Document/Exhibit Description Pages Size
1: 10-K Form 10-K for Year Ended December 31, 1997 43 251K
2: EX-10.23 2nd Amendment to Credit Facility Dated 11/7/97 47 59K
3: EX-10.24 3rd Amemdment to Credit Facility Dated 12/29/97 45 60K
4: EX-13 Annual Report to Security Holders 71± 269K
5: EX-21 Subsidiaries of the Registrant 1 8K
6: EX-23.1 Consent of Ernst & Young LLP 1 9K
7: EX-23.2 Consent of Kpmg 1 8K
8: EX-23.3 Consent of Kpmg Peat Marwick LLP 1 8K
9: EX-27 Financial Data Schedule 1 7K
10: EX-99.1 Report of Ind. Auditors on Financial Statement Sch 1 7K
11: EX-99.2 Report of Independent Auditors - Kpmg 1 9K
12: EX-99.3 Report of Independent Auditors - Kpmg Peat Marwick 1 8K
EXHIBIT 13
1997
ACCOMPLISHMENTS
RECORD REVENUES
Achieved record revenues of $790 million, an increase of 98 percent over 1996.
RECORD PROFITS AT THE OPERATING LEVEL
Reported $302.7 million in operating income before depreciation and
amortization, an increase of 97 percent over 1996.
RECORD AFTER TAX CASH FLOW
Produced $213.4 million in after tax cash flow, an increase of 99 percent over
1996.
RECORD AFTER TAX CASH FLOW PER COMMON SHARE-DILUTED
Earned $2.33 of after tax cash flow per common share, an increase of 62 percent
over 1996.
CONTINUED GROWTH OF STOCK PRICE
Clear Channel's common stock price per share increased 120 percent during 1997
and has compounded at an annual average rate of 89 percent over the last five
years and 57 percent over the last ten.
ADDITION TO THE S&P 500
The Company was added to the widely followed S&P 500 in recognition of its
industry leadership.
OUTDOOR ADVERTISING
Emerged as a leader in the Outdoor Advertising Industry by acquiring Eller Media
Company, announcing a proposed merger with Universal Outdoor, and making an
offer to purchase More Group Plc.
PUBLIC DEBT OFFERING
Received an investment grade debt rating from both Moody's and S&P, and
subsequently raised approximately $300 million in the Company's first public
debt offering.
CONTINUED EQUITY FINANCING
Issued approximately $1.1 billion in equity in order to maintain conservative
financial leverage and take advantage of attractive opportunities.
ENLARGED CREDIT FACILITY
Increased the size of the Company's revolving credit facility to $1.75 billion.
DOMESTIC RADIO ACQUISITIONS
Continued the expansion of our radio group by adding 70 stations during 1997,
bringing the total number of stations owned or programmed to 173; most notable
was the acquisition of 43 stations from Paxson Communications Corporation.
INTERNATIONAL RADIO EXPANSION
The Australian Radio Network, which is 50 percent owned by Clear Channel,
acquired two additional stations during 1997. Clear Channel also acquired a 50
percent interest in Radio Bonton s.a., a company which operates one FM radio
station in the Czech Republic. Finally, an agreement was reached with Radio
Shanghai by which Clear Channel will sell airtime on 13 radio stations
broadcasting in Shanghai, China.
WIRELESS COMMUNICATION TOWER INDUSTRY
Invested in American Tower Corporation, which has subsequently announced an
agreement to merge with American Tower Systems and create the definitive leader
in that industry.
ENRICHED MANAGEMENT TEAM
Continued to develop management teams at the local level; these have become the
single greatest strength of the Company. Additionally, through promotions and
recruitment, enhanced the support group overseeing these managers.
FINANCIAL HIGHLIGHTS
In Thousands Except Per Share Amounts
[Download Table]
1997 1996 % Change
Gross revenue $790,178 $398,094 98%
Operating income before
depreciation and amortization 302,664 153,407 97%
Operating income 167,574 99,090 69%
Net income 63,576 37,696 69%
Net income per common share - diluted $ .67 $ 0.51 31%
After tax cash flow(1) 213,445 107,318 99%
After tax cash flow per common
share - diluted (1) $ 2.33 $ 1.44 62%
(1) Defined as net income before unusual items plus depreciation, amortization
of intangibles (including nonconsolidated affiliates) and deferred taxes.
44
FINANCIAL
HIGHLIGHTS
[GROSS REVENUE GRAPH]
[OPERATING INCOME GRAPH]
[AFTER TAX CASH FLOW GRAPH]
[AFTER TAX CASH FLOW PER COMMON SHARE - DILUTED GRAPH]
Clear Channel Communications, Inc. o 1997 ANNUAL REPORT o 1
45
LETTER TO THE
SHAREHOLDERS
Dear Fellow Shareholders:
I am pleased to report that nineteen ninety-seven was the most
successful year in our Company's history. We enjoyed continued success in our
broadcasting business, setting new records for after tax cash flow. In addition,
our entry into the outdoor advertising business has been well rewarded with
immediate financial success. After tax cash flow per share, the most important
measure of our Company's success, increased sixty-two percent from $1.44 in 1996
to $2.33 in 1997. Gross revenues increased from $398.1 million to $790.2 million
from 1996 to 1997, an increase of ninety-eight percent, while operating income
before depreciation and amortization increased from $153.4 million to $302.7
million over the same period. These strong fundamentals contributed to the
ongoing growth of shareholder value. Clear Channel's common stock price
increased 120 percent during the past year. Our Company's stock price has
compounded at an annual average rate of fifty-seven percent over the last
decade, making it one of the best performing stocks on the New York Stock
Exchange during that period.
BROADCASTING
The Telecommunications Act of 1996 initiated a wave of consolidation in
the radio industry that continued throughout 1997. Since our last annual report,
our Company has increased the number of radio stations, it owns, programs or
sells airtime on from 109 to 184 stations which are located in forty domestic
markets (this includes all pending transactions). In addition to these radio
stations, our Company continues to successfully operate eighteen television
stations in eleven markets across the United States. Clear Channel also
continues to have a significant interest in the field of Spanish language radio
broadcasting through its 32.3% stake in Heftel Broadcasting. Finally, during
1997 Clear Channel added to its international operations by acquiring two new
stations in Australia and one in the Czech Republic.
The largest of our 1997 radio acquisitions was the purchase of Paxson
Communications' forty-three stations during the fourth quarter of 1997. These
assets are an excellent addition to Clear Channel because they are clustered in
Florida, a region of rapid growth and attractive markets. Even in the brief time
since the acquisition, we have begun to capitalize on the excellent local
management and infrastructure at these stations, continuing their tradition of
community service and development into truly excellent performers. The decision
to concentrate on Florida is consistent with our Company's long-standing policy
of making investments that have an inherent growth profile. During 1997 a great
deal of our radio station acquisitions were located in markets where Clear
Channel already had a presence. By making these `tuck-in' acquisitions of
broadcasting stations, we not only improve the operations of the acquired assets
but also enhance the performance of our existing stations in that market.
Stronger station groups allow our Company to provide its clients with more
choices and greater flexibility.
The following 'tuck-in' acquisitions were added during 1997: WZZU-FM,
WFXC-FM, WFXK-FM and WDUR-AM in Raleigh, NC; WQMF-FM and WHKW-FM in Louisville,
KY; KHOM-FM in New Orleans, LA; KJOJ-AM in Houston, TX; WVTI-FM in Grand Rapids,
MI; WMIL-FM, WZTR-FM and WOKY-AM in Milwaukee, WI; WKII-AM, WXRM-FM and WOLZ-FM
in Fort Myers, FL; WMFX-FM and WOIC-AM in Columbia, SC; WLAN-AM/FM in Lancaster,
PA; KMVK-FM, KSSN-FM and KOLL-FM in Little Rock, AR; and KQSY-FM in Tulsa, OK.
During the year we also closed on transactions that added five new markets to
our Company's radio broadcasting operations. WODE-FM and WEEX-AM in Allentown,
PA; KTOM-FM, KDON-FM, KOCN-FM, KRQC-FM, KTOM-AM and KDON-AM in Monterey, CA;
WING-FM, WGTZ-FM and WING-AM in Dayton, OH; WKXI-FM, WJMI-FM, WOAD-AM and
WKXI-AM in Jackson, MS were all deals that added markets to the Clear Channel
family. In Albany, NY Clear Channel has an 80% interest in Radio Enterprises,
Inc., which owns WQBK-FM, WTMM-AM, WQBJ-FM and WXCR-FM.
During the year, our television operations continued in their tradition
of strong performance and leadership. As with our radio business, we continually
strive to give each station an identity consistent with the community it serves
in order to enhance viewer loyalty and distinguish it from its competitors.
Across the
2 o Clear Channel Communications, Inc. o 1997 ANNUAL REPORT
46
Company during 1997, plans were made for the conversion of each of our
television stations to digital broadcasting. We are excited about the
opportunities that this new platform will give Clear Channel to serve our
viewers. Our ongoing strategy of affiliating the majority of our stations with
the most rapidly growing networks gives the entire group a more attractive
growth profile. Additionally, our substantial investment last year in news
operations has begun to pay a healthy dividend to our Company and the viewers it
serves.
SPANISH LANGUAGE BROADCASTING
Clear Channel's investment in Heftel Broadcasting continues to give our
Company a means of participating in the rapidly growing Spanish language
broadcasting arena. We remain very excited about the growth prospects for this
business. Spanish speaking listeners have been a traditionally underserved
demographic group, which allows Heftel the opportunity for rapid expansion.
Heftel is the leading domestic Spanish language radio broadcaster, with stations
in eleven of the top fifteen Spanish language radio markets. Although our
investment is a passive, nonvoting interest, we are confident that Heftel's
outstanding management team will continue to produce long term value for its
shareholders. Heftel's price per share increased in value by 197 percent during
1997, making the value of Clear Channel's stake approximately $664 million at
December 31, 1997.
OUTDOOR ADVERTISING
Nineteen ninety-seven was also a year marked by our Company's entry
into the outdoor advertising sector. Not only did we close on our first major
outdoor acquisition, Eller Media Company, but we also initiated a merger with
Universal Outdoor. On October 23, 1997, our Company entered into a stock for
stock merger agreement with Universal Outdoor valued at approximately $1.7
billion. The proposed merger is expected to close during the first half of 1998,
at which time Universal shareholders will receive .67 shares of Clear Channel
stock for each share of Universal stock held. Through this merger, our Company
will become the largest domestic outdoor advertising company, with a leading
presence in twenty-one of the top thirty-five media markets across the United
States. The Universal transaction adds display faces in twenty-two markets in
which our Company's existing outdoor company did not operate. Additionally,
eight of Universal's outdoor advertising markets overlap with our Company's
existing operations, including such markets as Memphis, Tampa, Jacksonville,
Orlando, Minneapolis, Dallas, Chicago and Milwaukee.
This merger demonstrates our Company's continuing commitment to
leadership in all media segments in which the Company is a participant and is a
testament to our continuing commitment and enthusiasm toward the outdoor
advertising business. Universal was founded in 1973 and has grown rapidly over
the past three years through strategic acquisitions in the middle and eastern
United States. The acquisition is highly complimentary to the Eller operation,
whose geographic concentration is in the middle and western United States.
Additionally, in March of 1998 Clear Channel announced that it had
offered to purchase the stock of More Group Plc. More Group is based in London,
England, and has operations in 22 countries. These countries are located
primarily in Europe. We see this acquisition as a further step in our Company's
international expansion. Our acquisition of More Group will provide us with a
platform to continue to expand on a global basis. It also is an example of our
ability to invest our capital in ways that will augment Clear Channel's growth.
Further information on More Group can be found later in this Annual Report.
Another strategic outdoor acquisition completed during 1997 was our
purchase of the Union Pacific Railroad Company outdoor advertising display
license portfolio, which is comprised of approximately 4,000 licenses to operate
displays on railroad rights-of-way. The Company acquired the right to manage
this portfolio for the next twenty-five years. The agreement also calls for our
Company to develop and manage new displays along the railroad right-of-way,
which is concentrated in California, Illinois and Texas, during the next
twenty-five years.
During 1997, aside from the purchases mentioned above, our Company
completed numerous separate acquisitions of outdoor advertising displays in
eleven markets, including Los Angeles, Dallas, Chicago, Milwaukee, Houston,
Atlanta and San Antonio. These acquisitions enhance our Company's outdoor
advertising coverage in these important markets and further enable us to provide
superior service to our clients. They also create economies of scale and help us
to operate more efficiently and profitably in our served markets.
During the coming year we will continue to focus our attention on
finding innovative new ways to help our clients market their products and
services. We are confident about the growth prospects of our outdoor business.
Additionally, we will remain a consolidator of the industry to the extent that
we are able to make investments that meet our acquisition criteria.
Clear Channel Communications, Inc. o 1997 ANNUAL REPORT o 3
47
INTERNATIONAL
During the past twelve months Clear Channel has continued to extend its
strong position as a broadcaster both in Australia and New Zealand through its
subsidiaries, the Australian Radio Network and the New Zealand Radio Network.
Within both of these countries, consolidation continues to develop in much the
same way that it has in the United States.
1997 also marked the beginning of our Company's radio presence in
Eastern Europe. In May, Clear Channel acquired a fifty-percent interest in Radio
Bonton, a radio station serving the Czech Republic. The owner of the remaining
portion of this station is Bonton s.a., a large, diversified Czech media
company. We are hopeful that this single station will serve as an effective
foothold for further expansion in that region.
Finally, in December of this past year we were successful in drafting
preliminary agreements with Radio Shanghai, which operates thirteen radio
stations and one cable television station serving the Shanghai, China market.
