10-K 1 d94835e10-k.txt FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2001 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K |x| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2001, or | | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to . -------- ---------- COMMISSION FILE NUMBER 1-9645 CLEAR CHANNEL COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) Texas 74-1787539 (State of Incorporation) (I.R.S. Employer Identification No.) 200 East Basse Road San Antonio, Texas 78209 Telephone (210) 822-2828 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.10 par value per share. Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. --- On March 8, 2002, the aggregate market value of the Common Stock beneficially held by non-affiliates of the Company was approximately $28.3 billion. (For purposes hereof, directors, executive officers and 10% or greater shareholders have been deemed affiliates). On March 8, 2002, there were 599,518,802 outstanding shares of Common Stock, excluding 58,599 shares held in treasury. DOCUMENTS INCORPORATED BY REFERENCE Portions of our Definitive Proxy Statement for the 2002 Annual Meeting, expected to be filed within 120 days of our fiscal year end, are incorporated by reference into Part III. CLEAR CHANNEL COMMUNICATIONS, INC. INDEX TO FORM 10-K
Page Number PART I. Item 1. Business................................................................................ 3 Item 2. Properties.............................................................................. 31 Item 3. Legal Proceedings....................................................................... 32 Item 4. Submission of Matters to a Vote of Security Holders..................................... 32 PART II. Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.................... 33 Item 6. Selected Financial Data................................................................. 34 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 35 Item 7A. Quantitative and Qualitative Disclosures about Market Risk ............................. 61 Item 8. Financial Statements and Supplementary Data ............................................ 62 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................... 99 PART III. Item 10. Directors and Executive Officers of the Registrant...................................... 100 Item 11. Executive Compensation.................................................................. 102 Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 102 Item 13. Certain Relationships and Related Transactions.......................................... 102 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................ 103
PART I ITEM 1. BUSINESS THE COMPANY Clear Channel Communications, Inc. is a diversified media company with three reportable business segments: radio broadcasting, outdoor advertising and live entertainment. We were incorporated in Texas in 1974. As of December 31, 2001, we owned, programmed, or sold airtime for 1,240 domestic radio stations, which includes those stations that we operated pursuant to a local marketing agreement or joint sales agreement (FCC licenses not owned by Clear Channel) and owned a leading national radio network. In addition, at December 31, 2001, we had equity interests in various domestic and international radio broadcasting companies. We were also one of the world's largest outdoor advertising companies based on total advertising display inventory of 156,623 domestic display faces and 573,416 international display faces. In addition, we were one of the world's largest diversified promoters, producers and venue operators for live entertainment events. As of December 31, 2001, we owned or operated 104 live entertainment venues domestically and 31 live entertainment venues internationally, which includes 36 domestic venues and three international venue where we either own a non-controlling interest or have booking promotions or consulting agreements. We also own or program 19 television stations, own a media representation firm and represent professional athletes, all of which is within the category "other". The following table presents each segment's percentage of total revenues for the year ended December 31, 2001:
Percentage of Segment Revenues ------- ------------- Radio Broadcasting 43% Outdoor Advertising 22% Live Entertainment 31% Other 4% ---- Total 100%
Our principal executive offices are located at 200 East Basse Road, San Antonio, Texas 78209 (telephone: 210-822-2828). RADIO BROADCASTING Radio Stations As of December 31, 2001, we owned, programmed or sold airtime for 368 AM and 797 FM domestic radio stations, of which, 478 radio stations were in the top 100 markets, according to the Arbitron fall 2001 ranking of U.S. markets. In addition, we currently own various interests in domestic and international radio broadcasting companies, which we account for under the equity method of accounting. Our radio stations employ various formats for their programming. A station's format is important in determining the size and characteristics of its listening audience. Advertisers tailor their advertisements to appeal to selected population or demographic segments. Radio Networks As of December 31, 2001, we owned one of the leading national radio networks, based on a total audience of over 180 million weekly listeners. The network syndicates talk programming including such talent as Rush Limbaugh, Dr. Laura Schlessinger, Jim Rome, and music programming including such 3 talent as Rick Dees and Casey Kasem. We also operated several news and agricultural radio networks serving Oklahoma, Texas, Iowa, Kentucky, Virginia, Alabama, Tennessee, Florida and Pennsylvania. Most of our radio broadcasting revenue is generated from the sale of national and local advertising. Additional revenue is generated from network compensation payments, barter and other miscellaneous transactions. Advertising rates charged by a radio station are based primarily on the station's ability to attract audiences having certain demographic characteristics in the market area which advertisers want to reach, as well as the number of stations competing in the market. Advertising rates generally are the highest during morning and evening drive-time hours. Depending on the format of a particular station, there are predetermined numbers of advertisements that are broadcast each hour. We determine the number of advertisements broadcast hourly that can maximize available revenue dollars without jeopardizing listening levels. Although the number of advertisements broadcast during a given time period may vary, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. Our radio broadcasting results are dependent on a number of factors, including the general strength of the economy, population growth, ability to provide popular programming, relative efficiency of radio broadcasting compared to other advertising media, signal strength, technological capabilities and governmental regulations and policies. OUTDOOR ADVERTISING As of December 31, 2001, we owned or operated a total of 730,039 advertising display faces. We currently provide outdoor advertising services in over 46 domestic markets and over 65 international countries. Our display faces include billboards of various sizes, wallscapes, transit displays and street furniture displays. Additionally, we currently own various interests in outdoor advertising companies, which we account for under the equity method of accounting. Revenue is generated from both local and national sales. Local advertisers tend to have smaller advertising budgets and require greater assistance from our production and creative personnel to design and produce advertising copy. In local sales, we often expend more sales efforts on educating customers regarding the benefits of outdoor media and helping potential clients develop an advertising strategy using outdoor advertising. While price and availability are important competitive factors, service and customer relationships are also critical components of local sales. Although national revenue typically does not involve the additional sales effort, national revenue generally results in higher advertising rates. Advertising rates are based on a particular display's exposure, or number of "impressions" delivered, in relation to the demographics of the particular market and its location within that market. The number of "impressions" delivered by a display is measured by the number of vehicles or pedestrians passing the site during a defined period and is weighted to give effect to such factors as its proximity to other displays, the speed and viewing angle of approaching traffic, the national average of adults riding in vehicles and whether the display is illuminated. The number of impressions delivered by a display is verified by independent auditing companies. Our billboards consist of various sized panels on which advertising copy is displayed. Bulletin advertising copy is either printed with computer-generated graphics on a single sheet of vinyl that is "wrapped" around an outdoor advertising structure, placed on lithographed or silk-screened paper sheets supplied by the advertiser that are pasted and applied like wallpaper to the face of the display, or hand 4 painted and attached to the structure. Billboards are generally mounted on structures we own and are located on sites that are either owned or leased by us or on a site which we have acquired a permanent easement. Lease contracts are negotiated with both public and private landlords. Wallscapes are essentially billboards painted on vinyl surfaces or directly on the sides of buildings, typically four stories or less. Because of their greater impact and higher cost, larger billboards are usually located on major highways and freeways. Some of our billboards are illuminated, and located at busy traffic interchanges to offer maximum visual impact to vehicular audiences. Wallscapes are located on major freeways, commuter and tourist routes and in downtown business districts. Smaller billboards are concentrated on city streets targeting pedestrian traffic. Transit advertising incorporates all advertising on or in transit systems, including the interiors and exteriors of buses, trains, trams and taxis, and advertising at rail stations and airports. Transit advertising posters range from vinyl sheets, which are applied directly to transit vehicles or to billboards and panels mounted in station or airport locations. Transit advertising contracts are negotiated with public transit authorities and private transit operators, either on a fixed revenue guarantee or a revenue-share basis. Street furniture panels are developed and marketed under our global Clear Channel Adshel brand. Street furniture panels include bus shelters, free standing units, pillars and columns. The most numerous are bus shelters which are back illuminated and reach vehicular and pedestrian audiences. Street furniture is growing in popularity with local authorities especially internationally and in the larger domestic markets. Bus shelters are usually constructed, owned and maintained by the outdoor service provider under revenue-sharing arrangements with a municipality or transit authority. Large street furniture contracts are usually won in a competitive tender and last between 10 and 15 years. Tenders are won on the basis of revenues and community-related products offered to municipalities, including bus shelters, public toilets and information kiosks. LIVE ENTERTAINMENT We are one of the world's leading promoter, producer and marketer of live entertainment. During 2001, we promoted or produced over 26,000 events, including music concerts, theatrical shows and specialized sport events. Through our large number of venues and strong presence in each of the markets we serve, our live entertainment operations are able to provide integrated promotion, production, venue operation, marketing and event management services for a broad variety of live entertainment events. We reached more than 66 million people through all of these activities during 2001. As of December 31, 2001, we owned or operated a total of 68 domestic venues and 28 international venues. Additionally, we currently own various interests in live entertainment companies, which we account for under the equity method of accounting. As a promoter, we typically book talent or tours, sell tickets and advertise the event to attract ticket buyers. For the event, we either provide our owned venue or we rent a venue, we arrange for production services, and sell sponsorships. When we provide our owned venue, we generally receive a percentage of revenues from concessions, merchandising, parking and premium box seats. As producer, we typically develop event content, hire artistic talent, schedule performances in select venues, promote tours and sell sponsorships. We derive revenues from guarantees and from profit sharing agreements with promoters, a percentage of the promoters' ticket sales, merchandising, sponsorships, licensing and the exploitation of intellectual property and other rights related to the 5 production. We derive revenues from our venue operations primarily from ticket sales, rental income, corporate sponsorships and advertising, concessions, and merchandise. A venue operator typically receives, for each event it hosts, a fixed fee or percentage of ticket sales for use of the venue, as well as fees representing a percentage of total concession sales from the vendors and total merchandise sales from the performer or tour producer. We typically receive 100% of sponsorship and advertising revenues and a rebate of a portion of ticketing surcharges. Corporate sponsorship includes the naming of venues such as the Verizon Wireless Amphitheater and the Ford Theater for the Performing Arts. We also designate providers of concessions and "official" event or tour sponsors such as credit card companies, phone companies and film manufacturers, among others. Sponsorship arrangements can provide significant additional revenues at negligible incremental cost. We believe that the national venue network we have assembled will likely attract a larger number of major corporate sponsors and enable us to sell national sponsorship rights at a premium over local or regional sponsorship rights. We also believe that our relationships with advertisers will enable us to better utilize available advertising space, and that the aggregation of our audiences nationwide will create the opportunity for advertisers to access a nationwide market. Our outdoor venues are primarily used in the summer months and do not generate substantial revenue in the late fall, winter and early spring. The theatrical presenting season generally runs from September through May. The sports marketing businesses primarily earn revenue ratably over the year, whereas the motor sports business operates primarily in the winter and event management revenue is earned as the events occur. OTHER Television As of December 31, 2001, we owned, programmed or sold airtime for 19 television stations. Our television stations are affiliated with various television networks, including ABC, CBS, NBC, FOX, UPN, PAX and WB. Television revenue is generated primarily from the sale of local and national advertising, as well as from fees received from the affiliate television networks. Advertising rates depend primarily on the quantitative and qualitative characteristics of the audience we can deliver to the advertiser. Local advertising is sold by our sales personnel, while national advertising is sold by national sales representatives. The primary sources of programming for our ABC, NBC, CBS and FOX affiliated television stations are their respective networks, which produce and distribute programming in exchange for each station's commitment to air the programming at specified times and for commercial announcement time during the programming. We supply the majority of programming to our UPN, PAX and WB affiliates by selecting and purchasing syndicated television programs. We compete with other television stations within each market for these broadcast rights. The second source of programming is the production of local news programming on the ABC, CBS, NBC and FOX affiliate stations in Jacksonville, Florida; Harrisburg, Pennsylvania; Memphis, Tennessee; Mobile, Alabama; Cincinnati, Ohio; Albany, New York; San Antonio, Texas; and Salt Lake City, Utah. Local news programming traditionally has appealed to a target audience of adults 25 to 54 years of age. Because these viewers generally have increased buying power relative to viewers in other 6 demographic groups, they are one of the most sought-after target audiences for advertisers. With such programming, these stations are able to attract advertisers to which they otherwise would not have access. Media Representation We own the Katz Media Group, a full-service media representation firm that sells national spot advertising time for clients in the radio and television industries throughout the United States. Katz Media is one of the largest media representation firms in the country, representing over 2,400 radio stations, 370 television stations and growing interests in the representation of cable television system operators. Katz Media generates revenues primarily through contractual commissions realized from the sale of national spot advertising air time. National spot advertising is commercial air time sold to advertisers on behalf of radio and television stations and cable systems located outside the local markets of those stations and systems. Katz Media represents its media clients pursuant to media representation contracts, which typically have initial terms of up to ten years in length. Sports Representation We operate in the sports representation business. Our full-service sports marketing and management operations specialize in the representation of professional athletes, integrated event management, television programming/production, and marketing consulting services. Among our clients are several hundred professional athletes, including Michael Jordan (basketball), Kobe Bryant (basketball), Roger Clemens (baseball), Greg Norman (golf), Andre Agassi (tennis), Jerry Rice (football) and David Beckham (soccer - UK). Our sports representation business generates revenue primarily through the negotiation of professional sports contracts and endorsement contracts for clients. The amount of endorsement and other revenues that our clients generate is a function of, among other things, the clients' professional performances and public appeal. COMPANY STRATEGY Since our inception, we have focused on helping our clients distribute their marketing messages in the most efficient ways possible. We believe our ultimate success is measured by how well we assist our clients in selling their products and services. To this end, we have assembled a national platform of media assets designed to provide the most efficient and cost-effective ways for our clients to reach consumers. These assets are comprised of radio and television broadcasting assets, outdoor advertising displays and live entertainment venues and productions. We have combined these assets with the talent and motivation of our entrepreneurial managers to create strong internal growth. We plan to continue this effort in order to serve our clients, listeners, viewers, audiences and investors. A portion of our growth has been achieved through acquiring highly complementary assets in radio and television broadcasting, outdoor advertising and live entertainment. We have found that geographically diversified assets give our clients more flexibility in the distribution of their messages, and therefore allows us to provide these clients with a higher level of service. To this end, we evaluate potential acquisitions based on the returns they can potentially provide on invested capital, as well as the positive impact they might have on our existing businesses. In addition, given our experience in the industries in which we operate, we are often able to improve the operations of assets we acquire, thus further enhancing our value of those assets. 7 Additionally, we seek to create situations in which we own more than one type of medium in the same market. Aside from the provision of added flexibility to our clients, this "cross-ownership" allows us ancillary benefits, such as the use of otherwise vacant outdoor advertising space to promote our broadcasting assets, or the sharing of on-air talent across our broadcasting assets to promote one of our live entertainment events or venues. To support our radio broadcasting, outdoor advertising and live entertainment strategies, we have decentralized our operating structure in order to place authority, autonomy and accountability at the market level which provides local management with tools necessary to serve our clients. We believe that one of our strongest competitive advantages is our unique blend of highly experienced corporate and local market management. We believe that the combination of historically stable revenue growth within the industries we operate, coupled with a fixed expense structure and minimal requirements for ongoing capital expenditures, as well as our financial discipline, gives us an excellent forum in which to generate free cash flow and provide value to our investors. RADIO BROADCASTING Our radio broadcasting strategy entails improving the ongoing operations of our existing stations, as well as the acquisition of stations. Our acquisition strategy has created a national footprint that allows us to deliver targeted messages for specific audiences to advertisers on a local, regional, and national basis. We believe in clustering our radio stations in markets thereby allowing us to offer our advertisers more advertising options that can reach many audiences. We believe owning multiple radio stations in a market allows us to provide our listeners with a more diverse programming selection and a more efficient means for our advertisers to reach those listeners. By clustering our stations, we are also able to operate our stations with more highly skilled local management teams and eliminate duplicative operating and overhead expenses. In addition to the economies of scale associated with our national footprint and our clustering of stations in our markets, our management seeks to improve the performance of our existing stations through effective programming, reduction of costs, and aggressive promotion, marketing, and sales. By complementing our radio operations with our other businesses, we are able to increase revenue and profitability through synergies such as cross selling and cross promoting, utilizing our outdoor advertising and entertainment operations. OUTDOOR ADVERTISING Our outdoor advertising strategy involves expanding our market presence and improving the operating results of our existing operations. By acquiring additional displays in our existing markets and expanding into new markets. We focus on attracting new categories of advertisers to the outdoor medium through significant investments in sales, marketing, creative, and research services. We take advantage of technological advances that increase our sales force productivity, production department efficiency, and the quality of our product. We will continue to take advantage of the fragmented outdoor advertising industry in our international markets, which presents us with opportunities to increase our profitability both from our existing operations and from acquisitions. LIVE ENTERTAINMENT Our recent entry into live entertainment operations allowed us to take advantage of the natural synergies between radio and live music events and to gain immediate industry leadership. We can now leverage our broadcasting assets to reach listeners who have an affinity for music to promote our live entertainment events and ultimately increase ticket revenue. Our strategy involves improving operating 8 results driven primarily by our ability to increase the utilization of venues, the number of tickets sold per event, sponsorship opportunities, and radio audiences. We strive to form strategic alliances with top brands for marketing opportunities, complete our footprint with investments in music and theater, and foster collaborations with our other media businesses. RECENT DEVELOPMENTS The Ackerley Group Merger On October 5, 2001, we entered into a merger agreement to acquire The Ackerley Group, Inc. Ackerley is a diversified media company with outdoor, television, radio and interactive media assets. We structured the Ackerley merger as a tax-free, stock-for-stock transaction. Each share of Ackerley common stock will be converted into the right to receive .35 shares of our common stock on a fixed exchange basis, valuing the merger, based on average share value at the signing of the merger agreement, at approximately $474.9 million plus the assumption of Ackerley's debt, which was approximately $290.6 million at December 31, 2001. This merger is subject to regulatory approval under the federal communications laws and other closing conditions. We anticipate that this merger will close during the first half of 2002. We cannot be assured that we can complete the merger with Ackerley in a timely manner or on the terms described in the document, if at all. Governmental authorities may require the combined company to divest assets or submit to various operating restrictions before granting the authorizations and approvals necessary to complete the merger. We expect to be required to divest radio or television stations in five markets or geographical areas in connection with the merger. We cannot be assured that the completion of such divestitures will be at a fair market price or that the reinvestment of the proceeds or exchange of assets will produce an operating profit at the same level as the divested assets or a commensurate rate of return on the amount of its investment. These divestitures and operating restrictions could adversely affect the value of the combined company. Future Acquisitions We frequently evaluate strategic opportunities both within and outside our existing lines of business and from time to time enter into letters of intent to purchase assets. Although we have no definitive agreements with respect to significant acquisitions not set forth in this report, we expect from time to time to pursue additional acquisitions and may decide to dispose of certain businesses. Such acquisitions or dispositions could be material. Public Offerings On October 26, 2001, we completed a debt offering of $750.0 million 6% Senior Notes due November 1, 2006. Interest is payable on May 1 and November 1 of each year. The first interest payment on the notes will be made on May 1, 2002. Net proceeds of approximately $744.1 million were used to reduce the outstanding balance of our reducing revolving credit facility. EMPLOYEES At February 28, 2002 we had approximately 29,500 domestic employees and 6,700 international employees: approximately 35,500 in operations and approximately 700 in corporate related activities. In 9 addition, our live entertainment operations hire approximately 20,000 seasonal employees during peak time periods. OPERATING SEGMENTS Clear Channel consists of three reportable operating segments: radio broadcasting, outdoor advertising, and live entertainment. The radio broadcasting segment includes radio stations for which we are the licensee and for which we program and/or sell air time under local marketing agreements or joint sales agreements. The radio broadcasting segment also operates radio networks. The outdoor advertising segment includes advertising display faces for which we own or operate under lease management agreements. The live entertainment segment includes venues that we own or operate, the production of Broadway shows and theater operations. Information relating to the operating segments of our radio broadcasting, outdoor advertising and live entertainment operations for 2001, 2000 and 1999 are included in "Note K: Segment Data" in the Notes to Consolidated Financial Statements in Item 8 filed herewith. The following table sets forth certain selected information with regard to our radio broadcasting stations, outdoor advertising display faces and live entertainment venues that we own or operate. At December 31, 2001, we owned, programmed, or sold airtime for 368 AM and 797 FM radio stations. At December 31, 2001, we owned or operated 156,623 domestic display faces and 573,416 international display faces. We also owned or operated 96 live entertainment venues at December 31, 2001.
Radio Outdoor Live Market Broadcasting Advertising Entertainment Market Rank* Stations Display Faces Venues ------ ----- -------- ------------- ------ New York, NY 1 4 16,334 4 Los Angeles, CA 2 8 17,786 3 Chicago, IL 3 6 15,410 2 San Francisco, CA 4 7 5,112 5 Dallas, TX 5 6 5,402 Philadelphia, PA 6 6 4,037 4 Washington, DC 7 8 3,092 4 Boston, MA 8 4 4,720 5 Houston, TX 9 8 4,945 2 Detroit, MI 10 7 25 2 Atlanta, GA 11 6 7,044 3 Miami, FL 12 7 5,625 1 Seattle, WA 14 90 1 Phoenix, AZ 15 8 910 1 Minneapolis, MN 16 7 1,010 1 San Diego, CA 17 8 771 Long Island, NY 18 3 St. Louis, MO 19 6 302 2 Baltimore, MD 20 3 1,027 Tampa, FL 21 8 2,186 Denver, CO 22 7 613 1 Pittsburgh, PA 23 6 39 2 Portland, OR 24 5 27
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Radio Outdoor Live Market Broadcasting Advertising Entertainment Market Rank* Stations Display Faces Venues ------ ----- -------- ------------- ------ Cleveland, OH 25 6 950 Cincinnati, OH 26 8 14 3 Sacramento, CA 27 4 822 2 Riverside, CA 28 4 Kansas City, KS/MO 29 57 2 San Jose, CA 30 2 865 San Antonio, TX 31 6 3,371 1 Milwaukee, WI 32 6 1,748 1 Salt Lake City, UT 34 7 48 Providence, RI 35 3 Columbus, OH 36 5 1,232 1 Charlotte, NC 37 5 1 Norfolk, VA 38 3 11 2 Orlando, FL 39 7 2,849 Indianapolis, IN 40 3 1,588 2 Las Vegas, NV 41 4 9,865 Greensboro, NC 42 4 Austin, TX 43 6 10 Nashville, TN 44 5 35 1 New Orleans, LA 45 7 7,440 1 Raleigh, NC 46 4 10 1 West Palm Beach, FL 47 5 14 2 Memphis, TN 48 6 2,144 Hartford, CT 49 5 20 2 Jacksonville, FL 52 6 1,025 Rochester, NY 53 7 Oklahoma City, OK 54 6 1,083 Louisville, KY 55 8 17 Richmond, VA 56 6 13 Birmingham, AL 57 6 Dayton, OH 58 8 Greenville, SC 60 6 Albany, NY 61 7 1 Honolulu, HI 62 7 Brownsville & McAllen, TX 63 2 2 Tucson, AZ 64 6 1,237 Tulsa, OK 65 6 1,113 Grand Rapids, MI 66 6 Wikes Barre - Scranton, PA 67 38 Fresno, CA 68 3 109 Allentown, PA 69 5 Ft Myers, FL 70 8 Knoxville, TX 71 13 Albuquerque, NM 72 7 1,248 1 Akron, OH 73 3 336 Omaha, NE 74 4
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Radio Outdoor Live Market Broadcasting Advertising Entertainment Market Rank* Stations Display Faces Venues ------ ----- -------- ------------- ------ Wilmington, DE 75 4 1,075 Monterey, CA 76 6 48 El Paso, TX 77 5 1,330 Harrisburg, PA 78 2 36 Sarasota, FL 79 6 Syracuse, NY 79 7 6 Toledo, OH 81 7 Springfield, MA 82 4 Baton Rouge, LA 83 6 Greenville, NC 84 Little Rock, AR 85 5 20 Gainsville-Ocala, FL 86 1,415 Stockton, CA 87 3 19 Columbia, SC 88 6 1 Des Moines, IA 89 7 681 Bakersfield, CA 90 6 75 Mobile, AL 91 5 Wichita, KS 92 4 692 Charleston, SC 93 7 Spokane, WA 94 6 19 Daytona Beach, FL 95 Colorado Springs, CO 96 2 17 Madison, WI 97 6 12 Melbourne-Titusville-Cocoa, FL 100 4 817 Various U.S. Cities 101-150 144 3,656 1 Various U.S. Cities 151-200 142 1,478 Various U.S. Cities 201-250 131 156 Various U.S. Cities 251+ 101 430 Various U.S. Cities unranked 169 8,806 INTERNATIONAL: Australia - New Zealand (a), (b) n/a Baltics and Russia n/a 5,041 Belgium n/a 13,888 Brazil n/a 6,017 Canada (b) n/a 1,371 1 Chile n/a 945 China (b) n/a Czech Republic (a) n/a Denmark n/a 4,681 Finland n/a 1,887 France n/a 140,678 Greece n/a 521 Holland n/a 1,125 Hong Kong (b) n/a India n/a 343
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Radio Outdoor Live Market Broadcasting Advertising Entertainment Market Rank* Stations Display Faces Venues ------ ----- -------- ------------- ------ Ireland n/a 5,614 Italy (b) n/a 15,632 Korea (b) n/a Malaysia (b) n/a Mexico (a) n/a 2,794 Netherlands n/a Norway (a) (b) n/a 10,566 Peru n/a 2,047 Poland n/a 9,726 Singapore (b) n/a 125 Spain n/a 27,763 Sweden n/a 26,710 1 Switzerland n/a 14,343 Taiwan n/a 424 Thailand (b) n/a Turkey n/a 1,439 United Kingdom (a) n/a 56,098 26 Small transit displays (d) n/a 223,638 ----- ------- ----- Total 1,165 (a) 730,039 (b) 96 (c) ===== ======= =====
* Per Arbitron Rankings for Fall 2001 ---------- (a) Excluded from the 1,165 radio stations owned or operated by Clear Channel are 75 radio stations programmed pursuant to a local marketing agreement or a joint sales agreement (FCC licenses not owned by Clear Channel), two radio stations programmed by another party pursuant to a local marketing agreement or a joint sales agreement and four Mexican radio stations that we provide programming to and sell airtime under exclusive sales agency arrangements. Also excluded are radio stations in Australia, New Zealand, Czech Republic, Mexico, Norway and The United Kingdom. We own a 50%, 33%, 50%, 40%, 50% and 32% equity interest in companies that have radio broadcasting operations in these markets, respectively. We also own a 26% non-voting equity interest in Hispanic Broadcasting Corporation, a leading domestic Spanish-language radio broadcaster. Radio stations owned or operated by Hispanic Broadcasting Corporation are also excluded from the above table. (b) Excluded from the 730,039 outdoor display faces owned or operated by Clear Channel are display faces in Australia - New Zealand, Canada, China, Hong Kong, Italy, Korea, Malaysia, Norway, Singapore and Thailand. We own a 50%, 50%, 46.1%, 50%, 25%, 30%, 49%, 50%, 30% and 31.9% equity interest in companies that have outdoor advertising operations in these markets, respectively. (c) Venues include 52 theaters, 33 amphitheaters, 8 clubs and 3 arenas. Of these 96 venues, we own 30, lease 43 with lease expiration dates from August 2000 to November 2058, lease 4 with lease terms in excess of 100 years, and operate 19 under various operating agreements. Excluded from the 96 live entertainment venues owned or operated by Clear Channel are 16 venues in which we own a non-controlling interest and 23 venues with which we have a booking, promotions or consulting agreement. 13 (d) Small transit displays are small display faces on the interior and exterior of various public transportation vehicles. Below is a discussion of our operations within each segment that are not presented in the above table. RADIO BROADCASTING In addition to the radio stations listed above, our radio broadcasting segment includes a national radio network that produces more than 100 syndicated radio programs for more than 7,800 radio stations including Rush Limbaugh, The Dr. Laura Show and The Rick Dees Weekly Top 40, which are three of the top rated radio programs in the United States. We also own various sports, news and agriculture networks. LIVE ENTERTAINMENT In addition to the live entertainment venues listed above, our live entertainment segment produces and presents touring and original Broadway & Family shows. Touring Broadway shows are typically revivals of previous commercial successes or new productions of theatrical shows currently playing on Broadway in New York City. We invest in original Broadway productions as a lead producer or as a limited partner in productions produced by others. The investments frequently allow us to obtain favorable touring and scheduling rights for the production that enables distribution across the presenter's network. OTHER Television As of December 31, 2001, we owned, programmed or sold airtime for 19 television stations. Our television stations are affiliated with various television networks, including ABC, CBS, NBC, FOX, UPN, PAX and WB. Media Representation We own the Katz Media Group, a full-service media representation firm that sells national spot advertising time for clients in the radio and television industries throughout the United States. Katz Media is one of the largest media representation firms in the country, representing over 2,400 radio stations, 370 television stations and growing interests in the representation of cable television system operators. Sports Representation We operate in the sports representation business. Our full-service sports marketing and management operations specialize in the representation of professional athletes, integrated event management, television programming/production, and marketing consulting services. Among our clients are several hundred professional athletes, including Michael Jordan, Kobe Bryant (basketball), Roger Clemens (baseball), Greg Norman (golf), Andre Agassi (tennis), Jerry Rice (football) and David Beckham (soccer - UK). 14 REGULATION OF OUR BUSINESS Existing Regulation and 1996 Legislation Radio and television broadcasting are subject to the jurisdiction of the FCC under the Communications Act of 1934. The Communications Act prohibits the operation of a radio or television broadcasting station except under a license issued by the FCC and empowers the FCC, among other things, to: - issue, renew, revoke and modify broadcasting licenses; - assign frequency bands; - determine stations' frequencies, locations, and power; - regulate the equipment used by stations; - adopt other regulations to carry out the provisions of the Communications Act; - impose penalties for violation of such regulations; and - impose fees for processing applications and other administrative functions. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. The Telecommunications Act of 1996 represented a comprehensive overhaul of the country's telecommunications laws. The 1996 Act changed both the process for renewal of broadcast station licenses and the broadcast ownership rules. The 1996 Act established a "two-step" renewal process that limited the FCC's discretion to consider applications filed in competition with an incumbent's renewal application. The 1996 Act also substantially liberalized the national broadcast ownership rules, eliminating the national radio limits and easing the national restrictions on TV ownership. The 1996 Act also relaxed local radio ownership restrictions, but left local TV ownership restrictions in place pending further FCC review. The new regulatory flexibility engendered aggressive local, regional, and/or national acquisition campaigns. Removal of previous station ownership limitations on leading media companies, such as existing networks and major station groups, increased sharply the competition for and the prices of attractive stations. License Grant and Renewal Under the 1996 Act, the FCC grants broadcast licenses to both radio and television stations for terms of up to eight years. The 1996 Act requires the FCC to renew a broadcast license if it finds that - the station has served the public interest, convenience, and necessity; - there have been no serious violations of either the Communications Act or the FCC's rules and regulations by the licensee; and - there have been no other serious violations which taken together constitute a pattern of abuse. In making its determination, the FCC may consider petitions to deny and informal objections, and may order a hearing if such petitions or objections raise sufficiently serious issues. The FCC, however, may not consider whether the public interest would be better served by a person or entity other than the renewal applicant. Instead, under the 1996 Act, competing applications for the incumbent's spectrum may 15 be accepted only after the FCC has denied the incumbent's application for renewal of license. Although in the vast majority of cases broadcast licenses are renewed by the FCC even when petitions to deny or informal objections are filed, there can be no assurance that any of our stations' licenses will be renewed at the expiration of their terms. Current Multiple Ownership Restrictions The FCC has promulgated rules that, among other things, limit the ability of individuals and entities to own or have an "attributable interest" in broadcast stations and other specified mass media entities. The 1996 Act mandated significant revisions to the radio and television ownership rules. With respect to radio licensees, the 1996 Act directed the FCC to eliminate the national ownership restriction, allowing one entity to own nationally any number of AM or FM broadcast stations. Other FCC rules mandated by the 1996 Act greatly eased local radio ownership restrictions. The maximum allowable number of radio stations that may be commonly owned in a market varies depending on the total number of radio stations in that market, as determined using a method prescribed by the FCC. In markets with 45 or more stations, one company may own, operate, or control eight stations, with no more than five in any one service (AM or FM). In markets with 30-44 stations, one company may own seven stations, with no more than four in any one service; in markets with 15-29 stations, one entity may own six stations, with no more than four in any one service. In markets with 14 stations or less, one company may own up to five stations or 50% of all of the stations, whichever is less, with no more than three in any one service. These new rules permit common ownership of substantially more stations in the same market than did the FCC's prior rules, which at most allowed ownership of no more than two AM stations and two FM stations even in the largest markets. Irrespective of FCC rules governing radio ownership, however, the Antitrust Division of the United States Department of Justice and the Federal Trade Commission have the authority to determine that a particular transaction presents antitrust concerns. Following the passage of the 1996 Act, the Antitrust Division has become more aggressive in reviewing proposed acquisitions of radio stations, particularly in instances where the proposed purchaser already owns one or more radio stations in a particular market and seeks to acquire additional radio stations in the same market. The Antitrust Division has, in some cases, obtained consent decrees requiring radio station divestitures in a particular market based on allegations that acquisitions would lead to unacceptable concentration levels. The FCC has also been more aggressive in independently examining issues of market concentration when considering radio station acquisitions. The FCC has delayed its approval of numerous proposed radio station purchases by various parties because of market concentration concerns, and generally will not approve radio acquisitions when the Antitrust Division has expressed concentration concerns, even if the acquisition complies with the FCC's numerical station limits. Moreover, in recent years the FCC has followed a so-called "flagging" policy under which it gives specific public notice of its intention to conduct additional ownership concentration analysis, and solicits public comment on "the issue of concentration and its effect on competition and diversity," with respect to certain applications for consent to radio station acquisitions based on estimated advertising revenue shares or other criteria. With respect to television, the 1996 Act directed the FCC to eliminate the then-existing 12-station national limit for station ownership and increase the national audience reach limitation from 25% to 35%. The 1996 Act left local TV ownership restrictions in place pending further FCC review, and in August 1999 the FCC completed this review and modified its local television ownership rule. Under the current 16 rule, permissible common ownership of television stations is dictated by Nielsen Designated Market Areas, or "DMAs." A company may own two television stations in a DMA if the stations' Grade B contours do not overlap. Conversely, a company may own television stations in separate DMAs even if the stations' service contours do overlap. Furthermore, a company may own two television stations in a DMA with overlapping Grade B contours if (i) at least eight independently owned and operating full-power television stations, the Grade B contours of which overlap with that of at least one of the commonly owned stations, will remain in the DMA after the combination; and (ii) at least one of the commonly owned stations is not among the top four stations in the market in terms of audience share. The FCC will presumptively waive these criteria and allow the acquisition of a second same-market television station where the station being acquired is shown to be "failed" or "failing" (under specific FCC definitions of those terms), or authorized but unbuilt. A buyer seeking such a waiver must also demonstrate, in most cases, that it is the only buyer ready, willing, and able to operate the station, and that sale to an out-of-market buyer would result in an artificially depressed price. Since the revision of the local television ownership rule, we have acquired a second television station in each of five DMAs where we previously owned a television station. The FCC has adopted rules with respect to so-called local marketing agreements, or "LMAs", by which the licensee of one radio or television station provides substantially all the programming for another licensee's station in the same market and sells all of the advertising within that programming. Under these rules, an entity that owns one or more radio or television stations in a market and programs more than 15% of the broadcast time on another station in the same service (radio or television) in the same market pursuant to an LMA is required, under certain circumstances, to count the LMA station toward its local radio or television ownership limits, as applicable, even though it does not own the station. As a result, in a market where we own one or more radio or television stations, we generally cannot provide programming under an LMA to another station in the same service (radio or television) if we cannot acquire that station under the rules governing local radio or television ownership, as applicable. In adopting its rules concerning television LMAs, however, the FCC provided "grandfathering" relief for LMAs that were in effect at the time of the rule change in August 1999. Television LMAs that were in place at the time of the new rules and were entered into before November 5, 1996, were allowed to continue at least through 2004, when the FCC is scheduled to undertake a comprehensive review and re-evaluation of its broadcast ownership rules. Such LMAs entered into after November 5, 1996 were allowed to continue until August 5, 2001 at which point they were required to be terminated unless they complied with the revised local television ownership rule. We provide programming under LMAs to television stations in two markets where we also own a television station. In one additional market, a third party which owns a television station in that market also programs our station under an LMA (we have agreed to sell our television station in that market to the third-party programmer). Each of our television LMAs was entered into before November 5, 1996. Therefore, under the FCC's August 1999 decision, each of our television LMAs is permitted to continue through at least the year 2004. Moreover, we may seek permanent grandfathering of our television LMAs by demonstrating to the FCC, among other things, the public interest benefits the LMAs have produced and the extent to which the LMAs have enabled the stations involved to convert to digital operation. A number of cross-ownership rules pertain to licensees of television and radio stations. FCC rules, the Communications Act or both generally prohibit an individual or entity from having an attributable interest in both a television station and a cable television system that is located in the same market, and from having an attributable interest in a radio or television station and a daily newspaper 17 located in the same market. Prior to August 1999, FCC rules also generally prohibited common ownership of a television station and one or more radio stations in the same market, although the FCC in many cases allowed such combinations under waivers of the rule. In August 1999, however, the FCC comprehensively revised its radio/television cross-ownership rule. The revised rule permits the common ownership of one television and up to seven same-market radio stations, or up to two television and six same-market radio stations, if the market will have at least twenty separately owned broadcast, newspaper and cable "voices" after the combination. Common ownership of up to two television and four radio stations is permissible when ten "voices" will remain, and common ownership of up to two television stations and one radio station is permissible in all markets regardless of voice count. The radio/television limits, moreover, are subject to the compliance of the television and radio components of the combination with the television duopoly rule and the local radio ownership limits, respectively. Waivers of the radio/television cross-ownership rule are available only where the station being acquired is "failed" (i.e., off the air for at least four months or involved in court-supervised involuntary bankruptcy or insolvency proceedings). A buyer seeking such a waiver must also demonstrate, in most cases, that it is the only buyer ready, willing, and able to operate the station, and that sale to an out-of-market buyer would result in an artificially depressed price. There are twelve markets where we own both radio and television stations. In the majority of these markets, the number of radio stations we own complies with the limit imposed by the revised rule. In those markets where our number of radio stations exceeds the limit under the revised rule, we are nonetheless authorized to retain our present television/radio combinations at least until 2004, when the FCC is scheduled to undertake a comprehensive review and re-evaluation of its broadcast ownership rules. As with grandfathered television LMAs, we may seek permanent authorization for our non-compliant radio/television combinations by demonstrating to the FCC, among other things, the public interest benefits the combinations have produced and the extent to which the combinations have enabled the television stations involved to convert to digital operation. Under the FCC's ownership rules, a direct or indirect purchaser of certain types of our securities could violate FCC regulations or policies if that purchaser owned or acquired an "attributable" interest in other media properties in the same areas as our stations or in a manner otherwise prohibited by the FCC. All officers and directors of a licensee and any direct or indirect parent, general partners, limited partners and limited liability company members who are not properly "insulated" from management activities, and stockholders who own five percent or more of the outstanding voting stock of a licensee or its parent, either directly or indirectly, generally will be deemed to have an attributable interest in the licensee. Certain institutional investors who exert no control or influence over a licensee may own up to twenty percent of a licensee's or its parent's outstanding voting stock before attribution occurs. Under current FCC regulations, debt instruments, non-voting stock, minority voting stock interests in corporations having a single majority shareholder, and properly insulated limited partnership and limited liability company interests as to which the licensee certifies that the interest holders are not "materially involved" in the management and operation of the subject media property generally are not subject to attribution unless such interests implicate the FCC's "equity/debt plus," or "EDP," rule. Under the EDP rule, an aggregate interest in excess of 33% of a licensee's total asset value (equity plus debt) is attributable if the interest holder is either a major program supplier (providing over 15% of the licensee's station's total weekly broadcast programming hours) or a same-market media owner (including broadcasters, cable operators, and newspapers). To the best of our knowledge at present, none of our officers, directors or five percent stockholders holds an interest in another television station, radio station, cable television system or daily newspaper that is inconsistent with the FCC's ownership rules and policies. 