revenue and expenses
associated with the operations of Universal and More Group during 1998 and the
inclusion of the full year's operations of Eller and Paxson. The acquisition of
Universal and More Group added approximately 34,000 and 119,000 display faces,
including joint ventures, and contributed 27.6% of 1998 net revenue. On a pro
forma basis, net revenue increased due to improved advertising rates in our
broadcasting segment and improved occupancy and increased advertising rates
within our outdoor segment. Pro forma operating expenses increased primarily
from the incremental selling costs related to the additional revenues.
The predominant reasons for the increase from 1996 to 1997 in
"as-reported" net revenue and operating expenses are two-fold. First, revenue
and expenses increased due to the inclusion of operations of 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 our revenue and 27% of our operating expenses
during 1997. Second, net revenue and operating expense increased from the
acquisition of Paxson during 1997, and a full year of operations for the
acquisitions of US Radio and Radio Equity Partners, both acquired during 1996.
On a pro forma basis, net revenue increased due to increases in rates charged to
advertisers primarily related to an increase in overall ratings, especially in
our Houston, Austin, Tampa and Miami markets. Pro forma operating expenses
increased primarily from increased selling and promotional expenses associated
with the increase in revenue.
In addition to the above mentioned acquisitions, "as-reported" and "pro
forma" net revenue and operating expense increased during 1998, 1997 and 1996
due to the inclusion of the operations of the following list of broadcasting and
outdoor assets, which we acquired since January 1, 1996, the effects of which,
individually and in the aggregate, were not material to our consolidated
financial position or results of operations:
<TABLE>
<CAPTION>
Broadcasting Outdoor
------------------------------------------------- --------------------
Radio Television
-------------------- --------------------
Operations Began Stations Markets Stations Markets Displays Markets
---------------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
4th Quarter 1998 2 2 -- -- 817 22
3rd Quarter 1998 9 5 -- -- 21,372 (a) 17
2nd Quarter 1998 7 3 -- -- 148 6
1st Quarter 1998 16 4 -- -- 4,600 10
4th Quarter 1997 5 3 -- -- 442 6
3rd Quarter 1997 11 3 -- -- 1,333 8
2nd Quarter 1997 3 1 -- -- 330 6
1st Quarter 1997 6 4 -- -- n/a n/a
4th Quarter 1996 7 3 -- -- n/a n/a
3rd Quarter 1996 4 (b) 2 2 1 n/a n/a
2nd Quarter 1996 11 7 -- -- n/a n/a
1st Quarter 1996 3 1 -- -- n/a n/a
</TABLE>
(a) Includes 21,015 shelters acquired in France through the acquisition of
Sirocco.
(b) We acquired an 80% interest in these stations.
37
<PAGE> 38
The tangible and intangible assets associated with the above mentioned
business acquisitions account for the majority of the increase in the
"as-reported" depreciation and amortization for 1998 over 1997. Interest expense
increased during 1998 as a result of greater average borrowing levels as a
result of the aforementioned acquisitions, but was partially offset by lower
average borrowing rates, 5.9% in 1998 versus 6.6% in 1997. Our average borrowing
rate was lowered in 1998 as a result of the issuance of 2.625% senior
convertible notes dated April 1, 1998. Other income rose due to realized gains
on the sale of available-for-sale marketable securities and was offset by
charges related to the purchase of certain subsidiary options and losses on sale
of assets. Income tax expense increased primarily from the increase in the
average effective tax rate from 45% in 1997 to 58% in 1998. The effective tax
rate increased as a result of the increase in nondeductible amortization expense
principally associated with the acquisition of Universal. The majority of the
increase in net income was primarily due to the inclusion of operations
resulting from the aforementioned business acquisitions, partially offset by an
increase in corporate related expenses.
The tangible and intangible assets acquired through the purchases of
Eller and the above mentioned broadcasting assets account for the majority of
the increase in depreciation and amortization for 1997 over 1996. Interest
expense increased for 1997 as a result of greater average borrowing levels and
higher average borrowing rates, 6.3% in 1996 versus 6.6% in 1997. Other income
increased primarily from the sale of 350,000 shares of common stock in Heftel
Broadcasting resulting in a $6.3 million pretax gain. Income tax expense
increased because of 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
1998 over 1997 due to the inclusion of several investments held by More Group,
which are accounted for under the equity method and the inclusion of a partial
month of More Group's operations, which was accounted for under the equity
method prior to consolidation. This was partially offset by the transfer of our
investment in American Tower Corporation, which merged with American Tower
Systems, Inc. in June 1998, the result of which diluted our investment from 30%
to 8%. Prospectively, we have accounted for this investment using the cost
method. The remainder of the increase in equity in earnings (loss) of
nonconsolidated affiliates was due to the continued solid financial performance
by Heftel Broadcasting, of which we own a 29.1% equity interest.
Equity in earnings (loss) of nonconsolidated affiliates increased in
1997 over 1996 due partially to the purchase in July 1997 of a 30% interest in
American Tower Corporation, a digital transmission tower. The majority of the
increase in equity in earnings (loss) of nonconsolidated affiliates was due to
the solid financial performance by Heftel Broadcasting, partially offset by the
eroding currency valuation in Australia and New Zealand. Equity in earnings
(loss) of nonconsolidated affiliates is included in results of operations for
our broadcasting segment.
38
<PAGE> 39
BROADCASTING
<TABLE>
<CAPTION>
(In thousands of dollars)
1998 vs. 1997 1997 vs. 1996
------------------------- -----------------------
Years Ended December 31, As-Reported Pro Forma As-Reported Pro Forma
--------------------------------- % Increase % Increase % Increase % Increase
1998 1997 1996 (Decrease) (Decrease) (Decrease) (Decrease)
-------- -------- -------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue $648,877 $489,633 $351,739 32.5% 14.3% 39.2% 15.6 %
Operating expenses 373,452 286,314 198,332 30.4% 7.2% 44.4% 15.3 %
Operating income before
depreciation and amortization 275,425 203,319 153,407 35.5% 25.6% 32.5% 16.1 %
Depreciation and amortization 107,343 66,383 45,790 61.7% 22.2% 45.0% (3.0)%
Operating income 148,571 122,971 99,090 20.8% 31.0% 24.1% 39.9 %
</TABLE>
1998 vs. 1997
The majority of the increase in as-reported net revenue, operating
expenses and depreciation and amortization was due to the aforementioned
broadcasting acquisitions. Net revenue also increased due to increased
advertising rates associated with improved ratings at most of our television and
radio stations. At December 31, 1998, our broadcasting segment included 193
radio stations and 11 television stations for which we own the Federal
Communications Commission license and 11 radio stations and 7 television
stations programmed under local marketing or time brokerage agreements, in 47
domestic markets. We also own two radio stations in one international market.
The majority of the increase in pro forma net revenue is due to
improved advertising rates associated with improved ratings at most of the
television and radio stations. The majority of the increase in pro forma
operating expenses is due to the increase in selling and promotional expenses
associated with the increase in revenue.
1997 vs. 1996
The majority of the increase in as-reported net revenue, operating
expenses and depreciation and amortization was due to the aforementioned radio
acquisitions.
The majority of the increase in pro forma net revenue is due to the
increase in rates charged to advertisers primarily related to an increase in
advertising rates associated with increased ratings, especially in our Houston,
Austin, Tampa and Miami markets. The majority of the increase in pro forma
operating expenses is due to the increase in selling and promotional expenses
associated with the increase in revenue.
OUTDOOR
<TABLE>
<CAPTION>
(In thousands of dollars)
1998 vs. 1997 1997 vs. 1996
------------------------- -----------------------
Years Ended December 31, As-Reported Pro Forma As-Reported Pro Forma
--------------------------------- % Increase % Increase % Increase % Increase
1998 1997 1996 (Decrease) (Decrease) (Decrease) (Decrease)
-------- -------- -------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue $702,063 $207,435 ---- 238.4% 27.7% ---- 11.4%
Operating expenses 393,813 108,090 ---- 264.3% 33.4% ---- 0%
Operating income before
depreciation and amortization 308,250 99,345 ---- 210.3% 20.2% ---- 28.4%
Depreciation and amortization 197,629 47,824 ---- 313.2% 22.9% ---- 0.3%
Operating income 92,307 44,603 ---- 106.9% 7.7% ---- 86.4%
</TABLE>
39
<PAGE> 40
1998 vs. 1997
The majority of the increase in as-reported net revenue, operating
expenses and depreciation and amortization was due to the inclusion of a full
year of Eller's operations and the inclusion of the partial year's operations of
Universal and More Group, which were acquired during 1998. These two
acquisitions added approximately 124,000 display faces in 1998. In addition,
increased occupancy and rates were achieved in 1998. At December 31, 1998, the
outdoor segment owned 83,225 display faces and operated 5,783 displays under
lease management agreements in 32 domestic markets, and 213,566 display faces in
14 international markets.
The majority of the increase in pro forma net revenue and operating
expenses is due to increased advertising and occupancy rates in 1998. Pro forma
depreciation and amortization increased in part due to the depreciation expenses
associated with increased capital expenditures within the outdoor segment. The
outdoor segment's capital expenditures were $95.1 million during 1998, vs. $15.0
million in 1997.
1997 vs. 1996
We entered the outdoor advertising business through our acquisition of
Eller in April 1997. Pro forma net revenue increased primarily due to improved
occupancy and increased rates for usage of display faces resulting in the
increases in pro forma operating income before depreciation and amortization and
pro forma operating income. At December 31, 1997, our outdoor segment owned
53,963 display faces and operated 3,697 displays under lease management
agreements in 15 domestic markets.
LIQUIDITY AND CAPITAL RESOURCES
Our major sources of capital have been cash flow from operations,
advances on our revolving long-term line of credit (the "credit facility"), and
funds provided by various equity, convertible and other debt offerings, and
other borrowings. As of December 31, 1998 and 1997, we had the following debt
outstanding:
<TABLE>
<CAPTION>
In millions of dollars
December 31,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Credit facility - domestic $1,007.5 $1,215.2
Credit facility - international 103.7 --
Senior convertible notes 575.0 --
Long-term bonds 600.0 300.0
Other borrowings 45.4 38.5
-------- --------
Total $2,331.6 $1,553.7
======== ========
</TABLE>
In addition, we had $36.5 million in unrestricted cash and cash
equivalents on hand at December 31, 1998.
On March 16, 1998 we filed a 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
40
<PAGE> 41
registration statement also covers preferred securities that may be issued from
time to time by our three Delaware statutory business trusts and guarantees of
such preferred securities by us. Due to various debt and equity offerings during
March and April 1998, on May 6, 1998 we amended our shelf registration statement
to increase the amount of securities registered pursuant to the registration
statement filed on March 16, 1998 back to $1.5 billion. After completing various
debt and equity offerings during June and December 1998, the amount of
securities available under the shelf registration statement at December 31, 1998
was $474.4 million.
On June 29, 1998 we filed a registration statement on Form S-4 covering
3,000,000 shares of common stock, which we may offer and issue from time to time
in connection with our acquisitions, directly or indirectly, of various
businesses or properties, or interests therein.
SOURCES OF FUNDS
Credit Facility
Domestic: On July 1, 1998, we expanded our revolving credit facility
from $1.75 billion to $2.0 billion, of which $1.0 billion is outstanding and
$16.9 million is utilized under various letters of credit, leaving $975.6
million available for future borrowings at December 31, 1998. 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. During 1998, we made principal payments on the credit
facility totaling $2.0 billion including $566.5 million, $577.2 million and
$704.6 million from the net proceeds of our convertible debt offering, our
equity offering in March 1998 and December 1998, respectively and drew down $1.8
billion primarily to fund acquisitions or pay off assumed acquisition debt.
Funding for the majority of our acquisitions and the refinancing of long-term
debt in the acquisition of Universal was provided by our credit facility.
International: A (pound)94 million revolving credit facility with a
group of international banks was assumed in the acquisition of More Group. This
revolving credit facility has subsequently been increased to (pound)100 million.
This international credit facility allows for borrowings in various foreign
currencies, which are used to hedge net assets in those currencies. At December
31, 1998, (pound)37.5 million, or $62.3 million, was available for future
borrowings and (pound)62.5 million, or $103.7 million, was outstanding. This
credit facility converts into a reducing revolving facility on January 10, 2000
with annual payments of (pound)30 million due in 2000 and 2001 and (pound)40
million due in 2002. This credit facility expires on January 10, 2002. At
December 31, 1998, interest rates varied from 4.03% to 8.85%.
Equity Offerings
On March 30, 1998, we completed an offering of six million shares of
common stock. The net proceeds of $577.2 million were used to reduce the
outstanding balance under our credit facility.
On December 23, 1998, we completed an offering of 15 million shares of
common stock. The net proceeds of $704.2 million were used to pay down the
outstanding balance under our credit facility. On January 21, 1999, 1.725
million additional shares were offered from the over allotment. The net proceeds
of $81.0 million were used to reduce the outstanding balance under our credit
facility.
