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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, 1997, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ________ to
_________.
COMMISSION FILE NUMBER
1-9645
CLEAR CHANNEL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1787539
(State of Incorporation) (I.R.S. Employer Identification No.)
200 Concord Plaza, Suite 600
San Antonio, Texas 78216
Telephone (210) 822-2828
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.10
par value per share.
Securities registered pursuant to Section 12(g) of the Act: .None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
---
On March 6, 1998, the aggregate market value of the Common Stock beneficially
held by non-affiliates of the Company was approximately $6,439 million. (For
purposes hereof, directors, executive officers and 10% or greater shareholders
have been deemed affiliates).
On March 6, 1998, there were 98,387,626 outstanding shares of Common Stock,
excluding 39,694 shares held in treasury.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Shareholders for the year ended
December 31, 1997 are incorporated by reference into Parts I, II, and IV.
Portions of the Company's Definitive Proxy Statement for the 1998 Annual
Meeting dated March 24, 1998 are incorporated by reference into Part III.
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HEFTEL BROADCASTING CORPORATION
INDEX TO FORM 10-K
Page
Number
PART I.
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 28
PART II.
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Item 5. Market for Registrant's Class A Common Stock and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . 29
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 29
PART III.
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Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . 30
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . 32
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . 32
PART IV.
- --------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . 33
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PART I
ITEM 1. BUSINESS
THE COMPANY
The Company, which began operations in 1972, is a diversified media
company that owns or programs radio and television stations and is one of the
largest domestic outdoor advertising companies based on its total advertising
display faces. In addition, the Company currently owns a 50% equity interest in
the Australian Radio Network Pty. Ltd., which operates radio stations in
Australia; a one-third equity interest in the New Zealand Radio Network, which
operates radio stations throughout New Zealand; a 32.3% non-voting equity
interest in Heftel Broadcasting Corporation (Nasdaq: HBCCA) ("Heftel"), a
leading domestic Spanish-language radio broadcaster; and a 30% equity interest
in American Tower Corporation, a leading domestic provider of wireless
transmission sites.
The radio stations currently owned or programmed by the Company are
principally located in the South, Southeast, Southwest, Northeast and Midwest.
These radio stations employ a wide variety of programming formats, such as
News/Talk/Sports, Country, Adult Contemporary, Urban and Album Rock. The
television stations currently owned or programmed by the Company are located in
the South, Southeast, Northeast and Midwest. These television stations are
affiliated with various television networks, including the FOX television
network, the UPN television network, the ABC television network, the NBC
television network and the CBS television network. Additionally, the Company
operates radio networks serving Oklahoma, Texas, Iowa, Kentucky, Virginia,
Alabama, Tennessee, Florida and Pennsylvania. The Company's outdoor advertising
properties are located primarily in the South, Southeast, Midwest, and West.
During 1997, the Company derived approximately 48% of its net revenue from
radio operations, approximately 22% from television operations, and
approximately 30% from outdoor advertising operations.
The Company has its principal executive offices at 200 Concord Plaza,
Suite 600, San Antonio, Texas 78216 (telephone: 210-822-2828).
COMPANY STRATEGY
The Company's overall strategy is to acquire and develop a diverse
array of media assets which enable the Company to assist its customers in
employing the most effective and cost-efficient methods to market their
products and services. Accordingly, the Company has assembled a diversified
portfolio of assets encompassing radio broadcasting, television broadcasting
and outdoor advertising. The Company plans to use this diversified collection
of assets, along with the operating expertise of its management, to continue
generating internal growth. The Company believes it can augment this internal
growth with the opportunistic acquisition of additional media assets. Such
potential acquisitions will be evaluated based on their strategic value to the
Company, their potential to deliver attractive rates of return to the Company's
shareholders, to add revenue and cash flow to its operating results, and to
improve the performance of the Company's existing assets. Historically, the
Company has been able to generate significant returns for its investors while
maintaining financial flexibility through the prudent use of leverage. The
Company believes that this prudent use of leverage has also contributed to the
Company's relatively low cost of capital. The Company believes that focusing on
its clients' goals, creating a sales-intensive operating organization, and
maintaining a conservative financial position are synergistic aspects of its
operating strategy.
The Company believes that the potential exists for cooperation between
its various business segments and that it can help its customers market their
products and services more effectively and efficiently by offering greater
flexibility in the choice of media outlets for marketing messages. The
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Company is now able to offer additional advertising solutions for its customers
in those markets where it simultaneously operates radio stations with
television stations or outdoor advertising displays. In this way, the Company
believes that its combination of assets will allow it to offer greater value to
its customers. Additionally, the Company intends to use its various business
segments to cross-promote one another when possible.
Broadcast Strategy
The Company's broadcast strategy is to identify and acquire
under-performing stations on favorable terms and to utilize management's
extensive operating experience to improve the performance of such stations
through effective programming, reduction of costs, and aggressive promotion,
marketing and sales. In addition, the Company employs a marketing strategy that
emphasizes direct sales to local customers rather than through advertising
agencies and other intermediaries. The Company believes that this focus has
enabled its stations to achieve market revenue shares exceeding their audience
shares.
The Company believes that clustering broadcasting assets together in
markets leads to substantial operating advantages. The Company attempts to
cluster radio stations in each of its principal markets, and believes that by
controlling a larger share of the total advertising inventory in a particular
market, it can offer advertisers more attractive packages of advertising
options. The Company also believes that its cluster approach will allow it to
operate its stations with more highly skilled local management teams and
eliminate duplicative operating and overhead expenses. Within its television
group, the Company's goal is to own and program one station in each of its
markets and to program an additional station under a Local Marketing Agreement
("LMA") in each such market. In seven of its television markets, the Company
already programs an additional television station under an LMA.
Outdoor Advertising Strategy
The Company's outdoor advertising strategy is to expand its market
presence in the outdoor advertising business and improve its operating results
by (i) managing the advertising rates and occupancy levels of its displays to
maximize market revenues; (ii) attracting new categories of advertisers to the
outdoor medium through significant investments in sales and marketing
resources; (iii) increasing focus on local advertising sales; (iv) constructing
new displays and upgrading its existing displays; (v) taking advantage of
technological advances which increase both sales force productivity and
production department efficiency; (vi) acquiring additional displays in its
existing markets and expanding into additional markets where the Company
already has a broadcasting presence as well as into the country's largest media
markets and their surrounding regional areas; and (vii) making opportunistic
acquisitions of displays in new markets. The Company believes this strategy
enhances its ability to effectively respond to advertisers' needs.
To support this outdoor advertising operating strategy, the Company
has decentralized its operating structure related to outdoor advertising in
order to place authority, autonomy and accountability at the market level and
provide local management with the tools necessary to oversee sales, display
development, administration and production and to identify suitable acquisition
candidates. The Company also maintains a fully-staffed sales and marketing
office in New York which services national outdoor advertising accounts and
supports the Company's local sales force in each market. The Company believes
that one of its strongest competitive advantages is its unique blend of highly
experienced corporate and local market management.
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RECENT DEVELOPMENTS
Grupo Acir Acquisition
On March 12, 1998, the Company entered into a definitive agreement to
acquire 40% of the equity of Grupo Acir Communicaciones, S.A. de C.V. ("Grupo
Acir") for $57,500,000 (the "Grupo Acir Acquisition"). Grupo Acir is one of the
largest radio broadcasters in Mexico. It owns or programs affiliations 164
stations serving 72 markets in Mexico. Of the 164 stations, 65 are owned and
operated by Grupo Acir and 99 are affiliated with one of its eight national
digital networks. Seven of these owned stations are located in Mexico City,
Mexico's largest media market.
Due to constraints under Mexican Law, the Company's investment is
being made through a Mexican trustee which will vote the Company's shares.
Consummation of the Grupo Acir Acquisition is subject to numerous closing
conditions, including, without limitation, receiving all required regulatory
approvals of the Mexican government.
More Group Acquisition
On March 5, 1998, the Company agreed to make a cash offer (the "More
Group Acquisition") for all of the issued and to be issued shares of More Group
Plc, an outdoor advertising company organized under the laws of the United
Kingdom (the "More Group"), for j10.425 per share (approximately $17.20 per
share on March 5, 1998). As of such date, the aggregate consideration for all
of such shares was approximately $735.7 million. This offer was recommended to
More Group shareholders by More Group's board of directors. More Group operates
in 22 countries and has approximately 90,000 display faces, including
approximately 50,000 street furniture panels and approximately 40,000
billboards.
Consummation of the More Group Acquisition is subject to acceptance by
the holders of at least 90% of the total shares of More Group or such lesser
percentage as the Company may decide. This condition will not be satisfied
unless the Company shall have acquired or agreed to acquire More Group shares
carrying in aggregate more than 50% of the voting rights then exercisable at a
general meeting of More Group. The More Group Acquisition is also subject to
the receipt of all necessary approvals, including regulatory approvals, there
being no material adverse change in the business of More Group and its
subsidiaries taken as a whole, and numerous other conditions.
Universal Outdoor Merger
On October 23, 1997, the Company and Universal Outdoor Holdings, Inc.
("Universal") entered into a Merger Agreement (the "Merger Agreement").
Universal is a leading outdoor advertising company operating approximately
34,000 advertising display faces predominantly in the Midwest, Northeast and
Southeast. Pursuant to the Merger Agreement, a wholly-owned subsidiary of the
Company will be merged with and into Universal, with Universal continuing as
the surviving corporation and a wholly owned subsidiary of the Company (the
"Universal Merger"). On February 6, 1998, the stockholders of Universal voted
to approve the Universal Merger.
Subject to the terms and conditions of the Merger Agreement, each
share of Universal common stock outstanding immediately prior to the
consummation of the Universal Merger will be converted into 0.67 shares of the
Company's Common Stock. Outstanding warrants and options to acquire shares of
Universal common stock held by certain senior level employees of Universal will
be canceled in exchange for shares of the Company's Common Stock. It is
anticipated that approximately 19.3 million shares of the Company's Common
Stock will be issued in the Universal Merger, representing approximately 15.7%
of the shares of the Company's Common Stock expected to be outstanding after
the Universal Merger.
In connection with the Universal Merger, Daniel L. Simon, the current
President and Chief Executive Officer of Universal, entered into an employment
agreement with the Company pursuant to
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which he will become, upon consummation of the Universal Merger, the Vice
Chairman and Chief Operating Officer of Universal, Eller Media Corporation, a
subsidiary of the Company ("Eller Media"), their respective subsidiaries and
affiliate companies and any successor company or affiliates of the Company
which are in the business of outdoor advertising.
Consummation of the Universal Merger is subject to numerous closing
conditions, including the receipt of all regulatory approvals and other
necessary approvals.
Paxson Radio Acquisition
On October 1, 1997, the Company acquired six radio news and sports
networks and approximately 350 outdoor advertising display faces from Paxson
Communications Corp. ("Paxson"). On December 8, 1997, the Company acquired 43
radio stations from Paxson and certain affiliates of Paxson (the "Paxson Radio
Acquisition"). The total purchase price for such acquisitions was approximately
$629 million in cash. Prior to the consummation of the acquisition of the radio
stations on December 8, 1997, the Company entered into a commercial time
brokerage agreement with respect to most of such radio stations and commercial
time sales agreements with respect to certain other radio stations. All of the
radio stations and display faces referred to above are located in Florida
except for four radio stations located in Tennessee.
In connection with the acquisitions of seven of the radio stations
from Paxson in the Jacksonville, Florida and the Mobile, Alabama/Pensacola,
Florida markets, the Company received temporary waivers of the Federal
Communications Commission's ("FCC") one-to-a-market rule which generally
prohibits the common ownership of radio and television stations in the same
market. Such waivers are conditioned upon the outcome of the FCC's pending
ownership attribution rulemaking proceeding. Some divestitures could be
required at the conclusion of the rulemaking proceeding. Should divestitures be
necessary, the Company will be required to submit applications to the FCC
seeking consent to sell any nonconforming stations within six months following
finality of the rulemaking.
On December 8, 1997, the Company acquired options from Paxson to
purchase a radio station in Tampa, Florida and a radio station in Pensacola,
Florida for a total of approximately $3 million in cash. The Company and Paxson
are parties to commercial time sales agreements with respect to such stations.
The Company presently intends to exercise its option to acquire the radio
station in Tampa, Florida for approximately $1 million and has divested an
existing radio station it owned in Tampa in order to obtain FCC approval of the
exercise of such option.