18 Recent Developments and Future Actions Regarding Multiple Ownership Rules Expansion of our broadcast operations in particular areas and nationwide will continue to be subject to the FCC's ownership rules and any further changes the FCC or Congress may adopt. Recent actions by the FCC and the courts may significantly affect our business. The 1996 Act requires the FCC to review its remaining ownership rules biennially as part of its regulatory reform obligations to determine whether its various rules are still necessary. The first such biennial review concluded on June 20, 2000, with the FCC's issuance of a report retaining the 35% national television reach limitation and the limits on the number of radio stations a company may own in a given market. In its report, however, the FCC stated its intention to commence separate proceedings requesting specific comment on - possible revisions to the manner in which the FCC counts stations for purposes of the local radio multiple ownership rule; - the possible modification of the dual network rule to allow one of the four major national networks to merge with one of the newer networks; and - whether the prohibition on common ownership of a daily newspaper and a radio or TV broadcast station in the same market should be "tailored" to cover "only those circumstances in which it is necessary to protect the public interest." The FCC has concluded its separate proceeding related to the dual network rule and has modified that rule to allow one of the four major networks to merge with one of the newer networks. It has also commenced its proceeding with respect to the newspaper/broadcast cross-ownership rule. In January 2001, the FCC completed its 2000 biennial review, making no additional relevant changes to its ownership rules. Pursuant to its determination in the initial biennial review, in December 2000 the FCC solicited public comment on a variety of possible changes in the methodology by which it defines a radio "market" and counts stations for purposes of determining compliance with the local radio ownership restrictions. Moreover, in the same proceeding, the FCC announced a policy of deferring, until the rulemaking is completed, certain pending and future radio sale applications which raise "concerns" about how the FCC counts the number of stations a company may own in a market. This deferral policy has delayed FCC approval of our acquisitions of four radio stations in two pending transactions, and may delay additional acquisitions for which we seek FCC approval in the near future. In November 2001, the FCC subsumed its pending market definition/station counting rulemaking into a larger, more comprehensive proceeding to review all aspects of the agency's local radio multiple ownership rules. In this proceeding the FCC has solicited comment on a wide range of issues, including, among other things, whether it may or should modify its local radio multiple ownership rules to address concerns of undue market concentration. The FCC has also requested comment on future regulatory treatment of radio LMAs and radio joint sales agreements ("JSAs"). Any new or modified rules adopted in this proceeding could limit our ability to make additional radio acquisitions in the future and could require us to terminate radio LMAs or JSAs that we currently have in effect. Additionally, as part of this proceeding, the FCC announced an interim policy and processing timetables with respect to pending radio acquisitions which it has delayed under its existing policy of "flagging" certain radio acquisitions for additional concentration review. Under this interim policy, in many cases the FCC's staff has requested the parties to provide additional information regarding the acquisition's effect on competition in the local 19 radio market. We have been requested to provide and have submitted such information with respect to eleven of our pending radio purchase transactions. In any one of these cases the FCC may approve our acquisition based on the additional information submitted. Alternatively, the FCC may give us the option of undergoing an administrative hearing or awaiting the outcome of the pending rulemaking. Recent court developments may have an impact on the FCC's television ownership rules. In February 2002, the U.S. Court of Appeals for the D.C. Circuit issued a decision requiring the FCC to initiate further proceedings to justify its decision, as part of its initial biennial review, to retain the 35% national television reach limitation. In the same decision, the court also vacated the FCC's rule prohibiting common ownership of a television station and a cable television system in the same market. Additionally, the FCC's local television ownership rule is the subject of a pending court appeal. We cannot predict the impact of any of these developments on our business. Moreover, we cannot predict the impact of future biennial reviews or any other agency or legislative initiatives upon the FCC's broadcast rules. Further, the 1996 Act's relaxation of the FCC's ownership rules has increased the level of competition in many markets in which our stations are located. Alien Ownership Restrictions The Communications Act restricts the ability of foreign entities or individuals to own or hold certain interests in broadcast licenses. Foreign governments, representatives of foreign governments, non-U.S. citizens, representatives of non-U.S. citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-U.S. citizens, collectively, may own or vote up to twenty percent of the capital stock of a corporate licensee. A broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by non-U.S. citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before a broadcast license may be granted to or held by any such corporation, and the FCC has made such an affirmative finding only in limited circumstances. Since we serve as a holding company for subsidiaries that serve as licensees for our stations, we are effectively restricted from having more than one-fourth of our stock owned or voted directly or indirectly by non-U.S. citizens or their representatives, foreign governments, representatives of non-foreign governments, or foreign corporations. Other Regulations Affecting Broadcast Stations General. The FCC has significantly reduced its past regulation of broadcast stations, including elimination of formal ascertainment requirements and guidelines concerning amounts of certain types of programming and commercial matter that may be broadcast. There are, however, FCC rules and policies, and rules and policies of other federal agencies, that regulate matters such as network-affiliate relations, the ability of stations to obtain exclusive rights to air syndicated programming, cable and satellite systems' carriage of syndicated and network programming on distant stations, political advertising practices, application procedures and other areas affecting the business or operations of broadcast stations. Public Interest Programming. Broadcasters are required to air programming addressing the needs and interests of their communities of license, and to place "issues/programs lists" in their public inspection files to provide their communities with information on the level of "public interest" programming they air. In October 2000, the FCC commenced a proceeding seeking comment on whether 20 it should adopt a standardized form for reporting information on a station's public interest programming and whether it should require television broadcasters to post the new form - as well as all other documents in their public inspection files - either on station websites or the websites of state broadcasters' associations. Equal Employment Opportunity. In April 1998, the U.S. Court of Appeals for the D.C. Circuit concluded that the affirmative action requirements of the FCC's Equal Employment Opportunity ("EEO") regulations were unconstitutional. The FCC adopted new EEO affirmative action rules in January 2000, but the same court of appeals struck down the new rules in January 2001. Accordingly, broadcasters are currently not subject to FCC-imposed EEO regulations other than the general obligation not to engage in employment discrimination based on race, color, religion, national origin or sex. In December 2001, however, the FCC solicited public comment on yet another set of new EEO affirmative action rules and policies that the agency believes would be constitutional. This proceeding is currently pending. Digital Audio Radio Service. The FCC has adopted spectrum allocation and service rules for satellite digital audio radio service. Satellite digital audio radio service systems can provide regional or nationwide distribution of radio programming with fidelity comparable to compact discs. The FCC has authorized two companies to launch and operate satellite digital audio radio service systems. Sirius Satellite Radio Inc. has launched three satellites and began commercial service in a few cities in February 2002. XM Radio has launched two satellites and is currently providing nationwide service. The FCC is currently considering what rules to impose on both licensees' operation of terrestrial repeaters that support their satellite services. The FCC also has undertaken an inquiry regarding rules for the terrestrial broadcast of digital radio signals, addressing, among other things, the need for spectrum outside the existing FM band and the role of existing broadcasters. A technical standard for the provision of terrestrial digital radio broadcasting has been developed and is currently before the FCC for approval. We cannot predict the impact of either satellite or terrestrial digital audio radio service on our business. Low Power FM Radio Service. In January 2000, the FCC created two new classes of noncommercial low power FM radio stations ("LPFM"). One class (LP100) will operate with a maximum power of 100 watts and a service radius of about 3.5 miles. The other class (LP10) will operate with a maximum power of 10 watts and a service radius of about 1 to 2 miles. In establishing the new LPFM service, the FCC said that its goal is to create a class of radio stations designed "to serve very localized communities or underrepresented groups within communities." The FCC has begun accepting applications for LPFM stations and has granted some of these applications. In December 2000, Congress passed the Radio Broadcasting Preservation Act of 2000. This legislation requires the FCC to maintain interference protection requirements between LPFM stations and full-power radio stations on third-adjacent channels. It also requires the FCC to conduct field tests to determine the impact of eliminating such requirements. We cannot predict the number of LPFM stations that eventually will be authorized to operate or the impact of such stations on our business. Other. The FCC has also adopted rules on children's television programming pursuant to the Children's Television Act of 1990 and rules requiring closed captioning and video description of television programming. The FCC has also taken steps to implement digital television broadcasting in the U.S. Furthermore, the 1996 Act contains a number of provisions related to television violence. We cannot predict the effect of the FCC's present rules or future actions on our television broadcasting operations. 21 Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation and ownership of our broadcast properties. In addition to the changes and proposed changes noted above, such matters include, for example, spectrum use fees, political advertising rates, and potential restrictions on the advertising of certain products such as beer and wine. Other matters that could affect our broadcast properties include technological innovations and developments generally affecting competition in the mass communications industry, such as direct broadcast satellite service, the continued establishment of wireless cable systems and low power television stations, "streaming" of audio and video programming via the Internet, digital television and radio technologies, the establishment of a low power FM radio service, and the advent of telephone company participation in the provision of video programming service. The foregoing is a brief summary of certain provisions of the Communications Act, the 1996 Act, and specific regulations and policies of the FCC thereunder. This description does not purport to be comprehensive and reference should be made to the Communications Act, the 1996 Act, the FCC's rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of broadcast stations. Proposals for additional or revised regulations and requirements are pending before and are being considered by Congress and federal regulatory agencies from time to time. Also, various of the foregoing matters are now, or may become, the subject of court litigation, and we cannot predict the outcome of any such litigation or its impact on our broadcasting business. RISK FACTORS We Have a Large Amount of Indebtedness We currently use a significant portion of our operating income for debt service. Our leverage could make us vulnerable to an increase in interest rates or a downturn in the operating performance of our radio broadcast, outdoor advertising or live entertainment properties or a decline in general economic conditions. At December 31, 2001, we had debt outstanding of approximately $9.5 billion and shareholders' equity of $29.7 billion. We expect to continue to borrow funds to finance acquisitions of radio broadcasting, outdoor advertising and live entertainment properties, as well as for other purposes. Such a large amount of indebtedness could have negative consequences for us, including without limitation: - limitations on our ability to obtain financing in the future; - much of our cash flow will be dedicated to interest obligations and unavailable for other purposes; - the high level of indebtedness limits our flexibility to deal with changing economic, business and competitive conditions; and - the high level of indebtedness could make us more vulnerable to an increase in interest rates, a downturn in our operating performance or a decline in general economic conditions. 22 The failure to comply with the covenants in the agreements governing the terms of our or our subsidiaries' indebtedness could be an event of default and could accelerate the payment obligations and, in some cases, could affect other obligations with cross-default and cross-acceleration provisions. Our Business is Dependent Upon the Performance of Key Employees, On-Air Talent and Program Hosts Our business is dependent upon the performance of certain key employees. We employ or independently contract with several on-air personalities and hosts of syndicated radio programs with significant loyal audiences in their respective markets. Although we have entered into long-term agreements with some of our executive officers, key on-air talent and program hosts to protect their interests in those relationships, we can give no assurance that all or any of these key employees will remain with us or will retain their audiences. Competition for these individuals is intense and many of our key employees are at-will employees who are under no legal obligation to remain with us. Our competitors may choose to extend offers to any of these individuals on terms which we may be unwilling to meet. In addition, any or all of our key employees may decide to leave for a variety of personal or other reasons beyond our control. Furthermore, the popularity and audience loyalty of our key on-air talent and program hosts is highly sensitive to rapidly changing public tastes. A loss of such popularity or audience loyalty is beyond our control and could limit our ability to generate revenues. Doing Business in Foreign Countries Creates Certain Risks Not Found in Doing Business in the United States Doing business in foreign countries carries with it certain risks that are not found in doing business in the United States. We currently derive a portion of our revenues from international radio broadcasting, outdoor advertising and live entertainment operations in countries around the world and a key element of our business strategy is to expand our international operations. The risks of doing business in foreign countries which could result in losses against which we are not insured include: - exposure to local economic conditions; - potential adverse changes in the diplomatic relations of foreign countries with the United States; - hostility from local populations; - the adverse effect of currency exchange controls; - restrictions on the withdrawal of foreign investment and earnings; - government policies against businesses owned by foreigners; - investment restrictions or requirements; - expropriations of property; - the potential instability of foreign governments; - the risk of insurrections; 23 - risks of renegotiation or modification of existing agreements with governmental authorities; - foreign exchange restrictions; - withholding and other taxes on remittances and other payments by subsidiaries; and - changes in taxation structure. Exchange Rates May Cause Future Losses in Our International Operations Because we own assets overseas and derive revenues from our international operations, we may incur currency translation losses due to changes in the values of foreign currencies and in the value of the U.S. dollar. We cannot predict the effect of exchange rate fluctuations upon future operating results. We currently maintain no derivative instruments to reduce the exposure to translation or transaction risk. Extensive Government Regulation May Limit Our Broadcasting Operations The federal government extensively regulates the domestic broadcasting industry, and any changes in the current regulatory scheme could significantly affect us. Our broadcasting businesses depend upon maintaining broadcasting licenses issued by the FCC for maximum terms of eight years. Renewals of broadcasting licenses can be attained only through the FCC's grant of appropriate applications. Although the FCC rarely denies a renewal application, the FCC could deny future renewal applications resulting in the loss of one or more of our broadcasting licenses. The federal communications laws limit the number of broadcasting properties we may own in a particular area. While the Telecommunications Act of 1996 relaxed the FCC's multiple ownership limits, any subsequent modifications that tighten those limits could make it impossible for us to complete potential acquisitions or require us to divest stations we have already acquired. For instance, the FCC has adopted modified rules that in some cases permit a company to own fewer radio stations than allowed by the Telecommunications Act of 1996 in markets or geographical areas where the company also owns television stations. These modified rules could require us to divest radio stations we currently own in markets or areas where we also own television stations. Moreover, changes in governmental regulations and policies may have a material impact on us. For example, we currently provide programming to several television stations we do not own and receive programming from other parties for certain television stations we do own. These programming arrangements are made through contracts known as local marketing agreements. The FCC has recently revised its rules and policies regarding television local marketing agreements. These revisions will restrict our ability to enter into television local marketing agreements in the future, and may eventually require us to terminate our programming arrangements under existing local marketing agreements. Additionally, the FCC has adopted rules which under certain circumstances subject previously nonattributable debt and equity interests in communications media to the FCC's multiple ownership restrictions. These rules may limit our ability to expand our media holdings. Also, the FCC has recently instituted a proceeding to consider a broad range of possible changes to its rules governing radio ownership in local markets. These possible changes may limit our ability to make future radio acquisitions, and may eventually require us to terminate existing agreements whereby we provide programming to or sell advertising on radio stations we do not own. Additionally, under an interim policy announced by the FCC in connection with its 24 proceeding to modify the radio ownership rules, the FCC could designate for hearing or significantly delay approval of certain of our pending radio acquisitions which, in the FCC's view, raise local market concentration concerns. Antitrust Regulations May Limit Our Acquisition Strategy Additional acquisitions by us of radio and television stations, outdoor advertising properties and live entertainment operations or entities may require antitrust review by federal antitrust agencies and may require review by foreign antitrust agencies under the antitrust laws of foreign jurisdictions. We can give no assurances that the Department of Justice or the Federal Trade Commission or foreign antitrust agencies will not seek to bar us from acquiring additional radio or television stations, outdoor advertising or entertainment properties in any market where we already have a significant position. Following passage of the Telecommunications Act of 1996, the DOJ has become more aggressive in reviewing proposed acquisitions of radio stations, particularly in instances where the proposed acquiror already owns one or more radio station properties in a particular market and seeks to acquire another radio station in the same market. The DOJ has, in some cases, obtained consent decrees requiring radio station divestitures in a particular market based on allegations that acquisitions would lead to unacceptable concentration levels. The DOJ also actively reviews proposed acquisitions of outdoor advertising properties. In addition, the antitrust laws of foreign jurisdictions will apply in we acquire international broadcasting properties. Environmental, Health, Safety and Land Use Laws and Regulations May Limit or Restrict Some of Our Operations As the owner or operator of various real properties and facilities, especially in our outdoor advertising and live entertainment venue operations, we must comply with various foreign, federal, state and local environmental, health, safety and land use laws and regulations. We and our properties are subject to such laws and regulations relating to the use, storage, disposal, emission and release of hazardous and non-hazardous substances and employee health and safety, as well as zoning and noise level restrictions which may affect, among other things, the hours of operations of our live entertainment venues. Historically, we have not incurred significant expenditures to comply with these laws. However, additional laws which may be passed in the future, or a finding of a violation of or liability under existing laws, could require us to make significant expenditures and otherwise limit or restrict some of our operations. Government Regulation of Outdoor Advertising May Restrict Our Outdoor Advertising Operations The outdoor advertising industry is subject to extensive governmental regulation at the federal, state and local level. These regulations include restrictions on the construction, repair, upgrading, height, size and location of and, in some instances, content of advertising copy being displayed on outdoor advertising structures. In addition, the outdoor advertising industry is subject to certain foreign governmental regulation. Compliance with existing and future regulations could have a significant financial impact on us. Federal law, principally the Highway Beautification Act of 1965, requires, as a condition to federal highway assistance, states to implement legislation to restrict billboards located within 660 feet of, or visible from, highways except in commercial or industrial areas and requires certain additional size, spacing and other limitations. Every state has implemented regulations at least as restrictive as the Highway Beautification Act, including a ban on the construction of new billboards along federally-aided 25 highways and the removal of any illegal signs on these highways at the owner's expense and without any compensation. Federal law does not require removal of existing lawful billboards, but does require payment of compensation if a state or political subdivision compels the removal of a lawful billboard along a federally aided primary or interstate highway. State governments have purchased and removed legal billboards for beautification in the past, using federal funding for transportation enhancement programs, and may do so in the future. States and local jurisdictions have, in some cases, passed additional regulations on the construction, size, location and, in some instances, advertising content of outdoor advertising structures adjacent to federally-aided highways and other thoroughfares. From time to time governmental authorities order the removal of billboards by the exercise of eminent domain and certain jurisdictions have also adopted amortization of billboards in varying forms. Amortization permits the billboard owner to operate its billboard only as a non-conforming use for a specified period of time, after which it must remove or otherwise conform its billboard to the applicable regulations at its own cost without any compensation. Several municipalities within our existing markets have adopted amortization ordinances. Restrictive regulations also limit our ability to rebuild or replace nonconforming billboards. We can give no assurance that we will be successful in negotiating acceptable arrangements in circumstances in which our billboards are subject to removal or amortization, and what effect, if any, such regulations may have on our operations. In addition, we are unable to predict what additional regulations may be imposed on outdoor advertising in the future. The outdoor advertising industry is heavily regulated and at various times and in various markets can be expected to be subject to varying degrees of regulatory pressure affecting the operation of advertising displays. Legislation regulating the content of billboard advertisements and additional billboard restrictions has been introduced in Congress from time to time in the past. Changes in laws and regulations affecting outdoor advertising at any level of government, including laws of the foreign jurisdictions in which we operate, could have a significant financial impact on us by requiring us to make significant expenditures or otherwise limiting or restricting some of our operations Changes in Restrictions on Outdoor Tobacco and Alcohol Advertising May Pose Risks The outdoor advertising industry is subject to regulations related to outdoor tobacco advertising. In addition, recent settlement agreements and potential legislation related to outdoor tobacco advertising have and will likely continue to affect our outdoor advertising operations. Out-of-court settlements between the major U.S. tobacco companies and all 50 states include a ban on the outdoor advertising of tobacco products. In addition to the above settlement agreements, state and local governments are also regulating the outdoor advertising of alcohol and tobacco products. For example, several states and cities have laws restricting tobacco billboard advertising near schools and other locations frequented by children. Some cities have proposed even broader restrictions, including complete bans on outdoor tobacco advertising on billboards, kiosks, and private business window displays. It is possible that state and local governments may propose or pass similar ordinances to limit outdoor advertising of alcohol and other products or services in the future. Legislation regulating tobacco and alcohol advertising has also been introduced in a number of European countries in which we conduct business, and could have a similar impact. Any significant reduction in alcohol related advertising due to content-related restrictions could cause a reduction in our direct revenue from such advertisements and a simultaneous increase in the available space on the existing inventory of billboards in the outdoor advertising industry. 26 Our Acquisition Strategy Could Pose Risks We intend to grow through the acquisition of media-related assets and other assets or businesses that we believe will assist our customers in marketing their products and services. Our acquisition strategy involves numerous risks, including: - certain of our acquisitions may prove unprofitable and fail to generate anticipated cash flows; - to successfully manage a rapidly expanding and significantly larger portfolio of broadcasting, outdoor advertising, entertainment and other properties, we may need to: >> recruit additional senior management as we cannot be assured that senior management of acquired companies will continue to work for us and, in this highly competitive labor market, we cannot be certain that any of our recruiting efforts will succeed, and >> expand corporate infrastructure to facilitate the integration of our operations with those of acquired properties, because failure to do so may cause us to lose the benefits of any expansion that we decide to undertake by leading to disruptions in our ongoing businesses or by distracting our management; - entry into markets and geographic areas where we have limited or no experience; - we may encounter difficulties in the integration of operations and systems; - our management's attention may be diverted from other business concerns; and - we may lose key employees of acquired companies or stations. We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue additional acquisitions and may decide to dispose of certain businesses. These acquisitions or dispositions could be material. Capital Requirements Necessary to Implement Our Acquisition Strategy Could Pose Risks We face stiff competition from other broadcasting, outdoor advertising and live entertainment companies for acquisition opportunities. If the prices sought by sellers of these companies continue to rise, we may find fewer acceptable acquisition opportunities. In addition, the purchase price of possible acquisitions could require additional debt or equity financing on our part. Since the terms and availability of this financing depends to a large degree upon general economic conditions and third parties over which we have no control, we can give no assurance that we will obtain the needed financing or that we will obtain such financing on attractive terms. In addition, our ability to obtain financing depends on a number of other factors, many of which are also beyond our control, such as interest rates and national and local business conditions. If the cost of obtaining needed financing is too high or the terms of such financing are otherwise unacceptable in relation to the acquisition opportunity we are presented with, we may decide to forego that opportunity. Additional indebtedness could increase our leverage and make us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures. Additional equity financing could result in dilution to our shareholders. 27 We Face Intense Competition in the Broadcasting, Outdoor Advertising and Live Entertainment Industries Our business segments are in highly competitive industries, and we may not be able to maintain or increase our current audience ratings and advertising and sales revenues. Our radio stations and outdoor advertising properties compete for audiences and advertising revenues with other radio stations and outdoor advertising companies, as well as with other media, such as newspapers, magazines, cable television, and direct mail, within their respective markets. Audience ratings and market shares are subject to change, which could have the effect of reducing our revenues in that market. Our live entertainment operations compete with other venues to serve artists likely to perform in that general region and, in the markets in which we promote musical concerts, we face competition from promoters, as well as from certain artists who promote their own concerts. These competitors may engage in more extensive development efforts, undertake more far reaching marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to existing and potential customers or artists. Our competitors may develop services, advertising mediums or entertainment venues that are equal or superior to those we provide or that achieve greater market acceptance and brand recognition than we achieve. It is possible that new competitors may emerge and rapidly acquire significant market share in any of our business segments. Other variables that could adversely affect our financial performance by, among other things, leading to decreases in overall revenues, the number of advertising customers, advertising fees, ticket prices or profit margins include: - unfavorable economic conditions, both general and relative to the radio broadcasting, outdoor advertising and live entertainment industries, which may cause companies to reduce their expenditures on advertising or corporate sponsorship or reduce the number of persons willing to attend live entertainment events; - unfavorable shifts in population and other demographics which may cause us to lose advertising customers and audience as people migrate to markets where we have a smaller presence, or which may cause advertisers to be willing to pay less in advertising fees if the general population shifts into a less desirable age or geographical demographic from an advertising perspective; - an increased level of competition for advertising dollars, which may lead to lower advertising rates as we attempt to retain customers or which may cause us to lose customers to our competitors who offer lower rates that we are unable or unwilling to match; - unfavorable fluctuations in operating costs which we may be unwilling or unable to pass through to our customers; - technological changes and innovations that we are unable to adopt or are late in adopting that offer more attractive advertising or entertainment alternatives than what we currently offer, which may lead to a loss of advertising customers or ticket sales, or to lower advertising rates or ticket prices; - unfavorable changes in labor conditions which may require us to spend more to retain and attract key employees; and - changes in governmental regulations and policies and actions of federal regulatory bodies 28 which could restrict the advertising mediums which we employ or restrict some or all of our customers that operate in regulated areas from using certain advertising mediums, or from advertising at all, or which may restrict the operation of live entertainment events. New Technologies May Affect Our Broadcasting Operations The FCC is considering ways to introduce new technologies to the broadcasting industry, including satellite and terrestrial delivery of digital audio broadcasting and the standardization of available technologies which significantly enhance the sound quality of radio broadcasts. We are unable to predict the effect such technologies will have on our broadcasting operations, but the capital expenditures necessary to implement such technologies could be substantial and other companies employing such technologies could compete with our businesses. We also face risks in implementing the conversion of our television stations to digital television, which the FCC has ordered and for which it has established a timetable. We will incur considerable expense in the conversion to digital television and are unable to predict the extent or timing of consumer demand for any such digital television services. Moreover, the FCC may impose additional public service obligations on television broadcasters in return for their use of the digital television spectrum. This could add to our operational costs. One issue yet to be resolved is the extent to which cable systems will be required to carry broadcasters' new digital channels. Our television stations are highly dependent on their carriage by cable systems in the areas they serve. Thus, FCC rules that impose no or limited obligations on cable systems to carry the digital television signals of television broadcast stations in their local markets could require us to make significant expenditures to arrange for carriage by cable systems of our television stations or result in some of our television stations not being carried on cable systems. Our Live Entertainment Business is Highly Sensitive to Public Tastes and Dependent on Our Ability to Secure Popular Artists, Live Entertainment Events and Venues Our ability to generate revenues through our live entertainment operations is highly sensitive to rapidly changing public tastes and dependent on the availability of popular performers and events. Since we rely on unrelated parties to create and perform live entertainment content, any lack of availability of popular musical artists, touring Broadway shows, specialized motor sports talent and other performers could limit our ability to generate revenues. In addition, we require access to venues to generate revenues from live entertainment events. We operate a number of our live entertainment venues under leasing or booking agreements. Our long-term success in the live entertainment business will depend in part on our ability to renew these agreements when they expire or end. As many of these agreements are with third parties over which we have little or no control, we may be unable to renew these agreements on acceptable terms or at all, and may be unable to obtain favorable agreements with new venues. Our ability to renew these agreements or obtain new agreements on favorable terms depends on a number of other factors, many of which are also beyond our control, such as national and local business conditions. If the cost of renewing these agreements is too high or the terms of any new agreement with a new venue are unacceptable or incompatible with our existing operations, we may decide to forego these opportunities. In addition, our competitors may offer more favorable terms than we do in order to obtain agreements for new venues. 29 Caution Concerning Forward Looking Statements The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Except for the historical information, this report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including the future levels of cash flow from operations. Management believes that all statements that express expectations and projections with respect to future matters, including the strategic fit of radio assets; expansion of market share; our ability to capitalize on synergies between the live entertainment and radio broadcasting businesses; our ability to negotiate contracts having more favorable terms; and the availability of capital resources; are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could impact our financial performance. These statements are made on the basis of management's views and assumptions, as of the time the statements are made, regarding future events and business performance. There can be no assurance, however, that management's expectations will necessarily come to pass. A wide range of factors could materially affect future developments and performance, including: - the impact of general economic conditions in the U.S. and in other countries in which we currently do business; - our ability to integrate the operations of recently acquired companies; - shifts in population and other demographics; - industry conditions, including competition; - fluctuations in operating costs; - technological changes and innovations; - changes in labor conditions; - fluctuations in exchange rates and currency values; - capital expenditure requirements; - legislative or regulatory requirements; - interest rates; - the effect of leverage on our financial position and earnings; - taxes; - access to capital markets; and - certain other factors set forth in our SEC filings. 30 This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. ITEM 2. PROPERTIES CORPORATE Our corporate headquarters is in San Antonio, Texas, primarily housed in our company owned 55,000 square foot corporate office building. We also own an 8,000 square foot data center and lease approximately 45,000 square feet of office space in San Antonio with the leases expiring in December 2002. In addition, we are currently constructing a 120,000 square foot building that will serve as our data and administrative service center. We expect this building to be completed prior to the December 2002 expiration of our current leases. OPERATIONS Radio Broadcasting The headquarters of our radio operations is in 21,201 square feet of leased office space in Covington, Kentucky. The lease on this premise expires in November 2008. The types of properties required to support each of our radio stations include offices, studios, transmitter sites and antenna sites. A radio station's studios are generally housed with its offices in downtown or business districts. A radio station's transmitter sites and antenna sites are generally located in a manner that provides maximum market coverage. Outdoor Advertising The headquarters of our domestic outdoor advertising operations is in 15,505 square feet of leased office space in Phoenix, Arizona. The lease on this premise expires in April 2006. The headquarters of our international outdoor advertising operations is in 8,688 square feet of leased office space in London, England. The lease on this premise expires in June 2014. The types of properties required to support each of our outdoor advertising branches include offices, production facilities and structure sites. An outdoor branch and production facility is generally located in an industrial/warehouse district. We own or have permanent easements on relatively few parcels of real property that serve as the sites for our outdoor displays. Our remaining outdoor display sites are leased. Our leases are for varying terms ranging from month-to-month to year-to-year and can be for terms of ten years or longer, and many provide for renewal options. There is no significant concentration of displays under any one lease or subject to negotiation with any one landlord. We believe that an important part of our management activity is to negotiate suitable lease renewals and extensions. Live Entertainment The international headquarters of our live entertainment operations is in 115,291 square feet of leased office space in New York City, New York. The lease on this premise expires in September 2020. Several members of the live entertainment senior management team as well as other live entertainment operations are located in 100,227 square feet of leased office space in Houston, Texas. The lease on this premise expires in March 2009. The types of properties required to support each of our live entertainment operations include offices and venues. Our live entertainment venues generally include offices and are located in major metropolitan areas. 31 The studios and offices of our radio stations, outdoor advertising branches and live entertainment venues are located in leased or owned facilities. These leases generally have expiration dates that range from one to twenty years. We either own or lease our transmitter and antenna sites. These leases generally have expiration dates that range from five to fifteen years. We do not anticipate any difficulties in renewing those leases that expire within the next several years or in leasing other space, if required. We own substantially all of the equipment used in our radio broadcasting, outdoor advertising and live entertainment businesses. As noted in Item 1 above, as of December 31, 2001, we own or program 1,165 radio stations, own or lease 730,039 outdoor advertising display faces and own or operate 96 entertainment venues in various markets throughout the world. See "Business -- Operating Segments." Therefore, no one property is material to our overall operations. We believe that our properties are in good condition and suitable for our operations. ITEM 3. LEGAL PROCEEDINGS From time to time we become involved in various claims and lawsuits incidental to our business, including defamation actions. In the opinion of our management, after consultation with counsel, any ultimate liability arising out of currently pending claims and lawsuits will not have a material effect on our financial condition or operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders in the fourth quarter of fiscal year 2001. 32 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock trades on the New York Stock Exchange under the symbol "CCU." There were approximately 3,388 shareholders of record as of March 8, 2002. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies. The following table sets forth, for the calendar quarters indicated, the reported high and low sales prices of the common stock as reported on the NYSE.