Senior Convertible Notes Offering
On March 30, and April 28, 1998 we completed an offering of $500.0
million and $75.0 million aggregate principal amounts, respectively, of 2.625%
Senior Convertible Notes due April 1, 2003 under
41
<PAGE> 42
the shelf registration statement. Our net proceeds of approximately $566.5
million, in aggregate, were used to pay down the outstanding balance under our
credit facility. The notes are convertible into our common stock at any time
following the date of original issuance, unless previously redeemed, at a
conversion price of $61.95 per share, subject to adjustment in certain events.
Interest on the notes is payable semiannually on each April 1 and October 1,
beginning October 1, 1998. The notes are redeemable, in whole or in part, at our
option at any time on or after April 1, 2001 and until March 31, 2002 at
101.050%; on or after April 1, 2002 and until March 31, 2003 at 100.525%; and on
or after April 1, 2003 at 100%, plus accrued interest.
Bond Offerings and Refinancings
On June 16, 1998, we completed an offering of $175.0 million 6.875%
Senior Debentures due June 15, 2018 and $125.0 million 6.625% Senior Notes due
June 15, 2008 under our shelf registration statement. The net proceeds of
approximately $296.0 million, in aggregate, were used to fund the acquisition of
issued share capital of More Group. Interest on the Senior Debentures and Senior
Notes is payable semiannually on each June l5 and December 15, beginning
December 15, 1998. In addition, we assumed approximately $615.3 million of
Universal's long-term debt, $236.0 million of which was refinanced at the
closing date using our credit facility. In May 1998, we completed a public
tender offer for the remaining $325.0 million of 9.75% debentures, the majority
of which were purchased for approximately $374.9 million leaving approximately
$4.4 million outstanding at December 31, 1998.
USES OF FUNDS AND CAPITAL RESOURCES
Completed Transactions
During 1998, we acquired Universal in a transaction whereby we issued
19.3 million shares of common stock valued at $1.2 billion and acquired all of
the outstanding shares of More Group for $765.5 million. Also during 1998, we
purchased the broadcasting assets of 39 radio stations in 15 markets, and
acquired approximately 26,911 additional outdoor display faces in 55 markets for
$192.8 million and $390.4 million, respectively. In addition, we purchased
capital equipment totaling $141.9 million.
From December 31, 1998 through February of 1999, we purchased the
broadcasting assets of two radio stations for approximately $350,000 plus the
exchange of one radio station. Through February 1999, we also purchased 63
outdoor display faces for $32.0 million. Our credit facility and cash flow from
operations provided funding.
Pending Transactions
In October 1998, we entered into a definitive agreement to merge with
Jacor Communications, Inc. The merger is structured as a tax-free,
stock-for-stock transaction. Upon consummation of the merger, each outstanding
share of Jacor common stock will be exchanged for shares of our common stock.
The exchange ratio is based on the average closing price of our common stock
during the 25 consecutive trading days ending on the second trading day prior to
the merger date as follows:
<TABLE>
<CAPTION>
Average Closing Price of Clear Channel's Common Stock Conversion Ratio
----------------------------------------------------- ----------------
<S> <C>
Less than or equal to $42.86 1.40
Above $42.86 but less than or equal to $44.44 1.40 to 1.35
Above $44.44 but less than $50.00 1.35
</TABLE>
If the average closing price is $50.00 or more, the conversion ratio
will be calculated as the quotient obtained by dividing (a) $67.50 plus
the product of $.675 and the amount by which the average closing price
exceeds $50.00, by (b) the average closing price.
42
<PAGE> 43
At December 31, 1998, Jacor had 51,184,217 shares outstanding and $1.6
billion in long-term debt. At the exchange ratio of 1.35, based on the 25 day
trading average at December 31, 1998 of $49.775, we will issue 69,098,693 of our
common shares valued at $3.8 billion. Including the assumption of long-term
debt, this merger is valued at $5.4 billion. Consummation of the merger is
subject to certain closing conditions and regulatory approvals, including, but
not limited to, stockholder approvals and receipt of approvals from the Federal
Communications Commission and the federal antitrust authorities. The vote of
shareholders from both companies is scheduled for March 26, 1999. Consummation
of this merger is expected before September 30, 1999.
Future acquisitions of broadcasting stations, outdoor advertising
facilities and other media-related properties affected in connection with the
implementation of our acquisition strategy are expected to be financed from
increased borrowings under the credit facility, additional public equity and
debt offerings and cash flow from operations. We believe that cash flow from
operations as well as the proceeds from our securities offerings made from time
to time will be sufficient to make all required future interest and principal
payments on our credit facility, senior convertible notes and bonds, and will be
sufficient to fund all anticipated capital expenditures.
Other
The ratio of earnings to fixed charges is as follows:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.83 2.32 3.63 3.32 5.54 3.81
</TABLE>
The ratio of earnings to fixed charges was computed on a total
enterprise basis. Earnings represent income from continuing operations before
income taxes less equity in undistributed net income (loss) of unconsolidated
affiliates plus fixed charges. Fixed charges represent interest, amortization of
debt discount and expense, and the estimated interest portion of rental charges.
We had no preferred stock outstanding for any period presented.
CAPITAL EXPENDITURES
Capital expenditures of $141.9 million and $31.0 million during 1998 and 1997,
respectively, included the following:
<TABLE>
<CAPTION>
In millions Broadcasting Outdoor
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Land and buildings $ 11.1 $ 7.1 $ 6.9 $ 1.7
Broadcasting and other equipment 35.7 8.9 -- --
Display structures and other equipment -- -- 88.2 13.3
---------- ---------- ---------- ----------
$ 46.8 $ 16.0 $ 95.1 $ 15.0
========== ========== ========== ==========
</TABLE>
43
<PAGE> 44
The increase in our capital outlays in 1998 of broadcasting and other
equipment in the broadcasting segment was due to the increase in the number of
radio stations owned in 1998 versus 1997. The increase in display structures and
other equipment in the outdoor segment was due to the increase in display faces
and bus shelters owned and operated in 1998 resulting from the acquisition of
Universal and More Group. The majority of these new display faces will provide
additional or enhanced revenue opportunities.
We anticipate funding capital outlays with cash generated from
operations. We anticipate funding any subsequent broadcasting or outdoor
acquisitions with the credit facility and cash flow generated from operations.
OTHER
Accounting Pronouncements
As of January 1, 1998, we adopted Statement of Financial Accounting
Standards No. 130 Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on our net income or
shareholders' equity. Statement 130 requires unrealized gains or losses on our
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity, to be
included in comprehensive income.
As of January 1998, we adopted Statement of Financial Accounting
Standards No. 131 Disclosures about Segments of an Enterprise and Related
Information. Statement 131 establishes new rules for reporting information about
operating segments; however, the adoption of this statement had no impact on our
net income or shareholder's equity. Statement 131 requires us to provide
descriptive information about its operating segments as opposed to just
reporting financial information.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement
133 is required to be adopted in years beginning after June 15, 1999. We do not
anticipate that the adoption of this new Statement will have a significant
effect on our earnings or financial position.
Inflation
Inflation has affected our performance in terms of higher costs for
wages, salaries and equipment. Although the exact impact of inflation is
indeterminable, we believe it has offset these higher costs by increasing the
effective advertising rates of most of our broadcasting stations and outdoor
display faces.
Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of our
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could cause a system failure or miscalculations in our broadcasting,
outdoor and corporate locations which could cause disruptions of operations,
including, among other things, a temporary inability to produce broadcast
signals, process financial transactions, or engage in similar normal business
activities.
Based on recent system evaluations, surveys, and on-site inventories,
we determined that we would be required to modify or replace portions of our
software and certain hardware so that those systems will properly utilize dates
beyond December 31, 1999. We presently believe that with
44
<PAGE> 45
modifications or replacements of existing software and certain hardware, the
Year 2000 issue can be mitigated. If such modifications and replacements are not
made, or are not completed in time, the Year 2000 issue could have a material
impact on our operations.
The Year 2000 issue involves the identification and assessment of the
existing problem, plan of remediation, as well as a testing and implementation
plan. To date, we have substantially completed the identification and assessment
process, with the following significant financial and operational components
identified as being affected by the Year 2000 issue:
o Computer hardware running critical financial and operational software
that is not capable of recognizing a four-digit code for the
applicable year.
o Our advertising inventory management software responsible for
managing, scheduling and billing customer's broadcasting and outdoor
advertising purchases.
o Broadcasting studio equipment and software necessary to deliver radio
and television programming.
o Corporate financial accounting and information system software.
o Significant non-technical systems and equipment that may contain
microcontrollers which are not Year 2000 compliant.
We have instituted the following remediation plan to address the Year 2000
issues:
A computer hardware replacement plan for computers running essential
broadcast, operational and financial software applications with Year 2000
compatible computers has been instituted. As of December 31, 1998 approximately
40% of all essential computers related to broadcast or studio equipment are Year
2000 compatible. Approximately 85% of all essential financial based computers
are Year 2000 compliant. We anticipate this replacement plan to be 100% complete
by the end of the third quarter in 1999.
Software upgrades or replacement with advertising inventory management
software which is Year 2000 compliant have been planned, are in process, or have
been completed as of December 31, 1998. We have received assurances from our
software vendors, with a few minor exceptions, that supply our advertising
inventory management software that their software is Year 2000 compliant. For
these non-compliant vendors, we will install inventory management software from
a compliant vendor by the end of the third quarter of 1999. Approximately 85% of
the broadcasting properties have Year 2000 compliant advertising inventory
management software as of December 31, 1998. All of the outdoor advertising
inventory management software is currently being upgraded and is targeted for
Year 2000 compliance at the end of the second quarter of 1999.
We have received assurances from our software vendors that supply
broadcasting digital automation systems that the software used by us is
currently compliant or has upgrades currently available that are compliant.
Broadcast software and studio equipment is considered to be 70% compliant as of
December 31, 1998 and is anticipated to be 100% compliant by the third quarter
of 1999.
Financial accounting software for the broadcasting segment has been
replaced and is Year 2000 compliant. Financial accounting software for the
outdoor segment has been upgraded to be Year 2000 compliant.
45
<PAGE> 46
While we believe our efforts will provide reasonable assurance that
material disruptions will not occur due to internal failure, the possibility of
interruption still exists.
We are currently querying other significant vendors that do not share
information systems with us (external agents). To date, we are not aware of any
external agent with a Year 2000 issue that would materially impact our results
of operations, liquidity, or capital resources. However, we have no means of
ensuring that external agents will be Year 2000 ready. The inability of external
agents to complete their Year 2000 resolution process in a timely fashion could
materially impact us. The effect of non-compliance by external agents is not
determinable.
In the ordinary course of business, we have acquired or plan to acquire
a significant amount of Year 2000 compliant hardware and software. These
purchases are part of specific operational and financial system enhancements
with completion dates during 1998 and early 1999 that were planned without
specific regard to the Year 2000 issue. These system enhancements resolve many
Year 2000 problems and have not been delayed as a result of any additional
efforts addressing the Year 2000 issue. Accordingly, these costs have not been
included as part of the costs of Year 2000 remediation. However, there are
several hardware and software expenditures that have been or will be incurred to
specifically remediate Year 2000 non-compliance. Incremental hardware and
software costs that we have attributed to the Year 2000 issue are estimated at
$2,700,000 plus or minus 25%. The majority of these expenditures will be
incurred over the next 9 months. Of this cost, approximately 25% will be
expensed as modification or upgrade costs with the remaining costs being
capitalized as new hardware or software. As of December 31, 1998, approximately
$100,000 has been charged to expense and $375,000 capitalized as a result of
expenditures. Sources of funds for these expenditures will be supplied through
cash flow generated from operations and/or available borrowings from our credit
facility. Our accounting policy is to expense costs incurred due to maintenance,
modification or upgrade costs and to capitalize the cost of new hardware and
software.
We believe we have an effective program in place to resolve the Year
2000 issue in a timely manner. As noted above, we have not yet completed all
necessary phases of the Year 2000 program. In the event that we do not complete
any additional phases, it could experience disruptions in its operations,
including among other things, a temporary inability to produce broadcast
signals, process financial transactions, or engage in similar normal business
activities. In addition, disruptions in the economy generally resulting from the
Year 2000 issues could also materially adversely affect us. We could be subject
to litigation for computer systems failures, equipment shutdowns or failure to
properly date business records. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
We currently have no contingency plans in place in the event we do not
complete all phases of the Year 2000 program. We plan to evaluate the status of
completion in April 1999 and determine whether such contingency plans are
necessary.
46
<PAGE> 47
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE RISK
At December 31, 1998, approximately 48% of the Company's long-term debt
bears interest at variable rates. Accordingly, the Company's earnings and after
tax cash flow are affected by changes in interest rates. Assuming the current
level of borrowings at variable rates and assuming a two percentage point change
in the 1998 average interest rate under these borrowings, it is estimated that
the Company's 1998 interest expense would have changed by $22.5 million and that
the Company's 1998 net income would have changed by $13.5 million. In the event
of an adverse change in interest rates, management would likely take actions to
further mitigate its exposure. However, due to the uncertainty of the actions
that would be taken and their possible effects, the analysis assumes no such
actions. Further the analysis does not consider the effects of the change in the
level of overall economic activity that could exist in such an environment.
