-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R0md1atcXjOnkin3AkA+p5xgp3xNftVd+16FToXzU/I9LB4pEOWC1pbZ72nQF+Mm wbrg9zgiQGmJhF+PjLFjvA== 0000950134-99-003647.txt : 19990507 0000950134-99-003647.hdr.sgml : 19990507 ACCESSION NUMBER: 0000950134-99-003647 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEAR CHANNEL COMMUNICATIONS INC CENTRAL INDEX KEY: 0000739708 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 741787536 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09645 FILM NUMBER: 99612939 BUSINESS ADDRESS: STREET 1: 200 CONCORD PLAZA STREET 2: STE 600 CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2108222828 MAIL ADDRESS: STREET 1: 200 CONCORD PLAZA SUITE 600 STREET 2: 200 CONCORD PLAZA SUITE 600 CITY: SAN ANTONIO STATE: TX ZIP: 78216 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1999 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 1999 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 78216-6940 (210) 822-2828 (Address and telephone number of principal executive offices) 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 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 the number of shares outstanding of each class of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at May 4, 1999 - ------------------------------ ---------------------------- Common Stock, $.10 par value 327,078,075
Page 1 of 22 2 CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES INDEX
Page No. Part I -- Financial Information Item 1. Unaudited Financial Statements Consolidated Balance Sheets at March 31, 1999 and December 31, 1998 3 Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998 5 Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998 6 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 Part II -- Other Information Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and reports on Form 8-K 17 (a) Exhibits (b) Reports on Form 8-K Signatures 18 Index to Exhibits 19
Page 2 of 22 3 PART I ITEM 1. UNAUDITED FINANCIAL STATEMENTS CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (IN THOUSANDS OF DOLLARS)
March 31, December 31, 1999 1998 (Unaudited) (*) ----------- ------------ CURRENT ASSETS Cash and cash equivalents $ 30,290 $ 36,498 Income tax receivable 7,118 -- Accounts receivable, less allowance of $13,073 at March 31, 1999 and $13,508 at December 31, 1998 279,994 307,372 Other current assets 86,587 66,090 ----------- ----------- Total Current Assets 403,989 409,960 PROPERTY, PLANT AND EQUIPMENT Land, buildings and improvements 177,694 158,089 Structures and site leases 1,665,527 1,627,704 Transmitter and studio equipment 236,220 235,099 Furniture and other equipment 105,872 101,681 Construction in progress 61,241 52,038 ----------- ----------- 2,246,554 2,174,611 Less accumulated depreciation (312,354) (258,824) ----------- ----------- 1,934,200 1,915,787 INTANGIBLE ASSETS Contracts 386,813 393,748 Licenses and goodwill 4,253,564 4,223,432 Other intangible assets 94,361 89,577 ----------- ----------- 4,734,738 4,706,757 Less accumulated amortization (369,351) (315,275) ----------- ----------- 4,365,387 4,391,482 OTHER ASSETS Notes receivable 56,612 53,675 Investments in, and advances to, nonconsolidated affiliates 337,668 324,835 Other assets 117,727 109,269 Other investments 274,488 334,910 ----------- ----------- TOTAL ASSETS $ 7,490,071 $ 7,539,918 =========== ===========
* From audited financial statements See Notes to Consolidated Financial Statements Page 3 of 22 4 CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY (IN THOUSANDS OF DOLLARS)
March 31, December 31, 1999 1998 (Unaudited) (*) ----------- ----------- CURRENT LIABILITIES Accounts payable $ 54,962 $ 60,855 Accrued interest 27,283 13,168 Accrued expenses 133,576 148,318 Accrued income taxes -- 4,554 Current portion of long-term debt 27,023 7,964 Other current liabilities 21,641 23,285 ----------- ----------- Total Current Liabilities 264,485 258,144 Long-term debt 2,260,694 2,323,643 Deferred income taxes 364,247 383,564 Other long-term liabilities 72,141 75,533 Minority interest 22,637 15,605 SHAREHOLDERS' EQUITY Common stock 26,618 26,370 Additional paid-in capital 4,165,879 4,067,297 Retained earnings 210,926 223,662 Other (22,727) 6,888 Unrealized gain on investments 125,171 161,185 Cost of shares held in treasury -- (1,973) ----------- ----------- Total shareholders' equity 4,505,867 4,483,429 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,490,071 $ 7,539,918 =========== ===========