Clear Channel Common Stock ------------- Market Price ------------ High Low ---- --- 2000 First Quarter........................................ $95.50 $60.00 Second Quarter....................................... 83.00 62.06 Third Quarter........................................ 85.81 54.75 Fourth Quarter....................................... 61.00 43.88 2001 First Quarter........................................ 68.08 47.25 Second Quarter....................................... 65.60 50.12 Third Quarter........................................ 64.15 35.20 Fourth Quarter....................................... 51.60 36.99
DIVIDEND POLICY Presently, we expect to retain our earnings for the development and expansion of our business and do not anticipate paying cash dividends in 2002. The terms of our current credit facilities do not prohibit us from paying cash dividends unless we are in default under our credit facilities either prior to or after giving effect to any proposed dividend. However, any future decision by our Board of Directors to pay cash dividends will depend on, among other factors, our earnings, financial position, and capital requirements. 33 ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data) As of and for the Years ended December 31, (1) ---------------------------------------------- 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- RESULTS OF OPERATIONS INFORMATION: Revenue $ 7,970,003 $ 5,345,306 $ 2,678,160 $1,350,940 $ 697,068 Operating Expenses: Divisional operating expenses 5,866,706 3,480,706 1,632,115 767,265 394,404 Non-cash compensation expense 17,077 16,032 -- -- -- Depreciation and amortization 2,562,480 1,401,063 722,233 304,972 114,207 Corporate expenses 187,434 142,627 70,146 37,825 20,883 ----------- ----------- ----------- ---------- ---------- Operating income (loss) (663,694) 304,878 253,666 240,878 167,574 Interest expense 560,077 383,104 179,404 135,766 75,076 Gain (loss) on sale of assets related to mergers (213,706) 783,743 138,659 -- -- Gain (loss) on marketable securities 25,820 (5,369) 22,930 39,221 10,019 Equity in earnings of nonconsolidated affiliates 10,393 25,155 18,183 10,305 9,132 Other income (expense) - net 152,267 (11,764) (15,638) (26,411) 1,560 ----------- ----------- ----------- ---------- ---------- Income before income taxes and extraordinary item (1,248,997) 713,539 238,396 128,227 113,209 Income tax benefit (expense) 104,971 (464,731) (152,741) (74,196) (49,633) ----------- ----------- ----------- ---------- ---------- Income before extraordinary item (1,144,026) 248,808 85,655 54,031 63,576 Extraordinary item -- -- (13,185) -- -- ----------- ----------- ----------- ---------- ---------- Net income (loss) $(1,144,026) $ 248,808 $ 72,470 $ 54,031 $ 63,576 =========== =========== =========== ========== ========== Net income(loss) per common share(2) Basic: Income (loss) before extraordinary item $ (1.93) $ .59 $ .27 $ .23 $ .36 Extraordinary item -- -- (.04) -- -- ----------- ----------- ----------- ---------- ---------- Net income (loss) $ (1.93) $ .59 $ .23 $ .23 $ .36 =========== =========== =========== ========== ========== Diluted: Income (loss) before extraordinary item $ (1.93) $ .57 $ .26 $ .22 $ .33 Extraordinary item -- -- (.04) -- -- ----------- ----------- ----------- ---------- ---------- Net income (loss) $ (1.93) $ .57 $ .22 $ .22 $ .33 =========== =========== =========== ========== ========== Cash dividends per share $ -- $ -- $ -- $ -- $ -- =========== =========== =========== ========== ========== BALANCE SHEET DATA: Current assets $ 1,941,299 $ 2,343,217 $ 925,109 $ 409,960 $ 210,742 Property, plant and equipment - net 3,956,749 4,255,234 2,478,124 1,915,787 746,284 Total assets 47,603,142 50,056,461 16,821,512 7,539,918 3,455,637 Current liabilities 2,959,857 2,128,550 685,515 258,144 86,852 Long-term debt, net of current maturities 7,967,713 10,597,082 4,584,352 2,323,643 1,540,421 Shareholders' equity 29,736,063 30,347,173 10,084,037 4,483,429 1,746,784
(1) Acquisitions and dispositions significantly impact the comparability of the historical consolidated financial data reflected in this schedule of Selected Financial Data. (2) All per share amounts have been adjusted to reflect the two-for-one stock split effected in July 1998. The Selected Financial Data should be read in conjunction with Management's Discussion and Analysis. 34 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW Management's discussion and analysis of the results of operation and financial condition of Clear Channel Communications, Inc. and its subsidiaries should be read in conjunction with the Consolidated Financial Statements and related Footnotes. The discussion is presented on both a consolidated and segment basis. Our reportable operating segments are: RADIO BROADCASTING which includes all domestic and international radio assets and radio networks; OUTDOOR ADVERTISING which includes domestic and international billboards, transit displays, street furniture and other outdoor advertising media; and LIVE ENTERTAINMENT which includes live music, theatrical, family entertainment and motor sports events. Included in the "other" segment is television broadcasting, sports representation, and our media representation business, Katz Media. RESULTS OF OPERATIONS We evaluate the operating performance of our businesses using several measures, one of them being EBITDA as Adjusted (defined as revenue less divisional operating and corporate expenses). EBITDA as Adjusted eliminates the uneven effect across our business segments, as well as in comparison to other companies, of considerable amounts of non-cash depreciation and amortization recognized in business combinations accounted for under the purchase method. We have used the purchase method of accounting for all mergers and acquisitions in the history of our company. Non-cash depreciation and amortization is significant due to the consolidation in our industry. While we and many in the financial community consider EBITDA as Adjusted to be an important measure of operating performance, it should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance prepared in accordance with generally accepted accounting principles such as operating income and net income. In addition, our definition of EBITDA as Adjusted is not necessarily comparable to similarly titled measures reported by other companies. We measure the performance of our operating segments and managers based on a pro forma measurement that includes adjustments to the prior period for all current and prior year acquisitions. Adjustments are made to the prior period to include the operating results of the acquisition for the corresponding period of time that the acquisition was owned in the current period. In addition, results of operations from divested assets are excluded from all periods presented. We believe pro forma is the best measure of our operating performance as it includes the performance of assets for the period of time we managed the assets. Pro forma is compared in constant U.S. dollars (i.e. a currency exchange adjustment is made to the 2001 actual results to present foreign revenues and expenses in 2000 dollars) allowing for comparison of operations independent of foreign exchange movements. The following tables set forth our consolidated and segment results of operations on both a reported and a pro forma basis. 35 FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000 CONSOLIDATED (In thousands)
Reported Basis: Years Ended December 31, ----------------------- % Change 2001 2000 2001 v. 2000 ---- ---- ------------ Revenue $ 7,970,003 $ 5,345,306 49% Divisional Operating Expenses 5,866,706 3,480,706 69% Corporate Expenses 187,434 142,627 31% ---------- ---------- EBITDA as Adjusted * 1,915,863 1,721,973 11% ---------- ---------- Reconciliation to net income (loss): Non-cash compensation expense 17,077 16,032 Depreciation and amortization 2,562,480 1,401,063 Interest expense 560,077 383,104 Gain (loss) on sale of assets related to mergers (213,706) 783,743 Gain (loss) on marketable securities 25,820 (5,369) Equity in earnings of nonconsolidated affiliates 10,393 25,155 Other income (expense) - net 152,267 (11,764) Income tax benefit (expense) 104,971 (464,731) ---------- ---------- Net income (loss) $(1,144,026) $ 248,808 =========== =========== Other Data: Cash Flow from Operating Activities $ 609,587 $ 755,085 ----------- ----------- Cash Flow from Investing Activities $ 90,274 $(1,755,654) ----------- ----------- Cash Flow from Financing Activities $ (741,955) $ 1,120,683 ----------- -----------
* See page 35 for cautionary disclosure
Pro Forma Basis: Years Ended December 31, ------------------------ % Change 2001 2000 2001 v. 2000 ---- ---- ------------ Revenue $ 8,015,403 $ 8,440,122 (5)% Divisional Operating Expenses 5,902,405 5,735,156 3%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS (In thousands)
Years Ended December 31, ------------------------ 2001 2000 ---- ---- Reported Revenue $ 7,970,003 $ 5,345,306 Acquisitions -- 3,186,693 Divestitures (6,146) (91,877) Foreign Exchange adjustments 51,546 -- ----------- ----------- Pro Forma Revenue $ 8,015,403 $ 8,440,122 ----------- ----------- Reported Divisional Operating Expenses $ 5,866,706 $ 3,480,706 Acquisitions -- 2,297,219 Divestitures (6,140) (42,769) Foreign Exchange adjustments 41,839 -- ----------- ----------- Pro Forma Divisional Operating Expenses $ 5,902,405 $ 5,735,156 ----------- -----------
36 On a reported basis, revenue and divisional operating expenses increased primarily due to our 2000 acquisitions. Included in our fiscal year 2001 reported basis amounts are the revenues and divisional operating expenses for a twelve-month period from our 2000 acquisitions, the most significant being SFX Entertainment, Inc., acquired August 1, 2000, AMFM Inc. acquired on August 30, 2000, and Donrey Media Group acquired on September 1, 2000. Our SFX acquisition, valued at approximately $4.4 billion entered us into the live entertainment industry. This acquisition accounts for approximately $1.6 billion of the total $2.6 billion increase in reported revenue for fiscal year 2001 as compared to fiscal year 2000. Our AMFM acquisition, valued at $19.4 billion dramatically increased our ownership of radio stations. This acquisition accounts for approximately $1.2 billion of the total $2.6 billion increase in reported revenue for fiscal year 2001 as compared to fiscal year 2000. The increase in reported revenue related to our less significant 2000 and 2001 acquisitions as well as the increase related to SFX and AMFM were offset due to reasons discussed below in our pro forma presentation. Our SFX and AMFM acquisitions account for approximately $1.5 billion and $728.2 million, respectively of the total $2.4 billion increase in reported divisional operating expenses. In addition to this increase, reported divisional operating expenses increased due to our less significant 2000 and 2001 acquisitions as well as the reasons discussed below in our pro forma presentation. Pro forma revenue decreased $424.7 million or 5% in fiscal year 2001 due to an overall softening of the advertising industry, especially as compared to the strong advertising environment during the majority of 2000. During 2001, advertising rates were lower in our radio and outdoor business related to the decreased inventory demand within the advertising industry. As the advertising environment softens, advertising rates decline and inventory demands weaken. Although the decrease in pro forma revenue was apparent in most markets, of the $424.7 million decline, our top 25 domestic radio and outdoor markets accounted for approximately $296.0 million, or 70% of the total decline. The decline in pro forma revenue within these markets was predominately due to the decline in national advertising during fiscal year 2001 as compared to fiscal year 2000. Similarly, our radio network revenue, which is primarily national sales, declined approximately $45.1 million, or 11% of the total decline during 2001 as compared to 2000, again directly related to the decline in the overall economy. The decline in pro forma revenue was partially offset by an $84.4 million increase in pro forma revenue within our live entertainment division. During 2001, we changed the mix of live music events within this division to include approximately 48% more stadium and arena events as compared to the prior year. Stadium and arenas are generally larger venues that allow for more ticket sales related to the increased seating capacity. Although pro forma revenue decreased 5%, pro forma divisional operating expenses increased $167.2 million, or 3% in fiscal year 2001. This increase was partially due to the increase of selling costs and artist payments related to our change in the mix of live music events within the entertainment division as compared to fiscal year 2000. In addition, pro forma divisional operating expenses increased in our other segments relating to the reorganization of these business units as well as other expenses during the quarter ended December 31, 2001. These reorganizational expenses included severance, hiring costs, expenses associated with the shutdown of business units, certain contracts cost, as well as additional non-cash promotion expenses, totaling approximately $80.0 million. The additional $80.0 million of divisional operating expenses is comprised of approximately $50.6 million of expenses associated with reorganization, restructuring, severance costs, and other miscellaneous items, with severance payments being the most significant component of the total. The remaining $29.4 million relates to divisional operating expenses associated with incremental costs under certain airport and transit panel contracts within our outdoor division as well as additional non-cash promotion expenses within our radio division. Divisional operating expenses also increased during 2001 within the outdoor division related to new contract payments, and within our other segment associated with increases in television 37 contract payments. These increases in pro forma divisional operating expenses were partially offset by the reduction in selling costs associated with the decline in pro forma revenue in 2001. Also, as discussed below, the terrorist attacks on September 11, 2001 negatively impacted the overall operating results for the later part of fiscal year 2001 as compared to the later part of fiscal year 2000. Corporate expenses increased $44.8 million on a reported basis primarily due to $36.3 million of additional expense directly related to additional corporate employees obtained in our acquisitions. In addition, corporate expenses increased due to the additional corporate employees hired subsequent to our acquisitions to accommodate for the growth of the company. As a result of our acquisitions, we increased corporate head count throughout 2001 to 700 employees as compared to 350 employees at the end of fiscal year 2000. Other Income and Expense Information Non-cash compensation expense of $17.1 million and $16.0 million was recorded in fiscal year 2001 and 2000, respectively. This expense is primarily due to unvested stock options assumed in mergers that are now convertible into Clear Channel stock. To the extent that these employees' options continue to vest, we recognize non-cash compensation expense over the remaining vesting period. Vesting dates range from January 2002 to April 2005. If no employees forfeit their unvested options by leaving the company, we expect to recognize non-cash compensation expense of approximately $9.0 million during the remaining vesting period. Depreciation and amortization expense increased from $1.4 billion in 2000 to $2.6 billion in 2001, an 83% increase. The increase is due primarily to the inclusion of a full year of depreciation and amortization associated with the AMFM and SFX acquisitions, which resulted in additional depreciation and amortization in aggregate of approximately $875.0 million in 2001 as compared to 2000. In addition to the increase relating to recent acquisitions, depreciation expense includes $170.0 million of impairment charges related primarily to the identification of duplicative and excess assets no longer necessary in our ongoing operations. The majority of the impaired assets identified resulted from the continuing integration of recent acquisitions, as well as analog television equipment, and an impairment of an operating contract. Interest expense was $560.1 million and $383.1 million in 2001 and 2000, respectively, an increase of $177.0 million, or 46% percent. The increase was due to the overall increase in average amount of debt outstanding, partially offset by the decrease in LIBOR rates. Approximately 36% and 50% of our debt was variable-rate debt that bears interest based upon LIBOR at December 31, 2001 and 2000, respectively. The 1-Month LIBOR rates decreased from 6.57% at December 31, 2000 to 1.87% at December 31, 2001. The loss on sale of assets related to mergers in 2001 was $213.7 million as compared to a gain of $783.7 million in 2000. The loss on sale of assets related to mergers in 2001 is primarily due to a loss of $235.0 million related to the sale of 24.9 million shares of Lamar Advertising Company acquired in the AMFM merger, and a net loss of $11.6 million related to write-downs of other investments acquired in mergers. This loss was partially offset by a gain of $32.9 million realized on the sale of five stations in connection with governmental directives regarding the AMFM merger. The gain on sale of assets related to mergers of $783.7 million in 2000 is primarily due to the sale of 39 stations in connection with governmental directives regarding the AMFM merger, which realized a gain of $805.2 million. This gain 38 for 2000 was partially offset by a loss of $5.8 million related to the sale of 1.3 million shares of Lamar Advertising Company that we acquired in the AMFM merger; and a net loss of $15.7 million related to write-downs of investments acquired in mergers. The gain on marketable securities is primarily related to the reclassification of 2.0 million shares of American Tower Corporation to a trading security under Financial Accounting Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities and Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities. On January 1, 2001, the shares were transferred to a trading classification at their fair market value of $76.2 million and an unrealized pretax holding gain of $69.7 million was recognized. During the year ended December 31, 2001, we entered into two secured forward exchange contracts that monetized part of our investment in American Tower. The fair value adjustment of the American Tower trading shares and the secured forward exchange contract netted a gain of $11.7 million during 2001. In addition, during 2001, a loss of $55.6 million was recognized related to impairments of other investments that had declines in their market values that were considered to be other-than-temporary. Equity in earnings of nonconsolidated affiliates for the year ended December 31, 2001 was $10.4 million as compared to $25.2 million for the same period of 2000. The decrease was due to declining operating results primarily in our radio broadcasting equity investments. For the year ended December 31, 2001 and 2000, other income (expense) - net was an income of $152.3 million and an expense of $11.8 million, respectively. The additional income recognized in 2001 related primarily to a $168.0 million gain on a non-cash, tax-free exchange of the assets of one television station for the assets of two television stations. Income taxes for the year ended December 31, 2001 and 2000 were provided at the federal and state statutory rates plus permanent differences. The effective rates in all periods presented have been adversely impacted by permanent differences, primarily amortization of intangibles that is not deductible for tax purposes. The September 11, 2001 Terrorist Attacks We have been adversely affected by the events of September 11, 2001, in New York, Washington, D.C., and Pennsylvania, as well as by the actions taken by the United States in response to such events. As a result of expanded news coverage following the attacks and subsequent military action, we experienced a loss in advertising revenues and increased incremental operating expenses. The events of September 11 have further depressed economic activity in the United States and globally, including the markets in which we operate. RADIO BROADCASTING (In thousands) As Reported Basis: ------------------
Years Ended December 31, ------------------------ % Change 2001 2000 2001 v. 2000 ---- ---- ------------ Revenue $ 3,455,553 $ 2,431,544 42% Divisional Operating Expenses 2,104,719 1,385,848 52% ----------- ---------- EBITDA as Adjusted * $ 1,350,834 $ 1,045,696 29% ----------- -----------
* See page 35 for cautionary disclosure 39 Pro Forma Basis: ----------------
Years Ended December 31, ------------------------ % Change 2001 2000 2001 v. 2000 ---- ---- ------------ Revenue $ 3,455,553 $ 3,764,754 (8)% Divisional Operating Expenses 2,104,719 2,107,681 0%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS (In thousands)
Years Ended December 31, ------------------------ 2001 2000 ---- ---- Reported Revenue $ 3,455,553 $ 2,431,544 Acquisitions -- 1,398,995 Divestitures -- (65,785) ----------- ----------- Pro Forma Revenue $ 3,455,553 $ 3,764,754 ----------- ----------- Reported Divisional Operating Expenses $ 2,104,719 1,385,848 Acquisitions -- 748,405 Divestitures -- (26,572) ----------- ----------- Pro Forma Divisional Operating Expenses $ 2,104,719 $ 2,107,681 ----------- -----------
Revenues and divisional operating expenses increased on a reported basis $1.0 billion and $718.9 million, respectively primarily due to our acquisitions completed during 2000. Included in our 2001 reported amounts are a full year of revenues and divisional operating expenses from our acquisition of AMFM in August 2000. The approximately $1.2 billion increase in reported revenue related to our AMFM acquisition as well as our other less significant 2000 and 2001 acquisitions were offset by declines in revenue discussed below in our pro forma presentation. The approximately $728.2 million increase in reported divisional operating expense related to our AMFM acquisition as well as increases related to our less significant 2000 and 2001 acquisitions were offset by reasons discussed below in our pro forma presentation. On a pro forma basis, revenue for year ended December 31, 2001 decreased $309.2 million, or 8% due to weak economic conditions in 2001 as compared to the overall strength of the U.S. economy and the increase in advertising spending due to the rapid growth of the Internet industry during 2000. Although the decrease in pro forma revenue was apparent in most markets, of the $309.2 million decline, our top 25 radio markets accounted for approximately $212.0 million, or 69% of the total decline. The decline in pro forma revenue within these markets was predominately due to the decline in national advertising during 2001 as compared to 2000. In addition, our radio network revenue declined $45.1 million, or 15% of the total decline during 2001 as compared to 2000, again directly related to the decline in the overall economy. On a pro forma basis, 2001 divisional operating expenses were relatively flat as compared to 2000. Although divisional operating expenses decreased related to the decrease in sales costs associated with the decline in revenue, these decreases were offset by increases in expenses associated with the reorganization of our radio workforce. During 2001, we hired a significant number of new sales and marketing people in an effort to create more demand on our advertising inventory and paid severance to other terminated employees. 40 OUTDOOR ADVERTISING (In thousands)
As Reported Basis: Years Ended December 31, ------------------------ % Change 2001 2000 2001 v. 2000 ---- ---- ------------ Revenue $ 1,748,031 $ 1,729,438 1% Divisional Operating Expenses 1,220,681 1,078,540 13% ----------- ----------- EBITDA as Adjusted * $ 527,350 $ 650,898 (19)% ----------- -----------
* See page 35 for cautionary disclosure
Pro Forma Basis: Years Ended December 31, ---------------- ------------------------ % Change 2001 2000 2001 v. 2000 ---- ---- ------------ Revenue $ 1,781,173 $ 1,911,515 (7)% Divisional Operating Expenses 1,246,795 1,208,039 3%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS (In thousands)
Years Ended December 31, ------------------------ 2001 2000 ---- ---- Reported Revenue $ 1,748,031 $ 1,729,438 Acquisitions -- 186,358 Divestitures -- (4,281) Foreign Exchange adjustments 33,142 -- ----------- ----------- Pro Forma Revenue $ 1,781,173 $ 1,911,515 ----------- ----------- Reported Divisional Operating Expenses $ 1,220,681 1,078,540 Acquisitions -- 133,459 Divestitures -- (3,960) Foreign Exchange adjustments 26,114 -- ----------- ----------- Pro Forma Divisional Operating Expenses $ 1,246,795 $ 1,208,039 ----------- -----------
Revenues and divisional operating expenses increased for the year ended December 31, 2001 as compared to 2000 on a reported basis due to our acquisitions completed during 2000. Included in the year ended December 31, 2001 reported basis amounts are a full year of revenues and divisional operating expenses from our acquisition of Donrey in September 2000, which was valued at $372.6 million, as well as other less significant acquisitions. Other reasons for the change in reported revenue and divisional operating expenses are discussed below in our pro forma presentation. On a pro forma basis, revenues decreased $130.3 million, or 7% during the year ended December 31, 2001 as compared to 2000 as a result of the downturn in the economic environment during 2001, primarily in our domestic markets. On average, our domestic advertising rate declined approximately 7% in 2001 as compared to 2000. Although the decrease in pro forma revenue was apparent in all markets, of the $130.3 million decline, our top 25 domestic outdoor markets accounted for approximately $84.0 million, or 64% of the total decline. The decline in pro forma revenue within these markets was predominately due to the decline in national advertising during 2001 as compared to 2000. Although pro forma revenue declined, pro forma divisional operating expenses increased $38.8 million, or 3% during the year ended December 31, 2001 primarily due to increased expenses associated 41 with the expansion of operations of recently acquired assets and contracts, as well as approximately $20.8 million of additional costs relating to the reorganization of the division as well as other costs during the quarter ended December 31, 2001. LIVE ENTERTAINMENT (In thousands)
As Reported Basis: Years Ended December 31, ------------------ ------------------------- % Change 2001 2000 2001 v. 2000 ---- ---- ------------ Revenue $ 2,477,640 $ 952,025 ** Divisional Operating Expenses 2,327,109 878,553 ** ----------- --------- EBITDA as Adjusted * $ 150,531 $ 73,472 ** ----------- ---------
* See page 35 for cautionary disclosure ** Not Meaningful
Pro Forma Basis: Years Ended December 31, ---------------- ------------------------- % Change 2001 2000 2001 v. 2000 ---- ---- ------------ Revenue $ 2,496,044 $ 2,411,594 4% Divisional Operating Expenses 2,342,834 2,218,021 6%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS (In thousands)
Years Ended December 31, ------------------------ 2001 2000 ---- ---- Reported Revenue $ 2,477,640 $ 952,025 Acquisitions -- 1,459,569 Divestitures -- -- Foreign Exchange adjustments 18,404 -- ----------- ----------- Pro Forma Revenue $ 2,496,044 $ 2,411,594 ----------- ----------- Reported Divisional Operating Expenses $ 2,327,109 878,553 Acquisitions -- 1,339,468 Divestitures -- -- Foreign Exchange adjustments 15,725 -- ----------- ----------- Pro Forma Divisional Operating Expenses $ 2,342,834 $ 2,218,021 ----------- -----------
We entered the live entertainment business with our acquisition of SFX in August 2000. Therefore, the increase in reported revenue and divisional operating expenses of $1.6 billion and $1.5 billion, respectively in 2001 as compared to 2000 is related to the SFX acquisition and less significant acquisitions as well as other reasons discussed below in our pro forma presentation. On a pro forma basis, revenue increased $84.4 million, or 4% during the year ended December 31, 2001 as compared to the prior year due to a change in the mix of live music events during 2001 as compared to 2000. Although the number of live events decreased over the prior period, during 2001, we changed the mix of live music events to include approximately 48% more stadium and arena events as compared to the prior year. Stadium and arenas are generally larger venues that allow for more ticket sales related to the increased seating capacity. 42 On a pro forma basis, divisional operating expenses increased $124.8 million, or 6% due to the increased cost associated with promoting the additional stadium and arena events in 2001, increased artist payments associated with the higher revenue, as well as additional costs relating to the reorganization of the division during the quarter ended December 31, 2001. SEGMENT RECONCILIATIONS (In thousands)
As Reported EBITDA as Adjusted * Years Ended December 31, -------------------- ------------------------ 2001 2000 ---- ---- Radio Broadcasting $ 1,350,834 $ 1,045,696 Outdoor Advertising 527,350 650,898 Live Entertainment 150,531 73,472 Other 74,582 94,534 Corporate (187,434) (142,627) ----------- ----------- Consolidated EBITDA as Adjusted * $ 1,915,863 $ 1,721,973 ----------- -----------
* See page 35 for cautionary disclosure
As Reported Pro Forma Revenue Years Ended December 31, -------------------- ------------------------ 2001 2000 ---- ---- Radio Broadcasting $ 3,455,553 $ 3,764,754 Outdoor Advertising 1,781,173 1,911,515 Live Entertainment 2,496,044 2,411,594 Other 417,505 470,045 Eliminations (134,872) (117,786) ----------- ----------- Consolidated Pro Forma Revenue $ 8,015,403 $ 8,440,122 ----------- -----------
As Reported Pro Forma Divisional Operating Expense Years Ended December 31, -------------------------------------- ------------------------ 2001 2000 ---- ---- Radio Broadcasting $ 2,104,719 $ 2,107,681 Outdoor Advertising 1,246,795 1,208,039 Live Entertainment 2,342,834 2,218,021 Other 342,929 319,201 Eliminations (134,872) (117,786) ----------- ----------- Consolidated Pro Forma Divisional Operating Expense $ 5,902,405 $ 5,735,156 ----------- -----------
43 FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999 CONSOLIDATED (In thousands)
Reported Basis: Years Ended December 31, --------------- ------------------------- % Change 2000 1999 2000 v. 1999 ---- ---- ------------ Revenue $ 5,345,306 $ 2,678,160 100% Divisional Operating Expenses 3,480,706 1,632,115 113% Corporate Expenses 142,627 70,146 103% ----------- ----------- EBITDA as Adjusted * 1,721,973 975,899 76% ----------- ----------- Reconciliation to net income: Non-cash compensation expense 16,032 -- Depreciation and amortization 1,401,063 722,233 Interest expense 383,104 179,404 Gain on sale of assets related to mergers 783,743 138,659 Gain (loss) on marketable securities (5,369) 22,930 Equity in earnings of nonconsolidated affiliates 25,155 18,183 Other income (expense) - net (11,764) (15,638) Income tax (expense) (464,731) (152,741) ----------- ----------- Income before extraordinary item $ 248,808 $ 85,655 =========== =========== Other Data: Cash Flow from Operating Activities $ 755,085 $ 639,406 ----------- ----------- Cash Flow from Investing Activities $(1,755,654) $(1,474,170) ----------- ----------- Cash Flow from Financing Activities $ 1,120,683 $ 874,990 ----------- -----------
* See page 35 for cautionary disclosure
Pro Forma Basis: Years Ended December 31, ---------------- ------------------------- % Change 2000 1999 2000 v. 1999 ---- ---- ------------ Revenue $ 6,756,293 $ 5,995,111 13% Divisional Operating Expenses 4,238,801 3,888,345 9%
44 RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS (In thousands)
Years Ended December 31, ------------------------- 2000 1999 ---- ---- Reported Revenue $ 5,345,306 $ 2,678,160 Acquisitions * 1,362,064 3,412,918 Divestitures (70,376) (95,967) Foreign Exchange adjustments 120,674 -- ----------- ----------- Pro Forma Revenue $ 6,757,668 $ 5,995,111 ----------- ----------- Reported Divisional Operating Expenses 3,480,706 $ 1,632,115 Acquisitions * 698,289 2,304,545 Divestitures (33,659) (48,315) Foreign Exchange adjustments 94,840 -- ----------- ----------- Pro Forma Divisional Operating Expenses $ 4,240,176 $ 3,888,345 ----------- -----------
