8-K 1 e8-k.txt FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) August 4, 2000 (August 1, 2000) Clear Channel Communications, Inc. (Exact name of registrant as specified in its charter) Texas (State of Incorporation) 1-9645 74-1787536 (Commission File Number) (I.R.S. Employer Identification No.) 200 East Basse Road San Antonio, Texas 78209 (210) 822-2828 (Address and telephone number of principal executive offices) 2 Clear Channel Communications, Inc. Form 8-K Item 2.(a) Acquisition or Disposition of Assets. On August 1, 2000, Clear Channel Communications, Inc., (the "Company" or "Registrant"), a Texas corporation, and SFX Entertainment, Inc., a Delaware corporation ("SFX"), consummated a merger (the "Merger") whereby CCU II Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("Sub"), was merged with and into SFX pursuant to the Agreement and Plan of merger (the "Merger Agreement"), dated February 29, 2000, as amended. As a result of the Merger, SFX has become a wholly-owned subsidiary of the Company. The Merger was a tax-free, stock-for-stock transaction. Pursuant to the terms and conditions set forth in the Merger Agreement, SFX Class A shareholders received 0.6 shares of Clear Channel Communications, Inc. common stock for each SFX share and SFX Class B shareholders received one share of Clear Channel Communications, Inc. common stock for each SFX share. The Company will issue an aggregate of approximately 40.9 million shares of Clear Channel Common Stock in exchange for shares of SFX Class A and Class B common stock. Item 2.(b) SFX is a diversified promoter, producer and venue operator for live entertainment events and is a fully integrated sports marketing and management company. SFX's operations include approximately 120 domestic venues including 16 amphitheaters and 28 international venues principally in the United Kingdom. Item 7.(a) Financial Statements of Businesses Acquired. The consolidated audited balance sheet of SFX as of December 31, 1999 and the consolidated statements of income and cash flows of SFX for the fiscal year ended December 31, 1999 and for the three months ended March 31, 2000 have been filed with the Securities and Exchange Commission (the "SEC") as part of the Company's Current Report on Form 8-K, dated June 14, 2000 and are incorporated herein by reference. 3 Item 7. (b) Pro Forma Financial Information. UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed consolidated financial statements give effect to the Merger. For accounting purposes, The Company will account for the Merger as a purchase of SFX; accordingly, the net assets of SFX have been adjusted to their estimated fair values based upon a preliminary purchase price allocation. The unaudited pro forma combined condensed consolidated balance sheet at March 31, 2000 gives effect to the Merger as if it occurred on March 31, 2000. The unaudited pro forma combined condensed consolidated statements of operations for the year ended December 31, 1999 and for the three months ended March 31, 2000 give effect to the Merger as if it had occurred on January 1, 1999. The unaudited pro forma combined condensed consolidated balance sheet was prepared based upon the historical balance sheets of the Company and SFX. The unaudited pro forma combined condensed consolidated statements of operations for year ended December 31, 1999 and for the three months ended March 31, 2000 was prepared based upon the historical statement of operations of the Company, adjusted to reflect the merger with Jacor Communications, Inc. as if such merger had occurred on January 1, 1999 ("Clear Channel Pro Forma") and the historical statement of operations of SFX. Certain amounts in the SFX historical financial statements have been reclassified to conform to the Company's presentation. The unaudited pro forma combined condensed consolidated financial statements exclude the effect of certain acquisitions of Clear Channel and SFX as these transactions were insignificant, individually and in the aggregate, to the financial position or results of operations of each company. The unaudited pro forma combined condensed consolidated financial statements should be read in conjunction with the historical financial statements of the Company and SFX. The unaudited pro forma combined condensed consolidated financial statements are not necessarily indicative of the actual results of operations or financial position that would have occurred had the Merger occurred on the dates indicated nor are they necessarily indicative of future operating results or financial position. 4 CLEAR CHANNEL AND SFX UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS OF DOLLARS) AT MARCH 31, 2000 ASSETS