* From audited financial statements See Notes to Consolidated Financial Statements Page 4 of 22 5 CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Three Months Ended March 31, March 31, 1999 1998 --------- --------- Gross revenue $ 421,607 $ 229,849 Less: agency commissions 44,820 26,207 --------- --------- Net revenue 376,787 203,642 Operating expenses 244,822 123,774 Depreciation and amortization 110,648 43,011 Corporate expenses 12,447 5,909 --------- --------- Operating income 8,870 30,948 Interest expense 31,832 25,701 Other income (expense) - net 10,919 2,795 --------- --------- Income (loss) before income taxes (12,043) 8,042 Income taxes 2,889 4,259 --------- --------- Income (loss) before equity in earnings of nonconsolidated affiliates (14,932) 3,783 Equity in earnings of nonconsolidated affiliates 2,196 1,796 --------- --------- Net income (loss) (12,736) 5,579 Other comprehensive income, net of tax: Foreign currency translation adjustments (26,992) -- Unrealized gains on securities: Unrealized holding gain (loss) arising during period (20,455) 9,199 Less: reclassification adjustment for gains included in net income (15,559) (2,605) --------- --------- Comprehensive income (loss) $ (75,742) $ 12,173 ========= ========= Net income per common share: Basic $ (.05) $ .03 ========= ========= Diluted $ (.05) $ .02 ========= =========
See Notes to Consolidated Financial Statements Page 5 of 22 6 CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS OF DOLLARS)
Three Months Ended March 31, March 31, 1999 1998 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $(12,736) $ 5,579 RECONCILING ITEMS: Depreciation 55,056 18,041 Amortization of intangibles 55,592 24,970 Deferred taxes 2,944 1,500 Amortization of film rights 4,385 4,144 Payments on film liabilities (4,223) (4,573) Recognition of deferred income 3,368 (352) (Gain) loss on disposal of assets 1,288 (387) Gain on sale of other investments (15,559) (2,606) Equity in earnings of nonconsolidated affiliates (823) (200) Increase (decrease) minority interest 10 (48) CHANGES IN OPERATING ASSETS AND LIABILITIES: (Increase) decrease accounts receivable 28,237 25,354 Increase (decrease) accounts payable (6,131) 201 Increase (decrease) accrued interest 14,115 1,411 Increase (decrease) accrued expenses and other liabilities (23,578) (4,111) Increase (decrease) accrued income and other taxes (11,672) 751 -------- -------- Net cash provided by operating activities 90,273 69,674
Page 6 of 22 7 CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES SCHEDULE RECONCILING NET INCOME TO NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES (UNAUDITED) (IN THOUSANDS OF DOLLARS)
Three Months Ended March 31, March 31, 1999 1998 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) decrease in notes receivable - net (2,937) 35,373 Increase in investments in and advances to nonconsolidated affiliates - net (12,011) (1,409) Purchases of investments -- (6,855) Proceeds from sale of investments 20,796 4,084 Purchases of property, plant and equipment (36,711) (8,038) Proceeds from disposal of assets 3,013 2,395 Acquisition of broadcasting assets (2,700) (111,281) Acquisition of outdoor assets (89,700) (106,466) Increase in other intangible assets (2,823) (8,144) Increase in other-net (25,042) (871) ----------- ----------- Net cash used in investing activities (148,115) (201,212) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds of long-term debt 105,502 171,000 Payments on long-term debt (146,931) (1,110,396) Payments of current maturities (1,016) (62) Proceeds from exercise of stock options 13,856 1,795 Proceeds from issuance of common stock 80,223 577,819 Proceeds from issuance of convertible debt -- 492,500 ----------- ----------- Net cash provided by financing activities 51,634 132,656 Net (decrease) increase in cash and cash equivalents (6,208) 1,118 Cash and cash equivalents at beginning of period 36,498 24,657 ----------- ----------- Cash and cash equivalents at end of period $ 30,290 $ 25,775 =========== ===========
See Notes to Consolidated Financial Statements Page 7 of 22 8 ] CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1: PREPARATION OF INTERIM FINANCIAL STATEMENTS The consolidated financial statements have been prepared by Clear Channel Communications, Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of management, include all adjustments (consisting only of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. The results for the interim periods are not necessarily indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1998 Annual Report on Form 10-K. The consolidated financial statements include the accounts of the Company and its subsidiaries, the majority of which are wholly-owned. Investments in companies in which the Company owns 20 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method. All significant intercompany transactions are eliminated in the consolidation process. Certain reclassifications have been made to the 1998 consolidated financial statements to conform to the 1999 presentation. Note 2: RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities. Statement 133 establishes new rules for the recognition and measurement of derivatives and hedging activities. Statement 133 is effective for years beginning after June 15, 1999. The Company plans to adopt this statement in fiscal year 2000. Management does not believe adoption of this statement will materially impact the Company's financial position or results of operations. Note 3: RECENT DEVELOPMENTS On May 4, 1999, the Company closed its merger with Jacor Communications, Inc. ("Jacor"). Pursuant to the terms of the agreement, each share of Jacor common stock was exchanged for 1.1573151 shares of the Company's common stock or approximately 60.9 million shares. In addition, the