* Due to the significance of the AMFM merger, its results of operations are included in both 1999 and 2000 for the 12-month periods. Thus, included in the acquisition amounts for 1999 and 2000 are the results of operations for AMFM for 12 and 8 months respectively. For all other 2000 acquisitions, adjustments are included in the 1999 acquisition amounts to include the operating results of the acquisition for the corresponding time that the acquisition was owned in 2000. Revenue and divisional operating expenses increased on a reported basis $2.7 billion and $1.8 billion, respectively primarily due to our 1999 and 2000 acquisitions as well as internal growth. Included in our fiscal year 2000 reported basis amounts are the revenues and divisional operating expenses for a twelve-month period from our 1999 acquisitions, the most significant being Jacor Communications in May 1999 and Dame Media Inc. and Dauphin OTA in July 1999. Also included in our fiscal year 2000 reported basis amounts are the revenues and divisional operating expenses of our 2000 acquisitions for the time period that we operated them in fiscal year 2000. Our 2000 acquisitions included Ackerley's South Florida Outdoor Advertising Division in January 2000, SFX in August 2000, AMFM in August 2000, and Donrey in September 2000. Included in reported revenue for 2000, is approximately $969.3 million of revenue related to SFX and approximately $713.5 million of revenue related to AMFM. Included in reported divisional operating expenses for 2000, is approximately $882.5 million related to SFX and approximately $352.3 million related to AMFM. In addition to the acquisition activity, reported revenue and divisional operating expenses increased for other reasons discussed below in our pro forma presentation. On a pro forma basis, revenues increased in fiscal year 2000 due to higher advertising rates in our radio and outdoor businesses as well as increased inventory demand within the advertising industry. The increase in the number of live entertainment events and the number of show dates in fiscal year 2000 also contributed to the increase in revenue on a pro forma basis. Divisional operating expenses increased on a pro forma basis in fiscal year 2000 due primarily to the increase in selling costs related to the increase in revenue. Corporate expenses increased $72.4 million on a reported basis primarily due to $38.4 million of additional expense directly related to additional corporate employees obtained in our acquisitions. In addition, corporate expenses increased due to the additional corporate employees hired subsequent to our acquisitions to accommodate for the growth of the company. As a result of our acquisitions, we increased corporate head count throughout 2000 to 350 employees as compared to 225 employees at the end of 1999. 45 Other Income and Expense Information Non-cash compensation expense of $16.0 million was recorded in fiscal year 2000. In the AMFM merger, we assumed stock options granted to AMFM employees that are now convertible into Clear Channel stock. To the extent that these employees' options continue to vest, we will recognize non-cash compensation expense over the remaining vesting period. Vesting dates range from January 2001 to April 2005. Depreciation and amortization expense increased from $722.2 million in 1999 to $1.4 billion in 2000, a 94% increase. The increase is due primarily to additional depreciation and amortization of approximately $460.3 million related to the AMFM and SFX acquisitions. The remaining increase is due to additional depreciation and amortization associated with the other less significant acquisitions accounted for under the purchase method as well as the inclusion of a full year of depreciation and amortization associated with acquisitions completed during 1999. Interest expense was $383.1 million and $179.4 million in 2000 and 1999, respectively, an increase of $203.7 million or 114%. Approximately 89% of the increase was due to the overall increase in average amounts of debt outstanding and approximately 11% of the increase was due to increases in LIBOR. Approximately 50% of our debt accrued interest based upon LIBOR at December 31, 2000. During 2000, LIBOR rates increased from 5.82% at December 31, 1999 to 6.57% at December 31, 2000. The gain on sale of assets related to mergers of $783.7 million in 2000 is primarily due to the sale of 39 stations in connection with governmental directives regarding the AMFM merger, which realized a gain of $805.2 million. This gain for 2000 was partially offset by a loss of $5.8 million related to the sale of 1.3 million shares of Lamar Advertising Company that we acquired in the AMFM merger; and a net loss of $15.7 million related to write-downs of investments acquired in mergers. The gain in 1999 of $138.7 million relates to the sale of 12 radio stations as a result of governmental directives related to the Jacor merger. Equity in earnings of nonconsolidated affiliates for 2000 was $25.2 million as compared to $18.2 million for 1999. The increase was due to improved operations primarily in our international outdoor equity investments. Other income (expense) net was an expense of $11.8 million and $15.6 million in 2000 and 1999, respectively. The expense recognized in 2000 related primarily to the reimbursements of capital costs within certain operating contracts. Income tax expense was $464.7 million in 2000, an increase of 204% or $312.0 million from 1999 income tax expense of $152.7 million. The increase is primarily related to the taxes on the gain on sale of assets related to mergers recorded in 2000. The provision for income taxes represents federal, state and foreign income taxes on earnings before income taxes. The annual effective tax rates of 65% for 2000 and 64% for 1999 were both adversely affected by amortization of intangibles in excess of amounts that are deductible for tax purposes. 46 RADIO BROADCASTING (In thousands)
As Reported Basis: Years Ended December 31, ------------------ ------------------------- % Change 2000 1999 2000 v. 1999 ---- ---- ------------ Revenue $ 2,431,544 $ 1,230,754 98% Divisional Operating Expenses 1,385,848 731,062 90% ----------- ----------- EBITDA as Adjusted * $ 1,045,696 $ 499,692 109% ----------- -----------
* See page 35 for cautionary disclosure
Pro Forma Basis: Years Ended December 31, ---------------- ------------------------- % Change 2000 1999 2000 v. 1999 ---- ---- ------------ Revenue $ 3,576,554 $ 3,118,825 15% Divisional Operating Expenses 1,948,749 1,784,923 9%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS (In thousands)
Years Ended December 31, ------------------------- 2000 1999 ---- ---- Reported Revenue $ 2,431,544 $ 1,230,754 Acquisitions * 1,215,386 1,984,038 Divestitures (70,376) (95,967) ----------- ----------- Pro Forma Revenue $ 3,576,554 $ 3,118,825 ----------- ----------- Reported Divisional Operating Expenses $ 1,385,848 731,062 Acquisitions * 596,560 1,102,176 Divestitures (33,659) (48,315) ----------- ----------- Pro Forma Divisional Operating Expenses $ 1,948,749 $ 1,784,923 ----------- -----------
* Due to the significance of the AMFM merger, its results of operations are included in both 1999 and 2000 for the 12-month periods. Thus, included in the acquisition amounts for 1999 and 2000 are the results of operations for AMFM for 12 and 8 months respectively. For all other 2000 acquisitions, adjustments are included in the 1999 acquisition amounts to include the operating results of the acquisition for the corresponding time that the acquisition was owned in 2000. Revenues and divisional operating expenses increased on a reported basis due to our 2000 and 1999 acquisitions and internal growth. Included in our fiscal year 2000 reported basis amounts are revenues and divisional operating expenses for a twelve-month period from our acquisition of Jacor that was acquired in May 1999 and Dame Media which was acquired in July 1999. In addition to our acquisition activity, reported revenue and divisional operating expenses increased related to other reasons discussed below in our pro forma presentation. On a pro forma basis, revenue increased due to various factors. During the first part of fiscal year 2000, advertising rates were significantly higher than the prior year as rates reacted to inventory sell-outs primarily related to the rapid growth period of the Internet industry as well as an overall increase in advertising demand across the industry. Although some of our larger markets continued to enjoy significantly higher rates in the second part of fiscal year 2000, when the Internet industry demand slowed, rates in our other markets normalized compared to the prior year. In addition, our national platform approach to selling advertising to our national clients helped increase our overall rates, 47 especially in our larger markets. On a pro forma basis, divisional operating expenses increased primarily due to incremental selling costs associated with the increase in revenue. OUTDOOR ADVERTISING (In thousands)
As Reported Basis: Years Ended December 31, ------------------ ------------------------- % Change 2000 1999 2000 v. 1999 ---- ---- ------------ Revenue $ 1,729,438 $ 1,253,732 38% Divisional Operating Expenses 1,078,540 785,636 37% ----------- ----------- EBITDA as Adjusted * $ 650,898 $ 468,096 39% ----------- -----------
* See page 35 for cautionary disclosure
Pro Forma Basis: Years Ended December 31, ---------------- ------------------------- % Change 2000 1999 2000 v. 1999 ---- ---- ------------ Revenue $ 1,830,940 $ 1,617,917 13% Divisional Operating Expenses 1,156,528 1,068,190 8%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS (In thousands)
Years Ended December 31, ------------------------- 2000 1999 ---- ---- Reported Revenue $ 1,729,438 $ 1,253,732 Acquisitions -- 364,185 Divestitures -- -- Foreign Exchange adjustments 101,502 -- ----------- ----------- Pro Forma Revenue $ 1,830,940 $ 1,617,917 ----------- ----------- Reported Divisional Operating Expenses $ 1,078,540 785,636 Acquisitions -- 282,554 Divestitures -- -- Foreign Exchange adjustments 77,988 -- ----------- ----------- Pro Forma Divisional Operating Expenses $ 1,156,528 $ 1,068,190 ----------- -----------
Revenues and divisional operating expenses increased on a reported basis due to our 2000 and 1999 acquisitions and internal growth. Included in our fiscal year 2000 reported basis amounts are revenues and divisional operating expenses for a twelve-month period from our acquisition of Dauphin in July 1999 and other less significant acquisitions. In addition, revenues and divisional operating expenses increased on a reported basis in fiscal year 2000 due to our acquisitions of Ackerley in January 2000, and Donrey in September 2000, as well as less significant acquisitions to fill out our existing markets. On a pro forma basis, revenues increased due to various factors. Higher rates and improved occupancy in fiscal year 2000 as compared to fiscal year 1999 increased revenue for the entire year. In addition, our national platform approach to selling advertising to our national customers helped increase our overall rates, especially in our larger markets. High growth rates were primarily achieved internationally in our United Kingdom and France markets. On a pro forma basis, divisional operating expenses increased primarily due to incremental selling costs associated with the increase in revenue. 48 LIVE ENTERTAINMENT (In thousands)
As Reported: Years Ended December 31, ----------- ------------------------- % Change 2000 1999 2000 v. 1999 ---- ---- ------------ Revenue $ 952,025 $ -- n/a Divisional Operating Expenses 878,553 -- n/a ----------- ----------- EBITDA as Adjusted * $ 73,472 $ -- n/a ----------- -----------
* See page 35 for cautionary disclosure
Pro Forma Basis: Years Ended December 31, ---------------- ------------------------- % Change 2000 1999 2000 v. 1999 ---- ---- ------------ Revenue $ 971,197 $ 851,974 14% Divisional Operating Expenses 895,405 780,146 15%
RECONCILIATION OF REPORTED BASIS TO PRO FORMA BASIS (In thousands)
Years Ended December 31, ------------------------- 2000 1999 ---- ---- Reported Revenue $ 952,025 $ -- Acquisitions -- 851,974 Divestitures -- -- Foreign Exchange adjustments 19,172 -- ----------- ----------- Pro Forma Revenue $ 971,197 $ 851,974 ----------- ----------- Reported Divisional Operating Expenses $ 878,553 $ -- Acquisitions -- 780,146 Divestitures -- -- Foreign Exchange adjustments 16,852 -- ----------- ----------- Pro Forma Divisional Operating Expenses $ 895,405 $ 780,146 ----------- -----------
As we entered the live entertainment business with our acquisition of SFX in August 2000, we did not report revenue and divisional operating expenses in 1999. On a pro forma basis, revenue increased due to an increase in the number of events and the number of show dates in fiscal year 2000 as compared to fiscal year 1999. Divisional operating expenses increased on a pro forma basis as numerous contracts with less favorable terms signed by prior management were fulfilled during the five-month period after our acquisition. 49 SEGMENT RECONCILIATIONS (In thousands)
As Reported EBITDA as Adjusted* Years Ended December 31, ------------------- ------------------------- 2000 1999 ---- ---- Radio Broadcasting $ 1,045,696 $ 499,692 Outdoor Advertising 650,898 468,096 Live Entertainment 73,472 -- Other 94,534 78,257 Corporate (142,627) (70,146) ----------- ---------- Consolidated EBITDA as Adjusted * $ 1,721,973 $ 975,899 ----------- ----------
* See page 35 for cautionary disclosure
Pro Forma Pro Forma Revenue Years Ended December 31, ----------------- ------------------------- 2000 1999 ---- ---- Radio Broadcasting $ 3,576,554 $ 3,118,825 Outdoor Advertising 1,830,940 1,617,917 Live Entertainment 971,197 851,974 Other 443,743 444,185 Eliminations (64,766) (37,790) ----------- ----------- Consolidated Pro Forma Revenue $ 6,757,668 $ 5,995,111 ----------- -----------
Pro Forma Pro Forma Divisional Operating Expense Years Ended December 31, -------------------------------------- ------------------------- 2000 1999 ---- ---- Radio Broadcasting $ 1,948,749 $ 1,784,923 Outdoor Advertising 1,156,528 1,068,190 Live Entertainment 895,405 780,146 Other 304,260 292,876 Eliminations (64,766) (37,790) ----------- ----------- Consolidated Pro Forma Divisional Operating Expense $ 4,240,176 $ 3,888,345 ----------- -----------
LIQUIDITY AND CAPITAL RESOURCES We expect to fund anticipated cash requirements (including acquisitions, anticipated capital expenditures, share repurchases, payments of principal and interest on outstanding indebtedness and commitments) with cash flows from operations and various externally generated funds. 50 SOURCES OF CAPITAL As of December 31, 2001 and 2000 we had the following debt outstanding and cash and cash equivalents: (In millions)
December 31, ------------------------------- 2001 2000 ----------- ----------- Credit facilities - domestic $ 1,419.3 $ 3,203.8 Credit facility - international 94.4 118.3 Senior convertible notes 1,575.0 1,575.0 Liquid Yield Option Notes 244.4 (a) 497.1 Long-term bonds 5,966.8 (b) 5,153.6 Other borrowings 183.0 117.0 Total Debt 9,482.9 (c) 10,664.8 ----------- ----------- Less: Cash and cash equivalents 154.7 196.8 ----------- ----------- $ 9,328.2 $ 10,468.0 =========== ===========
(a) Includes $43.9 million in unamortized fair value purchase accounting adjustment premiums related to the merger with Jacor Communications, Inc. (b) Includes $66.5 million in unamortized fair value purchase accounting adjustment premiums related to the merger with AMFM. Also includes $106.6 million related to fair value adjustments for interest rate swap agreements. (c) Total face value of outstanding debt was $9.4 billion at December 31, 2001. DOMESTIC CREDIT FACILITIES We currently have three separate domestic credit facilities. These provide cash for both working capital needs as well as to fund certain acquisitions. The first credit facility is a reducing revolving credit facility, originally in the amount of $2.0 billion. At December 31, 2001, $920.0 million was outstanding and $773.8 million was available for future borrowings. This credit facility began reducing on September 30, 2000, with quarterly reductions in the amounts available for future borrowings to continue through the last business day of June 2005. The second facility is a $1.5 billion, five-year multi-currency revolving credit facility. At December 31, 2001, the outstanding balance was $499.3 million and, taking into account letters of credit of $79.7 million, $921.0 million was available for future borrowings, with the entire balance to be repaid by the last business day of June 2005. The third facility is a $1.5 billion, 364-day revolving credit facility, which we have the option, upon its August 28, 2002 maturity, to convert into a term loan with a three-year maturity. There was no amount outstanding at December 31, 2001 and $1.5 billion was available for future borrowings. During the year ended December 31, 2001, we made principal payments totaling $4.2 billion and drew down $2.4 billion on these credit facilities. As of February 28, 2002, the credit facilities aggregate outstanding balance was $1.4 billion and, taking into account outstanding letters of credit, $3.2 billion was available for future borrowings. 51 INTERNATIONAL CREDIT FACILITY We have a $150.0 million five-year revolving credit facility with a group of international banks. This facility allows for borrowings in various foreign currencies, which are used to hedge net assets in those currencies and provides funds to our international operations for certain working capital needs and smaller acquisitions. At December 31, 2001, approximately $55.6 million was available for future borrowings and $94.4 million was outstanding. This credit facility expires on December 8, 2005. LONG-TERM BONDS On October 26, 2001, we completed a debt offering of $750.0 million 6% Senior Notes due November 1, 2006. Interest is payable on May 1 and November 1 of each year. The first interest payment on the notes will be made on May 1, 2002. Net proceeds of approximately $744.1 million were used to reduce the outstanding balance of our reducing revolving credit facility. Also included in long-term bonds at December 31, 2001, is $106.6 million related to our interest rate swaps. Upon our adoption of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, on January 1, 2001, we recorded the fair value of our interest rate swaps on our balance sheet. The increase in long-term bonds was partially offset by a $34.4 million reduction related to foreign exchange gains and $9.0 million in amortization of merger premiums and paydowns. AMFM LONG-TERM BONDS We assumed long-term bonds with a face value of $2.8 billion and fair value of $3.0 billion in the AMFM merger. On September 29, 2000, we redeemed all of the outstanding 9% Senior Subordinated Notes due 2008, originally issued by Chancellor Media Corporation or one of its subsidiaries, for $829.0 million subject to change of control provisions in the bond indentures. In October 2000, we redeemed, subject to change of control provisions in the bond indentures, all of the outstanding 9.25% Senior Subordinated Notes due 2007, originally issued by Capstar Radio Broadcasting Partners, Inc., the 12% Exchange Debentures due 2009, originally issued by Capstar Broadcasting Partners, Inc. and the 12.75% Senior Discount Notes due 2009, originally issued by Capstar Broadcasting Partners, Inc., for a total of $508.5 million. On October 6, 2000, we made payments of $231.4 million pursuant to mandatory offers required to repurchase due to a change of control on the following series of AMFM debt: 8% Senior Notes due 2008, 8.125% Senior Subordinated Notes due 2007 and 8.75% Senior Subordinated Notes due 2007, originally issued by Chancellor Media Corporation or one of its subsidiaries, as well as the 12.625% Exchange Debentures due 2006, originally issued by SFX Broadcasting. The aggregate remaining balance of these series of AMFM long-term bonds was $1.4 billion at December 31, 2001. On January 15, 2002, we redeemed all of the outstanding 12.625% Exchange Debentures due 2006, originally issued by SFX Broadcasting. At December 31, 2001 the face value of these notes was $141.8 million and the unamortized fair value purchase accounting adjustment premium was $15.3 million. The debentures were redeemed for $150.8 million plus accrued interest. We utilized availability on the reducing revolving line of credit to finance the redemption. The redemption resulted in a gain of $3.9 million, net of tax. Chancellor Media Corporation, Capstar Radio Broadcasting Partners, Capstar Broadcasting Partners, Inc. and AMFM Operating Inc., or their successors are all indirect wholly-owned subsidiaries of Clear Channel Communications. The debt redemptions were financed with borrowings under our domestic credit facilities. 52 SFX LONG-TERM BONDS We assumed long-term bonds with a face value of $550.0 million in the SFX merger. On October 10, 2000, we launched a tender offer for any and all of the 9.125% Senior Subordinated Notes due 2008. An agent acting on our behalf redeemed notes with a redemption value of approximately $602.9 million. Cash settlement of the amount due to the agent was completed during November 2000. After redemption, approximately $1.6 million face value of the notes remains outstanding. The tender offer was financed with borrowings under our credit facilities. LIQUID YIELD OPTION NOTES We assumed 4.75% Liquid Yield Option Notes ("LYONs") due 2018 and 5.50% LYONs due 2011 as a part of the merger with Jacor. Each LYON has a principal amount at maturity of $1,000 and is convertible, at the option of the holder, at any time on or prior to maturity, into our common stock at a conversion rate of 7.227 shares per LYON and 15.522 shares per LYON for the 2018 and 2011 issues, respectively. On May 7, 2001, we delivered notice of our intent to redeem the total outstanding principal amount of the 5.50% LYONs on June 12, 2001. Pursuant to the indenture agreement, the redemption price of $581.25 per each $1,000 LYON outstanding at June 12, 2001 was equal to the issue price plus accrued original issue discount through the redemption date. Substantially all of the 5.50% LYONs converted into our common stock prior to the redemption date. The 4.75% LYONs balance, after conversions to common stock, amortization of purchase accounting premium, and accretion of interest, at December 31, 2001 was $244.4 million, which includes unamortized fair value purchase accounting premium of $43.9 million. GUARANTEE OF THIRD PARTY OBLIGATIONS As of December 31, 2001 and 2000, we guaranteed third party dept of approximately $225.2 million and $280.0 million, respectively, primarily related to long-term operating contracts. A substantial portion of these obligations is secured by the third party's associated operating assets. RESTRICTED CASH In connection with the 2000 AMFM merger and related governmental directives, we received proceeds related to the divestitures of radio stations. These proceeds were placed in a restricted trust for the purchase of replacement properties. At December 31, 2000, $628.1 million remained in the trust. During 2001, related to the divestiture of five radio stations and the exchange of a television license, we received $51.0 million in proceeds that were placed in restricted trust. Also, during 2001, we used restricted cash of $367.5 million for acquisitions, earned interest of $4.7 million and received a refund of $311.7 million that was used to reduce the outstanding balances on our credit facilities. At December 31, 2001, $4.6 million remains in trust and is recorded as restricted cash. SALE OF MARKETABLE SECURITIES In connection with our merger with AMFM on August 30, 2000, Clear Channel and AMFM entered into a Consent Decree with the Department of Justice regarding AMFM's investment in Lamar Advertising Company. The Consent Decree, among other things, required us to sell all of our 26.2 million shares of Lamar by December 31, 2002 and relinquish all shareholder rights during the disposition period. During the year ended December 31, 2001, we received proceeds of $920.0 million relating to the sale of 24.9 million shares of Lamar common stock. These proceeds were used to pay 53 down our existing credit facility balance. COMMON STOCK WARRANTS We assumed common stock warrants, with an expiration date of September 18, 2001, as a part of our merger with Jacor. Each warrant represented the right to purchase .2355422 shares of our common stock at an exercise price of $24.19 per full share. During the year ended December 31, 2001, we received $122.5 million in proceeds and issued 5.1 million shares of common stock on the exercise of these warrants. SHELF REGISTRATION On July 21, 2000, we filed a Registration Statement on Form S-3 covering a combined $3.0 billion of debt securities, junior subordinated debt securities, preferred stock, common stock, warrants, stock purchase contracts and stock purchase units (the "shelf registration statement"). The shelf registration statement also covers preferred securities that may be issued from time to time by our three Delaware statutory business trusts and guarantees of such preferred securities by us. In September 2000, and in October 2001 we issued $1.5 billion and $750.0 million, respectively of debt securities registered under the shelf registration statement, leaving $750.0 million available for future issuance. On January 18, 2002, we filed a new Registration Statement on Form S-3 covering a combined $3.0 billion of debt securities, junior subordinated debt securities, preferred stock, common stock, warrants, stock purchase contracts and stock purchase units, including a "carry-forward" of the $750.0 million available for issuance under the shelf registration statement. As of the file date of this report, the SEC had not yet declared the Registration Statement on Form S-3 effective. DEBT COVENANTS The only significant covenants in our debt are leverage and interest coverage ratio covenants contained in the credit facilities. The leverage ratio covenant requires us to maintain a ratio of total debt to EBITDA (as defined by the credit facilities) of less than 5.50x through June 30, 2003 and less than 5.00x from July 1, 2003 through the maturity of the facilities. The interest coverage covenant requires Clear Channel to maintain a minimum ratio of EBITDA (as defined by the credit facilities) to interest expense of 2.00x. In the event that we do not meet these covenants, we are considered to be in default on the credit facilities at which time the credit facilities may become immediately due. Our bank credit facilities have cross-default provisions among the bank facilities only. No other Clear Channel debt agreements have cross-default or cross-acceleration provisions. Additionally, the AMFM long-term bonds contain certain restrictive covenants that limit the ability of AMFM Operating Inc., a wholly-owned subsidiary of Clear Channel, to incur additional indebtedness, enter into certain transactions with affiliates, pay dividends, consolidate, or effect certain asset sales. The AMFM long-term bonds have cross-default and cross-acceleration provisions among the AMFM long-term bonds only. At December 31, 2001, we were in compliance with all debt covenants. We expect to be in compliance during 2002. 54 USES OF CAPITAL ACQUISITIONS During 2001 we acquired 183 radio stations in 63 markets for $89.3 million in cash, $355.8 million in restricted cash plus the exchange of eight radio stations. We also acquired approximately 3,300 additional outdoor display faces in 33 domestic markets and approximately 25,500 additional display faces in 61 international markets for a total of $359.6 million in cash. Our outdoor segment also acquired investments in non-consolidated affiliates for a total of $25.0 million in cash. During the year ended December 31, 2001, our live entertainment segment acquired music, sports and racing events, promotional assets and sports talent representation contracts for $125.5 million in cash. We also acquired FCC licenses of four television stations, two of which had previously been operating under local marketing agreements, national representation contracts, and other assets for a total of $67.2 million in cash and $11.7 million in restricted cash. We intend to continue to pursue businesses that fit our strategic goals. From January 1, 2002 through February 28, 2002, we have acquired six radio stations and 1,938 outdoor display faces. PENDING MERGER On October 5, 2001, we entered into a merger agreement to acquire The Ackerley Group, Inc. Ackerley holds a diversified group of outdoor, broadcasting and interactive media assets. This merger will be a tax-free, stock-for-stock transaction. Each share of Ackerley common stock will convert into 0.35 shares of our common stock, on a fixed exchange basis, valuing the merger, based on average share value at the signing of the merger agreement, at approximately $474.9 million plus the assumption of Ackerley's debt, which was approximately $290.6 million at December 31, 2001. This merger is subject to regulatory approval under the federal communications laws and other closing conditions. We anticipate that this merger will close during the first half of 2002;however, we cannot be assured that we will complete the merger with Ackerley in a timely manner or on the terms described in this document, if at all. CAPITAL EXPENDITURES Capital expenditures in 2001 increased from $495.6 million in 2000 to $598.4 million in 2001. Overall, capital expenditures increased due to the increase in the number of radio stations, billboards and displays owned during the year ended December 31, 2001 as compared to the year ended December 31, 2000. In addition, we incurred capital expenditures related to our new live entertainment segment during the year ended December 31, 2001 that we did not incur in 2000. The increase for the year ended December 31, 2001 primarily relates to additional spending relating to facility consolidation resulting from our acquisitions, technological upgrades of operating assets, and the purchase and construction of new revenue producing advertising displays. 55
(In millions) Year Ended December 31, 2001 Capital Expenditures --------------------------------------------------------------------------------- Corporate and Radio Outdoor Entertainment Other Total --------- --------- ------------- ------------- --------- Recurring $ 33.8 $ 74.6 $ 12.7 $ 24.8 $ 145.9 Non-recurring projects 111.1 27.2 37.2 96.5 272.0 Revenue producing -- 162.9 17.6 -- 180.5 --------- --------- --------- --------- --------- $ 144.9 $ 264.7 $ 67.5 $ 121.3 $ 598.4
Our radio broadcasting capital expenditures during the year ended December 31, 2001 are related primarily to expenditures associated with the consolidation of operations in certain markets in conjunction with acquisitions that are expected to result in improved operating results in such markets. Our outdoor advertising capital expenditures during the year ended December 31, 2001 are related primarily to the construction of new revenue producing advertising displays as well as replacement expenditures on our existing advertising displays. Our live entertainment capital expenditures during the year ended December 31, 2001 include expenditures primarily related to a consolidated sales and operations facility, new venues and improvements to existing venues. Included in "corporate and other" capital expenditures during the year ended December 31, 2001 is the purchase of land for an additional corporate facility to replace leased space, purchase of certain corporate assets, upgrades of our television related operating assets and other technology expenditures. Future acquisitions of radio broadcasting stations, outdoor advertising facilities, live entertainment assets and other media-related properties affected in connection with the implementation of our acquisition strategy are expected to be financed from increased borrowings under our existing credit facilities, additional public equity and debt offerings and cash flow from operations. We anticipate utilizing available capacity on the credit facilities to refinance 2002 debt maturities. We believe that cash flow from operations, as well as the proceeds from securities offerings made from time to time, will be sufficient to make all required future interest and principal payments on the credit facilities, senior convertible notes and bonds, and will be sufficient to fund all anticipated capital expenditures. OTHER During the year ended December 31, 2001, we made cash tax payments of $450.0 million relating to gains realized on divested radio stations during 2000. Also, we made payments of approximately $229.0 million related to severance and other merger related accruals during 2001. COMMITMENTS AND CONTINGENCIES There are various lawsuits and claims pending against us. We believe that any ultimate liability resulting from those actions or claims will not have a material adverse effect on our results of operations, financial position or liquidity. Certain agreements relating to acquisitions provide for purchase price adjustments and other future contingent payments based on the financial performance of the acquired companies generally over 56 a one to five year period. We will continue to accrue additional amounts related to such contingent payments if and when it is determinable that the applicable financial performance targets will be met. The aggregate of these contingent payments, if performance targets are met, would not significantly impact our financial position or results of operations. FUTURE OBLIGATIONS In addition to our scheduled maturities on our debt, we have future cash obligations under various types of contracts. We lease office space, certain broadcast facilities, equipment and the majority of the land occupied by our outdoor advertising structures under long-term operating leases. In addition, we have minimum franchise payments associated to non-cancelable contracts that enable us to display advertising on such media as buses, taxis, trains, bus shelters and terminals. Finally, we have commitments relating to required purchases of property, plant and equipment under certain street furniture contracts, as well as construction commitments for facilities and venues. The scheduled maturities of our credit facilities; other long-term debt outstanding; future minimum rental commitments, under non-cancelable lease agreements; minimum rental payments under non-cancelable contracts; and capital expenditure commitments at December 31, 2001 are as follows:
(In millions) Other Credit Long-Term Non-Cancelable Non-Cancelable Capital Facilities Debt Lease Contracts Expenditures ---------- ---- ----- --------- ------------ 2002 $ -- $1,515.2 $ 314.1 $ 266.4 $419.6 2003 -- 1,344.1 266.8 194.8 175.3 2004 407.5 12.0 232.0 157.8 17.4 2005 1,011.8 1,437.4 198.3 137.8 2.3 2006 -- 755.1 176.1 87.3 2.6 Thereafter -- 2,999.8 1,251.8 210.6 12.0 -------- -------- -------- -------- ------ Total $1,419.3 $8,063.6 $2,439.1 $1,054.7 $629.2 ======== ======== ======== ======== ======
