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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
|x| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 2001, or
| | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to .
-------- ----------
COMMISSION FILE NUMBER
1-9645
CLEAR CHANNEL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1787539
(State of Incorporation) (I.R.S. Employer Identification No.)
200 East Basse Road
San Antonio, Texas 78209
Telephone (210) 822-2828
(Address, including zip code, and
telephone number, including area code, of
registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.10 par value per share.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
---
On March 8, 2002, the aggregate market value of the Common Stock beneficially
held by non-affiliates of the Company was approximately $28.3 billion. (For
purposes hereof, directors, executive officers and 10% or greater shareholders
have been deemed affiliates).
On March 8, 2002, there were 599,518,802 outstanding shares of Common Stock,
excluding 58,599 shares held in treasury.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Definitive Proxy Statement for the 2002 Annual Meeting, expected
to be filed within 120 days of our fiscal year end, are incorporated by
reference into Part III.
CLEAR CHANNEL COMMUNICATIONS, INC.
INDEX TO FORM 10-K
Page
Number
PART I.
Item 1. Business................................................................................ 3
Item 2. Properties.............................................................................. 31
Item 3. Legal Proceedings....................................................................... 32
Item 4. Submission of Matters to a Vote of Security Holders..................................... 32
PART II.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.................... 33
Item 6. Selected Financial Data................................................................. 34
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................... 35
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ............................. 61
Item 8. Financial Statements and Supplementary Data ............................................ 62
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................................................... 99
PART III.
Item 10. Directors and Executive Officers of the Registrant...................................... 100
Item 11. Executive Compensation.................................................................. 102
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 102
Item 13. Certain Relationships and Related Transactions.......................................... 102
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................ 103
PART I
ITEM 1. BUSINESS
THE COMPANY
Clear Channel Communications, Inc. is a diversified media company with
three reportable business segments: radio broadcasting, outdoor advertising and
live entertainment. We were incorporated in Texas in 1974. As of December 31,
2001, we owned, programmed, or sold airtime for 1,240 domestic radio stations,
which includes those stations that we operated pursuant to a local marketing
agreement or joint sales agreement (FCC licenses not owned by Clear Channel) and
owned a leading national radio network. In addition, at December 31, 2001, we
had equity interests in various domestic and international radio broadcasting
companies. We were also one of the world's largest outdoor advertising companies
based on total advertising display inventory of 156,623 domestic display faces
and 573,416 international display faces. In addition, we were one of the world's
largest diversified promoters, producers and venue operators for live
entertainment events. As of December 31, 2001, we owned or operated 104 live
entertainment venues domestically and 31 live entertainment venues
internationally, which includes 36 domestic venues and three international venue
where we either own a non-controlling interest or have booking promotions or
consulting agreements. We also own or program 19 television stations, own a
media representation firm and represent professional athletes, all of which is
within the category "other". The following table presents each segment's
percentage of total revenues for the year ended December 31, 2001:
Percentage of
Segment Revenues
------- -------------
Radio Broadcasting 43%
Outdoor Advertising 22%
Live Entertainment 31%
Other 4%
----
Total 100%
Our principal executive offices are located at 200 East Basse Road, San
Antonio, Texas 78209 (telephone: 210-822-2828).
RADIO BROADCASTING
Radio Stations
As of December 31, 2001, we owned, programmed or sold airtime for 368 AM
and 797 FM domestic radio stations, of which, 478 radio stations were in the top
100 markets, according to the Arbitron fall 2001 ranking of U.S. markets. In
addition, we currently own various interests in domestic and international radio
broadcasting companies, which we account for under the equity method of
accounting. Our radio stations employ various formats for their programming. A
station's format is important in determining the size and characteristics of its
listening audience. Advertisers tailor their advertisements to appeal to
selected population or demographic segments.
Radio Networks
As of December 31, 2001, we owned one of the leading national radio
networks, based on a total audience of over 180 million weekly listeners. The
network syndicates talk programming including such talent as Rush Limbaugh, Dr.
Laura Schlessinger, Jim Rome, and music programming including such
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talent as Rick Dees and Casey Kasem. We also operated several news and
agricultural radio networks serving Oklahoma, Texas, Iowa, Kentucky, Virginia,
Alabama, Tennessee, Florida and Pennsylvania.
Most of our radio broadcasting revenue is generated from the sale of
national and local advertising. Additional revenue is generated from network
compensation payments, barter and other miscellaneous transactions. Advertising
rates charged by a radio station are based primarily on the station's ability to
attract audiences having certain demographic characteristics in the market area
which advertisers want to reach, as well as the number of stations competing in
the market.
Advertising rates generally are the highest during morning and evening
drive-time hours. Depending on the format of a particular station, there are
predetermined numbers of advertisements that are broadcast each hour. We
determine the number of advertisements broadcast hourly that can maximize
available revenue dollars without jeopardizing listening levels. Although the
number of advertisements broadcast during a given time period may vary, the
total number of advertisements broadcast on a particular station generally does
not vary significantly from year to year.
Our radio broadcasting results are dependent on a number of factors,
including the general strength of the economy, population growth, ability to
provide popular programming, relative efficiency of radio broadcasting compared
to other advertising media, signal strength, technological capabilities and
governmental regulations and policies.
OUTDOOR ADVERTISING
As of December 31, 2001, we owned or operated a total of 730,039
advertising display faces. We currently provide outdoor advertising services in
over 46 domestic markets and over 65 international countries. Our display faces
include billboards of various sizes, wallscapes, transit displays and street
furniture displays. Additionally, we currently own various interests in outdoor
advertising companies, which we account for under the equity method of
accounting.
Revenue is generated from both local and national sales. Local advertisers
tend to have smaller advertising budgets and require greater assistance from our
production and creative personnel to design and produce advertising copy. In
local sales, we often expend more sales efforts on educating customers regarding
the benefits of outdoor media and helping potential clients develop an
advertising strategy using outdoor advertising. While price and availability are
important competitive factors, service and customer relationships are also
critical components of local sales. Although national revenue typically does not
involve the additional sales effort, national revenue generally results in
higher advertising rates.
Advertising rates are based on a particular display's exposure, or number
of "impressions" delivered, in relation to the demographics of the particular
market and its location within that market. The number of "impressions"
delivered by a display is measured by the number of vehicles or pedestrians
passing the site during a defined period and is weighted to give effect to such
factors as its proximity to other displays, the speed and viewing angle of
approaching traffic, the national average of adults riding in vehicles and
whether the display is illuminated. The number of impressions delivered by a
display is verified by independent auditing companies.
Our billboards consist of various sized panels on which advertising copy
is displayed. Bulletin advertising copy is either printed with
computer-generated graphics on a single sheet of vinyl that is "wrapped" around
an outdoor advertising structure, placed on lithographed or silk-screened paper
sheets supplied by the advertiser that are pasted and applied like wallpaper to
the face of the display, or hand
4
painted and attached to the structure. Billboards are generally mounted on
structures we own and are located on sites that are either owned or leased by us
or on a site which we have acquired a permanent easement. Lease contracts are
negotiated with both public and private landlords.
Wallscapes are essentially billboards painted on vinyl surfaces or
directly on the sides of buildings, typically four stories or less. Because of
their greater impact and higher cost, larger billboards are usually located on
major highways and freeways. Some of our billboards are illuminated, and located
at busy traffic interchanges to offer maximum visual impact to vehicular
audiences. Wallscapes are located on major freeways, commuter and tourist routes
and in downtown business districts. Smaller billboards are concentrated on city
streets targeting pedestrian traffic.
Transit advertising incorporates all advertising on or in transit systems,
including the interiors and exteriors of buses, trains, trams and taxis, and
advertising at rail stations and airports. Transit advertising posters range
from vinyl sheets, which are applied directly to transit vehicles or to
billboards and panels mounted in station or airport locations. Transit
advertising contracts are negotiated with public transit authorities and private
transit operators, either on a fixed revenue guarantee or a revenue-share basis.
Street furniture panels are developed and marketed under our global Clear
Channel Adshel brand. Street furniture panels include bus shelters, free
standing units, pillars and columns. The most numerous are bus shelters which
are back illuminated and reach vehicular and pedestrian audiences. Street
furniture is growing in popularity with local authorities especially
internationally and in the larger domestic markets. Bus shelters are usually
constructed, owned and maintained by the outdoor service provider under
revenue-sharing arrangements with a municipality or transit authority. Large
street furniture contracts are usually won in a competitive tender and last
between 10 and 15 years. Tenders are won on the basis of revenues and
community-related products offered to municipalities, including bus shelters,
public toilets and information kiosks.
LIVE ENTERTAINMENT
We are one of the world's leading promoter, producer and marketer of live
entertainment. During 2001, we promoted or produced over 26,000 events,
including music concerts, theatrical shows and specialized sport events. Through
our large number of venues and strong presence in each of the markets we serve,
our live entertainment operations are able to provide integrated promotion,
production, venue operation, marketing and event management services for a broad
variety of live entertainment events. We reached more than 66 million people
through all of these activities during 2001. As of December 31, 2001, we owned
or operated a total of 68 domestic venues and 28 international venues.
Additionally, we currently own various interests in live entertainment
companies, which we account for under the equity method of accounting.
As a promoter, we typically book talent or tours, sell tickets and
advertise the event to attract ticket buyers. For the event, we either provide
our owned venue or we rent a venue, we arrange for production services, and sell
sponsorships. When we provide our owned venue, we generally receive a percentage
of revenues from concessions, merchandising, parking and premium box seats.
As producer, we typically develop event content, hire artistic talent,
schedule performances in select venues, promote tours and sell sponsorships. We
derive revenues from guarantees and from profit sharing agreements with
promoters, a percentage of the promoters' ticket sales, merchandising,
sponsorships, licensing and the exploitation of intellectual property and other
rights related to the
5
production.
We derive revenues from our venue operations primarily from ticket sales,
rental income, corporate sponsorships and advertising, concessions, and
merchandise. A venue operator typically receives, for each event it hosts, a
fixed fee or percentage of ticket sales for use of the venue, as well as fees
representing a percentage of total concession sales from the vendors and total
merchandise sales from the performer or tour producer. We typically receive 100%
of sponsorship and advertising revenues and a rebate of a portion of ticketing
surcharges.
Corporate sponsorship includes the naming of venues such as the Verizon
Wireless Amphitheater and the Ford Theater for the Performing Arts. We also
designate providers of concessions and "official" event or tour sponsors such as
credit card companies, phone companies and film manufacturers, among others.
Sponsorship arrangements can provide significant additional revenues at
negligible incremental cost. We believe that the national venue network we have
assembled will likely attract a larger number of major corporate sponsors and
enable us to sell national sponsorship rights at a premium over local or
regional sponsorship rights. We also believe that our relationships with
advertisers will enable us to better utilize available advertising space, and
that the aggregation of our audiences nationwide will create the opportunity for
advertisers to access a nationwide market.
Our outdoor venues are primarily used in the summer months and do not
generate substantial revenue in the late fall, winter and early spring. The
theatrical presenting season generally runs from September through May. The
sports marketing businesses primarily earn revenue ratably over the year,
whereas the motor sports business operates primarily in the winter and event
management revenue is earned as the events occur.
OTHER
Television
As of December 31, 2001, we owned, programmed or sold airtime for 19
television stations. Our television stations are affiliated with various
television networks, including ABC, CBS, NBC, FOX, UPN, PAX and WB. Television
revenue is generated primarily from the sale of local and national advertising,
as well as from fees received from the affiliate television networks.
Advertising rates depend primarily on the quantitative and qualitative
characteristics of the audience we can deliver to the advertiser. Local
advertising is sold by our sales personnel, while national advertising is sold
by national sales representatives.
The primary sources of programming for our ABC, NBC, CBS and FOX
affiliated television stations are their respective networks, which produce and
distribute programming in exchange for each station's commitment to air the
programming at specified times and for commercial announcement time during the
programming. We supply the majority of programming to our UPN, PAX and WB
affiliates by selecting and purchasing syndicated television programs. We
compete with other television stations within each market for these broadcast
rights.
The second source of programming is the production of local news
programming on the ABC, CBS, NBC and FOX affiliate stations in Jacksonville,
Florida; Harrisburg, Pennsylvania; Memphis, Tennessee; Mobile, Alabama;
Cincinnati, Ohio; Albany, New York; San Antonio, Texas; and Salt Lake City,
Utah. Local news programming traditionally has appealed to a target audience of
adults 25 to 54 years of age. Because these viewers generally have increased
buying power relative to viewers in other
6
demographic groups, they are one of the most sought-after target audiences for
advertisers. With such programming, these stations are able to attract
advertisers to which they otherwise would not have access.
Media Representation
We own the Katz Media Group, a full-service media representation firm that
sells national spot advertising time for clients in the radio and television
industries throughout the United States. Katz Media is one of the largest media
representation firms in the country, representing over 2,400 radio stations, 370
television stations and growing interests in the representation of cable
television system operators.
Katz Media generates revenues primarily through contractual commissions
realized from the sale of national spot advertising air time. National spot
advertising is commercial air time sold to advertisers on behalf of radio and
television stations and cable systems located outside the local markets of those
stations and systems. Katz Media represents its media clients pursuant to media
representation contracts, which typically have initial terms of up to ten years
in length.
Sports Representation
We operate in the sports representation business. Our full-service sports
marketing and management operations specialize in the representation of
professional athletes, integrated event management, television
programming/production, and marketing consulting services. Among our clients are
several hundred professional athletes, including Michael Jordan (basketball),
Kobe Bryant (basketball), Roger Clemens (baseball), Greg Norman (golf), Andre
Agassi (tennis), Jerry Rice (football) and David Beckham (soccer - UK).
Our sports representation business generates revenue primarily through the
negotiation of professional sports contracts and endorsement contracts for
clients. The amount of endorsement and other revenues that our clients generate
is a function of, among other things, the clients' professional performances and
public appeal.
COMPANY STRATEGY
Since our inception, we have focused on helping our clients distribute
their marketing messages in the most efficient ways possible. We believe our
ultimate success is measured by how well we assist our clients in selling their
products and services. To this end, we have assembled a national platform of
media assets designed to provide the most efficient and cost-effective ways for
our clients to reach consumers. These assets are comprised of radio and
television broadcasting assets, outdoor advertising displays and live
entertainment venues and productions. We have combined these assets with the
talent and motivation of our entrepreneurial managers to create strong internal
growth. We plan to continue this effort in order to serve our clients,
listeners, viewers, audiences and investors.
A portion of our growth has been achieved through acquiring highly
complementary assets in radio and television broadcasting, outdoor advertising
and live entertainment. We have found that geographically diversified assets
give our clients more flexibility in the distribution of their messages, and
therefore allows us to provide these clients with a higher level of service. To
this end, we evaluate potential acquisitions based on the returns they can
potentially provide on invested capital, as well as the positive impact they
might have on our existing businesses. In addition, given our experience in the
industries in which we operate, we are often able to improve the operations of
assets we acquire, thus further enhancing our value of those assets.
7
Additionally, we seek to create situations in which we own more than one
type of medium in the same market. Aside from the provision of added flexibility
to our clients, this "cross-ownership" allows us ancillary benefits, such as the
use of otherwise vacant outdoor advertising space to promote our broadcasting
assets, or the sharing of on-air talent across our broadcasting assets to
promote one of our live entertainment events or venues.
To support our radio broadcasting, outdoor advertising and live
entertainment strategies, we have decentralized our operating structure in order
to place authority, autonomy and accountability at the market level which
provides local management with tools necessary to serve our clients. We believe
that one of our strongest competitive advantages is our unique blend of highly
experienced corporate and local market management. We believe that the
combination of historically stable revenue growth within the industries we
operate, coupled with a fixed expense structure and minimal requirements for
ongoing capital expenditures, as well as our financial discipline, gives us an
excellent forum in which to generate free cash flow and provide value to our
investors.
RADIO BROADCASTING
Our radio broadcasting strategy entails improving the ongoing operations
of our existing stations, as well as the acquisition of stations. Our
acquisition strategy has created a national footprint that allows us to deliver
targeted messages for specific audiences to advertisers on a local, regional,
and national basis. We believe in clustering our radio stations in markets
thereby allowing us to offer our advertisers more advertising options that can
reach many audiences. We believe owning multiple radio stations in a market
allows us to provide our listeners with a more diverse programming selection and
a more efficient means for our advertisers to reach those listeners. By
clustering our stations, we are also able to operate our stations with more
highly skilled local management teams and eliminate duplicative operating and
overhead expenses. In addition to the economies of scale associated with our
national footprint and our clustering of stations in our markets, our management
seeks to improve the performance of our existing stations through effective
programming, reduction of costs, and aggressive promotion, marketing, and sales.
By complementing our radio operations with our other businesses, we are able to
increase revenue and profitability through synergies such as cross selling and
cross promoting, utilizing our outdoor advertising and entertainment operations.
OUTDOOR ADVERTISING
Our outdoor advertising strategy involves expanding our market presence
and improving the operating results of our existing operations. By acquiring
additional displays in our existing markets and expanding into new markets. We
focus on attracting new categories of advertisers to the outdoor medium through
significant investments in sales, marketing, creative, and research services. We
take advantage of technological advances that increase our sales force
productivity, production department efficiency, and the quality of our product.
We will continue to take advantage of the fragmented outdoor advertising
industry in our international markets, which presents us with opportunities to
increase our profitability both from our existing operations and from
acquisitions.
LIVE ENTERTAINMENT
Our recent entry into live entertainment operations allowed us to take
advantage of the natural synergies between radio and live music events and to
gain immediate industry leadership. We can now leverage our broadcasting assets
to reach listeners who have an affinity for music to promote our live
entertainment events and ultimately increase ticket revenue. Our strategy
involves improving operating
8
results driven primarily by our ability to increase the utilization of venues,
the number of tickets sold per event, sponsorship opportunities, and radio
audiences. We strive to form strategic alliances with top brands for marketing
opportunities, complete our footprint with investments in music and theater, and
foster collaborations with our other media businesses.
RECENT DEVELOPMENTS
The Ackerley Group Merger
On October 5, 2001, we entered into a merger agreement to acquire The
Ackerley Group, Inc. Ackerley is a diversified media company with outdoor,
television, radio and interactive media assets. We structured the Ackerley
merger as a tax-free, stock-for-stock transaction. Each share of Ackerley common
stock will be converted into the right to receive .35 shares of our common stock
on a fixed exchange basis, valuing the merger, based on average share value at
the signing of the merger agreement, at approximately $474.9 million plus the
assumption of Ackerley's debt, which was approximately $290.6 million at
December 31, 2001. This merger is subject to regulatory approval under the
federal communications laws and other closing conditions. We anticipate that
this merger will close during the first half of 2002.
We cannot be assured that we can complete the merger with Ackerley in a
timely manner or on the terms described in the document, if at all. Governmental
authorities may require the combined company to divest assets or submit to
various operating restrictions before granting the authorizations and approvals
necessary to complete the merger. We expect to be required to divest radio or
television stations in five markets or geographical areas in connection with the
merger. We cannot be assured that the completion of such divestitures will be at
a fair market price or that the reinvestment of the proceeds or exchange of
assets will produce an operating profit at the same level as the divested assets
or a commensurate rate of return on the amount of its investment. These
divestitures and operating restrictions could adversely affect the value of the
combined company.
Future Acquisitions
We frequently evaluate strategic opportunities both within and outside our
existing lines of business and from time to time enter into letters of intent to
purchase assets. Although we have no definitive agreements with respect to
significant acquisitions not set forth in this report, we expect from time to
time to pursue additional acquisitions and may decide to dispose of certain
businesses. Such acquisitions or dispositions could be material.
Public Offerings
On October 26, 2001, we completed a debt offering of $750.0 million 6%
Senior Notes due November 1, 2006. Interest is payable on May 1 and November 1
of each year. The first interest payment on the notes will be made on May 1,
2002. Net proceeds of approximately $744.1 million were used to reduce the
outstanding balance of our reducing revolving credit facility.
EMPLOYEES
At February 28, 2002 we had approximately 29,500 domestic employees and
6,700 international employees: approximately 35,500 in operations and
approximately 700 in corporate related activities. In
9
addition, our live entertainment operations hire approximately 20,000 seasonal
employees during peak time periods.
OPERATING SEGMENTS
Clear Channel consists of three reportable operating segments: radio
broadcasting, outdoor advertising, and live entertainment. The radio
broadcasting segment includes radio stations for which we are the licensee and
for which we program and/or sell air time under local marketing agreements or
joint sales agreements. The radio broadcasting segment also operates radio
networks. The outdoor advertising segment includes advertising display faces for
which we own or operate under lease management agreements. The live
entertainment segment includes venues that we own or operate, the production of
Broadway shows and theater operations.
Information relating to the operating segments of our radio broadcasting,
outdoor advertising and live entertainment operations for 2001, 2000 and 1999
are included in "Note K: Segment Data" in the Notes to Consolidated Financial
Statements in Item 8 filed herewith.
The following table sets forth certain selected information with regard to
our radio broadcasting stations, outdoor advertising display faces and live
entertainment venues that we own or operate. At December 31, 2001, we owned,
programmed, or sold airtime for 368 AM and 797 FM radio stations. At December
31, 2001, we owned or operated 156,623 domestic display faces and 573,416
international display faces. We also owned or operated 96 live entertainment
venues at December 31, 2001.
Radio Outdoor Live
Market Broadcasting Advertising Entertainment
Market Rank* Stations Display Faces Venues
------ ----- -------- ------------- ------
New York, NY 1 4 16,334 4
Los Angeles, CA 2 8 17,786 3
Chicago, IL 3 6 15,410 2
San Francisco, CA 4 7 5,112 5
Dallas, TX 5 6 5,402
Philadelphia, PA 6 6 4,037 4
Washington, DC 7 8 3,092 4
Boston, MA 8 4 4,720 5
Houston, TX 9 8 4,945 2
Detroit, MI 10 7 25 2
Atlanta, GA 11 6 7,044 3
Miami, FL 12 7 5,625 1
Seattle, WA 14 90 1
Phoenix, AZ 15 8 910 1
Minneapolis, MN 16 7 1,010 1
San Diego, CA 17 8 771
Long Island, NY 18 3
St. Louis, MO 19 6 302 2
Baltimore, MD 20 3 1,027
Tampa, FL 21 8 2,186
Denver, CO 22 7 613 1
Pittsburgh, PA 23 6 39 2
Portland, OR 24 5 27
10
Radio Outdoor Live
Market Broadcasting Advertising Entertainment
Market Rank* Stations Display Faces Venues
------ ----- -------- ------------- ------
Cleveland, OH 25 6 950
Cincinnati, OH 26 8 14 3
Sacramento, CA 27 4 822 2
Riverside, CA 28 4
Kansas City, KS/MO 29 57 2
San Jose, CA 30 2 865
San Antonio, TX 31 6 3,371 1
Milwaukee, WI 32 6 1,748 1
Salt Lake City, UT 34 7 48
Providence, RI 35 3
Columbus, OH 36 5 1,232 1
Charlotte, NC 37 5 1
Norfolk, VA 38 3 11 2
Orlando, FL 39 7 2,849
Indianapolis, IN 40 3 1,588 2
Las Vegas, NV 41 4 9,865
Greensboro, NC 42 4
Austin, TX 43 6 10
Nashville, TN 44 5 35 1
New Orleans, LA 45 7 7,440 1
Raleigh, NC 46 4 10 1
West Palm Beach, FL 47 5 14 2
Memphis, TN 48 6 2,144
Hartford, CT 49 5 20 2
Jacksonville, FL 52 6 1,025
Rochester, NY 53 7
Oklahoma City, OK 54 6 1,083
Louisville, KY 55 8 17
Richmond, VA 56 6 13
Birmingham, AL 57 6
Dayton, OH 58 8
Greenville, SC 60 6
Albany, NY 61 7 1
Honolulu, HI 62 7
Brownsville & McAllen, TX 63 2 2
Tucson, AZ 64 6 1,237
Tulsa, OK 65 6 1,113
Grand Rapids, MI 66 6
Wikes Barre - Scranton, PA 67 38
Fresno, CA 68 3 109
Allentown, PA 69 5
Ft Myers, FL 70 8
Knoxville, TX 71 13
Albuquerque, NM 72 7 1,248 1
Akron, OH 73 3 336
Omaha, NE 74 4
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Radio Outdoor Live
Market Broadcasting Advertising Entertainment
Market Rank* Stations Display Faces Venues
------ ----- -------- ------------- ------
Wilmington, DE 75 4 1,075
Monterey, CA 76 6 48
El Paso, TX 77 5 1,330
Harrisburg, PA 78 2 36
Sarasota, FL 79 6
Syracuse, NY 79 7 6
Toledo, OH 81 7
Springfield, MA 82 4
Baton Rouge, LA 83 6
Greenville, NC 84
Little Rock, AR 85 5 20
Gainsville-Ocala, FL 86 1,415
Stockton, CA 87 3 19
Columbia, SC 88 6 1
Des Moines, IA 89 7 681
Bakersfield, CA 90 6 75
Mobile, AL 91 5
Wichita, KS 92 4 692
Charleston, SC 93 7
Spokane, WA 94 6 19
Daytona Beach, FL 95
Colorado Springs, CO 96 2 17
Madison, WI 97 6 12
Melbourne-Titusville-Cocoa, FL 100 4 817
Various U.S. Cities 101-150 144 3,656 1
Various U.S. Cities 151-200 142 1,478
Various U.S. Cities 201-250 131 156
Various U.S. Cities 251+ 101 430
Various U.S. Cities unranked 169 8,806
INTERNATIONAL:
Australia - New Zealand (a), (b) n/a
Baltics and Russia n/a 5,041
Belgium n/a 13,888
Brazil n/a 6,017
Canada (b) n/a 1,371 1
Chile n/a 945
China (b) n/a
Czech Republic (a) n/a
Denmark n/a 4,681
Finland n/a 1,887
France n/a 140,678
Greece n/a 521
Holland n/a 1,125
Hong Kong (b) n/a
India n/a 343
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Radio Outdoor Live
Market Broadcasting Advertising Entertainment
Market Rank* Stations Display Faces Venues
------ ----- -------- ------------- ------
Ireland n/a 5,614
Italy (b) n/a 15,632
Korea (b) n/a
Malaysia (b) n/a
Mexico (a) n/a 2,794
Netherlands n/a
Norway (a) (b) n/a 10,566
Peru n/a 2,047
Poland n/a 9,726
Singapore (b) n/a 125
Spain n/a 27,763
Sweden n/a 26,710 1
Switzerland n/a 14,343
Taiwan n/a 424
Thailand (b) n/a
Turkey n/a 1,439
United Kingdom (a) n/a 56,098 26
Small transit displays (d) n/a 223,638
----- ------- -----
Total 1,165 (a) 730,039 (b) 96 (c)
===== ======= =====
* Per Arbitron Rankings for Fall 2001
- ----------
(a) Excluded from the 1,165 radio stations owned or operated by Clear Channel
are 75 radio stations programmed pursuant to a local marketing agreement
or a joint sales agreement (FCC licenses not owned by Clear Channel), two
radio stations programmed by another party pursuant to a local marketing
agreement or a joint sales agreement and four Mexican radio stations that
we provide programming to and sell airtime under exclusive sales agency
arrangements. Also excluded are radio stations in Australia, New Zealand,
Czech Republic, Mexico, Norway and The United Kingdom. We own a 50%, 33%,
50%, 40%, 50% and 32% equity interest in companies that have radio
broadcasting operations in these markets, respectively. We also own a 26%
non-voting equity interest in Hispanic Broadcasting Corporation, a leading
domestic Spanish-language radio broadcaster. Radio stations owned or
operated by Hispanic Broadcasting Corporation are also excluded from the
above table.
(b) Excluded from the 730,039 outdoor display faces owned or operated by Clear
Channel are display faces in Australia - New Zealand, Canada, China, Hong
Kong, Italy, Korea, Malaysia, Norway, Singapore and Thailand. We own a
50%, 50%, 46.1%, 50%, 25%, 30%, 49%, 50%, 30% and 31.9% equity interest in
companies that have outdoor advertising operations in these markets,
respectively.
(c) Venues include 52 theaters, 33 amphitheaters, 8 clubs and 3 arenas. Of
these 96 venues, we own 30, lease 43 with lease expiration dates from
August 2000 to November 2058, lease 4 with lease terms in excess of 100
years, and operate 19 under various operating agreements.
Excluded from the 96 live entertainment venues owned or operated by Clear
Channel are 16 venues in which we own a non-controlling interest and 23
venues with which we have a booking, promotions or consulting agreement.
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(d) Small transit displays are small display faces on the interior and
exterior of various public transportation vehicles.
Below is a discussion of our operations within each segment that are not
presented in the above table.
RADIO BROADCASTING
In addition to the radio stations listed above, our radio broadcasting
segment includes a national radio network that produces more than 100 syndicated
radio programs for more than 7,800 radio stations including Rush Limbaugh, The
Dr. Laura Show and The Rick Dees Weekly Top 40, which are three of the top rated
radio programs in the United States. We also own various sports, news and
agriculture networks.
LIVE ENTERTAINMENT
In addition to the live entertainment venues listed above, our live
entertainment segment produces and presents touring and original Broadway &
Family shows. Touring Broadway shows are typically revivals of previous
commercial successes or new productions of theatrical shows currently playing on
Broadway in New York City. We invest in original Broadway productions as a lead
producer or as a limited partner in productions produced by others. The
investments frequently allow us to obtain favorable touring and scheduling
rights for the production that enables distribution across the presenter's
network.
OTHER
Television
As of December 31, 2001, we owned, programmed or sold airtime for 19
television stations. Our television stations are affiliated with various
television networks, including ABC, CBS, NBC, FOX, UPN, PAX and WB.
Media Representation
We own the Katz Media Group, a full-service media representation firm that
sells national spot advertising time for clients in the radio and television
industries throughout the United States. Katz Media is one of the largest media
representation firms in the country, representing over 2,400 radio stations, 370
television stations and growing interests in the representation of cable
television system operators.
Sports Representation
We operate in the sports representation business. Our full-service sports
marketing and management operations specialize in the representation of
professional athletes, integrated event management, television
programming/production, and marketing consulting services. Among our clients are
several hundred professional athletes, including Michael Jordan, Kobe Bryant
(basketball), Roger Clemens (baseball), Greg Norman (golf), Andre Agassi
(tennis), Jerry Rice (football) and David Beckham (soccer - UK).
14
REGULATION OF OUR BUSINESS
Existing Regulation and 1996 Legislation
Radio and television broadcasting are subject to the jurisdiction of the
FCC under the Communications Act of 1934. The Communications Act prohibits the
operation of a radio or television broadcasting station except under a license
issued by the FCC and empowers the FCC, among other things, to:
- - issue, renew, revoke and modify broadcasting licenses;
- - assign frequency bands;
- - determine stations' frequencies, locations, and power;
- - regulate the equipment used by stations;
- - adopt other regulations to carry out the provisions of the Communications
Act;
- - impose penalties for violation of such regulations; and
- - impose fees for processing applications and other administrative functions.
The Communications Act prohibits the assignment of a license or the transfer of
control of a licensee without prior approval of the FCC.
The Telecommunications Act of 1996 represented a comprehensive overhaul of
the country's telecommunications laws. The 1996 Act changed both the process for
renewal of broadcast station licenses and the broadcast ownership rules. The
1996 Act established a "two-step" renewal process that limited the FCC's
discretion to consider applications filed in competition with an incumbent's
renewal application. The 1996 Act also substantially liberalized the national
broadcast ownership rules, eliminating the national radio limits and easing the
national restrictions on TV ownership. The 1996 Act also relaxed local radio
ownership restrictions, but left local TV ownership restrictions in place
pending further FCC review.
The new regulatory flexibility engendered aggressive local, regional,
and/or national acquisition campaigns. Removal of previous station ownership
limitations on leading media companies, such as existing networks and major
station groups, increased sharply the competition for and the prices of
attractive stations.
License Grant and Renewal
Under the 1996 Act, the FCC grants broadcast licenses to both radio and
television stations for terms of up to eight years. The 1996 Act requires the
FCC to renew a broadcast license if it finds that
- - the station has served the public interest, convenience, and necessity;
- - there have been no serious violations of either the Communications Act or
the FCC's rules and regulations by the licensee; and
- - there have been no other serious violations which taken together constitute a
pattern of abuse.
In making its determination, the FCC may consider petitions to deny and informal
objections, and may order a hearing if such petitions or objections raise
sufficiently serious issues. The FCC, however, may not consider whether the
public interest would be better served by a person or entity other than the
renewal applicant. Instead, under the 1996 Act, competing applications for the
incumbent's spectrum may
15
be accepted only after the FCC has denied the incumbent's application for
renewal of license.