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Eller Media Acquisition
On April 10, 1997, the Company acquired approximately 93% of the then
outstanding stock of Eller Media for a total consideration of approximately
$627 million, consisting of approximately $329 million in cash and 6,643,636
shares of the Company Common Stock (approximately $298 million in the Company
Common Stock based on a price per share of $44.8625 per share) (the "Eller
Media Acquisition"). Immediately following the consummation of the Eller Media
Acquisition, the Company retired approximately $417 million of Eller Media's
outstanding bank debt through borrowings under the Credit Facility. In
addition, the Company issued options (with an estimated fair value of
approximately $51 million) to purchase 1,468,182 shares of the Company Common
Stock in connection with the assumption of Eller Media's outstanding stock
options. The Company also agreed to issue 147,858 shares of Common Stock
pursuant to certain phantom stock plan obligations assumed by the Company as
part of the Eller Media Acquisition. The holders of the approximately 7% of the
then outstanding capital stock of Eller Media not purchased by the Company have
the right to require the Company to acquire such stock for 1,081,469 shares of
the Company's Common Stock until April 10, 2002. From and after April 10, 2004
(or before such date upon the occurrence of certain events), the Company will
have the right to acquire this minority interest stake in Eller Media for
1,081,469 shares of Common Stock. On April 29, 1997, Karl Eller, the Chief
Executive Officer of Eller Media, was appointed to the Company's Board of
Directors. Mr. Eller currently is employed by the Company to run Eller Media as
a subsidiary of the Company pursuant to an employment contract which is due to
expire on August 18, 1999. In addition, Mr. Eller and other members of the
Eller Media management team have a significant stake in the Company's stock
options through the conversion of existing Eller Media stock options into
options to purchase the Company's Common Stock.
Heftel Broadcasting Corporation
On February 14, 1997, the Company's nonconsolidated affiliate, Heftel,
then the largest Spanish language radio broadcasting company, completed a
merger with Tichenor Media System, Inc. ("Tichenor" and the "Tichenor Merger"),
then the third largest Spanish language radio broadcasting company. Following
the Tichenor Merger, Heftel owns or programs 36 radio stations in 11 markets.
As a result of the Tichenor Merger, the sale by the Company of 350,000 shares
of Heftel's voting common stock and subsequent issuances of common stock by
Heftel, the Company's total ownership interest in Heftel has been reduced to
approximately 28.7% of the total outstanding common stock of Heftel (voting and
non- voting). In the Tichenor Merger, all of the voting common stock of Heftel
owned by the Company and shares of Tichenor's common stock owned by the Company
were converted into shares of convertible nonvoting common stock of Heftel on a
one- for-one basis in order to comply with the cross-interest policy of the
Federal Communications Commission. See "-- Regulation of the Company's
Business."
Other Completed and Pending Acquisitions
During the period from December 31, 1997 through March 12, 1998, the
Company completed the acquisition of 21 additional radio stations for
approximately $110.7 million in five markets and completed the acquisition of
or obtained the rights to lease 4,592 display faces for approximately $103.5
million in nine markets.
During the period from December 31, 1997 through March 12, 1998, in
addition to the pending Universal Merger and More Group Acquisition, the
Company entered into definitive agreements to purchase 16 display faces for
approximately $2.2 million in four markets. In addition, acquisitions to
purchase four additional radio stations for approximately $9.8 million in two
markets are pending pursuant to definitive agreements executed prior to
December 31, 1997. All of these acquisitions of broadcast properties are
subject to the approval of the FCC and, in some cases, the Federal Trade
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Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice (the "Antitrust Division"), as well as certain other
closing conditions.
Public Offerings
On May 19, 1997, the Company completed the offering and sale of
5,093,790 shares of Common Stock in an underwritten public offering for a total
of $279,564,544 in proceeds. On May 21, 1997, the Company sold an additional
1,000,000 shares of Common Stock in connection with the exercise of an
underwriters' over-allotment option for a total of $47,334,000 in proceeds. On
September 18, 1997, the Company completed the offering and sale of 8,000,000
shares of Common Stock in a block trade with Salomon Brothers Inc for a total
of $504,000,000 in proceeds. On October 15, 1997, the Company completed the
offering and sale of $300,000,000 aggregate principal amount of 7.25%
Debentures due October 15, 2027 in an underwritten public offering for a total
of $292,689,000 in proceeds. On March 30, 1998, the Company completed the
offering and sale of 6,000,000 shares of Common Stock and $500,000,000
aggregate principal amount of 2.625% Senior Convertible Notes due April 1, 2003
in concurrent public offerings for a total of $578,160,000 and $492,500,000 in
proceeds, respectively. The proceeds from the various offerings were used to
repay borrowings outstanding under the Company's revolving credit facility, to
finance acquisitions and for general corporate purposes.
EMPLOYEES
At January 1, 1998, the Company had approximately 5,400 domestic employees:
3,500 in radio operations, 800 in television operations, 1,000 in outdoor
operations and 100 in corporate activities.
INDUSTRY SEGMENTS
The Company consists of three principal business segments -- radio
broadcasting, television broadcasting and outdoor advertising. The radio
segment includes both stations for which the Company is the licensee and
stations for which the Company programs and/or sells air time under LMAs or
joint sales agreements ("JSAs"). The radio segment also operates eleven
networks. The television segment includes both television stations for which
the Company is the licensee and stations programmed under LMAs. The outdoor
advertising segment has advertising display faces in 15 major domestic markets.
Information relating to the industry segments of the Company's
operations, currently radio, television and outdoor for 1997, and radio and
television for 1996 and 1995 is included in "Note K: Segment Data" in the Notes
to Consolidated Financial Statements in the Company's Annual Report to
Shareholders and hereby is incorporated by reference as well as the information
set forth under "Radio Broadcasting," "Television Broadcasting" and "Outdoor
Advertising."
Radio Broadcasting
The following table sets forth certain selected information with
regard to each of the Company's 56 AM and 117 FM radio stations which it owned
or programmed, or for which it sold airtime, as of December 31, 1997.
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AM FM
MARKET STATIONS STATIONS TOTAL
------ -------- -------- -----
ARKANSAS
Little Rock . . . . . . . . . . . . . . . . . . . . . . -- 5 5
CALIFORNIA
Monterrey . . . . . . . . . . . . . . . . . . . . . . . 2(a) 4(a) 6
CONNECTICUT
New Haven . . . . . . . . . . . . . . . . . . . . . . . 2 1 3
FLORIDA
Florida Keys . . . . . . . . . . . . . . . . . . . . . -- 3 3
Ft. Myers/Naples . . . . . . . . . . . . . . . . . . . 1 4 5
Jacksonville . . . . . . . . . . . . . . . . . . . . . 2 4 6
Miami/Ft. Lauderdale . . . . . . . . . . . . . . . . . 3 5 8
Orlando . . . . . . . . . . . . . . . . . . . . . . . . 2 4 6
Panama City . . . . . . . . . . . . . . . . . . . . . . 1 4 5
Pensacola . . . . . . . . . . . . . . . . . . . . . . . -- 2(b) 2
Tallahassee 1 4 5
Tampa/St. Petersburg . . . . . . . . . . . . . . . . . 4(c) 5 9
West Palm Beach . . . . . . . . . . . . . . . . . . . . 1 2 3
KENTUCKY
Louisville . . . . . . . . . . . . . . . . . . . . . . 3 4 7
LOUISIANA
New Orleans . . . . . . . . . . . . . . . . . . . . . . 2 5 7
MASSACHUSETTS
Springfield . . . . . . . . . . . . . . . . . . . . . . 1 1 2
MICHIGAN
Grand Rapids . . . . . . . . . . . . . . . . . . . . . 2 4 6
NEW YORK
Albany . . . . . . . . . . . . . . . . . . . . . . . . 1(d) 3(d) 4
NORTH CAROLINA
Winston-Salem . . . . . . . . . . . . . . . . . . . . . 1 2 3
Raleigh . . . . . . . . . . . . . . . . . . . . . . . . 1 4 5
OHIO
Cleveland . . . . . . . . . . . . . . . . . . . . . . . 1 2 3
Dayton . . . . . . . . . . . . . . . . . . . . . . . 1(a) 2(a) 3
OKLAHOMA
Oklahoma City . . . . . . . . . . . . . . . . . . . . . 3(c) 4 7
Tulsa . . . . . . . . . . . . . . . . . . . . . . . . . 2(c) 4(b)(c) 6
PENNSYLVANIA
Lancaster . . . . . . . . . . . . . . . . . . . . . . . 1 1 2
Reading . . . . . . . . . . . . . . . . . . . . . . . . 1 1 2
RHODE ISLAND
Providence . . . . . . . . . . . . . . . . . . . . . . -- 2 2
SOUTH CAROLINA
Columbia . . . . . . . . . . . . . . . . . . . . . . . 1 3 4
TENNESSEE
Cookeville . . . . . . . . . . . . . . . . . . . . . . 2 2 4
Memphis . . . . . . . . . . . . . . . . . . . . . . . . 3 4 7
TEXAS
Austin . . . . . . . . . . . . . . . . . . . . . . . . 1 3 4
El Paso . . . . . . . . . . . . . . . . . . . . . . . . 1 2 3
Houston . . . . . . . . . . . . . . . . . . . . . . . . 3(e) 4(c) 7
San Antonio . . . . . . . . . . . . . . . . . . . . . . 2 3(b) 5
VIRGINIA
Norfolk . . . . . . . . . . . . . . . . . . . . . . . . -- 4 4
Richmond . . . . . . . . . . . . . . . . . . . . . . . 3 3 6
WISCONSIN
Milwaukee . . . . . . . . . . . . . . . . . . . . . . . 1 3 4
--- --- ----
Total . . . . . . . . . . . . . . . . . . . . 56 117 173
== === ===
_________________
(a) Stations programmed pursuant to an LMA (FCC licenses not owned by the
Company).
(b) Includes one station for which the Company sells airtime pursuant to a
JSA (FCC license not owned by the Company).
(c) Includes one station programmed pursuant to an LMA (FCC license not
owned by the Company).
(d) Stations owned by Radio Enterprises, Inc., in which the Company owns
an 80% interest.
(e) Includes two stations which are owned by CCC-Houston AM, Ltd., in
which the Company owns an 80% interest.
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The Company also owns the Kentucky News Network based in Louisville,
Kentucky, the Virginia News Network based in Richmond, Virginia, the Oklahoma
News Network based in Oklahoma City, Oklahoma, the Voice of Southwest
Agriculture Network based in San Angelo, Texas, the Clear Channel Sports
Network based both in College Station, Texas, and Des Moines, Iowa, the Alabama
Radio Network based in Birmingham, Alabama, the Tennessee Radio Network based
in Nashville, Tennessee, the University of Miami Sports Network based in Miami,
Florida, the Florida Radio Network based in Orlando, Florida, the University of
Florida Sports Network based in Gainesville, Florida and Orlando, Florida, and
the Penn State Sports Network based in Trevose, Pennsylvania.
In addition, the Company owns a 50% equity interest in the Australian
Radio Network Pty, Ltd., which operates ten radio stations in Australia, a
one-third equity interest in the New Zealand Radio Network, which operates 52
radio stations throughout New Zealand, a 50% equity interest in Radio Bonton,
a.s., which operates a radio station in the Czech Republic, and a 32.3%
non-voting equity interest in Heftel Broadcasting Corporation, a leading
domestic Spanish- language broadcaster which operates 36 radio stations in the
11 domestic markets.
The Company's radio stations employ various formats for their
programming. A station's format is important in determining the size and
characteristics of its listening audience. Advertising rates charged by a radio
station are based primarily on the station's ability to attract audiences
having certain demographic characteristics in the market area which advertisers
want to reach, as well as the number of stations competing in the market.
Advertisers often tailor their advertisements to appeal to selected population
or demographic segments. The Company pays the cost of producing the programming
for each station. Generally, the Company designs formats for its own stations,
but has also used outside consultants and program syndicators for program
material. Most of the Company's radio revenue is generated from the sale of
local advertising. Additional revenue is generated from the sale of national
advertising, network compensation payments and barter and other miscellaneous
transactions.
The Company has focused its sales effort on selling directly to local
advertisers. Direct contact with its customers has aided the Company's sales
personnel in developing long-standing customer relationships, which the Company
believes are a competitive advantage. The Company's sales personnel are paid on
a commission basis, which emphasizes this direct local focus. The Company
believes that this focus has enabled some of its stations to achieve market
revenue shares exceeding their audience shares in a given year. Each of the
Company's radio stations also engages independent sales representatives to
assist it in obtaining national advertising. The representatives obtain
advertising through national advertising agencies and receive a commission from
the Company based on the Company's net revenue from the advertising obtained.
In February 1996, the Company formed an alliance with one of the nation's
largest national advertising representation firms, whereby the firm will
dedicate certain personnel to work exclusively for the Company's radio
stations. The Company believes this arrangement will help its stations to
achieve higher shares of national advertising revenue.
The major costs associated with radio broadcasting are related to
personnel and programming. In an effort to monitor these costs, corporate
management routinely reviews staffing levels and programming costs. Combined
with the centralized accounting functions, this monitoring enables the Company
to effectively control expenses. Corporate management also advises local
station managers on programming and other broad policy matters and is
responsible for long-range planning, allocating resources and financial
reporting and controls.
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Television Broadcasting
The following table sets forth certain selected information with
regard to each of the Company's 18 television stations and one satellite
station which it owned or programmed as of December 31, 1997.