CLEAR CHANNEL MERGER AND SFX CLEAR CHANNEL SFX PRO FORMA PRO FORMA HISTORICAL HISTORICAL ADJUSTMENTS(A) MERGER ------------- ---------- -------------- ------------- Current Assets: Cash and cash equivalents.......... $ 320,129 $ 276,142 $ (70,000) $ 526,271 Accounts receivable, net........... 712,375 112,683 -- 825,058 Other current assets............... 140,277 129,357 -- 269,634 ----------- ---------- ---------- ----------- Total Current Assets......... 1,172,781 518,182 (70,000) 1,620,963 Property, plant & equipment, net..... 2,595,254 688,738 -- 3,283,992 Intangible assets, net............... 12,067,774 1,601,329 2,278,340 15,947,443 Other assets: Restricted cash.................... 136 -- -- 136 Notes receivable................... 53,675 14,055 -- 67,730 Equity investments in, and advances to, nonconsolidated affiliates... 380,933 100,527 (21,341) 460,119 Other assets....................... 298,114 87,050 -- 385,164 Other investments.................. 953,964 -- (122,437) 831,527 ----------- ---------- ---------- ----------- TOTAL ASSETS................. $17,522,631 $3,009,881 $2,064,562 $22,597,074 =========== ========== ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable, accrued expenses and other current liabilities.... $ 642,588 $ 458,542 $ -- $ 1,101,130 Current portion of long-term debt............................. 42,235 14,480 -- 56,715 ----------- ---------- ---------- ----------- Total Current Liabilities.... 684,823 473,022 -- 1,157,845 Long-term debt....................... 4,698,997 1,418,088 42,438 6,159,523 Liquid yield options notes........... 492,309 -- -- 492,309 Deferred income taxes................ 1,349,217 27,817 (13,145) 1,363,889 Other long-term liabilities.......... 139,375 28,052 -- 167,427 Minority interest.................... 17,275 9,506 -- 26,781 Temporary equity..................... -- 17,026 -- 17,026 Shareholders' Equity: Common stock....................... 33,890 664 3,237 37,791 Additional paid-in capital......... 9,227,641 1,295,718 1,796,431 12,319,790 Common stock warrants.............. 250,587 -- -- 250,587 Retained earnings (accumulated deficit)......................... 256,731 (253,280) 253,280 256,731 Other comprehensive income......... 370,416 -- (24,411) 346,005 Other.............................. 2,304 (2,857) 2,857 2,304 Cost of shares held in treasury.... (934) (3,875) 3,875 (934) ----------- ---------- ---------- ----------- Total Shareholders' Equity... 10,140,635 1,036,370 2,035,269 13,212,274 ----------- ---------- ---------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....... $17,522,631 $3,009,881 $2,064,562 $22,597,074 =========== ========== ========== ===========
5 CLEAR CHANNEL AND SFX UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1999
CLEAR CHANNEL PRO FORMA AND SFX CLEAR CHANNEL SFX MERGER PRO FORMA PRO FORMA HISTORICAL ADJUSTMENTS(B) MERGER ------------- ---------- -------------- ------------- Net revenue...................... $2,949,807 $1,684,355 $ (8,340) $4,625,822 Operating expenses............... 1,824,192 1,478,813 9,264 3,312,269 Depreciation and amortization.... 817,060 142,583 80,104 1,039,747 Noncash compensation expense..... -- 7,250 -- 7,250 Merger and nonrecurring costs.... -- -- -- -- Corporate expenses............... 77,519 18,524 -- 96,043 ---------- ---------- -------- ---------- Operating income (loss).......... 231,036 37,185 (97,708) 170,513 Interest expense................. 232,979 100,825 (5,664) 328,140 Gain on disposition of assets.... 1,734 760 -- 2,494 Gain on disposition of representation contracts....... -- -- -- -- Other income -- net.............. 20,046 6,577 -- 26,623 ---------- ---------- -------- ---------- Income (loss) before income taxes, equity in earnings (loss) of nonconsolidated affiliates and extraordinary item........................... 19,837 (56,303) (92,044) (128,510) Income tax (expense) benefit..... (85,393) (1,597) (2,266) (89,256) ---------- ---------- -------- ---------- Income (loss) before equity in earnings (loss) of nonconsolidated affiliates and extraordinary item............. (65,556) (57,900) (94,310) (217,766) Equity in earnings (loss) of nonconsolidated affiliates..... 16,077 -- 4,903 20,980 ---------- ---------- -------- ---------- Income (loss) before extraordinary item............. $ (49,479) $ (57,900) $(89,407) $ (196,786) ========== ========== ======== ========== Income (loss) before extraordinary item per common share: Basic.......................... $ (0.15) $ (1.06) $ (0.52) ========== ========== ========== Diluted........................ $ (0.15) $ (1.06) $ (0.52) ========== ========== ==========
6 CLEAR CHANNEL AND SFX UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED MARCH 31, 2000