The Company currently hedges a portion of its outstanding debt with
interest rate swap agreements that effectively fix the interest at rates from
4.25% to 10.0% on $1.0 billion of its current borrowings. These agreements
expire from May 1999 to January 2001. The fair value of these agreements at
December 31, 1998 and settlements of interest during 1998 were not material.
EQUITY PRICE RISK
The carrying value of the Company's available-for-sale equity
securities is affected by changes in their quoted market prices. It is estimated
that a 20% change in the market prices of these securities would change their
carrying value at December 31, 1998 by $49.1 million.
FOREIGN CURRENCY
As a result of the August 6, 1998 acquisition of More Group Plc.,
("More Group"), the Company now has operations in 25 countries throughout Europe
and Asia. All foreign operations are measured in their local currencies. As a
result, the Company's financial results could be affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in the
foreign markets in which the Company has operations. To mitigate a portion of
the exposure to risk of currency fluctuations throughout Europe and Asia to the
British pound, the Company has a natural hedge through borrowings in some other
currencies. This hedge position is reviewed monthly. The Company maintains no
other derivative instruments to mitigate the exposure to translation and/or
transaction risk. However, this does not preclude the adoption of specific
hedging strategies in the future. Our foreign operations reported a loss of $7.0
million for the six months ended December 31, 1998. It is estimated that a 5%
change in the value of the U.S. dollar to the British pound would change net
income for the year ended December 31, 1998 by $1.0 million.
The Company's earnings are also affected by fluctuations in the value
of the U.S. dollar as compared to foreign currencies as a result of its
investments in Australia, New Zealand and Mexico, all of which are accounted for
under the equity method. It is estimated that the result of a 10% fluctuation in
the value of the dollar relative to these foreign currencies at December 31,
1998 would change the Company's 1998 net income by $1.3 million. The Company's
analysis does not consider the implications that such fluctuations could have on
the overall economic activity that could exist in such an environment in the
U.S. or the foreign countries or on the results of operations of these foreign
entities.
47
<PAGE> 48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The consolidated financial statements and notes related thereto were prepared by
and are the responsibility of management. The financial statements and related
notes were prepared in conformity with generally accepted accounting principles
and include amounts based upon management's best estimates and judgments.
It is management's objective to ensure the integrity and objectivity of its
financial data through systems of internal controls designed to provide
reasonable assurance that all transactions are properly recorded in the
Company's books and records, that assets are safeguarded from unauthorized use,
and that financial records are reliable to serve as a basis for preparation of
financial statements.
The financial statements have been audited by our independent auditors, Ernst &
Young LLP, to the extent required by generally accepted auditing standards and,
accordingly, they have expressed their professional opinion on the financial
statements in their report included herein.
The Board of Directors meets with the independent auditors and management
periodically to satisfy itself that they are properly discharging their
responsibilities. The independent auditors have unrestricted access to the
Board, without management present, to discuss the results of their audit and the
quality of financial reporting and internal accounting controls.
Lowry Mays
Chairman/Chief Executive Officer
Herbert W. Hill, Jr.
Senior Vice President/Chief Accounting Officer
48
<PAGE> 49
REPORT OF ERNST & YOUNG LLP
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, 1998 and
1997, 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, 1998. 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 29% interest and the
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 1998 and 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
San Antonio, Texas
February 19, 1999
49
<PAGE> 50
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
In thousands of dollars
December 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 36,498 $ 24,657
Income tax receivable -- 3,202
Accounts receivable, less allowance of
$13,508 in 1998 and $9,850 in 1997 307,372 155,962
Other current assets 66,090 26,921
------------ ------------
TOTAL CURRENT ASSETS 409,960 210,742
PROPERTY, PLANT
AND EQUIPMENT
Land, buildings and improvements 158,089 84,118
Structures and site leases 1,627,704 487,857
Transmitter and studio equipment 235,099 215,755
Furniture and other equipment 101,681 46,584
Construction in progress 52,038 39,992
------------ ------------
2,174,611 874,306
Less accumulated depreciation 258,824 128,022
------------ ------------
1,915,787 746,284
INTANGIBLE ASSETS
Contracts 393,748 33,727
Licenses and goodwill 4,223,432 2,175,944
Other intangible assets 89,577 44,485
------------ ------------
4,706,757 2,254,156
Less accumulated amortization 315,275 141,066
------------ ------------
4,391,482 2,113,090
OTHER
Notes receivable 53,675 35,373
Investments in, and advances to,
nonconsolidated affiliates 324,835 266,691
Other assets 109,269 32,198
Other investments 334,910 51,259
------------ ------------
TOTAL ASSETS $ 7,539,918 $ 3,455,637
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
50
<PAGE> 51
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
In thousands of dollars
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 60,855 $ 11,904
Accrued interest 13,168 9,950
Accrued expenses 148,318 34,489
Accrued income taxes 4,554 --
Current portion of long-term debt 7,964 13,294
Other current liabilities 23,285 17,215
------------ ------------
TOTAL CURRENT LIABILITIES 258,144 86,852
Long-term debt 2,323,643 1,540,421
Deferred income taxes 383,564 10,114
Other long-term liabilities 75,533 50,679
Minority interest 15,605 20,787
SHAREHOLDERS' EQUITY
Preferred Stock - Class A, par value $1.00
per share, authorized 2,000,000 shares,
no shares issued and outstanding -- --
Preferred Stock, - Class B, par value $1.00
per share, authorized 8,000,000 shares,
no shares issued and outstanding -- --
Common Stock, par value $.10 per share,
authorized 600,000,000 and 150,000,000
shares, issued and outstanding 263,698,206
and 98,232,893 shares in 1998 and 1997,
respectively 26,370 9,823
Additional paid-in capital 4,067,297 1,541,865
Retained earnings 223,662 169,631
Other 6,888 2,398
Unrealized gain on investments 161,185 23,754
Cost of shares (104,278 in 1998 and 38,207
in 1997) held in treasury (1,973) (687)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 4,483,429 1,746,784
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,539,918 $ 3,455,637
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
51
<PAGE> 52
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
In thousands of dollars, except per share data
Year Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Gross revenue $ 1,522,551 $ 790,178 $ 398,094
Less: agency commissions 171,611 93,110 46,355
------------ ------------ ------------
Net revenue 1,350,940 697,068 351,739
EXPENSE
Operating expenses 767,265 394,404 198,332
Depreciation and amortization 304,972 114,207 45,790
Corporate expenses 37,825 20,883 8,527
------------ ------------ ------------
Operating income 240,878 167,574 99,090
Interest expense 135,766 75,076 30,080
Other income (expense) - net 12,810 11,579 2,230
------------ ------------ ------------
Income before income taxes 117,922 104,077 71,240
Income taxes 72,353 47,116 28,386
------------ ------------ ------------
Income before equity in earnings
(loss) of nonconsolidated affiliates 45,569 56,961 42,854
Equity in earnings (loss) of
nonconsolidated affiliates 8,462 6,615 (5,158)
------------ ------------ ------------
Net income 54,031 63,576 37,696
Other comprehensive income, net of tax:
Foreign currency translation adjustments 5,801 (5,064) 1,124
Unrealized gains on securities:
Unrealized holding gains arising during period 162,925 23,754 --
Less: reclassification adjustment for gains
included in net income (25,494) -- (530)
------------ ------------ ------------
Comprehensive income $ 197,263 $ 82,266 $ 38,290
============ ============ ============
PER SHARE DATA
Net income per common share:
Basic $ .23 $ .36 $ .26
============ ============ ============
Diluted $ .22 $ .33 $ .25
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
52
<PAGE> 53
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 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 options
issued for business acquisitions 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
Net income for year 54,031 54,031
Proceeds from sale of Common
Stock 2,100 1,279,318 1,281,418
Common Stock issued related to
Eller put/call agreement 13 5,820 5,833
Common Stock and stock options
issued for business acquisitions 1,929 1,199,928 1,201,857
Exercise of stock options 89 52,782 (1,311) (1,286) 50,274
Currency translation adjustment 5,801 5,801
Unrealized gains on investments,
net of tax 137,431 137,431
Stock split 12,416 (12,416) --
-------- ---------- --------- ------- --------- -------- ----------
Balances at December 31, 1998 $ 26,370 $4,067,297 $ 223,662 $ 6,888 $ 161,185 $ (1,973) $4,483,429
======== ========== ========= ======= ========= ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements
53
<PAGE> 54
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
In thousands of dollars
Year Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 54,031 $ 63,576 $ 37,696
Reconciling Items:
Depreciation 134,042 51,700 19,337
Amortization of intangibles 170,930 62,507 26,453
Deferred taxes 35,329 18,300 5,730
Amortization of film rights 17,250 16,735 15,038
Payments on film liabilities (17,524) (17,289) (14,627)
Recognition of deferred income (11,371) (1,460) (810)
Loss (gain) on disposal of assets 13,845 (1,129) (41)
Gain on sale of other investments (39,221) (3,819) --
Equity in (earnings) loss of non-
consolidated affiliates (4,471) (2,778) 7,933
Dividends and other payments from
nonconsolidated affiliates -- -- 7,207
Decrease minority interest (1,512) (617) --
Exchange gain (4,688) -- --
Changes in operating assets and liabilities:
Increase in accounts receivable (47,699) (20,752) (10,606)
Increase in deferred income -- -- 13,360
(Decrease) increase in accounts payable (4,265) (5,271) 4,489
(Decrease) increase in accrued interest (12,309) 3,598 5,764
Increase (decrease) in accrued expenses
and other liabilities 13,928 1,628 (320)
Decrease in accrued income taxes (25,059) (109) (8,999)
------------ ------------ ------------
Net cash provided by operating activities 271,236 164,820 107,604
</TABLE>
54
<PAGE> 55
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM
INVESTING ACTIVITIES:
(Increase) decrease in notes receivable, net (18,302) 17,377 (52,750)
Increase in investments in and advances
to nonconsolidated affiliates, net (91,527) (38,317) (163,295)
Purchases of investments (44,931) (25,101) (3,113)
Proceeds from sale of investments 56,408 6,333 --
Purchases of property, plant and equipment (141,938) (30,956) (19,723)
Proceeds from disposal of assets 7,977 2,410 16
Acquisitions of broadcasting assets (209,327) (784,204) (550,630)
Acquisitions of outdoor assets (1,102,668) (490,345) --
Increase in other, net (55,566) (2,990) (7,269)
------------ ------------ ------------
Net cash used in investing activities (1,599,874) (1,345,793) (796,764)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from long-term debt 2,835,668 2,013,160 718,575
Payments on long-term debt (2,825,744) (1,614,821) (326,400)
Payments of current maturities (1,137) (5,176) (3,134)
Proceeds from exercise of stock options 50,274 4,047 306
Proceeds from issuance of common stock 1,281,418 791,719 311,123
------------ ------------ ------------
Net cash provided by financing activities 1,340,479 1,188,929 700,470
------------ ------------ ------------
Net increase in cash and
cash equivalents 11,841 7,956 11,310
Cash and cash equivalents at
beginning of year 24,657 16,701 5,391
------------ ------------ ------------
Cash and cash equivalents
at end of year $ 36,498 $ 24,657 $ 16,701
============ ============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 130,049 $ 71,399 $ 24,316
Income taxes 10,856 49,741 35,669
</TABLE>
See Notes to Consolidated Financial Statements
55
<PAGE> 56
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 1998 presentation.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include all highly liquid investments with an original
maturity of three months or less.
LAND LEASES AND OTHER STRUCTURE LICENSES:
Most of the Company's outdoor advertising structures are located on leased land.
Domestic land rents are typically paid in advance for periods ranging from one
to twelve months. International land rents are paid both in advance and in
arrears, for periods ranging from one to twelve months. Most international
street furniture advertising display faces are licensed through municipalities
for up to 20 years. The street furniture licenses often include a percent of
revenue to be paid along with a base rent payment. Domestic prepaid land leases
are recorded as an asset and expensed ratably over the related rental term.
International license and rent payments in arrears are recorded as an accrued
liability.
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 - 2 to 20 years
Transmitter and studio equipment - 7 to 15 years
Furniture and other equipment - 2 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.
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 amortized generally over 20 to 25 years.
Transit and street furniture contracts are amortized over the respective lives
of the agreements, typically four to eleven 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.
56
<PAGE> 57
LONG-LIVED ASSETS:
Long-lived assets (including related goodwill and other intangible assets) are
reviewed on a regular basis for the existence of facts or circumstances, both
internally and externally, that may suggest impairment. If such impairment is
identified, the impairment loss will be measured by comparing the estimated
future undiscounted cash flows to the asset's carrying value. To date, no such
impairment has been indicated.