NETWORK
MARKET AFFILIATION
------ -----------
ALBANY/SCHENECTADY/TROY, NEW YORK
WXXA-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX
HARRISBURG/LEBANON/LANCASTER/YORK, PENNSYLVANIA
WHP-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CBS
WLYH-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN
JACKSONVILLE, FLORIDA
WAWS-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX
WTEV-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN
LITTLE ROCK, ARKANSAS
KLRT-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX
KASN-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN
MEMPHIS, TENNESSEE
WPTY-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ABC
WLMT-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN
MINNEAPOLIS, MINNESOTA
WFTC-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX
MOBILE, ALABAMA/PENSACOLA, FLORIDA
WPMI-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NBC
WJTC-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN
PROVIDENCE/NEW BEDFORD, RHODE ISLAND
WPRI-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CBS
WNAC-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX
TUCSON, ARIZONA
KTTU-TV(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN
TULSA, OKLAHOMA
KOKI-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX
KTFO-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN
WICHITA, KANSAS
KSAS-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX
SALINA, KANSAS
KAAS-TV(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX
_________________
(a) LMA (FCC license not owned by the Company).
(b) Station programmed by another party pursuant to an LMA.
(c) Satellite station of KSAS-TV in Wichita, Kansas.
The Company purchases the broadcast rights for the majority of its
television programming for its Fox and UPN affiliates from various syndicators.
The Company competes with other television stations within each market for
these broadcast rights. These programming costs have declined in the past five
years due to the decrease in the number of stations in the Company's markets
competing for the same programming; however, they are expected to increase
slightly in the foreseeable future. Moreover, the affiliation changes to NBC
in Mobile, Alabama and to ABC in Memphis, Tennessee have reduced the Company's
need to obtain outside programming.
The primary sources of programming for the Company's 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
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the programming. For 1996, the Fox, NBC and ABC networks' primary programming
was intended to appeal primarily to a target audience of 18-49 year old adults,
while the CBS network's primary programming was intended to appeal primarily to
a target audience of 25-54 year old adults.
The second source of programming is the production of local news
programming on the Fox, CBS, ABC and NBC affiliate stations in Jacksonville,
Florida; Harrisburg, Pennsylvania; Memphis, Tennessee; Mobile, Alabama;
Providence, Rhode Island; and Albany, New York, respectively. Local news
programming traditionally has appealed to a target audience of adults 25 to 54
years of age. Because these viewers generally have increased buying power
relative to viewers in other demographic groups, they are one of the most
sought-after target audiences for advertisers. With such programming, these
stations are able to attract advertisers to which they otherwise would not have
access.
Each Fox contract currently runs for a five year term expiring in
1998, except for the Fox contract for WXXA-TV Albany, New York, which expires
in 1999, and may be renewed by Fox or the Company. Based on the performance of
its Fox- affiliated stations to date, the Company expects it will continue to
be able to renew its Fox contracts, although no assurances in this regard can
be given. The network affiliation agreements with ABC (for WPTY-TV in Memphis,
Tennessee, effective December 1, 1995), CBS (for WHP-TV in Harrisburg,
Pennsylvania, renewed and effective December 18, 1995), NBC (for WPMI-TV in
Mobile, Alabama, effective January 1, 1996) and UPN (for KTTU-TV in Tucson,
Arizona, entered into in 1995) run for ten-year terms.
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 the Company can deliver to the
advertiser. Local advertising is sold by the Company's sales personnel, while
national advertising is sold by independent national sales representatives. The
Company's broadcasting revenue is seasonal, with the fourth quarter typically
generating the highest level of revenue and the first quarter typically
generating the lowest. The fourth quarter generally reflects higher advertising
in preparation for the holiday season and the effect of political advertising
in election years.
The Company's broadcasting results are dependent on a number of
factors, including the general strength of the economy, population growth,
ability to provide popular programming, relative efficiency of radio and
television broadcasting compared to other advertising media, signal strength,
technological capabilities and developments and governmental regulations and
policies.
The major costs associated with television broadcasting are related to
personnel and programming. In an effort to monitor these costs, corporate
management routinely reviews staffing levels and programming costs. Combined
with the centralized accounting functions, this monitoring enables the Company
to effectively control expenses. Corporate management also advises local
station managers on programming and other broad policy matters and is
responsible for long-range planning, allocating resources and financial
reporting and controls.
Outdoor Advertising
Following the consummation of the Eller Media Acquisition, the
Company, through its wholly owned subsidiary, Eller Media, became one of the
largest domestic outdoor advertising companies based on its total advertising
display faces.
The following table sets forth certain selected information with
regard to each of the Company's outdoor advertising display faces as of
December 31, 1997:
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TOTAL
DISPLAY
MARKET FACES(A)
------ --------
ARIZONA:
Phoenix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
CALIFORNIA:
Los Angeles(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,863
San Francisco/Oakland(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,355
MIDWEST:
Chicago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,838
Cleveland(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,258
Milwaukee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,187
SOUTHEAST:
Atlanta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,628
Miami . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,052
Tampa(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,362
TEXAS:
Dallas/Fort Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,110
El Paso . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,353
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,214
San Antonio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,463
CONVENIENCE STORES:
Various . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,921
UNION PACIFIC SOUTHERN PACIFIC(F):
Various . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,697
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,660
======
_________________
(a) Display faces primarily include 20'x60' bulletins, 14 x48 bulletins,
12 x25 Premier Panels(TM), 25 x25 Premier Plus Panels(TM), 12 x25
30-sheet posters, 6 x12 8-sheet posters, and various transit
displays.
(b) Includes Los Angeles, San Diego, Orange, Riverside, San Bernardino and
Ventura counties.
(c) Includes San Francisco, Oakland, San Jose, Santa Cruz, Sacramento and
Solano counties.
(d) Includes Akron and Canton.
(e) Includes Sarasota, Orlando and Bradenton.
(f) Represents licenses managed under Union Pacific Southern Pacific
License Management Agreement.
The outdoor advertising industry is comprised of several large outdoor
advertising and media companies with operations in multiple markets, as well as
many smaller and local companies operating a limited number of structures in a
single or few local markets. While the industry has experienced some
consolidation within the past few years, the OAAA estimates that there are
still approximately 1,000 companies in the outdoor advertising industry
operating approximately 396,000 billboard displays. The Company expects the
trend of consolidation in the outdoor advertising industry to continue.
The Company's outdoor advertising strategy is to expand its market
presence and improve its operating results by (i) managing the advertising
rates and occupancy levels of its displays to maximize market revenues; (ii)
attracting new categories of advertisers to the outdoor medium through
significant investments in sales and marketing resources; (iii) increasing
focus on local advertising sales; (iv) constructing new displays and upgrading
its existing displays; (v) taking advantage of technological advances which
increase both sales force productivity and production department efficiency;
and (vi) acquiring additional displays in its existing markets and expanding
into additional markets where the Company already has a broadcasting presence
as well as into the country's largest media markets and
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their surrounding regional areas. The Company believes this operating strategy
enhances its ability to effectively respond to advertisers' needs.
To support this operating strategy, the Company has decentralized its
operating structure in order to place authority, autonomy and accountability
for its outdoor advertising segment at the market level and provide local
management with the tools necessary to oversee sales, display development,
administration and production and to identify suitable acquisition candidates.
The Company also maintains a fully-staffed sales and marketing office in New
York which services national outdoor advertising accounts and supports the
Company's local sales force in each market. The Company believes that one of
its strongest competitive advantages is its unique blend of highly experienced
corporate and local market management.
The Company focuses its efforts on local sales. Local advertisers tend
to have smaller advertising budgets and require greater assistance from the
Company's production and creative personnel to design and produce advertising
copy. In local sales, the Company often expends more sales efforts on
educating customers regarding the benefits of outdoor media and helping
potential customers develop an advertising strategy using outdoor advertising.
While price and availability are important competitive factors, service and
customer relationships are also critical components of local sales.
The Company operates the following types of outdoor advertising
billboards and displays:
o Bulletins generally are 14 feet high by 48 feet wide (672 square feet
wide) or 20 feet high by 60 feet wide (1,200 square feet) and consist
of panels on which advertising copy is displayed. Bulletin advertising
copy is either printed with computer-generated graphics on a single
sheet of vinyl that is "wrapped" around the structure, or is hand
painted and attached to the outdoor advertising structure. Bulletins
also include "wallscapes" that are painted on vinyl surfaces or
directly on the sides of buildings, typically four stories or less.
Because of their greater impact and higher cost, bulletins are usually
located on major highways and freeways. In addition, wallscapes are
located on major freeways, commuter and tourist routes and in downtown
business districts.
o Premier Panels(TM) generally are 12 feet high by 25 feet wide (300
square feet) and have vinyl wrapped around the display face. Premier
Panels(TM) are built on superior 30-sheet poster locations that
deliver a "bulletin- like" display. The Company also offers unique
Premier Plus(TM)panels, 25 feet high by 25 feet wide (625 square
feet), that consist of two stacked 30-sheet posters which are
converted into one larger individual display face.
o 30-sheet posters generally are 12 feet high by 25 feet wide (300
square feet) and are the most common type of billboard. Advertising
copy for 30-sheet posters consists of lithographed or silk-screened
paper sheets supplied by the advertiser that are pasted and applied
like wallpaper to the face of the display. Thirty-sheet posters are
typically concentrated on major surface arteries.
o 8-sheet posters usually are 6 feet high by 12 feet wide (72 square
feet). Displays are prepared and mounted in the same manner as
30-sheet posters. Most 8-sheet posters, because of their smaller size,
are concentrated on city streets targeting pedestrian traffic.
o Transit displays are lithographed or silk-screened paper sheets
located on bus and commuter train exteriors, commuter rail terminals,
interior train cars, bus shelters and subway platforms. The Company's
transit customers include the San Francisco Bay Area Rapid Transit
(BART) and the Metropolitan Rail (METRA) in Chicago.
Billboards generally are mounted on structures owned by the outdoor
advertising company and located on sites that are either owned or leased by it
or on which it has acquired a permanent easement.
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Bus shelters are usually constructed, owned and maintained by the outdoor
service provider under revenue-sharing arrangements with a municipality or
transit authority. During 1997, the Company invested approximately $14.2
million for new display construction and for ongoing enhancement of its
existing display inventory. Over 90% of the Company's bulletin inventory has
been retrofitted for vinyl. Advertising rates are based on a particular
display's exposure (or number of "impressions" delivered) in relation to the
demographics of the particular market and its location within that market. The
number of "impressions" delivered by a display is measured by the number of
vehicles passing the site during a defined period and is weighted to give
effect to such factors as its proximity to other displays, the speed and
viewing angle of approaching traffic, the national average of adults riding in
vehicles and whether the display is illuminated. The number of impressions
delivered by a display is verified by independent auditing companies.
The Company has a diversified customer base in its outdoor advertising
segment of over 3,000 advertisers and advertising agency clients. The size and
geographic diversity of the Company's markets allow it to attract national
advertisers, often by packaging displays in several of its markets in a single
contract to allow a national advertiser to simplify its purchasing process and
present its message in several markets. National advertisers generally seek
wide exposure in major markets and therefore tend to make larger purchases. The
Company competes for national advertisers primarily on the basis of price,
location of displays, availability and service.
COMPETITION
The Company's three business segments are in highly competitive
industries. The Company's radio and television stations and outdoor advertising
properties compete for audiences and advertising revenues with other radio and
television stations and outdoor advertising companies, as well as with other
media, such as newspapers, magazines, cable television, and direct mail, within
their respective markets. Audience ratings and market shares are subject to
change and any adverse change in a particular market could have a material
adverse effect on the Company's revenue in that market. Future operations are
subject to many variables which could have an adverse effect upon the Company's
financial performance, including economic conditions, both general and relative
to the broadcasting industry; shifts in population and other demographics; the
level of competition for advertising dollars; fluctuations in operating costs;
technological changes and innovations; changes in labor conditions; and changes
in governmental regulations and policies and actions of federal regulatory
bodies. There can be no assurance that the Company will be able to maintain or
increase its current audience ratings and advertising revenues.
REGULATION OF THE COMPANY'S BUSINESS
Existing Regulation and 1996 Legislation
Television and radio broadcasting are subject to the jurisdiction of
the Federal Communications Commission ("FCC") under the Communications Act of
1934, as amended (the "Communications Act"). The Communications Act prohibits
the operation of a television or radio broadcasting station except under a
license issued by the FCC and empowers the FCC, among other things, to 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. Under the
Communications Act, the FCC also regulates certain aspects of the operation of
cable television systems and other electronic media that compete with broadcast
stations.
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16
The Telecommunications Act of 1996 ("the 1996 Act") represented the
most comprehensive overhaul of the country's telecommunications laws in more
than 60 years. The Communications Act originated at a time when telephone and
broadcasting technologies were quite distinct and addressed different consumer
needs. As a consequence, both the statute and its implementing regulatory
scheme were designed to compartmentalize the various sectors of the
telecommunications industry. The 1996 Act removed or relaxed the statutory
barriers to telephone company ("telephone company") entry into the video
programming delivery business, to cable company provision of telephone service,
and to common ownership of broadcast television and cable properties.