Although in the vast majority of cases broadcast licenses are renewed by
the FCC even when petitions to deny or informal objections are filed, there can
be no assurance that any of our stations' licenses will be renewed at the
expiration of their terms.
Current Multiple Ownership Restrictions
The FCC has promulgated rules that, among other things, limit the ability
of individuals and entities to own or have an "attributable interest" in
broadcast stations and other specified mass media entities.
The 1996 Act mandated significant revisions to the radio and television
ownership rules. With respect to radio licensees, the 1996 Act directed the FCC
to eliminate the national ownership restriction, allowing one entity to own
nationally any number of AM or FM broadcast stations. Other FCC rules mandated
by the 1996 Act greatly eased local radio ownership restrictions. The maximum
allowable number of radio stations that may be commonly owned in a market varies
depending on the total number of radio stations in that market, as determined
using a method prescribed by the FCC. In markets with 45 or more stations, one
company may own, operate, or control eight stations, with no more than five in
any one service (AM or FM). In markets with 30-44 stations, one company may own
seven stations, with no more than four in any one service; in markets with 15-29
stations, one entity may own six stations, with no more than four in any one
service. In markets with 14 stations or less, one company may own up to five
stations or 50% of all of the stations, whichever is less, with no more than
three in any one service. These new rules permit common ownership of
substantially more stations in the same market than did the FCC's prior rules,
which at most allowed ownership of no more than two AM stations and two FM
stations even in the largest markets.
Irrespective of FCC rules governing radio ownership, however, the
Antitrust Division of the United States Department of Justice and the Federal
Trade Commission have the authority to determine that a particular transaction
presents antitrust concerns. Following the passage of the 1996 Act, the
Antitrust Division has become more aggressive in reviewing proposed acquisitions
of radio stations, particularly in instances where the proposed purchaser
already owns one or more radio stations in a particular market and seeks to
acquire additional radio stations in the same market. The Antitrust Division
has, in some cases, obtained consent decrees requiring radio station
divestitures in a particular market based on allegations that acquisitions would
lead to unacceptable concentration levels. The FCC has also been more aggressive
in independently examining issues of market concentration when considering radio
station acquisitions. The FCC has delayed its approval of numerous proposed
radio station purchases by various parties because of market concentration
concerns, and generally will not approve radio acquisitions when the Antitrust
Division has expressed concentration concerns, even if the acquisition complies
with the FCC's numerical station limits. Moreover, in recent years the FCC has
followed a so-called "flagging" policy under which it gives specific public
notice of its intention to conduct additional ownership concentration analysis,
and solicits public comment on "the issue of concentration and its effect on
competition and diversity," with respect to certain applications for consent to
radio station acquisitions based on estimated advertising revenue shares or
other criteria.
With respect to television, the 1996 Act directed the FCC to eliminate the
then-existing 12-station national limit for station ownership and increase the
national audience reach limitation from 25% to 35%. The 1996 Act left local TV
ownership restrictions in place pending further FCC review, and in August 1999
the FCC completed this review and modified its local television ownership rule.
Under the current
16
rule, permissible common ownership of television stations is dictated by Nielsen
Designated Market Areas, or "DMAs." A company may own two television stations in
a DMA if the stations' Grade B contours do not overlap. Conversely, a company
may own television stations in separate DMAs even if the stations' service
contours do overlap. Furthermore, a company may own two television stations in a
DMA with overlapping Grade B contours if (i) at least eight independently owned
and operating full-power television stations, the Grade B contours of which
overlap with that of at least one of the commonly owned stations, will remain in
the DMA after the combination; and (ii) at least one of the commonly owned
stations is not among the top four stations in the market in terms of audience
share. The FCC will presumptively waive these criteria and allow the acquisition
of a second same-market television station where the station being acquired is
shown to be "failed" or "failing" (under specific FCC definitions of those
terms), or authorized but unbuilt. A buyer seeking such a waiver must also
demonstrate, in most cases, that it is the only buyer ready, willing, and able
to operate the station, and that sale to an out-of-market buyer would result in
an artificially depressed price. Since the revision of the local television
ownership rule, we have acquired a second television station in each of five
DMAs where we previously owned a television station.
The FCC has adopted rules with respect to so-called local marketing
agreements, or "LMAs", by which the licensee of one radio or television station
provides substantially all the programming for another licensee's station in the
same market and sells all of the advertising within that programming. Under
these rules, an entity that owns one or more radio or television stations in a
market and programs more than 15% of the broadcast time on another station in
the same service (radio or television) in the same market pursuant to an LMA is
required, under certain circumstances, to count the LMA station toward its local
radio or television ownership limits, as applicable, even though it does not own
the station. As a result, in a market where we own one or more radio or
television stations, we generally cannot provide programming under an LMA to
another station in the same service (radio or television) if we cannot acquire
that station under the rules governing local radio or television ownership, as
applicable.
In adopting its rules concerning television LMAs, however, the FCC
provided "grandfathering" relief for LMAs that were in effect at the time of the
rule change in August 1999. Television LMAs that were in place at the time of
the new rules and were entered into before November 5, 1996, were allowed to
continue at least through 2004, when the FCC is scheduled to undertake a
comprehensive review and re-evaluation of its broadcast ownership rules. Such
LMAs entered into after November 5, 1996 were allowed to continue until August
5, 2001 at which point they were required to be terminated unless they complied
with the revised local television ownership rule.
We provide programming under LMAs to television stations in two markets
where we also own a television station. In one additional market, a third party
which owns a television station in that market also programs our station under
an LMA (we have agreed to sell our television station in that market to the
third-party programmer). Each of our television LMAs was entered into before
November 5, 1996. Therefore, under the FCC's August 1999 decision, each of our
television LMAs is permitted to continue through at least the year 2004.
Moreover, we may seek permanent grandfathering of our television LMAs by
demonstrating to the FCC, among other things, the public interest benefits the
LMAs have produced and the extent to which the LMAs have enabled the stations
involved to convert to digital operation.
A number of cross-ownership rules pertain to licensees of television and
radio stations. FCC rules, the Communications Act or both generally prohibit an
individual or entity from having an attributable interest in both a television
station and a cable television system that is located in the same market, and
from having an attributable interest in a radio or television station and a
daily newspaper
17
located in the same market.
Prior to August 1999, FCC rules also generally prohibited common ownership
of a television station and one or more radio stations in the same market,
although the FCC in many cases allowed such combinations under waivers of the
rule. In August 1999, however, the FCC comprehensively revised its
radio/television cross-ownership rule. The revised rule permits the common
ownership of one television and up to seven same-market radio stations, or up to
two television and six same-market radio stations, if the market will have at
least twenty separately owned broadcast, newspaper and cable "voices" after the
combination. Common ownership of up to two television and four radio stations is
permissible when ten "voices" will remain, and common ownership of up to two
television stations and one radio station is permissible in all markets
regardless of voice count. The radio/television limits, moreover, are subject to
the compliance of the television and radio components of the combination with
the television duopoly rule and the local radio ownership limits, respectively.
Waivers of the radio/television cross-ownership rule are available only where
the station being acquired is "failed" (i.e., off the air for at least four
months or involved in court-supervised involuntary bankruptcy or insolvency
proceedings). A buyer seeking such a waiver must also demonstrate, in most
cases, that it is the only buyer ready, willing, and able to operate the
station, and that sale to an out-of-market buyer would result in an artificially
depressed price.
There are twelve markets where we own both radio and television stations.
In the majority of these markets, the number of radio stations we own complies
with the limit imposed by the revised rule. In those markets where our number of
radio stations exceeds the limit under the revised rule, we are nonetheless
authorized to retain our present television/radio combinations at least until
2004, when the FCC is scheduled to undertake a comprehensive review and
re-evaluation of its broadcast ownership rules. As with grandfathered television
LMAs, we may seek permanent authorization for our non-compliant radio/television
combinations by demonstrating to the FCC, among other things, the public
interest benefits the combinations have produced and the extent to which the
combinations have enabled the television stations involved to convert to digital
operation.
Under the FCC's ownership rules, a direct or indirect purchaser of certain
types of our securities could violate FCC regulations or policies if that
purchaser owned or acquired an "attributable" interest in other media properties
in the same areas as our stations or in a manner otherwise prohibited by the
FCC. All officers and directors of a licensee and any direct or indirect parent,
general partners, limited partners and limited liability company members who are
not properly "insulated" from management activities, and stockholders who own
five percent or more of the outstanding voting stock of a licensee or its
parent, either directly or indirectly, generally will be deemed to have an
attributable interest in the licensee. Certain institutional investors who exert
no control or influence over a licensee may own up to twenty percent of a
licensee's or its parent's outstanding voting stock before attribution occurs.
Under current FCC regulations, debt instruments, non-voting stock, minority
voting stock interests in corporations having a single majority shareholder, and
properly insulated limited partnership and limited liability company interests
as to which the licensee certifies that the interest holders are not "materially
involved" in the management and operation of the subject media property
generally are not subject to attribution unless such interests implicate the
FCC's "equity/debt plus," or "EDP," rule. Under the EDP rule, an aggregate
interest in excess of 33% of a licensee's total asset value (equity plus debt)
is attributable if the interest holder is either a major program supplier
(providing over 15% of the licensee's station's total weekly broadcast
programming hours) or a same-market media owner (including broadcasters, cable
operators, and newspapers). To the best of our knowledge at present, none of our
officers, directors or five percent stockholders holds an interest in another
television station, radio station, cable television system or daily newspaper
that is inconsistent with the FCC's ownership rules and policies.
18
Recent Developments and Future Actions Regarding Multiple Ownership Rules
Expansion of our broadcast operations in particular areas and nationwide
will continue to be subject to the FCC's ownership rules and any further changes
the FCC or Congress may adopt. Recent actions by the FCC and the courts may
significantly affect our business.
The 1996 Act requires the FCC to review its remaining ownership rules
biennially as part of its regulatory reform obligations to determine whether its
various rules are still necessary. The first such biennial review concluded on
June 20, 2000, with the FCC's issuance of a report retaining the 35% national
television reach limitation and the limits on the number of radio stations a
company may own in a given market. In its report, however, the FCC stated its
intention to commence separate proceedings requesting specific comment on
- - possible revisions to the manner in which the FCC counts stations for
purposes of the local radio multiple ownership rule;
- - the possible modification of the dual network rule to allow one of the four
major national networks to merge with one of the newer networks; and
- - whether the prohibition on common ownership of a daily newspaper and a
radio or TV broadcast station in the same market should be "tailored" to
cover "only those circumstances in which it is necessary to protect the
public interest."
The FCC has concluded its separate proceeding related to the dual network
rule and has modified that rule to allow one of the four major networks to merge
with one of the newer networks. It has also commenced its proceeding with
respect to the newspaper/broadcast cross-ownership rule. In January 2001, the
FCC completed its 2000 biennial review, making no additional relevant changes to
its ownership rules.
Pursuant to its determination in the initial biennial review, in December
2000 the FCC solicited public comment on a variety of possible changes in the
methodology by which it defines a radio "market" and counts stations for
purposes of determining compliance with the local radio ownership restrictions.
Moreover, in the same proceeding, the FCC announced a policy of deferring, until
the rulemaking is completed, certain pending and future radio sale applications
which raise "concerns" about how the FCC counts the number of stations a company
may own in a market. This deferral policy has delayed FCC approval of our
acquisitions of four radio stations in two pending transactions, and may delay
additional acquisitions for which we seek FCC approval in the near future.
In November 2001, the FCC subsumed its pending market definition/station
counting rulemaking into a larger, more comprehensive proceeding to review all
aspects of the agency's local radio multiple ownership rules. In this proceeding
the FCC has solicited comment on a wide range of issues, including, among other
things, whether it may or should modify its local radio multiple ownership rules
to address concerns of undue market concentration. The FCC has also requested
comment on future regulatory treatment of radio LMAs and radio joint sales
agreements ("JSAs"). Any new or modified rules adopted in this proceeding could
limit our ability to make additional radio acquisitions in the future and could
require us to terminate radio LMAs or JSAs that we currently have in effect.
Additionally, as part of this proceeding, the FCC announced an interim policy
and processing timetables with respect to pending radio acquisitions which it
has delayed under its existing policy of "flagging" certain radio acquisitions
for additional concentration review. Under this interim policy, in many cases
the FCC's staff has requested the parties to provide additional information
regarding the acquisition's effect on competition in the local
19
radio market. We have been requested to provide and have submitted such
information with respect to eleven of our pending radio purchase transactions.
In any one of these cases the FCC may approve our acquisition based on the
additional information submitted. Alternatively, the FCC may give us the option
of undergoing an administrative hearing or awaiting the outcome of the pending
rulemaking.
Recent court developments may have an impact on the FCC's television
ownership rules. In February 2002, the U.S. Court of Appeals for the D.C.
Circuit issued a decision requiring the FCC to initiate further proceedings to
justify its decision, as part of its initial biennial review, to retain the 35%
national television reach limitation. In the same decision, the court also
vacated the FCC's rule prohibiting common ownership of a television station and
a cable television system in the same market. Additionally, the FCC's local
television ownership rule is the subject of a pending court appeal. We cannot
predict the impact of any of these developments on our business. Moreover, we
cannot predict the impact of future biennial reviews or any other agency or
legislative initiatives upon the FCC's broadcast rules. Further, the 1996 Act's
relaxation of the FCC's ownership rules has increased the level of competition
in many markets in which our stations are located.
Alien Ownership Restrictions
The Communications Act restricts the ability of foreign entities or
individuals to own or hold certain interests in broadcast licenses. Foreign
governments, representatives of foreign governments, non-U.S. citizens,
representatives of non-U.S. citizens, and corporations or partnerships organized
under the laws of a foreign nation are barred from holding broadcast licenses.
Non-U.S. citizens, collectively, may own or vote up to twenty percent of the
capital stock of a corporate licensee. A broadcast license may not be granted to
or held by any corporation that is controlled, directly or indirectly, by any
other corporation more than one-fourth of whose capital stock is owned or voted
by non-U.S. citizens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations, if the FCC finds that the public
interest will be served by the refusal or revocation of such license. The FCC
has interpreted this provision of the Communications Act to require an
affirmative public interest finding before a broadcast license may be granted to
or held by any such corporation, and the FCC has made such an affirmative
finding only in limited circumstances. Since we serve as a holding company for
subsidiaries that serve as licensees for our stations, we are effectively
restricted from having more than one-fourth of our stock owned or voted directly
or indirectly by non-U.S. citizens or their representatives, foreign
governments, representatives of non-foreign governments, or foreign
corporations.
Other Regulations Affecting Broadcast Stations
General. The FCC has significantly reduced its past regulation of
broadcast stations, including elimination of formal ascertainment requirements
and guidelines concerning amounts of certain types of programming and commercial
matter that may be broadcast. There are, however, FCC rules and policies, and
rules and policies of other federal agencies, that regulate matters such as
network-affiliate relations, the ability of stations to obtain exclusive rights
to air syndicated programming, cable and satellite systems' carriage of
syndicated and network programming on distant stations, political advertising
practices, application procedures and other areas affecting the business or
operations of broadcast stations.
Public Interest Programming. Broadcasters are required to air programming
addressing the needs and interests of their communities of license, and to place
"issues/programs lists" in their public inspection files to provide their
communities with information on the level of "public interest" programming they
air. In October 2000, the FCC commenced a proceeding seeking comment on whether
20
it should adopt a standardized form for reporting information on a station's
public interest programming and whether it should require television
broadcasters to post the new form - as well as all other documents in their
public inspection files - either on station websites or the websites of state
broadcasters' associations.
Equal Employment Opportunity. In April 1998, the U.S. Court of Appeals for
the D.C. Circuit concluded that the affirmative action requirements of the FCC's
Equal Employment Opportunity ("EEO") regulations were unconstitutional. The FCC
adopted new EEO affirmative action rules in January 2000, but the same court of
appeals struck down the new rules in January 2001. Accordingly, broadcasters are
currently not subject to FCC-imposed EEO regulations other than the general
obligation not to engage in employment discrimination based on race, color,
religion, national origin or sex. In December 2001, however, the FCC solicited
public comment on yet another set of new EEO affirmative action rules and
policies that the agency believes would be constitutional. This proceeding is
currently pending.
Digital Audio Radio Service. The FCC has adopted spectrum allocation and
service rules for satellite digital audio radio service. Satellite digital audio
radio service systems can provide regional or nationwide distribution of radio
programming with fidelity comparable to compact discs. The FCC has authorized
two companies to launch and operate satellite digital audio radio service
systems. Sirius Satellite Radio Inc. has launched three satellites and began
commercial service in a few cities in February 2002. XM Radio has launched two
satellites and is currently providing nationwide service. The FCC is currently
considering what rules to impose on both licensees' operation of terrestrial
repeaters that support their satellite services. The FCC also has undertaken an
inquiry regarding rules for the terrestrial broadcast of digital radio signals,
addressing, among other things, the need for spectrum outside the existing FM
band and the role of existing broadcasters. A technical standard for the
provision of terrestrial digital radio broadcasting has been developed and is
currently before the FCC for approval. We cannot predict the impact of either
satellite or terrestrial digital audio radio service on our business.
Low Power FM Radio Service. In January 2000, the FCC created two new
classes of noncommercial low power FM radio stations ("LPFM"). One class (LP100)
will operate with a maximum power of 100 watts and a service radius of about 3.5
miles. The other class (LP10) will operate with a maximum power of 10 watts and
a service radius of about 1 to 2 miles. In establishing the new LPFM service,
the FCC said that its goal is to create a class of radio stations designed "to
serve very localized communities or underrepresented groups within communities."
The FCC has begun accepting applications for LPFM stations and has granted some
of these applications. In December 2000, Congress passed the Radio Broadcasting
Preservation Act of 2000. This legislation requires the FCC to maintain
interference protection requirements between LPFM stations and full-power radio
stations on third-adjacent channels. It also requires the FCC to conduct field
tests to determine the impact of eliminating such requirements. We cannot
predict the number of LPFM stations that eventually will be authorized to
operate or the impact of such stations on our business.
Other. The FCC has also adopted rules on children's television programming
pursuant to the Children's Television Act of 1990 and rules requiring closed
captioning and video description of television programming. The FCC has also
taken steps to implement digital television broadcasting in the U.S.
Furthermore, the 1996 Act contains a number of provisions related to television
violence. We cannot predict the effect of the FCC's present rules or future
actions on our television broadcasting operations.
21
Congress and the FCC currently have under consideration, and may in the
future adopt, new laws, regulations and policies regarding a wide variety of
matters that could affect, directly or indirectly, the operation and ownership
of our broadcast properties. In addition to the changes and proposed changes
noted above, such matters include, for example, spectrum use fees, political
advertising rates, and potential restrictions on the advertising of certain
products such as beer and wine. Other matters that could affect our broadcast
properties include technological innovations and developments generally
affecting competition in the mass communications industry, such as direct
broadcast satellite service, the continued establishment of wireless cable
systems and low power television stations, "streaming" of audio and video
programming via the Internet, digital television and radio technologies, the
establishment of a low power FM radio service, and the advent of telephone
company participation in the provision of video programming service.
The foregoing is a brief summary of certain provisions of the
Communications Act, the 1996 Act, and specific regulations and policies of the
FCC thereunder. This description does not purport to be comprehensive and
reference should be made to the Communications Act, the 1996 Act, the FCC's
rules and the public notices and rulings of the FCC for further information
concerning the nature and extent of federal regulation of broadcast stations.
Proposals for additional or revised regulations and requirements are pending
before and are being considered by Congress and federal regulatory agencies from
time to time. Also, various of the foregoing matters are now, or may become, the
subject of court litigation, and we cannot predict the outcome of any such
litigation or its impact on our broadcasting business.
RISK FACTORS
We Have a Large Amount of Indebtedness
We currently use a significant portion of our operating income for debt
service. Our leverage could make us vulnerable to an increase in interest rates
or a downturn in the operating performance of our radio broadcast, outdoor
advertising or live entertainment properties or a decline in general economic
conditions. At December 31, 2001, we had debt outstanding of approximately $9.5
billion and shareholders' equity of $29.7 billion. We expect to continue to
borrow funds to finance acquisitions of radio broadcasting, outdoor advertising
and live entertainment properties, as well as for other purposes.
Such a large amount of indebtedness could have negative consequences for
us, including without limitation:
- limitations on our ability to obtain financing in the future;
- much of our cash flow will be dedicated to interest obligations and
unavailable for other purposes;
- the high level of indebtedness limits our flexibility to deal with
changing economic, business and competitive conditions; and
- the high level of indebtedness could make us more vulnerable to an
increase in interest rates, a downturn in our operating performance
or a decline in general economic conditions.
22
The failure to comply with the covenants in the agreements governing the
terms of our or our subsidiaries' indebtedness could be an event of default and
could accelerate the payment obligations and, in some cases, could affect other
obligations with cross-default and cross-acceleration provisions.
Our Business is Dependent Upon the Performance of Key Employees, On-Air Talent
and Program Hosts
Our business is dependent upon the performance of certain key employees.
We employ or independently contract with several on-air personalities and hosts
of syndicated radio programs with significant loyal audiences in their
respective markets. Although we have entered into long-term agreements with some
of our executive officers, key on-air talent and program hosts to protect their
interests in those relationships, we can give no assurance that all or any of
these key employees will remain with us or will retain their audiences.
Competition for these individuals is intense and many of our key employees are
at-will employees who are under no legal obligation to remain with us. Our
competitors may choose to extend offers to any of these individuals on terms
which we may be unwilling to meet. In addition, any or all of our key employees
may decide to leave for a variety of personal or other reasons beyond our
control. Furthermore, the popularity and audience loyalty of our key on-air
talent and program hosts is highly sensitive to rapidly changing public tastes.
A loss of such popularity or audience loyalty is beyond our control and could
limit our ability to generate revenues.
Doing Business in Foreign Countries Creates Certain Risks Not Found in Doing
Business in the United States
Doing business in foreign countries carries with it certain risks that are
not found in doing business in the United States. We currently derive a portion
of our revenues from international radio broadcasting, outdoor advertising and
live entertainment operations in countries around the world and a key element of
our business strategy is to expand our international operations. The risks of
doing business in foreign countries which could result in losses against which
we are not insured include:
- exposure to local economic conditions;
- potential adverse changes in the diplomatic relations of foreign
countries with the United States;
- hostility from local populations;
- the adverse effect of currency exchange controls;
- restrictions on the withdrawal of foreign investment and earnings;
- government policies against businesses owned by foreigners;
- investment restrictions or requirements;
- expropriations of property;
- the potential instability of foreign governments;
- the risk of insurrections;
23
- risks of renegotiation or modification of existing agreements with
governmental authorities;
- foreign exchange restrictions;
- withholding and other taxes on remittances and other payments by
subsidiaries; and
- changes in taxation structure.
Exchange Rates May Cause Future Losses in Our International Operations
Because we own assets overseas and derive revenues from our international
operations, we may incur currency translation losses due to changes in the
values of foreign currencies and in the value of the U.S. dollar. We cannot
predict the effect of exchange rate fluctuations upon future operating results.
We currently maintain no derivative instruments to reduce the exposure to
translation or transaction risk.
Extensive Government Regulation May Limit Our Broadcasting Operations
The federal government extensively regulates the domestic broadcasting
industry, and any changes in the current regulatory scheme could significantly
affect us. Our broadcasting businesses depend upon maintaining broadcasting
licenses issued by the FCC for maximum terms of eight years. Renewals of
broadcasting licenses can be attained only through the FCC's grant of
appropriate applications. Although the FCC rarely denies a renewal application,
the FCC could deny future renewal applications resulting in the loss of one or
more of our broadcasting licenses.
The federal communications laws limit the number of broadcasting
properties we may own in a particular area. While the Telecommunications Act of
1996 relaxed the FCC's multiple ownership limits, any subsequent modifications
that tighten those limits could make it impossible for us to complete potential
acquisitions or require us to divest stations we have already acquired. For
instance, the FCC has adopted modified rules that in some cases permit a company
to own fewer radio stations than allowed by the Telecommunications Act of 1996
in markets or geographical areas where the company also owns television
stations. These modified rules could require us to divest radio stations we
currently own in markets or areas where we also own television stations.
Moreover, changes in governmental regulations and policies may have a
material impact on us. For example, we currently provide programming to several
television stations we do not own and receive programming from other parties for
certain television stations we do own. These programming arrangements are made
through contracts known as local marketing agreements. The FCC has recently
revised its rules and policies regarding television local marketing agreements.
These revisions will restrict our ability to enter into television local
marketing agreements in the future, and may eventually require us to terminate
our programming arrangements under existing local marketing agreements.
Additionally, the FCC has adopted rules which under certain circumstances
subject previously nonattributable debt and equity interests in communications
media to the FCC's multiple ownership restrictions. These rules may limit our
ability to expand our media holdings. Also, the FCC has recently instituted a
proceeding to consider a broad range of possible changes to its rules governing
radio ownership in local markets. These possible changes may limit our ability
to make future radio acquisitions, and may eventually require us to terminate
existing agreements whereby we provide programming to or sell advertising on
radio stations we do not own. Additionally, under an interim policy announced by
the FCC in connection with its
24
proceeding to modify the radio ownership rules, the FCC could designate for
hearing or significantly delay approval of certain of our pending radio
acquisitions which, in the FCC's view, raise local market concentration
concerns.
Antitrust Regulations May Limit Our Acquisition Strategy
Additional acquisitions by us of radio and television stations, outdoor
advertising properties and live entertainment operations or entities may require
antitrust review by federal antitrust agencies and may require review by foreign
antitrust agencies under the antitrust laws of foreign jurisdictions. We can
give no assurances that the Department of Justice or the Federal Trade
Commission or foreign antitrust agencies will not seek to bar us from acquiring
additional radio or television stations, outdoor advertising or entertainment
properties in any market where we already have a significant position. Following
passage of the Telecommunications Act of 1996, the DOJ has become more
aggressive in reviewing proposed acquisitions of radio stations, particularly in
instances where the proposed acquiror already owns one or more radio station
properties in a particular market and seeks to acquire another radio station in
the same market. The DOJ has, in some cases, obtained consent decrees requiring
radio station divestitures in a particular market based on allegations that
acquisitions would lead to unacceptable concentration levels. The DOJ also
actively reviews proposed acquisitions of outdoor advertising properties. In
addition, the antitrust laws of foreign jurisdictions will apply in we acquire
international broadcasting properties.
Environmental, Health, Safety and Land Use Laws and Regulations May Limit or
Restrict Some of Our Operations
As the owner or operator of various real properties and facilities,
especially in our outdoor advertising and live entertainment venue operations,
we must comply with various foreign, federal, state and local environmental,
health, safety and land use laws and regulations. We and our properties are
subject to such laws and regulations relating to the use, storage, disposal,
emission and release of hazardous and non-hazardous substances and employee
health and safety, as well as zoning and noise level restrictions which may
affect, among other things, the hours of operations of our live entertainment
venues. Historically, we have not incurred significant expenditures to comply
with these laws. However, additional laws which may be passed in the future, or
a finding of a violation of or liability under existing laws, could require us
to make significant expenditures and otherwise limit or restrict some of our
operations.
Government Regulation of Outdoor Advertising May Restrict Our Outdoor
Advertising Operations
The outdoor advertising industry is subject to extensive governmental
regulation at the federal, state and local level. These regulations include
restrictions on the construction, repair, upgrading, height, size and location
of and, in some instances, content of advertising copy being displayed on
outdoor advertising structures. In addition, the outdoor advertising industry is
subject to certain foreign governmental regulation. Compliance with existing and
future regulations could have a significant financial impact on us.
Federal law, principally the Highway Beautification Act of 1965, requires,
as a condition to federal highway assistance, states to implement legislation to
restrict billboards located within 660 feet of, or visible from, highways except
in commercial or industrial areas and requires certain additional size, spacing
and other limitations. Every state has implemented regulations at least as
restrictive as the Highway Beautification Act, including a ban on the
construction of new billboards along federally-aided
25
highways and the removal of any illegal signs on these highways at the owner's
expense and without any compensation. Federal law does not require removal of
existing lawful billboards, but does require payment of compensation if a state
or political subdivision compels the removal of a lawful billboard along a
federally aided primary or interstate highway. State governments have purchased
and removed legal billboards for beautification in the past, using federal
funding for transportation enhancement programs, and may do so in the future.
States and local jurisdictions have, in some cases, passed additional
regulations on the construction, size, location and, in some instances,
advertising content of outdoor advertising structures adjacent to
federally-aided highways and other thoroughfares. From time to time governmental
authorities order the removal of billboards by the exercise of eminent domain
and certain jurisdictions have also adopted amortization of billboards in
varying forms. Amortization permits the billboard owner to operate its billboard
only as a non-conforming use for a specified period of time, after which it must
remove or otherwise conform its billboard to the applicable regulations at its
own cost without any compensation. Several municipalities within our existing
markets have adopted amortization ordinances. Restrictive regulations also limit
our ability to rebuild or replace nonconforming billboards. We can give no
assurance that we will be successful in negotiating acceptable arrangements in
circumstances in which our billboards are subject to removal or amortization,
and what effect, if any, such regulations may have on our operations.
In addition, we are unable to predict what additional regulations may be
imposed on outdoor advertising in the future. The outdoor advertising industry
is heavily regulated and at various times and in various markets can be expected
to be subject to varying degrees of regulatory pressure affecting the operation
of advertising displays. Legislation regulating the content of billboard
advertisements and additional billboard restrictions has been introduced in
Congress from time to time in the past. Changes in laws and regulations
affecting outdoor advertising at any level of government, including laws of the
foreign jurisdictions in which we operate, could have a significant financial
impact on us by requiring us to make significant expenditures or otherwise
limiting or restricting some of our operations
Changes in Restrictions on Outdoor Tobacco and Alcohol Advertising May Pose
Risks
The outdoor advertising industry is subject to regulations related to
outdoor tobacco advertising. In addition, recent settlement agreements and
potential legislation related to outdoor tobacco advertising have and will
likely continue to affect our outdoor advertising operations. Out-of-court
settlements between the major U.S. tobacco companies and all 50 states include a
ban on the outdoor advertising of tobacco products.
In addition to the above settlement agreements, state and local
governments are also regulating the outdoor advertising of alcohol and tobacco
products. For example, several states and cities have laws restricting tobacco
billboard advertising near schools and other locations frequented by children.
Some cities have proposed even broader restrictions, including complete bans on
outdoor tobacco advertising on billboards, kiosks, and private business window
displays. It is possible that state and local governments may propose or pass
similar ordinances to limit outdoor advertising of alcohol and other products or
services in the future. Legislation regulating tobacco and alcohol advertising
has also been introduced in a number of European countries in which we conduct
business, and could have a similar impact. Any significant reduction in alcohol
related advertising due to content-related restrictions could cause a reduction
in our direct revenue from such advertisements and a simultaneous increase in
the available space on the existing inventory of billboards in the outdoor
advertising industry.
26
Our Acquisition Strategy Could Pose Risks
We intend to grow through the acquisition of media-related assets and
other assets or businesses that we believe will assist our customers in
marketing their products and services. Our acquisition strategy involves
numerous risks, including:
- certain of our acquisitions may prove unprofitable and fail to
generate anticipated cash flows;
- to successfully manage a rapidly expanding and significantly larger
portfolio of broadcasting, outdoor advertising, entertainment and
other properties, we may need to:
>> recruit additional senior management as we cannot be assured
that senior management of acquired companies will continue to
work for us and, in this highly competitive labor market, we
cannot be certain that any of our recruiting efforts will
succeed, and
>> expand corporate infrastructure to facilitate the integration
of our operations with those of acquired properties, because
failure to do so may cause us to lose the benefits of any
expansion that we decide to undertake by leading to
disruptions in our ongoing businesses or by distracting our
management;
- entry into markets and geographic areas where we have limited or no
experience;
- we may encounter difficulties in the integration of operations and
systems;
- our management's attention may be diverted from other business
concerns; and
- we may lose key employees of acquired companies or stations.
We frequently evaluate strategic opportunities both within and outside our
existing lines of business. We expect from time to time to pursue additional
acquisitions and may decide to dispose of certain businesses. These acquisitions
or dispositions could be material.
Capital Requirements Necessary to Implement Our Acquisition Strategy Could Pose
Risks
We face stiff competition from other broadcasting, outdoor advertising and
live entertainment companies for acquisition opportunities. If the prices sought
by sellers of these companies continue to rise, we may find fewer acceptable
acquisition opportunities. In addition, the purchase price of possible
acquisitions could require additional debt or equity financing on our part.