The agreement calls for Clear Channel to assist in selling airtime on these
fourteen stations, which cover approximately fifty million Chinese citizens, and
also calls for sharing of certain training programs and programming content. We
are very pleased with this accord and see it as a platform for our Company's
continued growth in Asia.
Foremost in our minds in pursuing international opportunities is the
maintenance of a conservative and prudent approach toward evaluating the
possibilities for expansion. While we understand that emerging marketplaces hold
strong potential for advertising-based businesses, it is equally important to
proceed at a pace that ensures proper protection of those investments. We are
committed to the continued search for broadcasting and outdoor operations in
countries that enjoy stable currencies, attractive industry dynamics, rapid
growth of advertising expenditures, and sound political infrastructures.
CROSS-MEDIA SYNERGIES
During 1997 our Company renewed its attention to the area of maximizing
the value of owning multiple types of media outlets in a given market. The
benefits to our clients of being able to provide more than one conduit through
which to market their products and services are quite substantial. In addition,
our Company can often utilize capacity within those alternative media to more
effectively market its own services. For example, in the eleven markets where we
have broadcasting and outdoor operations (including all pending transactions),
we use vacant outdoor advertising space to effectively promote listenership or
viewership of our Company's broadcasting stations in that particular market. In
the eight markets where we have radio and television broadcasting operations, we
can utilize unsold airtime in both media to encourage individuals to watch our
television stations or listen to our radio stations. For this reason it is
important that we continue to establish these cross-media overlaps within
markets; we believe the long-term value they create can be significant.
CAPITAL MARKETS
During 1997, Clear Channel received an Investment Grade rating from
both Standard & Poor's Corporate Ratings and Moody's Investors Service on its
Senior Debt. This rating reflects the strength of our Company's balance sheet,
which Management has always felt to be a great asset. The investment grade
rating made it attractive for our Company to enter the public debt markets for
the first time.
In October, our Company raised approximately $300 million, pricing
thirty-year debentures at a coupon of 7.25%. In addition to this issuance of
public debt, Clear Channel refinanced its existing Revolving Credit Facility,
increasing the amount available under that line to $1.75 billion. Clear Channel
continues to have one of the lowest costs of capital of its peers, which we view
as a strategic advantage in our consolidating industries.
In addition, during 1997, our Company continued to improve on its
access to capital by issuing 20,737,426 new common shares which strengthened our
balance sheet and provided additional acquisition capacity, should proper
opportunities become available.
STRATEGIC DIRECTION
Our Company continues to be committed to its proven corporate strategy:
o Decentralized, flexible, entrepreneurial business units that place an
emphasis on simplifying structures and procedures,
o Sound centralized financial management,
o Growth through internal expansion of existing operations, supplemented
by strategic acquisitions,
o Internal capital investment to improve quality and market leadership,
o Insistence on adherence to the highest standards of integrity and
business conduct, and
o Significant attention to long-term strategic planning.
The growth of our core businesses is healthy, and the markets we serve
continue to be excellent environments in which to achieve our long-term goals.
Our position within these markets is, as it has been in the past, one of
leadership. To the over 5,500 members of our team who made 1997 possible, I
personally thank you. And to our shareholders, rest assured that we continue to
work hard to enhance the long-term value of your investment.
/s/ LOWRY MAYS
Lowry Mays
Chairman and CEO
March 9, 1998
4 o Clear Channel Communications, Inc. o 1997 ANNUAL REPORT
48
DOMESTIC
RADIO STATIONS
ALABAMA
Mobile
WKSJ FM
Country
WKSJ AM
Country
WMXC FM
Adult Contemporary
WRKH FM
Classic Rock
WDWG FM
Country
WNTM AM
News/Talk
WNSP FM (1)
Sports
ARKANSAS
Little Rock
KQAR FM
Contemporary Hits
KMJX FM
Classic Rock
KDDK FM
Country
KSSN FM
Country
KOLL FM
Oldies
CALIFORNIA
Monterey
KTOM AM
Country
KDON AM
Contemporary Hits
KOCN FM
Oldies
KDON FM
Contemporary Hits
KRQC FM
Classic Rock
KTOM FM
Country
CONNECTICUT
New Haven
WKCI FM
Contemporary Hits
WAVZ AM
Nostalgia
WELI AM
News/Talk
FLORIDA
Florida Keys
WAVK FM
Adult Contemporary
WKRY FM
Soft Adult Contemporary
WFKZ FM
Adult Contemporary
Ft. Myers/Naples
WCKT FM
Country
WQNU FM
Country
WKII AM
Nostalgia
WXRM FM
Soft Adult Contemporary
WOLZ FM
Oldies
Jacksonville
WZNZ AM
News
WNZS AM
Sports
WFSJ FM
Jazz
WROO FM
Country
WPLA FM
Rock
WBGB FM
Classic Rock
Miami/Ft. Lauderdale
WFTL AM
News
WINZ AM
News/Sports
WIOD AM
News/Talk
WPLL FM
Rock
WLVE FM
Jazz
WZTA FM
Rock
WHYI FM
Contemporary Hits
WBGG FM
Classic Rock
Orlando
WWNZ AM
News
WQTM AM
Sports
WSHE FM
Modern Rock
WJRR FM
Rock
WMGF FM
Adult Contemporary
WTKS FM
Talk
Panama City
WDIZ AM
Sports/Talk
WSHF FM
Adult Contemporary
WPBH FM
Oldies
WFSY FM
Adult Contemporary
WPAP FM
Country
Pensacola
WYCL FM (1)
Oldies
WTKX FM
Rock
Tallahassee
WNLS AM
News/Talk
WJZT FM
Jazz
WTNT FM
Country
WSNI FM
Oldies
WXSR FM
Modern Rock
Tampa/St. Petersburg
WILV FM
Adult Contemporary
WHNZ AM (1)(2)
News
WZTM AM
News
WSJT FM
Jazz
WHPT FM
Classic Rock
WSRR FM
Modern Adult Contemporary
WRBQ AM
Adult Urban Contemporary
WRBQ FM
Country
West Palm Beach
WBZT AM
News/Talk/Sports
WKGR FM
Classic Rock
WOLL FM
Oldies
KENTUCKY
Louisville
WHAS AM
News/Talk/Sports
WAMZ FM
Country
WHKW FM
Country
WTFX FM
Modern Rock
WWKY AM
News/Talk/Sports
WKJK AM
Adult Standards
WQMF FM
Classic Rock
LOUISIANA
New Orleans
WODT AM
Blues
WQUE FM
Urban Contemporary
WYLD AM
Gospel
WYLD FM
Urban Adult Contemporary
WNOE FM
Country
KKND FM
Alternative Rock
KUMX FM
Contemporary Hits
MASSACHUSETTS
Springfield
WHYN AM
News/Talk/Sports
WHYN FM
Adult Contemporary
MICHIGAN
Grand Rapids
WOOD AM
Talk
WOOD FM
Adult Contemporary
WBCT FM
Country
WTKG AM
News/Talk/Sports
WCUZ FM
Country
WVTI FM
Contemporary Hits
MISSISSIPPI
Jackson
WKXI AM
Solid Gold Urban Oldies
WKXI FM
Urban Contemporary
WOAD AM
Urban Contemporary
WJMI FM
Rhythm & Blues
NORTH CAROLINA
Greensboro
WXRA FM
Alternative Rock
WTQR FM
Country
WSJS AM
News/Talk
Raleigh
WQOK FM
Urban Contemporary
WNNL FM
Gospel
WDUR AM
Urban Oldies
WFXC FM
Urban Adult
WFXK FM
Urban Adult
NEW YORK
Albany
WQBK FM
Alternative Rock
WQBJ FM
Alternative Rock
WTMM AM
News/Talk
WXCR FM
Classic Rock
OHIO
Cleveland
WNCX FM
Classic Rock
WERE AM
News/Talk
WENZ FM
Alternative Rock
Dayton
WING FM
Classic Rock
WING AM
News/Talk/Sports
WGTZ FM
Contempory Hits
(1) Joint Sales Agreement or Local Marketing Agreement (2) Pending Acquisition
Clear Channel Communications, Inc. o 1997 ANNUAL REPORT o 5
49
OKLAHOMA
Oklahoma City
KTOK AM
News/Talk/Sports
KEBC AM
News/Talk/Spanish
KJYO FM
Contemporary Hits
WKY AM (1)
News/Talk
KTST FM
Country
KXXY FM
Country
KQSR FM
Soft Rock
Tulsa
KAKC AM
News/Sports/Oldies
KMOD FM Album
Oriented Rock
KQLL AM (1)(2)
Sports/Talk
KQLL FM (1)(2)
Oldies
KOAS FM (1)(2)
Smooth Jazz
KMRX FM
Modern Rock
PENNSYLVANIA
Allentown
WODE FM
Oldies
WEEX AM
Country
Lancaster
WLAN FM
Hot Adult Contemporary
WLAN AM
Big Band
Reading
WRAW AM
Middle of the Road
WRFY FM
Contemporary Hits
RHODE ISLAND
Providence
WWBB FM
Oldies
WWRX FM
Classic Rock
SOUTH CAROLINA
Columbia
WWDM FM
Urban Contemporary
WARQ FM
Alternative Rock
WMFX FM
Classic Rock
WOIC AM
Urban Gold
TENNESSEE
Cookeville
WHUB AM
Country
WPTN AM
News/Talk
WGIC FM
Adult Contemporary
WGSQ FM
Country
Memphis
WHRK FM
Urban Contemporary
WDIA AM
Adult Urban
WEGR FM
Classic Rock
WREC AM
News/Talk
WRXQ FM
Alternative Rock
KJMS FM
Urban Adult Contemporary
KWAM AM
Religious
TEXAS
Austin
KPEZ FM
Classic Rock
KHFI FM
Contemporary Hits
KEYI FM
Oldies
KFON AM
Sports
El Paso
KPRR FM
Contemporary Hits
KHEY FM
Country
KHEY AM
Oldies
Houston
KPRC AM
News/Talk/Sports
KSEV AM
News/Talk/Sports
KMJQ FM
Adult Urban Contemporary
KBXX FM
Urban Contemporary
KHYS FM (1)
Rhythmic CHR
KJOJ AM
Christian/Talk
KJOJ FM
Rhythmic CHR
San Antonio
WOAI AM
News/Talk/Sports
KQXT FM
Adult Contemporary
KTKR AM
News/Talk/Sports
KAJA FM
Country
KSJL FM (1)
Urban Adult Contemporary
VIRGINIA
Norfolk
WOWI FM
Urban Contemporary
WJCD FM
Smooth Jazz
WSVV FM
Adult Urban Contemporary
WSVY FM
Adult Urban Contemporary
Richmond
WRVA AM
News/Talk/Sports
WRNL AM
Sports
WRVQ FM
Contemporary Hits
WRXL FM
Album Oriented Rock
WTVR FM
Soft AC
WTVR AM
Nostalgia
WISCONSIN
Milwaukee
WKKV FM
Urban Contemporary
WMIL FM
Country
WOKY AM
Adult Standards
WZTR FM
Oldies
NETWORKS
ALABAMA
Birmingham
Alabama Radio Network
FLORIDA
Coral Gables
Clear Channel Sports
Gainesville
Clear Channel Sports
Maitland
Florida Radio Network
IOWA
Des Moines
Clear Channel Sports
KENTUCKY
Louisville
Kentucky News Network
OKLAHOMA
Oklahoma City
Oklahoma News Network
PENNSYLVANIA
State College
Clear Channel Sports
TENNESSEE
Nashville
Tennessee Radio Network
TEXAS
San Angelo
Voice of Southwest Agriculture
College Station
Clear Channel Sports
VIRGINIA
Richmond
Virginia News Network
(1) Joint Sales Agreement or Local Marketing Agreement (2) Pending Acquisition
6 o Clear Channel Communications, Inc. o 1997 ANNUAL REPORT
50
DOMESTIC
TELEVISION
ALABAMA
Mobile
WPMI
NBC TV15
WJTC
UPN TV44 (1)
ARIZONA
Tucson
KTTU
UPN TV18
ARKANSAS
Little Rock
KLRT
FOX TV16
KASN
UPN TV38 (1)
FLORIDA
Jacksonville
WAWS
FOX TV30
WTEV
UPN TV47 (1)
KANSAS
Wichita
KSAS
FOX TV24
MINNESOTA
Minneapolis
WFTC
FOX TV29
NEW YORK
Albany
WXXA
FOX TV23
OKLAHOMA
Tulsa
KOKI
FOX TV23
KTFO
UPN TV41 (1)
PENNSYLVANIA
Harrisburg/Lebanon/
Lancaster
WHP
CBS TV21
WLYH
UPN TV15 (1)
RHODE ISLAND
Providence
WPRI
CBS TV12
WNAC
FOX TV64 (1)
TENNESSEE
Memphis
WPTY
ABC TV24
WLMT
UPN TV30 (1)
OUTDOOR
ARIZONA
Phoenix
Bulletins
Tucson
Bulletins (2)
30 Sheet Posters (2)
CALIFORNIA
Los Angeles
Shelters
30 Sheet Posters
Bulletins
Wallscapes
Sacramento
Shelters
30 Sheet Posters
Bulletins
San Diego
Shelters
30 Sheet Posters
Bulletins
San Francisco
Shelters
8 Sheet Posters
30 Sheet Posters
Bulletins
Transits
Wallscapes
DELAWARE
Wilmington
8 Sheet Posters (2)
30 Sheet Posters (2)
Bulletins (2)
FLORIDA
Jacksonville
30 Sheet Posters (2)
Bulletins (2)
Miami
Shelters
Ocala/Gainesville
30 Sheet Posters (2)
Bulletins (2)
Orlando
Bulletins
30 Sheet Posters (2)
Tampa
Shelters
30 Sheet Posters
Bulletins
GEORGIA
Atlanta
8 Sheet Posters
30 Sheet Posters
Bulletins
ILLINOIS
Chicago
8 Sheet Posters (2)
30 Sheet Posters (2)
Bulletins
Transits (2)
Wallscapes (2)
INDIANA
Indianapolis
8 Sheet Posters (2)
30 Sheet Posters (2)
Bulletins (2)
Transit (2)
IOWA
Des Moines
8 Sheet Posters (2)
30 Sheet Posters (2)
Bulletins (2)
MARYLAND
Baltimore
Shelters (2)
30 Sheet Posters (2)
Bulletins (2)
Transits (2)
Salisbury
30 Sheet Posters (2)
Bulletins (2)
MINNESOTA
Minneapolis
30 Sheet Posters (2)
Bulletins (2)
NEW YORK
New York
8 Sheet Posters (2)
30 Sheet Posters (2)
Bulletins (2)
OHIO
Akron/Canton
30 Sheet Posters
Bulletins
Cleveland
30 Sheet Posters
Bulletins
Wallscapes
PENNSYLVANIA
Philadelphia
Shelters (2)
30 Sheet Posters (2)
Bulletins (2)
SOUTH CAROLINA
Myrtle Beach
30 Sheet Posters (2)
Bulletins (2)
TENNESSEE
Chatanooga
30 Sheet Posters (2)
Bulletins (2)
Memphis
Shelters (2)
8 Sheet Posters (2)
30 Sheet Posters (2)
Bulletins (2)
TEXAS
Dallas
8 Sheet Posters (2)
30 Sheet Posters (2)
Bulletins
El Paso
8 Sheet Posters
30 Sheet Posters
Bulletins
Houston
8 Sheet Posters
30 Sheet Posters
Bulletins
San Antonio
8 Sheet Posters
30 Sheet Posters
Bulletins
WISCONSIN
Milwaukee
8 Sheet Posters (2)
30 Sheet Posters
Bulletins
ATLANTIC COAST
Bulletins (2)
GULF COAST
Bulletins (2)
WASHINGTON D.C.