The 1996 Act also significantly changed both the process for renewal
of broadcast station licenses and the broadcast ownership rules. First, the
1996 Act established a "two-step" renewal process that limits the FCC's
discretion to consider applications filed in competition with an incumbent's
renewal application. The 1996 Act also substantially liberalized the national
broadcast ownership rules, eliminating the national radio limits and easing the
national restrictions of TV ownership. The 1996 Act also relaxed local radio
ownership restrictions, but left local TV restrictions in place pending further
FCC review. The FCC has already implemented some of these changes through
Commission Orders.
This new regulatory flexibility has engendered aggressive local,
regional, and/or national acquisition campaigns. Removal of previous station
ownership limitations on leading incumbents (i.e., existing networks and major
station groups) has increased sharply the competition for and the prices of
attractive stations.
License Grant and Renewal
Prior to the passage of the 1996 Act, television and radio
broadcasting licenses generally were granted or renewed for a period of five
and seven years, respectively, upon a finding by the FCC that the "public
interest, convenience, and necessity" would be served thereby. At the time an
application is made for renewal of a television or radio license, parties in
interest may file petitions to deny the application, and such parties,
including members of the public, may comment upon the service the station has
provided during the preceding license term. In addition, prior to passage of
the 1996 Act, any person was permitted to file a competing application for
authority to operate on the station's channel and replace the incumbent
licensee. Renewal applications were granted without a hearing if there were no
competing applications or if issues raised by petitioners to deny such
applications were not serious enough to cause the FCC to order a hearing. If
competing applications were filed, a full comparative hearing was required.
Under the 1996 Act, the statutory restriction on the length of
broadcast licenses has been amended to allow the FCC to grant broadcast
licenses for terms of up to eight years. The 1996 Act also requires renewal of
a broadcast license if the FCC finds that (1) the station has served the public
interest, convenience, and necessity; (2) there have been no serious violations
of either the Communications Act or the FCC's rules and regulations by the
licensee; and (3) there have been no other serious violations which taken
together constitute a pattern of abuse. In making its determination, the FCC
may still consider petitions to deny but cannot consider whether the public
interest would be better served by a person other than the renewal applicant.
Instead, under the 1996 Act, competing applications for the same frequency may
be accepted only after the Commission has denied an incumbent's application for
renewal of license.
Although in the vast majority of cases broadcast licenses are granted
by the FCC even when petitions to deny are filed against them, there can be no
assurance that any of the Company's stations' licenses will be renewed.
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Multiple Ownership Restrictions
The FCC has promulgated rules that, among other things, limit the
ability of individuals and entities to own or have an official position or
ownership interest above a certain level (an "attributable" interest, as
defined more fully below) in broadcast stations, as well as other specified
mass media entities. Prior to the passage of the 1996 Act, these rules
included limits on the number of radio and television stations that could be
owned on both a national and local basis. On a national basis, the rules
generally precluded any individual or entity from having an attributable
interest in more than 20 AM radio stations, 20 FM radio stations and 12
television stations. Moreover, the aggregate audience reach of the co-owned
television stations could not exceed 25% of all U.S. television households.
The 1996 Act completely revised the television and radio ownership
rules via changes the FCC implemented in two orders issued on March 8, 1996.
With respect to television, the 1996 Act and the FCC's subsequently issued
orders eliminated the 12-station limit for station ownership and increased the
national audience reach limitation from 25% to 35%. On a local basis, however,
the 1996 Act did not alter current FCC rules limiting an individual entity to
maintaining an attributable interest in only one television station in a
market. The 1996 Act did require the FCC to conduct a rulemaking proceeding,
however, to determine whether to narrow the geographic scope of the local
television cross-ownership rule (the so-called "TV duopoly rule") to permit
some two-station combinations in certain (large) markets. At the time of the
passage of the 1996 Act, the FCC had already initiated a rulemaking to consider
whether the television duopoly rule should be retained, modified or eliminated.
That proceeding remains pending.
With respect to radio licensees, the 1996 Act and the FCC's
subsequently issued rule changes eliminated the national ownership restriction,
allowing any one entity to own nationally any number of AM or FM broadcast
stations. The 1996 Act and the FCC's new rules also greatly eased local radio
ownership restrictions. As with the old rules, the maximum allowable varies
depending on the number of radio stations within a market. In markets with
more than 45 stations, one company may own, operate, or control eight stations,
with no more than five in any one service (AM or FM). In markets of 30-44
stations, one company may own seven stations, with no more than four in any one
service; in markets with 15-29 stations, one entity may own six stations, with
no more than four in any one service. In markets with 14 commercial stations
or less, one 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.
In 1992, the FCC placed limitations on LMAs through which the licensee
of one radio station provides the programming for another licensee's station in
the same market. Stations operating in the same service (e.g., where both
stations are AM) and in the same market are prohibited from simulcasting more
than 25% of their programming. Moreover, in determining the number of stations
that a single entity may control, an entity programming a station pursuant to
an LMA is required, under certain circumstances, to count that station toward
its maximum even though it does not own the station. In a pending rulemaking,
the FCC is seeking comment on issues of control and attribution with respect to
time brokerage agreements or LMAs entered into by television stations.
A number of cross-ownership rules pertain to licensees of television
and radio stations. FCC rules, the Communications Act or both generally
prohibit an individual or entity from having an attributable interest in both a
television station and a radio station, daily newspaper or cable television
system that is located in the same local market area served by the television
station. The FCC has employed a liberal waiver policy with respect to the
TV/radio cross-ownership restriction (the so-called "one-to-a-market" rule),
generally permitting common ownership of one AM, one FM and one TV station in
any of the 25 largest markets, provided there are at least 30 separately owned
stations remaining after the proposed sale. The 1996 Act directed the
Commission to extend its one-to-a-market waiver policy to the top 50 markets,
consistent with the public interest, convenience and necessity. Moreover, in a
pending rulemaking the FCC has proposed eliminating the one-to-a-market rule
entirely.
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The 1996 Act eliminated a statutory prohibition against common
ownership of television broadcast stations and cable systems serving the same
area, but left the current FCC rule in place. The 1996 Act stipulates that the
FCC should not consider the repeal of the statutory ban in any review of its
applicable rules. The legislation also eliminated the FCC's former
network/cable cross-ownership limitations, but allowed the FCC to adopt
regulations if necessary to ensure carriage, appropriate channel positioning,
and nondiscriminatory treatment of non-affiliated broadcast stations on
network-owned cable systems. The FCC eliminated the restriction and determined
that additional safeguards were not necessary at this time.
The 1996 Act does not alter the FCC's newspaper/broadcast
cross-ownership restrictions. However, the FCC is considering whether to
change the policy pursuant to which it considers waivers of the radio/newspaper
cross-ownership rule. Finally, the 1996 Act and the FCC's subsequently issued
rule changes revised the long-standing "dual network" rule to permit television
broadcast stations to affiliate with an entity that maintains two or more
networks, unless the combination is composed of (a) two of the four existing
networks (ABC, CBS, NBC or Fox) or (b) any of the four existing networks and
one of the two emerging networks (WBN or UPN).
Expansion of the Company's broadcast operations in particular areas
and nationwide will continue to be subject to the FCC's ownership rules and any
further changes the FCC or Congress may adopt. Significantly, the 1996 Act
requires the Commission to review its remaining ownership rules biennially as
part of its regulatory reform obligations to determine whether its various
rules are still necessary. The first such biennial review commenced March 13,
1998, with the FCC's adoption of a notice of inquiry soliciting comment on its
ownership rules. The Company cannot predict the impact of the biennial review
process or any other agency or legislative initiatives upon the FCC's broadcast
rules. Further, the 1996 Act's relaxation of the FCC's ownership rules has
increased the level of competition in one or more of the markets in which the
Company's stations are located.
Under the FCC's ownership rules, a direct or indirect purchaser of
certain types of securities of the Company could violate FCC regulations if
that purchaser owned or acquired an "attributable" or "meaningful" interest in
other media properties in the same areas as stations owned by the Company or in
a manner otherwise prohibited by the FCC. All officers and directors of a
licensee, as well as general partners, limited partners who are not properly
"insulated" from management activities, and stockholders who own five percent
or more of the outstanding voting stock of a licensee (either directly or
indirectly), generally will be deemed to have an attributable interest in the
license. Certain institutional investors who exert no control or influence
over a licensee may own up to ten percent of such outstanding voting stock
before attribution occurs. Under current FCC regulations, debt instruments,
non-voting stock, properly insulated limited partnership interests (as to which
the licensee certifies that the limited partners are not "materially involved"
in the management and operation of the subject media property) and voting stock
held by minority stockholders in cases in which there is a single majority
stockholder generally are not subject to attribution. The FCC's
"cross-interest" policy, which precludes an individual or entity from having a
"meaningful" (even though not attributable) interest in one media property and
an attributable interest in a broadcast, cable or newspaper property in the
same area, may be invoked in certain circumstances to reach interests not
expressly covered by the multiple ownership rules.
A rulemaking proceeding pending at the FCC is designed to permit a
"thorough review of [its] broadcast media attribution rules." Among the issues
on which comment was sought were (i) whether to change the voting stock
attribution benchmarks from five percent to ten percent and, for passive
investors, from ten percent to twenty percent; (ii) whether there are any
circumstances in which non-voting stock interests, which are currently
considered non-attributable, should be considered attributable; (iii) whether
the FCC should eliminate its single majority shareholder exception (pursuant to
which voting interests in excess of five percent are not considered
recognizable if a single shareholder owns
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more than fifty percent of the voting power); (iv) whether to relax insulation
standards for business development companies and other widely-held limited
partnerships; (v) how to treat limited liability companies and other new
business forms for attribution purposes; (vi) whether to eliminate or codify
the cross-interest policy; and (vii) whether to adopt a new policy which would
consider whether multiple cross interests or other significant business
relationships (such as time brokerage agreements, debt relationships or
holdings of nonattributable interests), which individually do not raise
concerns, raise issues with respect to diversity and competition. The
Commission also is to consider whether to make debt attributable in certain
instances as well as the circumstances, if any, in which television LMAs should
be considered to be an attributable interest. The Company cannot predict with
certainty when this proceeding will be concluded or whether any of these
standards will be changed. Should the attribution rules be changed, the
Company is unable to predict what effect, if any, such changes would have on
the Company or its activities. To the best of the Company's knowledge at
present, no officer, director or five percent stockholder of the Company 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 or the Company's continued ownership of its television stations.
Alien Ownership Restrictions
The Communications Act restricts the ability of foreign entities or
individuals to own or hold certain interests in broadcast licenses. Foreign
governments, representatives of foreign governments, non-U.S. citizens,
representatives of non-U.S. citizens, and corporations or partnerships
organized under the laws of a foreign nation are barred from holding broadcast
licenses. Non-U.S. citizens, collectively, may directly or indirectly own or
vote up to twenty percent of the capital stock of a licensee. In addition, a
broadcast license may not be granted to or held by any corporation that is
controlled, directly or indirectly, by any other corporation more than
one-fourth of whose capital stock is owned or voted by non-U.S. citizens or
their representatives, by foreign governments or their representatives, or by
non-U.S. corporations, if the FCC finds that the public interest will be served
by the refusal or revocation of such license. The FCC has interpreted this
provision of the Communications Act to require an affirmative public interest
finding before a broadcast license may be granted to or held by any such
corporation, and the FCC has made such an affirmative finding only in limited
circumstances. The Company, which serves as a holding company for subsidiaries
that serve as licensees for the stations, therefore may be restricted from
having more than one-fourth of its stock owned or voted directly or indirectly
by non-U.S. citizens, foreign governments, representatives of non- foreign
governments, or foreign corporations. The Communications Act previously also
prohibited grant of a broadcast station license (i) to any corporation with an
alien officer or director, or (ii) to any corporation controlled by another
corporation with any alien officers or more than one-fourth alien directors.
The restrictions on non-U.S. citizens serving as officers or directors of
licensees and their parent corporations were eliminated, however, by the 1996
Act.
Other Regulations Affecting Broadcast Stations
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. In 1990, the U.S. Supreme Court refused to
review a lower court decision that upheld the FCC's 1987 action invalidating
most aspects of the Fairness Doctrine, which had required broadcasters to
present contrasting views on controversial issues of public importance. The
FCC may, however, continue to regulate other aspects of fairness obligations in
connection with certain types of broadcasts. The United States Court of
Appeals for the District of Columbia Circuit has scheduled for oral argument on
May 8, 1998 a petition of the Radio and Television New Directors Association
and the National Association of Broadcasters seeking to repeal the FCC's
personal attack and political editorial rules. In addition,
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there are FCC rules and policies, and rules and policies of other federal
agencies, that regulate matters such as network-affiliate relations, the
ability of stations to obtain exclusive rights to air syndicated programming,
cable systems' carriage of syndicated and network programming on distant
stations, political advertising practices, equal employment opportunity,
application procedures and other areas affecting the business or operations of
broadcast stations. The FCC has adopted rules to implement the Children's
Television Act of 1990 ("Children's Television Act"), which, among other
provisions, limits the permissible amount of commercial matter in children's
programs and requires each television station to present "educational and
informational" children's programming. The FCC also has adopted renewal
processing guidelines effectively requiring television stations to broadcast an
average of three hours per week of children's educational programming. In
addition, the FCC has adopted rules that require television stations to
broadcast, over an 8 to 10 year transition period which commenced on January 1,
1998, increasing and set percentages of closed captioned programming. The
closed captioning rules are currently under reconsideration at the FCC.