Since the terms and availability of this financing depends to a large degree
upon general economic conditions and third parties over which we have no
control, we can give no assurance that we will obtain the needed financing or
that we will obtain such financing on attractive terms. In addition, our ability
to obtain financing depends on a number of other factors, many of which are also
beyond our control, such as interest rates and national and local business
conditions. If the cost of obtaining needed financing is too high or the terms
of such financing are otherwise unacceptable in relation to the acquisition
opportunity we are presented with, we may decide to forego that opportunity.
Additional indebtedness could increase our leverage and make us more vulnerable
to economic downturns and may limit our ability to withstand competitive
pressures. Additional equity financing could result in dilution to our
shareholders.
27
We Face Intense Competition in the Broadcasting, Outdoor Advertising and Live
Entertainment Industries
Our business segments are in highly competitive industries, and we may not
be able to maintain or increase our current audience ratings and advertising and
sales revenues. Our radio stations and outdoor advertising properties compete
for audiences and advertising revenues with other radio stations and outdoor
advertising companies, as well as with other media, such as newspapers,
magazines, cable television, and direct mail, within their respective markets.
Audience ratings and market shares are subject to change, which could have the
effect of reducing our revenues in that market. Our live entertainment
operations compete with other venues to serve artists likely to perform in that
general region and, in the markets in which we promote musical concerts, we face
competition from promoters, as well as from certain artists who promote their
own concerts. These competitors may engage in more extensive development
efforts, undertake more far reaching marketing campaigns, adopt more aggressive
pricing policies and make more attractive offers to existing and potential
customers or artists. Our competitors may develop services, advertising mediums
or entertainment venues that are equal or superior to those we provide or that
achieve greater market acceptance and brand recognition than we achieve. It is
possible that new competitors may emerge and rapidly acquire significant market
share in any of our business segments. Other variables that could adversely
affect our financial performance by, among other things, leading to decreases in
overall revenues, the number of advertising customers, advertising fees, ticket
prices or profit margins include:
- unfavorable economic conditions, both general and relative to the
radio broadcasting, outdoor advertising and live entertainment
industries, which may cause companies to reduce their expenditures
on advertising or corporate sponsorship or reduce the number of
persons willing to attend live entertainment events;
- unfavorable shifts in population and other demographics which may
cause us to lose advertising customers and audience as people
migrate to markets where we have a smaller presence, or which may
cause advertisers to be willing to pay less in advertising fees if
the general population shifts into a less desirable age or
geographical demographic from an advertising perspective;
- an increased level of competition for advertising dollars, which may
lead to lower advertising rates as we attempt to retain customers or
which may cause us to lose customers to our competitors who offer
lower rates that we are unable or unwilling to match;
- unfavorable fluctuations in operating costs which we may be
unwilling or unable to pass through to our customers;
- technological changes and innovations that we are unable to adopt or
are late in adopting that offer more attractive advertising or
entertainment alternatives than what we currently offer, which may
lead to a loss of advertising customers or ticket sales, or to lower
advertising rates or ticket prices;
- unfavorable changes in labor conditions which may require us to
spend more to retain and attract key employees; and
- changes in governmental regulations and policies and actions of
federal regulatory bodies
28
which could restrict the advertising mediums which we employ or
restrict some or all of our customers that operate in regulated
areas from using certain advertising mediums, or from advertising at
all, or which may restrict the operation of live entertainment
events.
New Technologies May Affect Our Broadcasting Operations
The FCC is considering ways to introduce new technologies to the
broadcasting industry, including satellite and terrestrial delivery of digital
audio broadcasting and the standardization of available technologies which
significantly enhance the sound quality of radio broadcasts. We are unable to
predict the effect such technologies will have on our broadcasting operations,
but the capital expenditures necessary to implement such technologies could be
substantial and other companies employing such technologies could compete with
our businesses. We also face risks in implementing the conversion of our
television stations to digital television, which the FCC has ordered and for
which it has established a timetable. We will incur considerable expense in the
conversion to digital television and are unable to predict the extent or timing
of consumer demand for any such digital television services. Moreover, the FCC
may impose additional public service obligations on television broadcasters in
return for their use of the digital television spectrum. This could add to our
operational costs. One issue yet to be resolved is the extent to which cable
systems will be required to carry broadcasters' new digital channels. Our
television stations are highly dependent on their carriage by cable systems in
the areas they serve. Thus, FCC rules that impose no or limited obligations on
cable systems to carry the digital television signals of television broadcast
stations in their local markets could require us to make significant
expenditures to arrange for carriage by cable systems of our television stations
or result in some of our television stations not being carried on cable systems.
Our Live Entertainment Business is Highly Sensitive to Public Tastes and
Dependent on Our Ability to Secure Popular Artists, Live Entertainment Events
and Venues
Our ability to generate revenues through our live entertainment operations
is highly sensitive to rapidly changing public tastes and dependent on the
availability of popular performers and events. Since we rely on unrelated
parties to create and perform live entertainment content, any lack of
availability of popular musical artists, touring Broadway shows, specialized
motor sports talent and other performers could limit our ability to generate
revenues. In addition, we require access to venues to generate revenues from
live entertainment events. We operate a number of our live entertainment venues
under leasing or booking agreements. Our long-term success in the live
entertainment business will depend in part on our ability to renew these
agreements when they expire or end. As many of these agreements are with third
parties over which we have little or no control, we may be unable to renew these
agreements on acceptable terms or at all, and may be unable to obtain favorable
agreements with new venues. Our ability to renew these agreements or obtain new
agreements on favorable terms depends on a number of other factors, many of
which are also beyond our control, such as national and local business
conditions. If the cost of renewing these agreements is too high or the terms of
any new agreement with a new venue are unacceptable or incompatible with our
existing operations, we may decide to forego these opportunities. In addition,
our competitors may offer more favorable terms than we do in order to obtain
agreements for new venues.
29
Caution Concerning Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements made by us or on our behalf. Except for
the historical information, this report contains various forward-looking
statements which represent our expectations or beliefs concerning future events,
including the future levels of cash flow from operations. Management believes
that all statements that express expectations and projections with respect to
future matters, including the strategic fit of radio assets; expansion of market
share; our ability to capitalize on synergies between the live entertainment and
radio broadcasting businesses; our ability to negotiate contracts having more
favorable terms; and the availability of capital resources; are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act.
We caution that these forward-looking statements involve a number of risks and
uncertainties and are subject to many variables which could impact our financial
performance. These statements are made on the basis of management's views and
assumptions, as of the time the statements are made, regarding future events and
business performance. There can be no assurance, however, that management's
expectations will necessarily come to pass.
A wide range of factors could materially affect future developments and
performance, including:
- the impact of general economic conditions in the U.S. and in other
countries in which we currently do business;
- our ability to integrate the operations of recently acquired
companies;
- shifts in population and other demographics;
- industry conditions, including competition;
- fluctuations in operating costs;
- technological changes and innovations;
- changes in labor conditions;
- fluctuations in exchange rates and currency values;
- capital expenditure requirements;
- legislative or regulatory requirements;
- interest rates;
- the effect of leverage on our financial position and earnings;
- taxes;
- access to capital markets; and
- certain other factors set forth in our SEC filings.
30
This list of factors that may affect future performance and the accuracy
of forward-looking statements is illustrative, but by no means exhaustive.
Accordingly, all forward-looking statements should be evaluated with the
understanding of their inherent uncertainty.
ITEM 2. PROPERTIES
CORPORATE
Our corporate headquarters is in San Antonio, Texas, primarily housed in
our company owned 55,000 square foot corporate office building. We also own an
8,000 square foot data center and lease approximately 45,000 square feet of
office space in San Antonio with the leases expiring in December 2002. In
addition, we are currently constructing a 120,000 square foot building that will
serve as our data and administrative service center. We expect this building to
be completed prior to the December 2002 expiration of our current leases.
OPERATIONS
Radio Broadcasting
The headquarters of our radio operations is in 21,201 square feet of
leased office space in Covington, Kentucky. The lease on this premise expires in
November 2008. The types of properties required to support each of our radio
stations include offices, studios, transmitter sites and antenna sites. A radio
station's studios are generally housed with its offices in downtown or business
districts. A radio station's transmitter sites and antenna sites are generally
located in a manner that provides maximum market coverage.
Outdoor Advertising
The headquarters of our domestic outdoor advertising operations is in
15,505 square feet of leased office space in Phoenix, Arizona. The lease on this
premise expires in April 2006. The headquarters of our international outdoor
advertising operations is in 8,688 square feet of leased office space in London,
England. The lease on this premise expires in June 2014. The types of properties
required to support each of our outdoor advertising branches include offices,
production facilities and structure sites. An outdoor branch and production
facility is generally located in an industrial/warehouse district.
We own or have permanent easements on relatively few parcels of real
property that serve as the sites for our outdoor displays. Our remaining outdoor
display sites are leased. Our leases are for varying terms ranging from
month-to-month to year-to-year and can be for terms of ten years or longer, and
many provide for renewal options. There is no significant concentration of
displays under any one lease or subject to negotiation with any one landlord. We
believe that an important part of our management activity is to negotiate
suitable lease renewals and extensions.
Live Entertainment
The international headquarters of our live entertainment operations is in
115,291 square feet of leased office space in New York City, New York. The lease
on this premise expires in September 2020. Several members of the live
entertainment senior management team as well as other live entertainment
operations are located in 100,227 square feet of leased office space in Houston,
Texas. The lease on this premise expires in March 2009. The types of properties
required to support each of our live entertainment operations include offices
and venues. Our live entertainment venues generally include offices and are
located in major metropolitan areas.
31
The studios and offices of our radio stations, outdoor advertising
branches and live entertainment venues are located in leased or owned
facilities. These leases generally have expiration dates that range from one to
twenty years. We either own or lease our transmitter and antenna sites. These
leases generally have expiration dates that range from five to fifteen years. We
do not anticipate any difficulties in renewing those leases that expire within
the next several years or in leasing other space, if required. We own
substantially all of the equipment used in our radio broadcasting, outdoor
advertising and live entertainment businesses.
As noted in Item 1 above, as of December 31, 2001, we own or program 1,165
radio stations, own or lease 730,039 outdoor advertising display faces and own
or operate 96 entertainment venues in various markets throughout the world. See
"Business -- Operating Segments." Therefore, no one property is material to our
overall operations. We believe that our properties are in good condition and
suitable for our operations.
ITEM 3. LEGAL PROCEEDINGS
From time to time we become involved in various claims and lawsuits
incidental to our business, including defamation actions. In the opinion of our
management, after consultation with counsel, any ultimate liability arising out
of currently pending claims and lawsuits will not have a material effect on our
financial condition or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders in the
fourth quarter of fiscal year 2001.
32
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the New York Stock Exchange under the symbol
"CCU." There were approximately 3,388 shareholders of record as of March 8,
2002. This figure does not include an estimate of the indeterminate number of
beneficial holders whose shares may be held of record by brokerage firms and
clearing agencies. The following table sets forth, for the calendar quarters
indicated, the reported high and low sales prices of the common stock as
reported on the NYSE.
Clear Channel
Common Stock
-------------
Market Price
------------
High Low
---- ---
2000
First Quarter........................................ $95.50 $60.00
Second Quarter....................................... 83.00 62.06
Third Quarter........................................ 85.81 54.75
Fourth Quarter....................................... 61.00 43.88
2001
First Quarter........................................ 68.08 47.25
Second Quarter....................................... 65.60 50.12
Third Quarter........................................ 64.15 35.20
Fourth Quarter....................................... 51.60 36.99
DIVIDEND POLICY
Presently, we expect to retain our earnings for the development and
expansion of our business and do not anticipate paying cash dividends in 2002.
The terms of our current credit facilities do not prohibit us from paying cash
dividends unless we are in default under our credit facilities either prior to
or after giving effect to any proposed dividend. However, any future decision by
our Board of Directors to pay cash dividends will depend on, among other
factors, our earnings, financial position, and capital requirements.
33
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data)
As of and for the Years ended December 31, (1)
----------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
RESULTS OF OPERATIONS INFORMATION:
Revenue $ 7,970,003 $ 5,345,306 $ 2,678,160 $1,350,940 $ 697,068
Operating Expenses:
Divisional operating expenses 5,866,706 3,480,706 1,632,115 767,265 394,404
Non-cash compensation expense 17,077 16,032 -- -- --
Depreciation and amortization 2,562,480 1,401,063 722,233 304,972 114,207
Corporate expenses 187,434 142,627 70,146 37,825 20,883
----------- ----------- ----------- ---------- ----------
Operating income (loss) (663,694) 304,878 253,666 240,878 167,574
Interest expense 560,077 383,104 179,404 135,766 75,076
Gain (loss) on sale of assets
related to mergers (213,706) 783,743 138,659 -- --
Gain (loss) on marketable securities 25,820 (5,369) 22,930 39,221 10,019
Equity in earnings of
nonconsolidated affiliates 10,393 25,155 18,183 10,305 9,132
Other income (expense) - net 152,267 (11,764) (15,638) (26,411) 1,560
----------- ----------- ----------- ---------- ----------
Income before income taxes and
extraordinary item (1,248,997) 713,539 238,396 128,227 113,209
Income tax benefit (expense) 104,971 (464,731) (152,741) (74,196) (49,633)
----------- ----------- ----------- ---------- ----------
Income before extraordinary item (1,144,026) 248,808 85,655 54,031 63,576
Extraordinary item -- -- (13,185) -- --
----------- ----------- ----------- ---------- ----------
Net income (loss) $(1,144,026) $ 248,808 $ 72,470 $ 54,031 $ 63,576
=========== =========== =========== ========== ==========
Net income(loss) per common share(2)
Basic:
Income (loss) before
extraordinary item $ (1.93) $ .59 $ .27 $ .23 $ .36
Extraordinary item -- -- (.04) -- --
----------- ----------- ----------- ---------- ----------
Net income (loss) $ (1.93) $ .59 $ .23 $ .23 $ .36
=========== =========== =========== ========== ==========
Diluted:
Income (loss) before
extraordinary item $ (1.93) $ .57 $ .26 $ .22 $ .33
Extraordinary item -- -- (.04) -- --
----------- ----------- ----------- ---------- ----------
Net income (loss) $ (1.93) $ .57 $ .22 $ .22 $ .33
=========== =========== =========== ========== ==========
Cash dividends per share $ -- $ -- $ -- $ -- $ --
=========== =========== =========== ========== ==========
BALANCE SHEET DATA:
Current assets $ 1,941,299 $ 2,343,217 $ 925,109 $ 409,960 $ 210,742
Property, plant and equipment - net 3,956,749 4,255,234 2,478,124 1,915,787 746,284
Total assets 47,603,142 50,056,461 16,821,512 7,539,918 3,455,637
Current liabilities 2,959,857 2,128,550 685,515 258,144 86,852
Long-term debt, net of current maturities 7,967,713 10,597,082 4,584,352 2,323,643 1,540,421
Shareholders' equity 29,736,063 30,347,173 10,084,037 4,483,429 1,746,784
(1) Acquisitions and dispositions significantly impact the comparability of
the historical consolidated financial data reflected in this schedule of
Selected Financial Data.
(2) All per share amounts have been adjusted to reflect the two-for-one stock
split effected in July 1998.
The Selected Financial Data should be read in conjunction with
Management's Discussion and Analysis.
34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
Management's discussion and analysis of the results of operation and
financial condition of Clear Channel Communications, Inc. and its subsidiaries
should be read in conjunction with the Consolidated Financial Statements and
related Footnotes. The discussion is presented on both a consolidated and
segment basis. Our reportable operating segments are: RADIO BROADCASTING which
includes all domestic and international radio assets and radio networks; OUTDOOR
ADVERTISING which includes domestic and international billboards, transit
displays, street furniture and other outdoor advertising media; and LIVE
ENTERTAINMENT which includes live music, theatrical, family entertainment and
motor sports events. Included in the "other" segment is television broadcasting,
sports representation, and our media representation business, Katz Media.
RESULTS OF OPERATIONS
We evaluate the operating performance of our businesses using several
measures, one of them being EBITDA as Adjusted (defined as revenue less
divisional operating and corporate expenses). EBITDA as Adjusted eliminates the
uneven effect across our business segments, as well as in comparison to other
companies, of considerable amounts of non-cash depreciation and amortization
recognized in business combinations accounted for under the purchase method. We
have used the purchase method of accounting for all mergers and acquisitions in
the history of our company. Non-cash depreciation and amortization is
significant due to the consolidation in our industry. While we and many in the
financial community consider EBITDA as Adjusted to be an important measure of
operating performance, it should be considered in addition to, but not as a
substitute for or superior to, other measures of financial performance prepared
in accordance with generally accepted accounting principles such as operating
income and net income. In addition, our definition of EBITDA as Adjusted is not
necessarily comparable to similarly titled measures reported by other companies.
We measure the performance of our operating segments and managers based on
a pro forma measurement that includes adjustments to the prior period for all
current and prior year acquisitions. Adjustments are made to the prior period to
include the operating results of the acquisition for the corresponding period of
time that the acquisition was owned in the current period. In addition, results
of operations from divested assets are excluded from all periods presented. We
believe pro forma is the best measure of our operating performance as it
includes the performance of assets for the period of time we managed the assets.
Pro forma is compared in constant U.S. dollars (i.e. a currency exchange
adjustment is made to the 2001 actual results to present foreign revenues and
expenses in 2000 dollars) allowing for comparison of operations independent of
foreign exchange movements.
The following tables set forth our consolidated and segment results of
operations on both a reported and a pro forma basis.
35
FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000
CONSOLIDATED
(In thousands)
Reported Basis: Years Ended December 31,
----------------------- % Change
2001 2000 2001 v. 2000
---- ---- ------------
Revenue $ 7,970,003 $ 5,345,306 49%
Divisional Operating Expenses 5,866,706 3,480,706 69%
Corporate Expenses 187,434 142,627 31%
---------- ----------
EBITDA as Adjusted * 1,915,863 1,721,973 11%
---------- ----------
Reconciliation to net income (loss):
Non-cash compensation expense 17,077 16,032
Depreciation and amortization 2,562,480 1,401,063
Interest expense 560,077 383,104
Gain (loss) on sale of assets related to mergers (213,706) 783,743
Gain (loss) on marketable securities 25,820 (5,369)
Equity in earnings of nonconsolidated affiliates 10,393 25,155
Other income (expense) - net 152,267 (11,764)
Income tax benefit (expense) 104,971 (464,731)
---------- ----------
Net income (loss) $(1,144,026) $ 248,808
=========== ===========
Other Data:
Cash Flow from Operating Activities $ 609,587 $ 755,085
----------- -----------
Cash Flow from Investing Activities $ 90,274 $(1,755,654)
----------- -----------
Cash Flow from Financing Activities $ (741,955) $ 1,120,683
----------- -----------
* See page 35 for cautionary disclosure
Pro Forma Basis: Years Ended December 31,
------------------------ % Change
2001 2000 2001 v. 2000
---- ---- ------------
Revenue $ 8,015,403 $ 8,440,122 (5)%
Divisional Operating Expenses 5,902,405 5,735,156 3%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS
(In thousands)
Years Ended December 31,
------------------------
2001 2000
---- ----
Reported Revenue $ 7,970,003 $ 5,345,306
Acquisitions -- 3,186,693
Divestitures (6,146) (91,877)
Foreign Exchange adjustments 51,546 --
----------- -----------
Pro Forma Revenue $ 8,015,403 $ 8,440,122
----------- -----------
Reported Divisional Operating Expenses $ 5,866,706 $ 3,480,706
Acquisitions -- 2,297,219
Divestitures (6,140) (42,769)
Foreign Exchange adjustments 41,839 --
----------- -----------
Pro Forma Divisional Operating Expenses $ 5,902,405 $ 5,735,156
----------- -----------
36
On a reported basis, revenue and divisional operating expenses increased
primarily due to our 2000 acquisitions. Included in our fiscal year 2001
reported basis amounts are the revenues and divisional operating expenses for a
twelve-month period from our 2000 acquisitions, the most significant being SFX
Entertainment, Inc., acquired August 1, 2000, AMFM Inc. acquired on August 30,
2000, and Donrey Media Group acquired on September 1, 2000. Our SFX acquisition,
valued at approximately $4.4 billion entered us into the live entertainment
industry. This acquisition accounts for approximately $1.6 billion of the total
$2.6 billion increase in reported revenue for fiscal year 2001 as compared to
fiscal year 2000. Our AMFM acquisition, valued at $19.4 billion dramatically
increased our ownership of radio stations. This acquisition accounts for
approximately $1.2 billion of the total $2.6 billion increase in reported
revenue for fiscal year 2001 as compared to fiscal year 2000. The increase in
reported revenue related to our less significant 2000 and 2001 acquisitions as
well as the increase related to SFX and AMFM were offset due to reasons
discussed below in our pro forma presentation. Our SFX and AMFM acquisitions
account for approximately $1.5 billion and $728.2 million, respectively of the
total $2.4 billion increase in reported divisional operating expenses. In
addition to this increase, reported divisional operating expenses increased due
to our less significant 2000 and 2001 acquisitions as well as the reasons
discussed below in our pro forma presentation.
Pro forma revenue decreased $424.7 million or 5% in fiscal year 2001 due
to an overall softening of the advertising industry, especially as compared to
the strong advertising environment during the majority of 2000. During 2001,
advertising rates were lower in our radio and outdoor business related to the
decreased inventory demand within the advertising industry. As the advertising
environment softens, advertising rates decline and inventory demands weaken.
Although the decrease in pro forma revenue was apparent in most markets, of the
$424.7 million decline, our top 25 domestic radio and outdoor markets accounted
for approximately $296.0 million, or 70% of the total decline. The decline in
pro forma revenue within these markets was predominately due to the decline in
national advertising during fiscal year 2001 as compared to fiscal year 2000.
Similarly, our radio network revenue, which is primarily national sales,
declined approximately $45.1 million, or 11% of the total decline during 2001 as
compared to 2000, again directly related to the decline in the overall economy.
The decline in pro forma revenue was partially offset by an $84.4 million
increase in pro forma revenue within our live entertainment division. During
2001, we changed the mix of live music events within this division to include
approximately 48% more stadium and arena events as compared to the prior year.
Stadium and arenas are generally larger venues that allow for more ticket sales
related to the increased seating capacity.
Although pro forma revenue decreased 5%, pro forma divisional operating
expenses increased $167.2 million, or 3% in fiscal year 2001. This increase was
partially due to the increase of selling costs and artist payments related to
our change in the mix of live music events within the entertainment division as
compared to fiscal year 2000. In addition, pro forma divisional operating
expenses increased in our other segments relating to the reorganization of these
business units as well as other expenses during the quarter ended December 31,
2001. These reorganizational expenses included severance, hiring costs, expenses
associated with the shutdown of business units, certain contracts cost, as well
as additional non-cash promotion expenses, totaling approximately $80.0 million.
The additional $80.0 million of divisional operating expenses is comprised of
approximately $50.6 million of expenses associated with reorganization,
restructuring, severance costs, and other miscellaneous items, with severance
payments being the most significant component of the total. The remaining $29.4
million relates to divisional operating expenses associated with incremental
costs under certain airport and transit panel contracts within our outdoor
division as well as additional non-cash promotion expenses within our radio
division. Divisional operating expenses also increased during 2001 within the
outdoor division related to new contract payments, and within our other segment
associated with increases in television
37
contract payments. These increases in pro forma divisional operating expenses
were partially offset by the reduction in selling costs associated with the
decline in pro forma revenue in 2001.
Also, as discussed below, the terrorist attacks on September 11, 2001
negatively impacted the overall operating results for the later part of fiscal
year 2001 as compared to the later part of fiscal year 2000.
Corporate expenses increased $44.8 million on a reported basis primarily
due to $36.3 million of additional expense directly related to additional
corporate employees obtained in our acquisitions. In addition, corporate
expenses increased due to the additional corporate employees hired subsequent to
our acquisitions to accommodate for the growth of the company. As a result of
our acquisitions, we increased corporate head count throughout 2001 to 700
employees as compared to 350 employees at the end of fiscal year 2000.
Other Income and Expense Information
Non-cash compensation expense of $17.1 million and $16.0 million was
recorded in fiscal year 2001 and 2000, respectively. This expense is primarily
due to unvested stock options assumed in mergers that are now convertible into
Clear Channel stock. To the extent that these employees' options continue to
vest, we recognize non-cash compensation expense over the remaining vesting
period. Vesting dates range from January 2002 to April 2005. If no employees
forfeit their unvested options by leaving the company, we expect to recognize
non-cash compensation expense of approximately $9.0 million during the remaining
vesting period.
Depreciation and amortization expense increased from $1.4 billion in 2000
to $2.6 billion in 2001, an 83% increase. The increase is due primarily to the
inclusion of a full year of depreciation and amortization associated with the
AMFM and SFX acquisitions, which resulted in additional depreciation and
amortization in aggregate of approximately $875.0 million in 2001 as compared to
2000. In addition to the increase relating to recent acquisitions, depreciation
expense includes $170.0 million of impairment charges related primarily to the
identification of duplicative and excess assets no longer necessary in our
ongoing operations. The majority of the impaired assets identified resulted from
the continuing integration of recent acquisitions, as well as analog television
equipment, and an impairment of an operating contract.
Interest expense was $560.1 million and $383.1 million in 2001 and 2000,
respectively, an increase of $177.0 million, or 46% percent. The increase was
due to the overall increase in average amount of debt outstanding, partially
offset by the decrease in LIBOR rates. Approximately 36% and 50% of our debt was
variable-rate debt that bears interest based upon LIBOR at December 31, 2001 and
2000, respectively. The 1-Month LIBOR rates decreased from 6.57% at December 31,
2000 to 1.87% at December 31, 2001.
The loss on sale of assets related to mergers in 2001 was $213.7 million
as compared to a gain of $783.7 million in 2000. The loss on sale of assets
related to mergers in 2001 is primarily due to a loss of $235.0 million related
to the sale of 24.9 million shares of Lamar Advertising Company acquired in the
AMFM merger, and a net loss of $11.6 million related to write-downs of other
investments acquired in mergers. This loss was partially offset by a gain of
$32.9 million realized on the sale of five stations in connection with
governmental directives regarding the AMFM merger. The gain on sale of assets
related to mergers of $783.7 million in 2000 is primarily due to the sale of 39
stations in connection with governmental directives regarding the AMFM merger,
which realized a gain of $805.2 million. This gain
38
for 2000 was partially offset by a loss of $5.8 million related to the sale of
1.3 million shares of Lamar Advertising Company that we acquired in the AMFM
merger; and a net loss of $15.7 million related to write-downs of investments
acquired in mergers.
The gain on marketable securities is primarily related to the
reclassification of 2.0 million shares of American Tower Corporation to a
trading security under Financial Accounting Standards No. 115 Accounting for
Certain Investments in Debt and Equity Securities and Financial Accounting
Standards No. 133 Accounting for Derivative Instruments and Hedging Activities.
On January 1, 2001, the shares were transferred to a trading classification at
their fair market value of $76.2 million and an unrealized pretax holding gain
of $69.7 million was recognized. During the year ended December 31, 2001, we
entered into two secured forward exchange contracts that monetized part of our
investment in American Tower. The fair value adjustment of the American Tower
trading shares and the secured forward exchange contract netted a gain of $11.7
million during 2001. In addition, during 2001, a loss of $55.6 million was
recognized related to impairments of other investments that had declines in
their market values that were considered to be other-than-temporary.
Equity in earnings of nonconsolidated affiliates for the year ended
December 31, 2001 was $10.4 million as compared to $25.2 million for the same
period of 2000. The decrease was due to declining operating results primarily in
our radio broadcasting equity investments.
For the year ended December 31, 2001 and 2000, other income (expense) -
net was an income of $152.3 million and an expense of $11.8 million,
respectively. The additional income recognized in 2001 related primarily to a
$168.0 million gain on a non-cash, tax-free exchange of the assets of one
television station for the assets of two television stations.
Income taxes for the year ended December 31, 2001 and 2000 were provided
at the federal and state statutory rates plus permanent differences. The
effective rates in all periods presented have been adversely impacted by
permanent differences, primarily amortization of intangibles that is not
deductible for tax purposes.
The September 11, 2001 Terrorist Attacks
We have been adversely affected by the events of September 11, 2001, in
New York, Washington, D.C., and Pennsylvania, as well as by the actions taken by
the United States in response to such events. As a result of expanded news
coverage following the attacks and subsequent military action, we experienced a
loss in advertising revenues and increased incremental operating expenses. The
events of September 11 have further depressed economic activity in the United
States and globally, including the markets in which we operate.
RADIO BROADCASTING
(In thousands)
As Reported Basis:
- ------------------
Years Ended December 31,
------------------------ % Change
2001 2000 2001 v. 2000
---- ---- ------------
Revenue $ 3,455,553 $ 2,431,544 42%
Divisional Operating Expenses 2,104,719 1,385,848 52%
----------- ----------
EBITDA as Adjusted * $ 1,350,834 $ 1,045,696 29%
----------- -----------
* See page 35 for cautionary disclosure
39
Pro Forma Basis:
- ----------------
Years Ended December 31,
------------------------ % Change
2001 2000 2001 v. 2000
---- ---- ------------
Revenue $ 3,455,553 $ 3,764,754 (8)%
Divisional Operating Expenses 2,104,719 2,107,681 0%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS
(In thousands)
Years Ended December 31,
------------------------
2001 2000
---- ----
Reported Revenue $ 3,455,553 $ 2,431,544
Acquisitions -- 1,398,995
Divestitures -- (65,785)
----------- -----------
Pro Forma Revenue $ 3,455,553 $ 3,764,754
----------- -----------
Reported Divisional Operating Expenses $ 2,104,719 1,385,848
Acquisitions -- 748,405
Divestitures -- (26,572)
----------- -----------
Pro Forma Divisional Operating Expenses $ 2,104,719 $ 2,107,681
----------- -----------
Revenues and divisional operating expenses increased on a reported basis
$1.0 billion and $718.9 million, respectively primarily due to our acquisitions
completed during 2000. Included in our 2001 reported amounts are a full year of
revenues and divisional operating expenses from our acquisition of AMFM in
August 2000. The approximately $1.2 billion increase in reported revenue related
to our AMFM acquisition as well as our other less significant 2000 and 2001
acquisitions were offset by declines in revenue discussed below in our pro forma
presentation. The approximately $728.2 million increase in reported divisional
operating expense related to our AMFM acquisition as well as increases related
to our less significant 2000 and 2001 acquisitions were offset by reasons
discussed below in our pro forma presentation.
On a pro forma basis, revenue for year ended December 31, 2001 decreased
$309.2 million, or 8% due to weak economic conditions in 2001 as compared to the
overall strength of the U.S. economy and the increase in advertising spending
due to the rapid growth of the Internet industry during 2000. Although the
decrease in pro forma revenue was apparent in most markets, of the $309.2
million decline, our top 25 radio markets accounted for approximately $212.0
million, or 69% of the total decline. The decline in pro forma revenue within
these markets was predominately due to the decline in national advertising
during 2001 as compared to 2000. In addition, our radio network revenue declined
$45.1 million, or 15% of the total decline during 2001 as compared to 2000,
again directly related to the decline in the overall economy.
On a pro forma basis, 2001 divisional operating expenses were relatively
flat as compared to 2000. Although divisional operating expenses decreased
related to the decrease in sales costs associated with the decline in revenue,
these decreases were offset by increases in expenses associated with the
reorganization of our radio workforce. During 2001, we hired a significant
number of new sales and marketing people in an effort to create more demand on
our advertising inventory and paid severance to other terminated employees.
40
OUTDOOR ADVERTISING
(In thousands)
As Reported Basis: Years Ended December 31,
------------------------ % Change
2001 2000 2001 v. 2000
---- ---- ------------
Revenue $ 1,748,031 $ 1,729,438 1%
Divisional Operating Expenses 1,220,681 1,078,540 13%
----------- -----------
EBITDA as Adjusted * $ 527,350 $ 650,898 (19)%
----------- -----------
* See page 35 for cautionary disclosure
Pro Forma Basis: Years Ended December 31,
- ---------------- ------------------------ % Change
2001 2000 2001 v. 2000
---- ---- ------------
Revenue $ 1,781,173 $ 1,911,515 (7)%
Divisional Operating Expenses 1,246,795 1,208,039 3%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS
(In thousands)
Years Ended December 31,
------------------------
2001 2000
---- ----
Reported Revenue $ 1,748,031 $ 1,729,438
Acquisitions -- 186,358
Divestitures -- (4,281)
Foreign Exchange adjustments 33,142 --
----------- -----------
Pro Forma Revenue $ 1,781,173 $ 1,911,515
----------- -----------
Reported Divisional Operating Expenses $ 1,220,681 1,078,540
Acquisitions -- 133,459
Divestitures -- (3,960)
Foreign Exchange adjustments 26,114 --
----------- -----------
Pro Forma Divisional Operating Expenses $ 1,246,795 $ 1,208,039
----------- -----------
Revenues and divisional operating expenses increased for the year ended
December 31, 2001 as compared to 2000 on a reported basis due to our
acquisitions completed during 2000. Included in the year ended December 31, 2001
reported basis amounts are a full year of revenues and divisional operating
expenses from our acquisition of Donrey in September 2000, which was valued at
$372.6 million, as well as other less significant acquisitions. Other reasons
for the change in reported revenue and divisional operating expenses are
discussed below in our pro forma presentation.