MARKET RISK INTEREST RATE RISK At December 31, 2001, approximately 36% of our long-term debt, including fixed rate debt on which we have entered interest rate swap agreements, bears interest at variable rates. Accordingly, our earnings are affected by changes in interest rates. Assuming the current level of borrowings at variable rates and assuming a two percentage point change in the year's average interest rate under these borrowings, it is estimated that our 2001 interest expense would have changed by $65.3 million and that our 2001 net income would have changed by $40.5 million. In the event of an adverse change in interest rates, management may take actions to further mitigate its exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, the analysis assumes no such actions. Further the analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment. We have entered into interest rate swap agreements that effectively float interest at rates based upon LIBOR on $1.5 billion of our current fixed rate borrowings. These agreements expire from 57 September 2003 to June 2005. The fair value of these agreements at December 31, 2001 was an asset of $106.6 million. EQUITY PRICE RISK The carrying value of our available-for-sale and trading equity securities is affected by changes in their quoted market prices. It is estimated that a 20% change in the market prices of these securities would change their carrying value at December 31, 2001 by $58.0 million and would change accumulated comprehensive income (loss) and net income (loss) by $33.6 million and $2.4 million, respectively. At December 31, 2001, we also hold $64.4 million of investments that do not have a quoted market price, but are subject to fluctuations in their value. FOREIGN CURRENCY We have operations in countries throughout the world. Foreign operations are measured in their local currencies except in hyper-inflationary countries in which we operate. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we have operations. To mitigate a portion of the exposure to risk of international currency fluctuations, we maintain a natural hedge through borrowings in currencies other than the U.S. dollar. This hedge position is reviewed monthly. We currently maintain no derivative instruments to mitigate the exposure to translation and/or transaction risk. However, this does not preclude the adoption of specific hedging strategies in the future. Our foreign operations reported a net loss of $28.1 million for the year ended December 31, 2001. It is estimated that a 10% change in the value of the U.S. dollar to foreign currencies would change net loss for the year ended December 31, 2001 by $2.8 million. Our earnings are also affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies as a result of our investments in various countries, all of which are accounted for under the equity method. It is estimated that the result of a 10% fluctuation in the value of the dollar relative to these foreign currencies at December 31, 2001 would change our 2001 equity in earnings of nonconsolidated affiliates by $.3 million and would change our net income for the year ended December 31, 2001 by approximately $.2 million. This analysis does not consider the implications that such fluctuations could have on the overall economic activity that could exist in such an environment in the U.S. or the foreign countries or on the results of operations of these foreign entities. RECENT ACCOUNTING PRONOUNCEMENTS On July 1, 2001, we adopted Statement of Financial Accounting Standards No. 141, Business Combinations. Statement 141 addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, Business Combinations, and FASB Statement 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. Statement 141 is effective for all business combinations initiated after June 30, 2001. Statement 141 eliminates the pooling-of-interest method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. Statement 141 also changes the criteria to recognize intangible assets apart from goodwill. As we have historically used the purchase method to account for all business combinations, adoption of this statement did not have a material impact on our financial position or results of operations. In June 2001, the Financial Accounting Standards Board issued Statement of Financial 58 Accounting Standards No. 142, Goodwill and Other Intangible Assets. Statement 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. Statement 142 is effective for fiscal years beginning after December 15, 2001. This statement establishes new accounting for goodwill and other intangible assets recorded in business combinations. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statement. Other intangible assets will continue to be amortized over their useful lives. Under this guidance, we believe broadcast licenses are indefinite-lived intangibles. As our amortization of goodwill and certain other indefinite lived intangibles is a significant non-cash expense that we currently record, Statement 142 will have a material impact on our financial statements. For the year ended December 31, 2001, amortization expense related to goodwill and indefinite lived intangibles was approximately $1.8 billion. Upon adoption of FAS 142, for comparative purposes, we will be required to disclose the prior year earning per share data as if adoption had occurred January 1, 2001. Below is this disclosure for each of the quarters of 2001:
(In thousands, except per share data) For the Quarter Ended For the Year ------------------------------------------------------------------ Ended March 31, June 30, September 30, December 31, December 31, 2001 2001 2001 2001 2001 ---- ---- ---- ---- ---- ADJUSTED NET INCOME (LOSS): Reported Net Income (Loss) $ (309,228) $ (237,001) $ (232,198) $ (365,599) $(1,144,026) Add Back: Goodwill Amortization 218,923 208,844 226,726 239,974 894,467 Add Back: License Amortization 216,983 224,909 224,032 222,857 888,781 Tax Impact (100,602) (92,582) (99,526) (97,923) (390,633) ----------- ----------- ----------- ----------- ----------- Adjusted Net Income (Loss) $ 26,076 $ 104,170 $ 119,034 $ (691) $ 248,589 =========== =========== =========== =========== =========== BASIC EARNINGS (LOSS) PER SHARE: Reported Net Income (Loss) $ (.53) $ (.40) $ (.39) $ (.61) $ (1.93) Add Back: Goodwill Amortization .37 .36 .38 .40 1.51 Add Back: License Amortization .37 .38 .38 .37 1.50 Tax Impact (.17) (.16) (.17) (.16) (.66) ----------- ----------- ----------- ----------- ----------- Adjusted Earnings per Share - Basic $ .04 $ .18 $ .20 $ .00 $ .42 =========== =========== =========== =========== =========== DILUTED EARNINGS (LOSS) PER SHARE: Reported Net Income (Loss) $ (.53) $ (.40) $ (.39) $ (.61) $ (1.93) Anti-dilutive adjustment .02 .01 .01 -- .04 Add Back: Goodwill Amortization .36 .34 .37 .40 1.48 Add Back: License Amortization .36 .37 .37 .37 1.47 Tax Impact (.17) (.15) (.16) (.16) (.65) ----------- ----------- ----------- ----------- ----------- Adjusted Earnings per Share - Diluted $ .04 $ .17 $ .20 $ .00 $ .41 =========== =========== =========== =========== ===========
We are currently evaluating valuation techniques as well as other implementation issues. We will test goodwill for impairment using a two-step process. The first step is a screen for potential impairment, while the second step measures the amount of impairment, if any. We expect to perform the first of the required impairment tests of goodwill and indefinite-lived intangible assets as of January 1, 2002 in the first quarter of 2002. As a result of these tests, we expect to record a pre-tax impairment charge in the range of $15.0 billion to $25.0 billion, which will be reported after-tax as a cumulative effect in accounting change on the statement of operations for the quarter ended March 31, 2002. 59 In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Statement 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of. Statement 144 is effective for fiscal years beginning after December 15, 2001. Statement 144 removes goodwill from its scope and retains the requirements of Statement 121 regarding the recognition of impairment losses on long-lived assets held for use. The Statement modifies the accounting for long-lived assets to be disposed of by sale and long-lived assets to be disposed of by other than by sale. We do not believe adoption of this statement will materially impact our financial position or results of operations. CRITICAL ACCOUNTING POLICIES Critical account policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies, see Note A in the notes to the consolidated financial statements. IMPAIRMENT OF LONG-LIVED ASSETS We record impairment losses when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flow estimated to be generated by those assets are less than the carrying amount of those assets. When specific assets are determined to be unrecoverable, the cost basis of the assets is reduced to reflect their current fair market value. During 2001, we recorded impairment charges of approximately $170.0 million related to the write-off of duplicative and excess assets identified primarily in our radio segment, the impairment of goodwill and excess property, plant and equipment within our outdoor segment, and an on-air talent contract within our radio segment. The fair values of the goodwill and the on-air talent contract were determined based on discounted cash flow models and assumptions of future expected cash flows, and the fair values related to property, plant and equipment were based on estimated cash proceeds. We considered the current economic recession as an impairment indicator during the fourth quarter of fiscal 2001. As a result, we performed a recoverability assessment of all of our long-lived assets using an undiscounted cash flow model. Based on our assumptions, all long-lived assets, other than those mentioned above, were determined to be recoverable. IMPAIRMENT OF INVESTMENTS At December 31, 2001, we have $354.3 million recorded as other investments. Other investments are composed primarily of equity securities. These securities are classified as available-for-sale or trading and are carried at fair value based on quoted market prices. Securities are carried at historical value when quoted market prices are unavailable. The net unrealized gains or losses on the available-for-sale securities, net of tax, are reported as a separate component of shareholders' equity. The net unrealized gains or losses on the trading securities are reported in the statement of operations. In addition, we hold investments that do not have quoted market prices. We review the value of these investments and record an impairment charge in the statement of operations for any decline in value that is determined to be other-than-temporary. During 2001, we recorded impairments of $67.3 million 60 related to investments where declines in fair value below cost were considered to be other-than-temporary. INFLATION Inflation has affected our performance in terms of higher costs for wages, salaries and equipment. Although the exact impact of inflation is indeterminable, we believe we have offset these higher costs by increasing the effective advertising rates of most of our broadcasting stations and outdoor display faces. RATIO OF EARNINGS TO FIXED CHARGES The ratio of earnings to fixed charges is as follows:
Year Ended December 31, -------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- * 2.20 2.04 1.83 2.32
*For the year ended December 31, 2001, fixed charges exceeded earnings before income taxes and fixed charges by $1.3 billion. The ratio of earnings to fixed charges was computed on a total enterprise basis. Earnings represent income from continuing operations before income taxes less equity in undistributed net income (loss) of unconsolidated affiliates plus fixed charges. Fixed charges represent interest, amortization of debt discount and expense, and the estimated interest portion of rental charges. We had no preferred stock outstanding for any period presented. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Required information is within Item 7 61 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS The consolidated financial statements and notes related thereto were prepared by and are the responsibility of management. The financial statements and related notes were prepared in conformity with accounting principles generally accepted in the United States and include amounts based upon management's best estimates and judgments. It is management's objective to ensure the integrity and objectivity of its financial data through systems of internal controls designed to provide reasonable assurance that all transactions are properly recorded in our books and records, that assets are safeguarded from unauthorized use, and that financial records are reliable to serve as a basis for preparation of financial statements. The financial statements have been audited by our independent auditors, Ernst & Young LLP, to the extent required by auditing standards generally accepted in the United States and, accordingly, they have expressed their professional opinion on the financial statements in their report included herein. The Board of Directors meets with the independent auditors and management periodically to satisfy itself that they are properly discharging their responsibilities. The independent auditors have unrestricted access to the Board, without management present, to discuss the results of their audit and the quality of financial reporting and internal accounting controls. Lowry Mays Chairman/Chief Executive Officer Herbert W. Hill, Jr. Senior Vice President/Chief Accounting Officer 62 REPORT OF INDEPENDENT AUDITORS SHAREHOLDERS AND BOARD OF DIRECTORS CLEAR CHANNEL COMMUNICATIONS, INC. We have audited the accompanying consolidated balance sheets of Clear Channel Communications, Inc. and subsidiaries (the Company) as of December 31, 2001 and 2000, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Hispanic Broadcasting Corporation (formerly Heftel Broadcasting Corporation), in which the Company has a 26% equity interest, have been audited by other auditors whose report has been furnished to us; insofar as our opinion on the consolidated financial statements relates to data included for Hispanic Broadcasting Corporation for 1999, it is based solely on their report. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Clear Channel Communications, Inc. and subsidiaries at December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP San Antonio, Texas February 18, 2002 63 CONSOLIDATED BALANCE SHEETS ASSETS (In thousands)
December 31, ---------------------------- 2001 2000 ---- ---- CURRENT ASSETS Cash and cash equivalents $ 154,744 $ 196,838 Restricted cash 4,600 308,691 Accounts receivable, less allowance of $61,070 in 2001 and $60,631 in 2000 1,475,276 1,557,048 Prepaid expenses 163,283 146,767 Other current assets 143,396 133,873 ----------- ----------- TOTAL CURRENT ASSETS 1,941,299 2,343,217 PROPERTY, PLANT AND EQUIPMENT Land, buildings and improvements 1,388,332 1,197,951 Structures and site leases 2,210,309 2,395,934 Towers, transmitters and studio equipment 634,532 744,571 Furniture and other equipment 556,977 479,532 Construction in progress 191,048 222,286 ----------- ----------- 4,981,198 5,040,274 Less accumulated depreciation 1,024,449 785,040 ----------- ----------- 3,956,749 4,255,234 INTANGIBLE ASSETS Contracts 1,098,956 1,075,472 Licenses and goodwill 42,789,292 40,973,198 Other intangible assets 130,162 175,451 ----------- ----------- 44,018,410 42,224,121 Less accumulated amortization 3,664,925 1,731,557 ----------- ----------- 40,353,485 40,492,564 OTHER Restricted cash -- 319,450 Notes receivable 45,856 99,818 Investments in, and advances to, nonconsolidated affiliates 502,185 427,303 Other assets 449,227 513,773 Other investments 354,341 1,605,102 ----------- ----------- TOTAL ASSETS $47,603,142 $50,056,461 =========== ===========
See Notes to Consolidated Financial Statements 64 LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands, except share data)
December 31, ----------------------------- 2001 2000 ---- ---- CURRENT LIABILITIES Accounts payable $ 319,280 $ 383,588 Accrued interest 85,842 105,581 Accrued expenses 776,968 886,904 Accrued income taxes 10,097 445,499 Current portion of long-term debt 1,515,221 67,736 Deferred income 234,559 218,670 Other current liabilities 17,890 20,572 ----------- ----------- TOTAL CURRENT LIABILITIES 2,959,857 2,128,550 Long-term debt 7,967,713 10,597,082 Deferred income taxes 6,512,217 6,771,198 Other long-term liabilities 374,307 150,713 Minority interest 52,985 61,745 SHAREHOLDERS' EQUITY Preferred Stock - Class A, par value $1.00 per share, authorized 2,000,000 shares, no shares issued and outstanding -- -- Preferred Stock, - Class B, par value $1.00 per share, authorized 8,000,000 shares, no shares issued and outstanding -- -- Common Stock, par value $.10 per share, authorized 1,500,000,000 shares, issued 598,270,433 and 585,766,166 shares in 2001 and 2000, respectively 59,827 58,577 Additional paid-in capital 30,320,916 29,558,908 Common stock warrants 12,373 249,312 Retained earnings (deficit) (599,086) 544,940 Accumulated other comprehensive income (loss) (34,470) (32,433) Other (8,218) (26,298) Cost of shares (279,700 in 2001 and 115,557 in 2000) held in treasury (15,279) (5,833) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 29,736,063 30,347,173 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $47,603,142 $50,056,461 =========== ===========
See Notes to Consolidated Financial Statements 65 CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Year Ended December 31, ----------------------------------------------- 2001 2000 1999 ---- ---- ---- Revenue $ 7,970,003 $ 5,345,306 $ 2,678,160 Operating expenses: Divisional operating expenses (excludes non-cash compensation expense of $13,111, $4,359 and $-0- in 2001, 2000 and 1999, respectively) 5,866,706 3,480,706 1,632,115 Non-cash compensation expense 17,077 16,032 -- Depreciation and amortization 2,562,480 1,401,063 722,233 Corporate expenses (excludes non-cash compensation expense of $3,966, $11,673 and $-0- in 2001, 2000 and 1999, respectively) 187,434 142,627 70,146 ----------- ----------- ----------- Operating income (loss) (663,694) 304,878 253,666 Interest expense 560,077 383,104 179,404 Gain (loss) on sale of assets related to mergers (213,706) 783,743 138,659 Gain (loss) on marketable securities 25,820 (5,369) 22,930 Equity in earnings of nonconsolidated affiliates 10,393 25,155 18,183 Other income (expense) - net 152,267 (11,764) (15,638) ----------- ----------- ----------- Income (loss) before income taxes and extraordinary item (1,248,997) 713,539 238,396 Income tax benefit (expense) 104,971 (464,731) (152,741) ----------- ----------- ----------- Income (loss) before extraordinary item (1,144,026) 248,808 85,655 Extraordinary item -- -- (13,185) ----------- ----------- ----------- Net income (loss) (1,144,026) 248,808 72,470 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 11,699 (92,296) (47,814) Unrealized gain (loss) on securities: Unrealized holding gain (loss) (141,055) (193,634) 182,315 Reclassification adjustment for gains on securities transferred to trading (45,315) -- -- Reclassification adjustment for gains on SFX shares held prior to merger -- (36,526) -- Reclassification adjustment for (gain) loss included in net income 172,634 7,278 (14,904) ----------- ----------- ----------- Comprehensive income (loss) $(1,146,063) $ (66,370) $ 192,067 =========== =========== =========== Net income (loss) per common share: Basic: Income (loss) before extraordinary item $ (1.93) $ .59 $ .27 Extraordinary item -- -- (.04) ----------- ----------- ----------- Net income (loss) $ (1.93) $ .59 $ .23 =========== =========== =========== Diluted: Income (loss) before extraordinary item (1.93) $ .57 $ .26 Extraordinary item -- -- (.04) ----------- ----------- ----------- Net income (loss) $ (1.93) $ .57 $ .22 =========== =========== ===========
See Notes to Consolidated Financial Statements 66 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data) Additional Common Common Paid-in Shares Issued Stock Capital ------------- ----- ------- Balances at December 31, 1998 263,698,206 $ 26,370 $ 4,067,297 Net income Proceeds from sale of Common Stock 8,047,757 805 512,112 Common Stock issued related to Eller put/call 1,902,938 190 130,440 agreement Common Stock, stock options and common stock warrants issued for business acquisitions 61,802,032 6,180 4,413,530 Conversion of Liquid Yield Option Notes 96,983 10 3,271 Exercise of stock options and common stock warrants 3,061,587 306 90,307 Charitable donation of treasury shares Currency translation adjustment Unrealized gains (losses) on investments ----------- ----------- ----------- Balances at December 31, 1999 338,609,503 33,861 9,216,957 Net income Common Stock, stock options and common stock warrants issued for business acquisitions 244,962,275 24,497 20,258,721 Deferred compensation acquired Purchase of treasury shares Conversion of Liquid Yield Option Notes 76 Exercise of stock options and common stock warrants 2,194,388 219 83,154 Amortization and adjustment of deferred compensation Currency translation adjustment Unrealized gains (losses) on investments ----------- ----------- ----------- Balances at December 31, 2000 585,766,166 58,577 29,558,908 Net loss Common Stock, stock options and common stock warrants issued for business acquisitions 282,489 28 18,205 Purchase of treasury shares Conversion of Liquid Yield Option Notes 3,868,764 387 259,364 Exercise of stock options and common stock warrants 8,353,014 835 479,749 Amortization and adjustment of deferred compensation 4,690 Currency translation adjustment Unrealized gains (losses) on investments ----------- ----------- ----------- Balances at December 31, 2001 598,270,433 $ 59,827 $30,320,916 =========== =========== ===========
(In thousands, except share data) Accumulated Common Retained Other Stock Earnings Comprehensive Warrants (Deficit) Income (Loss) -------- --------- ------------- Balances at December 31, 1998 $ -- $ 223,662 $ 163,148 Net income 72,470 Proceeds from sale of Common Stock Common Stock issued related to Eller put/call agreement Common Stock, stock options and common stock warrants issued for business acquisitions 253,428 Conversion of Liquid Yield Option Notes Exercise of stock options and common stock warrants (566) Charitable donation of treasury shares Currency translation adjustment (47,814) Unrealized gains (losses) on investments 167,411 ----------- ----------- ----------- Balances at December 31, 1999 252,862 296,132 282,745 Net income 248,808 Common Stock, stock options and common stock warrants issued for business acquisitions Deferred compensation acquired Purchase of treasury shares Conversion of Liquid Yield Option Notes Exercise of stock options and common stock warrants (3,550) Amortization and adjustment of deferred compensation Currency translation adjustment (92,296) Unrealized gains (losses) on investments (222,882) ----------- ----------- ----------- Balances at December 31, 2000 249,312 544,940 (32,433) Net loss (1,144,026) Common Stock, stock options and common stock warrants issued for business acquisitions Purchase of treasury shares Conversion of Liquid Yield Option Notes Exercise of stock options and common stock warrants (236,939) Amortization and adjustment of deferred compensation Currency translation adjustment 11,699 Unrealized gains (losses) on investments (13,736) ----------- ----------- ----------- Balances at December 31, 2001 $ 12,373 $ (599,086) $ (34,470) =========== =========== ===========
(In thousands, except share data) Treasury Other Stock Total ----- ----- ----- Balances at December 31, 1998 $ 4,925 $ (1,973) $ 4,483,429 Net income 72,470 Proceeds from sale of Common Stock 512,917 Common Stock issued related to Eller put/call 130,630 agreement Common Stock, stock options and common stock warrants issued for business acquisitions 4,673,138 Conversion of Liquid Yield Option Notes 3,281 Exercise of stock options and common stock warrants (2,621) (2,953) 84,473 Charitable donation of treasury shares 4,102 4,102 Currency translation adjustment (47,814) Unrealized gains (losses) on investments 167,411 ----------- ----------- ----------- Balances at December 31, 1999 2,304 (824) 10,084,037 Net income 248,808 Common Stock, stock options and common stock warrants issued for business acquisitions (61) 20,283,157 Deferred compensation acquired (49,311) (49,311) Purchase of treasury shares (4,745) (4,745) Conversion of Liquid Yield Option Notes 76 Exercise of stock options and common stock warrants (203) 79,620 Amortization and adjustment of deferred compensation 20,709 20,709 Currency translation adjustment (92,296) Unrealized gains (losses) on investments (222,882) ----------- ----------- ----------- Balances at December 31, 2000 (26,298) (5,833) 30,347,173 Net loss (1,144,026) Common Stock, stock options and common stock warrants issued for business acquisitions (89) 18,144 Purchase of treasury shares (9,000) (9,000) Conversion of Liquid Yield Option Notes 259,751 Exercise of stock options and common stock warrants (2,138) (324) 241,183 Amortization and adjustment of deferred compensation 20,218 (33) 24,875 Currency translation adjustment 11,699 Unrealized gains (losses) on investments (13,736) ----------- ----------- ----------- Balances at December 31, 2001 $ (8,218) $ (15,279) $29,736,063 =========== =========== ===========
See Notes to Consolidated Financial Statements 67 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, ----------------------------------------------- 2001 2000 1999 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(1,144,026) $ 248,808 $ 72,470 Reconciling Items: Depreciation 594,104 367,639 263,242 Amortization of intangibles 1,968,376 1,033,424 458,991 Deferred taxes (162,334) 386,711 31,653 Amortization of deferred financing charges, bond premiums and accretion of note discounts, net 13,220 16,038 5,667 Amortization of deferred compensation 17,077 16,032 -- (Gain) loss on sale of operating and fixed assets (165,943) (6,638) (163) (Gain) loss on sale of available-for-sale securities 32,684 5,827 (22,930) (Gain) loss on sale of other investments 22,927 (458) -- (Gain) loss on sale of assets related to mergers 213,706 (774,288) (141,393) (Gain) loss on forward exchange contract (68,825) -- -- (Gain) loss on trading securities (12,606) -- -- Equity in earnings of nonconsolidated affiliates (6,695) (20,820) (10,775) Extraordinary item -- -- 13,185 Increase (decrease) other, net 4,112 (25,903) 17,188 Changes in operating assets and liabilities, net of effects of acquisitions: Decrease (increase) in accounts receivable 107,278 (5,721) (87,529) Decrease (increase) in prepaid assets 4,927 18,315 (1,053) Decrease (increase) in other current assets 8,522 15,590 (646) Increase (decrease) in accounts payable, accrued expenses and other liabilities (438,466) (356,131) 1,757 Increase (decrease) in accrued interest (19,739) (3,388) (10,778) Increase (decrease) in deferred income 12,250 (121,539) 18,647 Increase (decrease) in accrued income taxes (370,962) (38,413) 31,873 ----------- ----------- ----------- Net cash provided by operating activities 609,587 755,085 639,406
68
Year Ended December 31, ----------------------------------------------- 2001 2000 1999 ---- ---- ---- CASH FLOWS FROM INVESTING ACTIVITIES: (Investment) in liquidation of restricted cash, net 577,211 (183,896) 78,651 Cash acquired in stock-for-stock mergers -- 311,861 -- (Increase) decrease in notes receivable, net (5,228) (15,807) -- Decrease (increase) in investments in, and advances to nonconsolidated affiliates - net (44,052) (8,044) (36,647) Purchases of available-for-sale securities -- (196) (173,415) Purchase of other investments (892) (55,079) (1,283) Proceeds from sale of available-for-sale-securities 919,999 55,434 29,659 Proceeds from sale of other investments -- 5,843 -- Purchases of property, plant and equipment (598,388) (495,551) (238,738) Proceeds from disposal of assets 88,464 392,729 12,203 Proceeds from divestitures placed in restricted cash 51,000 839,717 205,800 Acquisition of operating assets (666,567) (1,884,196) (1,063,320) Acquisition of operating assets with restricted cash (367,519) (670,228) (246,228) Decrease (increase) in other - net 136,246 (48,241) (40,852) ----------- ----------- ----------- Net cash provided by (used in) investing activities 90,274 (1,755,654) (1,474,170) CASH FLOWS FROM FINANCING ACTIVITIES: Draws on credit facilities 2,550,419 7,904,488 2,414,480 Payments on credit facilities (4,316,446) (7,199,185) (3,085,486) Proceeds from long-term debt 744,105 3,128,386 1,005,830 Payments on long-term debt (10,210) (2,757,223) (9,023) Proceeds from forward exchange contract 90,826 -- -- Proceeds from exercise of stock options, stock purchase plan and common stock warrants 208,351 48,962 36,273 Payments for purchase of treasury shares (9,000) (4,745) -- Proceeds from issuance of common stock -- -- 512,916 ----------- ----------- ----------- Net cash (used in) provided by financing activities (741,955) 1,120,683 874,990 ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents (42,094) 120,114 40,226 Cash and cash equivalents at beginning of year 196,838 76,724 36,498 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 154,744 $ 196,838 $ 76,724 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 555,669 $ 358,504 $ 201,127 Income taxes 542,116 96,643 58,005
See Notes to Consolidated Financial Statements 69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Clear Channel Communications, Inc., incorporated in Texas in 1974, is a diversified media company with three principal business segments: radio broadcasting, outdoor advertising and live entertainment. The Company is one of the largest domestic radio broadcasters based on the number of radio stations for which it owns, programs and sells airtime. The Company is also one of the world's largest outdoor advertising companies based on total advertising display inventory in the United States and internationally. In addition, the Company is one of the world's largest diversified promoters, producers and venue operators of live entertainment events based on the total number of events, productions, and owned or operated venues. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries, substantially all of which are wholly-owned. Significant intercompany accounts have been eliminated in consolidation. Investments in nonconsolidated affiliates are accounted for using the equity method of accounting. Certain amounts in prior years have been reclassified to conform to the 2001 presentation. CASH AND CASH EQUIVALENTS Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less. RESTRICTED CASH Restricted cash includes cash proceeds on certain asset sales held in trust and restricted for a specific time period to be used for the purchase of replacement properties. If not used within the specified time period, the amounts are refunded to the Company. ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company evaluates the collectibility of its accounts receivable based on a combination of factors. In circumstances where it is aware of a specific customer's inability to meet its financial obligations, it records a specific reserve to reduce the amounts recorded to what it believes will be collected. For all other customers, it recognizes reserves for bad debt based on historical experience of bad debts as a percent of revenues for each business unit, adjusted for relative improvements or deteriorations in the agings and changes in current economic conditions. LAND LEASES AND OTHER STRUCTURE LICENSES Most of the Company's outdoor advertising structures are located on leased land. Domestic land rents are typically paid in advance for periods ranging from one to twelve months. International land rents are paid both in advance and in arrears, for periods ranging from one to twelve months. Most international street furniture advertising display faces are licensed through municipalities for up to 20 years. The street furniture licenses often include a percent of revenue to be paid along with a base rent payment. Prepaid land leases are recorded as an asset and expensed ratably over the related rental term and license and rent payments in arrears are recorded as an accrued liability. 70 PREPAID EXPENSES Included in prepaid expenses are event expenses including show advances and deposits and other costs directly related to future entertainment events. Such costs are charged to operations upon completion of the related events. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method at rates that, in the opinion of management, are adequate to allocate the cost of such assets over their estimated useful lives, which are as follows: Buildings and improvements - 10 to 39 years Structures and site leases - 5 to 40 years, or life of lease Towers, transmitters and studio equipment - 7 to 20 years Furniture and other equipment - 3 to 20 years Leasehold improvements - generally life of lease Expenditures for maintenance and repairs are charged to operations as incurred, whereas expenditures for renewal and betterments are capitalized. INTANGIBLE ASSETS Intangible assets are stated at cost. Excess cost over the fair value of net assets acquired is classified as goodwill. Intangible assets and goodwill acquired prior to June 30, 2001 are amortized using the straight-line method. Intangible assets acquired subsequent to June 30, 2001, that are classified as indefinite-lived intangibles (principally broadcast FCC licenses) and goodwill are not being amortized and are evaluated for impairment under the appropriate accounting guidance. Goodwill and licenses acquired prior to June 30, 2001 are amortized generally over 15 to 25 years. Transit and street furniture contract intangibles are classified as definite-lived intangibles and are amortized over the respective lives of the agreements, typically four to fifteen years. Other definite-lived intangible assets are amortized over their appropriate lives. LONG-LIVED ASSETS The Company periodically evaluates the propriety of the carrying amount of goodwill and other intangible assets and related amortization periods to determine whether current events or circumstances warrant adjustments to the carrying value and/or revised estimates of amortization periods. These evaluations consist of the projection of undiscounted cash flows over the remaining amortization periods of the related intangible assets. The projections are based on historical trend lines of actual results, adjusted for expected changes in operating results. To the extent such projections indicate that undiscounted cash flows are not expected to be adequate to recover the carrying amount of the related intangible assets, such carrying amounts are written down to fair value by charges to expense. During 2001, the Company recorded impairment charges of approximately $170.0 million related to the write off of duplicative and excess assets identified primarily in the radio segment, the impairment of goodwill and excess property, plant and equipment in Poland within the outdoor segment, and an on-air talent contract within the radio segment. The fair values of the goodwill in Poland and the on-air talent contract were determined based on discounted cash flow models and assumptions of future expected cash flows and the fair values related to property, plant, and equipment were based on estimated cash proceeds. These impairment charges were recorded in depreciation and amortization expense in the statement of operations. 