Recent Developments, Proposed Legislation and Regulation
In January 1996, the Supreme Court refused to review lower court
decisions that upheld the FCC's restrictions on the broadcast of indecent
material and also upheld the agency's policy of imposing substantial monetary
sanctions on repeat offenders of the indecency rules. The rules require
stations to limit the airing of indecent programming to a 10 p.m.-6 a.m. "safe
harbor" period.
On March 13, 1998, the FCC approved a television programming rating
system developed by the television industry which will allow parents to
"black-out" programs that contain material they consider inappropriate for
children. On March 13, 1998, the FCC also adopted technical requirements for
the implementation of the so-called "v-chip technology" which will enable
parents to program television sets so that certain programming will be
inaccessible to children.
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 the Company's broadcast properties. In addition to the changes
and proposed changes noted above, such matters include, for example, the
license renewal process, spectrum use fees, political advertising rates,
potential restrictions on the advertising of certain products (beer and wine,
for example), the rules and policies to be applied in enforcing the FCC's equal
employment opportunity regulations, and additional closed captioning
requirements for emergency information. Other matters that could affect the
Company's broadcast properties include technological innovations and
developments generally affecting competition in the mass communications
industry, such as the recent initiation of direct broadcast satellite service,
the continued establishment of wireless cable systems and low power television
stations, and the advent of telephone company participation in the provision of
video programming service.
Distribution of Video Services by Telephone Companies. Recent actions
by Congress, the FCC and the courts all presage significant future involvement
in the provision of video services by telephone companies. The Company cannot
predict either the timing or the extent of such involvement. These developments
all relate to a former provision of the Communications Act that prohibited a
local telephone company from providing video programming directly to
subscribers within the company's telephone service areas. As applied by
government regulators historically, the former provision prevented telephone
companies from providing cable service over either the telephone network or a
separate cable system located within the telephone service area. That
provision has now been superseded by the 1996 Act, which provides for telephone
company entry into the distribution of video services either under the laws and
rules applicable to cable systems as operators of so-called "wireless cable
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systems", as common carriers or under new rules devised by the FCC for "open
video systems" subject to certain common carrier requirements.
The 1996 Act also eliminated the FCC's "video dialtone" ("VDT") rules,
which allowed telephone companies to provide a transport "platform" to multiple
video programmers (including, potentially, competing program packages) on a
non-discriminatory, common carrier basis. (The legislation does not affect any
VDT systems approved prior to enactment of the 1996 Act). Congress instead has
determined that telephone companies may offer video programming either as a
traditional cable operator, as a so-called "wireless cable" operator, as a
common carrier, or through operation of an "open video system." Although
Congress specifically preempted the FCC's VDT rules, the legislation's
directives for open video systems resemble the rules adopted or proposed for
VDT systems in certain respects. These include the requirements that (1) the
operator of an open video system offer carriage capacity to various video
programming providers under nondiscriminatory rates, terms, and conditions; and
(2) if demand for carriage exceeds the channel capacity of the open video
system, the operator generally is barred from devoting more than one-third of
the system's capacity to programming provided by itself or an affiliate.
The 1992 Cable Act. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"). The FCC began implementing the requirements of the 1992 Cable Act in
1993, and final implementation proceedings remain pending regarding certain of
the rules and regulations previously adopted. Certain statutory provisions,
such as signal carriage, retransmission consent, and equal employment
opportunity requirements, have a direct effect on television broadcasting.
Other provisions are focused exclusively on the regulation of cable television
but can still be expected to have an indirect effect on the Company because of
the competition between over-the-air television stations and cable systems.
The signal carriage, or "must carry," provisions of the 1992 Cable Act
require cable operators to carry the signals of local commercial and
non-commercial television stations and certain low power television stations.
Systems with 12 or fewer usable activated channels and more than 300
subscribers must carry the signals of at least three local commercial
television stations. A cable system with more than 12 usable activated
channels, regardless of the number of subscribers, must carry the signals of
all local commercial television stations, up to one-third of the aggregate
number of usable activated channels of such a system. The 1992 Cable Act also
includes a retransmission consent provision that prohibits cable operators and
other multi-channel video programming distributors ("MVPDs") from carrying
broadcast signals without obtaining the station's consent in certain
circumstances. The "must carry" and retransmission consent provisions are
related in that a local television broadcaster, on a cable system-by-cable
system basis, must make a choice once every three years whether to proceed
under the "must carry" rules or to waive the right to mandatory but
uncompensated carriage and negotiate a grant of retransmission consent to
permit the cable system to carry the station's signal, in most cases in
exchange for some form of consideration from the cable operator. Cable systems
and other MVPDs must obtain retransmission consent to carry all distant
commercial stations other than "super stations" delivered via satellite.
On March 31, 1997, in a 5-4 decision, the U.S. Supreme court upheld
the constitutionality of the must-carry provisions of the 1992 Cable Act. As a
result, the regulatory scheme promulgated by the FCC to implement the
must-carry provisions of the 1992 Cable Act will remain in effect. Whether and
to what extent such must-carry rights will extend to the new digital television
signals (see below) to be broadcast by licensed television stations (including
those owned by the Company) over the next several years is still a matter to be
determined in a rulemaking proceeding likely to be initiated by the FCC in
1998.
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The 1992 Cable Act also codified the FCC's basic equal employment
opportunity ("EEO") rules and the use of certain EEO reporting forms currently
filed by radio and television broadcast stations. In addition, pursuant to the
1992 Cable Act's requirements, the FCC has adopted new rules providing for a
review of the EEO performance of each broadcast station at the mid-point of its
license term (in addition to renewal time). Such a review will give the FCC an
opportunity to evaluate whether the licensee is in compliance with the FCC's
processing criteria and notify the licensee of any deficiency in its employment
profile. Among the other rulemaking proceedings conducted by the FCC to
implement provisions of the 1992 Cable Act have been those concerning cable
rate regulation, cable technical standards, cable multiple ownership limits and
competitive access to programming.
The 1992 Cable Act was amended in several important respects by the
1996 Act. Most notably, as discussed above, the 1996 Act repealed the
cross-ownership ban between cable and telephone entities and the FCC's current
video dialtone rules. These provisions, among others, foreshadow significant
future involvement in the provision of video services by telephone companies.
The Company cannot predict the impact that telephone company entry into video
programming will have upon the broadcasting industry.
The 1996 Act also repealed or curtailed several cable-related
ownership and cross-ownership restrictions. For example, as noted above, the
1996 Act eliminated the broadcast network/cable cross-ownership limitations and
the statutory prohibition on TV/cable cross-ownership.
Advanced Television Service. On April 3, 1997, the FCC announced that
it had adopted rules that will allow television broadcasters to provide digital
television ("DTV") to consumers. The FCC also adopted a table of allotments
for DTV, which will provide eligible existing broadcasters with a second
channel on which to provide DTV service. On February 23, 1998, in response to
numerous petitions for reconsideration, the FCC announced its adoption of
orders affirming, with some modifications, the FCC's April 3, 1997 decisions.
The FCC's DTV allotment plan is based on the use of a "core" DTV spectrum
between channels 2-51. Ultimately, the FCC plans to recover the channels
currently used for analog broadcasting and will decide at a later date the use
of the spectrum ultimately recovered. Television broadcasters will be allowed
to use their channels according to their best business judgment. Such uses can
include multiple standard definition program channels, data transfer,
subscription video, interactive materials, and audio signals, although
broadcasters will be required to provide a free digital video programming
service that is at least comparable to today's analog service. Broadcasters
will not be required to air "high definition" programming or, initially, to
simulcast their analog programming on the digital channel. Affiliates of ABC,
CBS, NBC and FOX in the top 10 television markets will be required to be on the
air with a digital signal by May 1, 1999. Affiliates of those networks in
markets 11-30 will be required to be on the air with digital by November 1,
1999, and remaining commercial broadcasters by May 1, 2002. The FCC stated
that broadcasters will remain public trustees and that it will issue a notice
to determine the extent of broadcasters' future public interest obligations.
The Company will incur considerable expense in the conversion of DTV and is
unable to predict the extent of timing of consumer demand for any such DTV
services.
Digital Audio Radio Service. In January 1995, the FCC adopted rules to
allocate spectrum for satellite digital audio radio service ("DARS").
Satellite DARS systems potentially could provide for regional or nationwide
distribution of radio programming with fidelity comparable to compact disks.
An auction for satellite DARS spectrum was held in April 1997, and the
Commission has issued two authorizations to launch and operate satellite DARS
service. The FCC also has undertaken an inquiry into the terrestrial broadcast
of DARS signals, addressing, among other things, the need for spectrum outside
the existing FM band and the role of existing broadcasters. Further,
laboratory testing of a
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number of competing in-band on-channel DARS technologies, has been done with
many of the systems progressing to the next stage of field testing. The
Company cannot predict the impact of either satellite DARS service or
terrestrial DARS service on its business.
Direct Broadcast Satellite Systems. The FCC has authorized the
provision of video programming directly to home subscribers through
high-powered direct broadcast satellites ("DBS"). DBS systems currently are
capable of broadcasting as many as 175 channels of digital television service
directly to subscribers equipped with 18-inch receive dishes and decoders.
Currently, several entities, including DirecTV, Inc., an affiliate of Hughes
Communications Galaxy, United States Satellite Broadcasting Company and
EchoStar Satellite Corporation ("EchoStar"), provide DBS service to consumers
throughout the country. Other DBS operators hold licenses, but have not yet
commenced service.
Generally, the signal of local television broadcast stations are not
carried on DBS systems. In early 1997, however, EchoStar and ASkyB, a joint
venture of MCI Telecommunications and The News Corporation, proposed to launch
a 500-channel service, including local broadcast signals. Although the
proposed transaction collapsed, the desire among some DBS providers to
retransmit local television station signals continues. In response to a
petition by EchoStar, the United States Copyright Office has opened a
proceeding to determine whether local retransmission of television station
signals to subscribers within those stations' local markets is permissible
under a separate compulsory copyright license available to satellite
distributors. EchoStar has started distributing local signals to major
markets, via either off- air antenna to served households or via satellite to
unserved households.
Following the collapse of the deal to merge ASkyB into EchoStar, MCI
agreed to sell its DBS authorization to PRIMESTAR Partners, LP, a fixed
satellite service similar to DBS, in which the country's five largest cable
operators have interests. The transaction has been opposed and regulatory
approval for the deal is pending.
In February 1998, the FCC initiated a rulemaking proceeding to
consider streamlining rules for the DBS service and to consider whether rules
should be adopted to limit or prohibit the common ownership of cable and DBS
interests.
As part of the 1996 Act, Congress required the FCC to promulgate
regulations to prohibit restrictions that impair a viewer's ability to receive
video programming services through over-the-air reception devices, multipoint
distribution service, or direct broadcast satellite services. The legislation
also awarded the FCC exclusive jurisdiction to regulate the provision of
direct-to-home satellite services, and limited the authority of local
jurisdictions to tax direct-to-home satellite service providers.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act, the 1996 Act, or the 1992 Cable Act, nor
of the regulations and policies of the FCC thereunder. 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 the Company cannot predict the outcome of any such
litigation or the impact on its broadcast business.
Outdoor Advertising
The outdoor advertising industry is subject to governmental regulation
at the federal, state and local level. Federal law, principally the Highway
Beautification Act of 1965, encourages states, by the threat of withholding
federal appropriations for the construction and improvement of highways within
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such states, to implement legislation to restrict billboards located within 660
feet of, or visible from, interstate and primary highways except in commercial
or industrial areas. All of the states have implemented regulations at least as
restrictive as the Highway Beautification Act, including the prohibition on the
construction of new billboards adjacent to federally-aided highways and the
removal at the owner's expense and without any compensation of any illegal
signs on such highways. The Highway Beautification Act, and the various state
statutes implementing it, require the payment of just compensation whenever
governmental authorities require legally erected and maintained billboards to
be removed from federally-aided highways.
The states and local jurisdictions have, in some cases, passed
additional and more restrictive regulations on the construction, repair,
upgrading, height, size and location of, and, in some instances, content of
advertising copy being displayed on outdoor advertising structures adjacent to
federally-aided highways and to other thoroughfares. Such regulations, often in
the form of municipal building, sign or zoning ordinances, specify minimum
standards for the height, size and location of billboards. In some cases, the
construction of new billboards or relocation of existing billboards is
prohibited. Some jurisdictions also have restricted the ability to enlarge or
upgrade existing billboards, such as converting from wood to steel or from
non-illuminated to illuminated structures. From time to time governmental
authorities order the removal of billboards by the exercise of eminent domain.