On a pro forma basis, revenues decreased $130.3 million, or 7% during the
year ended December 31, 2001 as compared to 2000 as a result of the downturn in
the economic environment during 2001, primarily in our domestic markets. On
average, our domestic advertising rate declined approximately 7% in 2001 as
compared to 2000. Although the decrease in pro forma revenue was apparent in all
markets, of the $130.3 million decline, our top 25 domestic outdoor markets
accounted for approximately $84.0 million, or 64% of the total decline. The
decline in pro forma revenue within these markets was predominately due to the
decline in national advertising during 2001 as compared to 2000.
Although pro forma revenue declined, pro forma divisional operating
expenses increased $38.8 million, or 3% during the year ended December 31, 2001
primarily due to increased expenses associated
41
with the expansion of operations of recently acquired assets and contracts, as
well as approximately $20.8 million of additional costs relating to the
reorganization of the division as well as other costs during the quarter ended
December 31, 2001.
LIVE ENTERTAINMENT
(In thousands)
As Reported Basis: Years Ended December 31,
- ------------------ ------------------------- % Change
2001 2000 2001 v. 2000
---- ---- ------------
Revenue $ 2,477,640 $ 952,025 **
Divisional Operating Expenses 2,327,109 878,553 **
----------- ---------
EBITDA as Adjusted * $ 150,531 $ 73,472 **
----------- ---------
* See page 35 for cautionary disclosure
** Not Meaningful
Pro Forma Basis: Years Ended December 31,
- ---------------- ------------------------- % Change
2001 2000 2001 v. 2000
---- ---- ------------
Revenue $ 2,496,044 $ 2,411,594 4%
Divisional Operating Expenses 2,342,834 2,218,021 6%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS
(In thousands)
Years Ended December 31,
------------------------
2001 2000
---- ----
Reported Revenue $ 2,477,640 $ 952,025
Acquisitions -- 1,459,569
Divestitures -- --
Foreign Exchange adjustments 18,404 --
----------- -----------
Pro Forma Revenue $ 2,496,044 $ 2,411,594
----------- -----------
Reported Divisional Operating Expenses $ 2,327,109 878,553
Acquisitions -- 1,339,468
Divestitures -- --
Foreign Exchange adjustments 15,725 --
----------- -----------
Pro Forma Divisional Operating Expenses $ 2,342,834 $ 2,218,021
----------- -----------
We entered the live entertainment business with our acquisition of SFX in
August 2000. Therefore, the increase in reported revenue and divisional
operating expenses of $1.6 billion and $1.5 billion, respectively in 2001 as
compared to 2000 is related to the SFX acquisition and less significant
acquisitions as well as other reasons discussed below in our pro forma
presentation.
On a pro forma basis, revenue increased $84.4 million, or 4% during the
year ended December 31, 2001 as compared to the prior year due to a change in
the mix of live music events during 2001 as compared to 2000. Although the
number of live events decreased over the prior period, during 2001, we changed
the mix of live music events to include approximately 48% more stadium and arena
events as compared to the prior year. Stadium and arenas are generally larger
venues that allow for more ticket sales related to the increased seating
capacity.
42
On a pro forma basis, divisional operating expenses increased $124.8
million, or 6% due to the increased cost associated with promoting the
additional stadium and arena events in 2001, increased artist payments
associated with the higher revenue, as well as additional costs relating to the
reorganization of the division during the quarter ended December 31, 2001.
SEGMENT RECONCILIATIONS
(In thousands)
As Reported
EBITDA as Adjusted * Years Ended December 31,
- -------------------- ------------------------
2001 2000
---- ----
Radio Broadcasting $ 1,350,834 $ 1,045,696
Outdoor Advertising 527,350 650,898
Live Entertainment 150,531 73,472
Other 74,582 94,534
Corporate (187,434) (142,627)
----------- -----------
Consolidated EBITDA as Adjusted * $ 1,915,863 $ 1,721,973
----------- -----------
* See page 35 for cautionary disclosure
As Reported
Pro Forma Revenue Years Ended December 31,
- -------------------- ------------------------
2001 2000
---- ----
Radio Broadcasting $ 3,455,553 $ 3,764,754
Outdoor Advertising 1,781,173 1,911,515
Live Entertainment 2,496,044 2,411,594
Other 417,505 470,045
Eliminations (134,872) (117,786)
----------- -----------
Consolidated Pro Forma Revenue $ 8,015,403 $ 8,440,122
----------- -----------
As Reported
Pro Forma Divisional Operating Expense Years Ended December 31,
- -------------------------------------- ------------------------
2001 2000
---- ----
Radio Broadcasting $ 2,104,719 $ 2,107,681
Outdoor Advertising 1,246,795 1,208,039
Live Entertainment 2,342,834 2,218,021
Other 342,929 319,201
Eliminations (134,872) (117,786)
----------- -----------
Consolidated Pro Forma Divisional Operating Expense $ 5,902,405 $ 5,735,156
----------- -----------
43
FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999
CONSOLIDATED
(In thousands)
Reported Basis: Years Ended December 31,
- --------------- ------------------------- % Change
2000 1999 2000 v. 1999
---- ---- ------------
Revenue $ 5,345,306 $ 2,678,160 100%
Divisional Operating Expenses 3,480,706 1,632,115 113%
Corporate Expenses 142,627 70,146 103%
----------- -----------
EBITDA as Adjusted * 1,721,973 975,899 76%
----------- -----------
Reconciliation to net income:
Non-cash compensation expense 16,032 --
Depreciation and amortization 1,401,063 722,233
Interest expense 383,104 179,404
Gain on sale of assets related to mergers 783,743 138,659
Gain (loss) on marketable securities (5,369) 22,930
Equity in earnings of nonconsolidated affiliates 25,155 18,183
Other income (expense) - net (11,764) (15,638)
Income tax (expense) (464,731) (152,741)
----------- -----------
Income before extraordinary item $ 248,808 $ 85,655
=========== ===========
Other Data:
Cash Flow from Operating Activities $ 755,085 $ 639,406
----------- -----------
Cash Flow from Investing Activities $(1,755,654) $(1,474,170)
----------- -----------
Cash Flow from Financing Activities $ 1,120,683 $ 874,990
----------- -----------
* See page 35 for cautionary disclosure
Pro Forma Basis: Years Ended December 31,
- ---------------- ------------------------- % Change
2000 1999 2000 v. 1999
---- ---- ------------
Revenue $ 6,756,293 $ 5,995,111 13%
Divisional Operating Expenses 4,238,801 3,888,345 9%
44
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS
(In thousands)
Years Ended December 31,
-------------------------
2000 1999
---- ----
Reported Revenue $ 5,345,306 $ 2,678,160
Acquisitions * 1,362,064 3,412,918
Divestitures (70,376) (95,967)
Foreign Exchange adjustments 120,674 --
----------- -----------
Pro Forma Revenue $ 6,757,668 $ 5,995,111
----------- -----------
Reported Divisional Operating Expenses 3,480,706 $ 1,632,115
Acquisitions * 698,289 2,304,545
Divestitures (33,659) (48,315)
Foreign Exchange adjustments 94,840 --
----------- -----------
Pro Forma Divisional Operating Expenses $ 4,240,176 $ 3,888,345
----------- -----------
* Due to the significance of the AMFM merger, its results of operations are
included in both 1999 and 2000 for the 12-month periods. Thus, included in the
acquisition amounts for 1999 and 2000 are the results of operations for AMFM for
12 and 8 months respectively. For all other 2000 acquisitions, adjustments are
included in the 1999 acquisition amounts to include the operating results of the
acquisition for the corresponding time that the acquisition was owned in 2000.
Revenue and divisional operating expenses increased on a reported basis
$2.7 billion and $1.8 billion, respectively primarily due to our 1999 and 2000
acquisitions as well as internal growth. Included in our fiscal year 2000
reported basis amounts are the revenues and divisional operating expenses for a
twelve-month period from our 1999 acquisitions, the most significant being Jacor
Communications in May 1999 and Dame Media Inc. and Dauphin OTA in July 1999.
Also included in our fiscal year 2000 reported basis amounts are the revenues
and divisional operating expenses of our 2000 acquisitions for the time period
that we operated them in fiscal year 2000. Our 2000 acquisitions included
Ackerley's South Florida Outdoor Advertising Division in January 2000, SFX in
August 2000, AMFM in August 2000, and Donrey in September 2000. Included in
reported revenue for 2000, is approximately $969.3 million of revenue related to
SFX and approximately $713.5 million of revenue related to AMFM. Included in
reported divisional operating expenses for 2000, is approximately $882.5 million
related to SFX and approximately $352.3 million related to AMFM. In addition to
the acquisition activity, reported revenue and divisional operating expenses
increased for other reasons discussed below in our pro forma presentation.
On a pro forma basis, revenues increased in fiscal year 2000 due to higher
advertising rates in our radio and outdoor businesses as well as increased
inventory demand within the advertising industry. The increase in the number of
live entertainment events and the number of show dates in fiscal year 2000 also
contributed to the increase in revenue on a pro forma basis. Divisional
operating expenses increased on a pro forma basis in fiscal year 2000 due
primarily to the increase in selling costs related to the increase in revenue.
Corporate expenses increased $72.4 million on a reported basis primarily
due to $38.4 million of additional expense directly related to additional
corporate employees obtained in our acquisitions. In addition, corporate
expenses increased due to the additional corporate employees hired subsequent to
our acquisitions to accommodate for the growth of the company. As a result of
our acquisitions, we increased corporate head count throughout 2000 to 350
employees as compared to 225 employees at the end of 1999.
45
Other Income and Expense Information
Non-cash compensation expense of $16.0 million was recorded in fiscal year
2000. In the AMFM merger, we assumed stock options granted to AMFM employees
that are now convertible into Clear Channel stock. To the extent that these
employees' options continue to vest, we will recognize non-cash compensation
expense over the remaining vesting period. Vesting dates range from January 2001
to April 2005.
Depreciation and amortization expense increased from $722.2 million in
1999 to $1.4 billion in 2000, a 94% increase. The increase is due primarily to
additional depreciation and amortization of approximately $460.3 million related
to the AMFM and SFX acquisitions. The remaining increase is due to additional
depreciation and amortization associated with the other less significant
acquisitions accounted for under the purchase method as well as the inclusion of
a full year of depreciation and amortization associated with acquisitions
completed during 1999.
Interest expense was $383.1 million and $179.4 million in 2000 and 1999,
respectively, an increase of $203.7 million or 114%. Approximately 89% of the
increase was due to the overall increase in average amounts of debt outstanding
and approximately 11% of the increase was due to increases in LIBOR.
Approximately 50% of our debt accrued interest based upon LIBOR at December 31,
2000. During 2000, LIBOR rates increased from 5.82% at December 31, 1999 to
6.57% at December 31, 2000.
The gain on sale of assets related to mergers of $783.7 million in 2000 is
primarily due to the sale of 39 stations in connection with governmental
directives regarding the AMFM merger, which realized a gain of $805.2 million.
This gain for 2000 was partially offset by a loss of $5.8 million related to the
sale of 1.3 million shares of Lamar Advertising Company that we acquired in the
AMFM merger; and a net loss of $15.7 million related to write-downs of
investments acquired in mergers. The gain in 1999 of $138.7 million relates to
the sale of 12 radio stations as a result of governmental directives related to
the Jacor merger.
Equity in earnings of nonconsolidated affiliates for 2000 was $25.2
million as compared to $18.2 million for 1999. The increase was due to improved
operations primarily in our international outdoor equity investments.
Other income (expense) net was an expense of $11.8 million and $15.6
million in 2000 and 1999, respectively. The expense recognized in 2000 related
primarily to the reimbursements of capital costs within certain operating
contracts.
Income tax expense was $464.7 million in 2000, an increase of 204% or
$312.0 million from 1999 income tax expense of $152.7 million. The increase is
primarily related to the taxes on the gain on sale of assets related to mergers
recorded in 2000. The provision for income taxes represents federal, state and
foreign income taxes on earnings before income taxes. The annual effective tax
rates of 65% for 2000 and 64% for 1999 were both adversely affected by
amortization of intangibles in excess of amounts that are deductible for tax
purposes.
46
RADIO BROADCASTING
(In thousands)
As Reported Basis: Years Ended December 31,
- ------------------ ------------------------- % Change
2000 1999 2000 v. 1999
---- ---- ------------
Revenue $ 2,431,544 $ 1,230,754 98%
Divisional Operating Expenses 1,385,848 731,062 90%
----------- -----------
EBITDA as Adjusted * $ 1,045,696 $ 499,692 109%
----------- -----------
* See page 35 for cautionary disclosure
Pro Forma Basis: Years Ended December 31,
- ---------------- ------------------------- % Change
2000 1999 2000 v. 1999
---- ---- ------------
Revenue $ 3,576,554 $ 3,118,825 15%
Divisional Operating Expenses 1,948,749 1,784,923 9%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS
(In thousands)
Years Ended December 31,
-------------------------
2000 1999
---- ----
Reported Revenue $ 2,431,544 $ 1,230,754
Acquisitions * 1,215,386 1,984,038
Divestitures (70,376) (95,967)
----------- -----------
Pro Forma Revenue $ 3,576,554 $ 3,118,825
----------- -----------
Reported Divisional Operating Expenses $ 1,385,848 731,062
Acquisitions * 596,560 1,102,176
Divestitures (33,659) (48,315)
----------- -----------
Pro Forma Divisional Operating Expenses $ 1,948,749 $ 1,784,923
----------- -----------
* Due to the significance of the AMFM merger, its results of operations are
included in both 1999 and 2000 for the 12-month periods. Thus, included in the
acquisition amounts for 1999 and 2000 are the results of operations for AMFM for
12 and 8 months respectively. For all other 2000 acquisitions, adjustments are
included in the 1999 acquisition amounts to include the operating results of the
acquisition for the corresponding time that the acquisition was owned in 2000.
Revenues and divisional operating expenses increased on a reported basis
due to our 2000 and 1999 acquisitions and internal growth. Included in our
fiscal year 2000 reported basis amounts are revenues and divisional operating
expenses for a twelve-month period from our acquisition of Jacor that was
acquired in May 1999 and Dame Media which was acquired in July 1999. In addition
to our acquisition activity, reported revenue and divisional operating expenses
increased related to other reasons discussed below in our pro forma
presentation.
On a pro forma basis, revenue increased due to various factors. During the
first part of fiscal year 2000, advertising rates were significantly higher than
the prior year as rates reacted to inventory sell-outs primarily related to the
rapid growth period of the Internet industry as well as an overall increase in
advertising demand across the industry. Although some of our larger markets
continued to enjoy significantly higher rates in the second part of fiscal year
2000, when the Internet industry demand slowed, rates in our other markets
normalized compared to the prior year. In addition, our national platform
approach to selling advertising to our national clients helped increase our
overall rates,
47
especially in our larger markets. On a pro forma basis, divisional operating
expenses increased primarily due to incremental selling costs associated with
the increase in revenue.
OUTDOOR ADVERTISING
(In thousands)
As Reported Basis: Years Ended December 31,
- ------------------ ------------------------- % Change
2000 1999 2000 v. 1999
---- ---- ------------
Revenue $ 1,729,438 $ 1,253,732 38%
Divisional Operating Expenses 1,078,540 785,636 37%
----------- -----------
EBITDA as Adjusted * $ 650,898 $ 468,096 39%
----------- -----------
* See page 35 for cautionary disclosure
Pro Forma Basis: Years Ended December 31,
- ---------------- ------------------------- % Change
2000 1999 2000 v. 1999
---- ---- ------------
Revenue $ 1,830,940 $ 1,617,917 13%
Divisional Operating Expenses 1,156,528 1,068,190 8%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS
(In thousands)
Years Ended December 31,
-------------------------
2000 1999
---- ----
Reported Revenue $ 1,729,438 $ 1,253,732
Acquisitions -- 364,185
Divestitures -- --
Foreign Exchange adjustments 101,502 --
----------- -----------
Pro Forma Revenue $ 1,830,940 $ 1,617,917
----------- -----------
Reported Divisional Operating Expenses $ 1,078,540 785,636
Acquisitions -- 282,554
Divestitures -- --
Foreign Exchange adjustments 77,988 --
----------- -----------
Pro Forma Divisional Operating Expenses $ 1,156,528 $ 1,068,190
----------- -----------
Revenues and divisional operating expenses increased on a reported basis
due to our 2000 and 1999 acquisitions and internal growth. Included in our
fiscal year 2000 reported basis amounts are revenues and divisional operating
expenses for a twelve-month period from our acquisition of Dauphin in July 1999
and other less significant acquisitions. In addition, revenues and divisional
operating expenses increased on a reported basis in fiscal year 2000 due to our
acquisitions of Ackerley in January 2000, and Donrey in September 2000, as well
as less significant acquisitions to fill out our existing markets.
On a pro forma basis, revenues increased due to various factors. Higher
rates and improved occupancy in fiscal year 2000 as compared to fiscal year 1999
increased revenue for the entire year. In addition, our national platform
approach to selling advertising to our national customers helped increase our
overall rates, especially in our larger markets. High growth rates were
primarily achieved internationally in our United Kingdom and France markets. On
a pro forma basis, divisional operating expenses increased primarily due to
incremental selling costs associated with the increase in revenue.
48
LIVE ENTERTAINMENT
(In thousands)
As Reported: Years Ended December 31,
- ----------- ------------------------- % Change
2000 1999 2000 v. 1999
---- ---- ------------
Revenue $ 952,025 $ -- n/a
Divisional Operating Expenses 878,553 -- n/a
----------- -----------
EBITDA as Adjusted * $ 73,472 $ -- n/a
----------- -----------
* See page 35 for cautionary disclosure
Pro Forma Basis: Years Ended December 31,
- ---------------- ------------------------- % Change
2000 1999 2000 v. 1999
---- ---- ------------
Revenue $ 971,197 $ 851,974 14%
Divisional Operating Expenses 895,405 780,146 15%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS
(In thousands)
Years Ended December 31,
-------------------------
2000 1999
---- ----
Reported Revenue $ 952,025 $ --
Acquisitions -- 851,974
Divestitures -- --
Foreign Exchange adjustments 19,172 --
----------- -----------
Pro Forma Revenue $ 971,197 $ 851,974
----------- -----------
Reported Divisional Operating Expenses $ 878,553 $ --
Acquisitions -- 780,146
Divestitures -- --
Foreign Exchange adjustments 16,852 --
----------- -----------
Pro Forma Divisional Operating Expenses $ 895,405 $ 780,146
----------- -----------
As we entered the live entertainment business with our acquisition of SFX
in August 2000, we did not report revenue and divisional operating expenses in
1999. On a pro forma basis, revenue increased due to an increase in the number
of events and the number of show dates in fiscal year 2000 as compared to fiscal
year 1999. Divisional operating expenses increased on a pro forma basis as
numerous contracts with less favorable terms signed by prior management were
fulfilled during the five-month period after our acquisition.
49
SEGMENT RECONCILIATIONS
(In thousands)
As Reported
EBITDA as Adjusted* Years Ended December 31,
- ------------------- -------------------------
2000 1999
---- ----
Radio Broadcasting $ 1,045,696 $ 499,692
Outdoor Advertising 650,898 468,096
Live Entertainment 73,472 --
Other 94,534 78,257
Corporate (142,627) (70,146)
----------- ----------
Consolidated EBITDA as Adjusted * $ 1,721,973 $ 975,899
----------- ----------
* See page 35 for cautionary disclosure
Pro Forma
Pro Forma Revenue Years Ended December 31,
- ----------------- -------------------------
2000 1999
---- ----
Radio Broadcasting $ 3,576,554 $ 3,118,825
Outdoor Advertising 1,830,940 1,617,917
Live Entertainment 971,197 851,974
Other 443,743 444,185
Eliminations (64,766) (37,790)
----------- -----------
Consolidated Pro Forma Revenue $ 6,757,668 $ 5,995,111
----------- -----------
Pro Forma
Pro Forma Divisional Operating Expense Years Ended December 31,
- -------------------------------------- -------------------------
2000 1999
---- ----
Radio Broadcasting $ 1,948,749 $ 1,784,923
Outdoor Advertising 1,156,528 1,068,190
Live Entertainment 895,405 780,146
Other 304,260 292,876
Eliminations (64,766) (37,790)
----------- -----------
Consolidated Pro Forma Divisional Operating Expense $ 4,240,176 $ 3,888,345
----------- -----------
LIQUIDITY AND CAPITAL RESOURCES
We expect to fund anticipated cash requirements (including acquisitions,
anticipated capital expenditures, share repurchases, payments of principal and
interest on outstanding indebtedness and commitments) with cash flows from
operations and various externally generated funds.
50
SOURCES OF CAPITAL
As of December 31, 2001 and 2000 we had the following debt outstanding and cash
and cash equivalents:
(In millions)
December 31,
-------------------------------
2001 2000
----------- -----------
Credit facilities - domestic $ 1,419.3 $ 3,203.8
Credit facility - international 94.4 118.3
Senior convertible notes 1,575.0 1,575.0
Liquid Yield Option Notes 244.4 (a) 497.1
Long-term bonds 5,966.8 (b) 5,153.6
Other borrowings 183.0 117.0
Total Debt 9,482.9 (c) 10,664.8
----------- -----------
Less: Cash and cash equivalents 154.7 196.8
----------- -----------
$ 9,328.2 $ 10,468.0
=========== ===========
(a) Includes $43.9 million in unamortized fair value purchase accounting
adjustment premiums related to the merger with Jacor Communications, Inc.
(b) Includes $66.5 million in unamortized fair value purchase accounting
adjustment premiums related to the merger with AMFM. Also includes $106.6
million related to fair value adjustments for interest rate swap
agreements.
(c) Total face value of outstanding debt was $9.4 billion at December 31,
2001.
DOMESTIC CREDIT FACILITIES
We currently have three separate domestic credit facilities. These provide
cash for both working capital needs as well as to fund certain acquisitions.
The first credit facility is a reducing revolving credit facility,
originally in the amount of $2.0 billion. At December 31, 2001, $920.0 million
was outstanding and $773.8 million was available for future borrowings. This
credit facility began reducing on September 30, 2000, with quarterly reductions
in the amounts available for future borrowings to continue through the last
business day of June 2005.
The second facility is a $1.5 billion, five-year multi-currency revolving
credit facility. At December 31, 2001, the outstanding balance was $499.3
million and, taking into account letters of credit of $79.7 million, $921.0
million was available for future borrowings, with the entire balance to be
repaid by the last business day of June 2005.
The third facility is a $1.5 billion, 364-day revolving credit facility,
which we have the option, upon its August 28, 2002 maturity, to convert into a
term loan with a three-year maturity. There was no amount outstanding at
December 31, 2001 and $1.5 billion was available for future borrowings.
During the year ended December 31, 2001, we made principal payments
totaling $4.2 billion and drew down $2.4 billion on these credit facilities. As
of February 28, 2002, the credit facilities aggregate outstanding balance was
$1.4 billion and, taking into account outstanding letters of credit, $3.2
billion was available for future borrowings.
51
INTERNATIONAL CREDIT FACILITY
We have a $150.0 million five-year revolving credit facility with a group
of international banks. This facility allows for borrowings in various foreign
currencies, which are used to hedge net assets in those currencies and provides
funds to our international operations for certain working capital needs and
smaller acquisitions. At December 31, 2001, approximately $55.6 million was
available for future borrowings and $94.4 million was outstanding. This credit
facility expires on December 8, 2005.
LONG-TERM BONDS
On October 26, 2001, we completed a debt offering of $750.0 million 6%
Senior Notes due November 1, 2006. Interest is payable on May 1 and November 1
of each year. The first interest payment on the notes will be made on May 1,
2002. Net proceeds of approximately $744.1 million were used to reduce the
outstanding balance of our reducing revolving credit facility. Also included in
long-term bonds at December 31, 2001, is $106.6 million related to our interest
rate swaps. Upon our adoption of Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended,
on January 1, 2001, we recorded the fair value of our interest rate swaps on our
balance sheet. The increase in long-term bonds was partially offset by a $34.4
million reduction related to foreign exchange gains and $9.0 million in
amortization of merger premiums and paydowns.
AMFM LONG-TERM BONDS
We assumed long-term bonds with a face value of $2.8 billion and fair
value of $3.0 billion in the AMFM merger. On September 29, 2000, we redeemed all
of the outstanding 9% Senior Subordinated Notes due 2008, originally issued by
Chancellor Media Corporation or one of its subsidiaries, for $829.0 million
subject to change of control provisions in the bond indentures. In October 2000,
we redeemed, subject to change of control provisions in the bond indentures, all
of the outstanding 9.25% Senior Subordinated Notes due 2007, originally issued
by Capstar Radio Broadcasting Partners, Inc., the 12% Exchange Debentures due
2009, originally issued by Capstar Broadcasting Partners, Inc. and the 12.75%
Senior Discount Notes due 2009, originally issued by Capstar Broadcasting
Partners, Inc., for a total of $508.5 million.
On October 6, 2000, we made payments of $231.4 million pursuant to
mandatory offers required to repurchase due to a change of control on the
following series of AMFM debt: 8% Senior Notes due 2008, 8.125% Senior
Subordinated Notes due 2007 and 8.75% Senior Subordinated Notes due 2007,
originally issued by Chancellor Media Corporation or one of its subsidiaries, as
well as the 12.625% Exchange Debentures due 2006, originally issued by SFX
Broadcasting. The aggregate remaining balance of these series of AMFM long-term
bonds was $1.4 billion at December 31, 2001.
On January 15, 2002, we redeemed all of the outstanding 12.625% Exchange
Debentures due 2006, originally issued by SFX Broadcasting. At December 31, 2001
the face value of these notes was $141.8 million and the unamortized fair value
purchase accounting adjustment premium was $15.3 million. The debentures were
redeemed for $150.8 million plus accrued interest. We utilized availability on
the reducing revolving line of credit to finance the redemption. The redemption
resulted in a gain of $3.9 million, net of tax.
Chancellor Media Corporation, Capstar Radio Broadcasting Partners, Capstar
Broadcasting Partners, Inc. and AMFM Operating Inc., or their successors are all
indirect wholly-owned subsidiaries of Clear Channel Communications. The debt
redemptions were financed with borrowings under our domestic credit facilities.
52
SFX LONG-TERM BONDS
We assumed long-term bonds with a face value of $550.0 million in the SFX
merger. On October 10, 2000, we launched a tender offer for any and all of the
9.125% Senior Subordinated Notes due 2008. An agent acting on our behalf
redeemed notes with a redemption value of approximately $602.9 million. Cash
settlement of the amount due to the agent was completed during November 2000.
After redemption, approximately $1.6 million face value of the notes remains
outstanding. The tender offer was financed with borrowings under our credit
facilities.
LIQUID YIELD OPTION NOTES
We assumed 4.75% Liquid Yield Option Notes ("LYONs") due 2018 and 5.50%
LYONs due 2011 as a part of the merger with Jacor. Each LYON has a principal
amount at maturity of $1,000 and is convertible, at the option of the holder, at
any time on or prior to maturity, into our common stock at a conversion rate of
7.227 shares per LYON and 15.522 shares per LYON for the 2018 and 2011 issues,
respectively. On May 7, 2001, we delivered notice of our intent to redeem the
total outstanding principal amount of the 5.50% LYONs on June 12, 2001. Pursuant
to the indenture agreement, the redemption price of $581.25 per each $1,000 LYON
outstanding at June 12, 2001 was equal to the issue price plus accrued original
issue discount through the redemption date. Substantially all of the 5.50% LYONs
converted into our common stock prior to the redemption date. The 4.75% LYONs
balance, after conversions to common stock, amortization of purchase accounting
premium, and accretion of interest, at December 31, 2001 was $244.4 million,
which includes unamortized fair value purchase accounting premium of $43.9
million.
GUARANTEE OF THIRD PARTY OBLIGATIONS
As of December 31, 2001 and 2000, we guaranteed third party dept of
approximately $225.2 million and $280.0 million, respectively, primarily related
to long-term operating contracts. A substantial portion of these obligations is
secured by the third party's associated operating assets.
RESTRICTED CASH
In connection with the 2000 AMFM merger and related governmental
directives, we received proceeds related to the divestitures of radio stations.
These proceeds were placed in a restricted trust for the purchase of replacement
properties. At December 31, 2000, $628.1 million remained in the trust. During
2001, related to the divestiture of five radio stations and the exchange of a
television license, we received $51.0 million in proceeds that were placed in
restricted trust. Also, during 2001, we used restricted cash of $367.5 million
for acquisitions, earned interest of $4.7 million and received a refund of
$311.7 million that was used to reduce the outstanding balances on our credit
facilities. At December 31, 2001, $4.6 million remains in trust and is recorded
as restricted cash.
SALE OF MARKETABLE SECURITIES
In connection with our merger with AMFM on August 30, 2000, Clear Channel
and AMFM entered into a Consent Decree with the Department of Justice regarding
AMFM's investment in Lamar Advertising Company. The Consent Decree, among other
things, required us to sell all of our 26.2 million shares of Lamar by December
31, 2002 and relinquish all shareholder rights during the disposition period.
During the year ended December 31, 2001, we received proceeds of $920.0 million
relating to the sale of 24.9 million shares of Lamar common stock. These
proceeds were used to pay
53
down our existing credit facility balance.
COMMON STOCK WARRANTS
We assumed common stock warrants, with an expiration date of September 18,
2001, as a part of our merger with Jacor. Each warrant represented the right to
purchase .2355422 shares of our common stock at an exercise price of $24.19 per
full share. During the year ended December 31, 2001, we received $122.5 million
in proceeds and issued 5.1 million shares of common stock on the exercise of
these warrants.
SHELF REGISTRATION
On July 21, 2000, we filed a Registration Statement on Form S-3 covering a
combined $3.0 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 that may be issued from time to time
by our three Delaware statutory business trusts and guarantees of such preferred
securities by us. In September 2000, and in October 2001 we issued $1.5 billion
and $750.0 million, respectively of debt securities registered under the shelf
registration statement, leaving $750.0 million available for future issuance. On
January 18, 2002, we filed a new Registration Statement on Form S-3 covering a
combined $3.0 billion of debt securities, junior subordinated debt securities,
preferred stock, common stock, warrants, stock purchase contracts and stock
purchase units, including a "carry-forward" of the $750.0 million available for
issuance under the shelf registration statement. As of the file date of this
report, the SEC had not yet declared the Registration Statement on Form S-3
effective.
DEBT COVENANTS
The only significant covenants in our debt are leverage and interest
coverage ratio covenants contained in the credit facilities. The leverage ratio
covenant requires us to maintain a ratio of total debt to EBITDA (as defined by
the credit facilities) of less than 5.50x through June 30, 2003 and less than
5.00x from July 1, 2003 through the maturity of the facilities. The interest
coverage covenant requires Clear Channel to maintain a minimum ratio of EBITDA
(as defined by the credit facilities) to interest expense of 2.00x. In the event
that we do not meet these covenants, we are considered to be in default on the
credit facilities at which time the credit facilities may become immediately
due. Our bank credit facilities have cross-default provisions among the bank
facilities only. No other Clear Channel debt agreements have cross-default or
cross-acceleration provisions.
Additionally, the AMFM long-term bonds contain certain restrictive
covenants that limit the ability of AMFM Operating Inc., a wholly-owned
subsidiary of Clear Channel, to incur additional indebtedness, enter into
certain transactions with affiliates, pay dividends, consolidate, or effect
certain asset sales. The AMFM long-term bonds have cross-default and
cross-acceleration provisions among the AMFM long-term bonds only.
At December 31, 2001, we were in compliance with all debt covenants. We
expect to be in compliance during 2002.
54
USES OF CAPITAL
ACQUISITIONS
During 2001 we acquired 183 radio stations in 63 markets for $89.3 million
in cash, $355.8 million in restricted cash plus the exchange of eight radio
stations. We also acquired approximately 3,300 additional outdoor display faces
in 33 domestic markets and approximately 25,500 additional display faces in 61
international markets for a total of $359.6 million in cash. Our outdoor segment
also acquired investments in non-consolidated affiliates for a total of $25.0
million in cash. During the year ended December 31, 2001, our live entertainment
segment acquired music, sports and racing events, promotional assets and sports
talent representation contracts for $125.5 million in cash. We also acquired FCC
licenses of four television stations, two of which had previously been operating
under local marketing agreements, national representation contracts, and other
assets for a total of $67.2 million in cash and $11.7 million in restricted
cash.