Company assumed approximately $1.4 billion of Jacor's long-term debt, as well as Jacor's Liquid Yield Option Notes with an accreted value of approximately $309.4 million. Jacor options and stock appreciation rights outstanding at the time of the merger are now exercisable for approximately 4.7 million shares of the Company's common stock. In addition, Jacor common stock purchase warrants and Liquid Yield Option Notes are exercisable or convertible into approximately 12.6 million shares of our common stock. The Company refinanced $850 million of Jacor's long term debt at the closing of the merger using the Company's credit facility. This acquisition will be accounted for as a purchase with resulting additional goodwill of approximately $3.0 billion, which will be amortized over 25 years on a straight-line basis. This purchase price allocation is preliminary and the results of operations of Jacor will be included in the Company's financial statements beginning May 1, 1999. Page 8 of 22 9 The results of operations for the three month periods ending March 31, 1999 and 1998 does not include the operations of Jacor. Assuming this merger and the acquisitions of Universal Outdoor Holding, Inc. ("Universal") and More Group Plc ("More Group") had occurred at January 1, 1998, unaudited pro forma consolidated results of operations for the three months ended March 31, 1999 and 1998 would have been as follows: Pro Forma (Unaudited) Three Months Ended March 31 In thousands, except per share data
1999 1998 ----------- ----------- Net revenue $ 571,450 $ 460,626 Net income (loss) $ 474 $ (65,407) Net income (loss) per share: Basic $ 0.00 $ (0.22) Diluted $ 0.00 $ (0.22)
The pro forma information above is presented in response to applicable accounting rules relating to business acquisitions and is not necessarily indicative of the actual results that would have been achieved had the acquisitions of Universal and More Group and the merger with Jacor occurred at the beginning of 1998, nor is it indicative of future results of operations. The Company had other acquisitions during the first quarter of 1999 and during 1998, the effects of which, individually and in aggregate, were not material to the Company's consolidated financial position or results of operations. To facilitate possible future acquisitions as well as public offerings, the Company filed a registration statement on Form S-3 on April 12, 1999 covering a combined $2 billion of debt securities, junior subordinated debt securities, preferred stock, common stock, warrants, stock purchase contracts and stock purchase units (the "shelf registration statement"). The shelf registration statement also covers preferred securities that may be issued from time to time by the Company's three Delaware statutory business trusts and guarantees of such preferred securities by the Company. Note 4 SEGMENT DATA In thousands of dollars
March 31, -------------------------- 1999 1998 ----------- ----------- Net revenue Broadcasting $ 151,173 $ 134,295 Outdoor 225,614 69,347 ----------- ----------- Consolidated $ 376,787 $ 203,642 Operating expenses Broadcasting $ 97,913 $ 86,656 Outdoor 146,909 37,118 ----------- ----------- Consolidated $ 244,822 $ 123,774 Depreciation and Amortization Broadcasting $ 27,985 $ 25,172 Outdoor 82,663 17,839 ----------- -----------
Page 9 of 22 10 Consolidated $ 110,648 $ 43,011 Operating income Broadcasting $ 18,974 $ 18,812 Outdoor (10,104) 12,136 ----------- ----------- Consolidated $ 8,870 $ 30,948 Total identifiable assets Broadcasting $ 2,568,834 $ 2,199,105 Outdoor 4,921,237 1,400,522 ----------- ----------- Consolidated $ 7,490,071 $ 3,599,627
Net revenue of $77,169 and identifiable assets of $1,229,508 derived from the Company's foreign operations are included in the March 31, 1999 data above. Page 10 of 22 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Comparison of Three Months Ended March 31, 1999 to Three Months Ended March 31, 1998. CONSOLIDATED (In thousands of dollars, except per share data)
Three Months Ended March 31, As-Reported Pro Forma ---------------------------- % Increase % Increase Consolidated 1999 1998 (Decrease) (Decrease) ------------ --------- --------- ----------- ----------- Net revenue $ 376,787 $ 203,642 85.0 % 18.3 % Operating expenses 244,822 123,774 97.8 % 19.2 % Depreciation and amortization 110,648 43,011 157.3 % 40.0 % Operating income 8,870 30,948 (71.3)% (63.6)% Interest expense 31,832 25,701 23.9 % Net income (loss) (12,736) 5,579 (238.7)% Net income (loss) per share: Basic $ (.05) $ .03 (266.7)% Diluted $ (.05) $ .02 (350.0)%