Amortization of billboards has also been adopted in varying forms in
certain jurisdictions. Amortization permits the billboard owner to operate its
billboard as a non-conforming use for a specified period of time, after which
it must remove or otherwise conform its billboards to the applicable
regulations at its own cost without any compensation. Amortization and other
regulations requiring the removal of billboards without compensation have been
subject to litigation in state and federal courts and cases have reached
differing conclusions as to the constitutionality of these regulations. Some
local jurisdictions, within the Company's existing markets (Houston and San
Francisco) have adopted amortization ordinances. The Houston ordinance has been
the subject of litigation for over five years and is currently not being
enforced. The Company believes that its operations will not be materially
effected by this ordinance even if it is enforced. The Company's operations
have not been materially affected by the San Francisco amortization ordinances
since its signs conform to effective ordinances and state law currently
prevents the effectiveness of other ordinances which require removal of signs
without compensation. There can be no assurance that the Company will be
successful in negotiating acceptable arrangements in circumstances in which its
displays are subject to removal or amortization, and what effect, if any, such
regulations may have on the Company's operations.
In addition, the Company is unable to predict what additional
regulations may be imposed on outdoor advertising in the future. Legislation
regulating the content of billboard advertisements and additional billboard
restrictions have been introduced in Congress from time to time in the past.
Changes in laws and regulations affecting outdoor advertising at any level of
government could have a material adverse effect on the Company.
Tobacco and Alcohol Advertising
In August 1996, the U.S. Food and Drug Administration ("FDA") issued
final regulations governing certain marketing practices in the tobacco
industry, including a prohibition of tobacco product billboard advertisements
within 1,000 feet of schools and playgrounds and a requirement that all tobacco
product advertisements on billboards be in black and white and contain only
text. These regulations, which were due to become effective in August 1997,
were challenged by members of the tobacco and advertising industry in a lawsuit
brought in North Carolina federal district court. In that case, the court
upheld the authority of the FDA to regulate tobacco products by limiting access
of such products to persons under 18 years of age and by requiring tobacco
manufacturers to label such products in accordance with FDA regulations.
Nevertheless, the court struck down the FDA restrictions on the
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promotion and advertising of tobacco products. Both industry and the FDA have
appealed this decision. Arguments before the Fourth Circuit were heard on
August 11, 1997, and it is unclear what action an appellate court will take in
this matter. To date, the FDA's regulations covering promotion and advertising
of tobacco products have not become effective and no decision by the court has
been reached. On a pro forma basis assuming the Eller Media Acquisition
occurred on January 1, 1997, less than 12% and 5% of the Company's outdoor
advertising 1997 net revenues were derived from tobacco and alcohol
advertising, respectively.
Regardless of whether the FDA is found to have jurisdiction over
promotion and advertising of tobacco, and thus have the ability to place limits
on billboard advertising, it appears that the FTC has begun to take regulatory
action in this area. The FTC has wide-ranging authority over advertising
practices, and it is within its regulatory authority to investigate unfair and
deceptive trade practices, including advertising, pertaining to FDA-regulated
products. In May 1997, the FTC charged the R.J. Reynolds Company ("R.J.
Reynolds") with unfair trade practices regarding the promotion of tobacco
products to children through the use of the "Joe Camel" advertising campaign.
The FTC sought an order that would, among other things, prohibit R.J. Reynolds
from using the "Joe Camel" campaign to advertise to children and require R.J.
Reynolds to institute corrective advertising to discourage persons under age 18
from smoking. In July 1997, it was reported that R.J. Reynolds decided to
terminate the "Joe Camel" campaign. The remaining issues in the litigation are
still pending. While the action against R.J. Reynolds was not focused directly
on billboard advertising, because of increasing regulatory and political
pressure it is possible that the FTC will take further action to limit the
content and placement of outdoor advertising, including, without limitation,
the content and placement of outdoor advertising relating to the sale of
tobacco products to children.
Outdoor advertising of tobacco products also may be affected by state
law or city regulations. For example, California and Texas have passed
legislation to restrict tobacco billboard advertising near locations frequented
by children. The Texas law levies a tax on tobacco billboards to raise money
for tobacco education programs. As a result of law suits brought in Texas and
Florida, several tobacco companies have entered settlement agreements with
these respective state governments. Part of the settlement agreement in Texas
includes the elimination of billboard and other outdoor advertising of tobacco
products. This agreement may be superseded by the national settlement agreement
pending before Congress. The settlement agreement in Florida also calls for the
discontinuation of all billboard advertising for tobacco products in the state.
The Florida ban on billboard advertising reportedly went into effect on
February 9, 1998. Other states are considering state-wide bans on tobacco
billboard advertising or may do so in the future.
With regard to city governments, in 1995, the Court of Appeals for the
Fourth Circuit upheld the validity of a Baltimore, Maryland city ordinance
prohibiting the placement of outdoor advertisements of cigarettes in publicly
visible locations, such as billboards, signboards and sides of buildings.
Subsequently, the United States Supreme Court declined to review an appeal of
this case. Following the Baltimore ordinance, several city governments have
introduced legislation to ban outdoor tobacco advertising near schools and
other locations where children are likely to assemble or to ban tobacco
billboard advertising citywide. The City of Chicago, Illinois where the Company
transacts business, has recently enacted a ban on tobacco and alcohol billboard
advertising in certain parts of the city. The Chicago ordinance is being
challenged in court on constitutional free-speech grounds. In addition, the
City Council of New York City, New York recently passed a bill which bars
outdoor tobacco advertising within 1,000 feet of schools, playgrounds, day care
centers, youth centers and amusement arcades.
Some cities are proposing even broader restrictions. For instance, a
San Francisco, California Board of Supervisors committee recently proposed a
complete ban on outdoor tobacco advertising, including a ban on billboards,
kiosks and even private business window displays. Milwaukee, Wisconsin has
proposed an ordinance that would ban outdoor advertising for tobacco products
in most public
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places, except interstate highways, industrial areas, and sport and convention
sites. The Milwaukee ordinance also would prohibit convenience stores from
displaying tobacco-related posters in windows and would limit tobacco-related
signs inside stores to black and white ads with no artwork.
County governments also have taken action in this area. A local
council in Anne Arundel County, Maryland voted to ban most tobacco billboard
advertising in the county. Similarly, Clark and Skamania counties in Washington
State have issued regulations prohibiting tobacco billboard advertising from
areas that youths frequent, such as schools and parks. Finally, King County,
Washington and a company that owns almost all of the billboard display faces in
the county have entered into an agreement whereby the company will voluntarily
discontinue all tobacco advertising on billboards throughout the county. It is
likely that other state, city, or local governments have or will pass similar
ordinances to limit outdoor advertising of tobacco products in the future.
In addition to the decisions mentioned above, certain cigarette
manufacturers who are defendants in numerous class action suits throughout the
U.S. have proposed an out of court settlement with respect to such suits that
includes restrictions on billboard advertising by these and other cigarette
manufacturers. It has been reported that, as a part of the proposed settlement,
the tobacco industry will agree to a complete ban on all outdoor advertising,
such as on billboards, in stadiums, and in store window displays. The proposed
settlement agreement is pending before Congress. President Clinton and
Congressional leaders have met to discuss bipartisan cooperation on tobacco
control legislation in an effort to work out a compromise. It appears that
restrictions on tobacco billboard advertising may be implemented through
legislation, although some have argued that it would be unconstitutional for
Congress to impose such restrictions without the consent of the tobacco
industry. If legislation is not enacted, it is likely that restrictions on
billboard advertising nevertheless will be achieved through consensual
agreement between the tobacco industry and state and federal governments.
There can be no assurance as to the effect of these regulations,
potential legislation or settlement discussions on the Company's business and
on their net revenues and financial position. A reduction in billboard
advertising by the tobacco industry would cause an immediate reduction in the
Company's direct revenue from such advertisers and would simultaneously
increase the available space on the existing inventory of billboards in the
outdoor advertising industry. This could in turn result in a lowering of
outdoor advertising rates in each of the Company's outdoor advertising markets
or limit the ability of industry participants to increase rates for some period
of time.
Any regulatory change or settlement agreement restricting the
Company's or the tobacco industry's ability to utilize outdoor advertising for
tobacco products could have a material adverse effect on the Company.
Antitrust Matters
An important element of the Company's growth strategy involves the
acquisition of additional radio and television stations and outdoor advertising
display faces, many of which are likely to require preacquisition antitrust
review by the Federal Trade Commission (the "FTC") and the Antitrust Division
of the United States Department of Justice (the "Antitrust Division").
Following passage of the 1996 Act, the Antitrust Division has become more
aggressive in reviewing proposed acquisitions of radio stations and radio
station networks, particularly in instances where the proposed acquirer already
owns one or more radio stations in a particular market and the acquisition
involves another radio station in the same market. Recently, the Antitrust
Division has obtained consent decrees requiring an acquirer to dispose of at
least one radio station in a particular market where the acquisition otherwise
would have resulted in a concentration of market share by the acquirer. There
can be no assurance that the Antitrust Division or the FTC will not seek to bar
the Company from acquiring additional radio stations or outdoor
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advertising display faces in a market where the Company's existing stations or
display faces already have a significant market share.
Environmental Matters
As the owner, lessee or operator of various real properties and
facilities, the Company is subject to various federal, state and local
environmental laws and regulations. Historically, compliance with such laws
and regulations has not had a material adverse effect on the Company's
business. There can be no assurance, however, that compliance with existing or
new environmental laws and regulations will not require the Company to make
significant expenditures in the future.
INTERNATIONAL BUSINESS RISKS AND EXCHANGE RATE RISK
The Company currently derives a portion of its earnings from
international operations. The risks of doing business in foreign countries
include potential adverse changes in the diplomatic relations of foreign
countries with the United States, hostility from local populations, adverse
effects of currency exchange controls, restrictions on the withdrawal of
foreign investment and earnings, government policies against businesses owned
by non-nationals, expropriations of property, the potential instability of
foreign governments and the risk of insurrections that could result in losses
against which the Company is not insured. The Company's international
operations also are subject to economic uncertainties, including, among others,
risks of renegotiation or modification of existing agreements or arrangements
with governmental authorities, foreign exchange restrictions and changes in
taxation structure.
A portion of the Company's earnings are derived from international
operations and a portion of the Company's assets are invested overseas.
Accordingly, fluctuations in the values of foreign currencies and in the value
of the U.S. dollar may cause currency translation losses for the Company or
reduced earnings, or both. The Company cannot predict the effect of exchange
rate fluctuations upon future operating results.
CERTAIN FORWARD-LOOKING STATEMENTS
This report, including the documents incorporated by reference,
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "1933 Act"). Discussions containing
such forward- looking statements may be found in the material set forth under
"Business," as well as within the report generally. In addition, when used in
this report, the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to a number of risks and uncertainties. Actual results
in the future could differ materially from those described in the
forward-looking statements as a result of the risk factors set forth herein and
the matters set forth in this report generally. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
ITEM 2. PROPERTIES
The Company's corporate headquarters is in San Antonio, Texas. The
lease agreement for the approximately 12,000 square feet of office space in San
Antonio expires on February 28, 2001.
The types of properties required to support each of the Company's
radio and television stations and outdoor advertising branches listed in Item 1
above include offices, studios, transmitter sites, antenna sites and production
facilities. A radio or television station's studios are generally housed with
its offices in
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downtown or business districts. A radio or television station's transmitter
sites and antenna sites generally are located in a manner that provides maximum
market coverage. An outdoor branch and production facility is generally
located in an industrial/warehouse district.
The studios and offices of the Company's radio and television stations
and outdoor advertising branches are located in leased or owned facilities.
These leases generally have expiration dates that range from one to twenty
years. The Company either owns or leases its transmitter and antenna sites.
These leases generally have expiration dates that range from five to fifteen
years. The Company does not anticipate any difficulties in renewing those
leases that expire within the next several years or in leasing other space, if
required. The Company owns substantially all of the equipment used in its
broadcasting and outdoor businesses.
The Company owns or has permanent easements on relatively few parcels
of real property that serve as the sites for its outdoor displays. The
Company's remaining outdoor display sites are leased. The Company's leases are
for varying terms ranging from month-to-month or year-to-year to terms of ten
years or longer, and many provide for renewal options. There is no significant
concentration of displays under any one lease or subject to negotiation with
any one landlord. The Company believes that an important part of its
management activity is to negotiate suitable lease renewals and extensions.
As noted in Item 1 above, as of December 31, 1997, the Company owns or
programs 173 radio stations and 18 television stations, and owns or leases
approximately 57,660 outdoor advertising display faces in various markets
throughout the United States. See "Business -- Industry Segments." Therefore,
no one property is material to the Company's overall operations. The Company
believes that its properties are in good condition and suitable for its
operations.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time becomes involved in various claims and
lawsuits incidental to its business, including defamation actions. In the
opinion of management, after consultation with counsel, any ultimate liability
arising out of currently pending claims and lawsuits will not have a material
effect on the financial condition or operations of the Company.