We intend to continue to pursue businesses that fit our strategic goals.
From January 1, 2002 through February 28, 2002, we have acquired six radio
stations and 1,938 outdoor display faces.
PENDING MERGER
On October 5, 2001, we entered into a merger agreement to acquire The
Ackerley Group, Inc. Ackerley holds a diversified group of outdoor, broadcasting
and interactive media assets. This merger will be a tax-free, stock-for-stock
transaction. Each share of Ackerley common stock will convert into 0.35 shares
of our common stock, on a fixed exchange basis, valuing the merger, based on
average share value at the signing of the merger agreement, at approximately
$474.9 million plus the assumption of Ackerley's debt, which was approximately
$290.6 million at December 31, 2001. This merger is subject to regulatory
approval under the federal communications laws and other closing conditions. We
anticipate that this merger will close during the first half of 2002;however, we
cannot be assured that we will complete the merger with Ackerley in a timely
manner or on the terms described in this document, if at all.
CAPITAL EXPENDITURES
Capital expenditures in 2001 increased from $495.6 million in 2000 to
$598.4 million in 2001. Overall, capital expenditures increased due to the
increase in the number of radio stations, billboards and displays owned during
the year ended December 31, 2001 as compared to the year ended December 31,
2000. In addition, we incurred capital expenditures related to our new live
entertainment segment during the year ended December 31, 2001 that we did not
incur in 2000. The increase for the year ended December 31, 2001 primarily
relates to additional spending relating to facility consolidation resulting from
our acquisitions, technological upgrades of operating assets, and the purchase
and construction of new revenue producing advertising displays.
55
(In millions)
Year Ended December 31, 2001 Capital Expenditures
---------------------------------------------------------------------------------
Corporate and
Radio Outdoor Entertainment Other Total
--------- --------- ------------- ------------- ---------
Recurring $ 33.8 $ 74.6 $ 12.7 $ 24.8 $ 145.9
Non-recurring projects 111.1 27.2 37.2 96.5 272.0
Revenue producing -- 162.9 17.6 -- 180.5
--------- --------- --------- --------- ---------
$ 144.9 $ 264.7 $ 67.5 $ 121.3 $ 598.4
Our radio broadcasting capital expenditures during the year ended December
31, 2001 are related primarily to expenditures associated with the consolidation
of operations in certain markets in conjunction with acquisitions that are
expected to result in improved operating results in such markets.
Our outdoor advertising capital expenditures during the year ended
December 31, 2001 are related primarily to the construction of new revenue
producing advertising displays as well as replacement expenditures on our
existing advertising displays.
Our live entertainment capital expenditures during the year ended December
31, 2001 include expenditures primarily related to a consolidated sales and
operations facility, new venues and improvements to existing venues.
Included in "corporate and other" capital expenditures during the year
ended December 31, 2001 is the purchase of land for an additional corporate
facility to replace leased space, purchase of certain corporate assets, upgrades
of our television related operating assets and other technology expenditures.
Future acquisitions of radio broadcasting stations, outdoor advertising
facilities, live entertainment assets and other media-related properties
affected in connection with the implementation of our acquisition strategy are
expected to be financed from increased borrowings under our existing credit
facilities, additional public equity and debt offerings and cash flow from
operations. We anticipate utilizing available capacity on the credit facilities
to refinance 2002 debt maturities. We believe that cash flow from operations, as
well as the proceeds from securities offerings made from time to time, will be
sufficient to make all required future interest and principal payments on the
credit facilities, senior convertible notes and bonds, and will be sufficient to
fund all anticipated capital expenditures.
OTHER
During the year ended December 31, 2001, we made cash tax payments of
$450.0 million relating to gains realized on divested radio stations during
2000. Also, we made payments of approximately $229.0 million related to
severance and other merger related accruals during 2001.
COMMITMENTS AND CONTINGENCIES
There are various lawsuits and claims pending against us. We believe that
any ultimate liability resulting from those actions or claims will not have a
material adverse effect on our results of operations, financial position or
liquidity.
Certain agreements relating to acquisitions provide for purchase price
adjustments and other future contingent payments based on the financial
performance of the acquired companies generally over
56
a one to five year period. We will continue to accrue additional amounts related
to such contingent payments if and when it is determinable that the applicable
financial performance targets will be met. The aggregate of these contingent
payments, if performance targets are met, would not significantly impact our
financial position or results of operations.
FUTURE OBLIGATIONS
In addition to our scheduled maturities on our debt, we have future cash
obligations under various types of contracts. We lease office space, certain
broadcast facilities, equipment and the majority of the land occupied by our
outdoor advertising structures under long-term operating leases. In addition, we
have minimum franchise payments associated to non-cancelable contracts that
enable us to display advertising on such media as buses, taxis, trains, bus
shelters and terminals. Finally, we have commitments relating to required
purchases of property, plant and equipment under certain street furniture
contracts, as well as construction commitments for facilities and venues.
The scheduled maturities of our credit facilities; other long-term debt
outstanding; future minimum rental commitments, under non-cancelable lease
agreements; minimum rental payments under non-cancelable contracts; and capital
expenditure commitments at December 31, 2001 are as follows:
(In millions) Other
Credit Long-Term Non-Cancelable Non-Cancelable Capital
Facilities Debt Lease Contracts Expenditures
---------- ---- ----- --------- ------------
2002 $ -- $1,515.2 $ 314.1 $ 266.4 $419.6
2003 -- 1,344.1 266.8 194.8 175.3
2004 407.5 12.0 232.0 157.8 17.4
2005 1,011.8 1,437.4 198.3 137.8 2.3
2006 -- 755.1 176.1 87.3 2.6
Thereafter -- 2,999.8 1,251.8 210.6 12.0
-------- -------- -------- -------- ------
Total $1,419.3 $8,063.6 $2,439.1 $1,054.7 $629.2
======== ======== ======== ======== ======
MARKET RISK
INTEREST RATE RISK
At December 31, 2001, approximately 36% of our long-term debt, including
fixed rate debt on which we have entered interest rate swap agreements, bears
interest at variable rates. Accordingly, our earnings 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 year's average interest rate under
these borrowings, it is estimated that our 2001 interest expense would have
changed by $65.3 million and that our 2001 net income would have changed by
$40.5 million. In the event of an adverse change in interest rates, management
may take actions to further mitigate its exposure. However, due to the
uncertainty of the actions that would be taken and their possible effects, the
analysis assumes no such actions. Further the analysis does not consider the
effects of the change in the level of overall economic activity that could exist
in such an environment.
We have entered into interest rate swap agreements that effectively float
interest at rates based upon LIBOR on $1.5 billion of our current fixed rate
borrowings. These agreements expire from
57
September 2003 to June 2005. The fair value of these agreements at December 31,
2001 was an asset of $106.6 million.
EQUITY PRICE RISK
The carrying value of our available-for-sale and trading 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, 2001 by $58.0 million and would change accumulated
comprehensive income (loss) and net income (loss) by $33.6 million and $2.4
million, respectively. At December 31, 2001, we also hold $64.4 million of
investments that do not have a quoted market price, but are subject to
fluctuations in their value.
FOREIGN CURRENCY
We have operations in countries throughout the world. Foreign operations
are measured in their local currencies except in hyper-inflationary countries in
which we operate. As a result, our financial results could be affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in the foreign markets in which we have operations. To mitigate a
portion of the exposure to risk of international currency fluctuations, we
maintain a natural hedge through borrowings in currencies other than the U.S.
dollar. This hedge position is reviewed monthly. We currently maintain no
derivative instruments to mitigate the exposure to translation and/or
transaction risk. However, this does not preclude the adoption of specific
hedging strategies in the future. Our foreign operations reported a net loss of
$28.1 million for the year ended December 31, 2001. It is estimated that a 10%
change in the value of the U.S. dollar to foreign currencies would change net
loss for the year ended December 31, 2001 by $2.8 million.
Our earnings are also affected by fluctuations in the value of the U.S.
dollar as compared to foreign currencies as a result of our investments in
various countries, all of which are accounted for under the equity method. It is
estimated that the result of a 10% fluctuation in the value of the dollar
relative to these foreign currencies at December 31, 2001 would change our 2001
equity in earnings of nonconsolidated affiliates by $.3 million and would change
our net income for the year ended December 31, 2001 by approximately $.2
million. This analysis does not consider the implications that such fluctuations
could have on the overall economic activity that could exist in such an
environment in the U.S. or the foreign countries or on the results of operations
of these foreign entities.
RECENT ACCOUNTING PRONOUNCEMENTS
On July 1, 2001, we adopted Statement of Financial Accounting Standards
No. 141, Business Combinations. Statement 141 addresses financial accounting and
reporting for business combinations and supersedes APB Opinion No. 16, Business
Combinations, and FASB Statement 38, Accounting for Preacquisition Contingencies
of Purchased Enterprises. Statement 141 is effective for all business
combinations initiated after June 30, 2001. Statement 141 eliminates the
pooling-of-interest method of accounting for business combinations except for
qualifying business combinations that were initiated prior to July 1, 2001.
Statement 141 also changes the criteria to recognize intangible assets apart
from goodwill. As we have historically used the purchase method to account for
all business combinations, adoption of this statement did not have a material
impact on our financial position or results of operations.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial
58
Accounting Standards No. 142, Goodwill and Other Intangible Assets. Statement
142 addresses financial accounting and reporting for acquired goodwill and other
intangible assets and supersedes APB Opinion No. 17, Intangible Assets.
Statement 142 is effective for fiscal years beginning after December 15, 2001.
This statement establishes new accounting for goodwill and other intangible
assets recorded in business combinations. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with the statement.
Other intangible assets will continue to be amortized over their useful lives.
Under this guidance, we believe broadcast licenses are indefinite-lived
intangibles. As our amortization of goodwill and certain other indefinite lived
intangibles is a significant non-cash expense that we currently record,
Statement 142 will have a material impact on our financial statements. For the
year ended December 31, 2001, amortization expense related to goodwill and
indefinite lived intangibles was approximately $1.8 billion. Upon adoption of
FAS 142, for comparative purposes, we will be required to disclose the prior
year earning per share data as if adoption had occurred January 1, 2001. Below
is this disclosure for each of the quarters of 2001:
(In thousands, except per share data)
For the Quarter Ended For the Year
------------------------------------------------------------------ Ended
March 31, June 30, September 30, December 31, December 31,
2001 2001 2001 2001 2001
---- ---- ---- ---- ----
ADJUSTED NET INCOME (LOSS):
Reported Net Income (Loss) $ (309,228) $ (237,001) $ (232,198) $ (365,599) $(1,144,026)
Add Back: Goodwill Amortization 218,923 208,844 226,726 239,974 894,467
Add Back: License Amortization 216,983 224,909 224,032 222,857 888,781
Tax Impact (100,602) (92,582) (99,526) (97,923) (390,633)
----------- ----------- ----------- ----------- -----------
Adjusted Net Income (Loss) $ 26,076 $ 104,170 $ 119,034 $ (691) $ 248,589
=========== =========== =========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE:
Reported Net Income (Loss) $ (.53) $ (.40) $ (.39) $ (.61) $ (1.93)
Add Back: Goodwill Amortization .37 .36 .38 .40 1.51
Add Back: License Amortization .37 .38 .38 .37 1.50
Tax Impact (.17) (.16) (.17) (.16) (.66)
----------- ----------- ----------- ----------- -----------
Adjusted Earnings per Share - Basic $ .04 $ .18 $ .20 $ .00 $ .42
=========== =========== =========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE:
Reported Net Income (Loss) $ (.53) $ (.40) $ (.39) $ (.61) $ (1.93)
Anti-dilutive adjustment .02 .01 .01 -- .04
Add Back: Goodwill Amortization .36 .34 .37 .40 1.48
Add Back: License Amortization .36 .37 .37 .37 1.47
Tax Impact (.17) (.15) (.16) (.16) (.65)
----------- ----------- ----------- ----------- -----------
Adjusted Earnings per Share - Diluted $ .04 $ .17 $ .20 $ .00 $ .41
=========== =========== =========== =========== ===========
We are currently evaluating valuation techniques as well as other implementation
issues. We will test goodwill for impairment using a two-step process. The first
step is a screen for potential impairment, while the second step measures the
amount of impairment, if any. We expect to perform the first of the required
impairment tests of goodwill and indefinite-lived intangible assets as of
January 1, 2002 in the first quarter of 2002. As a result of these tests, we
expect to record a pre-tax impairment charge in the range of $15.0 billion to
$25.0 billion, which will be reported after-tax as a cumulative effect in
accounting change on the statement of operations for the quarter ended March 31,
2002.
59
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Statement 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
supersedes Financial Accounting Standards No. 121, Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of. Statement 144 is
effective for fiscal years beginning after December 15, 2001. Statement 144
removes goodwill from its scope and retains the requirements of Statement 121
regarding the recognition of impairment losses on long-lived assets held for
use. The Statement modifies the accounting for long-lived assets to be disposed
of by sale and long-lived assets to be disposed of by other than by sale. We do
not believe adoption of this statement will materially impact our financial
position or results of operations.
CRITICAL ACCOUNTING POLICIES
Critical account policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. We believe that
our critical accounting policies are limited to those described below. For a
detailed discussion on the application of these and other accounting policies,
see Note A in the notes to the consolidated financial statements.
IMPAIRMENT OF LONG-LIVED ASSETS
We record impairment losses when events and circumstances indicate that
long-lived assets might be impaired and the undiscounted cash flow estimated to
be generated by those assets are less than the carrying amount of those assets.
When specific assets are determined to be unrecoverable, the cost basis of the
assets is reduced to reflect their current fair market value. During 2001, we
recorded impairment charges of approximately $170.0 million related to the
write-off of duplicative and excess assets identified primarily in our radio
segment, the impairment of goodwill and excess property, plant and equipment
within our outdoor segment, and an on-air talent contract within our radio
segment. The fair values of the goodwill and the on-air talent contract were
determined based on discounted cash flow models and assumptions of future
expected cash flows, and the fair values related to property, plant and
equipment were based on estimated cash proceeds.
We considered the current economic recession as an impairment indicator
during the fourth quarter of fiscal 2001. As a result, we performed a
recoverability assessment of all of our long-lived assets using an undiscounted
cash flow model. Based on our assumptions, all long-lived assets, other than
those mentioned above, were determined to be recoverable.
IMPAIRMENT OF INVESTMENTS
At December 31, 2001, we have $354.3 million recorded as other
investments. Other investments are composed primarily of equity securities.
These securities are classified as available-for-sale or trading and are carried
at fair value based on quoted market prices. Securities are carried at
historical value when quoted market prices are unavailable. The net unrealized
gains or losses on the available-for-sale securities, net of tax, are reported
as a separate component of shareholders' equity. The net unrealized gains or
losses on the trading securities are reported in the statement of operations. In
addition, we hold investments that do not have quoted market prices. We review
the value of these investments and record an impairment charge in the statement
of operations for any decline in value that is determined to be
other-than-temporary. During 2001, we recorded impairments of $67.3 million
60
related to investments where declines in fair value below cost were considered
to be other-than-temporary.
INFLATION
Inflation has affected our performance in terms of higher costs for wages,
salaries and equipment. Although the exact impact of inflation is
indeterminable, we believe we have offset these higher costs by increasing the
effective advertising rates of most of our broadcasting stations and outdoor
display faces.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
* 2.20 2.04 1.83 2.32
*For the year ended December 31, 2001, fixed charges exceeded earnings before
income taxes and fixed charges by $1.3 billion.
The ratio of earnings to fixed charges was computed on a total enterprise
basis. Earnings represent income from continuing operations before income taxes
less equity in undistributed net income (loss) of unconsolidated affiliates plus
fixed charges. Fixed charges represent interest, amortization of debt discount
and expense, and the estimated interest portion of rental charges. We had no
preferred stock outstanding for any period presented.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Required information is within Item 7
61
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The consolidated financial statements and notes related thereto were prepared by
and are the responsibility of management. The financial statements and related
notes were prepared in conformity with accounting principles generally accepted
in the United States 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 our 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 auditing standards generally accepted in
the United States 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
62
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, 2001 and
2000, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2001. 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 Hispanic
Broadcasting Corporation (formerly Heftel Broadcasting Corporation), in which
the Company has a 26% equity interest, have been audited by other auditors whose
report has been furnished to us; insofar as our opinion on the consolidated
financial statements relates to data included for Hispanic Broadcasting
Corporation for 1999, it is based solely on their report.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
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, 2001 and 2000, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
San Antonio, Texas
February 18, 2002
63
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
December 31,
----------------------------
2001 2000
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 154,744 $ 196,838
Restricted cash 4,600 308,691
Accounts receivable, less allowance of
$61,070 in 2001 and $60,631 in 2000 1,475,276 1,557,048
Prepaid expenses 163,283 146,767
Other current assets 143,396 133,873
----------- -----------
TOTAL CURRENT ASSETS 1,941,299 2,343,217
PROPERTY, PLANT
AND EQUIPMENT
Land, buildings and improvements 1,388,332 1,197,951
Structures and site leases 2,210,309 2,395,934
Towers, transmitters and studio equipment 634,532 744,571
Furniture and other equipment 556,977 479,532
Construction in progress 191,048 222,286
----------- -----------
4,981,198 5,040,274
Less accumulated depreciation 1,024,449 785,040
----------- -----------
3,956,749 4,255,234
INTANGIBLE ASSETS
Contracts 1,098,956 1,075,472
Licenses and goodwill 42,789,292 40,973,198
Other intangible assets 130,162 175,451
----------- -----------
44,018,410 42,224,121
Less accumulated amortization 3,664,925 1,731,557
----------- -----------
40,353,485 40,492,564
OTHER
Restricted cash -- 319,450
Notes receivable 45,856 99,818
Investments in, and advances to,
nonconsolidated affiliates 502,185 427,303
Other assets 449,227 513,773
Other investments 354,341 1,605,102
----------- -----------
TOTAL ASSETS $47,603,142 $50,056,461
=========== ===========
See Notes to Consolidated Financial Statements
64
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands, except share data)
December 31,
-----------------------------
2001 2000
---- ----
CURRENT LIABILITIES
Accounts payable $ 319,280 $ 383,588
Accrued interest 85,842 105,581
Accrued expenses 776,968 886,904
Accrued income taxes 10,097 445,499
Current portion of long-term debt 1,515,221 67,736
Deferred income 234,559 218,670
Other current liabilities 17,890 20,572
----------- -----------
TOTAL CURRENT LIABILITIES 2,959,857 2,128,550
Long-term debt 7,967,713 10,597,082
Deferred income taxes 6,512,217 6,771,198
Other long-term liabilities 374,307 150,713
Minority interest 52,985 61,745
SHAREHOLDERS' EQUITY
Preferred Stock - Class A, par value $1.00
per share, authorized 2,000,000 shares,
no shares issued and outstanding -- --
Preferred Stock, - Class B, par value $1.00
per share, authorized 8,000,000 shares,
no shares issued and outstanding -- --
Common Stock, par value $.10 per share,
authorized 1,500,000,000 shares, issued
598,270,433 and 585,766,166 shares
in 2001 and 2000, respectively 59,827 58,577
Additional paid-in capital 30,320,916 29,558,908
Common stock warrants 12,373 249,312
Retained earnings (deficit) (599,086) 544,940
Accumulated other comprehensive income (loss) (34,470) (32,433)
Other (8,218) (26,298)
Cost of shares (279,700 in 2001 and 115,557
in 2000) held in treasury (15,279) (5,833)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 29,736,063 30,347,173
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $47,603,142 $50,056,461
=========== ===========
See Notes to Consolidated Financial Statements
65
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
-----------------------------------------------
2001 2000 1999
---- ---- ----
Revenue $ 7,970,003 $ 5,345,306 $ 2,678,160
Operating expenses:
Divisional operating expenses (excludes non-cash
compensation expense of $13,111, $4,359 and
$-0- in 2001, 2000 and 1999, respectively) 5,866,706 3,480,706 1,632,115
Non-cash compensation expense 17,077 16,032 --
Depreciation and amortization 2,562,480 1,401,063 722,233
Corporate expenses (excludes non-cash
compensation expense of $3,966, $11,673 and
$-0- in 2001, 2000 and 1999, respectively) 187,434 142,627 70,146
----------- ----------- -----------
Operating income (loss) (663,694) 304,878 253,666
Interest expense 560,077 383,104 179,404
Gain (loss) on sale of assets related to mergers (213,706) 783,743 138,659
Gain (loss) on marketable securities 25,820 (5,369) 22,930
Equity in earnings of
nonconsolidated affiliates 10,393 25,155 18,183
Other income (expense) - net 152,267 (11,764) (15,638)
----------- ----------- -----------
Income (loss) before income taxes
and extraordinary item (1,248,997) 713,539 238,396
Income tax benefit (expense) 104,971 (464,731) (152,741)
----------- ----------- -----------
Income (loss) before extraordinary item (1,144,026) 248,808 85,655
Extraordinary item -- -- (13,185)
----------- ----------- -----------
Net income (loss) (1,144,026) 248,808 72,470
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 11,699 (92,296) (47,814)
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) (141,055) (193,634) 182,315
Reclassification adjustment for gains
on securities transferred to trading (45,315) -- --
Reclassification adjustment for gains
on SFX shares held prior to merger -- (36,526) --
Reclassification adjustment for
(gain) loss included in net income 172,634 7,278 (14,904)
----------- ----------- -----------
Comprehensive income (loss) $(1,146,063) $ (66,370) $ 192,067
=========== =========== ===========
Net income (loss) per common share:
Basic:
Income (loss) before extraordinary item $ (1.93) $ .59 $ .27
Extraordinary item -- -- (.04)
----------- ----------- -----------
Net income (loss) $ (1.93) $ .59 $ .23
=========== =========== ===========
Diluted:
Income (loss) before extraordinary item (1.93) $ .57 $ .26
Extraordinary item -- -- (.04)
----------- ----------- -----------
Net income (loss) $ (1.93) $ .57 $ .22
=========== =========== ===========
See Notes to Consolidated Financial Statements
66
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
Additional
Common Common Paid-in
Shares Issued Stock Capital
------------- ----- -------
Balances at December 31, 1998 263,698,206 $ 26,370 $ 4,067,297
Net income
Proceeds from sale of Common Stock 8,047,757 805 512,112
Common Stock issued related to Eller put/call 1,902,938 190 130,440
agreement
Common Stock, stock options and common stock
warrants issued for business acquisitions 61,802,032 6,180 4,413,530
Conversion of Liquid Yield Option Notes 96,983 10 3,271
Exercise of stock options and common stock warrants 3,061,587 306 90,307
Charitable donation of treasury shares
Currency translation adjustment
Unrealized gains (losses) on investments
----------- ----------- -----------
Balances at December 31, 1999 338,609,503 33,861 9,216,957
Net income
Common Stock, stock options and common stock
warrants issued for business acquisitions 244,962,275 24,497 20,258,721
Deferred compensation acquired
Purchase of treasury shares
Conversion of Liquid Yield Option Notes 76
Exercise of stock options and common stock warrants 2,194,388 219 83,154
Amortization and adjustment of deferred compensation
Currency translation adjustment
Unrealized gains (losses) on investments
----------- ----------- -----------
Balances at December 31, 2000 585,766,166 58,577 29,558,908
Net loss
Common Stock, stock options and common stock
warrants issued for business acquisitions 282,489 28 18,205
Purchase of treasury shares
Conversion of Liquid Yield Option Notes 3,868,764 387 259,364
Exercise of stock options and common stock warrants 8,353,014 835 479,749
Amortization and adjustment of deferred compensation 4,690
Currency translation adjustment
Unrealized gains (losses) on investments
----------- ----------- -----------
Balances at December 31, 2001 598,270,433 $ 59,827 $30,320,916
=========== =========== ===========
(In thousands, except share data) Accumulated
Common Retained Other
Stock Earnings Comprehensive
Warrants (Deficit) Income (Loss)
-------- --------- -------------
Balances at December 31, 1998 $ -- $ 223,662 $ 163,148
Net income 72,470
Proceeds from sale of Common Stock
Common Stock issued related to Eller put/call
agreement
Common Stock, stock options and common stock
warrants issued for business acquisitions 253,428
Conversion of Liquid Yield Option Notes
Exercise of stock options and common stock warrants (566)
Charitable donation of treasury shares
Currency translation adjustment (47,814)
Unrealized gains (losses) on investments 167,411
----------- ----------- -----------
Balances at December 31, 1999 252,862 296,132 282,745
Net income 248,808
Common Stock, stock options and common stock
warrants issued for business acquisitions
Deferred compensation acquired
Purchase of treasury shares
Conversion of Liquid Yield Option Notes
Exercise of stock options and common stock warrants (3,550)
Amortization and adjustment of deferred compensation
Currency translation adjustment (92,296)
Unrealized gains (losses) on investments (222,882)
----------- ----------- -----------
Balances at December 31, 2000 249,312 544,940 (32,433)
Net loss (1,144,026)
Common Stock, stock options and common stock
warrants issued for business acquisitions
Purchase of treasury shares
Conversion of Liquid Yield Option Notes
Exercise of stock options and common stock warrants (236,939)
Amortization and adjustment of deferred compensation
Currency translation adjustment 11,699
Unrealized gains (losses) on investments (13,736)
----------- ----------- -----------
Balances at December 31, 2001 $ 12,373 $ (599,086) $ (34,470)
=========== =========== ===========
(In thousands, except share data)
Treasury
Other Stock Total
----- ----- -----
Balances at December 31, 1998 $ 4,925 $ (1,973) $ 4,483,429
Net income 72,470
Proceeds from sale of Common Stock 512,917
Common Stock issued related to Eller put/call 130,630
agreement
Common Stock, stock options and common stock
warrants issued for business acquisitions 4,673,138
Conversion of Liquid Yield Option Notes 3,281
Exercise of stock options and common stock warrants (2,621) (2,953) 84,473
Charitable donation of treasury shares 4,102 4,102
Currency translation adjustment (47,814)
Unrealized gains (losses) on investments 167,411
----------- ----------- -----------
Balances at December 31, 1999 2,304 (824) 10,084,037
Net income 248,808
Common Stock, stock options and common stock
warrants issued for business acquisitions (61) 20,283,157
Deferred compensation acquired (49,311) (49,311)
Purchase of treasury shares (4,745) (4,745)
Conversion of Liquid Yield Option Notes 76
Exercise of stock options and common stock warrants (203) 79,620
Amortization and adjustment of deferred compensation 20,709 20,709
Currency translation adjustment (92,296)
Unrealized gains (losses) on investments (222,882)
----------- ----------- -----------
Balances at December 31, 2000 (26,298) (5,833) 30,347,173
Net loss (1,144,026)
Common Stock, stock options and common stock
warrants issued for business acquisitions (89) 18,144
Purchase of treasury shares (9,000) (9,000)
Conversion of Liquid Yield Option Notes 259,751
Exercise of stock options and common stock warrants (2,138) (324) 241,183
Amortization and adjustment of deferred compensation 20,218 (33) 24,875
Currency translation adjustment 11,699
Unrealized gains (losses) on investments (13,736)
----------- ----------- -----------
Balances at December 31, 2001 $ (8,218) $ (15,279) $29,736,063
=========== =========== ===========
See Notes to Consolidated Financial Statements
67
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
-----------------------------------------------
2001 2000 1999
---- ---- ----
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) $(1,144,026) $ 248,808 $ 72,470
Reconciling Items:
Depreciation 594,104 367,639 263,242
Amortization of intangibles 1,968,376 1,033,424 458,991
Deferred taxes (162,334) 386,711 31,653
Amortization of deferred financing charges, bond
premiums and accretion of note discounts, net 13,220 16,038 5,667
Amortization of deferred compensation 17,077 16,032 --
(Gain) loss on sale of operating and fixed assets (165,943) (6,638) (163)
(Gain) loss on sale of available-for-sale securities 32,684 5,827 (22,930)
(Gain) loss on sale of other investments 22,927 (458) --
(Gain) loss on sale of assets related to mergers 213,706 (774,288) (141,393)
(Gain) loss on forward exchange contract (68,825) -- --
(Gain) loss on trading securities (12,606) -- --
Equity in earnings of nonconsolidated affiliates (6,695) (20,820) (10,775)
Extraordinary item -- -- 13,185
Increase (decrease) other, net 4,112 (25,903) 17,188
Changes in operating assets and liabilities, net of
effects of acquisitions:
Decrease (increase) in accounts receivable 107,278 (5,721) (87,529)
Decrease (increase) in prepaid assets 4,927 18,315 (1,053)
Decrease (increase) in other current assets 8,522 15,590 (646)
Increase (decrease) in accounts payable,
accrued expenses and other liabilities (438,466) (356,131) 1,757
Increase (decrease) in accrued interest (19,739) (3,388) (10,778)
Increase (decrease) in deferred income 12,250 (121,539) 18,647
Increase (decrease) in accrued income taxes (370,962) (38,413) 31,873
----------- ----------- -----------
Net cash provided by operating activities 609,587 755,085 639,406
68
Year Ended December 31,
-----------------------------------------------
2001 2000 1999
---- ---- ----
CASH FLOWS FROM
INVESTING ACTIVITIES:
(Investment) in liquidation of restricted cash, net 577,211 (183,896) 78,651
Cash acquired in stock-for-stock mergers -- 311,861 --
(Increase) decrease in notes receivable, net (5,228) (15,807) --
Decrease (increase) in investments in, and
advances to nonconsolidated affiliates - net (44,052) (8,044) (36,647)
Purchases of available-for-sale securities -- (196) (173,415)
Purchase of other investments (892) (55,079) (1,283)
Proceeds from sale of available-for-sale-securities 919,999 55,434 29,659
Proceeds from sale of other investments -- 5,843 --
Purchases of property, plant and equipment (598,388) (495,551) (238,738)
Proceeds from disposal of assets 88,464 392,729 12,203
Proceeds from divestitures placed in restricted cash 51,000 839,717 205,800
Acquisition of operating assets (666,567) (1,884,196) (1,063,320)
Acquisition of operating assets
with restricted cash (367,519) (670,228) (246,228)
Decrease (increase) in other - net 136,246 (48,241) (40,852)
----------- ----------- -----------
Net cash provided by (used in) investing activities 90,274 (1,755,654) (1,474,170)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Draws on credit facilities 2,550,419 7,904,488 2,414,480
Payments on credit facilities (4,316,446) (7,199,185) (3,085,486)
Proceeds from long-term debt 744,105 3,128,386 1,005,830
Payments on long-term debt (10,210) (2,757,223) (9,023)
Proceeds from forward exchange contract 90,826 -- --
Proceeds from exercise of stock options, stock
purchase plan and common stock warrants 208,351 48,962 36,273
Payments for purchase of treasury shares (9,000) (4,745) --
Proceeds from issuance of common stock -- -- 512,916
----------- ----------- -----------
Net cash (used in) provided by financing activities (741,955) 1,120,683 874,990
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (42,094) 120,114 40,226
Cash and cash equivalents at beginning of year 196,838 76,724 36,498
----------- ----------- -----------
Cash and cash equivalents at end of year $ 154,744 $ 196,838 $ 76,724
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 555,669 $ 358,504 $ 201,127
Income taxes 542,116 96,643 58,005
See Notes to Consolidated Financial Statements
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Clear Channel Communications, Inc., incorporated in Texas in 1974, is a
diversified media company with three principal business segments: radio
broadcasting, outdoor advertising and live entertainment. The Company is one of
the largest domestic radio broadcasters based on the number of radio stations
for which it owns, programs and sells airtime. The Company is also one of the
world's largest outdoor advertising companies based on total advertising display
inventory in the United States and internationally. In addition, the Company is
one of the world's largest diversified promoters, producers and venue operators
of live entertainment events based on the total number of events, productions,
and owned or operated venues.
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 2001 presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an original
maturity of three months or less.
RESTRICTED CASH
Restricted cash includes cash proceeds on certain asset sales held in trust and
restricted for a specific time period to be used for the purchase of replacement
properties. If not used within the specified time period, the amounts are
refunded to the Company.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company evaluates the collectibility of its accounts receivable based on a
combination of factors. In circumstances where it is aware of a specific
customer's inability to meet its financial obligations, it records a specific
reserve to reduce the amounts recorded to what it believes will be collected.
For all other customers, it recognizes reserves for bad debt based on historical
experience of bad debts as a percent of revenues for each business unit,
adjusted for relative improvements or deteriorations in the agings and changes
in current economic conditions.