30 Sheet Posters (2)
Bulletins (2)
MALL MEDIA
250 throughout
United States
(1) Joint Sales Agreement or Local Marketing Agreement (2) Pending Acquisition
Clear Channel Communications, Inc. o 1997 ANNUAL REPORT o 7
51
INVESTMENT HIGHLIGHTS
[TEN YEAR CUMULATIVE RETURN]
[PERFORMANCE GRAPH]
8 o Clear Channel Communications, Inc. o 1997 ANNUAL REPORT
52
PRO FORMA DOMESTIC
REVENUE BY MARKET
[WORLD]
Clear Channel Communications, Inc. o 1997 ANNUAL REPORT o 9
53
DOMESTIC OPERATIONS
[MAP OF THE UNITED STATES]
10 o Clear Channel Communications, Inc. o 1997 ANNUAL REPORT
[PICTURE OF AUSTRALIA]
AUSTRALIAN RADIO NETWORK
2WS FM
Sydney, NSW
Hits and Memories
101.7 MHz
MIX106 FM
Sydney, NSW
Soft Adult Contemporary
106.5 MHz
ONE FM
Western Sydney, NSW
Adult Contemporary
101.1 MHz
GOLD104 FM
Melbourne, Victoria
Gold
104.3 MHz
TTFM FM
Melbourne, Victoria
Hot Adult Contemporary
101.1 MHz
4KQ AM
Brisbane, Queensland
Adult Contemporary
693 KHz
4BH AM
Brisbane, Queensland
Soft Adult Contemporary
882 KHz
106.3 FM
Canberra
Adult Contemporary
106.3 MHz
5AD FM
Adelaide, SA
Adult Contemporary
105.3 MHz
5DN AM
Adelaide, SA
News/Talk
1323 KHz
[PICTURE OF NEW ZEALAND]
RADIO NEW ZEALAND NETWORK
COMMUNITY RADIO
Radio Waitomo
Te Kuiti
1170AM
Radio Forestland
Tokoroa
1413AM
King Country Radio
Taumarunui
1512AM
Lakeland FM
Taupo
96.7FM
Gisborne's
2ZG 945AM
Hawera's 2ZH 1557AM
River City FM
Wanganui
89.6FM
Radio Wairarapa
Masterton
846AM
Radio Marlborough
Blenheim
97FM, 1539AM & 1584AM
Radio Scenicland
Greymouth
90.5FM,
Greymouth 93.1 & 91.1FM
Reefton 97.3FM
Westport 90.9FM
Buller 1287AM
South Westland
Ashburton's
3ZE 92.5FM & 873AM
Radio Waitaki
Oamaru
1395AM
CLASSIC HITS FM
97FM
Auckland
90FM
Wellington
98FM
Christchurch
1026AM
Radio Northland
98.6FM
Hamilton's ZHFM
95BOP FM
Bay of Plenty
97FM
Rotorua
89FM
Bay City Radio, Hawkes Bay
90FM
Taranaki
97.8FM
Manawatu
90FM
Nelson
99FM
Timaru
89FM
Dunedin
98.8FM
Invercargill's ZAFM
ZM & CLASSIC ROCK
91ZM
Wellington 90.9 & 93.5FM
91ZM
Christchurch 91.3FM
93ZM
Whangarei 93.1FM
96ZM
Dunedin 95.8FM
98.3FM
Rotoru
Classic Rock
96FM Napier
Classic Rock
Q91FM 90.6
NEWSTALK ZB
Auckland
1080AM & 89.4FM
Wellington
1035AM
Christchurch
1098AM
Waikato
1296AM
Bay of Plenty
1008AM
Hawkes Bay
1278AM
Taranaki
1053AM & 1557AM
Manawatu
927AM
Dunedin
1044AM
Southland
864AM
Clear Channel Communications, Inc. o 1997 ANNUAL REPORT o 11
54
MORE GROUP PLC
[GEOGRAPHIC REVENUE DISTRIBUTION - 1997 CHART]
[PRODUCT LINE REVENUE DISTRIBUTION - 1997 CHART]
On March 5, 1998, Clear Channel Communications, Inc., announced that it
had reached an agreement with the board of More Group Plc regarding the terms of
a recommended cash offer to acquire all of the issued shares of More Group. The
offer values each More Group share at (pound)10.30.
More Group is one of the world's leading outdoor advertising companies.
It employs more than 1,000 people in 22 countries and operates over 90,000 fixed
advertising panels worldwide. Although the majority of its assets are located in
Europe, the Company also has operations in the United States, Asia, and
Australia. The company operates a number of brands - Adshel (50,000 street
furniture panels), More O'Ferrall, Superboards and WW (40,000 billboards) and
More Trans (Transport contracts).
From an established, market-leading base in the UK and Ireland, More
has developed organically and by acquisition to become one of the world's
leading outdoor advertising companies. In addition to developing its market
shares through innovative product engineering, More has been at the forefront of
consolidation activity in Europe and Asia. It has now established strong market
share throughout the world and is well placed to secure further street furniture
and transport tenders in its domestic market and internationally.
[CHART]
12 o Clear Channel Communications, Inc. o 1997 ANNUAL REPORT
55
CORPORATE
OFFICERS
CORPORATE
Lowry Mays
Chairman
Chief Executive Officer
Mark P. Mays
President
Chief Operating Officer
Randall Mays
Executive Vice President
Chief Financial Officer
Kathryn Johnson
Vice President
Communications
Herbert W. Hill, Jr.
Senior Vice President
Chief Accounting Officer
David Wilson
Vice President
Controller
Kenneth E. Wyker
Senior Vice President for
Legal Affairs
Demetra Koelling
Vice President
Corporate Counsel
Rick Wolf
Vice President
Corporate Counsel
Houston Lane
Vice President
Finance
Ida Chycinski
Vice President
Cash Management
Deborah Williams
Vice President
Corporate Taxation
Dr. Ed Cohen
Vice President
Research
Susan Ross
Director of
Corporate Reporting
RADIO
James Smith
Senior Vice President
Operations & Capital
Management
George L. Sosson
Senior Vice President
Operations-East
Stan Webb
Senior Vice President
Operations-Central
Peter Ferrara
Senior Vice President
Operations-Florida
Radio
Vice Presidents
David Arcara, Albany
Jeff Frank, Allentown
Judy Lakin, Austin
Walt Tiburski, Cleveland
Steve Patterson, Columbia
Dave Thomas, Cookeville
David Macejko, Dayton
Bill Struck, El Paso
Jim Keating, Ft. Myers
Skip Essick, Grand Rapids
Howard Nemenz,
Greensboro
Carl Hamilton, Houston
Ernest Jackson, Houston
Dan Patrick, Houston
Kevin Webb, Jackson
Linda Byrd, Jacksonville
Joel Day, Florida Keys
Mike Shannon,
Lancaster/Reading Richard D. Booth,
Little Rock
Bob Scherer, Louisville
Mark Thomas, Louisville
Bruce Demps, Memphis
Sherri Sawyer, Memphis
David Ross, Miami
Ronna Woulfe, Miami
Terry Wood, Milwaukee
David Coppock, Mobile
Miles Chandler, Montery
Faith Zila, New Haven
Earnest James,
New Orleans
Janet Armstead, Norfolk
John Moen, Oklahoma City
Jenny Sue Rhoades,
Orlando
Jimmy Vineyard,
Panama City
Jeanie Hufford, Pensacola
Matt Chase, Providence
Wayne Jefferson, Raleigh
Carl McNeill, Richmond
Linda Forem, Richmond
Reggie Jordan, Richmond
Robert T. Cohen,
San Antonio
Elizabeth D. Kocurek,
San Antonio
Gary James, Springfield
David Manning, Tallahassee
Skip Schmidt, Tampa
Kevin Malone, Tampa
Allen McLaughlin, Tulsa
David D'Eugenio,
West Palm Beach
RADIO NETWORKS
VICE PRESIDENTS
Rick Green,
Clear Channel News Networks
Kevin Moore,
Clear Channel Sports Networks
OUTDOOR
ELLER MEDIA COMPANY
Karl Eller, Chairman & CEO
Scott Eller, President
Tim Donmoyer,
CFO/Exec. VP
DIVISION PRESIDENTS
John Jacobs, Atlanta
Ken Blakey, Chicago
Bill Platko, Cleveland
Gene Leehan, Dallas
S. Doak Hoover, El Paso
Michelle Costa, Houston
Paul Sara, Milwaukee
Dennis Wazaney, New York
Bill Hooper,
Northern California
Bruce Seidel,
Orange County
Manny Molina, Phoenix
Dan Creel, San Antonio
Ignacio Ayala,
South Florida
George Manyak,
Southern California
S. Wayne Mock, Tampa Bay
TELEVISION
Rip Riordan
Executive Vice President/
Chief Operating Officer
TELEVISION
VICE PRESIDENTS
David M. D'Antuono,
Albany
John F. Feeser, III,
Harrisburg
Josh McGraw, Jacksonville
Chuck Spohn, Little Rock
Jack L. Peck, Memphis
Steve Spendlove,
Minneapolis
Sharon Moloney, Mobile
Deborah J. Sinay,
Providence
Jack Jacobson, Tuscon
Hal Capron, Tulsa
Randy Pratt, Wichita
INTERNATIONAL
Richard D. Novik
President
Mary Ann Chapman
Vice President Business Development - China
AUSTRALIA
John Hamilton
Chief Financial Officer
NEW ZEALAND
Stephen Barron
Chief Executive
BOARD OF DIRECTORS
Lowry Mays
Chairman
Chief Executive Officer
Alan D. Feld
Partner: Akin, Gump, Strauss, Hauer and Feld
Red McCombs
Private Investor
Theodore H. Strauss*
Senior Managing Director: Bear, Stearns & Co., Inc.
John H. Williams*
Senior Vice President: Everen Securities, Inc.
Karl Eller
Chairman & CEO: Eller Media Company
FORM 10-K
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission may be obtained without charge upon written request to:
Herbert W. Hill, Jr. Senior Vice President Clear Channel Communications, Inc.
P.O. Box 659512 San Antonio, Texas 78265-9512
INDEPENDENT
AUDITORS
Ernst & Young, LLP
San Antonio, Texas
TRANSFER AGENT AND REGISTRAR
Bank of New York
101 Barclay Street
12 Floor West
New York, NY 10286
ANNUAL
MEETING OF
SHAREHOLDERS
The annual meeting of shareholders will be held at 200 Concord Plaza on the 1st
floor in the Conference Room, San Antonio, Texas, at 11:00 am CDT on Tuesday,
May 5, 1998
56
[LOGO]
CLEAR CHANNEL COMMUNICATIONS, INC.