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. Securities are carried at historical value when quoted market
prices are unavailable. The net 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:
Due to their short maturity or their insignificance, the carrying amounts of
accounts and notes receivable, accounts payable, accrued liabilities, and
short-term borrowings approximated their fair values at December 31, 1998 and
1997. The carrying amounts of long-term debt approximated their fair value at
the end of 1998 and 1997, except as disclosed in Note D.
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:
Broadcasting 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 income.
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 rate
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 recognized in these
consolidated financial statements
57
<PAGE> 58
FOREIGN CURRENCY:
Results of operations for foreign subsidiaries and foreign equity investees are
translated into U.S. dollars using the average exchange rates during the year.
The assets and liabilities of those subsidiaries and investees, other than those
of operations in highly inflationary countries, are translated into U.S. dollars
using the exchange rates at the balance sheet date. The related translation
adjustments are recorded in a separate component of shareholders' equity,
"Currency translation adjustment". Foreign currency transaction gains and
losses, as well as translation of financial statements of subsidiaries and
investees in highly inflationary countries, are included in operations.
STOCK BASED COMPENSATION:
The Company uses the intrinsic value method in accounting for its stock based
employee compensation plan.
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.
NEW ACCOUNTING PRONOUNCEMENTS:
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's net
income or shareholders' equity. Statement 130 requires unrealized gains or
losses on the Company's available-for-sale securities and foreign currency
translation adjustments, which prior to adoption were reported separately in
shareholders' equity, to be included in comprehensive income.
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 Disclosures about Segments of an Enterprise and Related
Information. Statement 131 establishes new rules for reporting information about
operating segments; however, the adoption of this statement had no impact on the
Company's net income or shareholder's equity. Statement 131 requires the Company
to provide descriptive information about its operating segments in addition to
specific financial information.
NOTE B - BUSINESS ACQUISITIONS
UNIVERSAL
On April 1, 1998, the Company merged with Universal Outdoor Holdings, Inc.
("Universal"). Pursuant to the terms of the agreement, each share of Universal
common stock was exchanged for .67 shares of the Company's common stock or
approximately 19.3 million shares. Universal's operations include approximately
34,000 outdoor advertising display faces in 23 major metropolitan markets. In
addition, the Company assumed approximately $615.3 million of Universal's
long-term debt, $236.0 million of which was refinanced at the closing date using
the Company's credit facility. In May 1998, the Company completed a public
tender offer for $374.9 million of Universal's 9.75% debentures using the
Company's credit facility to fund the offer. This acquisition is being accounted
for as a purchase with resulting goodwill of approximately $1.2 billion being
amortized over 25 years on a straight-line basis. The results of operations of
Universal have been included in the Company's financial statements beginning
April 1, 1998.
58
<PAGE> 59
MORE GROUP
On August 6, 1998, the Company completed the final closing of its tender offer
for all of the issued and to be issued shares of More Group Plc., ("More
Group"), an outdoor advertising company based in the United Kingdom. More
Group's operations included approximately 90,000 outdoor advertising display
faces in 22 countries. Through a series of transactions beginning in May 1998,
the Company purchased all issued share capital of More Group for (pound)11.10
per share, totaling approximately $765.5 million. In addition, the Company
assumed approximately $137.7 million in long-term debt from More Group. The
Company has accounted for this acquisition as a purchase, which resulted in
approximately $693.7 million additional goodwill being amortized over 25 years
on a straight-line basis. Majority control of More Group was reached on June 25,
1998. The Company consolidated the assets and liabilities of More Group as of
June 30, 1998 and began consolidating the results of operations on July 1, 1998.
JACOR
On October 8, 1998 the Company entered into a definitive agreement to merge with
Jacor Communications, Inc. ("Jacor"), the nation's second largest radio company
measured by total stations. Including announced pending acquisitions, Jacor
owns, operates or represents 230 radio stations in 55 markets, one television
station, and Premiere Radio Networks. The merger is structured as a tax-free,
stock-for-stock transaction. Upon consummation of the merger, each outstanding
share of Jacor common stock will be exchanged for shares of the Company's stock.
The exchange ratio is based on the average closing price of the Company's common
stock during the 25 consecutive trading days ending on the second trading day
prior to the closing date as follows:
<TABLE>
<CAPTION>
Average Closing Price of the Company's Common Stock Conversion Ratio
--------------------------------------------------- ----------------
<S> <C>
Less than or equal to $42.86 1.40
Above $42.86 but less than or equal to $44.44 1.40 to 1.35
Above $44.44 but less than $50.00 1.35
</TABLE>
If the average closing price is $50.00 or more, the conversion ratio will be
calculated as the quotient obtained by dividing (a) $67.50 plus the product of
$.675 and the amount by which the average closing price exceeds $50.00, by (b)
the average closing price. If the average closing price of the Company's common
stock for any 25 consecutive trading day period commencing after October 8,
1998, is less than or equal to $37.50, the merger agreement may be terminated by
Jacor upon notice to the Company. At December 31, 1998 Jacor had 51,184,217
shares outstanding. Consummation of the merger is subject to certain closing
conditions and regulatory approvals, including, but not limited to, stockholder
approvals and receipt of approvals from the Federal Communications Commission
and the federal antitrust authorities. Consummation of this merger is expected
before September 30, 1999. The Company intends to account for this merger as a
purchase.
OTHER
Also during 1998, the Company acquired substantially all of the assets of 38
radio stations and one radio network in 14 domestic markets, two radio stations
in one international market, 5,922 outdoor display faces in 54 domestic markets
and 21,015 outdoor display faces in one international market.
59
<PAGE> 60
The following is a summary of the assets acquired and the consideration given
for the above stated acquisitions:
<TABLE>
<CAPTION>
In thousands of dollars
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Property, plant and
equipment $ 1,185,813 $ 629,207 $ 47,579
Accounts receivable 103,711 56,028 15,656
Equity investments 15,262 -- --
Licenses, goodwill and
other assets 2,505,259 1,460,505 488,251
------------ ------------ ------------
Total assets acquired 3,810,045 2,145,740 551,486
Less:
Long term debt assumed (753,065) -- --
Other liabilities assumed (540,966) (507,456) (856)
Minority interest (2,162) (15,047) --
Common Stock issued (1,201,857) (348,688) --
------------ ------------ ------------
Cash paid for acquisitions $ 1,311,995 $ 1,274,549 $ 550,630
============ ============ ============
</TABLE>
The results of operations for 1998, 1997, and 1996 include the operations of
each station, for which the Company purchased the license, as well as all other
businesses acquired, from the respective date of acquisition. Unaudited pro
forma consolidated results of operations, assuming each of the acquisitions had
occurred at January 1, 1996, would have been as follows:
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
Year Ended December 31,
In thousands of dollars, except per share data
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net revenue $ 1,550,906 $ 1,273,983 $ 979,757
Net income (loss) $ 8,949 $ (36,624) $ (146,094)
Net income (loss) per common share:
Basic $ .04 $ (.17) $ (.73)
Diluted $ .04 $ (.18) $ (.73)
</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 the
acquisitions of Radio Equity Partners, US Radio, Inc., Eller Media Company
("Eller"), Paxson Radio ("Paxson"), Universal and More Group occurred at the
beginning of 1996, nor is it indicative of future results of operations. The
Company made other acquisitions during 1998, 1997 and 1996, the effects of
which, individually and in aggregate, were not material to the Company's
consolidated financial position or results of operations.
60
<PAGE> 61
NOTE C - INVESTMENTS
AUSTRALIAN RADIO NETWORK
In May 1995, the Company purchased a fifty percent (50%) interest in Australian
Radio Network ("ARN"), an Australian company that owns and operates radio
stations, a narrowcast radio broadcast service and a radio representation
company in Australia.
HEFTEL BROADCASTING CORPORATION
In May 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 1996, the Company purchased an additional 41.8%
of the outstanding common stock of Heftel. In early January 1997, the Company
purchased certain 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
5.6 million shares of its common stock in connection with its merger with
Tichenor and another 5.1 million shares of its common stock in January of 1998.
After the above-described transactions, the Company's interest in Heftel was 29%
of the total number of shares of Heftel's common stock outstanding at December
31, 1998.
GRUPO ACIR COMUNICACIONES
In April 1998 the Company purchased a forty percent (40%) interest in Grupo Acir
Comunicaciones ("Acir"), a Mexican radio broadcasting company. Acir owns and
operates 157 radio stations throughout Mexico.
WHITE HORSE
In April 1998 the Company purchased a fifty percent (50%) interest in Hainan
White Horse Advertising Media Investment Co. Ltd. ("White Horse"), a Chinese
company that operates street furniture displays throughout China.
AMERICAN TOWER CORPORATION
In July 1997 the Company purchased a thirty percent (30%) interest in American
Tower Corporation ("ATC"), the leading independent domestic owner and operator
of wireless communications towers. In June of 1998, American Tower Corporation
merged with American Tower Systems, Inc., the result of which diluted the
Company's investment from 30% to 8%. Accordingly, the Company has accounted for
this investment under the cost method since June 1998. This is included with All
Others in the table below.
61
<PAGE> 62
SUMMARIZED FINANCIAL INFORMATION:
The following table summarizes the Company's investments in these
nonconsolidated affiliates.
<TABLE>
<CAPTION>
In thousands of dollars
White All
ARN Heftel Acir Horse Others Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1997 $ 80,609 $ 129,848 -- -- $ 56,234 $ 266,691
Acquisition of new investments -- -- $ 57,748 $ 25,331 -- 83,079
Assumed in acquisitions -- -- -- -- 15,262 15,262
Transfer of ATC to cost method -- -- -- -- (32,537) (32,537)
Additional investment, net (4,125) -- -- 9,200 3,373 8,448
Equity in net earnings (loss) 2,629 7,401 (356) 765 (2,017) 8,422
Amortization of excess cost -- (202) (1,422) (121) (148) (1,893)
Foreign currency transaction
adjustment (440) -- (1,618) -- -- (2,058)
Foreign currency translation
adjustment (16,726) -- -- 18 (3,871) (20,579)
---------- ---------- ---------- ---------- ----------
At December 31, 1998 $ 61,947 $ 137,047 $ 54,352 $ 35,193 $ 36,296 $ 324,835
========== ========== ========== ========== ========== ==========
</TABLE>
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 statement of earnings as "Equity in earnings (loss) of
nonconsolidated affiliates." Other income derived from transactions with
nonconsolidated affiliates consists of interest and management fees which
aggregated $5.8 million in 1998, $6.4 million in 1997 and $4.5 million in 1996,
less applicable income taxes of $1.8 million in 1998, $2.5 million in 1997 and
$1.7 million in 1996 and are recorded in the Consolidated Statement of Earnings
as "Equity in earnings (loss) of nonconsolidated affiliates." Undistributed
earnings (loss) included in Retained Earnings for these investments was $4.5
million, $2.1 million and $(2.2) million for December 31, 1998, 1997 and 1996,
respectively.
The following table presents summarized financial information for Heftel:
Balance sheet information at December 31, 1998:
<TABLE>
<S> <C>
In thousands of dollars
Current assets $ 45,059
Noncurrent assets 699,385
Current liabilities 27,891
Noncurrent liabilities 93,932
Shareholders' equity 622,621
</TABLE>
Income statement information for year ended December 31, 1998:
<TABLE>
<S> <C>
Net revenues $ 164,122
Operating expenses 95,784
Net income 26,884
</TABLE>
62
<PAGE> 63
NOTES RECEIVABLE:
During 1998 and 1997, the Company provided approximately $53.7 million and $35.4
million respectively, in financing to third parties. The financing was used to
affect the acquisition of radio broadcasting operations. The 1997 balance of
$35.4 million was relieved as consideration for nine FCC licenses acquired
during 1998.
OTHER INVESTMENTS:
Other investments at December 31, 1998 and 1997 include marketable equity
securities recorded at market value of $332.2 million and $62.2 million (cost
basis of $84.2 million and $23.9 million), respectively. During 1998 and 1997,
realized gains of $39.2 million and $3.8 million were recorded in "Other income
(expense) - net." At December 31, 1998 and 1997, unrealized gains, net of tax,
of $161.2 million and $23.8 million, respectively, were recorded as a separate
component of shareholders' equity.
NOTE D - LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consisted of the following:
In thousands of dollars
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Debentures, 7.25%, interest payable semiannually on April 15 and October 15,
beginning April 15, 1998, principal to be paid
in full on October 15, 2027. (1) $ 300,000 $ 300,000
Convertible notes, 2.625%, interest payable semiannually on April 1 and October
1, beginning October 1, 1998, principal to be paid in full
on April 1, 2003. (2) 575,000 --
Senior Notes, 6.250%, interest payable semiannually on June 15 and December 15,
beginning December 15, 1998, principal to be paid in
full on June 15, 2008. (3) 125,000 --
Senior Debentures, 6.875%, interest payable semiannually on June 15 and December
15, beginning December 15, 1998, principal to be paid
in full on June 15, 2018. (4) 175,000 --
Revolving long-term line of credit facility payable to banks, three years
interest only through September 2000, payable quarterly, rate based upon prime,
LIBOR or Fed funds rate, at the Company's discretion, principal to be paid in
full by June 2005, $992.5 million remains undrawn, secured by 100%
of the Common Stock of the Company's wholly owned subsidiaries. (5) 1,007,500 1,215,221
Other long-term debt 149,107 38,494
------------ ------------
2,331,607 1,553,715
Less: current portion 7,964 13,294
------------ ------------
Total long-term debt $ 2,323,643 $ 1,540,421
============ ============
</TABLE>
63
<PAGE> 64
(1) Proceeds from issuance of debentures totaled $294.3 million, net of fees
and initial offering discount of $5.7 million. The fees and initial
offering discount are being amortized as interest expense over 30 years.