LAND LEASES AND OTHER STRUCTURE LICENSES
Most of the Company's outdoor advertising structures are located on leased land.
Domestic land rents are typically paid in advance for periods ranging from one
to twelve months. International land rents are paid both in advance and in
arrears, for periods ranging from one to twelve months. Most international
street furniture advertising display faces are licensed through municipalities
for up to 20 years. The street furniture licenses often include a percent of
revenue to be paid along with a base rent payment. Prepaid land leases are
recorded as an asset and expensed ratably over the related rental term and
license and rent payments in arrears are recorded as an accrued liability.
70
PREPAID EXPENSES
Included in prepaid expenses are event expenses including show advances and
deposits and other costs directly related to future entertainment events. Such
costs are charged to operations upon completion of the related events.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed using
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 and improvements - 10 to 39 years
Structures and site leases - 5 to 40 years, or life of lease
Towers, transmitters and studio equipment - 7 to 20 years
Furniture and other equipment - 3 to 20 years
Leasehold improvements - generally life of lease
Expenditures for maintenance and repairs are charged to operations as incurred,
whereas expenditures for renewal and betterments are capitalized.
INTANGIBLE ASSETS
Intangible assets are stated at cost. Excess cost over the fair value of net
assets acquired is classified as goodwill. Intangible assets and goodwill
acquired prior to June 30, 2001 are amortized using the straight-line method.
Intangible assets acquired subsequent to June 30, 2001, that are classified as
indefinite-lived intangibles (principally broadcast FCC licenses) and goodwill
are not being amortized and are evaluated for impairment under the appropriate
accounting guidance. Goodwill and licenses acquired prior to June 30, 2001 are
amortized generally over 15 to 25 years. Transit and street furniture contract
intangibles are classified as definite-lived intangibles and are amortized over
the respective lives of the agreements, typically four to fifteen years. Other
definite-lived intangible assets are amortized over their appropriate lives.
LONG-LIVED ASSETS
The Company periodically evaluates the propriety of the carrying amount of
goodwill and other intangible assets and related amortization periods to
determine whether current events or circumstances warrant adjustments to the
carrying value and/or revised estimates of amortization periods. These
evaluations consist of the projection of undiscounted cash flows over the
remaining amortization periods of the related intangible assets. The projections
are based on historical trend lines of actual results, adjusted for expected
changes in operating results. To the extent such projections indicate that
undiscounted cash flows are not expected to be adequate to recover the carrying
amount of the related intangible assets, such carrying amounts are written down
to fair value by charges to expense. During 2001, the Company recorded
impairment charges of approximately $170.0 million related to the write off of
duplicative and excess assets identified primarily in the radio segment, the
impairment of goodwill and excess property, plant and equipment in Poland within
the outdoor segment, and an on-air talent contract within the radio segment. The
fair values of the goodwill in Poland and the on-air talent contract were
determined based on discounted cash flow models and assumptions of future
expected cash flows and the fair values related to property, plant, and
equipment were based on estimated cash proceeds. These impairment charges were
recorded in depreciation and amortization expense in the statement of
operations.
71
OTHER INVESTMENTS
Other investments are composed primarily of equity securities. These securities
are classified as available-for-sale or trading and are carried at fair value
based on quoted market prices. Securities are carried at historical value when
quoted market prices are unavailable. The net unrealized gains or losses on the
available-for-sale securities, net of tax, are reported as a separate component
of shareholders' equity. The net unrealized gains or losses on the trading
securities are reported in the statement of operations. In addition, the Company
holds investments that do not have quoted market prices. The Company reviews the
value of available-for-sale, trading and non-marketable securities and records
impairment charges in the statement of operations for any decline in value that
is determined to be other-than-temporary. The average cost method is used to
compute the realized gains and losses on sales of equity securities.
EQUITY METHOD INVESTMENTS
Investments in which the Company owns 20 percent to 50 percent of the voting
common stock or otherwise exercises significant influence over operating and
financial policies of the company are accounted for under the equity method. The
Company does not recognize gains or losses upon the issuance of securities by
any of its equity method investees. The Company reviews the value of equity
method investments and records impairment charges in the statement of operations
for any decline in value that is determined to be other-than-temporary.
FINANCIAL INSTRUMENTS
Due to their short maturity, the carrying amounts of accounts and notes
receivable, accounts payable, accrued liabilities, and short-term borrowings
approximated their fair values at December 31, 2001 and 2000. The carrying
amounts of long-term debt approximated their fair value at the end of 2001 and
2000.
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. Deferred tax assets are reduced by valuation allowances if
the Company believes it is more likely than not that some portion or all of the
asset will not be realized. As all earnings from the Company's foreign
operations are permanently reinvested and not distributed, the Company's income
tax provision does not include additional U.S. taxes on foreign operations.
REVENUE RECOGNITION
Revenue is reported net of agency commissions. Agency commissions are calculated
based on a stated percentage applied to gross billing revenue for the Company's
broadcasting and outdoor operations. Clients remit the gross billing amount to
the agency and the agency remits gross billings less their commission to the
Company.
Radio broadcasting revenue is recognized as advertisements or programs are
broadcast and is generally billed monthly. Outdoor advertising provides services
under the terms of contracts covering periods up to three years, which are
generally billed monthly. Revenue for outdoor advertising space rental is
recognized ratably over the term of the contract. Payments received in advance
of billings are recorded as deferred income. Entertainment revenue from the
presentation and production of an event is recognized on the date of the
performance. Revenue collected in advance of the event is recorded as
72
deferred income until the event occurs. Entertainment revenue collected from
advertising and other revenue, which is not related to any single event, is
classified as deferred revenue and generally amortized over the operating season
and the term of the contract.
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.
The Company believes that the credit risk, with respect to trade receivables is
limited due to the large number and the geographic diversification of its
customers.
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 recognized in
these consolidated financial statements.
FOREIGN CURRENCY
Results of operations for foreign subsidiaries and foreign equity investees are
translated into U.S. dollars using the average exchange rates during the year.
The assets and liabilities of those subsidiaries and investees, other than those
of operations in highly inflationary countries, are translated into U.S. dollars
using the exchange rates at the balance sheet date. The related translation
adjustments are recorded in a separate component of shareholders' equity,
"Accumulated other comprehensive income (loss)". Foreign currency transaction
gains and losses, as well as gains and losses from translation of financial
statements of subsidiaries and investees in highly inflationary countries, are
included in operations.
STOCK BASED COMPENSATION
The Company accounts for its stock-based award plans in accordance with
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations, under which compensation expense is
recorded to the extent that the current market price of the underlying stock
exceeds the exercise price. Note H provides pro forma net income (loss) and pro
forma earnings (loss) per share disclosures as if the stock-based awards had
been accounted for using the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
("Statement 133"), as amended. Statement 133 requires that all derivative
instruments be reported on the balance sheet at fair value and establishes
criteria for designation and effectiveness of hedging relationships. Upon
adoption, the Company recorded
73
the fair value of its derivative instruments on its balance sheet. Adoption of
Statement 133 had no impact on the Company's results of operations. Also upon
adoption, the Company reclassified 2.0 million shares of its investment in
American Tower Corporation ("AMT") that had been classified as
available-for-sale securities to trading securities under Financial Accounting
Standards No. 115 Accounting for Certain Investments in Debt and Equity
Securities ("Statement 115"). In accordance with Statement 115 and Statement
133, the shares were transferred to a trading classification at their fair
market value on January 1, 2001, of $76.2 million, and an unrealized pretax
holding gain of $69.7 million was recorded in earnings as "Gain on marketable
securities".
On July 1, 2001, the Company adopted Statement of Financial Accounting Standards
No. 141, Business Combinations ("Statement 141"). Statement 141 addresses
financial accounting and reporting for business combinations and supersedes APB
Opinion No. 16, Business Combinations, and FASB Statement 38, Accounting for
Preacquisition Contingencies of Purchased Enterprises. Statement 141 is
effective for all business combinations initiated after June 30, 2001. Statement
141 eliminates the pooling-of-interest method of accounting for business
combinations except for qualifying business combinations that were initiated
prior to July 1, 2001. Statement 141 also changes the criteria to recognize
intangible assets apart from goodwill. As the Company has historically used the
purchase method to account for all business combinations, adoption of this
statement did not have a material impact on the Company's financial position or
results of operations.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
("Statement 142"). Statement 142 addresses financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB Opinion No.
17, Intangible Assets. Statement 142 is effective for fiscal years beginning
after December 15, 2001. This statement establishes new accounting for goodwill
and other intangible assets recorded in business combinations. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the statement. Other intangible assets will continue to be amortized over
their useful lives. Under this guidance, the Company believes broadcast licenses
are indefinite-lived intangibles. As the Company's amortization of goodwill and
certain other indefinite-lived intangibles is a significant non-cash expense
that the Company currently records, Statement 142 will have a material impact on
the Company's financial statements. Amortization expense related to goodwill and
indefinite-lived intangibles was approximately $1.8 billion for the year ended
December 31, 2001. The Company will test goodwill for impairment using a
two-step process. The first step is a screen for potential impairment, while the
second step measures the amount of impairment, if any. The Company expects to
perform the first of the required impairment tests of goodwill and
indefinite-lived intangible assets as of January 1, 2002 in the first quarter of
2002. As a result of these tests, the Company expects to record a pre-tax
impairment charge in the range of $15.0 billion to $25.0 billion, which will be
reported after-tax as a cumulative effect in accounting change on the statement
of operations for the quarter ended March 31, 2002.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("Statement 144"). Statement 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement supersedes Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of ("Statement 121"). Statement 144 is effective for fiscal years
beginning after December 15, 2001. Statement 144 removes goodwill from its scope
and retains the requirements of Statement 121 regarding the recognition of
impairment losses on long-lived assets held for use. The Statement modifies the
accounting for long-lived assets to be disposed of by sale and long-lived assets
to be disposed of by other than by sale. The
74
Company does not believe adoption of this statement will materially impact the
Company's financial position or results of operations.
NOTE B - BUSINESS ACQUISITIONS
PENDING ACKERLEY MERGER (UNAUDITED)
On October 5, 2001, the Company entered into a merger agreement to acquire The
Ackerley Group, Inc., ("Ackerley"). Ackerley holds a diversified group of
outdoor, broadcasting and interactive media assets. This merger will be a
tax-free, stock-for-stock transaction. Each share of Ackerley common stock will
convert into 0.35 shares of the Company's common stock, on a fixed exchange
basis, valuing the merger, based on average share value at the signing of the
merger agreement, at approximately $474.9 million plus the assumption of
Ackerley's debt, which was approximately $290.6 million at December 31, 2001.
This merger is subject to regulatory approval and other closing conditions. The
Company anticipates that this merger will close during the first half of 2002.
2001 ACQUISITIONS:
During 2001, the Company acquired substantially all of the assets of 183 radio
stations, approximately 6,900 additional outdoor display faces and the live
entertainment segment acquired music, sports and racing events, promotional
assets and sports talent representation contracts. The Company also acquired two
FCC licenses of television stations, both of which we had previously been
operating under a local marketing agreement, national representation contracts,
and other assets. In addition, the Company exchanged one television license for
two television licenses and $10.0 million of cash that was placed in a
restricted trust for future acquisitions. The exchange was accounted for at fair
value, resulting in a gain of $168.0 million, which was recorded in "Other
income (expense) - net".
The Company has entered into certain agreements relating to acquisitions that
provide for purchase price adjustments and other future contingent payments
based on the financial performance of the acquired company. The Company will
continue to accrue additional amounts related to such contingent payments if and
when it is determinable that the applicable financial performance targets will
be met. The aggregate of these contingent payments, if performance targets are
met, would not significantly impact the Company's financial position or results
of operations.
The Company's 2001 acquisitions resulted in additional licenses and goodwill of
approximately $1.2 billion, including $233.7 million relating to non-cash asset
exchanges.
2000 ACQUISITIONS:
ACKERLEY'S SOUTH FLORIDA OUTDOOR ADVERTISING DIVISION
On January 5, 2000, the Company closed its acquisition of Ackerley's South
Florida outdoor advertising division ("Ackerley FL Division") for $300.2
million. The Company funded the acquisition with advances on its credit
facilities. This acquisition was accounted for as a purchase, with resulting
goodwill of approximately $208.3 million, which is being amortized over 25 years
on a straight-line basis. The results of operations of Ackerley FL Division have
been included in the financial statements of the Company beginning January 5,
2000.
75
AMFM MERGER
On August 30, 2000, the Company closed its merger with AMFM Inc. ("AMFM").
Pursuant to the terms of the merger agreement, each share of AMFM common stock
was exchanged for 0.94 shares of the Company's common stock. Approximately 205.4
million shares of the Company's common stock were issued in the AMFM merger,
valuing the merger, based on the average market price of the Company's common
stock at the signing of the merger agreement, at $15.9 billion plus the
assumption of AMFM's outstanding debt of $3.5 billion. Additionally, the Company
assumed options and common stock warrants with a fair value of $1.2 billion,
which are convertible, subject to applicable vesting, into approximately 25.5
million shares of the Company's common stock. The Company refinanced $540.0
million of AMFM's long-term debt at the closing of the merger using its credit
facility. The AMFM merger was accounted for as a purchase with resulting
goodwill of approximately $7.1 billion, which is being amortized over 25 years
on a straight-line basis. The results of operations of AMFM have been included
in the financial statements of the Company beginning August 30, 2000.
In connection with the AMFM merger and governmental directives, the Company
divested 39 radio stations for $1.2 billion, resulting in a gain on sale of
$805.2 million and an increase in income tax expense of $306.0 million. The
Company deferred a portion of this tax expense based on its replacing the
stations sold with qualified assets. Of the $1.2 billion proceeds, $839.7
million was placed in restricted trusts for the purchase of replacement
properties. In addition, restricted cash of $439.9 million was acquired from
AMFM related to the divestiture of AMFM radio stations in connection with the
merger. The following table details the reconciliation of divestiture and
acquisition activity in the restricted trust accounts:
(In thousands)
Restricted cash resulting from Clear Channel divestitures $ 839,717
Restricted cash purchased in AMFM merger 439,896
Restricted cash used in acquisitions (670,228)
Interest, net of fees 18,756
---------
Restricted cash balance at December 31, 2000 628,141
Less current portion at December 31, 2000 308,691
---------
Long-term restricted cash at December 31, 2000 $ 319,450
=========
SFX MERGER
On August 1, 2000, the Company consummated its merger with SFX Entertainment,
Inc. ("SFX") Pursuant to the terms of the merger agreement, each share of SFX
Class A common stock was exchanged for 0.6 shares of the Company's common stock
and each share of SFX Class B common stock was exchanged for one share of the
Company's common stock. Approximately, 39.2 million shares of the Company's
common stock were issued in the SFX merger. Based on the average market price of
the Company's common stock at the signing of the merger agreement, the merger
was valued at $2.9 billion plus the assumption of SFX's outstanding debt of $1.5
billion. Additionally, the Company assumed all stock options and common stock
warrants with a fair value of $211.8 million, which are exercisable for
approximately 5.6 million shares of the Company's common stock. The Company
refinanced $815.8 million of SFX's $1.5 billion of long-term debt at the closing
of the merger using its credit facilities. The SFX merger was accounted for as a
purchase with resulting goodwill of approximately $4.1 billion, which is being
amortized over 20 years on a straight-line basis. The results of operations of
SFX have
76
been included in the financial statements of the Company beginning August 1,
2000.
A number of lawsuits were filed by holders of SFX Class A common stock alleging,
among other things, that the difference in consideration for the Class A and
Class B shares constituted unfair consideration to the Class B holders and that
the SFX board breached its fiduciary duties and that the Company aided and
abetted the actions of the SFX board. On September 28, 2000, the Company issued
approximately .4 million shares of its common stock, valued at $29.3 million, as
settlement of these lawsuits and has included the value of these shares as part
of the purchase price.
During 2001, the Company made adjustments to finalize the purchase price
allocation for the AMFM and SFX mergers, resulting in additional goodwill,
recorded in 2001, of approximately $272.8 million.
DONREY MEDIA GROUP
On September 1, 2000, the Company completed its acquisition of the assets of
Donrey Media Group ("Donrey") for $372.6 million in cash consideration. The
Company funded the acquisition with advances on its credit facilities. The
acquisition was accounted for as a purchase, with resulting goodwill of
approximately $290.3 million, which is amortized over 25 years on a
straight-line basis. The results of operations of the Donrey markets have been
included in the financial statements of the Company beginning September 1, 2000.
OTHER
In addition to the acquisitions discussed above, the Company acquired
substantially all of the assets of 148 radio stations, 66,286 outdoor display
faces and the live entertainment segment acquired sporting, music and theatrical
events promotions, racing promotion, and venue management assets. The aggregate
cash paid for these acquisitions was approximately $1.2 billion.
1999 ACQUISITIONS:
DAME MEDIA
On July 1, 1999, the Company closed its merger with Dame Media, Inc. ("Dame
Media"). Pursuant to the terms of the agreement, the Company exchanged
approximately 1.0 million shares of its common stock for 100% of the outstanding
stock of Dame Media, valuing this merger at approximately $65.0 million. In
addition the Company assumed $32.7 million of long term debt, which was
immediately refinanced utilizing the Company's credit facility. Dame Media's
operations include 21 radio stations in five markets located in New York and
Pennsylvania. The Company began consolidating the results of operations on July
1, 1999.
DAUPHIN
On June 11, 1999, the Company acquired a 50.5% equity interest in Dauphin OTA,
("Dauphin") a French company engaged in outdoor advertising. In August 1999 the
Company completed its tender offer for over 99% of the remaining shares
outstanding. At December 31, 1999, all of the shares had been surrendered for an
aggregate cost of approximately $487.2 million. Dauphin's operations include
approximately 103,000 outdoor advertising display faces in France, Spain, Italy,
and Belgium. This
77
acquisition has been accounted for as a purchase with resulting goodwill of
approximately $449.7 million, which is being amortized over 25 years on a
straight-line basis. The Company began consolidating the results of operations
on the date of acquisition.
JACOR
On May 4, 1999, the Company closed its merger with Jacor Communications, Inc.
("Jacor"). Pursuant to the terms of the agreement, each share of Jacor common
stock was exchanged for 1.1573151 shares of the Company's common stock or
approximately 60.9 million shares valued at $4.2 billion. In addition, the
Company assumed approximately $1.4 billion of Jacor's long-term debt, as well as
Jacor's Liquid Yield Option Notes with a fair value of approximately $490.1
million, which are convertible into approximately 7.1 million shares of the
Company's common stock. The Company also assumed options, stock appreciation
rights and common stock warrants with a fair value of $414.9 million, which are
convertible into approximately 9.2 million shares of the Company's common stock.
The Company refinanced $850.0 million of Jacor's long-term debt at the closing
of the merger using the Company's credit facility. Subject to a change in
control tender, the Company redeemed an additional $22.1 million of Jacor's
long-term debt. This merger has been accounted for as a purchase with resulting
goodwill of approximately $3.1 billion, which is being amortized over 25 years
on a straight-line basis. The results of operations of Jacor have been included
in the Company's financial statements beginning May 4, 1999.
In order to comply with governmental directives regarding the Jacor merger, the
Company divested certain assets valued at $205.8 million and swapped other
assets valued at $35.0 million in transactions with various third parties,
resulting in a gain on sale of assets related to mergers of $138.7 million and
an increase in income tax expense (at the Company's statutory rate of 38%) of
$52.0 million during 1999. The Company deferred the majority of this tax expense
based on its replacing the stations sold with qualified assets. The proceeds
from divestitures were held in restricted trusts until the replacement
properties were purchased.
OTHER
Also during 1999, the Company acquired substantially all of the assets of nine
radio stations in six domestic markets, 2,789 outdoor display faces in 29
domestic markets and in malls throughout the U.S. and 72,326 outdoor display
faces in eight international markets. The aggregate cash paid for these
acquisitions was approximately $739.3 million.
The results of operations for 2000 and 1999 include the operations of each
business acquired from the respective date of acquisition. Unaudited pro forma
consolidated results of operations, assuming the 1999 acquisitions of Jacor,
Dame Media and Dauphin and the 2000 acquisitions of the Ackerley FL Division,
SFX, AMFM and Donrey had occurred at January 1, 1999, would have been as
follows:
(In thousands, except per share data)
Pro Forma (Unaudited)
Year Ended December 31,
----------------------------------
2000 1999
---- ----
Revenue $ 7,693,313 $ 6,615,391
Net loss $ (548,898) $ (502,044)
Net loss per common share:
Basic and Diluted $ (.94) $ (.86)
78
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 these
acquisitions occurred at the beginning of 1999, nor is it indicative of future
results of operations. The Company made other acquisitions during 2001, 2000 and
1999, the effects of which, individually and in aggregate, were not material to
the Company's consolidated financial position or results of operations.
The following is a summary of the assets and liabilities acquired and the
consideration given for acquisitions:
(In thousands)
2001 2000
---- ----
Property, plant and equipment $ 149,151 $ 1,703,871
Accounts receivable 24,250 826,426
Goodwill and FCC licenses 960,259 29,705,197
Investments 25,029 1,316,241
Other assets 8,484 1,611,208
------------ ------------
1,167,173 35,162,943
Long-term debt (11,316) (4,999,900)
Other liabilities (98,897) (2,016,676)
Deferred tax (4,640) (5,223,905)
SFX shares held prior to merger -- (84,881)
Common stock issued (18,234) (20,283,157)
------------ ------------
(133,087) (32,608,519)
------------ ------------
Total cash consideration 1,034,086 2,554,424
Less: Restricted cash used (367,519) (670,228)
------------ ------------
Cash paid for acquisitions $ 666,567 $ 1,884,196
============ ============
RESTRUCTURING
In connection with the Company's mergers with SFX Entertainment, Inc. ("SFX")
and AMFM Inc. ("AMFM"), the Company restructured the SFX and AMFM operations.
The AMFM corporate offices in Dallas and Austin, Texas were closed on March 31,
2001 and a portion of the SFX corporate office in New York was closed on June
30, 2001. Other operations of AMFM have either been discontinued or integrated
into existing similar operations. As of December 31, 2001, the restructuring has
resulted in the actual termination of approximately 600 employees and the
pending termination of approximately 50 more employees. The Company has recorded
a liability in purchase accounting primarily related to severance for terminated
employees and lease terminations as follows:
(In thousands)
December 31,
------------------------
2001 2000
---- ----
Severance and lease termination costs:
Accrual at January 1 $ 84,291 $ 4,348
Adjustments to restructuring accrual 41,624 120,797
Payments charged against restructuring accrual (72,733) (40,854)
-------- ---------
Remaining severance and lease termination accrual $ 53,182 $ 84,291
======== =========
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The remaining severance and lease accrual is comprised of $42.8 million of
severance and $10.4 million of lease termination. The majority of the severance
accrual will be paid in 2002; however, the severance accrual also includes an
amount that will be paid over the next several years. The lease termination
accrual will be paid over the next five years. During 2001, $68.7 million was
paid and charged to the restructuring reserve related to severance. The
adjustments to the restructuring accrual presented above, which are primarily
related to additional severance and compensation accruals were recorded within
goodwill. During 2001, the Company made adjustments to finalize the purchase
price allocation for both the AMFM and SFX mergers.
NOTE C - INVESTMENTS
The Company's most significant investments in non-consolidated affiliates are
listed below:
AUSTRALIAN RADIO NETWORK
The Company owns a fifty-percent (50%) interest in Australian Radio Network
("ARN"), an Australian company that owns and operates radio stations, a
narrowcast radio broadcast service and a radio representation company in
Australia.
HISPANIC BROADCASTING CORPORATION
The Company owns 26% of the total number of shares of Hispanic Broadcasting
Corporation ("HBC"), a leading domestic Spanish-language radio broadcaster. At
December 31, 2001, the fair market value of the Company's shares of HBC was
$722.0 million.
GRUPO ACIR COMUNICACIONES
The Company owns a forty-percent (40%) interest in Grupo ACIR Comunicaciones
("ACIR"), a Mexican radio broadcasting company. ACIR owns and operates radio
stations throughout Mexico.
CLEAR MEDIA
The Company owns 46.1% of the total number of shares of Hainan White Horse
Advertising Media Investment Co. Ltd. ("Clear Media"), formerly known as White
Horse, a Chinese company that operates street furniture displays throughout
China. At December 31, 2001, the fair market value of the Company's shares of
Clear Media was $169.1 million.
80
SUMMARIZED FINANCIAL INFORMATION
The following table summarizes the Company's investments in these
nonconsolidated affiliates:
(In thousands)
Clear All
ARN HBC ACIR Media Others Total
--- --- ---- ----- ------ -----
At December 31, 2000 $57,806 $157,629 $55,443 $43,051 $113,374 $427,303
Acquisition of new investments -- -- -- -- 25,334 25,334
Transfers from cost investments
and other reclasses -- -- -- -- 5,102 5,102
Additional investment, net 3,076 -- -- 11,236 31,600 45,912
Equity in net earnings (557) 8,038 (2,584) 1,829 2,846 9,572
Amortization of excess cost -- (605) (1,896) -- (1,050) (3,551)
Foreign currency transaction
adjustment 674 -- -- -- -- 674
Foreign currency translation
adjustment 2,365 -- 313 (103) (10,736) (8,161)
------- -------- ------- ------- -------- --------
At December 31, 2001 $63,364 $165,062 $51,276 $56,013 $166,470 $502,185
======= ======== ======= ======= ======== ========
The above investments are not consolidated, but are accounted for under the
equity method of accounting, whereby the Company records its investments in
these entities in the balance sheet as "Investments in, and advances to,
nonconsolidated affiliates." The Company's interests in their operations are
recorded in the statement of operations as "Equity in earnings of
nonconsolidated affiliates." Other income derived from transactions with
nonconsolidated affiliates consists of interest, management fees and other
transaction gains, which aggregated $3.7 million in 2001, $4.3 million in 2000,
and $7.4 million in 1999, and are recorded in the statement of operations as
"Equity in earnings of nonconsolidated affiliates." Accumulated undistributed
earnings included in retained earnings for these investments was $45.7 million,
$39.0 million and $18.2 million for December 31, 2001, 2000 and 1999,
respectively.
OTHER INVESTMENTS
Other investments of $354.3 million and $1.6 billion at December 31, 2001 and
2000, respectively, include marketable equity securities classified as follows:
(In thousands)
Unrealized
Fair ---------------------------------
Investments Value Gains (Losses) Net Cost
----------- ----- ----- -------- --- ----
2001
Available-for-sale $270,890 $143,344 $ -- $143,344 $127,546
Trading 19,040 12,606 -- 12,606 6,434
Other cost investments 64,411 -- -- -- 64,411
-------- -------- -------- -------- --------
Total $354,341 $155,950 $ -- $155,950 $198,391
======== ======== ======== ======== ========
81
(In thousands)
Unrealized
Fair -----------------------------------
Investments Value Gains (Losses) Net Cost
----------- ----- ----- -------- --- ----
2000
Available-for-sale $1,491,974 $370,115 $(207,477) $162,638 $1,329,336
Other cost investments 113,128 -- -- -- 113,128
---------- -------- --------- -------- ----------
Total $1,605,102 $370,115 $(207,477) $162,638 $1,442,464
========== ======== ========= ======== ==========
Accumulated net unrealized gain on available-for-sale securities, net of tax, of
$92.0 million and $105.7 million were recorded in shareholders' equity in
"Accumulated other comprehensive income (loss)" at December 31, 2001 and 2000,
respectively. The net unrealized gain on trading securities of $12.6 million is
recorded on the statement of operations in "Gain on marketable securities" for
the year ended December 31, 2001. Other cost investments include various
investments in companies for which there is no readily determinable market
value.
On January 1, 2001, the Company reclassified 2.0 million shares of American
Tower Corporation from available-for-sale to a trading security under the
one-time exception allowed in Financial Accounting Standards No. 133 Accounting
for Derivative Instruments and Hedging Activities. The shares were transferred
to a trading classification at their fair market value of $76.2 million and an
unrealized pretax holding gain of $69.7 million was recorded on the statement of
operations in "Gain on marketable securities".
During 2001, unrealized losses of $55.6 million and $11.6 million were recorded
on the statement of operations in "Gain (loss) on marketable securities" and
"Gain (loss) on sale of assets related to mergers", respectively, related to
impairments of investments that had declines in their market values that were
considered to be other-than-temporary. These impairments include investments in
Internet companies and various media companies. During 2000, unrealized losses
of $11.3 million were recorded on the statement of operations in "Gain (loss) on
sale of assets related to mergers" related to impairments of investments that
had declines in their market values that were considered to be
other-than-temporary. These impairments include investments in various media
companies.
In connection with the completion of the AMFM merger, Clear Channel and AMFM
entered into a Consent Decree with the Department of Justice regarding AMFM's
investment in Lamar Advertising Company, ("Lamar"). The Consent Decree, among
other things, required the Company to sell all of its 26.2 million shares of
Lamar by December 31, 2002 and relinquish all shareholder rights during the
disposition period. As a result, the Company did not exercise significant
influence and accounted for this investment under the cost method of accounting.
During 2001 and 2000, proceeds of $920.0 million and $55.4 million were received
on the sale of 24.9 million and 1.3 million shares of Lamar, respectively.
Losses of $235.0 million and $5.8 million were realized on the sale of Lamar
common stock in 2001 and 2000, respectively, which was recorded in "Gain on sale
of assets related to mergers". At December 31, 2001, the Company no longer holds
any Lamar common stock.
82
NOTE D - LONG-TERM DEBT
Long-term debt at December 31, 2001 and 2000 consisted of the following:
(In thousands)
December 31,
----------------------------
2001 2000
---- ----
Revolving line of credit facilities $ 1,419,324 $ 3,203,756
Senior Notes:
1.5% Convertible Notes Due 2002 1,000,000 1,000,000
Floating Rate Notes Due 2002 250,000 250,000
2.625% Convertible Notes Due 2003 574,991 575,000
7.25% Senior Notes Due 2003 750,000 750,000
7.875% Notes Due 2005 750,000 750,000
6.5% Notes (denominated in Euro) Due 2005 578,175 612,560
6.0% Senior Notes Due 2006 750,000 --
6.625% Senior Notes Due 2008 125,000 125,000
7.65% Senior Notes Due 2010 750,000 750,000
6.875% Senior Debentures Due 2018 175,000 175,000
7.25% Debentures Due 2027 300,000 300,000
Fair value adjustments related to interest rate swaps 106,649 --
Liquid Yield Option Notes 244,367 497,054
Various subsidiary level notes 1,432,402 1,441,070
Other long-term debt 277,026 235,378
----------- -----------
9,482,934 10,664,818
Less: current portion 1,515,221 67,736
----------- -----------
Total long-term debt $ 7,967,713 $10,597,082
=========== ===========
REVOLVING LINE OF CREDIT FACILITIES
The Company has three separate revolving line of credit facilities. Interest
rates for each facility are based upon a prime, LIBOR, or Federal Funds rate
selected at the Company's discretion, plus a margin. The first facility is a
reducing revolving line of credit, originally in the amount of $2.0 billion that
matures June 30, 2005. Beginning September 30, 2000, commitments under this
facility began reducing on a quarterly basis and as a result principal
repayments may be required to the extent borrowings would otherwise exceed the
available level of commitments. At December 31, 2001, $920.0 million was
outstanding and $773.8 million was available for future borrowings. There were
no outstanding letters of credit under this facility.
The second facility is a $1.5 billion multi-currency credit facility that
matures August 30, 2005. At December 31, 2001, $499.3 million was outstanding,
and there were $79.7 million of letters of credit outstanding, which reduces
availability. At December 31, 2001, $921.0 million was available for future
borrowings.
The third facility is a $1.5 billion 364-day revolving credit facility that
matures August 28, 2002. The Company has the option upon maturity to convert
this facility into a term loan with a three-year maturity. At December 31, 2001,
the outstanding balance was $0 million and $1.5 billion was available for future
borrowings. There were no outstanding letters of credit under this facility.
83
At December 31, 2001, interest rates on the revolving line of credit facilities
varied from 2.40% to 2.43% on borrowings denominated in US dollars and from
2.48% to 4.75% on borrowings in other currencies.
SENIOR NOTES
All fees and initial offering discounts are being amortized as interest expense
over the life of the note. The aggregate face value and market value of the
senior notes was approximately $6.0 billion at December 31, 2001. The aggregate
face value and market value of the senior notes was approximately $5.3 billion
and $5.2 billion, respectively at December 31, 2000.
1.5% Convertible Notes: The notes are convertible into the Company's common
stock at any time following the date of original issuance, unless previously
redeemed, at a conversion price of $105.82 per share, subject to adjustment in
certain events. The Company has reserved 9.5 million shares of common stock for
the conversion of these notes.