The majority of the growth in the "as reported" net revenue and operating expenses for the quarter ended March 31, 1999 was due to the acquisitions of Universal Outdoor Holding, Inc. ("Universal") in April of 1998 and More Group Plc ("More Group"), which has been included in the operations of the Company since July 1998. In addition, 2 radio stations and 1,136 outdoor display faces were purchased during the first three months of 1999, the effects of which, individually and in the aggregate, were not material to the Company's consolidated financial position or results of operations. The majority of the increase in "as reported" depreciation and amortization was primarily due to the acquisition of the tangible and intangible assets associated with the purchase of the above-mentioned business combinations. Interest expense increased primarily due to an increase in the average amount of debt outstanding -- which resulted from the above-mentioned business combinations. The majority of the decrease in operating income and net income also was primarily due to the increase in depreciation and amortization expense resulting from the aforementioned business combinations. Pro forma presentation referred to above assumes the acquisition and/or merger of Universal and More Group occurred on January 1, 1998. Pro forma net revenue increased due to improved advertising rates in the broadcasting segment. In addition, improved occupancy, increased advertising rates and other less significant acquisitions within the outdoor segment also contributed to the increase in pro forma net revenue. Pro forma operating expenses increased primarily from the incremental selling costs related to the additional revenues Page 11 of 22 12 LIQUIDITY AND CAPITAL RESOURCES The major sources of capital for the Company have been cash flow from operations, advances on its revolving long-term line of credit (the "credit facility"), and funds provided by various stock, convertible and other bond offerings, and other borrowings. As of March 31, 1999 and December 31, 1998, the Company had the following debt outstanding:
(In millions of dollars) March 31, 1999 December 31, 1998 -------------- ----------------- Credit facility - domestic $ 949.1 $1,007.5 Credit facility - international 126.3 103.7 Senior convertible notes 575.0 575.0 Long-term bonds 600.0 600.0 Other borrowings 37.3 45.4 -------- -------- Total $2,287.7 $2,331.6 ======== ========
In addition, the Company had $30.3 million in unrestricted cash and cash equivalents on hand at March 31, 1999. On April 12, 1999 the Company filed a registration statement on Form S-3 covering a combined $2 billion of debt securities, junior subordinated debt securities, preferred stock, common stock, warrants, stock purchase contracts and stock purchase units (the "shelf registration statement"). The shelf registration statement also covers preferred securities that may be issued from time to time by the Company's three Delaware statutory business trusts and guarantees of such preferred securities by the Company. CREDIT FACILITY: DOMESTIC: The Company has a revolving credit facility for $2 billion, of which $949.1 million is outstanding and, taking into account other letters of credit, $1,034.7 million is available for future borrowings. The credit facility converts into a reducing revolving line of credit on the last business day of September 2000, with quarterly repayment of the outstanding principal balance to begin the last business day of September 2000 and continue during the subsequent five year period, with the entire balance to be repaid by the last business day of June 2005. During the first three months of the year, the Company made principal payments on the credit facility totaling $111.8 million and drew down $53.4 million. INTERNATIONAL: The Company has a (pound)100 million, or approximately $161.2 million, revolving credit facility with a group of international banks. This international credit facility allows for borrowings in various foreign currencies, which are used to hedge net assets in those currencies. At March 31, 1999, approximately $34.9 million, was available for future borrowings and $126.3 million, was outstanding. This credit facility converts into a reducing revolving facility on January 10, 2000 with annual payments of (pound)12 million due in 2000 and 2001. The credit facility expires on January 10, 2002. At March 31, 1999, interest rates varied from 3.1% to 8.0%. SENIOR CONVERTIBLE NOTES: The Company has $575 million of 2.625% senior convertible notes due April 1, 2003. The notes are convertible into the Company's common stock at any time following the date of original issuance, unless previously redeemed, at a conversion price of $61.95 per share, subject to adjustment in certain events. Interest on the notes is payable semiannually on each April 1 and October 1. The notes are redeemable, in whole or in part, at the option of the Company at any time on or after April 1, 2001 and until March 31, 2002 at 101.050%; on or after April 1, 2002 and until March 31, 2003 at 100.525%; and on or after April 1, 2003 at 100%, plus accrued interest. Page 12 of 22 13 BONDS: The Company has $300 million 7.25% debentures due October 15, 2027, $175 million 6.875% senior debentures due June 15, 2018 and $125 million 6.625% senior notes due June 15, 2008. Interest on the debentures is payable semiannually on April 15 and October 15. Interest on the senior debentures and senior notes is payable semiannually on each June 15 and December 15. OTHER: During the first three months of 1999, the Company purchased the broadcasting assets of two radio stations in two markets for $2.7 million plus