[MAP]
MAILING ADDRESS
P.O. BOX 659512
SAN ANTONIO, TEXAS
78265-9512
CORPORATE ADDRESS
200 CONCORD PLAZA
SUITE 600
SAN ANTONIO, TEXAS
78216-6940
210.822.2828
FACSIMILE 210.822.2299
WORLD WIDE WEB ADDRESS
WWW.CLEARCHANNEL.COM
57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF 1997 VS. 1996
CONSOLIDATED
Consolidated net revenue in 1997 increased 98% to $697.1 million from
$351.7 million. Operating expenses increased 99% to $394.4 million, compared to
$198.3 million for 1996. Operating income before depreciation and amortization
in 1997 increased to $302.7 million from $153.4 million, or 97%. Depreciation
and amortization increased 149% to $114.2 million from $45.8 million. Interest
expense increased to $75.1 million from $30.1 million, or 150%. Other income
(expense) -- net increased to $11.6 million from $2.2 million. Net income was
$63.6 million for 1997, compared to $37.7 million in 1996. The corresponding
earnings per common share-diluted was $.67 and $.51 for 1997 and 1996,
respectively. Income tax expense (based on income before equity in earnings
(loss) of nonconsolidated affiliates) in 1997 was $47.1 million, reflecting an
annual average effective tax rate of 45%, compared to $28.4 million, or a 40%
effective rate in 1996. Equity in earnings (loss) of nonconsolidated affiliates
increased to $6.6 million in 1997 from $(5.2) million in 1996.
The predominant reasons for the increase in net revenue and operating
expenses are two fold: first, the revenue and expenses associated with the
operations of Eller Media Corporation (Eller), an outdoor media company acquired
in April of 1997. This new outdoor segment, including subsequent acquisitions
and license management agreements of approximately 7,000 display faces,
contributed 30% of the Company's revenue and 27% of the Company's operating
expenses during 1997. Second, net revenue and operating expense increased from
radio stations and networks acquired during 1997 and a full year of operations
for those radio and television stations acquired during 1996. Station and
network acquisitions are as follows:
[Download Table]
ACQUIRED BEGAN
LICENSE(1) OPERATIONS(2) STATION OR NETWORK LOCATION
---------- ------------- ------------------ --------
11/97 11/97 KQSY-FM (now KMRX-FM) Tulsa, OK
10/97 10/97 KMVK-FM (now KDDK-FM),
KSSN-FM and KOLL-FM Little Rock, AR
10/97 10/97 Penn State Sports Network State College, PA
10/97 10/97 Miami Hurricane Sports Network Coral Gables, FL
10/97 10/97 Florida Gators Sports Network Gainesville, FL
10/97 10/97 Tennessee Radio Network Nashville, TN
10/97 10/97 Florida Radio Network Maitland, FL
10/97 10/97 Alabama Radio Network Birmingham, AL
10/97 10/97 WZTR-FM Milwaukee, WI
12/97 10/97 Paxson Radio (Paxson)
WHUB-AM, WPTN-AM,
WGIC-FM and WGSQ-FM Cookeville, TN
WAVK-FM, WKRY-FM and WFKZ-FM Florida Keys, FL
WZNZ-AM, WNZS-AM, WFSJ-FM
WROO-FM, WPLA-FM and WTLK-FM Jacksonville, FL
WFTL-AM, WINZ-AM, WIOD-AM
WPLL-FM, WLVE-FM and WZTA-FM Miami, FL
WTKX-FM Pensacola, FL
WWNZ-AM, WQTM-AM, WSHE-FM
WJRR-FM, WMGF-FM and WTKS-FM Orlando, FL
WDIZ-AM, WSHF-FM, WPBH-FM,
58
[Download Table]
ACQUIRED BEGAN
LICENSE(1) OPERATIONS(2) STATION OR NETWORK LOCATION
---------- ------------- ------------------ --------
WFSY-FM and WPAP-FM Panama City, FL
WNLS-AM, WJZT-FM, WTNT-FM
WSNI-FM and WXSR-FM Tallahassee, FL
WKES-FM (now WILV-FM),
WZTM-AM, WSJT-FM and WHPT-FM Tampa, FL
WBZT-AM, WKGR-FM
and WOLL-FM West Palm Beach, FL
10/97 WYCL-FM Pensacola, FL
10/97 WHNZ-AM Tampa/St. Petersburg, FL
9/97 9/97 WDUR-AM, WFXC-FM
and WFXK-FM Raleigh, NC
9/97 KTOM-AM/FM, KDON-AM/FM,
KOCN-FM and KRQC-FM Monterey, CA
8/97 8/97 WMFX-FM, WOIC-AM Columbia, SC
4/97 4/97 WKII-AM, WOLZ-FM
and WFSN-FM (now WXRM-FM) Fort Myers, FL
3/97 3/97 WMIL-FM and WOKY-AM Milwaukee, WI
2/97 2/97 KHOM-FM (now KUMX-FM) New Orleans, LA
2/97 2/97 WAKX-FM (now WVTI-FM) Grand Rapids, MI
1/97 1/97 WQMF-FM and WHKW-FM Louisville, KY
12/96 12/96 Radio Equity Partners, LP (REP)
WRXQ-FM, WEGR-FM, WREC-AM Memphis, TN
WWBB-FM and WWRX-FM Providence, RI
12/96 12/96 KJMS-FM and KWAM-AM Memphis, TN
10/96 10/96 WHKW-AM (now WKJK-AM),
WWKY-AM and WTFX-FM Louisville, KY
8/97 10/96 WLAN-AM/FM Lancaster, PA
8/96 8/96 Radio Equity Partners, LP (REP)
WARQ-FM, WWDM-FM Columbia, SC
WXRM-FM (now WQNU-FM)
and WCKT-FM Ft. Myers/Naples, FL
WSJS-AM, WTQR-FM, WXRA-FM Greensboro, NC
WNOE-FM, KLJZ-FM (now KKND-FM) New Orleans, LA
WHYN-AM/FM Springfield, MA
KXXY-AM (now KEBC-AM),
KXXY-FM and KTST-FM Oklahoma City, OK
3/97 8/96 Radio Enterprises, Inc.(3)
WQBJ-FM, WXCR-FM,
WQBK-AM (now WTMM-AM),
and WQBK-FM Albany, NY
7/96 7/96 WPRI-TV Providence, RI
7/96 WNAC-TV Providence, RI
6/96 6/96 WTVR-AM/FM Richmond, VA
1/97 5/96 WZZU-FM (now WNNL-FM) Raleigh, NC
2/97 5/96 KJOJ-AM Houston, TX
5/96 5/96 US Radio, Inc. (USR)
KHEY-AM/FM and KPRR-FM El Paso, TX
KJOJ-FM Houston, TX
KMJX-FM, KDDK-FM (now KQAR-FM) Little Rock, AR
WHRK-FM and WDIA-AM Memphis, TN
WKKV-FM Milwaukee, WI
59
[Download Table]
ACQUIRED BEGAN
LICENSE(1) OPERATIONS(2) STATION OR NETWORK LOCATION
---------- ------------- ------------------ --------
WJCD-FM and WOWI-FM Norfolk, VA
WQOK-FM Raleigh, NC
WRAW-AM, WRFY-FM Reading, PA
10/96 5/96 WSVY-FM Norfolk, VA
10/96 5/96 WCUZ-AM (now WTKG-AM)
and WCUZ-FM Grand Rapids, MI
11/96 5/96 WMYK-FM (now WSVV-FM) Norfolk, VA
5/96 KQLL-AM/FM and KOAS-FM Tulsa, OK
2/96 2/96 WOOD-AM/FM, WBCT-FM Grand Rapids, MI
10/95 10/95 Voice of Southwest Agriculture
Radio Network San Angelo, TX
10/95 10/95 WHP-TV Harrisburg, PA
10/95 WLYH-TV Harrisburg, PA
7/95 WKY-AM Oklahoma City, OK
6/95 WTEV-TV Jacksonville, FL
1/95 1/95 KMJQ-FM Houston, TX
1/95 1/95 KPRC-AM and KSEV-AM(3) Houston, TX
5/96 11/94 WENZ-FM Cleveland, OH
8/96 3/93 KEYI-FM and KFON-AM Austin, TX
---------------
(1) Represents the date in which the Company consummated the purchase of the
FCC license.
(2) Represents the date from which the results of the stations operations are
included with the results of the Company. This date may precede the
acquisition date as a result of the Company executing a local marketing
agreement (LMA) or joint sales agreement (JSA) as broker for the station.
(3) The Company acquired an 80% interest in these stations.
The tangible and intangible assets acquired through the purchases of Eller
and the above mentioned stations and networks account for the majority of the
increase in depreciation and amortization for 1997. Interest expense increased
as a result of greater average borrowing levels and higher average borrowing
rates, 6.3% in 1996 to 6.6% in 1997. Other income increased primarily as a
result of a $6.2 million gain from the sale of 350,000 shares of common stock in
Heftel Broadcasting. Income tax expense rose due to the increase in taxable
earnings as well as an increase in the average effective tax rate from 40% in
1996 to 45% in 1997. The effective tax rate increased as a result of the
increase in nondeductible amortization expense principally associated with the
acquisition of Eller.
Equity in earnings (loss) of nonconsolidated affiliates increased in 1997
primarily as a result of the solid financial performance by Heftel. An
additional increase resulted from the purchase of a 30% interest in American
Tower Corporation, the leading independent domestic owner and operator of
wireless communication towers. These increases were partially offset by an
eroding currency valuation in Australia and New Zealand. Equity in earnings
(loss) of nonconsolidated affiliates is included in the results of operations
for the Company's radio segment.
RADIO
Net revenue in 1997 increased 53% to $332.6 million from $217.2 million.
Operating expenses increased 59% to $201.2 million, compared to $126.6 million
for 1996. Operating income before depreciation and amortization in 1997
increased to $131.4 million from $90.6 million, or 45%. Depreciation and
amortization increased 74% to $48.5 million from $27.8 million in 1996.
Operating income increased 32% to $82.9 million in 1997 from $62.8 million in
1996.
60
The majority of the increase in net revenue, operating expenses and
depreciation and amortization was due to the aforementioned radio and network
acquisitions. At December 31, 1997, the radio segment included 156 stations for
which the Company owned the Federal Communications Commission (FCC) license and
17 stations programmed under local marketing or time brokerage agreements. These
173 radio stations operate in 40 different markets.
TELEVISION
Net revenue in 1997 increased 17% to $157.1 million from $134.6 million.
Operating expenses in 1997 increased 19% to $85.1 million compared to $71.7
million for 1996. Operating income before depreciation and amortization in 1997
increased to $71.9 million from $62.8 million, or 14%. Depreciation and
amortization decreased .6% to $17.9 million from $18.0 million. Operating income
increased 21% to $54.0 million in 1997 from $44.8 million in 1996.
The increase in net revenue was primarily due to a full year of operations
for the aforementioned television acquisitions that occurred in July of 1996 and
from improved ratings at several of the television stations. Operating expenses
rose predominately due to the inclusion of a full year of operations for the
aforementioned television station acquisitions and the increase in selling
expenses related to the increase in revenue. At December 31, 1997, the
television segment included 11 television stations for which the Company owned
the FCC license and seven stations for which the Company programmed under time
sales or time brokerage agreements. These 18 television stations operate in 11
different markets.
OUTDOOR
Net revenue and operating expenses in 1997 was $207.4 million and $108.1
million, respectively. Operating income before depreciation and amortization in
1997 was $99.3 million. Depreciation and amortization was $47.8 million
resulting in operating income of $51.5 million in 1997.
Assuming the acquisition of Eller was effective at the beginning of 1996,
pro forma net revenue in 1997 would have increased 11% to $264.1 million from
1996 pro forma of $237.0 million. Pro forma operating expenses in 1997 increased
.1% to $141.9 million compared to $141.8 million for 1996 pro forma. Pro forma
operating income before depreciation and amortization in 1997 increased to
$122.2 million from $95.2 million, or 28%. Pro forma depreciation and
amortization increased .2% to $64.3 million from $64.2 million. Pro forma
operating income increased 86% to $57.8 million in 1997 from $31.0 million in
1996.
Pro forma revenue increased primarily due to improved occupancy and
increased rates for usage of display faces. This also resulted in the increased
pro forma operating income before depreciation and amortization and pro forma
operating income. At December 31, 1997, the outdoor segment operated 57,660
display faces in 17 different markets.
COMPARISON OF 1996 VS. 1995
CONSOLIDATED
Consolidated net revenue in 1996 increased 41% to $351.7 million from
$250.1 million. Operating expenses in 1996 increased 44% to $198.3 million,
compared to $137.5 million for 1995. Operating income before depreciation and
amortization in 1996 increased to $153.4 million from $112.6 million, or 36%.
Depreciation and amortization increased 36% to $45.8 million from $33.8 million.
Interest expense increased to $30.1 million from $20.8 million, or 45%. Other
income (expense) increased from $(.8) million to $2.2 million. Net income was
$37.7 million for 1996, compared to $32.0 million in 1995. Income tax expense
(based on income before equity in net income/loss of, and other income from,
nonconsolidated affiliates) in 1996 was $28.4 million, reflecting an annual
average effective tax rate of 40%, compared to $20.3 million, or a 41% effective
rate in 1995. Equity in net income (loss) of, and other income from,
nonconsolidated affiliates decreased to $(5.2) million in 1996 from $2.5 million
in 1995.
61
The majority of the increase in net revenue was due to the additional
revenue associated with the radio and television stations acquired in 1996 and
the inclusion of a full year of operations for those stations acquired in 1995.
These stations are listed in the aforementioned table.
Operating expenses rose due to the increase in selling expenses associated
with this revenue increase and the additional operating expenses associated with
the above acquisitions. The major cause of the increase in depreciation and
amortization was the acquisition of the tangible and intangible assets
associated with the purchases of the above mentioned stations. The majority of
the increase in interest expense was due to an increase in the average amount of
debt outstanding which was partially offset by a decrease in the average
interest rate from 6.8% in 1995 to 6.3% in 1996. Income tax expense increased
because of the increase in earnings.