2.625% Convertible Notes: The notes are convertible into the Company's common
stock at any time following the date of original issuance, unless previously
redeemed, at a conversion price of $61.95 per share, subject to adjustment in
certain events. The Company has reserved 9.3 million shares of common stock for
the conversion of these notes. The notes are redeemable, in whole or in part, at
the option of the Company at any time on or after April 1, 2001 and until March
31, 2002 at 101.050%; on or after April 1, 2002 and until March 31, 2003 at
100.525%; and on April 1, 2003 at 100%, plus accrued interest.
Interest Rate Swaps: The Company entered into interest rate swap agreements on
the 7.25% Senior Notes Due 2003 and the 7.875% Senior Notes Due 2005 whereby the
Company pays interest at a floating rate and receives the fixed rate coupon. The
fair value of these swaps was $106.6 million at December 31, 2001.
VARIOUS SUBSIDIARY LEVEL NOTES
The aggregate face value and market value of the various subsidiary level notes
was approximately $1.4 billion at December 31, 2001 and 2000.
Notes assumed in AMFM Merger: On October 6, 2000, the Company made payments of
$231.4 million pursuant to mandatory offers to repurchase due to a change of
control on the following series of AMFM debt: 8% Senior Notes due 2008, 8.125%
Senior Subordinated Notes due 2007 and 8.75% Senior Subordinated Notes due 2007,
originally issued by Chancellor Media Corporation or one of its subsidiaries, as
well as the 12.625% Exchange Debentures due 2006, originally issued by SFX
Broadcasting (AMFM Operating Inc.). The aggregate remaining balance of these
series of AMFM long-term bonds was $1.4 billion at December 31, 2001, which
includes a purchase accounting premium of $66.5 million.
On January 15, 2002, the Company redeemed all of the outstanding 12.625%
Exchange Debentures due 2006, originally issued by SFX Broadcasting. At December
31, 2001 the face value of these notes was $141.8 million and the unamortized
fair value purchase accounting adjustment premium was $15.3 million. The
debentures were redeemed for $150.8 million plus accrued interest. The
redemption resulted in a gain of $3.9 million, net of tax.
Chancellor Media Corporation, SFX Broadcasting, and AMFM Operating Inc., or
their successors are all indirect wholly-owned subsidiaries of the Company.
Notes assumed in SFX Merger: During 2000, the Company launched a tender offer
for any and all of its
84
9.125% Senior Subordinated Notes due 2008 and consequently redeemed notes with a
redemption value of approximately $602.9 million. Approximately $1.6 million of
the notes remain outstanding at December 31, 2001.
DEBT COVENANTS
The only significant covenants in the Company's debt are leverage and interest
coverage ratio covenants contained in the credit facilities. The leverage ratio
covenant requires the Company to maintain a ratio of total debt to EBITDA (as
defined by the credit facilities) of less than 5.50x through June 30, 2003 and
less than 5.00x from July 1, 2003 through the maturity of the facilities. The
interest coverage covenant requires the Company to maintain a minimum ratio of
EBITDA (as defined by the credit facilities) to interest expense of 2.00x. In
the event that the Company does not meet these covenants, it is considered to be
in default on the credit facilities at which time the credit facilities may
become immediately due. The Company's bank credit facilities have cross-default
provisions among the bank facilities only. No other debt agreements of the
Company have cross-default or cross-acceleration provisions.
Additionally, the AMFM long-term bonds contain certain restrictive covenants
that limit the ability of AMFM Operating Inc., a wholly-owned subsidiary of the
Company, to incur additional indebtedness, enter into certain transactions with
affiliates, pay dividends, consolidate, or effect certain asset sales. The AMFM
long-term bonds have cross-default and cross-acceleration provisions among the
AMFM long-term bonds only.
At December 31, 2001, the Company was in compliance with all debt covenants. The
Company expects to be in compliance during 2002.
LIQUID YIELD OPTION NOTES
The Company assumed two issues of Liquid Yield Option Notes ("LYONs") as a part
of the merger with Jacor on May 4, 1999.
LYONs due 2018: The Company assumed 4.75% LYONs due 2018 with a fair value of
$225.4 million. Each LYON has a principal amount at maturity of $1,000 and is
convertible, at the option of the holder, at any time on or prior to maturity,
into the Company's common stock at a conversion rate of 7.227 shares per LYON.
The LYONs due 2018 had a balance, net of redemptions, conversions to common
stock, amortization of premium, and accretion of interest, at December 31, 2001,
of $244.4 million, which includes a purchase accounting premium of $43.9
million, and approximate fair value of $212.5 million. At December 31, 2001,
approximately 3.1 million shares of common stock were reserved for the
conversion of the LYONs due 2018.
The LYONs due 2018 are not redeemable by the Company prior to February 9, 2003.
Thereafter, the LYONs are redeemable for cash at any time at the option of the
Company in whole or in part, at redemption prices equal to the issue price plus
accrued original issue discount to the date of redemption.
The LYONs due 2018 can be purchased by the Company, at the option of the holder,
on February 9, 2003; February 9, 2008; and February 9, 2013; for a purchase
price of $494.52, $625.35 and $790.79, respectively, representing a 4.75% yield
per annum to the holder on such date. The Company, at its option, may elect to
pay the purchase price on any such purchase date in cash or common stock, or any
combination thereof.
LYONs due 2011: The Company assumed 5.5% LYONs due 2011 with a fair value of
$264.8 million.
85
Each LYON had a principal amount at maturity of $1,000 and was convertible, at
the option of the holder, at any time on or prior to maturity, into the
Company's common stock at a conversion rate of 15.522 shares per LYON. These
LYONs became redeemable by the Company on June 12, 2001. On May 7, 2001, the
Company delivered notice of its intent to redeem the total outstanding principal
amount of its 5.50% LYONs on June 12, 2001. The redemption price was $581.25 per
each $1,000 LYON outstanding at June 12, 2001, which was equal to the issue
price plus accrued original issue discount to the date of redemption. Each LYON
was convertible, at the option of the holder, at any time prior to the close of
business June 12, 2001. Substantially all of the 5.50% LYONs converted into 3.9
million shares of the Company's common stock prior to the redemption date.
Future maturities of long-term debt at December 31, 2001 are as follows:
(In thousands)
2002 $1,515,221
2003 1,344,092
2004 419,546
2005 2,449,240
2006 755,043
Thereafter 2,999,792
----------
$9,482,934
==========
NOTE E - FINANCIAL INSTRUMENTS
Statement 133 requires that all derivatives be recognized as either assets or
liabilities at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in fair value will either be offset against the change in
fair value of the hedged assets or liabilities in earnings, or recognized in
accumulated other comprehensive income until the hedged item is recognized in
earnings.
In accordance with the Company's risk management policies, it formally documents
its hedging relationships, including identification of the hedging instruments
and the hedged items, as well as its risk management objectives and strategies
for undertaking the hedge transaction. The Company formally assesses, both at
inception and at least quarterly thereafter, whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in
either the fair value or cash flows of the hedged item. If a derivative ceases
to be a highly effective hedge, the Company discontinues hedge accounting. The
Company does not enter into derivative instruments for speculation or trading
purposes.
INTEREST RATE RISK MANAGEMENT
The Company's policy is to manage interest expense using a mix of fixed and
variable rate debt. To manage this mix in a cost-efficient manner, the Company
enters into interest rate swap agreements in which the Company agrees to
exchange the difference between fixed and variable interest amounts calculated
by reference to an agreed-upon notional principal amount. These swaps,
designated as fair value hedges, hedge underlying fixed-rate debt obligations
with a principal amount of $1.5 billion. The terms of the underlying debt and
the interest rate swap agreements coincide; therefore the hedge qualifies for
the short-cut method defined in Statement 133. Accordingly, no net gains or
losses were recorded in income related to the Company's underlying debt and
interest rate swap agreements. In accordance with
86
Statement 133, on January 1, 2001, the Company recorded an asset on the balance
sheet as "Other long-term assets" of $49.0 million to reflect the fair value of
the interest rate swap agreements and increased the carrying value of the
underlying debt by an equal amount. On December 31, 2001, the fair value of the
interest rate swap agreements was approximately $106.6 million. Accordingly, an
adjustment was made to the asset and carrying value of the underlying debt on
December 31, 2001 to reflect the increase in fair value.
SECURED FORWARD EXCHANGE CONTRACT
On January 31, 2001, and again on June 25, 2001, Clear Channel Investments,
Inc., a wholly-owned subsidiary of the Company, entered into two ten-year
secured forward exchange contracts that monetized 2.6 million shares and .3
million shares of the Company's investment in American Tower Corporation,
("AMT"), respectively. The January 31, 2001 and June 25, 2001 secured forward
exchange contracts protect the Company against decreases in the fair value of
AMT below $36.54 per share and $24.53 per share while providing participation in
increases in the fair value of the stock up to $47.50 per share and $31.88 per
share, respectively. During the term of the secured forward exchange contracts,
the Company retains ownership of the AMT shares. The Company's obligation under
the secured forward exchange contracts is collateralized by a security interest
in the AMT shares.
Under Statement 133, these contracts are considered hybrid instruments -
long-term obligations with derivative instruments embedded into the contracts.
Statement 133 requires a hybrid instrument to be bifurcated such that the
long-term obligations and the embedded derivatives are accounted for separately
under the appropriate accounting guidance. The long-term obligations have been
recorded on the balance sheet as "Other long-term liabilities" at their
inception fair value of $56.9 million and accrete to their maturity values
totaling $103.0 million over their ten-year term, with the accretion classified
as interest expense. As of December 31, 2001, the aggregate balance of the
long-term obligations was $60.3 million while the aggregate balance of the
embedded derivatives recorded on the balance sheet as "Other assets" was $34.9
million. For the twelve months ended December 31, 2001, the fair value of the
embedded derivative increased $68.8 million. The increase in fair value was
recorded in earnings as "Gain on marketable securities". On December 31, 2001,
the fair market value of the 2.0 million shares of AMT previously reclassified
as trading securities was $19.0 million. For the twelve months ended December
31, 2001, the fair value of the AMT shares classified as trading securities had
decreased $57.2 million. The change in the fair market value of these shares has
been recorded in earnings as "Gain on marketable securities".
FOREIGN CURRENCY RATE MANAGEMENT
As a result of the Company's foreign operations, the Company is exposed to
foreign currency exchange risks related to its investment in net assets in
foreign countries. To manage this risk, the Company enters into foreign
denominated debt to hedge a portion of the effect of movements in currency
exchange rates on these net investments. The Company's major foreign currency
exposure involves markets with net investments in Euros and the British pound.
The primary purpose of the Company's foreign currency hedging activities is to
offset the translation gain or losses associated with the Company's net
investments denominated in foreign currencies. Since the debt is denominated in
the same currency of the foreign denominated net investment, the hedge will
offset a portion of the translation changes in the corresponding net investment.
Since an assessment of this hedge revealed no ineffectiveness, all of the
translation gains and losses associated with this debt are reflected as a
translation adjustment within accumulated other comprehensive income (loss)
within shareholders' equity. As of December 31, 2001, cumulative translation
losses, net of tax of $126.4 million have been reported as a part of
"Accumulated
87
other comprehensive income (loss)" within shareholders' equity.
NOTE F - COMMITMENTS AND CONTINGENCIES
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.
The Company has minimum franchise payments associated with non-cancelable
contracts that enable it to display advertising on such media as buses, taxis,
trains, bus shelters and terminals. The majority of these contracts contain rent
provisions that are calculated as the greater between a percentage of the
relevant advertising revenue or a specified guaranteed minimum annual payment.
In addition, the Company has commitments relating to required purchases of
property, plant, and equipment under certain street furniture contracts, as well
as construction commitments for facilities and venues.
As of December 31, 2001, the Company's future minimum rental commitments, under
non-cancelable lease agreements with terms in excess of one year; minimum rental
payments under non-cancelable contracts in excess of one year; and capital
expenditure commitments consist of the following:
(In thousands)
Non-cancelable Non-cancelable
Lease Contracts Capital Expenditures
----- --------- --------------------
2002 $ 314,137 $ 266,364 $419,625
2003 266,785 194,776 175,264
2004 232,022 157,852 17,457
2005 198,271 137,815 2,301
2006 176,094 87,333 2,600
Thereafter 1,251,765 210,601 12,000
---------- ---------- --------
$2,439,074 $1,054,741 $629,247
========== ========== ========
Rent expense charged to operations for 2001, 2000 and 1999 was $617.8 million,
$429.5 million and $306.4 million, respectively.
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 accrued 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.
88
As of December 31, 2001, the Company provided a contingent guarantee under a
certain performance contract of approximately $64.0 million, including
approximately $6.5 million related to the performance of a company controlled by
Hicks, Muse, Tate & Furst Incorporated, of which a director of the Company is
the Chairman of the Management Committee. In addition, during 2001, the Company
realized a loss of $3.5 million under this guarantee as the company controlled
by one of the Company's directors failed to perform under the contract.
Various acquisition agreements include deferred consideration payments including
future contingent payments based on the financial performance of the acquired
companies, generally over a one to five year period. Contingent payments
involving the financial performance of the acquired companies are typically
based on the acquired company meeting certain EBITDA targets as defined in the
agreement. The contingent payment amounts are generally calculated based on
predetermined multiples of the achieved EBITDA not to exceed a predetermined
maximum payment. At December 31, 2001, the Company believes its maximum
aggregate contingency, which is subject to the financial performance of the
acquired companies, is approximately $45.0 million. In addition, certain
acquisition agreements include deferred consideration payments based on
performance requirements by the seller, generally over a one to five year
period. Contingent payments based on performance requirements by the seller
typically involve the completion of a development or obtaining appropriate
permits that enable the Company to construct additional advertising displays. At
December 31, 2001, the Company believes its maximum aggregate contingency, which
is subject to performance requirements by the seller, is approximately $62.0
million. As the contingencies have not been met or resolved as of December 31,
2001, these amounts are not recorded.
As of December 31, 2001 and 2000, the Company guaranteed third party debt of
approximately $225.2 million and $280.0 million, respectively, primarily related
to long-term operating contracts. A substantial portion of the debt is secured
by the third party's associated operating assets.
NOTE G - INCOME TAXES
Significant components of the provision for income tax expense (benefit) are as
follows:
(In thousands)
2001 2000 1999
---- ---- ----
Current - federal $ 26,598 $ 63,366 $ 82,452
Current - foreign 19,450 4,290 14,324
Current - state 11,315 10,364 14,547
--------- -------- --------
Total current 57,363 78,020 111,323
Deferred - federal (137,213) 340,999 30,111
Deferred - foreign (13,462) 16,484 (10,049)
Deferred - state (11,659) 29,228 13,275
--------- -------- --------
Total deferred (162,334) 386,711 33,337
--------- -------- --------
Income tax expense (benefit) $(104,971) $464,731 $144,660
========= ======== ========
Included in current - federal for 1999 is $8.1 million of benefit related to the
extraordinary loss resulting from early extinguishment of long-term debt.
89
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 2001 and 2000 are as follows:
(In thousands)
2001 2000
---- ----
Deferred tax liabilities:
Intangibles and fixed assets $6,509,478 $6,603,021
Unrealized gain in marketable securities 45,365 119,674
Accrued liabilities 120,636 120,636
Foreign 101,704 115,039
Equity in earnings 5,641 5,156
Investments 1,631 107,959
Other 28,136 3,617
---------- ----------
Total deferred tax liabilities 6,812,591 7,075,102
Deferred tax assets:
Accrued expenses 143,682 144,917
Long-term debt 104,678 93,284
Net operating loss carryforwards 151,730 15,454
Alternative minimum tax carryforwards 2,697 --
Bad debt reserves 18,804 22,355
Deferred income 17,704 11,403
Other 25,149 16,491
---------- ----------
Total gross deferred tax assets 464,444 303,904
Valuation allowance 164,070 --
---------- ----------
Total deferred tax assets 300,374 303,904
---------- ----------
Net deferred tax liabilities $6,512,217 $6,771,198
========== ==========
The deferred tax liability related to intangibles and fixed assets primarily
relates to the difference in book and tax basis of acquired radio broadcast
intangibles created from the Company's various stock acquisitions.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense (benefit) is:
(In thousands)
2001 2000 1999
---------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Income tax expense
(benefit) at statutory rates $(437,149) (35%) $ 249,739 35% $ 83,439 35%
State income taxes, net
of federal tax benefit (344) 0% 25,686 3% 18,084 8%
Amortization of goodwill 238,474 19% 169,365 24% 54,279 23%
Foreign taxes 34,766 3% 20,774 3% 4,275 2%
Nondeductible items 7,009 1% 4,812 1% 1,725 1%
Other, net 52,273 4% (5,645) (1%) (17,142) (8%)
--------- --- --------- -- --------- --
$(104,971) (8%) $ 464,731 65% $ 144,660 61%
========= === ========= == ========= ==
Included in the above reconciliation of income tax for 1999 is $8.1 million of
benefit related to
90
extraordinary loss resulting from early extinguishment of long-term debt.
The Company has certain net operating loss carryforwards amounting to $362.0
million, which expire in various amounts from 2003 to 2020. Approximately $269.0
million in net operating loss carryforwards were generated by certain acquired
companies prior to their acquisition by the Company. During the current year,
the Company did not utilize any net operating loss carryforwards.
During 2001, the Company recorded certain adjustments to deferred tax assets and
related valuation allowances for net operating losses of certain acquired
companies. If benefits are subsequently realized, the valuation allowance will
be reversed through goodwill.
NOTE H - SHAREHOLDERS' EQUITY
COMMON STOCK WARRANTS
The Company assumed two issues of fully exercisable common stock warrants as a
part of the merger with Jacor in 1999 with a fair value of $253.4 million.
Warrants expired September 18, 2001
The Company assumed 21.6 million common stock warrants that expired on September
18, 2001. Each warrant represented the right to receive .2355422 shares of the
Company's common stock, at an exercise price of $24.19 per full share of the
Company's common stock. The Company issued 5.1 million and 220 shares of common
in 2001 and 2000, respectively, on exercises of these common stock warrants.
Warrants expiring February 27, 2002
The Company assumed 3.6 million common stock warrants that expire on February
27, 2002. Each warrant represents the right to receive .1304410 shares of the
Company's common stock, at an exercise price of $34.56 per full share of the
Company's common stock. The Company issued 15,768 and 99,550 shares of common in
2001 and 2000, respectively, on exercises of these common stock warrants. At
December 31, 2001, approximately 348,000 shares of common stock were reserved
for the conversion of these warrants.
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
anti-dilutive 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.
As a result of the mergers with Jacor in 1999 and AMFM and SFX in 2000, the
Company assumed stock options that were granted to employees and affiliates of
these companies. These options were granted in accordance with each respective
company's policy and under the terms of each respective company's stock option
plans. Pursuant to the respective merger agreements, the Company assumed the
obligation to fulfill all options granted in accordance with the original grant
terms adjusted for the appropriate
91
merger exchange ratio.
The following table presents a summary of the Company's stock options
outstanding at and stock option activity during the years ended December 31,
2001, 2000 and 1999.
(In thousands, except per share data) Weighted Average
Exercise Price
Options Per Share
------- ---------
Options outstanding at January 1, 1999 6,007 17.00
Options assumed in acquisitions 3,666 28.00
Options granted 1,580 63.00
Options exercised (1) (2,989) 13.00
Options forfeited (214) 38.00
------
Options outstanding at December 31, 1999 8,050 32.00
======
Weighted average fair value of options granted during 1999 26.00
Options outstanding at January 1, 2000 8,050 32.00
Options assumed in acquisitions 31,075 40.00
Options granted 3,540 62.00
Options exercised (1) (1,915) 21.00
Options forfeited (638) 55.00
------
Options outstanding at December 31, 2000 40,112 41.00
======
Weighted average fair value of options granted during 2000 29.00
Options outstanding at January 1, 2001 40,112 41.00
Options granted 11,389 51.00
Options exercised (1) (2,928) 25.00
Options forfeited (1,426) 58.00
------
Options outstanding at December 31, 2001 (2) 47,147 44.00
======
Weighted average fair value of options granted during 2001 25.00
(1) The Company received an income tax benefit of $32.8 million, $30.6 million
and $48.2 million relating to the options exercised during 2001, 2000 and
1999, respectively Such benefits are recorded as adjustments to
"Additional paid-in capital" in the statement of shareholders' equity.
(2) Of the 47.1 million options outstanding at December 31, 2001, 32.4 million
were exercisable at a weighted average exercise price of $39.6069. There
were 32.5 million shares available for future grants under the various
option plans at December 31, 2001. Vesting dates range from February 2002
to December 2006, and expiration dates range from February 2002 to
December 2011 at exercise prices and average contractual lives as follows:
92
(In thousands of shares)
Outstanding Weighted Average Exercisable Weighted
Range of as of Remaining Weighted Average as of Average
Exercise Prices 12/31/01 Contractual Life Exercise Price 12/31/01 Exercise Price
--------------- -------- ---------------- -------------- -------- --------------
$ 0.0000 $ 11.2467 3,165 3.3 $ 5.3027 3,165 $ 5.3027
11.2468 - 22.4933 2,293 4.1 15.2811 2,038 14.5792
22.4934 - 33.7400 6,808 5.9 27.2901 6,462 27.2654
33.7401 - 44.9867 5,370 5.5 42.6346 4,587 42.7986
44.9868 - 56.2334 17,325 7.1 48.5536 11,112 49.1613
56.2335 - 67.4800 10,120 6.0 60.2631 3,720 60.1482
67.4801 - 78.7267 1,387 5.8 71.8544 695 73.4493
78.7268 - 89.9734 609 3.6 83.3500 545 83.0135
89.9735 - 101.2200 70 3.3 97.6911 61 98.4236
------ --- -------- ------ --------
47,147 6.0 $43.9188 32,385 $39.6069
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 2001, 2000 and 1999: risk-free interest rates of 5.2% and 4.9%
for options granted in 2001 with an expected life of eight years and six years,
respectively, and 6.0% for all options granted in 2000 and 1999; a dividend
yield of 0%; the volatility factors of the expected market price of the
Company's common stock used was 36% and 37% for options granted in 2001 with an
expected life of eight years and six years, respectively, and 34% and 30% for
2000 and 1999, respectively; and the weighted average expected life of the
option was eight years for all options granted with a ten year term and six
years for options granted with a seven year term.
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:
2001 2000 1999
---- ---- ----
Net income (loss) before extraordinary item (in thousands)
As reported $(1,144,026) $248,808 $85,655
Pro forma $(1,193,495) $219,898 $70,781
Net income (loss) before extraordinary item per common share
Basic:
As reported $ (1.93) $ .59 $ .27
Pro forma $ (2.02) $ .52 $ .23
Diluted:
As reported $ (1.93) $ .57 $ .26
Pro forma $ (2.02) $ .50 $ .21
93
The weighted average fair value of stock options granted is required to be based
on a theoretical option pricing model. In actuality, because the company's
employee stock options are not traded on an exchange, employees can receive no
value nor derive any benefit from holding stock options under these plans
without an increase in the market price of Clear Channel stock. Such an increase
in stock price would benefit all stockholders commensurately.
OTHER
As a result of mergers during 2000, the Company assumed 2.7 million employee
stock options that will vest from January 2001 to April 2005. To the extent that
these employees' options vest post-merger, the Company recognizes expense over
the remaining vesting period. During the year ended December 31, 2001 and 2000,
the Company recorded expense of $12.1 million and $3.8 million, respectively,
related to the post-merger vesting of employee stock options. Additionally,
during 2001 and 2000, as a result of severance negotiations with 20 employees,
the Company accelerated the vesting of 109,000 and 470,000 existing employee
stock options, respectively. Accordingly, the Company recorded expense during
the years ended December 31, 2001 and 2000 equal to the intrinsic value of the
accelerated options on the appropriate modification dates of $1.8 million and
$11.7 million, respectively. The expense associated with stock options is
recorded on the statement of operations as a component of "non-cash compensation
expense".
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
Common stock is reserved for future issuances of, approximately 79.6 million
shares for issuance upon the various stock option plans to purchase the
Company's common stock (including 47.1 million options currently granted), 9.3
million shares for issuance upon conversion of the Company's 2.625% Senior
Convertible Notes, 9.5 million for issuance upon conversion of the Company's
1.5% Senior Convertible Notes, 3.1 million for issuance upon conversion of the
Company's LYONs, .3 million for issuance upon conversion of the Company's Common
Stock Warrants, and 11.9 million shares reserved for issuance upon consummation
of a pending merger.
94
RECONCILIATION OF EARNINGS PER SHARE
(In thousands, except per share data)
2001 2000 1999
---- ---- ----
NUMERATOR:
Net income (loss) before extraordinary item $(1,144,026) $248,808 $ 85,655
Extraordinary item -- -- (13,185)
----------- -------- --------
Net income (loss) (1,144,026) 248,808 72,470
Effect of dilutive securities:
Eller put/call option agreement -- -- (2,300)
Convertible debt - 2.625% issued in 1998 9,358 * 9,811 * 9,811 *
Convertible debt - 1.5% issued in 1999 9,300 * 9,750 * 964 *
LYONs - 1996 issue (225) * -- (311)
LYONs - 1998 issue 4,594 * 4,595 * 2,944 *
Less: Anti-dilutive items (23,027) (24,156) (13,719)
----------- -------- --------
Numerator for net income (loss) per
common share - diluted $(1,144,026) $248,808 $ 69,859
=========== ======== ========
DENOMINATOR:
Weighted average common shares 591,965 423,969 312,610
Effect of dilutive securities:
Stock options and common stock warrants 11,731 * 10,872 8,395
Eller put/call option agreement -- -- 847
Convertible debt - 2.625% issued in 1998 9,282 * 9,282 * 9,282 *
Convertible debt - 1.5% issued in 1999 9,454 * 9,454 * 927 *
LYONs - 1996 issue 1,743 * 3,870 2,556
LYONs - 1998 issue 3,085 * 3,085 * 2,034 *
Less: Anti-dilutive items (35,295) (21,821) (12,243)
----------- -------- --------
Denominator for net income (loss) per
common share - diluted 591,965 438,711 324,408
=========== ======== ========
Net income (loss) per common share:
Basic:
Net income (loss) before extraordinary item $ (1.93) $ .59 $ .27
Extraordinary item -- -- (.04)
----------- -------- --------
Net income (loss) $ (1.93) $ .59 $ .23
=========== ======== ========
Diluted:
Net income (loss) before extraordinary item $ (1.93) $ .57 $ .26
Extraordinary item -- -- (.04)
----------- -------- --------
Net income (loss) $ (1.93) $ .57 $ .22
=========== ======== ========
* Denotes items that are anti-dilutive to the calculation of earnings per share.
NOTE I - EMPLOYEE STOCK AND SAVINGS PLANS
The Company has various 401(K) savings and other plans for the purpose of
providing retirement benefits for substantially all employees. Both the
employees and the Company make contributions to the plan. The Company matches a
portion of an employee's contribution. Company matched contributions
95
vest to the employees based upon their years of service to the Company.
Contributions to these plans of $21.9 million, $12.5 million and $7.9 million
were charged to expense for 2001, 2000 and 1999, respectively.
In 2000, the Company initiated a non-qualified employee stock purchase plan for
all eligible employees. Under the plan, shares of the company's common stock may
be purchased at 85% of the market value on the day of purchase. Employees may
purchase shares having a value not exceeding ten percent (10%) of their annual
gross compensation or $25,000, whichever is lower. During 2001 and 2000,
employees purchased 265,862 and 118,941 shares at a weighted average share price
of $45.26 and $64.00, respectively.
In 2001, the Company initiated a non-qualified deferred compensation plan for
highly compensated executives allowing deferrals of a portion of their annual
salary and up to 80% of their bonus before taxes. The Company does not match any
deferral amounts and retains ownership of all assets until distributed. The
liability under this deferred compensation plan at December 31, 2001 was
approximately $.6 million.
NOTE J - OTHER INFORMATION
(In thousands)
For the year ended December 31,
---------------------------------------
2001 2000 1999
---- ---- ----
The following details the components of "Other
income (expense) - net":
Reimbursement of capital cost $ (9,007) $ (14,370) $ --
Gain (loss) on disposal of fixed assets (1,087) 1,901 2,897
Gain on sale of operating assets 167,317 -- --
Gain on sale of representation contracts 13,463 2,997 --
Software maintenance - third party (14,071) -- --
Minority interest (6,289) (4,059) (2,769)
Charitable contribution of treasury shares -- -- (4,102)
Other 1,941 1,767 (11,664)
-------- --------- --------
Total other income (expense) - net $152,267 $ (11,764) $(15,638)
======== ========= ========
The following details the income tax expense
(benefit) on items of other comprehensive income (loss):
Foreign currency translation adjustments $ (3,101) $ (4,270) $ 3,036
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) $(75,280) $(104,264) $ 98,170
Reclassification adjustment for gains
on securities transferred to trading $(24,400) $ -- $ --
Reclassification adjustment for gains
on SFX shares held prior to merger $ -- $ (19,668) $ --
Reclassification adjustments for (gain) loss
included in net income (loss) $102,725 $ 3,919 $ (8,026)
96
(In thousands) As of December 31,
-------------------------
2001 2000
---- ----
The following details the components of "Other current assets":
Current film rights $ 20,451 $ 17,533
Inventory 45,004 37,017
Other 77,941 79,323
--------- ---------
Total other current assets $ 143,396 $ 133,873
========= =========
The following details the components of "Accrued expenses":
Acquisition accruals $ 225,018 $ 384,025
Accrued liabilities - other 551,950 502,879
--------- ---------
Total accrued expenses $ 776,968 $ 886,904
========= =========
The following details the components of "Accumulated
other comprehensive income (loss)":
Cumulative currency translation adjustment $(126,448) $(138,147)
Cumulative unrealized gain on investments 91,978 105,714
--------- ---------
Total accumulated other comprehensive income (loss) $ (34,470) $ (32,433)
========= =========
NOTE K - SEGMENT DATA
The Company has three reportable operating segments - radio broadcasting,
outdoor advertising and live entertainment. Revenue and expenses earned and
charged between segments are recorded at fair value and eliminated in
consolidation. At December 31, 2001, the radio broadcasting segment included
1,165 radio stations for which the Company is the licensee and 75 radio stations
operated under lease management or time brokerage agreements. The radio
broadcasting segment also operates various radio networks. At December 31, 2001,
the outdoor advertising segment owned or operated 730,039 advertising display
faces. Of these, 156,623 are in U.S. markets and the remaining 573,416 displays
are in international markets. At December 31, 2001, the live entertainment
segment owned or operated 96 venues. Of these, 68 venues are in 34 domestic
markets and the remaining 28 venues are in three international markets.
"Other" includes television broadcasting, sports representation and media
representation.