the exchange of one radio station, and acquired approximately 547 additional outdoor display faces in 14 domestic markets and 589 additional outdoor display faces in 2 international markets for a total of $89.7 million. In addition, the Company purchased capital equipment totaling $36.7 million. Future acquisitions of broadcasting stations, outdoor advertising facilities and other media-related properties affected in connection with the implementation of the Company's acquisition strategy are expected to be financed from increased borrowings under the credit facility, additional public equity and debt offerings and cash flow from operations. The Company believes that cash flow from operations as well as the proceeds from securities offerings made by the Company from time to time will be sufficient to make all required future interest and principal payments on the credit facility, senior convertible notes and bonds, and will be sufficient to fund all anticipated capital expenditures. The ratio of earnings to fixed charges is as follows:
3 Months ended March 31, Year Ended - --------------------- ---------------------------------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 - ------ ------ ------ ------ ------ ------ ------ .68 1.29 1.83 2.32 3.63 3.32 5.54
The ratio of earnings to fixed charges has been computed on a total enterprise basis. Earnings represent income from continuing operations before income taxes less equity in undistributed net income (loss) of unconsolidated affiliates plus fixed charges. Fixed charges represent interest, amortization of debt discount and expense, and the estimated interest portion of rental charges. The Company had no Preferred Stock outstanding and paid no dividends thereon for any period presented. YEAR 2000 The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could cause a system failure or miscalculations in the Company's broadcasting, outdoor and corporate locations which could cause disruptions of operations, including, among other things, a temporary inability to produce broadcast signals, process financial transactions, or engage in similar normal business activities. Based on recent system evaluations, surveys, and on-site inventories, the Company determined that it would be required to modify or replace portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Company presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. If such modifications and replacements are not made, or are not completed in time, the Year 2000 issue could have a material impact on the Company's operations. The Year 2000 issue involves the identification and assessment of the existing problem, plan of remediation, as well as a testing and implementation plan. To date, the Company has substantially completed the identification and assessment process, with the following significant financial and operational components identified as being affected by the Year 2000 issue: Page 13 of 22 14 o Computer hardware running critical financial and operational software that is not capable of recognizing a four-digit code for the applicable year. o Advertising inventory management software responsible for managing, scheduling and billing customer's broadcasting and outdoor advertising purchases. o Broadcasting studio equipment and software necessary to deliver radio and television programming. o Corporate financial accounting and information system software. o Significant non-technical systems and equipment that may contain microcontrollers which are not Year 2000 compliant. The Company has instituted the following remediation plan to address the Year 2000 issues: A computer hardware replacement plan for computers running essential broadcast, operational and financial software applications with Year 2000 compatible computers has been instituted. As of December 31, 1998 approximately 50% of all essential computers related to broadcast or studio equipment are Year 2000 compatible. Approximately 95% of all essential financial based computers are Year 2000 compliant. The Company anticipates this replacement plan to be 100% complete by the end of the third quarter in 1999. Software upgrades or replacement with advertising inventory management software which is Year 2000 compliant have been planned, are in process, or have been completed as of March 31, 1999. The Company has received assurances from its software vendors, with a few minor exceptions, that supply its advertising inventory management software that their software is Year 2000 compliant. For these non-compliant vendors, the Company will install inventory management software from a compliant vendor by the end of the third quarter of 1999. Approximately 95% of the broadcasting properties have Year 2000 compliant advertising inventory management software as of March 31, 1999. All of the outdoor advertising inventory management software is currently being upgraded and is targeted for Year 2000 compliance at the end of the second quarter of 1999. The Company has received assurances from its software vendors that supply broadcasting digital automation systems that the software used by the Company is