The equity in net income (loss) of, and other income from, nonconsolidated
affiliates resulted from: one, the Company's purchase in May 1995 of a 50%
interest in the Australian Radio Network Pty. Ltd. (ARN), which owns and
operates radio stations and a radio representation company in Australia; two,
the purchase in May 1995 of 21.4%, and the purchase in August 1996 of an
additional 41.8%, of the outstanding common stock of Heftel Broadcasting
Corporation (Heftel), a publicly-traded Spanish-language radio broadcaster in
the United States; and three, the purchase in July 1996 of a 33.33% (one-third)
interest in the New Zealand Radio Network (NZRN), which owns and operates 52
radio stations in New Zealand. The majority of the decrease in equity in net
income (loss) of, and other income from, nonconsolidated affiliates was due to
the Company's equity interest in certain employment contract payments, severance
costs, and other write-offs totaling $44.7 million related to Heftel's
reorganization. All of these equity investments are included in results of
operations for the Company's radio segment.
RADIO
Net revenue in 1996 increased 51% to $217.2 million from $144.2 million.
Operating expenses increased 45% to $126.6 million, compared to $87.5 million
for 1995. Operating income before depreciation and amortization in 1996
increased to $90.6 million from $56.7 million, or 60%. Depreciation and
amortization increased 39% to $27.8 million from $20 million. Operating income
increased 71% to $62.8 million in 1996 from $36.7 million in 1995.
The majority of the increase in net revenue, operating expenses and
depreciation and amortization was due to the aforementioned radio and network
acquisitions. At December 31, 1996, the radio segment included 91 stations for
which the Company owned the FCC license and 15 stations programmed under local
marketing or time brokerage agreements, all of which operated in 26 different
markets.
With the passage of the Telecommunications Act (the Act) in February 1996,
the limit on the maximum number of licenses that one company may own in the
United States was eliminated, and the limit on the number of licenses that one
company may own in any given market was changed. This limit depends on the size
of the market; in the largest markets, for example, one company may not own more
than eight licenses total, with no more than five licenses of one service (AM or
FM). This allows the Company significant flexibility in future growth in its
radio broadcasting operations.
TELEVISION
Net revenue in 1996 increased 27% to $134.6 million from $105.8 million.
Operating expenses in 1996 increased 43% to $71.7 million compared to $50.0
million for 1995. Operating income before depreciation and amortization in 1996
increased to $62.8 million from $55.8 million, or 13%. Depreciation and
amortization increased 31% to $18.0 million from $13.8 million. Operating income
increased 7% to $44.8 million in 1996 from $42.1 million in 1995.
The majority of the increase in net revenue was due to the inclusion of the
aforementioned television acquisitions in 1996 and 1995. Operating expenses rose
due to the increase in selling expenses associated with these revenue increases,
the inclusion of the aforementioned television acquisitions in 1996 and 1995,
and the start-up costs of the news departments at four television stations.
62
The major cause of the increase in depreciation and amortization was the
acquisition of tangible and intangible assets associated with the purchase of
the aforementioned television stations. At December 31, 1996, the television
segment included eleven television stations for which the Company owned the FCC
license and seven stations, which the Company programmed under time sales or
time brokerage agreements, all of which operated in eleven different markets.
With passage of the Act in February 1996, the restrictions on ownership of
television stations include a national ownership limit of stations that reach no
more than 35% of the total United States television audience and the limit of
one license per market for any one broadcaster. This allows the Company greater
opportunity to expand into additional markets in television broadcasting.
LIQUIDITY AND CAPITAL RESOURCES
The major sources of capital for the Company have been cash flow from
operations, advances on its revolving long-term line of credit facility (the
Credit Facility), other borrowings, and funds provided by the initial stock
offering in 1984 and subsequent stock offerings in July 1991, October 1993, June
1996, May 1997 and September 1997. Historically, cash flow has exceeded earnings
by a significant amount due to high amortization and depreciation expense.
Effective April 10, 1997, the Company refinanced the Credit Facility,
increasing the borrowing limit to $1.75 billion. The Credit Facility converts
into a reducing revolving line of credit on the last business day of September
2000, with quarterly repayment of the outstanding principal balance to begin the
last business day of September 2000 and continue during the subsequent five year
period, with the entire balance to be repaid by the last business day of June
2005.
On September 9, 1997, the Company filed a shelf registration statement on
Form S-3 covering a combined $1.5 billion of debt securities, junior
subordinated debt securities, preferred stock, common stock, warrants, stock
purchase contracts and stock purchase units (the shelf registration statement).
The shelf registration statement also covers preferred securities which may be
issued from time to time by the Company's three Delaware statutory business
trusts and guarantees of such preferred securities by the Company.
On October 9, 1997 the Company completed an offering of $300 million, 7.25%
debentures due October 15, 2027 resulting in net proceeds to the Company of
$294.3 million. Interest on the debentures is payable semiannually on each April
15 and October 15, beginning April 15, 1998. The Company, at its option, may at
any time redeem all or any portion of the debentures at a redemption price equal
to 100% of the principal amount, or the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted to the
date of redemption on a semiannual basis at the applicable Treasury Yield plus
25 basis points, plus accrued interest to the date of redemption, whichever is
greater.
On May 14, 1997, the Company completed an offering of 6,093,790 shares of
Common Stock. On September 12, 1997, the Company completed an offering of
8,000,000 shares of Common Stock. The net proceeds to the Company were
approximately $288.4 million and $503.3 million, respectively.
During 1997, the Company used the Credit Facility and cash flow from
operations to purchase broadcasting assets (radio stations) totaling $784.2
million, outdoor assets (display faces and license management agreements)
totaling $490.3 million and equity interest in American Tower Corporation for
$32.5 million. In addition to these acquisitions, the Company loaned $35.4
million to third parties in order to facilitate the purchase of certain
broadcast assets and refinanced $417 million of long-term debt assumed as a part
of the acquisition of Eller. Advances on the Credit Facility totaled $1,695.4
million. The Company made principal payments on the Credit Facility totaling
$1,197.3 million, including $748.0 million, which represents a portion of the
proceeds from the Company's stock offerings in May 1997 and September 1997, and
$292.7 million, which represents a portion of the proceeds from the Company's
debt offering in October 1997.
Through mid-February of 1998, the Company purchased the broadcasting assets
of certain radio stations in Mobile, AL, Monterey, CA, Allentown, PA and in
Jackson, MS for approximately $24.0 million, $23.2 million, $29.0 million, and
$20.0 million, respectively. The Credit Facility and cash flow from operations
63
provided funding. After giving effect to the above-mentioned transactions and
other borrowings of $16.8 million, the Company had $1,328.2 million outstanding
under the Credit Facility, with $384.5 million available for future borrowings.
Interest rates on most of the borrowings adjust every 30 days. Based on the
$1,215.2 million outstanding debt under the Credit Facility at December 31,
1997, a 1% increase in interest rates would result in a net after tax charge to
the Company's earnings of approximately $7.5 million. In addition, other notes
payable amounting to $38.5 million were outstanding at December 31, 1997. The
Company also had $24.7 million in unrestricted cash and cash equivalents at
December 31, 1997.
The Company expects that cash flow from operations in 1998 will be
sufficient to make all required interest and principal payments on long-term
debt.
On October 23, 1997 the Company entered into a definitive agreement to
merge with Universal Outdoor Holdings, Inc., (Universal) an international
corporation with over 34,000 display faces in 23 markets. The merger, which is
subject to certain closing conditions and regulatory approvals, is structured as
an exchange of stock; each share of Universal common stock will be exchanged for
.67 shares of the Company's stock. On February 6, 1998, the Universal common
stock shareholders voted to approve the adoption of the agreement and plan of
merger between Universal and the Company. Upon consummation of this merger, the
Company will issue approximately 19.3 million shares of its common stock and
assume approximately $566 million in long-term debt. The Company intends to
account for this merger as a purchase transaction and expects to consummate this
merger during the first half of 1998.
On March 5, 1998 the Company announced an agreement with the Board of
Directors of More Group Plc (More Group), an outdoor advertising company based
in the United Kingdom, regarding the terms of a recommended cash offer to
acquire all of the issued shares of More Group. The offer values each More Group
share at L10.30 or approximately $17.00. The total value of this transaction
will be approximately $735.7 million. This transaction is subject to certain
regulatory approvals and other closing conditions. If these conditions are met,
this transaction is expected to close during 1998. The Company intends to fund
this transaction through the Credit Facility and additional funds generated from
either equity and/or debt offerings.
CAPITAL EXPENDITURES AND PROGRAM COMMITMENTS
Capital expenditures in 1997 increased 57% to $31.0 million from $19.7
million in 1996. The majority of the increase was attributable to the purchase
of display structures in the outdoor segment.
Capital expenditures made during 1997 were as follows:
[Enlarge/Download Table]
RADIO TELEVISION(1) OUTDOOR
----- ------------- -------
IN MILLIONS OF DOLLARS
Land and buildings.......................................... $4.6 $2.5 $ 1.7
Broadcasting and other equipment............................ $4.4 $4.5 --
Display structures and other equipment...................... -- -- $13.3
---- ---- -----
$9.0 $7.0 $15.0
---------------
(1) Capital expenditures related to the conversion to digital television are
expected to begin in the last quarter of 1998 and to be completed by the end
of 2002.
The Company's television stations and sports networks have entered into
programming commitments to purchase the broadcast rights to various feature
films, syndicated shows, sports events and other programming. Total commitments
for such programming at December 31, 1997 were $38.8 million. These commitments
were not available for broadcast at December 31, 1997, but are expected to
become available over the next few years, at which time the commitments will be
recorded. Most commitments are payable over a period not exceeding five years.
The Company anticipates funding any subsequent broadcasting or outdoor capital
expenditures and program commitments with the Credit Facility and cash flow
generated from operations.
64
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
65
REPORT OF INDEPENDENT AUDITORS
SHAREHOLDERS AND
BOARD OF DIRECTORS
CLEAR CHANNEL
COMMUNICATIONS, INC.