71 OTHER INVESTMENTS Other investments are composed primarily of equity securities. These securities are classified as available-for-sale or trading and are carried at fair value based on quoted market prices. Securities are carried at historical value when quoted market prices are unavailable. The net unrealized gains or losses on the available-for-sale securities, net of tax, are reported as a separate component of shareholders' equity. The net unrealized gains or losses on the trading securities are reported in the statement of operations. In addition, the Company holds investments that do not have quoted market prices. The Company reviews the value of available-for-sale, trading and non-marketable securities and records impairment charges in the statement of operations for any decline in value that is determined to be other-than-temporary. The average cost method is used to compute the realized gains and losses on sales of equity securities. EQUITY METHOD INVESTMENTS Investments in which the Company owns 20 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method. The Company does not recognize gains or losses upon the issuance of securities by any of its equity method investees. The Company reviews the value of equity method investments and records impairment charges in the statement of operations for any decline in value that is determined to be other-than-temporary. FINANCIAL INSTRUMENTS Due to their short maturity, the carrying amounts of accounts and notes receivable, accounts payable, accrued liabilities, and short-term borrowings approximated their fair values at December 31, 2001 and 2000. The carrying amounts of long-term debt approximated their fair value at the end of 2001 and 2000. INCOME TAXES The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely than not that some portion or all of the asset will not be realized. As all earnings from the Company's foreign operations are permanently reinvested and not distributed, the Company's income tax provision does not include additional U.S. taxes on foreign operations. REVENUE RECOGNITION Revenue is reported net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for the Company's broadcasting and outdoor operations. Clients remit the gross billing amount to the agency and the agency remits gross billings less their commission to the Company. Radio broadcasting revenue is recognized as advertisements or programs are broadcast and is generally billed monthly. Outdoor advertising provides services under the terms of contracts covering periods up to three years, which are generally billed monthly. Revenue for outdoor advertising space rental is recognized ratably over the term of the contract. Payments received in advance of billings are recorded as deferred income. Entertainment revenue from the presentation and production of an event is recognized on the date of the performance. Revenue collected in advance of the event is recorded as 72 deferred income until the event occurs. Entertainment revenue collected from advertising and other revenue, which is not related to any single event, is classified as deferred revenue and generally amortized over the operating season and the term of the contract. Revenue from barter transactions is recognized when advertisements are broadcast or outdoor advertising space is utilized. Merchandise or services received are charged to expense when received or used. The Company believes that the credit risk, with respect to trade receivables is limited due to the large number and the geographic diversification of its customers. INTEREST RATE PROTECTION AGREEMENTS Periodically, the Company enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. These agreements involve the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment to interest expense related to the debt. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are recognized in these consolidated financial statements. FOREIGN CURRENCY Results of operations for foreign subsidiaries and foreign equity investees are translated into U.S. dollars using the average exchange rates during the year. The assets and liabilities of those subsidiaries and investees, other than those of operations in highly inflationary countries, are translated into U.S. dollars using the exchange rates at the balance sheet date. The related translation adjustments are recorded in a separate component of shareholders' equity, "Accumulated other comprehensive income (loss)". Foreign currency transaction gains and losses, as well as gains and losses from translation of financial statements of subsidiaries and investees in highly inflationary countries, are included in operations. STOCK BASED COMPENSATION The Company accounts for its stock-based award plans in accordance with Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, under which compensation expense is recorded to the extent that the current market price of the underlying stock exceeds the exercise price. Note H provides pro forma net income (loss) and pro forma earnings (loss) per share disclosures as if the stock-based awards had been accounted for using the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENTS On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("Statement 133"), as amended. Statement 133 requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. Upon adoption, the Company recorded 73 the fair value of its derivative instruments on its balance sheet. Adoption of Statement 133 had no impact on the Company's results of operations. Also upon adoption, the Company reclassified 2.0 million shares of its investment in American Tower Corporation ("AMT") that had been classified as available-for-sale securities to trading securities under Financial Accounting Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities ("Statement 115"). In accordance with Statement 115 and Statement 133, the shares were transferred to a trading classification at their fair market value on January 1, 2001, of $76.2 million, and an unrealized pretax holding gain of $69.7 million was recorded in earnings as "Gain on marketable securities". On July 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 141, Business Combinations ("Statement 141"). Statement 141 addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, Business Combinations, and FASB Statement 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. Statement 141 is effective for all business combinations initiated after June 30, 2001. Statement 141 eliminates the pooling-of-interest method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. Statement 141 also changes the criteria to recognize intangible assets apart from goodwill. As the Company has historically used the purchase method to account for all business combinations, adoption of this statement did not have a material impact on the Company's financial position or results of operations. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("Statement 142"). Statement 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. Statement 142 is effective for fiscal years beginning after December 15, 2001. This statement establishes new accounting for goodwill and other intangible assets recorded in business combinations. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statement. Other intangible assets will continue to be amortized over their useful lives. Under this guidance, the Company believes broadcast licenses are indefinite-lived intangibles. As the Company's amortization of goodwill and certain other indefinite-lived intangibles is a significant non-cash expense that the Company currently records, Statement 142 will have a material impact on the Company's financial statements. Amortization expense related to goodwill and indefinite-lived intangibles was approximately $1.8 billion for the year ended December 31, 2001. The Company will test goodwill for impairment using a two-step process. The first step is a screen for potential impairment, while the second step measures the amount of impairment, if any. The Company expects to perform the first of the required impairment tests of goodwill and indefinite-lived intangible assets as of January 1, 2002 in the first quarter of 2002. As a result of these tests, the Company expects to record a pre-tax impairment charge in the range of $15.0 billion to $25.0 billion, which will be reported after-tax as a cumulative effect in accounting change on the statement of operations for the quarter ended March 31, 2002. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("Statement 144"). Statement 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of ("Statement 121"). Statement 144 is effective for fiscal years beginning after December 15, 2001. Statement 144 removes goodwill from its scope and retains the requirements of Statement 121 regarding the recognition of impairment losses on long-lived assets held for use. The Statement modifies the accounting for long-lived assets to be disposed of by sale and long-lived assets to be disposed of by other than by sale. The 74 Company does not believe adoption of this statement will materially impact the Company's financial position or results of operations. NOTE B - BUSINESS ACQUISITIONS PENDING ACKERLEY MERGER (UNAUDITED) On October 5, 2001, the Company entered into a merger agreement to acquire The Ackerley Group, Inc., ("Ackerley"). Ackerley holds a diversified group of outdoor, broadcasting and interactive media assets. This merger will be a tax-free, stock-for-stock transaction. Each share of Ackerley common stock will convert into 0.35 shares of the Company's common stock, on a fixed exchange basis, valuing the merger, based on average share value at the signing of the merger agreement, at approximately $474.9 million plus the assumption of Ackerley's debt, which was approximately $290.6 million at December 31, 2001. This merger is subject to regulatory approval and other closing conditions. The Company anticipates that this merger will close during the first half of 2002. 2001 ACQUISITIONS: During 2001, the Company acquired substantially all of the assets of 183 radio stations, approximately 6,900 additional outdoor display faces and the live entertainment segment acquired music, sports and racing events, promotional assets and sports talent representation contracts. The Company also acquired two FCC licenses of television stations, both of which we had previously been operating under a local marketing agreement, national representation contracts, and other assets. In addition, the Company exchanged one television license for two television licenses and $10.0 million of cash that was placed in a restricted trust for future acquisitions. The exchange was accounted for at fair value, resulting in a gain of $168.0 million, which was recorded in "Other income (expense) - net". The Company has entered into certain agreements relating to acquisitions that provide for purchase price adjustments and other future contingent payments based on the financial performance of the acquired company. The Company will continue to accrue additional amounts related to such contingent payments if and when it is determinable that the applicable financial performance targets will be met. The aggregate of these contingent payments, if performance targets are met, would not significantly impact the Company's financial position or results of operations. The Company's 2001 acquisitions resulted in additional licenses and goodwill of approximately $1.2 billion, including $233.7 million relating to non-cash asset exchanges. 2000 ACQUISITIONS: ACKERLEY'S SOUTH FLORIDA OUTDOOR ADVERTISING DIVISION On January 5, 2000, the Company closed its acquisition of Ackerley's South Florida outdoor advertising division ("Ackerley FL Division") for $300.2 million. The Company funded the acquisition with advances on its credit facilities. This acquisition was accounted for as a purchase, with resulting goodwill of approximately $208.3 million, which is being amortized over 25 years on a straight-line basis. The results of operations of Ackerley FL Division have been included in the financial statements of the Company beginning January 5, 2000. 75 AMFM MERGER On August 30, 2000, the Company closed its merger with AMFM Inc. ("AMFM"). Pursuant to the terms of the merger agreement, each share of AMFM common stock was exchanged for 0.94 shares of the Company's common stock. Approximately 205.4 million shares of the Company's common stock were issued in the AMFM merger, valuing the merger, based on the average market price of the Company's common stock at the signing of the merger agreement, at $15.9 billion plus the assumption of AMFM's outstanding debt of $3.5 billion. Additionally, the Company assumed options and common stock warrants with a fair value of $1.2 billion, which are convertible, subject to applicable vesting, into approximately 25.5 million shares of the Company's common stock. The Company refinanced $540.0 million of AMFM's long-term debt at the closing of the merger using its credit facility. The AMFM merger was accounted for as a purchase with resulting goodwill of approximately $7.1 billion, which is being amortized over 25 years on a straight-line basis. The results of operations of AMFM have been included in the financial statements of the Company beginning August 30, 2000. In connection with the AMFM merger and governmental directives, the Company divested 39 radio stations for $1.2 billion, resulting in a gain on sale of $805.2 million and an increase in income tax expense of $306.0 million. The Company deferred a portion of this tax expense based on its replacing the stations sold with qualified assets. Of the $1.2 billion proceeds, $839.7 million was placed in restricted trusts for the purchase of replacement properties. In addition, restricted cash of $439.9 million was acquired from AMFM related to the divestiture of AMFM radio stations in connection with the merger. The following table details the reconciliation of divestiture and acquisition activity in the restricted trust accounts:
(In thousands) Restricted cash resulting from Clear Channel divestitures $ 839,717 Restricted cash purchased in AMFM merger 439,896 Restricted cash used in acquisitions (670,228) Interest, net of fees 18,756 --------- Restricted cash balance at December 31, 2000 628,141 Less current portion at December 31, 2000 308,691 --------- Long-term restricted cash at December 31, 2000 $ 319,450 =========
SFX MERGER On August 1, 2000, the Company consummated its merger with SFX Entertainment, Inc. ("SFX") Pursuant to the terms of the merger agreement, each share of SFX Class A common stock was exchanged for 0.6 shares of the Company's common stock and each share of SFX Class B common stock was exchanged for one share of the Company's common stock. Approximately, 39.2 million shares of the Company's common stock were issued in the SFX merger. Based on the average market price of the Company's common stock at the signing of the merger agreement, the merger was valued at $2.9 billion plus the assumption of SFX's outstanding debt of $1.5 billion. Additionally, the Company assumed all stock options and common stock warrants with a fair value of $211.8 million, which are exercisable for approximately 5.6 million shares of the Company's common stock. The Company refinanced $815.8 million of SFX's $1.5 billion of long-term debt at the closing of the merger using its credit facilities. The SFX merger was accounted for as a purchase with resulting goodwill of approximately $4.1 billion, which is being amortized over 20 years on a straight-line basis. The results of operations of SFX have 76 been included in the financial statements of the Company beginning August 1, 2000. A number of lawsuits were filed by holders of SFX Class A common stock alleging, among other things, that the difference in consideration for the Class A and Class B shares constituted unfair consideration to the Class B holders and that the SFX board breached its fiduciary duties and that the Company aided and abetted the actions of the SFX board. On September 28, 2000, the Company issued approximately .4 million shares of its common stock, valued at $29.3 million, as settlement of these lawsuits and has included the value of these shares as part of the purchase price. During 2001, the Company made adjustments to finalize the purchase price allocation for the AMFM and SFX mergers, resulting in additional goodwill, recorded in 2001, of approximately $272.8 million. DONREY MEDIA GROUP On September 1, 2000, the Company completed its acquisition of the assets of Donrey Media Group ("Donrey") for $372.6 million in cash consideration. The Company funded the acquisition with advances on its credit facilities. The acquisition was accounted for as a purchase, with resulting goodwill of approximately $290.3 million, which is amortized over 25 years on a straight-line basis. The results of operations of the Donrey markets have been included in the financial statements of the Company beginning September 1, 2000. OTHER In addition to the acquisitions discussed above, the Company acquired substantially all of the assets of 148 radio stations, 66,286 outdoor display faces and the live entertainment segment acquired sporting, music and theatrical events promotions, racing promotion, and venue management assets. The aggregate cash paid for these acquisitions was approximately $1.2 billion. 1999 ACQUISITIONS: DAME MEDIA On July 1, 1999, the Company closed its merger with Dame Media, Inc. ("Dame Media"). Pursuant to the terms of the agreement, the Company exchanged approximately 1.0 million shares of its common stock for 100% of the outstanding stock of Dame Media, valuing this merger at approximately $65.0 million. In addition the Company assumed $32.7 million of long term debt, which was immediately refinanced utilizing the Company's credit facility. Dame Media's operations include 21 radio stations in five markets located in New York and Pennsylvania. The Company began consolidating the results of operations on July 1, 1999. DAUPHIN On June 11, 1999, the Company acquired a 50.5% equity interest in Dauphin OTA, ("Dauphin") a French company engaged in outdoor advertising. In August 1999 the Company completed its tender offer for over 99% of the remaining shares outstanding. At December 31, 1999, all of the shares had been surrendered for an aggregate cost of approximately $487.2 million. Dauphin's operations include approximately 103,000 outdoor advertising display faces in France, Spain, Italy, and Belgium. This 77 acquisition has been accounted for as a purchase with resulting goodwill of approximately $449.7 million, which is being amortized over 25 years on a straight-line basis. The Company began consolidating the results of operations on the date of acquisition. JACOR On May 4, 1999, the Company closed its merger with Jacor Communications, Inc. ("Jacor"). Pursuant to the terms of the agreement, each share of Jacor common stock was exchanged for 1.1573151 shares of the Company's common stock or approximately 60.9 million shares valued at $4.2 billion. In addition, the Company assumed approximately $1.4 billion of Jacor's long-term debt, as well as Jacor's Liquid Yield Option Notes with a fair value of approximately $490.1 million, which are convertible into approximately 7.1 million shares of the Company's common stock. The Company also assumed options, stock appreciation rights and common stock warrants with a fair value of $414.9 million, which are convertible into approximately 9.2 million shares of the Company's common stock. The Company refinanced $850.0 million of Jacor's long-term debt at the closing of the merger using the Company's credit facility. Subject to a change in control tender, the Company redeemed an additional $22.1 million of Jacor's long-term debt. This merger has been accounted for as a purchase with resulting goodwill of approximately $3.1 billion, which is being amortized over 25 years on a straight-line basis. The results of operations of Jacor have been included in the Company's financial statements beginning May 4, 1999. In order to comply with governmental directives regarding the Jacor merger, the Company divested certain assets valued at $205.8 million and swapped other assets valued at $35.0 million in transactions with various third parties, resulting in a gain on sale of assets related to mergers of $138.7 million and an increase in income tax expense (at the Company's statutory rate of 38%) of $52.0 million during 1999. The Company deferred the majority of this tax expense based on its replacing the stations sold with qualified assets. The proceeds from divestitures were held in restricted trusts until the replacement properties were purchased. OTHER Also during 1999, the Company acquired substantially all of the assets of nine radio stations in six domestic markets, 2,789 outdoor display faces in 29 domestic markets and in malls throughout the U.S. and 72,326 outdoor display faces in eight international markets. The aggregate cash paid for these acquisitions was approximately $739.3 million. The results of operations for 2000 and 1999 include the operations of each business acquired from the respective date of acquisition. Unaudited pro forma consolidated results of operations, assuming the 1999 acquisitions of Jacor, Dame Media and Dauphin and the 2000 acquisitions of the Ackerley FL Division, SFX, AMFM and Donrey had occurred at January 1, 1999, would have been as follows:
(In thousands, except per share data) Pro Forma (Unaudited) Year Ended December 31, ---------------------------------- 2000 1999 ---- ---- Revenue $ 7,693,313 $ 6,615,391 Net loss $ (548,898) $ (502,044) Net loss per common share: Basic and Diluted $ (.94) $ (.86)
78 The pro forma information above is presented in response to applicable accounting rules relating to business acquisitions and is not necessarily indicative of the actual results that would have been achieved had these acquisitions occurred at the beginning of 1999, nor is it indicative of future results of operations. The Company made other acquisitions during 2001, 2000 and 1999, the effects of which, individually and in aggregate, were not material to the Company's consolidated financial position or results of operations. The following is a summary of the assets and liabilities acquired and the consideration given for acquisitions:
(In thousands) 2001 2000 ---- ---- Property, plant and equipment $ 149,151 $ 1,703,871 Accounts receivable 24,250 826,426 Goodwill and FCC licenses 960,259 29,705,197 Investments 25,029 1,316,241 Other assets 8,484 1,611,208 ------------ ------------ 1,167,173 35,162,943 Long-term debt (11,316) (4,999,900) Other liabilities (98,897) (2,016,676) Deferred tax (4,640) (5,223,905) SFX shares held prior to merger -- (84,881) Common stock issued (18,234) (20,283,157) ------------ ------------ (133,087) (32,608,519) ------------ ------------ Total cash consideration 1,034,086 2,554,424 Less: Restricted cash used (367,519) (670,228) ------------ ------------ Cash paid for acquisitions $ 666,567 $ 1,884,196 ============ ============
RESTRUCTURING In connection with the Company's mergers with SFX Entertainment, Inc. ("SFX") and AMFM Inc. ("AMFM"), the Company restructured the SFX and AMFM operations. The AMFM corporate offices in Dallas and Austin, Texas were closed on March 31, 2001 and a portion of the SFX corporate office in New York was closed on June 30, 2001. Other operations of AMFM have either been discontinued or integrated into existing similar operations. As of December 31, 2001, the restructuring has resulted in the actual termination of approximately 600 employees and the pending termination of approximately 50 more employees. The Company has recorded a liability in purchase accounting primarily related to severance for terminated employees and lease terminations as follows:
(In thousands) December 31, ------------------------ 2001 2000 ---- ---- Severance and lease termination costs: Accrual at January 1 $ 84,291 $ 4,348 Adjustments to restructuring accrual 41,624 120,797 Payments charged against restructuring accrual (72,733) (40,854) -------- --------- Remaining severance and lease termination accrual $ 53,182 $ 84,291 ======== =========
79 The remaining severance and lease accrual is comprised of $42.8 million of severance and $10.4 million of lease termination. The majority of the severance accrual will be paid in 2002; however, the severance accrual also includes an amount that will be paid over the next several years. The lease termination accrual will be paid over the next five years. During 2001, $68.7 million was paid and charged to the restructuring reserve related to severance. The adjustments to the restructuring accrual presented above, which are primarily related to additional severance and compensation accruals were recorded within goodwill. During 2001, the Company made adjustments to finalize the purchase price allocation for both the AMFM and SFX mergers. NOTE C - INVESTMENTS The Company's most significant investments in non-consolidated affiliates are listed below: AUSTRALIAN RADIO NETWORK The Company owns a fifty-percent (50%) interest in Australian Radio Network ("ARN"), an Australian company that owns and operates radio stations, a narrowcast radio broadcast service and a radio representation company in Australia. HISPANIC BROADCASTING CORPORATION The Company owns 26% of the total number of shares of Hispanic Broadcasting Corporation ("HBC"), a leading domestic Spanish-language radio broadcaster. At December 31, 2001, the fair market value of the Company's shares of HBC was $722.0 million. GRUPO ACIR COMUNICACIONES The Company owns a forty-percent (40%) interest in Grupo ACIR Comunicaciones ("ACIR"), a Mexican radio broadcasting company. ACIR owns and operates radio stations throughout Mexico. CLEAR MEDIA The Company owns 46.1% of the total number of shares of Hainan White Horse Advertising Media Investment Co. Ltd. ("Clear Media"), formerly known as White Horse, a Chinese company that operates street furniture displays throughout China. At December 31, 2001, the fair market value of the Company's shares of Clear Media was $169.1 million. 80 SUMMARIZED FINANCIAL INFORMATION The following table summarizes the Company's investments in these nonconsolidated affiliates:
(In thousands) Clear All ARN HBC ACIR Media Others Total --- --- ---- ----- ------ ----- At December 31, 2000 $57,806 $157,629 $55,443 $43,051 $113,374 $427,303 Acquisition of new investments -- -- -- -- 25,334 25,334 Transfers from cost investments and other reclasses -- -- -- -- 5,102 5,102 Additional investment, net 3,076 -- -- 11,236 31,600 45,912 Equity in net earnings (557) 8,038 (2,584) 1,829 2,846 9,572 Amortization of excess cost -- (605) (1,896) -- (1,050) (3,551) Foreign currency transaction adjustment 674 -- -- -- -- 674 Foreign currency translation adjustment 2,365 -- 313 (103) (10,736) (8,161) ------- -------- ------- ------- -------- -------- At December 31, 2001 $63,364 $165,062 $51,276 $56,013 $166,470 $502,185 ======= ======== ======= ======= ======== ========
The above investments are not consolidated, but are accounted for under the equity method of accounting, whereby the Company records its investments in these entities in the balance sheet as "Investments in, and advances to, nonconsolidated affiliates." The Company's interests in their operations are recorded in the statement of operations as "Equity in earnings of nonconsolidated affiliates." Other income derived from transactions with nonconsolidated affiliates consists of interest, management fees and other transaction gains, which aggregated $3.7 million in 2001, $4.3 million in 2000, and $7.4 million in 1999, and are recorded in the statement of operations as "Equity in earnings of nonconsolidated affiliates." Accumulated undistributed earnings included in retained earnings for these investments was $45.7 million, $39.0 million and $18.2 million for December 31, 2001, 2000 and 1999, respectively. OTHER INVESTMENTS Other investments of $354.3 million and $1.6 billion at December 31, 2001 and 2000, respectively, include marketable equity securities classified as follows:
(In thousands) Unrealized Fair --------------------------------- Investments Value Gains (Losses) Net Cost ----------- ----- ----- -------- --- ---- 2001 Available-for-sale $270,890 $143,344 $ -- $143,344 $127,546 Trading 19,040 12,606 -- 12,606 6,434 Other cost investments 64,411 -- -- -- 64,411 -------- -------- -------- -------- -------- Total $354,341 $155,950 $ -- $155,950 $198,391 ======== ======== ======== ======== ========
81
(In thousands) Unrealized Fair ----------------------------------- Investments Value Gains (Losses) Net Cost ----------- ----- ----- -------- --- ---- 2000 Available-for-sale $1,491,974 $370,115 $(207,477) $162,638 $1,329,336 Other cost investments 113,128 -- -- -- 113,128 ---------- -------- --------- -------- ---------- Total $1,605,102 $370,115 $(207,477) $162,638 $1,442,464 ========== ======== ========= ======== ==========
Accumulated net unrealized gain on available-for-sale securities, net of tax, of $92.0 million and $105.7 million were recorded in shareholders' equity in "Accumulated other comprehensive income (loss)" at December 31, 2001 and 2000, respectively. The net unrealized gain on trading securities of $12.6 million is recorded on the statement of operations in "Gain on marketable securities" for the year ended December 31, 2001. Other cost investments include various investments in companies for which there is no readily determinable market value. On January 1, 2001, the Company reclassified 2.0 million shares of American Tower Corporation from available-for-sale to a trading security under the one-time exception allowed in Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities. The shares were transferred to a trading classification at their fair market value of $76.2 million and an unrealized pretax holding gain of $69.7 million was recorded on the statement of operations in "Gain on marketable securities". During 2001, unrealized losses of $55.6 million and $11.6 million were recorded on the statement of operations in "Gain (loss) on marketable securities" and "Gain (loss) on sale of assets related to mergers", respectively, related to impairments of investments that had declines in their market values that were considered to be other-than-temporary. These impairments include investments in Internet companies and various media companies. During 2000, unrealized losses of $11.3 million were recorded on the statement of operations in "Gain (loss) on sale of assets related to mergers" related to impairments of investments that had declines in their market values that were considered to be other-than-temporary. These impairments include investments in various media companies. In connection with the completion of the AMFM merger, Clear Channel and AMFM entered into a Consent Decree with the Department of Justice regarding AMFM's investment in Lamar Advertising Company, ("Lamar"). The Consent Decree, among other things, required the Company to sell all of its 26.2 million shares of Lamar by December 31, 2002 and relinquish all shareholder rights during the disposition period. As a result, the Company did not exercise significant influence and accounted for this investment under the cost method of accounting. During 2001 and 2000, proceeds of $920.0 million and $55.4 million were received on the sale of 24.9 million and 1.3 million shares of Lamar, respectively. Losses of $235.0 million and $5.8 million were realized on the sale of Lamar common stock in 2001 and 2000, respectively, which was recorded in "Gain on sale of assets related to mergers". At December 31, 2001, the Company no longer holds any Lamar common stock. 82 NOTE D - LONG-TERM DEBT Long-term debt at December 31, 2001 and 2000 consisted of the following:
(In thousands) December 31, ---------------------------- 2001 2000 ---- ---- Revolving line of credit facilities $ 1,419,324 $ 3,203,756 Senior Notes: 1.5% Convertible Notes Due 2002 1,000,000 1,000,000 Floating Rate Notes Due 2002 250,000 250,000 2.625% Convertible Notes Due 2003 574,991 575,000 7.25% Senior Notes Due 2003 750,000 750,000 7.875% Notes Due 2005 750,000 750,000 6.5% Notes (denominated in Euro) Due 2005 578,175 612,560 6.0% Senior Notes Due 2006 750,000 -- 6.625% Senior Notes Due 2008 125,000 125,000 7.65% Senior Notes Due 2010 750,000 750,000 6.875% Senior Debentures Due 2018 175,000 175,000 7.25% Debentures Due 2027 300,000 300,000 Fair value adjustments related to interest rate swaps 106,649 -- Liquid Yield Option Notes 244,367 497,054 Various subsidiary level notes 1,432,402 1,441,070 Other long-term debt 277,026 235,378 ----------- ----------- 9,482,934 10,664,818 Less: current portion 1,515,221 67,736 ----------- ----------- Total long-term debt $ 7,967,713 $10,597,082 =========== ===========