(2) Proceeds from issuance of convertible notes totaled $566.5 million, net of
fees and initial offering discount of $8.5 million. The fees and initial
offering discount are being amortized as interest expense over three and
five years, respectively. The notes are convertible into the Company's
common stock at any time following the date of original issuance, unless
previously redeemed, at a conversion price of $61.95 per share, subject to
adjustment in certain events. The Company has reserved 9,281,679 of its
common stock for the conversion of these notes. The notes are redeemable,
in whole or in part, at the option of the Company at any time on or after
April 1, 2001 and until March 31, 2002 at 101.050%; on or after April 1,
2002 and until March 31, 2003 at 100.525%; and on or after April 1, 2003 at
100%, plus accrued interest.
(3) Proceeds from issuance of notes totaled $124.1 million, net of fees and
initial offering discount of $0.9 million. The fees and initial offering
discount are being amortized as interest expense over 10 years.
(4) Proceeds from issuance of debentures totaled $171.9 million, net of fees
and initial offering discount of $3.1 million. The fees and initial
offering discount are being amortized as interest expense over 20 years.
(5) 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 $992.5
million undrawn, $16.9 million is unavailable due to letters of credit.
This leaves $975.6 million available at December 31, 1998 for future
borrowings under the credit facility.
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, 1998 are as follows:
<TABLE>
<CAPTION>
In thousands of dollars
<S> <C>
1999 $ 7,964
2000 1,609
2001 23,104
2002 31,775
2003 847,395
Thereafter 1,419,760
------------
$ 2,331,607
============
</TABLE>
The Company currently hedges a portion of its outstanding debt with interest
rate swap agreements that effectively fix the interest at rates from 4.25% to
10.0% on $1.0 billion of its current borrowings. These agreements expire from
May 1999 to January 2001. The fair value of these agreements at December 31,
1998 and settlements of interest during 1998 were not material.
64
<PAGE> 65
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, 1998, 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>
1999 $ 136,586
2000 110,500
2001 86,218
2002 68,677
2003 57,707
Thereafter 450,010
----------
$ 909,698
==========
</TABLE>
Rent expense charged to operations for 1998, 1997 and 1996 was $200.6 million,
$76.5 million and $5.3 million, respectively.
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.
65
<PAGE> 66
NOTE G - INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
In thousands of dollars
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current - federal $ 36,084 $ 28,321 $ 22,214
Deferred 35,329 18,299 5,730
State 3,156 3,012 2,159
Foreign (373) -- --
------------ ------------ ------------
Total $ 74,196 $ 49,632 $ 30,103
============ ============ ============
</TABLE>
Included in current-federal is $1.8 million, $2.5 million and $1.7 million for
1998, 1997 and 1996, 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 $72.4 million,
$47.1 million and $28.4 million for 1998, 1997 and 1996, respectively, have been
reflected as income tax expense.
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
In thousands of dollars
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets $ 227,432 $ 23,649
Intangibles 41,493 14,323
Unrealized gain in marketable securities 86,792 --
Foreign 94,366 --
Other 1,473 752
------------ ------------
Total deferred tax liabilities 451,556 38,724
Deferred tax assets:
Deferred income 3,355 6,291
Operating loss carryforwards 67,155 11,087
Accrued expenses 13,165 8,603
Bad debt reserves 3,160 1,903
Other 994 726
------------ ------------
Total gross deferred tax assets 87,829 28,610
Valuation allowance 19,837 --
------------ ------------
Total deferred tax assets 67,992 28,610
------------ ------------
Net deferred tax liabilities $ 383,564 $ 10,114
============ ============
</TABLE>
66
<PAGE> 67
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
<TABLE>
<CAPTION>
In thousands of dollars
1998 1997 1996
------------------------ ------------------------ ------------------------
Amount Percent Amount Percent Amount Percent
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense
at statutory rates $ 44,880 35% $ 38,772 35% $ 26,651 35%
State income taxes, net
of federal tax benefit 5,108 4% 1,958 2% 1,403 2%
Amortization of goodwill 21,365 17% 7,093 6% 1,493 2%
Other, net 2,843 2% 1,809 2% 556 1%
---------- ---------- ---------- ---------- ---------- ----------
$ 74,196 58% $ 49,632 45% $ 30,103 40%
========== ========== ========== ========== ========== ==========
</TABLE>
The Company has certain net operating loss carryforwards amounting to $181.6
million, which expire in the year 2013. Approximately $125.9 million in
operating loss carryforwards was generated by certain acquired companies prior
to their acquisition by the Company. During the current year, the Company did
not utilize any net operating loss carryforwards.
The Company established a valuation allowance against its operating loss
carryforwards generated by certain companies acquired during 1998 following an
assessment of the likelihood of realizing such amounts. The amount of the
valuation allowance was based on past operating history as well as statutory
restrictions on the use of operating losses from acquisitions, tax planning
strategies and its expectation of the level and timing of future taxable income.
There was no change in the valuation allowance during the current year.
NOTE H - CAPITAL STOCK
STOCK SPLITS AND DIVIDENDS:
In May 1998 and October 1996, the Board of Directors authorized two-for-one
stock splits distributed on July 28, 1998 and December 2, 1996, respectively, to
stockholders of record on July 21, 1998 and November 13, 1996, respectively.
A total of 124.2 million and 38.5 million shares, respectively, were issued in
connection with the 1998 and 1996 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 split.
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 approximately 7% of the outstanding capital stock of
Eller, not purchased by the Company in April 1997, have the right to put such
stock to the Company for approximately 2.2 million shares of the Company's
common stock until April
67
<PAGE> 68
10, 2002. From and after April 10, 2004, the Company will have the right to call
this minority interest stake in Eller for 1.9 million shares of the Company's
common stock. During 1998, the former Eller stockholders exercised their put
right and received 260,000 shares of the Company's common stock.
RECONCILIATION OF EARNINGS PER SHARE:
In thousands of dollars, except per share data
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
NUMERATOR:
Net income $ 54,031 $ 63,576 $ 37,696
Effect of dilutive securities:
Eller put/call option agreement (4,299) (2,577) --
Convertible debt 7,358 -- --
---------- ---------- ----------
3,059 (2,577) --
Numerator for net income per
common share - diluted $ 57,090 $ 60,999 $ 37,696
========== ========== ==========
DENOMINATOR:
Weighted average common shares 236,060 176,960 146,844
Effect of dilutive securities:
Employee stock options 4,098 4,440 2,416
Eller put/call option agreement 1,972 1,630 --
Convertible debt 6,993 -- --
---------- ---------- ----------
13,063 6,070 2,416
Denominator for net income
per common share - diluted 249,123 183,030 149,260
========== ========== ==========
Net income per common share:
Basic $ .23 $ .36 $ .26
========== ========== ==========
Diluted $ .22 $ .33 $ .25
========== ========== ==========
</TABLE>
STOCK OPTIONS
The Company has granted options to purchase its common stock to employees and
directors of the
68
<PAGE> 69
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,
1998, 1997 and 1996.
<TABLE>
<CAPTION>
In thousands, except per share data Weighted
Average
Exercise Price
Options (1) Per Share
---------- --------------
<S> <C> <C>
Options outstanding at January 1, 1996 3,056 $ 3.00
Options granted 466 14.00
Options exercised (214) 2.00
Options forfeited (32) 17.00
----------
Options outstanding at December 31, 1996 3,276 5.00
==========
Weighted average fair value of options granted during 1996 6.00
Options outstanding at January 1, 1997 3,276 5.00
Options granted in acquisitions 2,936 7.00
Options granted 692 22.00
Options exercised (990) 3.00
Options forfeited (56) 17.00
----------
Options outstanding at December 31, 1997 5,858 8.00
==========
Weighted average fair value of options granted during 1997 18.00
Options outstanding at January 1, 1998 5,858 8.00
Options granted in acquisitions 215 25.00
Options granted 1,401 44.00
Options exercised (1,339) 5.00
Options forfeited (128) 43.00
----------
Options outstanding at December 31, 1998 (2) 6,007 17.00
==========
Weighted average fair value of options granted during 1998 21.00
</TABLE>
(1) Adjusted to reflect two-for-one stock split paid on July 1998.
(2) Vesting dates range from February 1997 to December 2003, and expiration
dates range from February 1999 to December 2005 at exercise prices ranging
from $4.0375 to $60.00. There were 9.9 million shares available for future
grants under the various option plans at December 31, 1998.
69
<PAGE> 70
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 1998, 1997 and 1996: risk-free interest rates of 5.0%, 6.0% and
6.0% for 1998, 1997 and 1996, respectively; a dividend yield of 0%; the
volatility factors of the expected market price of the Company's common stock
used was 36%, 31% and 34% for 1998, 1997 and 1996, respectively; and the
weighted-average expected life of the option was six, five and six years for
1998, 1997 and 1996, respectively.
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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net Income (in thousands)
As reported $ 54,031 $ 63,576 $ 37,696
Pro forma $ 47,982 $ 61,739 $ 37,498
Net income per common share
Basic
As reported $ .23 $ .36 $ .26
Pro forma $ .20 $ .35 $ .26
Diluted
As reported $ .22 $ .33 $ .25
Pro forma $ .20 $ .33 $ .25
</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. In 1998, the Company
offered to repurchase the outstanding options. Options were valued at $7.1
million by an outside consulting firm and recorded in "Other income (expense)
net" as compensation expense in 1998. Option holders were paid in January 1999.
At December 31, 1998, common shares reserved for future issuance under the
Company's various stock option plans aggregated 16.1 million shares including
6.0 million options currently granted..
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
Common stock is reserved for future issuances of, approximately 16.1 million
shares for issuance upon the various stock option plans to purchase the
Company's common stock, 9.3 million shares for issuance upon conversion of the
Company's 2?% Senior Convertible Notes, 1.9 million for issuance upon the put of
the minority interest stake in Eller and approximately 64 million shares are
reserved for issuance upon consummation of pending mergers.
70
<PAGE> 71
NOTE I - EMPLOYEE BENEFIT PLANS
The Company has various 401(K) savings and other plans 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 contribution. Company matched contributions vest to the
employees based upon their years of service to the Company. Contributions to
these plans of $3.8 million, $1.2 million and $.7 million were charged to
expense for 1998, 1997 and 1996, respectively.
NOTE J - SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
In thousands of dollars
For the year ended December 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Other Income (Expense) - net:
Realized gains on sale of marketable securities $ 39,221 $ 10,019 --
Gain (loss) on disposal of fixed assets (13,845) 1,129 41
Minority interest (327) (848) --
Interest income from notes receivable 2,635 -- $ 1,779
Compensation expense relating to subsidiary options (8,791) -- --
IRS and legal settlements (7,400) -- --
Other 1,317 1,279 410
---------- ---------- ----------
Total Other Income (Expense) - net $ 12,810 $ 11,579 $ 2,230
========== ========== ==========
Income tax expense (benefit) on items of other comprehensive income:
Foreign currency translation adjustments $ 3,124 $ (2,727) $ 605
Unrealized gains on securities:
Unrealized holding gains arising during period $ 87,729 $ 12,791 --
Less: reclassification adjustments for gains
included in net income $ (13,727) -- $ (285)
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Other Current Assets:
Current film rights $ 14,468 $ 14,826
Inventory 9,937 --
Prepaid Leases 25,196 7,031
Prepaid expenses 8,839 3,586
Other 7,650 1,478
---------- ----------
Total Other Current Assets $ 66,090 $ 26,921
========== ==========
</TABLE>
71
<PAGE> 72
<TABLE>
<CAPTION>
As of December 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Other Non-Current Assets:
Film Rights, net of accumulated amortization $ 10,887 $ 14,171
Deposits for acquisitions 64,136 9,131
Prepaid lease payments 4,850 6,411
Other 29,396 2,485
------------ ------------
Total Other Non-Current Assets $ 109,269 $ 32,198
============ ============
Other Current Liabilities:
Deferred income - current $ 7,628 $ 1,340
Current portion of film rights liability 15,657 15,875
------------ ------------
Total Other Current Liabilities $ 23,285 $ 17,215
============ ============
Other Long-Term Liabilities:
Acquisition accrual $ 32,865 $ 8,398
Outdoor advertising structure takedown accrual 6,234 7,355
Accrued property taxes 3,909 3,912
Accrued insurance 2,578 3,401
Deferred income - long term 11,793 10,019
Long term portion of film rights liability 11,858 15,551
Other 6,296 2,043
------------ ------------
Total Other Long-Term Liabilities $ 75,533 $ 50,679
============ ============
</TABLE>
NOTE K - SEGMENT DATA
The Company is managed based on two principal business segments -- broadcasting
and outdoor advertising. At December 31, 1998, the broadcasting segment included
195 radio stations and 11 television stations for which the Company is the
licensee and 11 radio stations and 7 television stations operated under lease
management or time brokerage agreements. Of these stations, 222 operate in 47
domestic markets and two stations operate in one international market. The
broadcasting segment also operates 8 radio networks.