currently compliant or has upgrades currently available that are compliant. Broadcast software and studio equipment is considered to be 80% compliant as of March 31, 1999 and is anticipated to be 100% compliant by the third quarter of 1999. Financial accounting software for the broadcasting segment has been replaced and is Year 2000 compliant. Financial accounting software for the outdoor segment has been upgraded to be Year 2000 compliant. While the Company believes its efforts will provide reasonable assurance that material disruptions will not occur due to internal failure, the possibility of interruption still exists. The Company is currently querying other significant vendors that do not share information systems with it (external agents). To date, the Company is not aware of any external agent with a Year 2000 issue that would materially impact its results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 ready. The inability of external agents to complete their Year 2000 resolution process in a timely fashion could materially impact the Company. The effect of non-compliance by external agents is not determinable. In the ordinary course of business, the Company has acquired or plans to acquire a significant amount of Year 2000 compliant hardware and software. These purchases are part of specific operational and financial system enhancements with completion dates during 1998 and early 1999 that were planned without specific regard to the Year 2000 issue. These system enhancements resolve many Year 2000 problems and have not been delayed as a result of any additional efforts addressing the Year 2000 issue. Accordingly, these costs have not been included as part of the costs of Year 2000 remediation. However, there are several hardware and software expenditures that Page 14 of 22 15 have been or will be incurred to specifically remediate Year 2000 non-compliance. Incremental hardware and software costs that the Company has attributed to the Year 2000 issue are estimated at $2,700,000 plus or minus 15%. The majority of these expenditures will be incurred over the next 6 months. Of this cost, approximately 25% will be expensed as modification or upgrade costs with the remaining costs being capitalized as new hardware or software. As of March 31, 1999, approximately $160,000 has been charged to expense and $1,200,000 capitalized as a result of expenditures. Sources of funds for these expenditures will be supplied through cash flow generated from operations and/or available borrowings from the Company's credit facility. The Company's accounting policy is to expense costs incurred due to maintenance, modification or upgrade costs and to capitalize the cost of new hardware and software. The Company believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Company has not yet completed all necessary phases of the Year 2000 program. In the event that the Company does not complete any additional phases, it could experience disruptions in its operations, including among other things, a temporary inability to produce broadcast signals, process financial transactions, or engage in similar normal business activities. In addition, disruptions in the economy generally resulting from the Year 2000 issues could also materially adversely affect the Company. The Company could be subject to litigation for computer systems failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. The Company has contingency plans for certain critical applications in sites deemed significant to operations. These contingency plans involve, among other actions, manual work around for on-air and financial systems, a store of Year 2000 compliant computers available for rapid deployment, backup generators at key broadcast and transmitter sites and staffing strategies to affect such contingency plans. RISKS REGARDING FORWARD LOOKING STATEMENTS Except for the historical information, this report contains various "forward-looking statements" which represent the Company's expectations or beliefs concerning future events, including the future levels of cash flow from operations. The Company cautions that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could have an adverse effect upon the Company's financial performance. These variables include economic conditions, the ability of the Company to integrate the operations of Universal, More Group and Jacor, shifts in population and other demographics, level of competition for advertising dollars, fluctuations in operating costs, technological changes and innovations, changes in labor conditions, changes in governmental regulations and policies, effects from the Year 2000 issue and certain other factors set forth in the Company's SEC filings. Actual results in the future could differ materially from those described in the forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Interest Rate Risk At March 31, 1999, approximately 47% of the Company's long-term debt bears interest at variable rates. Accordingly, the Company's earnings and after tax cash flow are affected by changes in interest rates. Assuming the current level of borrowings at variable rates and