We have audited the accompanying consolidated balance sheets of Clear Channel
Communications, Inc. and Subsidiaries (the Company) as of December 31, 1997 and
1996, and the related consolidated statements of earnings, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of Heftel
Broadcasting Corporation, in which the Company has a 32% interest and of
Australian Radio Network Pty Ltd, in which the Company has a 50% interest, have
been audited by other auditors whose reports have been furnished to us; insofar
as our opinion on the consolidated financial statements relates to data included
for Heftel Broadcasting Corporation for 1997 and for the Australian Radio
Network Pty Ltd, for 1996, it is based solely on their reports.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Clear Channel
Communications, Inc. and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
San Antonio, Texas
March 11, 1998
66
CLEAR CHANNEL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
[Download Table]
ASSETS
------
In thousands of dollars
December 31,
1997 1996
Current Assets
Cash and cash equivalents $ 24,657 $ 16,701
Accounts receivable, less allowance of
$9,850 in 1997 and $6,067 in 1996 155,962 79,182
Film rights - current 14,826 14,188
Income tax receivable 3,202 3,093
Total Current Assets 198,647 113,164
Property, plant
and equipment
Land, buildings and improvements 84,118 46,550
Structures and site leases 487,857
Transmitter and studio equipment 215,755 153,255
Furniture and other equipment 46,584 21,164
Construction in progress 39,992 4,284
874,306 225,253
Less accumulated depreciation 128,022 77,415
746,284 147,838
Intangible Assets
Network affiliation agreements 33,727 33,727
Licenses and goodwill 2,175,944 764,233
Covenants not-to-compete 24,892 22,992
Other intangible assets 19,593 8,712
2,254,156 829,664
Less accumulated amortization 141,066 78,646
2,113,090 751,018
Other
Notes receivable 35,373 52,750
Film rights 14,171 13,437
Investments in, and advances to,
nonconsolidated affiliates 266,691 230,660
Other assets 30,122 10,807
Other investments 51,259 5,037
Total Assets $3,455,637 $1,324,711
67
CLEAR CHANNEL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
[Download Table]
December 31,
1997 1996
CURRENT LIABILITIES
Accounts payable $ 11,904 $ 9,865
Accrued interest 9,950 6,272
Accrued expenses 34,489 8,236
Deferred income 1,340 1,300
Current portion of long-term debt 13,294 1,479
Current portion of film rights liability 15,875 16,310
Total Current Liabilities 86,852 43,462
Long-term debt 1,540,421 725,132
Film rights liability 15,551 13,797
Deferred income taxes 10,114 11,283
Deferred income 9,750 11,250
Other long-term liabilities 25,378 --
Minority interest 20,787 6,356
SHAREHOLDERS' EQUITY
Preferred Stock, par value $1.00 per share,
authorized 2,000,000 shares, no shares
issued and outstanding -- --
Common Stock, par value $.10 per share,
authorized 150,000,000 and 100,000,000
shares, issued and outstanding
98,232,893 and 76,992,078 shares in
1997 and 1996, respectively 9,823 7,699
Additional paid-in capital 1,541,865 398,622
Retained earnings 169,631 106,055
Other 2,398 1,226
Unrealized gain on investments 23,754 --
Cost of shares (38,207 in 1997 and 26,878
in 1996) held in treasury (687) (171)
Total Shareholders' Equity 1,746,784 513,431
Total Liabilities And
Shareholders' Equity $ 3,455,637 $ 1,324,711
See Notes to Consolidated Financial Statements
68
CLEAR CHANNEL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
In thousands of dollars, except per share data
[Enlarge/Download Table]
Year Ended December 31,
1997 1996 1995
Gross revenue $ 790,178 $ 398,094 $ 283,357
Less: agency commissions 93,110 46,355 33,298
Net revenue 697,068 351,739 250,059
Operating expenses 394,404 198,332 137,504
Depreciation and amortization 114,207 45,790 33,769
Operating income before corporate expenses 188,457 107,617 78,786
Corporate expenses 20,883 8,527 7,414
Operating income 167,574 99,090 71,372
Interest expense 75,076 30,080 20,752
Other income (expense) - net 11,579 2,230 (803)
Income before income taxes 104,077 71,240 49,817
Income taxes 47,116 28,386 20,292
Income before equity in earnings
(loss) of nonconsolidated affiliates 56,961 42,854 29,525
Equity in earnings (loss) of
nonconsolidated affiliates 6,615 (5,158) 2,489
Net income $ 63,576 $ 37,696 $ 32,014
Net income per common share:
Basic $ .72 $ .51 $ .46
Diluted $ .67 $ .51 $ .46
See Notes to Consolidated Financial Statements
69
CLEAR CHANNEL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
[Enlarge/Download Table]
In thousands of dollars
Cumulative
Additional Translation Unrealized
Common Paid-in Retained Adjustment Gain on Treasury
Stock Capital Earnings and Other Investments Stock Total
------- ----------- ---------- ----------- ----------- -------- ----------
Balances at January 1, 1995 $1,723 $92,535 $36,346 $ -- $ -- $ (71) $130,533
Net income for year 32,014 32,014
Exercise of stock options 7 627 (100) 534
Currency translation adjustment 102 102
Unrealized gains on investments,
net of tax 530 530
Stock split 1,729 (1,729) --
------ ---------- -------- ------ ------- ------ ----------
Balances at December 31, 1995 3,459 91,433 68,360 102 530 (171) 163,713
Net income for year 37,695 37,695
Exercise of stock options 5 301 306
Proceeds from sale of Common Stock 385 310,738 311,123
Currency translation adjustment 1,124 1,124
Reversal of unrealized gains on
investments, net of tax (530) (530)
Stock split 3,850 (3,850) --
------ ---------- -------- ------ ------- ------ ----------
Balances at December 31, 1996 7,699 398,622 106,055 1,226 -- (171) 513,431
Net income for year 63,576 63,576
Proceeds from sale of Common Stock 1,409 790,310 791,719
Common Stock and stock option
issued for business acquisition 665 348,023 6,633 355,321
Exercise of stock options 50 4,910 (397) (516) 4,047
Currency translation adjustment (5,064) (5,064)
Unrealized gains on investments,
net of tax 23,754 23,754
------ ---------- -------- ------ ------- ------ ----------
Balances at December 31, 1997 $9,823 $1,541,865 $169,631 $2,398 $23,754 $ (687) $1,746,784
====== ========== ======== ====== ======= ====== ==========
See Notes to Consolidated Financial Statements
70
CLEAR CHANNEL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
In thousands of dollars
Year Ended December 31,
1997 1996 1995
Cash Flows From
Operating Activities:
Net income $ 63,576 $ 37,696 $ 32,014
Reconciling Items:
Depreciation 51,700 19,337 15,380
Amortization of intangibles 62,507 26,453 18,389
Deferred taxes 18,300 5,730 2,953
Amortization of film rights 16,735 15,038 11,263
Payments on film liabilities (17,289) (14,627) (10,353)
Recognition of deferred income (1,460) (810) --
(Gain) loss on disposal of assets (1,129) (41) 405
Gain on sale of other investments (3,819) -- --
Equity in (earnings) loss of non-
consolidated affiliates (2,778) 7,933 --
Dividends received from nonconsolidated
affiliates -- 7,207 --
Decrease minority interest (617) -- --
Changes in operating assets and liabilities:
Increase accounts receivable (20,752) (10,606) (11,545)
Increase deferred income -- 13,360 --
Increase (decrease) accounts payable (5,271) 4,489 (372)
Increase (decrease) accrued interest 3,598 5,764 (233)
Increase (decrease) accrued expenses
and other liabilities 1,628 (320) 3,831
Increase (decrease) accrued income
and other taxes (109) (8,999) 2,598
Net cash provided by operating activities $ 164,820 $ 107,604 $ 64,330
71
[Enlarge/Download Table]
Year Ended December 31,
1997 1996 1995
Cash Flows From
Investing Activities:
Decrease in restricted cash $ -- $ -- $ 38,500
Decrease (increase) in notes receivable - net 17,377 (52,750) --
Increase in investments in and advances
to nonconsolidated affiliates - net (38,317) (163,295) (81,279)
Purchases of investments (25,101) (3,113) (500)
Proceeds from sale of investments 6,333 -- --
Purchases of property, plant and equipment (30,956) (19,723) (15,110)
Proceeds from disposal of assets 2,410 16 383
Acquisition of broadcasting assets (784,204) (550,630) (105,136)
Acquisition of outdoor assets (490,345) -- --
Increase in other intangible assets (10,881) (2,895) (1,870)
(Increase) decrease in other-net 7,891 (4,374) 5,340
Net cash used in investing activities (1,345,793) (796,764) (159,672)
Cash Flows From
Financing Activities:
Proceeds of long-term debt 2,013,160 718,575 162,600
Payments on long-term debt (1,614,821) (326,400) (64,800)
Payments of current maturities (5,176) (3,134) (4,419)
Proceeds from exercise of stock options 4,047 306 534
Proceeds from issuance of common stock 791,719 311,123 --
Net cash provided by financing activities 1,188,929 700,470 93,915
Net increase (decrease) in cash and
cash equivalents 7,956 11,310 (1,427)
Cash and cash equivalents at
beginning of year 16,701 5,391 6,818
Cash and cash equivalents
at end of year $ 24,657 $ 16,701 $ 5,391
See Notes to Consolidated Financial Statements
72
CLEAR CHANNEL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its subsidiaries, substantially all of which are wholly-owned. Significant
intercompany accounts have been eliminated in consolidation. Investments in
nonconsolidated affiliates are accounted for using the equity method of
accounting. Certain amounts in prior years have been reclassified to conform to
the 1997 presentation.
Cash and Cash Equivalents:
Cash and cash equivalents include all highly liquid investments with an original
maturity of three months or less.
Prepaid Land Lease:
Most of the Company's outdoor advertising structures are located on leased land.
Land rents are typically paid in advance for periods ranging from one to twelve
months. Prepaid land leases are expensed ratably over the related rental term.
Film Rights:
The capitalized costs of film rights are recorded when the license period begins
and the film rights are available for use. The rights are amortized based on the
number of showings or license period.
Unamortized film rights assets are classified as current or noncurrent based on
estimated usage. Amortization of film rights is included in operating expenses.
Film rights liabilities are classified as current or noncurrent based on
anticipated payments.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is computed
principally by the straight-line method at rates that, in the opinion of
management, are adequate to allocate the cost of such assets over their
estimated useful lives, which are as follows:
Buildings - 10 to 30 years
Structures and site leases - 10 to 20 years
Transmitter and studio equipment - 7 to 15 years
Furniture and other equipment - 5 to 10 years
Leasehold improvements - generally life of lease
Expenditures for maintenance and repairs are charged to operations as incurred,
whereas expenditures for renewal and betterments are capitalized.
73
Intangible Assets:
Intangible assets are stated at cost and are being amortized using the
straight-line method.
Excess cost over the fair value of net assets acquired (goodwill) and certain
licenses are generally amortized over 25 years. Covenants not-to-compete are
amortized over the respective lives of the agreements. Network affiliation
agreements are amortized over 10 years. Leases are amortized over the remaining
lease terms.
The periods of amortization are evaluated annually to determine whether
circumstances warrant revision.
Long-Lived Assets:
Impairment losses on long lived assets (including related goodwill) are
recognized when indicators of impairment are present and the estimated future
undiscounted cash flows are not sufficient to recover the assets' carrying
value.
Other Investments:
Other investments are composed primarily of equity securities. These securities
are classified as available-for-sale and carried at fair value based on quoted
market prices. The unrealized gains or losses on these investments, net of tax,
are reported as a separate component of shareholders' equity. The average cost
method is used to compute the realized gains and losses on sales of equity
securities.
Financial Instruments:
The carrying amounts of financial instruments approximate their fair value.
Income Taxes:
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting bases and tax bases of assets and liabilities and
are measured using the enacted tax rates expected to apply to taxable income in
the periods in which the deferred tax asset or liability is expected to be
realized or settled.
Revenue Recognition:
Radio and television broadcast revenue is recognized as advertisements or
programs are broadcast and is generally billed monthly. Outdoor advertising
provides services under the terms of contracts covering periods up to three
years, which are generally billed monthly. Revenue for outdoor advertising space
rental is recognized ratably over the term of the contract. Revenues from
design, production and certain other services are recognized as the services are
provided. Payments received in advance of billings are recorded as deferred
revenue.
Revenue from barter transactions is recognized when advertisements are broadcast
or outdoor advertising space is utilized. Merchandise or services received are
charged to expense when received or used.
Interest Rate Protection Agreements:
Periodically, the Company enters into interest rate swap agreements to modify
the interest characteristics of its outstanding debt. Each interest rate swap
agreement is designated with all or a portion of the principal balance and term
of a specific debt obligation. These agreements involve the exchange of amounts
based on a fixed interest rate for amounts based on variable interest rates over
the life of the agreement without an exchange of the notional amount upon which
the payments are based. The differential to be paid or received as interest
rates change is accrued and recognized as an adjustment to interest expense
related to the debt. The fair value of the swap agreements and changes in the
fair value as a result of changes in market interest rates are not significant.
Foreign Currency:
Foreign currency translation adjustments, which result from the translation of
financial statement information into U.S. dollars for the Company's investments
in Australian Radio Network Pty Ltd. (ARN) and New Zealand Radio Network (NZRN),
are accounted for as a separate component of shareholders' equity. Transaction
gains or losses are recorded as income or expense as incurred.
Stock Based Compensation:
The Company uses the intrinsic value method in accounting for its stock based
employee compensation plan.
74
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Earnings Per Share:
In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, Earnings Per Share. The adoption of this new accounting standard, which
required the restatement of all presented periods' earnings per share data, did
not have a material impact on the Company.
NOTE B - BUSINESS ACQUISITIONS
In April of 1997, the Company acquired approximately 93% of the outstanding
stock of Eller Media, Inc. (Eller). Eller's operations included approximately
50,000 outdoor advertising display faces in 15 major metropolitan markets. As
consideration for the stock acquired, the Company paid cash of approximately
$329 million and issued common stock of the Company in the aggregate value of
approximately $298 million. In addition, the Company issued options on the
Company's common stock with an aggregate value of approximately $51 million in
connection with the assumption of Eller's outstanding stock options. In
addition, the Company assumed approximately $417 million of Eller's long-term
debt, which was refinanced at the closing date using the Company's credit
facility. This acquisition was accounted for as a purchase with resulting
goodwill of approximately $655 million. Subsequent to the acquisition of Eller,
the Company has acquired approximately 3,000 additional display faces and
executed license management agreements for approximately 4,000 display faces,
for an aggregate consideration of $161.7 million.
Also during 1997, the Company acquired substantially all of the broadcasting
assets of 70 radio stations, including four stations that the Company acquired
an 80% interest therein, and six news, sports and agricultural networks in 22
markets. The most significant acquisition was 43 radio stations, six news,
sports and agricultural networks and approximately 350 display faces acquired
from Paxson Communications, Inc. for approximately $629 million during the
fourth quarter of 1997. During 1996 the Company acquired substantially all of
the broadcasting assets of 49 radio stations, and two television stations in 20
markets. During 1995, the Company acquired substantially all of the broadcasting
assets of three radio stations, including two stations that the Company acquired
an 80% interest therein, two television stations and one news and agricultural
network in three markets. At December 31, 1997, the Company programmed 17 radio
stations and seven television stations under a local marketing agreement or a
joint sales agreement and does not own the FCC license.
The following is a summary of the assets acquired and the consideration given
for the above stated acquisitions:
[Download Table]
In thousands of dollars
1997 1996 1995
Property, plant and
equipment $ 629,207 $ 47,579 $ 15,013
Accounts receivable 56,028 15,656 3,095
Licenses, goodwill and
other assets 1,460,505 488,251 93,716
Total assets acquired 2,145,740 551,486 111,824
Less:
Seller financing (1,400) -- --
Liabilities assumed (507,456) (856) (5,288)
Minority interest (15,047) -- --
Common Stock and
stock options issued (348,688) -- --
Cash paid for
acquisitions $ 1,274,549 $ 550,630 $ 105,136
75
The results of operations for 1997, 1996, and 1995 include the operations of
each station, for which the Company purchased the license, from the respective
date of acquisition. Unaudited pro forma consolidated results of operations,
assuming each of the acquisitions had occurred at January 1, 1995, would have
been as follows:
[Download Table]
Pro Forma (Unaudited)
Year Ended December 31,
In thousands of dollars, except per share data
1997 1996 1995
Net revenue $ 831,814 $ 670,481 $ 665,015
Net income (loss) $ 29,891 $ (22,773) $ (23,930)
Net income (loss) per
common share-diluted $ .28 $ (.30) $ (.32)
The pro forma information above is presented in response to applicable
accounting rules relating to business acquisitions and is not necessarily
indicative of the actual results that would have been achieved had each of the
businesses been acquired at the beginning of 1995, nor is it indicative of
future results of operations.
NOTE C - INVESTMENTS
Australian Radio Network:
In May of 1995, the Company purchased a 50% interest in ARN, an Australian
company that owns and operates radio stations, a narrowcast radio broadcast
service and a radio representation company in Australia.