At December 31, 1998, the outdoor segment owned 296,791 advertising display
faces and operated 5,783 displays under lease management agreements. Of these
302,574 display faces, 89,008 are in 31 domestic markets and the remaining
213,566 displays are in 14 international markets.
Substantially all revenues represent income from unaffiliated companies.
72
<PAGE> 73
<TABLE>
<CAPTION>
In thousands of dollars
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net revenue
Broadcasting $ 648,877 $ 489,633 $ 351,739
Outdoor 702,063 207,435 --
------------ ------------ ------------
Consolidated $ 1,350,940 $ 697,068 $ 351,739
Operating expenses
Broadcasting $ 373,452 $ 286,314 $ 198,332
Outdoor 393,813 108,090 --
------------ ------------ ------------
Consolidated $ 767,265 $ 394,404 $ 198,332
Depreciation
Broadcasting $ 36,581 $ 24,815 $ 19,337
Outdoor 97,461 26,885 --
------------ ------------ ------------
Consolidated $ 134,042 $ 51,700 $ 19,337
Amortization of intangibles
Broadcasting $ 70,762 $ 41,568 $ 26,453
Outdoor 100,168 20,939 --
------------ ------------ ------------
Consolidated $ 170,930 $ 62,507 $ 26,453
Operating income
Broadcasting $ 148,571 $ 122,971 $ 99,090
Outdoor 92,307 44,603 --
------------ ------------ ------------
Consolidated $ 240,878 $ 167,574 $ 99,090
Total identifiable assets
Broadcasting $ 2,652,428 $ 2,151,601 $ 1,324,711
Outdoor 4,887,490 1,304,036 --
------------ ------------ ------------
Consolidated $ 7,539,918 $ 3,455,637 $ 1,324,711
Capital expenditures
Broadcasting $ 46,814 $ 15,924 $ 19,723
Outdoor 95,124 15,032 --
------------ ------------ ------------
Consolidated $ 141,938 $ 30,956 $ 19,723
</TABLE>
Net revenue of $175,132 and identifiable assets of $1,245,132 derived from the
Company's foreign operations are included in the data above.
73
<PAGE> 74
NOTE L - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
In thousands of dollars, except per share data
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
---------------------- ---------------------- ---------------------- -----------------------
1998 1997 1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross revenue $ 229,849 $ 110,831 $ 360,961 $ 212,200 $ 434,597 $ 209,050 $ 497,144 $ 258,097
========== ========== ========== ========== ========== ========== ========== ==========
Net revenue 203,642 98,289 320,028 186,779 385,885 184,108 441,385 227,892
Operating expenses 123,774 63,055 165,568 103,678 228,220 99,809 249,703 127,862
Depreciation and amortization 43,011 15,946 70,428 32,724 87,982 31,546 103,551 33,991
Corporate expenses 5,909 2,854 7,870 5,017 11,960 5,828 12,086 7,184
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income 30,948 16,434 76,162 45,360 57,723 46,925 76,045 58,855
Interest expense 25,701 11,046 28,032 21,268 40,822 19,490 41,211 23,272
Other income (expenses) 2,795 6,259 7,403 (1,060) 3,218 2,442 (606) 3,938
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 8,042 11,647 55,533 23,032 20,119 29,877 34,228 39,521
Income taxes 4,259 4,962 32,360 12,345 12,147 14,335 23,587 15,474
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before equity in
earnings (loss) of non-
consolidated affiliates 3,783 6,685 23,173 10,687 7,972 15,542 10,641 24,047
Equity in earnings (loss) of
nonconsolidated affiliates 1,796 914 4,736 4,407 3,530 3,067 (1,600) (1,773)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 5,579 $ 7,599 $ 27,909 $ 15,094 $ 11,502 $ 18,609 $ 9,041 $ 22,274
========== ========== ========== ========== ========== ========== ========== ==========
Net income per common
share: (1)
Basic $ .03 $ .05 $ .11 $ .09 $ .05 $ .11 $ .04 $ .12
========== ========== ========== ========== ========== ========== ========== ==========
Diluted $ .02 $ .05 $ .11 $ .08 $ .05 $ .10 $ .04 $ .11
========== ========== ========== ========== ========== ========== ========== ==========
Stock price: (1)
High $ 50.0315 $ 24.8125 $ 54.5625 $ 31.6875 $ 61.7500 $ 34.3750 $ 54.5000 $ 39.7188
Low 36.7190 17.1250 44.0625 21.3750 40.3750 29.3125 36.1250 30.0000
</TABLE>
(1) Adjusted for two-for-one stock split declared by Board of Directors in May
1998.
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol CCU.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
74
<PAGE> 75
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We believe that one of our most important assets is our experienced
management team. With respect to our operations, general managers are
responsible for the day-to-day operation of their respective broadcasting
stations or outdoor branch locations. We believe that the autonomy of our
general managers enables us to attract top quality managers capable of
implementing our aggressive marketing strategy and reacting to competition in
the local markets. Most general managers have options to purchase our common
stock. As an additional incentive, a portion of each manager's compensation is
related to the performance of the profit centers for which he or she is
responsible. In an effort to monitor expenses, corporate management routinely
reviews staffing levels and operating costs. Combined with the centralized
accounting functions, this monitoring enables us to control expenses
effectively. Corporate management also advises local general managers on broad
policy matters and is responsible for long-range planning, allocating resources,
and financial reporting and controls.
The information required by this item with respect to the directors and
nominees for election to our Board of Directors is incorporated by reference to
the information set forth under the caption "Election of Directors" and
"Compliance With Section 16(A) of the Exchange Act," in our Definitive Proxy
Statement, which will be filed with the Securities and Exchange Commission
within 120 days of our year end.
The following information is submitted with respect to our executive
officers as of December 31, 1998.
<TABLE>
<CAPTION>
Age on
December 31, Officer
Name 1998 Position Since
<S> <C> <C> <C>
L. Lowry Mays 63 Chairman/Chief Executive Officer 1972
Mark P. Mays 35 President/ Chief Operating Officer 1989
Randall T. Mays 33 Executive Vice President/Chief Financial Officer 1993
Herbert W. Hill, Jr. 39 Senior Vice President/Chief Accounting Officer 1989
Kenneth E. Wyker 37 Senior Vice President/Legal Affairs 1993
Mark Hubbard 49 Senior Vice President/Corporate Development 1998
S. Houston Lane IV 26 Vice President/Finance 1997
Karl Eller 70 Chief Executive Officer - Eller Media 1997
Scott Eller 42 President - Eller Media 1997
</TABLE>
The officers named above serve until the next Board of Directors
meeting immediately following the Annual Meeting of Shareholders.
Mr. L. Mays is our founder and was our President and Chief Executive
Officer from 1972 to February 1997. Since that time, Mr. L. Mays has served as
our Chairman and Chief Executive Officer. He has been one of our directors since
our inception. Mr. L. Mays is the father of Mark P. Mays and Randall T. Mays,
who serve as our President/Chief Operating Officer and our Executive Vice
President/Chief Financial Officer, respectively.
75
<PAGE> 76
Mr. M. Mays was our Senior Vice President of Operations from February
1993 until his appointment as our President/Chief Operating Officer in February
1997. He has been one of our directors since May 1998. Mr. M. Mays is the son of
L Lowry Mays, our Chairman/Chief Executive Officer and the brother of Randall T.
Mays, our Executive Vice President/Chief Financial Officer.
Mr. R. Mays was appointed Executive Vice President/Chief Financial
Officer in February 1997. Prior thereto, he was our Vice President/Treasurer
since he joined us in January 1993. Mr. R. Mays is the son of L Lowry Mays, our
Chairman/Chief Executive Officer and the brother of Mark P. Mays, our
President/Chief Operating Officer.
Mr. Hill was appointed Senior Vice President/Chief Accounting Officer
in February 1997. Prior thereto, he was our Vice President/Controller since
January 1989.
Mr. Wyker was appointed Senior Vice President for Legal Affairs in
February 1997. Prior thereto he was Vice President for Legal Affairs since he
joined us in July 1993.
Mr. Hubbard was appointed Senior Vice President - Corporate Development
in April 1998. Prior thereto he had worked as an independent consultant in the
broadcasting industry from July 1994. Prior thereto, he was President of
Fairmont Communications for the remainder of the relevant five-year period.
Mr. Lane was appointed Vice President - Finance in February 1997. Prior
thereto, he was an Analyst with Credit Suisse First Boston from July 1995 to
February 1997. Prior thereto, he was a student at the University of Texas for
the remainder of the relevant five-year period.
Mr. K. Eller was appointed Chief Executive Officer - Eller Media in
April 1997. Prior thereto, he was the Chief Executive Officer of Eller Media
Company from August 1995 to April 1997 and he was the Chief Executive Officer of
Eller Outdoor Advertising for the remainder of the relevant five-year period.
Mr. K. Eller is the father of Scott Eller, who serves as the President - Eller
Media.
Mr. S. Eller was appointed President - Eller Media in April 1997. Prior
thereto, he was the President of Eller Media Company from August 1996 to April
1997. Prior thereto, he as the Executive Vice President of Eller Media Company
from August 1995 to August 1996. Prior thereto, he was the President of Eller
Outdoor Advertising for the remainder of the relevant five-year period. Mr. S.
Eller is the son of Karl Eller, who serves as the Chief Executive Officer -
Eller Media.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the information set forth under the caption "Executive Compensation" in our
Definitive Proxy Statement, expected to be filed within 120 days of our fiscal
year end.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
our Definitive Proxy Statement under the headings "Security Ownership of Certain
Beneficial Owners and Management", expected to be filed within 120 days of our
fiscal year end.
76
<PAGE> 77
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
our Definitive Proxy Statement under the heading "Certain Transactions",
expected to be filed within 120 days of our fiscal year end.
77
<PAGE> 78
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)1. Financial Statements.
The following consolidated financial statements are included in Item 8.
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Earnings for the Years Ended December 31, 1998, 1997
and 1996.
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996.
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedule.
The following financial statement schedule for the years ended December 31,
1998, 1997 and 1996 and related report of independent auditors are filed as part
of this report and should be read in conjunction with the consolidated financial
statements.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
78
<PAGE> 79
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Allowance for doubtful accounts
<TABLE>
<CAPTION>
In thousands of dollars
Charges
Balance a to Costs, Write-off Balance
Beginning Expenses of Accounts at end of
Description of period and other Receivable Other (1) Period
- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended
December 31,
1996 $ 3,810 $ 2,376 $ 2,999 $ 2,880 $ 6,067
========== ========== ========== ========== ==========
Year ended
December 31,
1997 $ 6,067 $ 4,006 $ 4,474 $ 4,251 $ 9,850
========== ========== ========== ========== ==========
Year ended
December 31,
1998 $ 9,850 $ 6,031 $ 7,840 $ 5,467 $ 13,508
========== ========== ========== ========== ==========
</TABLE>
(1) Allowance for accounts receivable acquired in acquisitions net of deletions
related to dispositions.
79
<PAGE> 80
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Deferred Tax Asset Valuation Allowance
<TABLE>
<CAPTION>
In thousands of dollars
Charges
Balance at to Costs, Balance
Beginning Expenses at end of
Description of period and other Deletions Other (1) Period
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended
December 31,
1996 $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
Year ended
December 31,
1997 $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
Year ended
December 31,
1998 $ -- $ -- $ -- $ 19,837 $ 19,837
=========== =========== =========== =========== ===========
</TABLE>
(1) Related to allowance for net operating loss carryforwards assumed in
acquisitions.
80
<PAGE> 81
(a)3. Exhibits.
EXHIBIT
NUMBER DESCRIPTION
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. (incorporated by reference to the exhibits of the Company's
Current Report on Form 8-K dated November 3, 1997).
2.2 Agreement and Plan of Merger dated as of October 8, 1998, as amended
on November 11, 1998, among Clear Channel Communications, Inc., CCU
Merger Sub, Inc. and Jacor Communications, Inc. (incorporated by
reference to Annex A to the Company's Registration Statement on Form
S-4 (Reg. No. 333-72839) dated February 23, 1999).
3.1 Current Articles of Incorporation of the Company (incorporated by
reference to the exhibits of the Company's Registration Statement on
Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
3.2 Second Amended and Restated Bylaws of the Company (incorporated by
reference to the exhibits of the Company's Registration Statement on
Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
3.3 Amendment to the Company's Articles of Incorporation (incorporated
by reference to the exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998).