assuming a two percentage point change in the first three months of 1999 average interest rate under these borrowings, it is estimated that the Company's first three months of 1999 interest expense would have changed by $5.4 million and that the Company's first three months of 1999 net income would have changed by $3.5 million. In the event of an adverse change in interest rates, management would likely take actions to further mitigate its exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, the analysis assumes no such actions. Further the analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment. The Company currently hedges a portion of its outstanding debt with interest rate swap agreements that effectively fix the interest at rates from 4.25% to 10.0% on $1.0 billion of its current borrowings. These agreements expire Page 15 of 22 16 from May 1999 to January 2001. The fair value of these agreements at March 31, 1999 and settlements of interest during the first three months of 1999 were not material. Equity Price Risk The carrying value of the Company's available-for-sale equity securities is affected by changes in their quoted market prices. It is estimated that a 20% change in the market prices of these securities would change their carrying value at March 31, 1999 by $40.8 million. Foreign Currency The Company has operations in 25 countries throughout Europe and Asia. All foreign operations are measured in their local currencies. As a result, the Company's financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company has operations. To mitigate a portion of the exposure to risk of currency fluctuations throughout Europe and Asia to the British pound, the Company has a natural hedge through borrowings in some other currencies. This hedge position is reviewed monthly. The Company maintains no derivative instruments to mitigate the exposure to translation and/or transaction risk. However, this does not preclude the adoption of specific hedging strategies in the future. The Company's foreign operations reported a loss of $13.2 million for the first three months of 1999. It is estimated that a 5% change in the value of the U.S. dollar to the British pound would change net income for the first three months of 1999 by $1.0 million. Page 16 of 22 17 PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A special meeting of shareholders of the Company was held on March 26, 1999. The shareholders approved the issuance of the Company's common stock in the merger with Jacor. The results of voting at the special meeting of the shareholders were as follows: PROPOSAL NO. 1 (ISSUANCE OF COMMON STOCK IN THE MERGER WITH JACOR COMMUNICATIONS, INC.)
For Withhold/Against Exceptions/Abstain ----------- ---------------- ------------------ 201,793,963 178,599 479,394
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. See Exhibit Index on Page 14 (b) Reports on Form 8-K
Filing Date Items Reported Financial Statements Reported ------ ---- -------------- ----------------------------- 8-K/A 1/14/99 Purchase price None information related to the acquisition of More Group Plc. 8-K/A 2/23/99 Item 5. Pro forma Pro forma statements 12/31/97 financial statements assuming the acquisition of More Group Plc. had occurred on 1/1/97. 8-K/A 2/23/99 Item 5. Pro forma Pro forma statements 9/30/97 financial statements assuming the acquisition of Paxson Radio had occurred on 1/1/97. 8-K/A 2/23/99 Item 5. Pro forma Pro forma statements 12/31/97 financial statements assuming the merger with Universal had occurred on 1/1/97. 8-K/A 2/23/99 Item 5. Pro forma Pro forma statements 9/30/98 financial statements assuming the merger with Jacor had occurred on 1/1/98.
Page 17 of 22 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CLEAR CHANNEL COMMUNICATIONS, INC. Date May 5, 1999 /s/ Herbert W. Hill, Jr. Herbert W. Hill, Jr. Senior Vice President and Chief Accounting Officer Page 18 of 22 19 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 Agreement and Plan of Merger dated as of October 8, 1998, as amended on November 11, 1998, among Clear Channel Communications, Inc., CCU Merger Sub, Inc. and Jacor Communications, Inc. (incorporated by reference to Annex A to the Company's Registration Statement on Form S-4 (Reg. No. 333-72839) dated February 23, 1999). 3.1 Current Articles of Incorporation of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 3.2 Second Amended and Restated Bylaws of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 3.3 Amendment to the Company's Articles of Incorporation (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 3.4 Second Amendment to the Company's Articles of Incorporation. 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 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). 4.3 Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York as Trustee (incorporated by reference to exhibit 4.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 4.4 First Supplemental Indenture dated March 30, 1998 to Senior Indenture dated October 1, 1997, by and between the Company and The Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). 4.5 Second Supplemental Indenture dated June 16, 1998 to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and the Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated August 27, 1998). 4.6 Third Supplemental Indenture dated June 16, 1998 to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and the Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated August 27, 1998). 11 Statement re: Computation of Per Share Earnings. 12 Statement re: Computation of Ratios. 27.1 Financial Data Schedule at March 31, 1999 27.2 Financial Data Schedule at March 31, 199 (incorporated by reference to exhibit 27 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