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 1997.
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29
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is included in "Note M: Quarterly
Results of Operations" to the Company's Consolidated Financial Statements in
the Company's Annual Report to Shareholders and is incorporated herein by
reference. There were approximately 466 shareholders of record as of March 6,
1998.
Presently, the Company expects to retain its earnings for the
development and expansion of its business and does not anticipate paying cash
dividends in 1998. However, any future decision by the Board of Directors to
pay cash dividends will depend, among other factors, the Company's earnings,
financial position, capital requirements and loan covenant restrictions. The
Company's current bank credit agreement allows for the payment of dividends
subject to certain loan covenant restrictions. There are no restrictions on
dividends payable wholly in capital stock of the Company. At March 6, 1998 the
market price of the Company's Common Stock was $94.25 per share.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated by reference to the
information set forth under the caption "Selected Financial Data" in the
Company's Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by Item 7 is included in the information set
forth under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by Item 7A. is included in the information
set for the under the caption "Quantitative and Qualitative Disclosures about
Market Risk" in the Company's Annual Report to Shareholders and is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 and the Report of Independent
Auditors is included in the "1997 Financial Report" in the Company's Annual
Report to Shareholders and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
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30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company believes that one of its most important assets is its
experienced management team. With respect to its operations, general managers
are responsible for the day-to-day operation of their respective broadcasting
stations or outdoor branch locations. The Company believes that the autonomy of
its general managers enables it to attract top quality managers capable of
implementing the Company's aggressive marketing strategy and reacting to
competition in the local markets. Most general managers have stock options in
the Company. As an additional incentive, a portion of each manager's
compensation is related to the performance of the profit centers for which he
or she is responsible. In an effort to monitor expenses, corporate management
routinely reviews staffing levels and operating costs. Combined with the
centralized accounting functions, this monitoring enables the Company to
control expenses effectively. Corporate management also advises local general
managers on broad policy matters and is responsible for long-range planning,
allocating resources, and financial reporting and controls.
The information required by Item 10 with respect to the directors and
nominees for election to the Board of Directors of the Company 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 the
Company's Definitive Proxy Statement dated March 24, 1998.
The following information is submitted with respect to the executive
officers of the Company as of December 31, 1997.
Age on
December 31, Officer
Name 1997 Position Since
L. Lowry Mays 62 Chairman/Chief Executive Officer 1972
Mark P. Mays 34 President 1989
Randall T. Mays 32 Executive Vice President/Chief Financial Officer 1993
Herbert W. Hill, Jr. 38 Senior Vice President/Chief Accounting Officer 1989
Kenneth E. Wyker 36 Vice President/Legal Affairs 1993
S. Houston Lane IV 25 Vice President/Finance 1997
J. Stanley Webb 54 Senior Vice President/Radio Operations 1984
George Sosson 47 Senior Vice President/Radio Operations 1996
James D. Smith 49 Senior Vice President/Capital Asset Management 1984
Dave Ross 47 Vice President/GM WHYI-FM, WBGG-FM 1994
William R. Riordan 40 Exec. Vice President/COO Clear Channel Television 1990
Karl Eller 69 Chief Executive Officer - Eller Media 1997
Scott Eller 41 President - Eller Media 1997
Paul Meyer 55 Executive Vice President/
General Counsel - Eller Media 1997
Timothy Donmoyer 32 Executive Vice President/
Chief Financial Officer - Eller Media 1997
The officers named above serve until the next Board of Directors
meeting immediately following the Annual Meeting of Shareholders.
Mr. L. Mays is the founder of the Company and was the President and
Chief Executive Officer of the Company and its predecessor from 1972 to
February 1997. Since that time, Mr. L. Mays has
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31
served as Chairman and Chief Executive Officer of the Company. He has been a
director of the Company since its inception.
Mr. M. Mays was Senior Vice President of Operations from February 1993
until his appointment as President in February 1997. Prior thereto he was Vice
President and Treasurer of the Company for the remainder of the relevant five-
year period.
Mr. R. Mays was appointed Executive Vice President/Chief Financial
Officer in February 1997. Prior thereto, he was Vice President/Treasurer since
he joined the Company in January 1993. Prior thereto, he was an associate for
Goldman Sachs & Co. for the remainder of the relevant five-year period.
Mr. H. Hill was appointed Senior Vice President/Chief Accounting
Officer in February 1997. Prior thereto, he was the Vice President/Controller
of the Company since January 1989 and Principal Financial Officer since June
1991
Mr. K. Wyker was appointed Senior Vice President for Legal Affairs in
February 1997. Prior thereto he was Vice President/General Counsel since he
joined the Company in July 1993. Prior thereto, he was Corporate Counsel at
Greater Media for the remainder of the relevant five-year period.
Mr. H. Lane was appointed Vice President/Finance in February 1997.
Prior thereto, he was an analyst with Credit Suisse First Boston from July 1995
to February 1997. Prior thereto, he was a student at the University of Texas
for the remainder of the relevant five-year period.
Mr. J. Stanley Webb was appointed Senior Vice President/Radio
Operations in May, 1996. Prior thereto, he was Vice President/General Manager
of the Company's radio stations in Austin, Texas for the remainder of the
relevant five-year period.
Mr. George Sosson was appointed Senior Vice President/Radio Operations
in August 1996. He was an equity investor and managing General Partner of
Radio Equity Partners, LP from 1993 to the time he joined the Company. Prior
thereto, he was Vice President responsible for the operations of all of the FM
radio stations owned by CBS for the remainder of the relevant five-year period.
Mr. J. Smith was appointment as Senior Vice President/Capital
Management in January 1997. Prior thereto, he was Vice President/General
Manager of the Company's radio stations in Tulsa, Oklahoma for the remainder of
the relevant five-year period.
Mr. D. Ross, was elected as an officer of the Company in October 1994.
Prior thereto, he was Executive Vice President and General Manager of WHYI-FM
with Metroplex Communications, Inc. for the remainder of the relevant five-year
period.
Mr. W. Riordan was appointed Executive Vice President and Chief
Operating Officer of Clear Channel Television, Inc. in November 1995. Prior
thereto, he was General Manager of WFTC-TV from August 1993 to November 1995.
Prior thereto, he served as General Manager of KSAS-TV for the relevant
five-year period.
Mr. K. Eller was appointed Chief Executive Officer - Eller Media in
April 1997. Prior thereto, he was the Chief Executive Officer of Eller Media
Company from August 1995 to April 1997 and he was the Chief Executive Officer
of Eller Outdoor Advertising for the remainder of the relevant five-year
period.
Mr. S. Eller was appointed President - Eller Media in April 1997.
Prior thereto, he was the President of Eller Media Company from August 1996 to
April 1997. Prior thereto, he as the Executive
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32
Vice President of Eller Media Company from August 1995 to August 1996. Prior
thereto, he was the Executive Vice President of Eller Outdoor Advertising for
the remainder of the relevant five-year period
Mr. P. Meyer was appointed Executive Vice President/General Counsel -
Eller Media in April 1997. Prior thereto, he was Executive Vice President and
General Counsel of Eller Media Company from April 1996 to April 1997. Prior
thereto, he was Managing Partner of Meyer, Hendricks, Bivens & Moyes, LLC., and
its predecessor law firms for the remainder of the relevant five-year period.
Mr. T. Donmoyer was appointed Executive Vice President/Chief Financial
Officer - Eller Media in April 1997. Prior thereto, he was Executive Vice
President and Chief Financial Officer of Eller Media Company from October 1995
to April 1997. Prior thereto, he was an Associate Director of Bear, Stearns &
Co., Inc. for the remainder of the relevant five-year period.
There is no family relationship between any of the executive officers
of the Company except that Mark P. Mays, President/COO and Randall T. Mays,
Executive Vice President/CFO, are the sons of the Chairman/CEO, L. Lowry Mays.
In addition, Scott Eller, President of Eller Media is the son of the Chief
Executive Officer of Eller Media, Karl Eller.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to
the information set forth under the caption "Executive Compensation" in the
Company's Definitive Proxy Statement dated March 24, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to
the Company's Definitive Proxy Statement dated March 24, 1998 under the
headings "Security Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to
the Company's Definitive Proxy Statement dated March 24, 1998 under the heading
"Certain Transactions."
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33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)1. Financial Statements.
The following consolidated financial statements included in the Company's
Annual Report to Shareholders are incorporated by reference in Item 8.
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Earnings for the Years Ended December 31, 1997, 1996
and 1995.
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash
Flows for the Years Ended December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedule.
The following financial statement schedule of the Company for the years ended
December 31, 1997, 1996 and 1995 and related report of independent auditors are
filed as part of this report and should be read in conjunction with the
consolidated financial statements.
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34
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Allowance for doubtful accounts
In thousands of dollars
Charges
Balance at to Costs, Write-off Balance
Beginning Expenses of Accounts at end of
Description of period and other Receivable Period
----------- ---------- --------- ---------- ---------
$1,004(1)
2,352
Year ended
December 31,
1995 $3,118 $3,356 $2,664 $3,810
------- ------- ------- -------
$2,880(1)
2,376
Year ended
December 31,
1996 $3,810 $5,256 $2,999 $6,067
------- ------- ------- -------
$4,251(1)
4,006
Year ended
December 31,
1997 $6,067 $8,257 $4,474 $9,850
------- ------- ------- -------
(1) Allowance for accounts receivable acquired in acquisitions net
of deletions related to dispositions.
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35
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Accumulated Amortization of Intangibles
In thousands of dollars
Charges
Balance at to Costs, Balance
Beginning Expenses at end of
Description of period and other Deletions (1) Period
----------- ---------- --------- ------------- ---------
Year ended
December 31,
1995 $33,862 $18,389 $ 59 $52,192
------- ------- ------- -------
Year ended
December 31,
1996 $52,192 $26,454 $78,646
------- ------- ------- -------
Year ended
December 31,
1995 $78,646 $62,507 $ 87 $141,066
------- ------- ------- -------
(1) Related to disposition of stations and fully amortized intangible assets.
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.
(a)3. Exhibits.
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Merger dated as of October 23, 1997, among Universal Outdoor Holdings,
Inc., the Company, and UH Merger Sub, Inc. (incorporated by reference to the exhibits of the
Company's Current Report on Form 8-K dated November 3, 1997).
3.1 Current Articles of Incorporation of the Company (incorporated by reference to the exhibits of
the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
3.2 Second Amended and Restated Bylaws of the Company (incorporated by reference to the exhibits of
the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
35
36
EXHIBIT
NUMBER DESCRIPTION
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).
10.1 Incentive Stock Option Plan of Clear Channel Communications, Inc. as of January 1, 1984
(incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1
(Reg. No. 33-289161) dated April 19, 1984).
10.2 Australia Radio Network Shareholders Agreement dated February 1995 by and between APN
Broadcasting Investments Pty Ltd, Australian Provincial Newspapers Holdings Limited, APN
Broadcasting Pty Ltd, Clear Channel Radio, Inc. and Clear Channel Communications, Inc.
(incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated
May 26, 1995).
10.3 Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan (incorporated by reference
to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995).
10.4 Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan (incorporated by
reference to the exhibits of the Company's Registration Statement on Form S-8 dated November
20, 1995).
10.5 Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan (incorporated by
reference to the exhibits of the Company's Registration Statement on Form S-8 dated November
20, 1995).
10.6 Option Agreement for Officer (incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-8 dated November 20, 1995).
10.7 Asset Purchase Agreement, dated as of May 9, 1996, by and among REP New England G.P., REP
Southeast G.P., REP Ft. Myers G.P., REP Rhode Island G.P., REP Florida G.P., REP WHYN G.P., REP
WWBB G.P., S.E. Licensee G.P., REP WCKT G.P., RI Licensee G.P., Radio Station Management, Inc.,
Clear Channel Radio, Inc., and Clear Channel Radio Licenses, Inc. (incorporated by reference to
the exhibits of the Company's Current Report on Form 8-K dated June 5, 1996).
10.8 Tender Offer Agreement dated June 1, 1996 by and between Clear Channel Radio, Inc. and Heftel
Broadcasting Corporation (incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-3 dated June 14, 1996).
10.9 Stock Purchase Agreement dated June 1, 1996 by and between Clear Channel Radio, Inc. and Heftel
Broadcasting Corporation dated June 1, 1996 (incorporated by reference to the exhibits of the
Company's Registration Statement on Form S-3 dated June 14, 1996).
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37
EXHIBIT
NUMBER DESCRIPTION
10.10 Employment Agreement dated February 10, 1997 by and between Clear Channel Communications, Inc.
and L. Lowry Mays (incorporated by reference to exhibit 10.12 of the Company's Annual Report on
Form 10-K dated March 31, 1997).
10.11 Stock Purchase Agreement dated February 25, 1997 by and among Clear Channel Communications,
Inc., Eller Media Corporation and the Stockholders of Eller Media Corporation (incorporated by
reference to the exhibits of the Company's Annual Report on Form 10-K dated March 31, 1997).