4.1 Buy-Sell Agreement by and between Clear Channel Communications,
Inc., L. Lowry Mays, B. J. McCombs, John M. Schaefer and John W.
Barger, dated May 31, 1977 (incorporated by reference to the
exhibits of the Company's Registration Statement on Form S-1 (Reg.
No. 33-289161) dated April 19, 1984).
4.2 Senior Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York as Trustee
(incorporated by reference to exhibit 4.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997).
4.3 First Supplemental Indenture dated March 30, 1998 to Senior
Indenture dated October 1, 1997, by and between the Company and The
Bank of New York, as Trustee (incorporated by reference to the
exhibits to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
4.4 Second Supplemental Indenture dated June 16, 1998 to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and the Bank of New York, as Trustee
(incorporated by reference to the exhibits to the Company's Current
Report on Form 8-K dated August 27, 1998).
4.5 Third Supplemental Indenture dated June 16, 1998 to Senior Indenture
dated October 1, 1997, by and between Clear Channel Communications,
Inc. and the Bank of New York, as Trustee (incorporated by reference
to the exhibits to the Company's Current Report on Form 8-K dated
August 27, 1998).
81
<PAGE> 82
EXHIBIT
NUMBER DESCRIPTION
10.1 Incentive Stock Option Plan of Clear Channel Communications, Inc. as
of January 1, 1984 (incorporated by reference to the exhibits of the
Company's Registration Statement on Form S-1 (Reg. No. 33-289161)
dated April 19, 1984).
10.2 Australia Radio Network Shareholders Agreement dated February 1995
by and between APN Broadcasting Investments Pty Ltd, Australian
Provincial Newspapers Holdings Limited, APN Broadcasting Pty Ltd,
Clear Channel Radio, Inc. and Clear Channel Communications, Inc.
(incorporated by reference to the exhibits of the Company's Current
Report on Form 8-K dated May 26, 1995).
10.3 Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan
(incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-8 dated November 20, 1995).
10.4 Clear Channel Communications, Inc. 1994 Nonqualified Stock Option
Plan (incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-8 dated November 20, 1995).
10.5 Clear Channel Communications, Inc. Directors' Nonqualified Stock
Option Plan (incorporated by reference to the exhibits of the
Company's Registration Statement on Form S-8 dated November 20,
1995).
10.6 Option Agreement for Officer (incorporated by reference to the
exhibits of the Company's Registration Statement on Form S-8 dated
November 20, 1995).
10.7 Employment Agreement dated February 10, 1997 by and between Clear
Channel Communications, Inc. and L. Lowry Mays (incorporated by
reference to exhibit 10.12 of the Company's Annual Report on Form
10-K dated March 31, 1997).
10.8 Stock Purchase Agreement dated February 25, 1997 by and among Clear
Channel Communications, Inc., Eller Media Corporation and the
Stockholders of Eller Media Corporation (incorporated by reference
to the exhibits of the Company's Annual Report on Form 10-K dated
March 31, 1997).
10.9 Amendment to Stock Purchase Agreement dated April 10, 1997 by and
between Clear Channel Communications, Inc., Eller Media Corporation
and the Stockholders of Eller Media Corporation (incorporated by
reference to the exhibits of the Company's Current Report on Form
8-K dated April 17, 1997).
10.10 Registration Rights Agreement dated April 10, 1997 by and between
Clear Channel Communications, Inc. and the Stockholders of Eller
Media Corporation (incorporated by reference to the exhibits of the
Company's Current Report on Form 8-K dated April 17, 1997).
82
<PAGE> 83
EXHIBIT
NUMBER DESCRIPTION
10.11 Stockholders Agreement dated April 10, 1997 by and between Clear
Channel Communications, Inc. and EM Holdings LLC (incorporated by
reference to the exhibits of the Company's Current Report on Form
8-K dated April 17, 1997).
10.12 Escrow Agreement dated April 10, 1997 by and between Clear Channel
Communications, Inc., EM Holdings LLC and Chase Trust Company of
California (incorporated by reference to the exhibits of the
Company's Current Report on Form 8-K dated April 17, 1997).
10.13 Third Amended and Restated Credit Agreement by and among Clear
Channel Communications, Inc., NationsBank of Texas, N.A., as
administrative lender, the First National Bank of Boston, as
documentation agent, the Bank of Montreal and Toronto Dominion
(Texas), Inc., as co-syndication agents, and certain other lenders
dated April 10, 1997 (the "Credit Facility") (incorporated by
reference to the exhibits of the Company's Amendment No. 1 to the
Registration Statement on Form S-3 (Reg. No. 333-25497) dated May 9,
1997).
10.14 Asset Purchase Agreement dated August 25, 1997 by and among Paxson
Communications Corporation, Clear Channel Metroplex, Inc., Clear
Channel Metroplex Licenses, Inc. and Clear Channel Communications,
Inc. (incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-3 (Reg. No. 333-33371) dated
September 9, 1997).
10.15 Asset Purchase Agreement dated August 25, 1997 by and among Paxson
Communications Corporation, L. Paxson, Inc., Clear Channel
Metroplex, Inc., Clear Channel Metroplex Licenses, Inc. and Clear
Channel Communications, Inc. (incorporated by reference to the
exhibits of the Company's Registration Statement on Form S-3 (Reg.
No. 333-33371) dated September 9, 1997).
10.16 Registration Rights Agreements dated as October 8, 1998, by and
among the Company and the Zell/Chilmark Fund, L.P., Samstock,
L.L.C., the SZ2 (IGP) Partnership and Samuel Zell (incorporated by
reference to the exhibits to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998).
10.17 Second Amendment to the Credit Facility dated November 7, 1997.
(incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K filed March 31, 1998.)
10.18 Third Amendment to the Credit Facility dated December 29, 1997.
(incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K filed March 31, 1998.)
10.19 First Amendment to the Credit Facility dated September 17, 1997
(incorporated by reference to exhibit 4.1 to the Company's Current
Report on Form 8-K filed October 14, 1997).
83
<PAGE> 84
EXHIBIT
NUMBER DESCRIPTION
10.20 The Clear Channel Communications, Inc. 1998 Stock Incentive Plan
(incorporated by reference to Appendix A to the Company's Definitive
14A Proxy Statement dated March 24, 1998).
10.21 Voting Agreement dated as of October 8, 1998, by and among Jacor
Communications, Inc. and L. Lowry Mays, Mark P. Mays and Randall T.
Mays and certain related family trusts (incorporated by reference to
the exhibits to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
11 Statement re: Computation of Per Share Earnings.
12 Statement re: Computation of Ratios.
21 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG.
23.3 Consent of KPMG LLP.
24 Power of Attorney (included on signature page)
27 Financial Data Schedule
99.1 Report of Independent Auditors on Financial Statement Schedule -
Ernst & Young LLP.
99.2 Report of Independent Auditors - KPMG
99.3 Report of Independent Auditors - KPMG LLP
(b) Reports on Form 8-K.
We filed a report on Form 8-K dated October 19, 1998 that reported that
we had entered into an Agreement and Plan of Merger with Jacor Communications,
Inc. pursuant to which our wholly-owned subsidiary would be merged with and into
Jacor Communications, Inc. with our wholly-owned subsidiary surviving the merger
and continuing its operations as a wholly-owned subsidiary of the Company. The
Jacor Merger is described under the caption "Recent Developments" in Item 1 of
Part I of this Form 10-K.
We filed a report on Form 8-K dated December 10, 1998 which reported
the Consolidated Balance Sheet of Jacor Communications, Inc., at December 31,
1997 and 1996, and the related Consolidated Statement of Operations and
Shareholders' Equity and Consolidated Statement of Cash Flows for the years
ended December 31, 1997, 1996 and 1995, with a Report of Independent Accountants
dated February 11, 1998. Also included were unaudited quarterly financial
information including the
84
<PAGE> 85
Condensed Consolidated Balance Sheets of Jacor Communications, Inc. at September
30, 1998 and 1997, and the related Condensed Consolidated Statements of
Operations and Shareholders' Equity and Condensed Consolidated Statements of
Cash Flows for the nine months ended September 30, 1998 and 1997. Also included
were an unaudited Pro Forma Combined Condensed Balance Sheet of us and our
subsidiaries at September 30, 1998, and unaudited Pro Forma Combined Condensed
Statements for Operations for us and our subsidiaries for the year ended
December 31, 1997 and the nine months ended September 30, 1998.
85
<PAGE> 86
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 17, 1999.
CLEAR CHANNEL COMMUNICATIONS, INC.
By: /S/ L. Lowry Mays
L. Lowry Mays
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below authorizes L. Lowry Mays,
Mark P. Mays, Randall T. Mays and Herbert W. Hill, Jr., or any one of them, each
of whom may act without joinder of the others, to execute in the name of each
such person who is then an officer or director of the Registrant and to file any
amendments to this annual report on Form 10-K necessary or advisable to enable
the Registrant to comply with the Securities Exchange Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof, which amendments may make such changes in such
report as such attorney-in-fact may deem appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/S/ L. Lowry Mays Chairman, Chief Executive Officer and Director March 17, 1999
L. Lowry Mays
/S/ Randall T. Mays Senior Vice President and Chief Financial March 17, 1999
Randall T. Mays Officer (Principal Financial Officer)
/S/ Herbert W. Hill, Jr. Senior Vice President and Chief Accounting March 17, 1999
Herbert W. Hill, Jr. Officer (Principal Accounting Officer)
/S/ B. J. McCombs Director March 17, 1999
B. J. McCombs
/S/ Allan D. Feld Director March 17, 1999
Alan D. Feld
/S/ Theodore H. Strauss Director March 17, 1999
Theodore H. Strauss
/S/ John H. Williams Director March 17, 1999
John H. Williams
/S/ Karl Eller Director March 17, 1999
Karl Eller
</TABLE>
<PAGE> 87
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER 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. (incorporated by reference to the exhibits of the Company's
Current Report on Form 8-K dated November 3, 1997).
2.2 Agreement and Plan of Merger dated as of October 8, 1998, as amended
on November 11, 1998, among Clear Channel Communications, Inc., CCU
Merger Sub, Inc. and Jacor Communications, Inc. (incorporated by
reference to Annex A to the Company's Registration Statement on Form
S-4 (Reg. No. 333-72839) dated February 23, 1999).
3.1 Current Articles of Incorporation of the Company (incorporated by
reference to the exhibits of the Company's Registration Statement on
Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
3.2 Second Amended and Restated Bylaws of the Company (incorporated by
reference to the exhibits of the Company's Registration Statement on
Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
3.3 Amendment to the Company's Articles of Incorporation (incorporated
by reference to the exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998).
4.1 Buy-Sell Agreement by and between Clear Channel Communications,
Inc., L. Lowry Mays, B. J. McCombs, John M. Schaefer and John W.
Barger, dated May 31, 1977 (incorporated by reference to the
exhibits of the Company's Registration Statement on Form S-1 (Reg.
No. 33-289161) dated April 19, 1984).
4.2 Senior Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York as Trustee
(incorporated by reference to exhibit 4.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997).
4.3 First Supplemental Indenture dated March 30, 1998 to Senior
Indenture dated October 1, 1997, by and between the Company and The
Bank of New York, as Trustee (incorporated by reference to the
exhibits to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
4.4 Second Supplemental Indenture dated June 16, 1998 to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and the Bank of New York, as Trustee
(incorporated by reference to the exhibits to the Company's Current
Report on Form 8-K dated August 27, 1998).
4.5 Third Supplemental Indenture dated June 16, 1998 to Senior Indenture
dated October 1, 1997, by and between Clear Channel Communications,
Inc. and the Bank of New York, as Trustee (incorporated by reference
to the exhibits to the Company's Current Report on Form 8-K dated
August 27, 1998).
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
10.1 Incentive Stock Option Plan of Clear Channel Communications, Inc. as
of January 1, 1984 (incorporated by reference to the exhibits of the
Company's Registration Statement on Form S-1 (Reg. No. 33-289161)
dated April 19, 1984).
10.2 Australia Radio Network Shareholders Agreement dated February 1995
by and between APN Broadcasting Investments Pty Ltd, Australian
Provincial Newspapers Holdings Limited, APN Broadcasting Pty Ltd,
Clear Channel Radio, Inc. and Clear Channel Communications, Inc.
(incorporated by reference to the exhibits of the Company's Current
Report on Form 8-K dated May 26, 1995).
10.3 Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan
(incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-8 dated November 20, 1995).
10.4 Clear Channel Communications, Inc. 1994 Nonqualified Stock Option
Plan (incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-8 dated November 20, 1995).
10.5 Clear Channel Communications, Inc. Directors' Nonqualified Stock
Option Plan (incorporated by reference to the exhibits of the
Company's Registration Statement on Form S-8 dated November 20,
1995).