REVOLVING LINE OF CREDIT FACILITIES The Company has three separate revolving line of credit facilities. Interest rates for each facility are based upon a prime, LIBOR, or Federal Funds rate selected at the Company's discretion, plus a margin. The first facility is a reducing revolving line of credit, originally in the amount of $2.0 billion that matures June 30, 2005. Beginning September 30, 2000, commitments under this facility began reducing on a quarterly basis and as a result principal repayments may be required to the extent borrowings would otherwise exceed the available level of commitments. At December 31, 2001, $920.0 million was outstanding and $773.8 million was available for future borrowings. There were no outstanding letters of credit under this facility. The second facility is a $1.5 billion multi-currency credit facility that matures August 30, 2005. At December 31, 2001, $499.3 million was outstanding, and there were $79.7 million of letters of credit outstanding, which reduces availability. At December 31, 2001, $921.0 million was available for future borrowings. The third facility is a $1.5 billion 364-day revolving credit facility that matures August 28, 2002. The Company has the option upon maturity to convert this facility into a term loan with a three-year maturity. At December 31, 2001, the outstanding balance was $0 million and $1.5 billion was available for future borrowings. There were no outstanding letters of credit under this facility. 83 At December 31, 2001, interest rates on the revolving line of credit facilities varied from 2.40% to 2.43% on borrowings denominated in US dollars and from 2.48% to 4.75% on borrowings in other currencies. SENIOR NOTES All fees and initial offering discounts are being amortized as interest expense over the life of the note. The aggregate face value and market value of the senior notes was approximately $6.0 billion at December 31, 2001. The aggregate face value and market value of the senior notes was approximately $5.3 billion and $5.2 billion, respectively at December 31, 2000. 1.5% Convertible Notes: The notes are convertible into the Company's common stock at any time following the date of original issuance, unless previously redeemed, at a conversion price of $105.82 per share, subject to adjustment in certain events. The Company has reserved 9.5 million shares of common stock for the conversion of these notes. 2.625% Convertible Notes: The notes are convertible into the Company's common stock at any time following the date of original issuance, unless previously redeemed, at a conversion price of $61.95 per share, subject to adjustment in certain events. The Company has reserved 9.3 million shares of common stock for the conversion of these notes. The notes are redeemable, in whole or in part, at the option of the Company at any time on or after April 1, 2001 and until March 31, 2002 at 101.050%; on or after April 1, 2002 and until March 31, 2003 at 100.525%; and on April 1, 2003 at 100%, plus accrued interest. Interest Rate Swaps: The Company entered into interest rate swap agreements on the 7.25% Senior Notes Due 2003 and the 7.875% Senior Notes Due 2005 whereby the Company pays interest at a floating rate and receives the fixed rate coupon. The fair value of these swaps was $106.6 million at December 31, 2001. VARIOUS SUBSIDIARY LEVEL NOTES The aggregate face value and market value of the various subsidiary level notes was approximately $1.4 billion at December 31, 2001 and 2000. Notes assumed in AMFM Merger: On October 6, 2000, the Company made payments of $231.4 million pursuant to mandatory offers to repurchase due to a change of control on the following series of AMFM debt: 8% Senior Notes due 2008, 8.125% Senior Subordinated Notes due 2007 and 8.75% Senior Subordinated Notes due 2007, originally issued by Chancellor Media Corporation or one of its subsidiaries, as well as the 12.625% Exchange Debentures due 2006, originally issued by SFX Broadcasting (AMFM Operating Inc.). The aggregate remaining balance of these series of AMFM long-term bonds was $1.4 billion at December 31, 2001, which includes a purchase accounting premium of $66.5 million. On January 15, 2002, the Company redeemed all of the outstanding 12.625% Exchange Debentures due 2006, originally issued by SFX Broadcasting. At December 31, 2001 the face value of these notes was $141.8 million and the unamortized fair value purchase accounting adjustment premium was $15.3 million. The debentures were redeemed for $150.8 million plus accrued interest. The redemption resulted in a gain of $3.9 million, net of tax. Chancellor Media Corporation, SFX Broadcasting, and AMFM Operating Inc., or their successors are all indirect wholly-owned subsidiaries of the Company. Notes assumed in SFX Merger: During 2000, the Company launched a tender offer for any and all of its 84 9.125% Senior Subordinated Notes due 2008 and consequently redeemed notes with a redemption value of approximately $602.9 million. Approximately $1.6 million of the notes remain outstanding at December 31, 2001. DEBT COVENANTS The only significant covenants in the Company's debt are leverage and interest coverage ratio covenants contained in the credit facilities. The leverage ratio covenant requires the Company to maintain a ratio of total debt to EBITDA (as defined by the credit facilities) of less than 5.50x through June 30, 2003 and less than 5.00x from July 1, 2003 through the maturity of the facilities. The interest coverage covenant requires the Company to maintain a minimum ratio of EBITDA (as defined by the credit facilities) to interest expense of 2.00x. In the event that the Company does not meet these covenants, it is considered to be in default on the credit facilities at which time the credit facilities may become immediately due. The Company's bank credit facilities have cross-default provisions among the bank facilities only. No other debt agreements of the Company have cross-default or cross-acceleration provisions. Additionally, the AMFM long-term bonds contain certain restrictive covenants that limit the ability of AMFM Operating Inc., a wholly-owned subsidiary of the Company, to incur additional indebtedness, enter into certain transactions with affiliates, pay dividends, consolidate, or effect certain asset sales. The AMFM long-term bonds have cross-default and cross-acceleration provisions among the AMFM long-term bonds only. At December 31, 2001, the Company was in compliance with all debt covenants. The Company expects to be in compliance during 2002. LIQUID YIELD OPTION NOTES The Company assumed two issues of Liquid Yield Option Notes ("LYONs") as a part of the merger with Jacor on May 4, 1999. LYONs due 2018: The Company assumed 4.75% LYONs due 2018 with a fair value of $225.4 million. Each LYON has a principal amount at maturity of $1,000 and is convertible, at the option of the holder, at any time on or prior to maturity, into the Company's common stock at a conversion rate of 7.227 shares per LYON. The LYONs due 2018 had a balance, net of redemptions, conversions to common stock, amortization of premium, and accretion of interest, at December 31, 2001, of $244.4 million, which includes a purchase accounting premium of $43.9 million, and approximate fair value of $212.5 million. At December 31, 2001, approximately 3.1 million shares of common stock were reserved for the conversion of the LYONs due 2018. The LYONs due 2018 are not redeemable by the Company prior to February 9, 2003. Thereafter, the LYONs are redeemable for cash at any time at the option of the Company in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption. The LYONs due 2018 can be purchased by the Company, at the option of the holder, on February 9, 2003; February 9, 2008; and February 9, 2013; for a purchase price of $494.52, $625.35 and $790.79, respectively, representing a 4.75% yield per annum to the holder on such date. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or common stock, or any combination thereof. LYONs due 2011: The Company assumed 5.5% LYONs due 2011 with a fair value of $264.8 million. 85 Each LYON had a principal amount at maturity of $1,000 and was convertible, at the option of the holder, at any time on or prior to maturity, into the Company's common stock at a conversion rate of 15.522 shares per LYON. These LYONs became redeemable by the Company on June 12, 2001. On May 7, 2001, the Company delivered notice of its intent to redeem the total outstanding principal amount of its 5.50% LYONs on June 12, 2001. The redemption price was $581.25 per each $1,000 LYON outstanding at June 12, 2001, which was equal to the issue price plus accrued original issue discount to the date of redemption. Each LYON was convertible, at the option of the holder, at any time prior to the close of business June 12, 2001. Substantially all of the 5.50% LYONs converted into 3.9 million shares of the Company's common stock prior to the redemption date. Future maturities of long-term debt at December 31, 2001 are as follows:
(In thousands) 2002 $1,515,221 2003 1,344,092 2004 419,546 2005 2,449,240 2006 755,043 Thereafter 2,999,792 ---------- $9,482,934 ==========
NOTE E - FINANCIAL INSTRUMENTS Statement 133 requires that all derivatives be recognized as either assets or liabilities at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value will either be offset against the change in fair value of the hedged assets or liabilities in earnings, or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. In accordance with the Company's risk management policies, it formally documents its hedging relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. The Company formally assesses, both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If a derivative ceases to be a highly effective hedge, the Company discontinues hedge accounting. The Company does not enter into derivative instruments for speculation or trading purposes. INTEREST RATE RISK MANAGEMENT The Company's policy is to manage interest expense using a mix of fixed and variable rate debt. To manage this mix in a cost-efficient manner, the Company enters into interest rate swap agreements in which the Company agrees to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps, designated as fair value hedges, hedge underlying fixed-rate debt obligations with a principal amount of $1.5 billion. The terms of the underlying debt and the interest rate swap agreements coincide; therefore the hedge qualifies for the short-cut method defined in Statement 133. Accordingly, no net gains or losses were recorded in income related to the Company's underlying debt and interest rate swap agreements. In accordance with 86 Statement 133, on January 1, 2001, the Company recorded an asset on the balance sheet as "Other long-term assets" of $49.0 million to reflect the fair value of the interest rate swap agreements and increased the carrying value of the underlying debt by an equal amount. On December 31, 2001, the fair value of the interest rate swap agreements was approximately $106.6 million. Accordingly, an adjustment was made to the asset and carrying value of the underlying debt on December 31, 2001 to reflect the increase in fair value. SECURED FORWARD EXCHANGE CONTRACT On January 31, 2001, and again on June 25, 2001, Clear Channel Investments, Inc., a wholly-owned subsidiary of the Company, entered into two ten-year secured forward exchange contracts that monetized 2.6 million shares and .3 million shares of the Company's investment in American Tower Corporation, ("AMT"), respectively. The January 31, 2001 and June 25, 2001 secured forward exchange contracts protect the Company against decreases in the fair value of AMT below $36.54 per share and $24.53 per share while providing participation in increases in the fair value of the stock up to $47.50 per share and $31.88 per share, respectively. During the term of the secured forward exchange contracts, the Company retains ownership of the AMT shares. The Company's obligation under the secured forward exchange contracts is collateralized by a security interest in the AMT shares. Under Statement 133, these contracts are considered hybrid instruments - long-term obligations with derivative instruments embedded into the contracts. Statement 133 requires a hybrid instrument to be bifurcated such that the long-term obligations and the embedded derivatives are accounted for separately under the appropriate accounting guidance. The long-term obligations have been recorded on the balance sheet as "Other long-term liabilities" at their inception fair value of $56.9 million and accrete to their maturity values totaling $103.0 million over their ten-year term, with the accretion classified as interest expense. As of December 31, 2001, the aggregate balance of the long-term obligations was $60.3 million while the aggregate balance of the embedded derivatives recorded on the balance sheet as "Other assets" was $34.9 million. For the twelve months ended December 31, 2001, the fair value of the embedded derivative increased $68.8 million. The increase in fair value was recorded in earnings as "Gain on marketable securities". On December 31, 2001, the fair market value of the 2.0 million shares of AMT previously reclassified as trading securities was $19.0 million. For the twelve months ended December 31, 2001, the fair value of the AMT shares classified as trading securities had decreased $57.2 million. The change in the fair market value of these shares has been recorded in earnings as "Gain on marketable securities". FOREIGN CURRENCY RATE MANAGEMENT As a result of the Company's foreign operations, the Company is exposed to foreign currency exchange risks related to its investment in net assets in foreign countries. To manage this risk, the Company enters into foreign denominated debt to hedge a portion of the effect of movements in currency exchange rates on these net investments. The Company's major foreign currency exposure involves markets with net investments in Euros and the British pound. The primary purpose of the Company's foreign currency hedging activities is to offset the translation gain or losses associated with the Company's net investments denominated in foreign currencies. Since the debt is denominated in the same currency of the foreign denominated net investment, the hedge will offset a portion of the translation changes in the corresponding net investment. Since an assessment of this hedge revealed no ineffectiveness, all of the translation gains and losses associated with this debt are reflected as a translation adjustment within accumulated other comprehensive income (loss) within shareholders' equity. As of December 31, 2001, cumulative translation losses, net of tax of $126.4 million have been reported as a part of "Accumulated 87 other comprehensive income (loss)" within shareholders' equity. NOTE F - COMMITMENTS AND CONTINGENCIES The Company leases office space, certain broadcasting facilities, equipment and the majority of the land occupied by its outdoor advertising structures under long-term operating leases. Some of the lease agreements contain renewal options and annual rental escalation clauses (generally tied to the consumer price index or a maximum of 5%), as well as provisions for the payment of utilities and maintenance by the Company. The Company has minimum franchise payments associated with non-cancelable contracts that enable it to display advertising on such media as buses, taxis, trains, bus shelters and terminals. The majority of these contracts contain rent provisions that are calculated as the greater between a percentage of the relevant advertising revenue or a specified guaranteed minimum annual payment. In addition, the Company has commitments relating to required purchases of property, plant, and equipment under certain street furniture contracts, as well as construction commitments for facilities and venues. As of December 31, 2001, the Company's future minimum rental commitments, under non-cancelable lease agreements with terms in excess of one year; minimum rental payments under non-cancelable contracts in excess of one year; and capital expenditure commitments consist of the following:
(In thousands) Non-cancelable Non-cancelable Lease Contracts Capital Expenditures ----- --------- -------------------- 2002 $ 314,137 $ 266,364 $419,625 2003 266,785 194,776 175,264 2004 232,022 157,852 17,457 2005 198,271 137,815 2,301 2006 176,094 87,333 2,600 Thereafter 1,251,765 210,601 12,000 ---------- ---------- -------- $2,439,074 $1,054,741 $629,247 ========== ========== ========
Rent expense charged to operations for 2001, 2000 and 1999 was $617.8 million, $429.5 million and $306.4 million, respectively. From time to time, claims are made and lawsuits are filed against the Company, arising out of the ordinary business of the Company. In the opinion of the Company's management, liabilities, if any, arising from these actions are either covered by insurance or accrued reserves, or would not have a material adverse effect on the financial condition of the Company. In various areas in which the Company operates, outdoor advertising is the object of restrictive and, in some cases, prohibitive zoning and other regulatory provisions, either enacted or proposed. The impact to the Company of loss of displays due to governmental action has been somewhat mitigated by federal and state laws mandating compensation for such loss and constitutional restraints. 88 As of December 31, 2001, the Company provided a contingent guarantee under a certain performance contract of approximately $64.0 million, including approximately $6.5 million related to the performance of a company controlled by Hicks, Muse, Tate & Furst Incorporated, of which a director of the Company is the Chairman of the Management Committee. In addition, during 2001, the Company realized a loss of $3.5 million under this guarantee as the company controlled by one of the Company's directors failed to perform under the contract. Various acquisition agreements include deferred consideration payments including future contingent payments based on the financial performance of the acquired companies, generally over a one to five year period. Contingent payments involving the financial performance of the acquired companies are typically based on the acquired company meeting certain EBITDA targets as defined in the agreement. The contingent payment amounts are generally calculated based on predetermined multiples of the achieved EBITDA not to exceed a predetermined maximum payment. At December 31, 2001, the Company believes its maximum aggregate contingency, which is subject to the financial performance of the acquired companies, is approximately $45.0 million. In addition, certain acquisition agreements include deferred consideration payments based on performance requirements by the seller, generally over a one to five year period. Contingent payments based on performance requirements by the seller typically involve the completion of a development or obtaining appropriate permits that enable the Company to construct additional advertising displays. At December 31, 2001, the Company believes its maximum aggregate contingency, which is subject to performance requirements by the seller, is approximately $62.0 million. As the contingencies have not been met or resolved as of December 31, 2001, these amounts are not recorded. As of December 31, 2001 and 2000, the Company guaranteed third party debt of approximately $225.2 million and $280.0 million, respectively, primarily related to long-term operating contracts. A substantial portion of the debt is secured by the third party's associated operating assets. NOTE G - INCOME TAXES Significant components of the provision for income tax expense (benefit) are as follows:
(In thousands) 2001 2000 1999 ---- ---- ---- Current - federal $ 26,598 $ 63,366 $ 82,452 Current - foreign 19,450 4,290 14,324 Current - state 11,315 10,364 14,547 --------- -------- -------- Total current 57,363 78,020 111,323 Deferred - federal (137,213) 340,999 30,111 Deferred - foreign (13,462) 16,484 (10,049) Deferred - state (11,659) 29,228 13,275 --------- -------- -------- Total deferred (162,334) 386,711 33,337 --------- -------- -------- Income tax expense (benefit) $(104,971) $464,731 $144,660 ========= ======== ========
Included in current - federal for 1999 is $8.1 million of benefit related to the extraordinary loss resulting from early extinguishment of long-term debt. 89 Significant components of the Company's deferred tax liabilities and assets as of December 31, 2001 and 2000 are as follows:
(In thousands) 2001 2000 ---- ---- Deferred tax liabilities: Intangibles and fixed assets $6,509,478 $6,603,021 Unrealized gain in marketable securities 45,365 119,674 Accrued liabilities 120,636 120,636 Foreign 101,704 115,039 Equity in earnings 5,641 5,156 Investments 1,631 107,959 Other 28,136 3,617 ---------- ---------- Total deferred tax liabilities 6,812,591 7,075,102 Deferred tax assets: Accrued expenses 143,682 144,917 Long-term debt 104,678 93,284 Net operating loss carryforwards 151,730 15,454 Alternative minimum tax carryforwards 2,697 -- Bad debt reserves 18,804 22,355 Deferred income 17,704 11,403 Other 25,149 16,491 ---------- ---------- Total gross deferred tax assets 464,444 303,904 Valuation allowance 164,070 -- ---------- ---------- Total deferred tax assets 300,374 303,904 ---------- ---------- Net deferred tax liabilities $6,512,217 $6,771,198 ========== ==========
The deferred tax liability related to intangibles and fixed assets primarily relates to the difference in book and tax basis of acquired radio broadcast intangibles created from the Company's various stock acquisitions. The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense (benefit) is:
(In thousands) 2001 2000 1999 ---------------------- ---------------------- ---------------------- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- Income tax expense (benefit) at statutory rates $(437,149) (35%) $ 249,739 35% $ 83,439 35% State income taxes, net of federal tax benefit (344) 0% 25,686 3% 18,084 8% Amortization of goodwill 238,474 19% 169,365 24% 54,279 23% Foreign taxes 34,766 3% 20,774 3% 4,275 2% Nondeductible items 7,009 1% 4,812 1% 1,725 1% Other, net 52,273 4% (5,645) (1%) (17,142) (8%) --------- --- --------- -- --------- -- $(104,971) (8%) $ 464,731 65% $ 144,660 61% ========= === ========= == ========= ==
Included in the above reconciliation of income tax for 1999 is $8.1 million of benefit related to 90 extraordinary loss resulting from early extinguishment of long-term debt. The Company has certain net operating loss carryforwards amounting to $362.0 million, which expire in various amounts from 2003 to 2020. Approximately $269.0 million in net operating loss carryforwards were generated by certain acquired companies prior to their acquisition by the Company. During the current year, the Company did not utilize any net operating loss carryforwards. During 2001, the Company recorded certain adjustments to deferred tax assets and related valuation allowances for net operating losses of certain acquired companies. If benefits are subsequently realized, the valuation allowance will be reversed through goodwill. NOTE H - SHAREHOLDERS' EQUITY COMMON STOCK WARRANTS The Company assumed two issues of fully exercisable common stock warrants as a part of the merger with Jacor in 1999 with a fair value of $253.4 million. Warrants expired September 18, 2001 The Company assumed 21.6 million common stock warrants that expired on September 18, 2001. Each warrant represented the right to receive .2355422 shares of the Company's common stock, at an exercise price of $24.19 per full share of the Company's common stock. The Company issued 5.1 million and 220 shares of common in 2001 and 2000, respectively, on exercises of these common stock warrants. Warrants expiring February 27, 2002 The Company assumed 3.6 million common stock warrants that expire on February 27, 2002. Each warrant represents the right to receive .1304410 shares of the Company's common stock, at an exercise price of $34.56 per full share of the Company's common stock. The Company issued 15,768 and 99,550 shares of common in 2001 and 2000, respectively, on exercises of these common stock warrants. At December 31, 2001, approximately 348,000 shares of common stock were reserved for the conversion of these warrants. STOCK OPTIONS The Company has granted options to purchase its common stock to employees and directors of the Company and its affiliates under various stock option plans at no less than the fair market value of the underlying stock on the date of grant. These options are granted for a term not exceeding ten years and are forfeited in the event the employee or director terminates his or her employment or relationship with the Company or one of its affiliates. All option plans contain anti-dilutive provisions that require the adjustment of the number of shares of the Company common stock represented by each option for any stock splits or dividends. As a result of the mergers with Jacor in 1999 and AMFM and SFX in 2000, the Company assumed stock options that were granted to employees and affiliates of these companies. These options were granted in accordance with each respective company's policy and under the terms of each respective company's stock option plans. Pursuant to the respective merger agreements, the Company assumed the obligation to fulfill all options granted in accordance with the original grant terms adjusted for the appropriate 91 merger exchange ratio. The following table presents a summary of the Company's stock options outstanding at and stock option activity during the years ended December 31, 2001, 2000 and 1999.
(In thousands, except per share data) Weighted Average Exercise Price Options Per Share ------- --------- Options outstanding at January 1, 1999 6,007 17.00 Options assumed in acquisitions 3,666 28.00 Options granted 1,580 63.00 Options exercised (1) (2,989) 13.00 Options forfeited (214) 38.00 ------ Options outstanding at December 31, 1999 8,050 32.00 ====== Weighted average fair value of options granted during 1999 26.00 Options outstanding at January 1, 2000 8,050 32.00 Options assumed in acquisitions 31,075 40.00 Options granted 3,540 62.00 Options exercised (1) (1,915) 21.00 Options forfeited (638) 55.00 ------ Options outstanding at December 31, 2000 40,112 41.00 ====== Weighted average fair value of options granted during 2000 29.00 Options outstanding at January 1, 2001 40,112 41.00 Options granted 11,389 51.00 Options exercised (1) (2,928) 25.00 Options forfeited (1,426) 58.00 ------ Options outstanding at December 31, 2001 (2) 47,147 44.00 ====== Weighted average fair value of options granted during 2001 25.00
(1) The Company received an income tax benefit of $32.8 million, $30.6 million and $48.2 million relating to the options exercised during 2001, 2000 and 1999, respectively Such benefits are recorded as adjustments to "Additional paid-in capital" in the statement of shareholders' equity. (2) Of the 47.1 million options outstanding at December 31, 2001, 32.4 million were exercisable at a weighted average exercise price of $39.6069. There were 32.5 million shares available for future grants under the various option plans at December 31, 2001. Vesting dates range from February 2002 to December 2006, and expiration dates range from February 2002 to December 2011 at exercise prices and average contractual lives as follows: 92
(In thousands of shares) Outstanding Weighted Average Exercisable Weighted Range of as of Remaining Weighted Average as of Average Exercise Prices 12/31/01 Contractual Life Exercise Price 12/31/01 Exercise Price --------------- -------- ---------------- -------------- -------- -------------- $ 0.0000 $ 11.2467 3,165 3.3 $ 5.3027 3,165 $ 5.3027 11.2468 - 22.4933 2,293 4.1 15.2811 2,038 14.5792 22.4934 - 33.7400 6,808 5.9 27.2901 6,462 27.2654 33.7401 - 44.9867 5,370 5.5 42.6346 4,587 42.7986 44.9868 - 56.2334 17,325 7.1 48.5536 11,112 49.1613 56.2335 - 67.4800 10,120 6.0 60.2631 3,720 60.1482 67.4801 - 78.7267 1,387 5.8 71.8544 695 73.4493 78.7268 - 89.9734 609 3.6 83.3500 545 83.0135 89.9735 - 101.2200 70 3.3 97.6911 61 98.4236 ------ --- -------- ------ -------- 47,147 6.0 $43.9188 32,385 $39.6069
The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2001, 2000 and 1999: risk-free interest rates of 5.2% and 4.9% for options granted in 2001 with an expected life of eight years and six years, respectively, and 6.0% for all options granted in 2000 and 1999; a dividend yield of 0%; the volatility factors of the expected market price of the Company's common stock used was 36% and 37% for options granted in 2001 with an expected life of eight years and six years, respectively, and 34% and 30% for 2000 and 1999, respectively; and the weighted average expected life of the option was eight years for all options granted with a ten year term and six years for options granted with a seven year term. Pro forma net income and earnings per share, assuming that the Company had accounted for its employee stock options using the fair value method and amortized such to expense over the options' vesting period is as follows:
2001 2000 1999 ---- ---- ---- Net income (loss) before extraordinary item (in thousands) As reported $(1,144,026) $248,808 $85,655 Pro forma $(1,193,495) $219,898 $70,781 Net income (loss) before extraordinary item per common share Basic: As reported $ (1.93) $ .59 $ .27 Pro forma $ (2.02) $ .52 $ .23 Diluted: As reported $ (1.93) $ .57 $ .26 Pro forma $ (2.02) $ .50 $ .21
93 The weighted average fair value of stock options granted is required to be based on a theoretical option pricing model. In actuality, because the company's employee stock options are not traded on an exchange, employees can receive no value nor derive any benefit from holding stock options under these plans without an increase in the market price of Clear Channel stock. Such an increase in stock price would benefit all stockholders commensurately. OTHER As a result of mergers during 2000, the Company assumed 2.7 million employee stock options that will vest from January 2001 to April 2005. To the extent that these employees' options vest post-merger, the Company recognizes expense over the remaining vesting period. During the year ended December 31, 2001 and 2000, the Company recorded expense of $12.1 million and $3.8 million, respectively, related to the post-merger vesting of employee stock options. Additionally, during 2001 and 2000, as a result of severance negotiations with 20 employees, the Company accelerated the vesting of 109,000 and 470,000 existing employee stock options, respectively. Accordingly, the Company recorded expense during the years ended December 31, 2001 and 2000 equal to the intrinsic value of the accelerated options on the appropriate modification dates of $1.8 million and $11.7 million, respectively. The expense associated with stock options is recorded on the statement of operations as a component of "non-cash compensation expense". COMMON STOCK RESERVED FOR FUTURE ISSUANCE Common stock is reserved for future issuances of, approximately 79.6 million shares for issuance upon the various stock option plans to purchase the Company's common stock (including 47.1 million options currently granted), 9.3 million shares for issuance upon conversion of the Company's 2.625% Senior Convertible Notes, 9.5 million for issuance upon conversion of the Company's 1.5% Senior Convertible Notes, 3.1 million for issuance upon conversion of the Company's LYONs, .3 million for issuance upon conversion of the Company's Common Stock Warrants, and 11.9 million shares reserved for issuance upon consummation of a pending merger. 94 RECONCILIATION OF EARNINGS PER SHARE
(In thousands, except per share data) 2001 2000 1999 ---- ---- ---- NUMERATOR: Net income (loss) before extraordinary item $(1,144,026) $248,808 $ 85,655 Extraordinary item -- -- (13,185) ----------- -------- -------- Net income (loss) (1,144,026) 248,808 72,470 Effect of dilutive securities: Eller put/call option agreement -- -- (2,300) Convertible debt - 2.625% issued in 1998 9,358 * 9,811 * 9,811 * Convertible debt - 1.5% issued in 1999 9,300 * 9,750 * 964 * LYONs - 1996 issue (225) * -- (311) LYONs - 1998 issue 4,594 * 4,595 * 2,944 * Less: Anti-dilutive items (23,027) (24,156) (13,719) ----------- -------- -------- Numerator for net income (loss) per common share - diluted $(1,144,026) $248,808 $ 69,859 =========== ======== ======== DENOMINATOR: Weighted average common shares 591,965 423,969 312,610 Effect of dilutive securities: Stock options and common stock warrants 11,731 * 10,872 8,395 Eller put/call option agreement -- -- 847 Convertible debt - 2.625% issued in 1998 9,282 * 9,282 * 9,282 * Convertible debt - 1.5% issued in 1999 9,454 * 9,454 * 927 * LYONs - 1996 issue 1,743 * 3,870 2,556 LYONs - 1998 issue 3,085 * 3,085 * 2,034 * Less: Anti-dilutive items (35,295) (21,821) (12,243) ----------- -------- -------- Denominator for net income (loss) per common share - diluted 591,965 438,711 324,408 =========== ======== ======== Net income (loss) per common share: Basic: Net income (loss) before extraordinary item $ (1.93) $ .59 $ .27 Extraordinary item -- -- (.04) ----------- -------- -------- Net income (loss) $ (1.93) $ .59 $ .23 =========== ======== ======== Diluted: Net income (loss) before extraordinary item $ (1.93) $ .57 $ .26 Extraordinary item -- -- (.04) ----------- -------- -------- Net income (loss) $ (1.93) $ .57 $ .22 =========== ======== ========
* Denotes items that are anti-dilutive to the calculation of earnings per share. NOTE I - EMPLOYEE STOCK AND SAVINGS PLANS The Company has various 401(K) savings and other plans for the purpose of providing retirement benefits for substantially all employees. Both the employees and the Company make contributions to the plan. The Company matches a portion of an employee's contribution. Company matched contributions 95 vest to the employees based upon their years of service to the Company. Contributions to these plans of $21.9 million, $12.5 million and $7.9 million were charged to expense for 2001, 2000 and 1999, respectively. In 2000, the Company initiated a non-qualified employee stock purchase plan for all eligible employees. Under the plan, shares of the company's common stock may be purchased at 85% of the market value on the day of purchase. Employees may purchase shares having a value not exceeding ten percent (10%) of their annual gross compensation or $25,000, whichever is lower. During 2001 and 2000, employees purchased 265,862 and 118,941 shares at a weighted average share price of $45.26 and $64.00, respectively. In 2001, the Company initiated a non-qualified deferred compensation plan for highly compensated executives allowing deferrals of a portion of their annual salary and up to 80% of their bonus before taxes. The Company does not match any deferral amounts and retains ownership of all assets until distributed. The liability under this deferred compensation plan at December 31, 2001 was approximately $.6 million. NOTE J - OTHER INFORMATION
(In thousands) For the year ended December 31, --------------------------------------- 2001 2000 1999 ---- ---- ---- The following details the components of "Other income (expense) - net": Reimbursement of capital cost $ (9,007) $ (14,370) $ -- Gain (loss) on disposal of fixed assets (1,087) 1,901 2,897 Gain on sale of operating assets 167,317 -- -- Gain on sale of representation contracts 13,463 2,997 -- Software maintenance - third party (14,071) -- -- Minority interest (6,289) (4,059) (2,769) Charitable contribution of treasury shares -- -- (4,102) Other 1,941 1,767 (11,664) -------- --------- -------- Total other income (expense) - net $152,267 $ (11,764) $(15,638) ======== ========= ======== The following details the income tax expense (benefit) on items of other comprehensive income (loss): Foreign currency translation adjustments $ (3,101) $ (4,270) $ 3,036 Unrealized gain (loss) on securities: Unrealized holding gain (loss) $(75,280) $(104,264) $ 98,170 Reclassification adjustment for gains on securities transferred to trading $(24,400) $ -- $ -- Reclassification adjustment for gains on SFX shares held prior to merger $ -- $ (19,668) $ -- Reclassification adjustments for (gain) loss included in net income (loss) $102,725 $ 3,919 $ (8,026)
96
(In thousands) As of December 31, ------------------------- 2001 2000 ---- ---- The following details the components of "Other current assets": Current film rights $ 20,451 $ 17,533 Inventory 45,004 37,017 Other 77,941 79,323 --------- --------- Total other current assets $ 143,396 $ 133,873 ========= ========= The following details the components of "Accrued expenses": Acquisition accruals $ 225,018 $ 384,025 Accrued liabilities - other 551,950 502,879 --------- --------- Total accrued expenses $ 776,968 $ 886,904 ========= ========= The following details the components of "Accumulated other comprehensive income (loss)": Cumulative currency translation adjustment $(126,448) $(138,147) Cumulative unrealized gain on investments 91,978 105,714 --------- --------- Total accumulated other comprehensive income (loss) $ (34,470) $ (32,433) ========= =========
NOTE K - SEGMENT DATA The Company has three reportable operating segments - radio broadcasting, outdoor advertising and live entertainment. Revenue and expenses earned and charged between segments are recorded at fair value and eliminated in consolidation. At December 31, 2001, the radio broadcasting segment included 1,165 radio stations for which the Company is the licensee and 75 radio stations operated under lease management or time brokerage agreements. The radio broadcasting segment also operates various radio networks. At December 31, 2001, the outdoor advertising segment owned or operated 730,039 advertising display faces. Of these, 156,623 are in U.S. markets and the remaining 573,416 displays are in international markets. At December 31, 2001, the live entertainment segment owned or operated 96 venues. Of these, 68 venues are in 34 domestic markets and the remaining 28 venues are in three international markets. "Other" includes television broadcasting, sports representation and media representation.