CLEAR CHANNEL PRO FORMA AND SFX CLEAR CHANNEL SFX MERGER PRO FORMA HISTORICAL HISTORICAL ADJUSTMENTS(B) MERGER ------------- ---------- -------------- ------------- Net revenue.................... $782,539 $ 427,889 $ (2,031) $1,208,397 Operating expenses............. 519,961 391,468 1,983 913,412 Depreciation and amortization................. 220,054 49,019 13,386 282,459 Noncash compensation expense... -- 69,897 -- 69,897 Merger and nonrecurring costs........................ -- 12,123 (7,602) 4,521 Corporate expenses............. 24,578 6,322 -- 30,900 -------- --------- -------- ---------- Operating income (loss)........ 17,946 (100,940) (9,798) (92,792) Interest expense............... 55,549 36,576 (1,302) 90,823 Gain on disposition of assets....................... -- -- -- -- Gain on disposition of representation contracts..... -- -- -- -- Other income -- net............ 398 3,168 -- 3,566 -------- --------- -------- ---------- Income (loss) before income taxes, equity in earnings (loss) of nonconsolidated affiliates and extraordinary item......................... (37,205) (134,348) (8,496) (180,049) Income tax (expense) benefit... (5,133) 17,257 (521) 11,603 -------- --------- -------- ---------- Income (loss) before equity in earnings (loss) of nonconsolidated affiliates and extraordinary item....... (42,338) (117,091) (9,017) (168,446) Equity in earnings (loss) of nonconsolidated affiliates... 2,936 -- 280 3,216 -------- --------- -------- ---------- Income (loss) before extraordinary item........... $(39,402) $(117,091) $ (8,737) $ (165,230) ======== ========= ======== ========== Income (loss) before extraordinary item per common share: Basic........................ $ (0.12) $ (1.77) $ (0.44) ======== ========= ========== Diluted...................... $ (0.12) $ (1.77) $ (0.44) ======== ========= ==========
7 CLEAR CHANNEL AND SFX NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA) Clear Channel and SFX unaudited pro forma combined condensed consolidated financial statements reflect the merger, accounted for as a purchase, as follows: SFX Class A common shares outstanding March 31, 2000 less shares held in treasury................................... 63,775,401 Less: Class A shares held by Clear Channel at March 31, 2000...................................................... (3,000,000) ----------- Adjusted Class A common stock outstanding................... 60,775,401 Share conversion number..................................... 0.60 ----------- Clear Channel's common stock to be issued to Class A holders................................................... 36,465,241 SFX Class B common shares outstanding March 31, 2000 (1:1 conversion)............................................... 2,545,557 ----------- Total Clear Channel common stock to be issued in the merger.................................................... 39,010,798 Estimated value per share (based on the average price between February 23, 2000 and March 2, 2000).............. $ 74.0089 ----------- $ 2,887,146 Estimated value of common stock options and other equity.... 208,904 Historical cost of SFX common shares held by Clear Channel................................................... 84,881 Estimated transaction costs................................. 70,000 ----------- Total estimated purchase price.................... $ 3,250,931 ===========
For purposes of these statements the total estimated purchase price was allocated as follows: Total estimated purchase price.............................. $3,250,931 Plus -- estimated fair value of long-term debt in excess of carrying value............................................ 42,438 Less -- SFX net assets at March 31, 2000.................... 1,036,370 Plus -- Historical cost of SFX investment not purchased..... 21,341 Plus -- elimination of SFX's existing net goodwill and other intangible assets......................................... 1,601,329 ---------- Estimated purchase price allocated to goodwill and other intangible assets......................................... $3,879,669 ==========
The estimated purchase price allocated to goodwill and other intangible assets of $3,879,669 will be amortized over a 20 year period using the straight-line method, which will result in annual amortization of $193,983. Clear Channel will be required to refinance certain outstanding SFX long-term debt. The unaudited pro forma combined condensed consolidated balance sheet is based on the assumption that SFX's debt holders will not tender their debt securities based on a change of control of SFX, although Clear Channel must offer to tender all of SFX's senior notes and notes at prices ranging from 100% to 101% of the principal amount of the notes. It is expected that the debt holders will not accept Clear Channel's tender offer, as the fair value of this debt is greater than the required offer at the time of the offer. 8 CLEAR CHANNEL AND SFX NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (A) The pro forma merger adjustments at March 31, 2000 are as follows:
INCREASE (DECREASE) ---------- (1) Decrease in cash resulting from estimated merger expenses including the $34.5 million proposed settlement to SFX shareholder suits. See "Litigation" on page 71 for further discussion of this settlement............................... $ (70,000) (2) Increase in intangible assets, net equal to the excess purchase price of the merger and the elimination of SFX's pre-existing intangible assets.............................. 2,278,340 (3) Decrease in equity investment in, and advances to, nonconsolidated affiliates resulting from the elimination of SFX investments not purchased............................... (21,341) (4) Decrease in other investments resulting from the elimination of Clear Channel's investment in SFX common stock........... (122,437) (5) Increase in long-term debt resulting from the mark-up of SFX's debt to fair value in excess of carrying value........ 42,438 (6) Decrease in deferred income taxes resulting from the elimination of deferred tax on unrealized gain related to Clear Channel's investment in SFX common stock.............. (13,145) (7) Increase in common stock to account for Clear Channel common stock given in the merger, net of SFX's outstanding shares, at $0.10 par value.......................................... 3,237 (8) Increase in additional paid-in capital to account for Clear Channel common stock given in the merger at $74.0089 per share less $0.10 par value ($2,883,245) plus the value of SFX stock options included in the merger ($208,904) less SFX's additional paid-in capital balance ($1,295,718)....... 1,796,431 (9) Increase in retained earnings (accumulated deficit) to eliminate SFX's existing accumulated deficit balance........ 253,280 (10) Decrease in other comprehensive income resulting from the elimination of Clear Channel's unrealized gain on their investment in SFX common stock.............................. (24,411) (11) Increase in other equity resulting from the elimination of SFX's deferred compensation................................. 2,857 (12) Increase in cost of shares held in treasury resulting from the cancelation of SFX's shares held in treasury............ 3,875
9 CLEAR CHANNEL AND SFX NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (B) The pro forma merger adjustments for the year ended December 31, 1999 and for the three months ended March 31, 2000 are as follows:
INCREASE (DECREASE) TO INCOME -------------------- 12/31/99 3/31/00 --------- -------- (13) Decrease in revenue due to the elimination of services SFX provided to Clear Channel and services Clear Channel provided to SFX and the reclassification of earnings from equity method investments out of net revenue (SFX's policy) into equity in earnings of nonconsolidated affiliates (Clear Channel's policy)...................... $ (8,340) $ (2,031) (14) Decrease in operating expense due to the elimination of services SFX provided to Clear Channel and services Clear Channel provided to SFX of $3,437 and $1,751 for 12/31/99 and 3/31/00, respectively, offset by the increase in operating expenses resulting from change in classification of integration and start-up costs of $12,701 and $3,734 for 12/31/99 and 3/31/00, respectively, from treatment as depreciation expense (SFX's policy) to treatment as operating expense (Clear Channel's policy)........................................ (9,264) (1,983) (15) Increase in amortization expense resulting from the additional goodwill created by the merger, other intangible assets acquired in the merger and a change in the life of intangible assets amortization from an average of 15 years (SFX's policy) to an average of 20 years (Clear Channel's policy) of $92,805 and $17,120 for 12/31/99 and 3/31/00, respectively, partially offset by the reclassification of $12,701 and $3,734 for 12/31/99 and 3/31/00, respectively, from depreciation expense to operating expense........................................ (80,104) (13,386) (16) Decrease in merger and non-recurring costs due to the elimination of direct merger related expenses............ -- 7,602 (17) Decrease in interest expense resulting from the amortization of premium on long-term debt resulting from the mark-up to fair value................................ 5,664 1,302 (18) Increase in income tax expense associated with the tax effect of adjustment (15) at Clear Channel's assumed tax rate of 40%.............................................. (2,266) (521) (19) Increase in equity in earnings (loss) of nonconsolidated affiliates resulting from the reclassification of earnings from equity method investments out of revenue (SFX's policy) into equity in earnings of nonconsolidated affiliates (Clear Channel's policy)...................... 4,903 280
10 CLEAR CHANNEL AND SFX NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pro forma basic and diluted share information is as follows:
(IN THOUSANDS) -------------------- 12/31/99 3/31/00 --------- -------- Basic: Clear Channel pro forma weighted-average shares outstanding............................................... 340,249 338,803 SFX weighted-average shares outstanding...................... 58,204 66,416 Decrease weighted-average common stock outstanding to account for Clear Channel's common stock given in the merger at the share conversion number of 0.60 for SFX's Class A common stock and 1.0 for SFX's Class B common stock....... (19,202) (27,406) -------- -------- Clear Channel and SFX pro forma merger weighted-average shares outstanding........................................ 379,251 377,813 ======== ======== Diluted: Clear Channel pro forma weighted-average shares outstanding............................................... 358,149 374,994 SFX weighted-average shares outstanding...................... 61,542 71,108 Decrease weighted-average common stock outstanding to account for Clear Channel's common stock given in the merger and to account for the dilution effect SFX's common stock warrants, employee stock options and other dilutive shares have on the Company at the share conversion number of 0.60 for SFX's Class A common stock and 1.0 for SFX's Class B common stock.............................................. (20,538) (29,282) -------- -------- Clear Channel and SFX pro forma merger weighted-average shares outstanding........................................ 399,153 416,820 ======== ========
11 CLEAR CHANNEL UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1999
JACOR CLEAR HISTORICAL CLEAR CHANNEL 1/1 TO 5/4 PRO FORMA CHANNEL HISTORICAL 1999 ADJUSTMENT(A) PRO FORMA ---------- ---------- ------------- ---------- Net revenue.................................. $2,678,160 $271,647 $ -- $2,949,807 Operating expenses........................... 1,632,115 192,077 -- 1,824,192 Depreciation and amortization................ 722,233 46,951 47,876 817,060 Corporate expenses........................... 70,146 7,373 -- 77,519 ---------- -------- --------- ---------- Operating income (loss)...................... 253,666 25,246 (47,876) 231,036 Interest expense............................. 192,321 39,731 927 232,979 Gain on disposition of assets................ 138,659 130,385 (267,310) 1,734 Other income (expense) -- net................ 20,209 (163) -- 20,046 ---------- -------- --------- ---------- Income (loss) before income taxes, equity in earnings (loss) of nonconsolidated affiliates and extraordinary item.......... 220,213 115,737 (316,113) 19,837 Income tax (expense) benefit................. (150,635) (52,300) 117,542 (85,393) ---------- -------- --------- ---------- Income (loss) before equity in earnings of nonconsolidated affiliates and extraordinary item....................................... 69,578 63,437 (198,571) (65,556) Equity in earnings of nonconsolidated affiliates................................. 16,077 -- -- 16,077 ---------- -------- --------- ---------- Income (loss) before extraordinary item...... $ 85,655 $ 63,437 $(198,571) $ (49,479) ========== ======== ========= ========== Income (loss) before extraordinary item per common share: Basic...................................... $ 0.27 $ (0.15) ========== ========== Diluted.................................... $ 0.26 $ (0.15) ========== ==========
12 CLEAR CHANNEL NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) JACOR MERGER The Jacor acquisition pro forma adjustments exclude the effect of any divestiture of stations, which were required for regulatory approval, as Clear Channel intends the funds received from any divestiture to be reinvested in acquisitions of similar stations in other markets. (A) The pro forma merger adjustments for the year ended December 31, 1999 are as follows:
INCREASE (DECREASE) TO INCOME ------------------- (1) Increase in amortization expense resulting from the additional goodwill created by the merger and a change in the life of goodwill amortization from 40 years (Jacor's policy) to 25 years (Clear Channel's policy). This amortization expense results in a permanent difference and will not be deductible for federal income tax purposes................................... $ (47,876) (2) Increase in interest expense associated with the increased long-term debt resulting from the estimated merger expenses of $50,000............................ (927) (3) Decrease in gain on disposition of assets as this gain is associated directly with the merger of Jacor and is a non-recurring item.................................. (267,310) (4) Decrease in income tax expense associated with the tax effect of adjustments (2) and (3) at Clear Channel's assumed tax rate of 40%............................... 117,542
13 Item 7.(c) Exhibits EXHIBIT NO. DESCRIPTION 2.1 -- Agreement and Plan of Merger dated as of February 28, 2000, among Clear Channel, CCU II Merger Sub, Inc. and SFX Entertainment, Inc. (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K filed February 29, 2000.) 14 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 hereunto duly authorized. Clear Channel Communications, Inc. Date August 4, 2000 By /s/HERBERT W. HILL, JR. Herbert W. Hill, Jr. Senior Vice President/ Chief Accounting Officer 15 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- 2.1 -- Agreement and Plan of Merger dated as of February 28, 2000, among Clear Channel, CCU II Merger Sub, Inc. and SFX Entertainment, Inc. (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K filed February 29, 2000.)