New Zealand Radio Network:
In July 1996 the Company purchased a one-third interest in NZRN, which purchased
all of the stock of Radio New Zealand Commercial, formerly a government-owned
company consisting of 52 radio stations throughout New Zealand.
Heftel Broadcasting Corporation:
In May of 1995, the Company purchased 21.4% of the outstanding common stock of
Heftel Broadcasting Corporation (Heftel) a Spanish-language radio broadcaster in
the United States. In August of 1996, the Company purchased an additional 41.8%
of the outstanding common stock of Heftel. In January of 1997, the Company
purchased an interest from the Tichenor family, which was subsequently exchanged
for Heftel common stock at the time of Heftel's merger with Tichenor Media
System, Inc. (Tichenor), another Spanish-language radio broadcaster with
stations in major Hispanic markets in the United States. In February of 1997,
the Company sold 350,000 shares of its Heftel common stock as a selling
shareholder in a secondary stock offering in which Heftel issued an additional
4.8 million shares of common stock. The Company recognized a gain of
approximately $6.2 million as a result of this transaction. Also, Heftel issued
another 5.6 million shares of its common stock in connection with its merger
with Tichenor. As a result of these transactions, the Company's interest in
Heftel was 32.3% of the total number of shares of Heftel's common stock
outstanding at December 31, 1997.
American Tower Corporation:
In July of 1997 the Company purchased a thirty percent (30%) interest in
American Tower Corporation (ATC), the leading independent domestic owner and
operator of wireless communication towers.
The following table summarizes the Company's investments in these
nonconsolidated affiliates:
[Enlarge/Download Table]
In thousands of dollars
ARN NZRN Heftel ATC Total
At December 31, 1996 $73,242 $29,393 $128,025 $ -- $230,660
Acquisition of 30% of ATC 32,510 32,510
Additional investment, net 8,807 944 (3,989) 45 5,807
Equity in net
earnings (loss) 1,323 (4,202) 6,909 274 4,304
Amortization of
excess cost -- -- (1,097) (429) (1,526)
Foreign currency translation
adjustment (2,763) (2,301) -- -- (5,064)
At December 31, 1997 $80,609 $23,834 $129,848 $32,400 $266,691
76
These investments are not consolidated, but are accounted for under the equity
method of accounting, whereby the Company records its investments in these
entities in the balance sheet as "Investments in, and advances to,
nonconsolidated affiliates". The Company's interests in their operations are
recorded in the income statement as "Equity in earnings (loss) of
nonconsolidated affiliates". Other income derived from transactions with
nonconsolidated affiliates consists of interest and management fees which
aggregated $6.4 million in 1997, $4.5 million in 1996 and $1.4 million in 1995,
less applicable income taxes of $2.5 million in 1997, $1.7 million in 1996 and
$.4 million in 1995. Equity in the undistributed earnings (loss) included in
"Retained earnings" for these investments was $2.1 million and $(2.2) million
for December 31, 1997 and 1996, respectively.
Summarized Financial Information:
The following table presents summarized financial information for ARN and
Heftel:
Balance sheet information at December 31, 1997:
[Download Table]
In thousands of dollars
ARN(1) Heftel
Current assets $ 12,633 $36,695
Noncurrent assets 215,119 475,554
Current liabilities 31,263 25,725
Noncurrent liabilities 121,705 96,564
Shareholders' equity 74,784 389,960
Income statement information for period investment held in 1997:
Net revenues $72,116 $136,584
Operating expenses 52,077 82,064
Net income 10,749 18,772
(1) For presentation purposes only, data for ARN has been translated into U.S.
dollars at the December 31, 1997 exchange rate and has been presented in
conformity with Australian GAAP. The Company's equity in net income of ARN,
which is based on U.S. GAAP, is not directly comparable to net income reported
by ARN. The most significant difference involves the charge against results of
operations for the amortization of radio licenses under U.S. GAAP, which is not
recorded under Australian GAAP. The Company's share of such amortization for its
investment in ARN was $2.9 million for the year ended December 31, 1997.
77
Notes Receivable:
During 1997 and 1996, the Company provided approximately $35.4 million and $52.8
million respectively, in financing to third parties. The financing provided in
1997 was used to affect the acquisition of radio broadcasting operations. A
total of $21.4 million was relieved as consideration for six FCC licenses
acquired during January 1998. The remaining $14 million will be relieved as
consideration for three FCC licenses expected to be acquired during the first
half of 1998. The financing provided in 1996 was in the form of loans secured by
the assets of certain radio stations. These loans, which were paid in full
during 1997, were accounted for as notes receivable, with the related interest
income recorded in other income.
Other Investments:
Other investments at December 31, 1997 include marketable equity securities
recorded at market value of $62.2 million (cost basis of $23.9 million). During
1997, realized gains of $3.8 million were recorded in "Other income (expense) -
net." At December 31, 1997, unrealized gains, net of tax, of $23.8 million were
recorded as a separate component of shareholders equity.
NOTE D -
LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consisted of the following:
[Download Table]
In thousands of dollars
December 31,
1997 1996
Debentures, 7.25%, interest
payable semi-annually on
April 15 and October 15,
beginning April 15, 1998,
principal to be paid in full
on October 15, 2027.(1) $ 300,000 $ --
Revolving long-term line of
credit facility payable to banks,
three years interest only through
September 1999, payable quarterly,
rate based upon prime, LIBOR or
Fed funds rate, (6.3% at December
31, 1997) at the Company's
discretion, principal to be paid
in full by June 2005, $534.8 million
remains undrawn, secured by 100%
of the Common Stock of the Company's
wholly owned subsidiaries (2) 1,215,221 717,175
Other long-term debt 38,494 9,436
1,553,715 726,611
Less: current portion 13,294 1,479
Total long-term debt $1,540,421 $725,132
(1) Proceeds from issuance of debentures totaled $294.3 million, net of fees and
initial offering discount. The fees and initial offering discount are being
amortized as interest expense over 30 years and at December 31, 1997, were $5.7
million.
(2) This facility converts into a reducing revolving line of credit on the last
business day of September 2000, with quarterly repayment of the principal to
begin on that date and continue quarterly through the last business day of June
2005, when the commitment must be paid in full. Of the $534.8 million undrawn,
$9.6 million is unavailable due to a guarantee and $27.7 million is unavailable
due to letters of credit. This leaves $497.5 million available at December 31,
1997 for future borrowings under the credit facility.
78
The Company's current line of credit agreement with banks contains certain
covenants that substantially restrict, among other matters, the payment of cash
dividends and the pledging of assets.
Future maturities of long-term debt at December 31, 1997 are as follows:
[Download Table]
In thousands of dollars
1998 $13,294
1999 7,344
2000 2,185
2001 2,200
2002 88,994
2003 and thereafter 1,439,698
$1,553,715
The Company currently hedges a portion of its outstanding debt with interest
rate swap agreements that effectively fix the interest at rates from 5.5% to
8.5% on $565 million of its current borrowings. These agreements expire from
February 1998 to October 2000. The fair value of these agreements at December
31, 1997 and settlements of interest during 1997 were not material.
NOTE E - COMMITMENTS
The Company leases office space, certain broadcasting facilities, equipment and
the majority of the land occupied by its outdoor advertising structures under
long-term operating leases. Some of the lease agreements contain renewal options
and annual rental escalation clauses (generally tied to the consumer price index
or a maximum of 5%), as well as provisions for the payment of utilities and
maintenance by the Company. As of December 31, 1997, the Company's future
minimum rental commitments, under noncancelable lease agreements with terms in
excess of one year, consist of the following:
[Download Table]
In thousands of dollars
1998 $37,596
1999 32,448
2000 26,714
2001 22,898
2002 18,315
2003 and thereafter 71,064
$209,035
Rent expense charged to operations for 1997, 1996 and 1995 was $76.5 million,
$5.3 million and $4.5 million, respectively.
The Company's film rights commitments and related film assets are recorded on
the earliest date the rights are available for telecast. At December 31, 1997,
the future payments on these film rights liabilities are as follows:
[Download Table]
In thousands of dollars
1998 $15,875
1999 9,359
2000 5,472
2001 676
2002 44
$31,426
79
Commitments for additional film license agreements in the amount of $26.3
million have been executed; however, they are not included in the amounts above
because the programs were not available for telecast as of December 31, 1997. In
addition, commitments for sports rights have been executed in the amount of $8.3
million for future radio and television broadcast of sporting events.
NOTE F - CONTINGENCIES
From time to time, claims are made and lawsuits are filed against the Company,
arising out of the ordinary business of the Company. In the opinion of the
Company's management, liabilities, if any, arising from these actions are either
covered by insurance or adequate reserves, or would not have a material adverse
effect on the financial condition of the Company.
In various areas in which the Company operates, outdoor advertising is the
object of restrictive and, in some cases, prohibitive zoning and other
regulatory provisions, either enacted or proposed. The impact to the Company of
loss of displays due to governmental action has been somewhat mitigated by
federal and state laws mandating compensation for such loss and constitutional
restraints.
NOTE G - INCOME TAXES
Significant components of the provision for income taxes are as follows:
[Download Table]
In thousands of dollars
1997 1996 1995
Current - federal $28,321 $22,214 $16,085
Deferred 18,299 5,730 2,953
State 3,012 2,159 1,692
Total $49,632 $30,103 $20,730
Included in current-federal is $2.5 million, $1.7 million and $.4 million for
1997, 1996 and 1995, respectively, related to taxes on other income from
nonconsolidated affiliates, which has been included as a reduction in "Equity in
earnings (loss) of nonconsolidated affiliates". The remaining $47.1 million,
$28.4 million and $20.3 million for 1997, 1996 and 1995, respectively, have been
reflected as income tax expense.
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1997 and 1996 are as follows:
[Download Table]
In thousands of dollars
1997 1996
Deferred Tax Liabilities:
Excess tax depreciation $18,190 $7,409
Excess tax amortization 13,514 4,868
Film amortization 809 809
Basis reduction of
acquired assets 2,670 413
Gain on sale of assets 3,175 --
Other 752 --
Total deferred tax liabilities 39,110 13,499
Deferred Tax Assets:
Gain on sale of assets 386 374
Deferred income 6,291 --
Operating loss carry forwards 11,087 1,581
Accrued expenses 8,603 --
Bad debt reserves 1,903 --
Other 726 261
Total deferred tax assets 28,996 2,216
Net deferred tax liabilities $10,114 $11,283
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
80
In thousands of dollars
[Download Table]
1997 1996 1995
Amount Percent Amount Percent Amount Percent
Income tax expense
at statutory rates $38,772 35% $26,651 35% $17,926 35%
State income taxes, net
of federal tax benefit 1,958 2% 1,403 2% 1,100 2%
Amortization of goodwill 7,093 6% 1,493 2% 1,543 4%
Other - net 1,809 2% 556 1% 161
$49,632 45% $30,103 40% $20,730 41%
The Company has certain net operating loss carryforwards amounting to
approximately $29.2 million, which expire beginning in the year 2011.
NOTE H - CAPITAL STOCK
Stock Splits and Dividends:
In October 1996 and October 1995, the Board of Directors authorized two-for-one
stock splits distributed on December 2, 1996 and November 30, 1995,
respectively, to stockholders of record on November 13, 1996 and November 15,
1995, respectively.
A total of 38.5 million and 17.3 million shares, respectively, were issued in
connection with the 1996 and 1995 stock splits. All share, per share, stock
price and stock option amounts shown in the financial statements (except the
Consolidated Statement of Changes in Shareholders' Equity) and related footnotes
have been restated to reflect the stock splits.
Eller Put/Call Agreement:
The Company granted to the former Eller stockholders certain demand and
piggyback registration rights relating to the shares of common stock received by
them. The holders of the remaining outstanding shares of Eller capital stock,
not purchased by the Company, have the right to put such stock to the Company
for approximately 1.1 million shares of the Company's common stock until April
10, 2002. From and after April 10, 2004, the Company will have the right to call
this minority interest stake in Eller for 1.1 million shares of the Company's
common stock.
[Download Table]
Reconciliation Of
Earnings Per Share:
In thousands, except per share data
1997 1996 1995
Numerator:
Net income $63,576 $37,696 $32,014
Effect of dilutive securities:
Eller put/call agreement (2,577) -- --
Numerator for net income per
common share-diluted $60,999 $37,696 $32,014
Denominator:
Weighted average
common shares 88,480 73,422 69,092
Effect of dilutive securities:
Employee stock options 2,220 1,208 978
Eller put/call agreement 815 -- --
Dilutive potential
common shares 3,035 1,208 978
Denominator for net income
per common
share-diluted 91,515 74,630 70,070
Net income per common share:
Basic $.72 $.51 $.46
Diluted $.67 $.51 $.46
81
Stock Options:
The Company has granted options to purchase its common stock to employees and
directors of the Company and its affiliates under various stock option plans at
no less than the fair market value of the underlying stock on the date of grant.
These options are granted for a term not exceeding ten years and are forfeited
in the event the employee or director terminates his or her employment or
relationship with the Company or one of its affiliates. All option plans contain
antidilutive provisions that require the adjustment of the number of shares of
the Company common stock represented by each option for any stock splits or
dividends.