(In thousands) Radio Outdoor Live Broadcasting Advertising Entertainment Other ------------ ----------- ------------- ----- 2001 Revenue $ 3,455,553 $1,748,031 $2,477,640 $ 423,651 Divisional operating expenses 2,104,719 1,220,681 2,327,109 349,069 Non-cash compensation 12,373 -- -- 738 Depreciation 218,125 254,349 63,637 35,001 Amortization 1,401,861 305,149 226,410 34,956 Corporate expenses -- -- -- -- ----------- ---------- ---------- ---------- Operating income (loss) $ (281,525) $ (32,148) $ (139,516) $ 3,887 =========== ========== ========== ========== Identifiable assets $33,406,019 $7,707,761 $5,412,507 $ 874,037 Capital expenditures $ 144,786 $ 264,727 $ 67,555 $ 84,446
(In thousands) Corporate Eliminations Consolidated --------- ------------ ------------ 2001 Revenue $ -- $(134,872) $ 7,970,003 Divisional operating expenses -- (134,872) 5,866,706 Non-cash compensation 3,966 -- 17,077 Depreciation 22,992 -- 594,104 Amortization -- -- 1,968,376 Corporate expenses 187,434 -- 187,434 ---------- --------- ----------- Operating income (loss) $ (214,392) $ -- $ (663,694) ========== ========= =========== Identifiable assets $ 202,818 $ -- $47,603,142 Capital expenditures $ 36,874 $ -- $ 598,388
97
(In thousands) Radio Outdoor Live Broadcasting Advertising Entertainment Other ------------ ----------- ------------- ----- 2000 Revenue $ 2,431,544 $1,729,438 $ 952,025 $ 314,559 Divisional operating expenses 1,385,848 1,078,540 878,553 220,025 Non-cash compensation 4,359 -- -- -- Depreciation 84,345 228,630 25,269 18,809 Amortization 714,723 208,719 92,482 17,499 Corporate expenses -- -- -- -- ----------- ---------- ---------- ---------- Operating income (loss) $ 242,269 $ 213,549 $ (44,279) $ 58,226 =========== ========== ========== ========== Identifiable assets $34,003,430 $7,683,182 $5,238,690 $1,282,194 Capital expenditures $ 139,923 $ 250,271 $ 46,707 $ 34,469 1999 Revenue $ 1,230,754 $1,253,732 $ -- $ 199,532 Divisional operating expenses 731,062 785,636 -- 121,275 Non-cash compensation -- -- -- -- Depreciation 47,123 201,083 -- 13,142 Amortization 279,440 171,215 -- 8,336 Corporate expenses -- -- -- -- ----------- ---------- ---------- ---------- Operating income (loss) $ 173,129 $ 95,798 $ -- $ 56,779 =========== ========== ========== ========== Identifiable assets $ 9,571,687 $5,978,562 $ -- $1,213,048 Capital expenditures $ 58,346 $ 154,133 $ -- $ 22,778
(In thousands) Corporate Eliminations Consolidated --------- ------------ ------------ 2000 Revenue $ -- $ (82,260) $ 5,345,306 Divisional operating expenses -- (82,260) 3,480,706 Non-cash compensation 11,673 -- 16,032 Depreciation 10,587 -- 367,640 Amortization -- -- 1,033,423 Corporate expenses 142,627 -- 142,627 ---------- --------- ----------- Operating income (loss) $ (164,887) $ -- $ 304,878 ========== ========= =========== Identifiable assets $1,848,965 $ -- $50,056,461 Capital expenditures $ 24,181 $ -- $ 495,551 1999 Revenue $ -- $ (5,858) $ 2,678,160 Divisional operating expenses -- (5,858) 1,632,115 Non-cash compensation -- -- -- Depreciation 1,894 -- 263,242 Amortization -- -- 458,991 Corporate expenses 70,146 -- 70,146 ---------- --------- ----------- Operating income (loss) $ (72,040) $ -- $ 253,666 ========== ========= =========== Identifiable assets $ 58,215 $ -- $16,821,512 Capital expenditures $ 3,481 $ -- $ 238,738
Revenue of $1.3 billion, $1.0 billion and $567.2 million and identifiable assets of $2.9 billion, $2.7 billion and $1.3 billion derived from the Company's foreign operations are included in the data above for the years ended December 31, 2001, 2000 and 1999, respectively. 98 NOTE L - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data)
March 31, June 30, --------- -------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenue $1,628,363 $ 782,539 $2,179,261 $ 965,875 Operating expenses: Divisional operating expenses 1,179,068 519,961 1,520,215 562,729 Non-cash compensation 3,894 -- 8,456 -- Depreciation and amortization 613,751 220,054 644,850 228,687 Corporate expenses 45,071 24,578 47,611 27,867 ---------- ---------- ---------- ---------- Operating income (loss) (213,421) 17,946 (41,871) 146,592 Interest expense 156,400 55,549 137,539 69,911 Gain (loss) on sale of assets related to mergers (6,390) -- (51,000) -- Gain on marketable securities 18,456 -- 5,349 -- Equity in earnings (loss) of nonconsolidated affiliates 563 2,936 4,045 6,667 Other income (expense) - net (7,633) 398 (9,765) 1,226 ---------- ---------- ---------- ---------- Income (loss) before income taxes (364,825) (34,269) (230,781) 84,574 Income tax (expense) benefit (1) 55,597 (5,133) (6,220) (53,339) ---------- ---------- ---------- ---------- Net income (loss) $ (309,228) $ (39,402) $ (237,001) $ 31,235 ========== ========== ========== ========== Net income (loss) per common share: Basic $ (.53) $ (.12) $ (.40) $ .09 Diluted $ (.53) $ (.12) $ (.40) $ .09 Stock price: High $ 68.08 $ 95.50 $ 65.60 $ 83.00 Low 47.25 60.00 50.12 62.06
September 30, December 31, ------------- ------------ 2001 2000 2001 2000 ---- ---- ---- ---- Revenue $2,300,233 $1,576,719 $1,862,146 $2,020,173 Operating expenses: Divisional operating expenses 1,696,581 1,062,284 1,470,842 1,335,732 Non-cash compensation 2,581 3,151 2,146 12,881 Depreciation and amortization 652,771 372,059 651,108 580,263 Corporate expenses 48,150 39,417 46,602 50,765 ---------- ---------- ---------- ---------- Operating income (loss) (99,850) 99,808 (308,552) 40,532 Interest expense 134,744 105,335 131,394 152,309 Gain (loss) on sale of assets related to mergers -- 805,183 (156,316) (21,440) Gain on marketable securities 5,707 -- (3,692) (5,369) Equity in earnings (loss) of nonconsolidated affiliates 7,011 8,433 (1,226) 7,119 Other income (expense) - net (1,651) (8,964) 171,316 (4,424) ---------- ---------- ---------- ---------- Income (loss) before income taxes (223,527) 799,125 (429,864) (135,891) Income tax (expense) benefit (1) (8,671) (350,198) 64,265 (56,061) ---------- ---------- ---------- ---------- Net income (loss) $ (232,198) $ 448,927 $ (365,599) $ (191,952) ========== ========== ========== ========== Net income (loss) per common share: Basic $ (.39) $ 1.04 $ (.61) $ (.33) Diluted $ (.39) $ .96 $ (.61) $ (.33) Stock price: High $ 64.15 $ 85.81 $ 51.60 $ 61.00 Low 35.20 54.75 36.99 43.88
(1) Income tax expense in the quarters ended September 30, 2000 and December 31, 2000 includes estimated taxes related to divestiture gains. The Company's Common Stock is traded on the New York Stock Exchange under the symbol CCU. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable 99 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT We believe that one of our most important assets is our experienced management team. With respect to our operations, managers are responsible for the day-to-day operation of their respective location. We believe that the autonomy of our management enables us to attract top quality managers capable of implementing our aggressive marketing strategy and reacting to competition in the local markets. Most of our managers have options to purchase our common stock. As an additional incentive, a portion of each manager's compensation is related to the performance of the profit centers for which he or she is responsible. In an effort to monitor expenses, corporate management routinely reviews staffing levels and operating costs. Combined with the centralized financial functions, this monitoring enables us to control expenses effectively. Corporate management also advises local managers on broad policy matters and is responsible for long-range planning, allocating resources, and financial reporting and controls. The information required by this item with respect to the directors and nominees for election to our Board of Directors is incorporated by reference to the information set forth under the caption "Election of Directors" and "Compliance With Section 16(A) of the Exchange Act," in our Definitive Proxy Statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year end. The following information is submitted with respect to our executive officers as of December 31, 2001.
Age on December 31, Officer Name 2001 Position Since L. Lowry Mays 66 Chairman/Chief Executive Officer 1972 Mark P. Mays 38 President/Chief Operating Officer 1989 Randall T. Mays 36 Executive Vice President/Chief Financial Officer 1993 Herbert W. Hill, Jr. 42 Senior Vice President/Chief Accounting Officer 1989 Kenneth E. Wyker 40 Senior Vice President/General Counsel and Secretary 1993 Karl Eller 73 Chief Executive Officer - Clear Channel Outdoor 1997 Roger Parry 48 Chief Executive Officer - Clear Channel International 1998 Paul Meyer 59 President/Chief Operating Officer - Clear Channel Outdoor 1999 Juliana F. Hill 32 Senior Vice President/Finance 1999 Randy Michaels 49 Chairman/Chief Executive Officer - Clear Channel Radio 1999 Brian Becker 45 Chairman/Chief Executive Officer - Clear Channel Entertainment 2000 William Moll 64 President - Television Division 2001
The officers named above serve until the next Board of Directors meeting immediately following the Annual Meeting of Shareholders. Mr. L. Mays is our founder and was our President and Chief Executive Officer from 1972 to February 1997. Since that time, Mr. L. Mays has served as our Chairman and Chief Executive Officer. He has been one of our directors since our inception. Mr. L. Mays is the father of Mark P. Mays, our 100 President and Chief Operating Officer, and Randall T. Mays, our Executive Vice President and Chief Financial Officer. Mr. M. Mays was our Senior Vice President of Operations from February 1993 until his appointment as our President and Chief Operating Officer in February 1997. He has been one of our directors since May 1998. Mr. M. Mays is the son of L. Lowry Mays, our Chairman and Chief Executive Officer and the brother of Randall T. Mays, our Executive Vice President and Chief Financial Officer. Mr. R. Mays was appointed Executive Vice President and Chief Financial Officer in February 1997. Prior thereto, he served as our Vice President and Treasurer since he joined us in January 1993. Mr. R. Mays is the son of L. Lowry Mays, our Chairman and Chief Executive Officer and the brother of Mark P. Mays, our President and Chief Operating Officer. Mr. Hill was appointed Senior Vice President and Chief Accounting Officer in February 1997. Prior thereto, he served as our Vice President/Controller since January 1989. Mr. Wyker was appointed Senior Vice President, General Counsel and Secretary in February 1997. Prior thereto he served as Vice President for Legal Affairs since he joined us in July 1993. Mr. Eller was appointed Chief Executive Officer - Clear Channel Outdoor (formerly Eller Media) in April 1997. Prior thereto, he was the Chief Executive Officer of Eller Media Company from August 1995 to April 1997. Mr. Eller retired from Clear Channel Communications effective December 31, 2001. Mr. Parry was appointed Chief Executive Officer - Clear Channel International in June 1998. Prior thereto, he was the Chief Executive of More Group plc for the remainder of the relevant five-year period. Mr. Meyer was appointed President - Clear Channel Outdoor (formerly Eller Media) in March 1999. Prior thereto he was the Executive Vice President and General Counsel of Eller Media from March 1996 to March 1999. Mr. Meyer was appointed President/Chief Executive Officer - Clear Channel Outdoor effective with Mr. Eller's retirement on December 31, 2001. Ms. Hill was appointed Senior Vice President/Finance in May 2000. Prior thereto, she was Vice President/Finance and Strategic Development from March 1999 to May 2000. She was an Associate at US WEST Communications from August 1998 to March 1999 and she was a student at Kellogg School of Management, Northwestern University for the remainder of the relevant five-year period. Mr. Michaels was appointed Chairman/Chief Executive Officer of Clear Channel Radio in May 2000. Prior thereto he was President of Radio from May 1999 to May 2000. Prior thereto he was the Chief Executive Officer of Jacor Communications, Inc. for the remainder of the relevant five-year period. Mr. Becker was appointed Chairman/Chief Executive Officer - Clear Channel Entertainment in October 2000. Prior thereto he was the Executive Vice President of SFX Entertainment, Inc. from February 1998 to October 2000 and he was Chief Executive Officer of PACE Entertainment Corp. for the remainder of the relevant five-year period. Mr. Moll was appointed President - Television Division in January, 2001. Prior thereto, he was the President, WKRC-TV, Cincinnati, OH for the remainder of the relevant five-year period. 101 ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the information set forth under the caption "Executive Compensation" in our Definitive Proxy Statement, expected to be filed within 120 days of our fiscal year end. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to our Definitive Proxy Statement under the headings "Security Ownership of Certain Beneficial Owners and Management", expected to be filed within 120 days of our fiscal year end. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to our Definitive Proxy Statement under the heading "Certain Transactions", expected to be filed within 120 days of our fiscal year end. 102 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a)1. Financial Statements. The following consolidated financial statements are included in Item 8. Consolidated Balance Sheets as of December 31, 2001 and 2000 Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999. Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2001, 2000 and 1999. Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999. Notes to Consolidated Financial Statements (a)2. Financial Statement Schedule. The following financial statement schedule for the years ended December 31, 2001, 2000 and 1999 and related report of independent auditors is filed as part of this report and should be read in conjunction with the consolidated financial statements. Schedule II Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 103 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Allowance for Doubtful Accounts (In thousands)
Charges Balance at to Costs, Write-off Balance Beginning Expenses of Accounts at end of Description of period and other Receivable Other (1) Period ----------- --------- --------- ---------- --------- ------ Year ended December 31, 1999 $13,508 $12,975 $15,640 $15,252 $26,095 ======= ======= ======= ======= ======= Year ended December 31, 2000 $26,095 $34,168 $36,065 $36,433 $60,631 ======= ======= ======= ======= ======= Year ended December 31, 2001 $60,631 $87,041 $88,122 $ 1,520 $61,070 ======= ======= ======= ======= =======
(1) Allowance for accounts receivable acquired in acquisitions net of deletions related to dispositions. 104 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Deferred Tax Asset Valuation Allowance (In thousands)
Charges Balance at to Costs, Balance Beginning Expenses at end of Description of period and other Deletions (2) Other (1) Period ----------- --------- --------- ------------- --------- ------ Year ended December 31, 1999 $19,837 $ -- $ -- $ 17,780 $ 37,617 ======= ======= ======= ======== ======== Year ended December 31, 2000 $37,617 $ -- $37,617 $ -- $ -- ======= ======= ======= ======== ======== Year ended December 31, 2001 $ -- $ -- $ -- $164,070 $164,070 ======= ======= ======= ======== ========
(1) Related to allowance for net operating loss carryforwards and other deferred tax assets assumed in acquisitions. (2) Based on the Company's reassessment of the likelihood of the realization of future benefits, the valuation allowance was reduced to zero during 2000. 105 (a)3. Exhibits.
EXHIBIT NUMBER DESCRIPTION 2.1 Agreement and Plan of Merger dated as of October 2, 1999, among Clear Channel, CCU Merger Sub, Inc. and AMFM Inc. (incorporated by reference to the exhibits of Clear Channel's Current Report on Form 8-K filed October 5, 1999). 2.2 Agreement and Plan of Merger dated as of February 28, 2000, among Clear Channel, CCU II Merger Sub, Inc. and SFX Entertainment, Inc. (incorporated by reference to the exhibits of Clear Channel's Current Report on Form 8-K filed February 29, 2000). 2.3 Agreement and Plan of Merger dated as of October 5, 2001, by and among Clear Channel, CCMM Sub, Inc. and The Ackerley Group, Inc. (incorporated by reference to the exhibits of Clear Channel's Current Report on Form 8-K filed October 9, 2001). 3.1 Current Articles of Incorporation of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 3.2 Third Amended and Restated Bylaws of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-4 (Reg. No. 333-74196) dated November 29, 2001). 3.3 Amendment to the Company's Articles of Incorporation (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 3.4 Second Amendment to Clear Channel's Articles of Incorporation (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999). 3.5 Third Amendment to Clear Channel's Articles of Incorporation (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended May 31, 2000). 4.1 Buy-Sell Agreement by and between Clear Channel Communications, Inc., L. Lowry Mays, B. J. McCombs, John M. Schaefer and John W. Barger, dated May 31, 1977 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1 (Reg. No. 33-289161) dated April 19, 1984). 4.2 Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York as Trustee (incorporated by reference to exhibit 4.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 4.3 First Supplemental Indenture dated March 30, 1998 to Senior Indenture dated October 1, 1997, by and between the Company and The Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
EXHIBIT NUMBER DESCRIPTION 4.4 Second Supplemental Indenture dated June 16, 1998 to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and the Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated August 27, 1998). 4.5 Third Supplemental Indenture dated June 16, 1998 to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and the Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated August 27, 1998). 4.6 Fourth Supplement Indenture dated November 24, 1999 to Senior Indenture dated October 1, 1997, by and between Clear Channel and The Bank of New York as Trustee (incorporated by reference to the exhibits of the Company's Annual Report on Form 10-K for the year ended December 31, 1999). 4.7 Fifth Supplemental Indenture dated June 21, 2000, to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to the exhibits of Clear Channel's registration statement on Form S-3 (Reg. No. 333-42028) dated July 21, 2000). 4.8 Sixth Supplemental Indenture dated June 21, 2000, to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to the exhibits of Clear Channel's registration statement on Form S-3 (Reg. No. 333-42028) dated July 21, 2000). 4.9 Seventh Supplemental Indenture dated July 7, 2000, to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to the exhibits of Clear Channel's registration statement on Form S-3 (Reg. No. 333-42028) dated July 21, 2000). 4.10 Eighth Supplemental Indenture dated September 12, 2000, to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 4.11 Ninth Supplemental Indenture dated September 12, 2000, to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 4.12 Tenth Supplemental Indenture dated October 26, 2001, to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
EXHIBIT NUMBER DESCRIPTION 10.1 Incentive Stock Option Plan of Clear Channel Communications, Inc. as of January 1, 1984 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1 (Reg. No. 33-289161) dated April 19, 1984). 10.2 Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.3 Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.4 Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.5 Option Agreement for Officer (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.6 The Clear Channel Communications, Inc. 1998 Stock Incentive Plan (incorporated by reference to Appendix A to the Company's Definitive 14A Proxy Statement dated March 24, 1998). 10.7 Voting Agreement dated as of October 8, 1998, by and among Jacor Communications, Inc. and L. Lowry Mays, Mark P. Mays and Randall T. Mays and certain related family trusts (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 10.8 Shareholders Agreement dated October 2, 1999, by and among Clear Channel, L. Lowry Mays, 4-M Partners, Ltd., Hicks, Muse, Tate & Furst Equity Fund II, L.P., HM2/HMW, L.P., HM2/Chancellor, L.P., HM4/Chancellor, L.P., Capstar Broadcasting Partners, L.P., Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C., and Thomas O. Hicks (incorporated by reference to Annex B to Clear Channel Communications, Inc., Registrations Statement on Form S-4 (Reg. No. 333-32532) dated March 15, 2000). 10.9 Registration Rights Agreement dated as of October 2, 1999, among Clear Channel and Hicks, Muse, Tate & Furst Equity Fund II, L.P., HM2/HMW, L.P., HM2/Chancellor, L.P., HM4/Chancellor, L.P., Capstar Broadcasting Partners, L.P., Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C., Thomas O. Hicks, John R. Muse, Charles W. Tate, Jack D. Furst, Michael J. Levitt, Lawrence D. Stuart, Jr., David B Deniger and Dan H. Blanks (incorporated by reference to Annex C to Clear Channel Communications, Inc., Registrations Statement on Form S-4 (Reg. No. 333-32532) dated March 15, 2000). 10.10 Stockholder Voting and Support Agreement, dated as of October 5, 2001, by and between Clear Channel Communications, Inc. and Barry A. Ackerley (incorporated by reference to the exhibits to Clear Channel's Current Report on Form 8-K filed October 9, 2001).
EXHIBIT NUMBER DESCRIPTION 10.11 Employment Agreement by and between Clear Channel Communications, Inc. and L. Lowry Mays dated October 1, 1999. (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.12 Employment Agreement by and between Clear Channel Communications, Inc. and Mark P. Mays dated October 1, 1999. (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.13 Employment Agreement by and between Clear Channel Communications, Inc. and Randall T. Mays dated October 1, 1999. (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.14 Fourth Amended and Restated Credit Agreement by and among Clear Channel Communications, Inc., Bank of America, N.A., as administrative agent, Fleet National Bank, as documentation agent, the Bank of Montreal and Toronto Dominion (Texas), Inc., as co-syndication agents, and certain other lenders dated June 15, 2000 (incorporated by reference to the exhibits of Clear Channel's registration statement on Form S-3 (Reg. No. 333-42028) dated July 21, 2000). 10.15 Credit Agreement among Clear Channel Communications, Inc., Bank of America, N.A., as administrative agent, Chase Securities Inc., as syndication agent, and certain other lenders dated August 30, 2000. (incorporated by reference to the exhibits to Clear Channel's Annual Report on Form 10-K for the year ended December 31, 2000). 11 Statement re: Computation of Per Share Earnings. 12 Statement re: Computation of Ratios. 21 Subsidiaries of the Company. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of KPMG LLP. 24 Power of Attorney (included on signature page). 99.1 Report of Independent Auditors on Financial Statement Schedules - Ernst & Young LLP. 99.2 Report of Independent Auditors - KPMG LLP.
-------------------- (b) Reports on Form 8-K. We filed a report on Form 8-K dated October 9, 2001 that reported that we had entered into an Agreement and Plan of Merger with The Ackerley Group, Inc. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 18, 2002. CLEAR CHANNEL COMMUNICATIONS, INC. By:/S/ L. Lowry Mays L. Lowry Mays Chairman and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below authorizes L. Lowry Mays, Mark P. Mays, Randall T. Mays and Herbert W. Hill, Jr., or any one of them, each of whom may act without joinder of the others, to execute in the name of each such person who is then an officer or director of the Registrant and to file any amendments to this annual report on Form 10-K necessary or advisable to enable the Registrant to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such changes in such report as such attorney-in-fact may deem appropriate. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /S/ L. Lowry Mays Chairman, Chief Executive Officer and Director March 18, 2002 L. Lowry Mays /S/ Mark P. Mays President and Chief Operating Officer and March 18, 2002 Mark P. Mays Director /S/ Randall T. Mays Executive Vice President and Chief Financial March 18, 2002 Randall T. Mays Officer (Principal Financial Officer) and Director /S/ Herbert W. Hill, Jr. Senior Vice President and Chief Accounting March 18, 2002 Herbert W. Hill, Jr. Officer (Principal Accounting Officer) /S/ Robert L. Crandall Director March 18, 2002 Robert L. Crandall
NAME TITLE DATE ---- ----- ---- /S/ Alan D. Feld Director March 18, 2002 Alan D. Feld /S/ Thomas O. Hicks Director March 18, 2002 Thomas O. Hicks /S/ Vernon E. Jordan, Jr. Director March 18, 2002 Vernon E. Jordan, Jr. /S/ Perry J. Lewis Director March 18, 2002 Perry J. Lewis /S/ B. J. McCombs Director March 18, 2002 B. J. McCombs /S/ Theodore H. Strauss Director March 18, 2002 Theodore H. Strauss /S/ John H. Williams Director March 18, 2002 John H. Williams
EXHIBIT NUMBER DESCRIPTION 2.1 Agreement and Plan of Merger dated as of October 2, 1999, among Clear Channel, CCU Merger Sub, Inc. and AMFM Inc. (incorporated by reference to the exhibits of Clear Channel's Current Report on Form 8-K filed October 5, 1999). 2.2 Agreement and Plan of Merger dated as of February 28, 2000, among Clear Channel, CCU II Merger Sub, Inc. and SFX Entertainment, Inc. (incorporated by reference to the exhibits of Clear Channel's Current Report on Form 8-K filed February 29, 2000). 2.3 Agreement and Plan of Merger dated as of October 5, 2001, by and among Clear Channel, CCMM Sub, Inc. and The Ackerley Group, Inc. (incorporated by reference to the exhibits of Clear Channel's Current Report on Form 8-K filed October 9, 2001). 3.1 Current Articles of Incorporation of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 3.2 Third Amended and Restated Bylaws of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-4 (Reg. No. 333-74196) dated November 29, 2001). 3.3 Amendment to the Company's Articles of Incorporation (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 3.4 Second Amendment to Clear Channel's Articles of Incorporation (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999). 3.5 Third Amendment to Clear Channel's Articles of Incorporation (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended May 31, 2000). 4.1 Buy-Sell Agreement by and between Clear Channel Communications, Inc., L. Lowry Mays, B. J. McCombs, John M. Schaefer and John W. Barger, dated May 31, 1977 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1 (Reg. No. 33-289161) dated April 19, 1984). 4.2 Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York as Trustee (incorporated by reference to exhibit 4.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 4.3 First Supplemental Indenture dated March 30, 1998 to Senior Indenture dated October 1, 1997, by and between the Company and The Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
EXHIBIT NUMBER DESCRIPTION 4.4 Second Supplemental Indenture dated June 16, 1998 to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and the Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated August 27, 1998). 4.5 Third Supplemental Indenture dated June 16, 1998 to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and the Bank of New York, as Trustee (incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated August 27, 1998). 4.6 Fourth Supplement Indenture dated November 24, 1999 to Senior Indenture dated October 1, 1997, by and between Clear Channel and The Bank of New York as Trustee (incorporated by reference to the exhibits of the Company's Annual Report on Form 10-K for the year ended December 31, 1999). 4.7 Fifth Supplemental Indenture dated June 21, 2000, to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to the exhibits of Clear Channel's registration statement on Form S-3 (Reg. No. 333-42028) dated July 21, 2000). 4.8 Sixth Supplemental Indenture dated June 21, 2000, to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to the exhibits of Clear Channel's registration statement on Form S-3 (Reg. No. 333-42028) dated July 21, 2000). 4.9 Seventh Supplemental Indenture dated July 7, 2000, to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to the exhibits of Clear Channel's registration statement on Form S-3 (Reg. No. 333-42028) dated July 21, 2000). 4.10 Eighth Supplemental Indenture dated September 12, 2000, to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 4.11 Ninth Supplemental Indenture dated September 12, 2000, to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 4.12 Tenth Supplemental Indenture dated October 26, 2001, to Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
EXHIBIT NUMBER DESCRIPTION 10.1 Incentive Stock Option Plan of Clear Channel Communications, Inc. as of January 1, 1984 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1 (Reg. No. 33-289161) dated April 19, 1984). 10.2 Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.3 Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.4 Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.5 Option Agreement for Officer (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.6 The Clear Channel Communications, Inc. 1998 Stock Incentive Plan (incorporated by reference to Appendix A to the Company's Definitive 14A Proxy Statement dated March 24, 1998). 10.7 Voting Agreement dated as of October 8, 1998, by and among Jacor Communications, Inc. and L. Lowry Mays, Mark P. Mays and Randall T. Mays and certain related family trusts (incorporated by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 10.8 Shareholders Agreement dated October 2, 1999, by and among Clear Channel, L. Lowry Mays, 4-M Partners, Ltd., Hicks, Muse, Tate & Furst Equity Fund II, L.P., HM2/HMW, L.P., HM2/Chancellor, L.P., HM4/Chancellor, L.P., Capstar Broadcasting Partners, L.P., Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C., and Thomas O. Hicks (incorporated by reference to Annex B to Clear Channel Communications, Inc., Registrations Statement on Form S-4 (Reg. No. 333-32532) dated March 15, 2000). 10.9 Registration Rights Agreement dated as of October 2, 1999, among Clear Channel and Hicks, Muse, Tate & Furst Equity Fund II, L.P., HM2/HMW, L.P., HM2/Chancellor, L.P., HM4/Chancellor, L.P., Capstar Broadcasting Partners, L.P., Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C., Thomas O. Hicks, John R. Muse, Charles W. Tate, Jack D. Furst, Michael J. Levitt, Lawrence D. Stuart, Jr., David B Deniger and Dan H. Blanks (incorporated by reference to Annex C to Clear Channel Communications, Inc., Registrations Statement on Form S-4 (Reg. No. 333-32532) dated March 15, 2000). 10.10 Stockholder Voting and Support Agreement, dated as of October 5, 2001, by and between Clear Channel Communications, Inc. and Barry A. Ackerley (incorporated by reference to the exhibits to Clear Channel's Current Report on Form 8-K filed October 9, 2001).
EXHIBIT NUMBER DESCRIPTION 10.11 Employment Agreement by and between Clear Channel Communications, Inc. and L. Lowry Mays dated October 1, 1999. (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.12 Employment Agreement by and between Clear Channel Communications, Inc. and Mark P. Mays dated October 1, 1999. (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.13 Employment Agreement by and between Clear Channel Communications, Inc. and Randall T. Mays dated October 1, 1999. (incorporated by reference to the exhibits to Clear Channel's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.14 Fourth Amended and Restated Credit Agreement by and among Clear Channel Communications, Inc., Bank of America, N.A., as administrative agent, Fleet National Bank, as documentation agent, the Bank of Montreal and Toronto Dominion (Texas), Inc., as co-syndication agents, and certain other lenders dated June 15, 2000 (incorporated by reference to the exhibits of Clear Channel's registration statement on Form S-3 (Reg. No. 333-42028) dated July 21, 2000). 10.15 Credit Agreement among Clear Channel Communications, Inc., Bank of America, N.A., as administrative agent, Chase Securities Inc., as syndication agent, and certain other lenders dated August 30, 2000. (incorporated by reference to the exhibits to Clear Channel's Annual Report on Form 10-K for the year ended December 31, 2000). 11 Statement re: Computation of Per Share Earnings. 12 Statement re: Computation of Ratios. 21 Subsidiaries of the Company. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of KPMG LLP. 24 Power of Attorney (included on signature page). 99.1 Report of Independent Auditors on Financial Statement Schedules - Ernst & Young LLP. 99.2 Report of Independent Auditors - KPMG LLP.