Page 19 of 22 EX-3.4 2 2ND AMENDMENT TO COMPANY'S ARTICLES OF INCORP. 1 EXHIBIT 3.4 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF CLEAR CHANNEL COMMUNICATIONS, INC. Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act, the undersigned corporation adopts the following articles of amendment to its articles of incorporation: ARTICLE ONE The name of the corporation is CLEAR CHANNEL COMMUNICATIONS, INC. ARTICLE TWO The following amendment to the articles of incorporation, increasing the number of shares that the corporation is authorized to issue from 610,000,000 shares to 910,000,000 shares, was adopted by the shareholders of the corporation on April 27, 1999. The amendment alters or changes Article Four, Section 1 of the original or amended articles of incorporation and the full text of such section is as follows: "ARTICLE FOUR Section 1. Authorized Shares. The aggregate number of shares which the Corporation shall have the authority to issue is 910,000,000 shares, consisting of three classes of capital stock: (a) 900,000,000 shares of Common Stock ("Common Stock"), par value of $.10 each; (b) 2,000,000 shares of Class A Preferred Stock ("Class A Preferred Stock"), par value of $1.00 each; and (c) 8,000,000 shares of Class B Preferred Stock ("Class B Preferred Stock"), par value of $1.00 each." ARTICLE THREE The number of shares of the corporation outstanding at the time of such adoption was 266,073,575; and the number of shares entitled to vote thereon was 266,039,115. ARTICLE FOUR The number of shares voted for such amendment was 228,912,855; and the number of shares voted against such amendment was 8,560,992. Dated May 5, 1999. CLEAR CHANNEL COMMUNICATIONS, INC. by: ----------------------------------------- Kenneth E. Wyker Senior Vice President for Legal Affairs and Secretary Page 20 of 22 EX-11 3 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE In thousands of dollars, except per share data
Three months ended March 31, 1999 1998 --------- --------- Numerator: Net income (loss) $ (12,736) $ 5,579 Effect of dilutive securities: Eller put/call option agreement (1,276) (1,060) Convertible debt 2,453 -- --------- --------- Numerator for net income per common share - diluted $ (11,559) $ 4,519 ========= ========= Denominator: Weighted average common shares 265,850 196,986 Effect of dilutive securities: Employee stock options 3,883 4,268 Eller put/call option agreement 1,903 2,162 Convertible debt 9,282 -- --------- --------- Denominator for net income per common share - diluted 280,918 203,416 ========= ========= Net income (loss) per common share: Basic $ (.05) $ .03 ========= ========= Diluted $ (.05) $ .02 ========= =========
Page 21 of 22 EX-12 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
3 months ended March 31, Year Ended ------------------- --------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- ------- ------- Income (loss) before income taxes (12,043) 8,042 117,922 104,077 71,240 49,817 36,396 Dividends and other received from nonconsolidated affiliates 2,952 0 9,168 4,624 10,430 1,432 0 ------- ------- ------- ------- ------- ------- ------- Total (9,091) 8,042 127,090 108,701 81,670 51,249 36,396 Fixed Charges Interest expense 31,832 25,701 135,766 75,076 30,080 20,752 7,669 Amortization of loan fees 649 424 2,220 1,451 506 1,004 82 Interest portion of rentals 4,747 1,480 16,044 6,120 424 361 262 ------- ------- ------- ------- ------- ------- ------- Total fixed charges 37,228 27,605 154,030 82,647 31,010 22,117 8,013 Preferred stock dividends Tax effect of preferred dividends 0 0 0 0 0 0 0 After tax preferred dividends 0 0 0 0 0 0 0 Total fixed charges and preferred dividends 37,228 27,605 154,030 82,647 31,010 22,117 8,013 Total earnings available for payment of fixed charges 25,185 35,647 281,120 191,348 112,680 73,366 44,409 ======= ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed Charges 0.68 1.29 1.83 2.32 3.63 3.32 5.54 ======= ======= ======= ======= ======= ======= ======= Rental fees and charges 59,338 18,503 200,550 76,500 5,299 4,510 3,273 Interest rate 8% 8% 8% 8% 8% 8% 8%
Page 22 of 22 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 MAR-31-1999 30,290,219 0 293,501,264 13,507,549 0 403,988,059 2,246,554,424 312,353,883 7,490,071,486 264,484,995 1,175,000,000 0 0 26,617,759 4,479,249,012 7,490,071,486 0 376,787,383 0 244,821,928 1,528,110 0 31,832,221 (12,043,380) 2,889,296 (12,736,060) 0 0 0 (12,736,060) (.05) (.05)
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