The following table presents a summary of the Company's stock options
outstanding at and stock option activity during the years ended December 31,
1997, 1996 and 1995:
[Download Table]
In thousands, except per share data
Weighted Average Price
Options Per Share
Options outstanding at
January 1, 1997 1,638 $9.00
Options granted in acquisition 1,468 13.00
Options granted 346 44.00
Options exercised (495) 5.00
Options forfeited (28) 34.00
Options outstanding at
December 31, 1997 (1) 2,929 16.00
Weighted average fair value of
options granted during 1997 35.00
Options outstanding at
January 1, 1996 1,528 6.00
Options granted 233 28.00
Options exercised (107) 3.00
Options forfeited (16) 34.00
Options outstanding at
December 31, 1996 1,638 9.00
Weighted average fair value of
options granted during 1996 12.00
Options outstanding at
January 1, 1995 1,657 5.00
Options granted 195 14.00
Options exercised (264) 2.00
Options forfeited (60) 8.00
Options outstanding at
December 31, 1995 1,528 6.00
Weighted average fair value of
options granted during 1995 6.00
(1) Vesting dates range from March 1993 to October 2002, and expiration dates
range from January 1998 to April 2007 at exercise prices ranging from $3.26 to
$61.00. There were 1.8 million shares available for future grants under the
various option plans at December 31, 1997.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996: risk-free interest rates of 6.0%; a dividend
yield of 0%. The volatility factors of the expected market price of the
Company's common stock used was 31% and 34% for 1997 and 1996, respectively,
and the weighted-average expected life of the option was five and six years for
1997 and 1996, respectively.
82
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:
[Download Table]
In thousands, except per share data
1997 1996
Net Income
As reported $63,576 $37,696
Pro forma $61,739 $37,498
Net income per common share
Basic
As reported $ .72 $ .51
Pro forma $ .70 $ .51
Diluted
As reported $ .67 $ 51
Pro forma $ .67 $ .50
In February 1991, CCTV, a wholly owned subsidiary of the Company, adopted the
1991 Non-Qualified Stock Option Plan which authorized the granting of options to
purchase 50,000 shares of CCTV Common Stock. In February 1993, CCTV elected to
discontinue the granting of options under this plan. At December 31, 1997, there
were 9,500 options outstanding under this plan, with an exercise date of January
1, 1999.
At December 31, 1997, common shares reserved for future issuance aggregated
approximately six million shares.
NOTE I - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Savings Plan (Plan) for the purpose of providing
retirement benefits for substantially all employees. Both the employees and the
Company make contributions to the Plan. The Company matches a portion of an
employee's deferred compensation to a maximum of $9,500 in 1997. Company matched
contributions vest to the employees based upon their years of service to the
Company. Contributions to this Plan of $1.2 million, $.7 million and $.5 million
were charged to expense for 1997, 1996 and 1995, respectively.
NOTE J - SUPPLEMENTAL INFORMATION
[Download Table]
In thousands of dollars
1997 1996 1995
Supplemental Cash Flow:
Cash paid for interest $71,399 $24,316 $20,985
Cash paid for taxes 49,741 35,669 18,132
Other Income (Expense) - net:
Realized gains on sale
of marketable securities $10,019
Gain on disposal
of fixed assets 2,027
Minority interest (848)
Interest income
from notes receivable $ 1,779
Depreciation and Amortization:
Goodwill and licenses $49,800 $19,700 $9,900
[Download Table]
1997 1996
Other Current and Long-Term Liabilities:
Acquisition accrual $15,236
Accrued compensation and benefits 12,159 $6,080
Outdoor advertising structure
takedown accrual 11,539
Accrued insurance 5,915
Accrued property tax 5,089
83
NOTE K - SEGMENT DATA
The Company consists of three principal business segments radio broadcasting,
television broadcasting and outdoor advertising. At December 31, 1997, the radio
segment included 156 stations for which the Company is the licensee and 17
stations operated under lease management or time brokerage agreements. These 173
stations operate in 40 markets. The radio segment also operates eight networks
including seven news and agriculture and one sports network.
At December 31, 1997, the television segment included 11 television stations for
which the Company is the licensee and seven stations operated under lease
management or time brokerage agreements. These 18 stations operate in 11
markets.
At December 31, 1997, the outdoor segment operated 57,660 advertising display
faces including 3,697 displays under license management agreements. These
display faces are in 17 markets.
Substantially all revenues are from unaffiliated companies.
[Download Table]
In thousands of dollars
1997 1996 1995
Net revenue
Radio $332,571 $217,189 $144,244
Television 157,062 134,550 105,815
Outdoor 207,435 -- --
Consolidated $697,068 $351,739 $250,059
Operating expenses
Radio $201,182 $126,628 $87,531
Television 85,132 71,704 49,973
Outdoor 108,090 -- --
Consolidated $394,404 $198,332 $137,504
Depreciation
Radio $13,252 $8,916 $6,974
Television 11,563 10,420 8,406
Outdoor 26,885 -- --
Consolidated $51,700 $19,336 $15,380
Amortization of intangibles
Radio $35,215 $18,840 $13,007
Television 6,353 7,614 5,382
Outdoor 20,939 -- --
Consolidated $62,507 $26,454 $18,389
Operating income
Radio $82,922 $62,805 $36,732
Television 54,014 44,812 42,054
Outdoor 51,521 -- --
Consolidated $188,457 $107,617 $78,786
Total identifiable assets
Radio $1,840,908 $1,079,853 $340,685
Television 310,693 244,858 222,326
Outdoor 1,304,036 -- --
Consolidated $3,455,637 $1,324,711 $563,011
Capital expenditures
Radio $8,913 $7,447 $5,243
Television 7,011 12,276 9,867
Outdoor 15,032 -- --
Consolidated $30,956 $19,723 $15,110
84
NOTE L -
SUBSEQUENT EVENTS
In January 1998 the Company closed its acquisitions of WMXC-FM, WNTM-AM,
WDWG-FM, WKSJ-AM, WKSJ-FM and WRKH-FM, and signed a joint sales agreement for
WNSP-FM in Mobile, Alabama for approximately $24.0 million, acquired KDON-FM,
KDON-AM, KRQC-FM, KTOM-FM, KTOM-AM and KOCN-FM in Monterey, CA for approximately
$23.2 million and acquired WODE-AM and WEEX-FM in Allentown, PA for
approximately $29.0 million.
In February 1998 the Company closed its acquisitions of WJMI-FM, WKXI-AM/FM, and
WOAD-AM in Jackson, MS, for approximately $20.0 million.
On October 23, 1997 the Company entered into a definitive agreement to merge
with Universal Outdoor Holdings, Inc., (Universal) an international corporation
with over 34,000 display faces in 23 markets. The merger, which is subject to
certain closing conditions and regulatory approvals, is structured as an
exchange of stock; each share of Universal common stock will be exchanged for
.67 shares of the Company's stock. On February 6, 1998, the Universal common
stock shareholders voted to approve the adoption of the agreement and plan of
merger between Universal and the Company. Upon consummation of this merger, the
Company will issue approximately 19.3 million shares of its common stock (valued
at approximately $1,202 million) and assume approximately $566 million in
long-term debt. The Company intends to account for this merger as a purchase
transaction and expects to consummate this merger during the first half of 1998.
On March 5, 1998 the Company announced an agreement with the Board of Directors
of More Group, Plc (More Group) regarding the terms of a recommended cash offer
to acquire all of the issued shares of More Group. The offer values each More
Group share at (pound)10.30 or approximately $17.00. The total value of this
transaction is approximately (pound)475 million or, $735.7 million. More Group,
based in the United Kingdom, operates over 90,000 advertising displays in 22
countries. This transaction is subject to certain regulatory approvals and other
closing conditions. If these conditions are met, this transaction is expected to
close during 1998.
NOTE M - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
[Enlarge/Download Table]
In thousands of dollars, except per share data
March 31, June 30, September 30, December 31,
1997 1996 1997 1996 1997 1996 1997 1996
Gross revenue $110,831 $70,140 $212,200 $92,406 $209,050 $107,189 $258,097 $128,359
Net revenue $ 98,289 $62,208 $186,779 $81,370 $184,108 $ 94,839 $227,892 $113,322
Operating expenses 63,055 38,230 103,678 43,762 99,809 53,409 127,862 62,931
Depreciation and amortization 15,946 8,755 32,724 10,589 31,546 13,022 33,991 13,424
Operating income before
corporate expenses 19,288 15,223 50,377 27,019 52,753 28,408 66,039 36,967
Corporate expenses 2,854 1,674 5,017 1,804 5,828 2,170 7,184 2,879
Operating income 16,434 13,549 45,360 25,215 46,925 26,238 58,855 34,088
Interest expense 11,046 5,424 21,268 6,322 19,490 8,033 23,272 10,301
Other income
(expense)- net 6,259 206 (1,060) (19) 2,442 480 3,938 1,563
Income before income taxes 11,647 8,331 23,032 18,874 29,877 18,685 39,521 25,350
Income taxes 4,962 2,810 12,345 7,356 14,335 7,261 15,474 10,959
Income before equity in
earnings (loss) of
nonconsolidated affiliates 6,685 5,521 10,687 11,518 15,542 11,424 24,047 14,391
Equity in earnings (loss) of
nonconsolidated affiliates 914 717 4,407 1,030 3,067 (8,375) (1,773) 1,470
Net income $ 7,599 $ 6,238 $ 15,094 $ 12,548 $ 18,609 $ 3,049 $ 22,274 $ 15,861
Net income per
common share: (1)
Basic $ .10 $ .09 $ .18 $ .18 $ .21 $ .04 $ .23 $ .21
Diluted $ .10 $ .09 $ .16 $ .18 $ .19 $ .04 $ .22 $ .20
Stock price: (1)
High $49.6250 $29.5625 $63.3750 $43.3750 $68.7500 $45.2500 $79.4375 $44.5625
Low 34.2500 20.3750 42.7500 26.7500 58.6250 35.6250 60.0000 30.5000
(1) Adjusted for two-for-one stock split effected in December 1996.
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol CCU.
85
Results of operations information:
In thousands of dollars, except per share data
[Enlarge/Download Table]
Year ended December 31,
1997 1996 1995 1994 1993
Gross revenue $ 790,178 $ 398,094 $ 283,357 $ 200,695 $ 135,680
------------ ------------ ------------ ------------ ------------
Net revenue $ 697,068 $ 351,739 $ 250,059 $ 178,053 $ 121,118
Operating expenses 394,404 198,332 137,504 105,380 78,925
Depreciation and
amortization 114,207 45,790 33,769 24,669 17,447
------------ ------------ ------------ ------------ ------------
Operating income
before corporate
expenses 188,457 107,617 78,786 48,004 24,746
Corporate expenses 20,883 8,527 7,414 5,100 3,464
------------ ------------ ------------ ------------ ------------
Operating income 167,574 99,090 71,372 42,904 21,282
Interest expense 75,076 30,080 20,752 7,669 5,390
Other income
(expense) - net 11,579 2,230 (803) 1,161 (196)
------------ ------------ ------------ ------------ ------------
Income before
income taxes 104,077 71,240 49,817 36,396 15,696
Income taxes 47,116 28,386 20,292 14,387 6,573
------------ ------------ ------------ ------------ ------------
Income before equity
in earnings (loss)
of nonconsolidated
affiliates 56,961 42,854 29,525 22,009 9,123
Equity in earnings
(loss) of noncon-
solidated affiliates 6,615 (5,158) 2,489 0 0
------------ ------------ ------------ ------------ ------------
Net income $ 63,576 $ 37,696 $ 32,014 $ 22,009 $ 9,123
============ ============ ============ ============ ============
Net income per common share: (1)
Basic $ .72 $ .51 $ .46 $ .32 $ .15
============ ============ ============ ============ ============
Diluted $ .67 $ .51 $ .46 $ .32 $ .15
============ ============ ============ ============ ============
Cash dividends
per share (1) -- -- -- -- --
============ ============ ============ ============ ============
Balance Sheet Data:
Current assets $ 198,647 $ 113,164 $ 70,485 $ 53,945 $ 38,191
Property, plant and
equipment - net 746,284 147,838 99,885 85,318 67,750
Total assets 3,455,637 1,324,711 563,011 411,594 227,577
Current liabilities 86,852 43,462 36,005 27,679 26,125
Long-term debt, net of
current maturities 1,540,421 725,132 334,164 238,204 87,815
Shareholders' equity 1,746,784 513,431 163,713 130,533 98,343
86
(1) All per share amounts have been adjusted to reflect stock splits effected
on the following dates and in the following ratios:
[Download Table]
Date of Split Ratio of Split
December 1996 two-for-one
November 1995 two-for-one
February 1994 five-for-four
February 1993 five-for-four
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk:
At December 31, 1997, approximately 78% of the Company's long-term debt bears
interest at variable rates. Accordingly, the Company's net income 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 1997 average interest rate under these borrowings, it is
estimated that the Company's 1997 interest expense would have changed by $24.3
million resulting in a change in the Company's 1997 net income and after tax
cash flow of $15.0 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, this analysis assumes no such actions. Further this analysis
does not consider the effects of the change in the level of overall economic
activity that could exist in such an environment.
At December 31, 1997, the Company had several interest rate protection
agreements. Originally, Eller Media, Inc. (Eller) put these agreements in
force to mitigate the interest rate risk on its long-term debt. Subsequently,
ownership of these agreements transferred to the Company as a result of its
acquisition of Eller on April 10, 1997. The fair value of these agreements are
not material at December 31, 1997, are not expected to become material in the
near-term, and have not been considered in the above analysis as the Company
intends to terminate these agreements during 1998.
Foreign Currency Risk:
The Company's earnings are affected by fluctuations in the value of the U.S.
dollar as compared to foreign currencies as a result of its investments in
Australia and New Zealand, both 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 theses foreign currencies at December 31, 1997 would
change the Company's 1997 net income and after tax cash flow by $0.5 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 either the U.S. or the foreign countries or on the
results of operations of these foreign entities.
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, 1997 by $12.4 million.
87
Dates Referenced Herein and Documents Incorporated by Reference
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