10.6 Option Agreement for Officer (incorporated by reference to the
exhibits of the Company's Registration Statement on Form S-8 dated
November 20, 1995).
10.7 Employment Agreement dated February 10, 1997 by and between Clear
Channel Communications, Inc. and L. Lowry Mays (incorporated by
reference to exhibit 10.12 of the Company's Annual Report on Form
10-K dated March 31, 1997).
10.8 Stock Purchase Agreement dated February 25, 1997 by and among Clear
Channel Communications, Inc., Eller Media Corporation and the
Stockholders of Eller Media Corporation (incorporated by reference
to the exhibits of the Company's Annual Report on Form 10-K dated
March 31, 1997).
10.9 Amendment to Stock Purchase Agreement dated April 10, 1997 by and
between Clear Channel Communications, Inc., Eller Media Corporation
and the Stockholders of Eller Media Corporation (incorporated by
reference to the exhibits of the Company's Current Report on Form
8-K dated April 17, 1997).
10.10 Registration Rights Agreement dated April 10, 1997 by and between
Clear Channel Communications, Inc. and the Stockholders of Eller
Media Corporation (incorporated by reference to the exhibits of the
Company's Current Report on Form 8-K dated April 17, 1997).
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
10.11 Stockholders Agreement dated April 10, 1997 by and between Clear
Channel Communications, Inc. and EM Holdings LLC (incorporated by
reference to the exhibits of the Company's Current Report on Form
8-K dated April 17, 1997).
10.12 Escrow Agreement dated April 10, 1997 by and between Clear Channel
Communications, Inc., EM Holdings LLC and Chase Trust Company of
California (incorporated by reference to the exhibits of the
Company's Current Report on Form 8-K dated April 17, 1997).
10.13 Third Amended and Restated Credit Agreement by and among Clear
Channel Communications, Inc., NationsBank of Texas, N.A., as
administrative lender, the First National Bank of Boston, as
documentation agent, the Bank of Montreal and Toronto Dominion
(Texas), Inc., as co-syndication agents, and certain other lenders
dated April 10, 1997 (the "Credit Facility") (incorporated by
reference to the exhibits of the Company's Amendment No. 1 to the
Registration Statement on Form S-3 (Reg. No. 333-25497) dated May 9,
1997).
10.14 Asset Purchase Agreement dated August 25, 1997 by and among Paxson
Communications Corporation, Clear Channel Metroplex, Inc., Clear
Channel Metroplex Licenses, Inc. and Clear Channel Communications,
Inc. (incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-3 (Reg. No. 333-33371) dated
September 9, 1997).
10.15 Asset Purchase Agreement dated August 25, 1997 by and among Paxson
Communications Corporation, L. Paxson, Inc., Clear Channel
Metroplex, Inc., Clear Channel Metroplex Licenses, Inc. and Clear
Channel Communications, Inc. (incorporated by reference to the
exhibits of the Company's Registration Statement on Form S-3 (Reg.
No. 333-33371) dated September 9, 1997).
10.16 Registration Rights Agreements dated as October 8, 1998, by and
among the Company and the Zell/Chilmark Fund, L.P., Samstock,
L.L.C., the SZ2 (IGP) Partnership and Samuel Zell (incorporated by
reference to the exhibits to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998).
10.17 Second Amendment to the Credit Facility dated November 7, 1997.
(incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K filed March 31, 1998.)
10.18 Third Amendment to the Credit Facility dated December 29, 1997.
(incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K filed March 31, 1998.)
10.19 First Amendment to the Credit Facility dated September 17, 1997
(incorporated by reference to exhibit 4.1 to the Company's Current
Report on Form 8-K filed October 14, 1997).
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
10.20 The Clear Channel Communications, Inc. 1998 Stock Incentive Plan
(incorporated by reference to Appendix A to the Company's Definitive
14A Proxy Statement dated March 24, 1998).
10.21 Voting Agreement dated as of October 8, 1998, by and among Jacor
Communications, Inc. and L. Lowry Mays, Mark P. Mays and Randall T.
Mays and certain related family trusts (incorporated by reference to
the exhibits to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
11 Statement re: Computation of Per Share Earnings.
12 Statement re: Computation of Ratios.
21 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG.
23.3 Consent of KPMG LLP.
24 Power of Attorney (included on signature page)
27 Financial Data Schedule
99.1 Report of Independent Auditors on Financial Statement Schedule -
Ernst & Young LLP.
99.2 Report of Independent Auditors - KPMG
99.3 Report of Independent Auditors - KPMG LLP
</TABLE>
<PAGE> 1
EXHIBIT 11 - Computation of Per Share Earnings
In thousands of dollars, except per share data
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
NUMERATOR:
Net income $ 54,031 $ 63,576 $ 37,696
Effect of dilutive securities:
Eller put/call option agreement (4,299) (2,577) --
Convertible debt 7,358 -- --
--------- --------- ---------
3,059 (2,577) --
Numerator for net income per
common share - diluted $ 57,090 $ 60,999 $ 37,696
========= ========= =========
DENOMINATOR:
Weighted average common shares 236,060 176,960 146,844
Effect of dilutive securities:
Employee stock options 4,098 4,440 2,416
Eller put/call option agreement 1,972 1,630 --
Convertible debt 6,993 -- --
--------- --------- ---------
13,063 6,070 2,416
Denominator for net income
per common share - diluted 249,123 183,030 149,260
========= ========= =========
Net income per common share:
Basic $ .23 $ .36 $ .26
========= ========= =========
Diluted $ .22 $ .33 $ .25
========= ========= =========
</TABLE>
<PAGE> 1
EXHIBIT 12 - Computation of Ratios
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands except ratio)
<TABLE>
<CAPTION>
Year Ended
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes $ 117,922 $ 104,077 $ 71,240 $ 49,817 $ 36,396 $ 15,696
Dividends and other received from
nonconsolidated affiliates 9,168 4,624 10,430 1,432 -- --
--------- --------- -------- -------- -------- --------
Total 127,090 108,701 81,670 51,249 36,396 15,696
Fixed Charges
Interest expense 135,766 75,076 30,080 20,752 7,669 5,390
Amortization of loan fees 2,220 1,451 506 1,004 82 5
Interest portion of rentals 16,044 6,120 424 361 262 188
--------- --------- -------- -------- -------- --------
Total fixed charges 154,030 82,647 31,010 22,117 8,013 5,583
Preferred stock dividends
Tax effect of preferred dividends -- -- -- -- -- --
After tax preferred dividends -- -- -- -- -- --
--------- --------- -------- -------- -------- --------
Total fixed charges and preferred dividends 154,030 82,647 31,010 22,117 8,013 5,583
Total earnings available for
payment of fixed charges $ 281,120 $ 191,348 $112,680 $ 73,366 $ 44,409 $ 21,279
========= ========= ======== ======== ======== ========
Ratio of earnings to fixed
charges 1.83 2.32 3.63 3.32 5.54 3.81
========= ========= ======== ======== ======== ========
Rental fees and charges $ 200,550 $ 76,500 $ 5,299 $ 4,510 $ 3,273 $ 2,344
Interest rate 8% 8% 8% 8% 8% 8%
</TABLE>
<PAGE> 1
EXHIBIT 21 - Subsidiaries of Registrant, Clear Channel Communications, Inc.
<TABLE>
<CAPTION>
Name State of Incorporation
<S> <C>
Clear Channel Communications, Inc. Texas
Clear Channel Metroplex, Inc. Nevada
Clear Channel Metroplex Licenses, Inc. Nevada
Clear Channel Holdings, Inc. Nevada
Clear Channel Radio, Inc. Nevada
Clear Channel Radio Licenses, Inc. Nevada
Clear Channel Television, Inc. Nevada
Clear Channel Television Licenses, Inc. Nevada
Eller Media Corporation Delaware
Universal Outdoor Holdings, Inc. Delaware
Clear Channel International, Ltd. United Kingdom
</TABLE>
<PAGE> 1
EXHIBIT 23.1 - CONSENT OF INDEPENDENT AUDITORS - ERNST & YOUNG LLP
We consent to the incorporation by reference in the shelf Registration
Statement (Form S-3 No. 333-47367) the Registration Statement (Form S-4 No.
333-57987) and the Registration Statement (Form S-4 No. 333-72839) of Clear
Channel Communications, Inc. of our reports dated February 19, 1999 with respect
to the consolidated financial statements and schedule of Clear Channel
Communications, Inc. for the year ended December 31, 1998 included in this
Annual Report (Form 10-K) for the year ended December 31, 1998.
We also consent to the incorporation by reference in the Registration
Statements (Forms 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, the Eller Media Company Senior Management Incentive Plan
of Clear Channel Communications, Inc. (No. 333-29717) and the Clear Channel
Communications, Inc. 1998 Stock Incentive Plan (No. 333-61883) of our reports
dated February 19, 1999 with respect to the consolidated financial statements of
Clear Channel Communications, Inc. included in this Annual Report (Form 10-K)
for the year ended December 31, 1998 and with respect to the related financial
statement schedule included in this Annual Report (Form 10-K) for the year ended
December 31, 1998.
ERNST & YOUNG LLP
San Antonio, Texas
March 17, 1999
<PAGE> 1
EXHIBIT 23.2 - CONSENT OF INDEPENDENT AUDITORS - KPMG
We consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-47367), in the Registration Statements on Form
S-8 (Nos. 33-14193, 33-59772, 33-64463, 333-29717 and 333-61883), and in the
Registration Statements on Form S-4 (Nos. 333-57987 and 333-72839) 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 10-K),
which report appears in the Annual Report of Clear Channel Communications, Inc.
on Form 10-K for the year ended December 31, 1998.
KPMG
Sydney, Australia
March 17, 1999
<PAGE> 1
EXHIBIT 23.3 - CONSENT OF INDEPENDENT AUDITORS - KPMG LLP
The Board of Directors
Clear Channel Communications, Inc.:
We consent to the incorporation by reference in the Registration
Statements of Clear Channel Communications, Inc. on Form S-3 (No. 333-47367) and
Form S-4 (No. 333-57987 and 333-72839) of our report on the consolidated
financial statements of Heftel Broadcasting Corporation and subsidiaries as of
and for the year ended December 31, 1998, which report is included in the 1998
Annual Report on Form 10-K of Clear Channel Communications, Inc.
We also consent to the incorporation by reference of the aforementioned
report in the Registration Statements on Form S-8 of 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); 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. (No. 333-29717) and the Clear Channel
Communications, Inc. 1998 Stock Incentive Plan (No. 333-61883.
KPMG LLP
Dallas, Texas
March 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 36,498,585
<SECURITIES> 0
<RECEIVABLES> 307,371,804
<ALLOWANCES> 13,507,549
<INVENTORY> 0
<CURRENT-ASSETS> 409,960,255
<PP&E> 2,174,610,885
<DEPRECIATION> 258,824,301
<TOTAL-ASSETS> 7,539,917,818
<CURRENT-LIABILITIES> 258,143,642
<BONDS> 2,323,643,118
0
0
<COMMON> 26,369,820
<OTHER-SE> 4,457,059,321
<TOTAL-LIABILITY-AND-EQUITY> 7,539,917,818
<SALES> 0
<TOTAL-REVENUES> 1,350,940,442
<CGS> 0
<TOTAL-COSTS> 767,264,845
<OTHER-EXPENSES> 50,634,342
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,765,908
<INCOME-PRETAX> 117,922,462
<INCOME-TAX> 72,353,000
<INCOME-CONTINUING> 54,031,252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,031,252
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.22
</TABLE>
<PAGE> 1
EXHIBIT 99.1 - REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
We have audited the consolidated financial statements of Clear Channel
Communications, Inc., as of December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, and have issued our report
thereon dated February 19, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
February 19, 1999
San Antonio, Texas
<PAGE> 1
EXHIBIT 99.2 -- REPORT OF INDEPENDENT AUDITORS - KPMG
The Board of Directors of Australian Radio Network Pty Limited.
We have audited the consolidated balance sheet of the Australian Radio
Network Pty Limited and its controlled entities ("Australian Radio Network") as
at December 31, 1996 and 1995, and the related consolidated profit and loss
accounts and statements of cash flows for the years then ended all expressed in
Australian dollars. These consolidated financial statements are the
responsibility of the Australian Radio Network's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the Australian auditing
standards that are substantially equivalent to United States 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Australian
Radio Network as at December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in Australia.
Generally accepted accounting principles in Australia vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations for the year ended December 31,
1996 and the period May 11, 1995 to December 31, 1995, and shareholders' equity
as of December 31, 1996 and 1995, to the extent summarized in the information
accompanying the annual financial statements.
KPMG
Sydney, Australia
4 March, 1997
<PAGE> 1
EXHIBIT 99.3 -- REPORT OF INDEPENDENT AUDITORS - KPMG LLP
The Board of Directors
Heftel Broadcasting Corporation
We have audited the consolidated balance sheets of Heftel Broadcasting
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, the 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, 1998 and 1997, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
KPMG LLP
Dallas, Texas
February 15, 1999