(In thousands)
Radio Outdoor Live
Broadcasting Advertising Entertainment Other
------------ ----------- ------------- -----
2001
Revenue $ 3,455,553 $1,748,031 $2,477,640 $ 423,651
Divisional operating expenses 2,104,719 1,220,681 2,327,109 349,069
Non-cash compensation 12,373 -- -- 738
Depreciation 218,125 254,349 63,637 35,001
Amortization 1,401,861 305,149 226,410 34,956
Corporate expenses -- -- -- --
----------- ---------- ---------- ----------
Operating income (loss) $ (281,525) $ (32,148) $ (139,516) $ 3,887
=========== ========== ========== ==========
Identifiable assets $33,406,019 $7,707,761 $5,412,507 $ 874,037
Capital expenditures $ 144,786 $ 264,727 $ 67,555 $ 84,446
(In thousands)
Corporate Eliminations Consolidated
--------- ------------ ------------
2001
Revenue $ -- $(134,872) $ 7,970,003
Divisional operating expenses -- (134,872) 5,866,706
Non-cash compensation 3,966 -- 17,077
Depreciation 22,992 -- 594,104
Amortization -- -- 1,968,376
Corporate expenses 187,434 -- 187,434
---------- --------- -----------
Operating income (loss) $ (214,392) $ -- $ (663,694)
========== ========= ===========
Identifiable assets $ 202,818 $ -- $47,603,142
Capital expenditures $ 36,874 $ -- $ 598,388
97
(In thousands)
Radio Outdoor Live
Broadcasting Advertising Entertainment Other
------------ ----------- ------------- -----
2000
Revenue $ 2,431,544 $1,729,438 $ 952,025 $ 314,559
Divisional operating expenses 1,385,848 1,078,540 878,553 220,025
Non-cash compensation 4,359 -- -- --
Depreciation 84,345 228,630 25,269 18,809
Amortization 714,723 208,719 92,482 17,499
Corporate expenses -- -- -- --
----------- ---------- ---------- ----------
Operating income (loss) $ 242,269 $ 213,549 $ (44,279) $ 58,226
=========== ========== ========== ==========
Identifiable assets $34,003,430 $7,683,182 $5,238,690 $1,282,194
Capital expenditures $ 139,923 $ 250,271 $ 46,707 $ 34,469
1999
Revenue $ 1,230,754 $1,253,732 $ -- $ 199,532
Divisional operating expenses 731,062 785,636 -- 121,275
Non-cash compensation -- -- -- --
Depreciation 47,123 201,083 -- 13,142
Amortization 279,440 171,215 -- 8,336
Corporate expenses -- -- -- --
----------- ---------- ---------- ----------
Operating income (loss) $ 173,129 $ 95,798 $ -- $ 56,779
=========== ========== ========== ==========
Identifiable assets $ 9,571,687 $5,978,562 $ -- $1,213,048
Capital expenditures $ 58,346 $ 154,133 $ -- $ 22,778
(In thousands)
Corporate Eliminations Consolidated
--------- ------------ ------------
2000
Revenue $ -- $ (82,260) $ 5,345,306
Divisional operating expenses -- (82,260) 3,480,706
Non-cash compensation 11,673 -- 16,032
Depreciation 10,587 -- 367,640
Amortization -- -- 1,033,423
Corporate expenses 142,627 -- 142,627
---------- --------- -----------
Operating income (loss) $ (164,887) $ -- $ 304,878
========== ========= ===========
Identifiable assets $1,848,965 $ -- $50,056,461
Capital expenditures $ 24,181 $ -- $ 495,551
1999
Revenue $ -- $ (5,858) $ 2,678,160
Divisional operating expenses -- (5,858) 1,632,115
Non-cash compensation -- -- --
Depreciation 1,894 -- 263,242
Amortization -- -- 458,991
Corporate expenses 70,146 -- 70,146
---------- --------- -----------
Operating income (loss) $ (72,040) $ -- $ 253,666
========== ========= ===========
Identifiable assets $ 58,215 $ -- $16,821,512
Capital expenditures $ 3,481 $ -- $ 238,738
Revenue of $1.3 billion, $1.0 billion and $567.2 million and identifiable assets
of $2.9 billion, $2.7 billion and $1.3 billion derived from the Company's
foreign operations are included in the data above for the years ended December
31, 2001, 2000 and 1999, respectively.
98
NOTE L - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
March 31, June 30,
--------- --------
2001 2000 2001 2000
---- ---- ---- ----
Revenue $1,628,363 $ 782,539 $2,179,261 $ 965,875
Operating expenses:
Divisional operating expenses 1,179,068 519,961 1,520,215 562,729
Non-cash compensation 3,894 -- 8,456 --
Depreciation and amortization 613,751 220,054 644,850 228,687
Corporate expenses 45,071 24,578 47,611 27,867
---------- ---------- ---------- ----------
Operating income (loss) (213,421) 17,946 (41,871) 146,592
Interest expense 156,400 55,549 137,539 69,911
Gain (loss) on sale of assets
related to mergers (6,390) -- (51,000) --
Gain on marketable securities 18,456 -- 5,349 --
Equity in earnings (loss) of
nonconsolidated affiliates 563 2,936 4,045 6,667
Other income (expense) - net (7,633) 398 (9,765) 1,226
---------- ---------- ---------- ----------
Income (loss) before income
taxes (364,825) (34,269) (230,781) 84,574
Income tax (expense) benefit (1) 55,597 (5,133) (6,220) (53,339)
---------- ---------- ---------- ----------
Net income (loss) $ (309,228) $ (39,402) $ (237,001) $ 31,235
========== ========== ========== ==========
Net income (loss) per common share:
Basic $ (.53) $ (.12) $ (.40) $ .09
Diluted $ (.53) $ (.12) $ (.40) $ .09
Stock price:
High $ 68.08 $ 95.50 $ 65.60 $ 83.00
Low 47.25 60.00 50.12 62.06
September 30, December 31,
------------- ------------
2001 2000 2001 2000
---- ---- ---- ----
Revenue $2,300,233 $1,576,719 $1,862,146 $2,020,173
Operating expenses:
Divisional operating expenses 1,696,581 1,062,284 1,470,842 1,335,732
Non-cash compensation 2,581 3,151 2,146 12,881
Depreciation and amortization 652,771 372,059 651,108 580,263
Corporate expenses 48,150 39,417 46,602 50,765
---------- ---------- ---------- ----------
Operating income (loss) (99,850) 99,808 (308,552) 40,532
Interest expense 134,744 105,335 131,394 152,309
Gain (loss) on sale of assets
related to mergers -- 805,183 (156,316) (21,440)
Gain on marketable securities 5,707 -- (3,692) (5,369)
Equity in earnings (loss) of
nonconsolidated affiliates 7,011 8,433 (1,226) 7,119
Other income (expense) - net (1,651) (8,964) 171,316 (4,424)
---------- ---------- ---------- ----------
Income (loss) before income
taxes (223,527) 799,125 (429,864) (135,891)
Income tax (expense) benefit (1) (8,671) (350,198) 64,265 (56,061)
---------- ---------- ---------- ----------
Net income (loss) $ (232,198) $ 448,927 $ (365,599) $ (191,952)
========== ========== ========== ==========
Net income (loss) per common share:
Basic $ (.39) $ 1.04 $ (.61) $ (.33)
Diluted $ (.39) $ .96 $ (.61) $ (.33)
Stock price:
High $ 64.15 $ 85.81 $ 51.60 $ 61.00
Low 35.20 54.75 36.99 43.88
(1) Income tax expense in the quarters ended September 30, 2000 and December
31, 2000 includes estimated taxes related to divestiture gains.
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol CCU.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
99
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We believe that one of our most important assets is our experienced
management team. With respect to our operations, managers are responsible for
the day-to-day operation of their respective location. We believe that the
autonomy of our management enables us to attract top quality managers capable of
implementing our aggressive marketing strategy and reacting to competition in
the local markets. Most of our managers have options to purchase our common
stock. As an additional incentive, a portion of each manager's compensation is
related to the performance of the profit centers for which he or she is
responsible. In an effort to monitor expenses, corporate management routinely
reviews staffing levels and operating costs. Combined with the centralized
financial functions, this monitoring enables us to control expenses effectively.
Corporate management also advises local managers on broad policy matters and is
responsible for long-range planning, allocating resources, and financial
reporting and controls.
The information required by this item with respect to the directors and
nominees for election to our Board of Directors is incorporated by reference to
the information set forth under the caption "Election of Directors" and
"Compliance With Section 16(A) of the Exchange Act," in our Definitive Proxy
Statement, which will be filed with the Securities and Exchange Commission
within 120 days of our fiscal year end.
The following information is submitted with respect to our executive
officers as of December 31, 2001.
Age on
December 31, Officer
Name 2001 Position Since
L. Lowry Mays 66 Chairman/Chief Executive Officer 1972
Mark P. Mays 38 President/Chief Operating Officer 1989
Randall T. Mays 36 Executive Vice President/Chief Financial Officer 1993
Herbert W. Hill, Jr. 42 Senior Vice President/Chief Accounting Officer 1989
Kenneth E. Wyker 40 Senior Vice President/General Counsel and Secretary 1993
Karl Eller 73 Chief Executive Officer - Clear Channel Outdoor 1997
Roger Parry 48 Chief Executive Officer - Clear Channel International 1998
Paul Meyer 59 President/Chief Operating Officer - Clear Channel Outdoor 1999
Juliana F. Hill 32 Senior Vice President/Finance 1999
Randy Michaels 49 Chairman/Chief Executive Officer - Clear Channel Radio 1999
Brian Becker 45 Chairman/Chief Executive Officer - Clear Channel Entertainment 2000
William Moll 64 President - Television Division 2001
The officers named above serve until the next Board of Directors meeting
immediately following the Annual Meeting of Shareholders.
Mr. L. Mays is our founder and was our President and Chief Executive
Officer from 1972 to February 1997. Since that time, Mr. L. Mays has served as
our Chairman and Chief Executive Officer. He has been one of our directors since
our inception. Mr. L. Mays is the father of Mark P. Mays, our
100
President and Chief Operating Officer, and Randall T. Mays, our Executive Vice
President and Chief Financial Officer.
Mr. M. Mays was our Senior Vice President of Operations from February 1993
until his appointment as our President and Chief Operating Officer in February
1997. He has been one of our directors since May 1998. Mr. M. Mays is the son of
L. Lowry Mays, our Chairman and Chief Executive Officer and the brother of
Randall T. Mays, our Executive Vice President and Chief Financial Officer.
Mr. R. Mays was appointed Executive Vice President and Chief Financial
Officer in February 1997. Prior thereto, he served as our Vice President and
Treasurer since he joined us in January 1993. Mr. R. Mays is the son of L. Lowry
Mays, our Chairman and Chief Executive Officer and the brother of Mark P. Mays,
our President and Chief Operating Officer.
Mr. Hill was appointed Senior Vice President and Chief Accounting Officer
in February 1997. Prior thereto, he served as our Vice President/Controller
since January 1989.
Mr. Wyker was appointed Senior Vice President, General Counsel and
Secretary in February 1997. Prior thereto he served as Vice President for Legal
Affairs since he joined us in July 1993.
Mr. Eller was appointed Chief Executive Officer - Clear Channel Outdoor
(formerly Eller Media) in April 1997. Prior thereto, he was the Chief Executive
Officer of Eller Media Company from August 1995 to April 1997. Mr. Eller retired
from Clear Channel Communications effective December 31, 2001.
Mr. Parry was appointed Chief Executive Officer - Clear Channel
International in June 1998. Prior thereto, he was the Chief Executive of More
Group plc for the remainder of the relevant five-year period.
Mr. Meyer was appointed President - Clear Channel Outdoor (formerly Eller
Media) in March 1999. Prior thereto he was the Executive Vice President and
General Counsel of Eller Media from March 1996 to March 1999. Mr. Meyer was
appointed President/Chief Executive Officer - Clear Channel Outdoor effective
with Mr. Eller's retirement on December 31, 2001.
Ms. Hill was appointed Senior Vice President/Finance in May 2000. Prior
thereto, she was Vice President/Finance and Strategic Development from March
1999 to May 2000. She was an Associate at US WEST Communications from August
1998 to March 1999 and she was a student at Kellogg School of Management,
Northwestern University for the remainder of the relevant five-year period.
Mr. Michaels was appointed Chairman/Chief Executive Officer of Clear
Channel Radio in May 2000. Prior thereto he was President of Radio from May 1999
to May 2000. Prior thereto he was the Chief Executive Officer of Jacor
Communications, Inc. for the remainder of the relevant five-year period.
Mr. Becker was appointed Chairman/Chief Executive Officer - Clear Channel
Entertainment in October 2000. Prior thereto he was the Executive Vice President
of SFX Entertainment, Inc. from February 1998 to October 2000 and he was Chief
Executive Officer of PACE Entertainment Corp. for the remainder of the relevant
five-year period.
Mr. Moll was appointed President - Television Division in January, 2001.
Prior thereto, he was the President, WKRC-TV, Cincinnati, OH for the remainder
of the relevant five-year period.
101
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information set forth under the caption "Executive Compensation" in our
Definitive Proxy Statement, expected to be filed within 120 days of our fiscal
year end.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to our
Definitive Proxy Statement under the headings "Security Ownership of Certain
Beneficial Owners and Management", expected to be filed within 120 days of our
fiscal year end.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to our
Definitive Proxy Statement under the heading "Certain Transactions", expected to
be filed within 120 days of our fiscal year end.
102
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)1. Financial Statements.
The following consolidated financial statements are included in Item 8.
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Operations for the Years Ended December 31, 2001,
2000 and 1999.
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001,
2000 and 1999.
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedule.
The following financial statement schedule for the years ended December 31,
2001, 2000 and 1999 and related report of independent auditors is filed as part
of this report and should be read in conjunction with the consolidated financial
statements.
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
103
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
(In thousands)
Charges
Balance at to Costs, Write-off Balance
Beginning Expenses of Accounts at end of
Description of period and other Receivable Other (1) Period
----------- --------- --------- ---------- --------- ------
Year ended
December 31,
1999 $13,508 $12,975 $15,640 $15,252 $26,095
======= ======= ======= ======= =======
Year ended
December 31,
2000 $26,095 $34,168 $36,065 $36,433 $60,631
======= ======= ======= ======= =======
Year ended
December 31,
2001 $60,631 $87,041 $88,122 $ 1,520 $61,070
======= ======= ======= ======= =======
(1) Allowance for accounts receivable acquired in acquisitions net of deletions
related to dispositions.
104
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Deferred Tax Asset Valuation Allowance
(In thousands)
Charges
Balance at to Costs, Balance
Beginning Expenses at end of
Description of period and other Deletions (2) Other (1) Period
----------- --------- --------- ------------- --------- ------
Year ended
December 31,
1999 $19,837 $ -- $ -- $ 17,780 $ 37,617
======= ======= ======= ======== ========
Year ended
December 31,
2000 $37,617 $ -- $37,617 $ -- $ --
======= ======= ======= ======== ========
Year ended
December 31,
2001 $ -- $ -- $ -- $164,070 $164,070
======= ======= ======= ======== ========
(1) Related to allowance for net operating loss carryforwards and other deferred
tax assets assumed in acquisitions.
(2) Based on the Company's reassessment of the likelihood of the realization of
future benefits, the valuation allowance was reduced to zero during 2000.
105
(a)3. Exhibits.
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Merger dated as of October 2, 1999, among
Clear Channel, CCU Merger Sub, Inc. and AMFM Inc. (incorporated by
reference to the exhibits of Clear Channel's Current Report on Form
8-K filed October 5, 1999).
2.2 Agreement and Plan of Merger dated as of February 28, 2000, among
Clear Channel, CCU II Merger Sub, Inc. and SFX Entertainment, Inc.
(incorporated by reference to the exhibits of Clear Channel's
Current Report on Form 8-K filed February 29, 2000).
2.3 Agreement and Plan of Merger dated as of October 5, 2001, by and
among Clear Channel, CCMM Sub, Inc. and The Ackerley Group, Inc.
(incorporated by reference to the exhibits of Clear Channel's
Current Report on Form 8-K filed October 9, 2001).
3.1 Current Articles of Incorporation of the Company (incorporated by
reference to the exhibits of the Company's Registration Statement on
Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
3.2 Third Amended and Restated Bylaws of the Company (incorporated by
reference to the exhibits of the Company's Registration Statement on
Form S-4 (Reg. No. 333-74196) dated November 29, 2001).
3.3 Amendment to the Company's Articles of Incorporation (incorporated
by reference to the exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998).
3.4 Second Amendment to Clear Channel's Articles of Incorporation
(incorporated by reference to the exhibits to Clear Channel's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999).
3.5 Third Amendment to Clear Channel's Articles of Incorporation
(incorporated by reference to the exhibits to Clear Channel's
Quarterly Report on Form 10-Q for the quarter ended May 31, 2000).
4.1 Buy-Sell Agreement by and between Clear Channel Communications,
Inc., L. Lowry Mays, B. J. McCombs, John M. Schaefer and John W.
Barger, dated May 31, 1977 (incorporated by reference to the
exhibits of the Company's Registration Statement on Form S-1 (Reg.
No. 33-289161) dated April 19, 1984).
4.2 Senior Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York as Trustee
(incorporated by reference to exhibit 4.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997).
4.3 First Supplemental Indenture dated March 30, 1998 to Senior
Indenture dated October 1, 1997, by and between the Company and The
Bank of New York, as Trustee (incorporated by reference to the
exhibits to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
EXHIBIT
NUMBER DESCRIPTION
4.4 Second Supplemental Indenture dated June 16, 1998 to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and the Bank of New York, as Trustee
(incorporated by reference to the exhibits to the Company's Current
Report on Form 8-K dated August 27, 1998).
4.5 Third Supplemental Indenture dated June 16, 1998 to Senior Indenture
dated October 1, 1997, by and between Clear Channel Communications,
Inc. and the Bank of New York, as Trustee (incorporated by reference
to the exhibits to the Company's Current Report on Form 8-K dated
August 27, 1998).
4.6 Fourth Supplement Indenture dated November 24, 1999 to Senior
Indenture dated October 1, 1997, by and between Clear Channel and
The Bank of New York as Trustee (incorporated by reference to the
exhibits of the Company's Annual Report on Form 10-K for the year
ended December 31, 1999).
4.7 Fifth Supplemental Indenture dated June 21, 2000, to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York, as Trustee
(incorporated by reference to the exhibits of Clear Channel's
registration statement on Form S-3 (Reg. No. 333-42028) dated July
21, 2000).
4.8 Sixth Supplemental Indenture dated June 21, 2000, to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York, as Trustee
(incorporated by reference to the exhibits of Clear Channel's
registration statement on Form S-3 (Reg. No. 333-42028) dated July
21, 2000).
4.9 Seventh Supplemental Indenture dated July 7, 2000, to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York, as Trustee
(incorporated by reference to the exhibits of Clear Channel's
registration statement on Form S-3 (Reg. No. 333-42028) dated July
21, 2000).
4.10 Eighth Supplemental Indenture dated September 12, 2000, to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York, as Trustee
(incorporated by reference to the exhibits to Clear Channel's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2000).
4.11 Ninth Supplemental Indenture dated September 12, 2000, to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York, as Trustee
(incorporated by reference to the exhibits to Clear Channel's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2000).
4.12 Tenth Supplemental Indenture dated October 26, 2001, to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York, as Trustee
(incorporated by reference to the exhibits to Clear Channel's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001).
EXHIBIT
NUMBER DESCRIPTION
10.1 Incentive Stock Option Plan of Clear Channel Communications, Inc. as
of January 1, 1984 (incorporated by reference to the exhibits of the
Company's Registration Statement on Form S-1 (Reg. No. 33-289161)
dated April 19, 1984).
10.2 Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan
(incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-8 dated November 20, 1995).
10.3 Clear Channel Communications, Inc. 1994 Nonqualified Stock Option
Plan (incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-8 dated November 20, 1995).
10.4 Clear Channel Communications, Inc. Directors' Nonqualified Stock
Option Plan (incorporated by reference to the exhibits of the
Company's Registration Statement on Form S-8 dated November 20,
1995).
10.5 Option Agreement for Officer (incorporated by reference to the
exhibits of the Company's Registration Statement on Form S-8 dated
November 20, 1995).
10.6 The Clear Channel Communications, Inc. 1998 Stock Incentive Plan
(incorporated by reference to Appendix A to the Company's Definitive
14A Proxy Statement dated March 24, 1998).
10.7 Voting Agreement dated as of October 8, 1998, by and among Jacor
Communications, Inc. and L. Lowry Mays, Mark P. Mays and Randall T.
Mays and certain related family trusts (incorporated by reference to
the exhibits to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
10.8 Shareholders Agreement dated October 2, 1999, by and among Clear
Channel, L. Lowry Mays, 4-M Partners, Ltd., Hicks, Muse, Tate &
Furst Equity Fund II, L.P., HM2/HMW, L.P., HM2/Chancellor, L.P.,
HM4/Chancellor, L.P., Capstar Broadcasting Partners, L.P., Capstar
BT Partners, L.P., Capstar Boston Partners, L.L.C., and Thomas O.
Hicks (incorporated by reference to Annex B to Clear Channel
Communications, Inc., Registrations Statement on Form S-4 (Reg. No.
333-32532) dated March 15, 2000).
10.9 Registration Rights Agreement dated as of October 2, 1999, among
Clear Channel and Hicks, Muse, Tate & Furst Equity Fund II, L.P.,
HM2/HMW, L.P., HM2/Chancellor, L.P., HM4/Chancellor, L.P., Capstar
Broadcasting Partners, L.P., Capstar BT Partners, L.P., Capstar
Boston Partners, L.L.C., Thomas O. Hicks, John R. Muse, Charles W.
Tate, Jack D. Furst, Michael J. Levitt, Lawrence D. Stuart, Jr.,
David B Deniger and Dan H. Blanks (incorporated by reference to
Annex C to Clear Channel Communications, Inc., Registrations
Statement on Form S-4 (Reg. No. 333-32532) dated March 15, 2000).
10.10 Stockholder Voting and Support Agreement, dated as of October 5,
2001, by and between Clear Channel Communications, Inc. and Barry A.
Ackerley (incorporated by reference to the exhibits to Clear
Channel's Current Report on Form 8-K filed October 9, 2001).
EXHIBIT
NUMBER DESCRIPTION
10.11 Employment Agreement by and between Clear Channel Communications,
Inc. and L. Lowry Mays dated October 1, 1999. (incorporated by
reference to the exhibits to Clear Channel's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999).
10.12 Employment Agreement by and between Clear Channel Communications,
Inc. and Mark P. Mays dated October 1, 1999. (incorporated by
reference to the exhibits to Clear Channel's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999).
10.13 Employment Agreement by and between Clear Channel Communications,
Inc. and Randall T. Mays dated October 1, 1999. (incorporated by
reference to the exhibits to Clear Channel's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999).
10.14 Fourth Amended and Restated Credit Agreement by and among Clear
Channel Communications, Inc., Bank of America, N.A., as
administrative agent, Fleet National Bank, as documentation agent,
the Bank of Montreal and Toronto Dominion (Texas), Inc., as
co-syndication agents, and certain other lenders dated June 15, 2000
(incorporated by reference to the exhibits of Clear Channel's
registration statement on Form S-3 (Reg. No. 333-42028) dated July
21, 2000).
10.15 Credit Agreement among Clear Channel Communications, Inc., Bank of
America, N.A., as administrative agent, Chase Securities Inc., as
syndication agent, and certain other lenders dated August 30, 2000.
(incorporated by reference to the exhibits to Clear Channel's Annual
Report on Form 10-K for the year ended December 31, 2000).
11 Statement re: Computation of Per Share Earnings.
12 Statement re: Computation of Ratios.
21 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG LLP.
24 Power of Attorney (included on signature page).
99.1 Report of Independent Auditors on Financial Statement Schedules -
Ernst & Young LLP.
99.2 Report of Independent Auditors - KPMG LLP.
- --------------------
(b) Reports on Form 8-K.
We filed a report on Form 8-K dated October 9, 2001 that reported that we
had entered into an Agreement and Plan of Merger with The Ackerley Group, Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 18, 2002.
CLEAR CHANNEL COMMUNICATIONS, INC.
By:/S/ L. Lowry Mays
L. Lowry Mays
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below authorizes L. Lowry Mays, Mark
P. Mays, Randall T. Mays and Herbert W. Hill, Jr., or any one of them, each of
whom may act without joinder of the others, to execute in the name of each such
person who is then an officer or director of the Registrant and to file any
amendments to this annual report on Form 10-K necessary or advisable to enable
the Registrant to comply with the Securities Exchange Act of 1934, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof, which amendments may make such changes in such
report as such attorney-in-fact may deem appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/S/ L. Lowry Mays Chairman, Chief Executive Officer and Director March 18, 2002
L. Lowry Mays
/S/ Mark P. Mays President and Chief Operating Officer and March 18, 2002
Mark P. Mays Director
/S/ Randall T. Mays Executive Vice President and Chief Financial March 18, 2002
Randall T. Mays Officer (Principal Financial Officer) and
Director
/S/ Herbert W. Hill, Jr. Senior Vice President and Chief Accounting March 18, 2002
Herbert W. Hill, Jr. Officer (Principal Accounting Officer)
/S/ Robert L. Crandall Director March 18, 2002
Robert L. Crandall
NAME TITLE DATE
---- ----- ----
/S/ Alan D. Feld Director March 18, 2002
Alan D. Feld
/S/ Thomas O. Hicks Director March 18, 2002
Thomas O. Hicks
/S/ Vernon E. Jordan, Jr. Director March 18, 2002
Vernon E. Jordan, Jr.
/S/ Perry J. Lewis Director March 18, 2002
Perry J. Lewis
/S/ B. J. McCombs Director March 18, 2002
B. J. McCombs
/S/ Theodore H. Strauss Director March 18, 2002
Theodore H. Strauss
/S/ John H. Williams Director March 18, 2002
John H. Williams
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Merger dated as of October 2, 1999, among
Clear Channel, CCU Merger Sub, Inc. and AMFM Inc. (incorporated by
reference to the exhibits of Clear Channel's Current Report on Form
8-K filed October 5, 1999).
2.2 Agreement and Plan of Merger dated as of February 28, 2000, among
Clear Channel, CCU II Merger Sub, Inc. and SFX Entertainment, Inc.
(incorporated by reference to the exhibits of Clear Channel's
Current Report on Form 8-K filed February 29, 2000).
2.3 Agreement and Plan of Merger dated as of October 5, 2001, by and
among Clear Channel, CCMM Sub, Inc. and The Ackerley Group, Inc.
(incorporated by reference to the exhibits of Clear Channel's
Current Report on Form 8-K filed October 9, 2001).
3.1 Current Articles of Incorporation of the Company (incorporated by
reference to the exhibits of the Company's Registration Statement on
Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
3.2 Third Amended and Restated Bylaws of the Company (incorporated by
reference to the exhibits of the Company's Registration Statement on
Form S-4 (Reg. No. 333-74196) dated November 29, 2001).
3.3 Amendment to the Company's Articles of Incorporation (incorporated
by reference to the exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998).
3.4 Second Amendment to Clear Channel's Articles of Incorporation
(incorporated by reference to the exhibits to Clear Channel's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999).
3.5 Third Amendment to Clear Channel's Articles of Incorporation
(incorporated by reference to the exhibits to Clear Channel's
Quarterly Report on Form 10-Q for the quarter ended May 31, 2000).
4.1 Buy-Sell Agreement by and between Clear Channel Communications,
Inc., L. Lowry Mays, B. J. McCombs, John M. Schaefer and John W.
Barger, dated May 31, 1977 (incorporated by reference to the
exhibits of the Company's Registration Statement on Form S-1 (Reg.
No. 33-289161) dated April 19, 1984).
4.2 Senior Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York as Trustee
(incorporated by reference to exhibit 4.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997).
4.3 First Supplemental Indenture dated March 30, 1998 to Senior
Indenture dated October 1, 1997, by and between the Company and The
Bank of New York, as Trustee (incorporated by reference to the
exhibits to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
EXHIBIT
NUMBER DESCRIPTION
4.4 Second Supplemental Indenture dated June 16, 1998 to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and the Bank of New York, as Trustee
(incorporated by reference to the exhibits to the Company's Current
Report on Form 8-K dated August 27, 1998).
4.5 Third Supplemental Indenture dated June 16, 1998 to Senior Indenture
dated October 1, 1997, by and between Clear Channel Communications,
Inc. and the Bank of New York, as Trustee (incorporated by reference
to the exhibits to the Company's Current Report on Form 8-K dated
August 27, 1998).
4.6 Fourth Supplement Indenture dated November 24, 1999 to Senior
Indenture dated October 1, 1997, by and between Clear Channel and
The Bank of New York as Trustee (incorporated by reference to the
exhibits of the Company's Annual Report on Form 10-K for the year
ended December 31, 1999).
4.7 Fifth Supplemental Indenture dated June 21, 2000, to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York, as Trustee
(incorporated by reference to the exhibits of Clear Channel's
registration statement on Form S-3 (Reg. No. 333-42028) dated July
21, 2000).
4.8 Sixth Supplemental Indenture dated June 21, 2000, to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York, as Trustee
(incorporated by reference to the exhibits of Clear Channel's
registration statement on Form S-3 (Reg. No. 333-42028) dated July
21, 2000).
4.9 Seventh Supplemental Indenture dated July 7, 2000, to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York, as Trustee
(incorporated by reference to the exhibits of Clear Channel's
registration statement on Form S-3 (Reg. No. 333-42028) dated July
21, 2000).
4.10 Eighth Supplemental Indenture dated September 12, 2000, to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York, as Trustee
(incorporated by reference to the exhibits to Clear Channel's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2000).
4.11 Ninth Supplemental Indenture dated September 12, 2000, to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York, as Trustee
(incorporated by reference to the exhibits to Clear Channel's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2000).
4.12 Tenth Supplemental Indenture dated October 26, 2001, to Senior
Indenture dated October 1, 1997, by and between Clear Channel
Communications, Inc. and The Bank of New York, as Trustee
(incorporated by reference to the exhibits to Clear Channel's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001).
EXHIBIT
NUMBER DESCRIPTION
10.1 Incentive Stock Option Plan of Clear Channel Communications, Inc. as
of January 1, 1984 (incorporated by reference to the exhibits of the
Company's Registration Statement on Form S-1 (Reg. No. 33-289161)
dated April 19, 1984).
10.2 Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan
(incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-8 dated November 20, 1995).
10.3 Clear Channel Communications, Inc. 1994 Nonqualified Stock Option
Plan (incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-8 dated November 20, 1995).
10.4 Clear Channel Communications, Inc. Directors' Nonqualified Stock
Option Plan (incorporated by reference to the exhibits of the
Company's Registration Statement on Form S-8 dated November 20,
1995).
10.5 Option Agreement for Officer (incorporated by reference to the
exhibits of the Company's Registration Statement on Form S-8 dated
November 20, 1995).
10.6 The Clear Channel Communications, Inc. 1998 Stock Incentive Plan
(incorporated by reference to Appendix A to the Company's Definitive
14A Proxy Statement dated March 24, 1998).
10.7 Voting Agreement dated as of October 8, 1998, by and among Jacor
Communications, Inc. and L. Lowry Mays, Mark P. Mays and Randall T.
Mays and certain related family trusts (incorporated by reference to
the exhibits to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
10.8 Shareholders Agreement dated October 2, 1999, by and among Clear
Channel, L. Lowry Mays, 4-M Partners, Ltd., Hicks, Muse, Tate &
Furst Equity Fund II, L.P., HM2/HMW, L.P., HM2/Chancellor, L.P.,
HM4/Chancellor, L.P., Capstar Broadcasting Partners, L.P., Capstar
BT Partners, L.P., Capstar Boston Partners, L.L.C., and Thomas O.
Hicks (incorporated by reference to Annex B to Clear Channel
Communications, Inc., Registrations Statement on Form S-4 (Reg. No.
333-32532) dated March 15, 2000).
10.9 Registration Rights Agreement dated as of October 2, 1999, among
Clear Channel and Hicks, Muse, Tate & Furst Equity Fund II, L.P.,
HM2/HMW, L.P., HM2/Chancellor, L.P., HM4/Chancellor, L.P., Capstar
Broadcasting Partners, L.P., Capstar BT Partners, L.P., Capstar
Boston Partners, L.L.C., Thomas O. Hicks, John R. Muse, Charles W.
Tate, Jack D. Furst, Michael J. Levitt, Lawrence D. Stuart, Jr.,
David B Deniger and Dan H. Blanks (incorporated by reference to
Annex C to Clear Channel Communications, Inc., Registrations
Statement on Form S-4 (Reg. No. 333-32532) dated March 15, 2000).
10.10 Stockholder Voting and Support Agreement, dated as of October 5,
2001, by and between Clear Channel Communications, Inc. and Barry A.
Ackerley (incorporated by reference to the exhibits to Clear
Channel's Current Report on Form 8-K filed October 9, 2001).
EXHIBIT
NUMBER DESCRIPTION
10.11 Employment Agreement by and between Clear Channel Communications,
Inc. and L. Lowry Mays dated October 1, 1999. (incorporated by
reference to the exhibits to Clear Channel's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999).
10.12 Employment Agreement by and between Clear Channel Communications,
Inc. and Mark P. Mays dated October 1, 1999. (incorporated by
reference to the exhibits to Clear Channel's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999).
10.13 Employment Agreement by and between Clear Channel Communications,
Inc. and Randall T. Mays dated October 1, 1999. (incorporated by
reference to the exhibits to Clear Channel's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999).
10.14 Fourth Amended and Restated Credit Agreement by and among Clear
Channel Communications, Inc., Bank of America, N.A., as
administrative agent, Fleet National Bank, as documentation agent,
the Bank of Montreal and Toronto Dominion (Texas), Inc., as
co-syndication agents, and certain other lenders dated June 15, 2000
(incorporated by reference to the exhibits of Clear Channel's
registration statement on Form S-3 (Reg. No. 333-42028) dated July
21, 2000).
10.15 Credit Agreement among Clear Channel Communications, Inc., Bank of
America, N.A., as administrative agent, Chase Securities Inc., as
syndication agent, and certain other lenders dated August 30, 2000.
(incorporated by reference to the exhibits to Clear Channel's Annual
Report on Form 10-K for the year ended December 31, 2000).
11 Statement re: Computation of Per Share Earnings.
12 Statement re: Computation of Ratios.
21 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG LLP.
24 Power of Attorney (included on signature page).
99.1 Report of Independent Auditors on Financial Statement Schedules -
Ernst & Young LLP.
99.2 Report of Independent Auditors - KPMG LLP.