10.12 Amendment to Stock Purchase Agreement dated April 10, 1997 by and between Clear Channel
Communications, Inc., Eller Media Corporation and the Stockholders of Eller Media Corporation
(incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated
April 17, 1997).
10.13 Registration Rights Agreement dated April 10, 1997 by and between Clear Channel Communications,
Inc. and the Stockholders of Eller Media Corporation (incorporated by reference to the exhibits
of the Company's Current Report on Form 8-K dated April 17, 1997).
10.14 Stockholders Agreement dated April 10, 1997 by and between Clear Channel Communications, Inc.
and EM Holdings LLC (incorporated by reference to the exhibits of the Company's Current Report
on Form 8-K dated April 17, 1997).
10.15 Escrow Agreement dated April 10, 1997 by and between Clear Channel Communications, Inc., EM
Holdings LLC and Chase Trust Company of California (incorporated by reference to the exhibits
of the Company's Current Report on Form 8-K dated April 17, 1997).
10.16 Third Amended and Restated Credit Agreement by and among Clear Channel Communications, Inc.,
NationsBank of Texas, N.A., as administrative lender, the First National Bank of Boston, as
documentation agent, the Bank of Montreal and Toronto Dominion (Texas), Inc., as co-syndication
agents, and certain other lenders dated April 10, 1997 (the "Credit Facility") (incorporated by
reference to the exhibits of the Company's Amendment No. 1 to the Registration Statement on
Form S-3 (Reg. No. 333-25497) dated May 9, 1997).
10.17 Asset Purchase Agreement dated August 25, 1997 by and among Paxson Communications Corporation,
Clear Channel Metroplex, Inc., Clear Channel Metroplex Licenses, Inc. and Clear Channel
Communications, Inc. (incorporated by reference to the exhibits of the Company's Registration
Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
10.18 Asset Purchase Agreement dated August 25, 1997 by and among Paxson Communications Corporation,
L. Paxson, Inc., Clear Channel Metroplex, Inc., Clear Channel Metroplex Licenses, Inc. and
Clear Channel Communications, Inc. (incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
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38
EXHIBIT
NUMBER DESCRIPTION
10.19 First Amendment to the Credit Facility dated September 17, 1997 (incorporated by reference to
exhibit 4.1 to the Company's Current Report on Form 8-K filed October 14, 1997).
10.20 Voting Agreement dated as of October 23, 1997 by and among Clear Channel Communications, Inc.
and Daniel L. Simon (incorporated by reference to the exhibits of the Company's Current Report
on Form 8-K dated November 3, 1997).
10.21 Voting Agreement dated as of October 23, 1997 by and among Clear Channel Communications, Inc.
and Daniel L. Simon (incorporated by reference to the exhibits of the Company's Current Report
on Form 8-K dated November 3, 1997).
10.22 Resale Agreement dated as of October 23, 1997 by and among Clear Channel Communications, Inc.
and Brian T. Clingen (incorporated by reference to the exhibits of the Company's Registration
Statement on Form S-4 (Reg. No. 333-43747) dated January 5, 1998).
10.23 Second Amendment to the Credit Facility dated November 7, 1997.
10.24 Third Amendment to the Credit Facility dated December 29, 1997.
13 Annual Report to Shareholders.
21 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG.
23.3 Consent of KPMG Peat Marwick LLP.
24 Power of Attorney (included on signature page)
27 Financial Data Schedule
99.1 Report of Independent Auditors on Financial Statement Schedule - Ernst & Young LLP.
99.2 Report of Independent Auditors - KPMG
99.3 Report of Independent Auditors - KPMG Peat Marwick LLP
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K dated October 14, 1997 which
reported that the Company had amended its Third Amended and Restated Credit
Agreement to eliminate the requirement that the Company's Restricted
Subsidiaries execute Subsidiary Guarantees.
The Company filed a report on Form 8-K dated October 31, 1997 which
reported that the Company had entered into a Agreement and Plan of Merger with
Universal Outdoor Holdings, Inc.
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39
pursuant to which a wholly-owned subsidiary of the Company would be merged with
and into Universal Outdoor Holdings, Inc. with Universal Outdoor Holdings, Inc.
surviving the merger and becoming a wholly-owned subsidiary of the Company.
The Universal Merger is described under the caption "Recent Developments" in
Item 1 of Part I of this Form 10-K.
The Company filed a report on Form 8-K dated December 22, 1997 which
reported the Company's acquisition of substantially all of the assets of 43
radio stations, six radio news and sports networks and approximately 350
outdoor advertising display faces owned by Paxson Communications Corporation in
the states of Florida and Tennessee. The report included the Combined Balance
Sheet of Paxson Radio, a division of Paxson Communications Corporation ("Paxson
Radio"), at December 31, 1996, and the related Combined Statement of Operations
and Divisional Equity and Combined Statement of Cash Flows for the year ended
December 31, 1996, with a Report of Independent Certified Public Accountants
dated November 3, 1997. Also included were unaudited quarterly financial
information including the Combined Balance Sheet of Paxson Radio at September
30, 1997, and the related Combined Statement of Operations and Divisional
Equity and Combined Statement of Cash Flows for the nine months ended September
30, 1997 and 1996. Also included were an unaudited pro forma condensed
consolidated balance sheet of the Company and its subsidiaries at December 31,
1996, unaudited pro forma condensed consolidated statements of operations of
the Company and its subsidiaries for the year ended December 31, 1996 and the
nine months ended September 30, 1997. The Paxson Radio Acquisition is
described under the caption "Recent Developments" in Item 1 of Part I of this
Form 10-K.
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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 30, 1998.
CLEAR CHANNEL COMMUNICATIONS, INC.
By: /s/ L. Lowry Mays
L. Lowry Mays
Chairman and Chief Executive
Officer
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 30, 1998
L. Lowry Mays
/S/ Randall T. Mays Senior Vice President and Chief Financial March 30, 1998
Randall T. Mays Officer (Principal Financial Officer)
/S/ Herbert W. Hill, Jr. Senior Vice President and Chief Accounting March 30, 1998
Herbert W. Hill, Jr. Officer (Principal Accounting Officer)
/S/ B. J. McCombs Director March 30, 1998
B. J. McCombs
/S/ Allan D. Feld Director March 30, 1998
Alan D. Feld
/S/ Theodore H. Strauss Director March 30, 1998
Theodore H. Strauss
/S/ John H. Williams Director March 30, 1998
John H. Williams
/S/ Karl Eller Director March 30, 1998
Karl Eller
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EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Merger dated as of October 23, 1997, among Universal Outdoor Holdings,
Inc., the Company, and UH Merger Sub, Inc. (incorporated by reference to the exhibits of the
Company's Current Report on Form 8-K dated November 3, 1997).
3.1 Current Articles of Incorporation of the Company (incorporated by reference to the exhibits of
the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
3.2 Second Amended and Restated Bylaws of the Company (incorporated by reference to the exhibits of
the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
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).
10.1 Incentive Stock Option Plan of Clear Channel Communications, Inc. as of January 1, 1984
(incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1
(Reg. No. 33-289161) dated April 19, 1984).
10.2 Australia Radio Network Shareholders Agreement dated February 1995 by and between APN
Broadcasting Investments Pty Ltd, Australian Provincial Newspapers Holdings Limited, APN
Broadcasting Pty Ltd, Clear Channel Radio, Inc. and Clear Channel Communications, Inc.
(incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated
May 26, 1995).
10.3 Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan (incorporated by reference
to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995).
10.4 Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan (incorporated by
reference to the exhibits of the Company's Registration Statement on Form S-8 dated November
20, 1995).
10.5 Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan (incorporated by
reference to the exhibits of the Company's Registration Statement on Form S-8 dated November
20, 1995).
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42
EXHIBIT
NUMBER DESCRIPTION
10.6 Option Agreement for Officer (incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-8 dated November 20, 1995).
10.7 Asset Purchase Agreement, dated as of May 9, 1996, by and among REP New England G.P., REP
Southeast G.P., REP Ft. Myers G.P., REP Rhode Island G.P., REP Florida G.P., REP WHYN G.P., REP
WWBB G.P., S.E. Licensee G.P., REP WCKT G.P., RI Licensee G.P., Radio Station Management, Inc.,
Clear Channel Radio, Inc., and Clear Channel Radio Licenses, Inc. (incorporated by reference to
the exhibits of the Company's Current Report on Form 8-K dated June 5, 1996).
10.8 Tender Offer Agreement dated June 1, 1996 by and between Clear Channel Radio, Inc. and Heftel
Broadcasting Corporation (incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-3 dated June 14, 1996).
10.9 Stock Purchase Agreement dated June 1, 1996 by and between Clear Channel Radio, Inc. and Heftel
Broadcasting Corporation dated June 1, 1996 (incorporated by reference to the exhibits of the
Company's Registration Statement on Form S-3 dated June 14, 1996).
10.10 Employment Agreement dated February 10, 1997 by and between Clear Channel Communications, Inc.
and L. Lowry Mays (incorporated by reference to exhibit 10.12 of the Company's Annual Report on
Form 10-K dated March 31, 1997).
10.11 Stock Purchase Agreement dated February 25, 1997 by and among Clear Channel Communications,
Inc., Eller Media Corporation and the Stockholders of Eller Media Corporation (incorporated by
reference to the exhibits of the Company's Annual Report on Form 10-K dated March 31, 1997).
10.12 Amendment to Stock Purchase Agreement dated April 10, 1997 by and between Clear Channel
Communications, Inc., Eller Media Corporation and the Stockholders of Eller Media Corporation
(incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated
April 17, 1997).
10.13 Registration Rights Agreement dated April 10, 1997 by and between Clear Channel Communications,
Inc. and the Stockholders of Eller Media Corporation (incorporated by reference to the exhibits
of the Company's Current Report on Form 8-K dated April 17, 1997).
10.14 Stockholders Agreement dated April 10, 1997 by and between Clear Channel Communications, Inc.
and EM Holdings LLC (incorporated by reference to the exhibits of the Company's Current Report
on Form 8-K dated April 17, 1997).
10.15 Escrow Agreement dated April 10, 1997 by and between Clear Channel Communications, Inc., EM
Holdings LLC and Chase Trust Company of California (incorporated by reference to the exhibits
of the Company's Current Report on Form 8-K dated April 17, 1997).
10.16 Third Amended and Restated Credit Agreement by and among Clear Channel Communications, Inc.,
NationsBank of Texas, N.A., as administrative lender, the First National Bank of Boston, as
documentation agent, the Bank of Montreal and Toronto Dominion (Texas), Inc., as co-syndication
agents, and certain other lenders dated April 10, 1997 (the "Credit Facility") (incorporated by
reference to the exhibits of the Company's Amendment No. 1 to the Registration Statement on
Form S-3 (Reg. No. 333-25497) dated May 9, 1997).
42
43
EXHIBIT
NUMBER DESCRIPTION
10.17 Asset Purchase Agreement dated August 25, 1997 by and among Paxson Communications Corporation,
Clear Channel Metroplex, Inc., Clear Channel Metroplex Licenses, Inc. and Clear Channel
Communications, Inc. (incorporated by reference to the exhibits of the Company's Registration
Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
10.18 Asset Purchase Agreement dated August 25, 1997 by and among Paxson Communications Corporation,
L. Paxson, Inc., Clear Channel Metroplex, Inc., Clear Channel Metroplex Licenses, Inc. and
Clear Channel Communications, Inc. (incorporated by reference to the exhibits of the Company's
Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
10.19 First Amendment to the Credit Facility dated September 17, 1997 (incorporated by reference to
exhibit 4.1 to the Company's Current Report on Form 8-K filed October 14, 1997).
10.20 Voting Agreement dated as of October 23, 1997 by and among Clear Channel Communications, Inc.
and Daniel L. Simon (incorporated by reference to the exhibits of the Company's Current Report
on Form 8-K dated November 3, 1997).
10.21 Voting Agreement dated as of October 23, 1997 by and among Clear Channel Communications, Inc.
and Daniel L. Simon (incorporated by reference to the exhibits of the Company's Current Report
on Form 8-K dated November 3, 1997).
10.22 Resale Agreement dated as of October 23, 1997 by and among Clear Channel Communications, Inc.
and Brian T. Clingen (incorporated by reference to the exhibits of the Company's Registration
Statement on Form S-4 (Reg. No. 333-43747) dated January 5, 1998).
10.23 Second Amendment to the Credit Facility dated November 7, 1997.
10.24 Third Amendment to the Credit Facility dated December 29, 1997.
13 Annual Report to Shareholders.
21 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG.
23.3 Consent of KPMG Peat Marwick LLP.
24 Power of Attorney (included on signature page)
27 Financial Data Schedule
99.1 Report of Independent Auditors on Financial Statement Schedule - Ernst & Young LLP.
99.2 Report of Independent Auditors - KPMG
99.3 Report of Independent Auditors - KPMG Peat Marwick LLP
43