-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RpX7xI9vXRy6vLWpdH+CPgaaBwHEu6fi+w4CGFgTEB5szGc+FdkMCm3gJwLZpVzK EItg0hvtM3V2QvSAUYPPbQ== 0000950134-98-002699.txt : 19980401 0000950134-98-002699.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950134-98-002699 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEAR CHANNEL COMMUNICATIONS INC CENTRAL INDEX KEY: 0000739708 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 741787539 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09645 FILM NUMBER: 98580264 BUSINESS ADDRESS: STREET 1: 200 CONCORD PLAZA STREET 2: STE 600 CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2108222828 MAIL ADDRESS: STREET 1: 200 CONCORD PLAZA SUITE 600 STREET 2: 200 CONCORD PLAZA SUITE 600 CITY: SAN ANTONIO STATE: TX ZIP: 78216 10-K 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997, or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to _________. COMMISSION FILE NUMBER 1-9645 CLEAR CHANNEL COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) Texas 74-1787539 (State of Incorporation) (I.R.S. Employer Identification No.)
200 Concord Plaza, Suite 600 San Antonio, Texas 78216 Telephone (210) 822-2828 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.10 par value per share. Securities registered pursuant to Section 12(g) of the Act: .None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. --- On March 6, 1998, the aggregate market value of the Common Stock beneficially held by non-affiliates of the Company was approximately $6,439 million. (For purposes hereof, directors, executive officers and 10% or greater shareholders have been deemed affiliates). On March 6, 1998, there were 98,387,626 outstanding shares of Common Stock, excluding 39,694 shares held in treasury. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Annual Report to Shareholders for the year ended December 31, 1997 are incorporated by reference into Parts I, II, and IV. Portions of the Company's Definitive Proxy Statement for the 1998 Annual Meeting dated March 24, 1998 are incorporated by reference into Part III. 2 HEFTEL BROADCASTING CORPORATION INDEX TO FORM 10-K
Page Number PART I. - ------- Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 28 PART II. - -------- Item 5. Market for Registrant's Class A Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 29 Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . 29 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . 29 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 29 PART III. - --------- Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . 30 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . 32 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . 32 PART IV. - -------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . 33
2 3 PART I ITEM 1. BUSINESS THE COMPANY The Company, which began operations in 1972, is a diversified media company that owns or programs radio and television stations and is one of the largest domestic outdoor advertising companies based on its total advertising display faces. In addition, the Company currently owns a 50% equity interest in the Australian Radio Network Pty. Ltd., which operates radio stations in Australia; a one-third equity interest in the New Zealand Radio Network, which operates radio stations throughout New Zealand; a 32.3% non-voting equity interest in Heftel Broadcasting Corporation (Nasdaq: HBCCA) ("Heftel"), a leading domestic Spanish-language radio broadcaster; and a 30% equity interest in American Tower Corporation, a leading domestic provider of wireless transmission sites. The radio stations currently owned or programmed by the Company are principally located in the South, Southeast, Southwest, Northeast and Midwest. These radio stations employ a wide variety of programming formats, such as News/Talk/Sports, Country, Adult Contemporary, Urban and Album Rock. The television stations currently owned or programmed by the Company are located in the South, Southeast, Northeast and Midwest. These television stations are affiliated with various television networks, including the FOX television network, the UPN television network, the ABC television network, the NBC television network and the CBS television network. Additionally, the Company operates radio networks serving Oklahoma, Texas, Iowa, Kentucky, Virginia, Alabama, Tennessee, Florida and Pennsylvania. The Company's outdoor advertising properties are located primarily in the South, Southeast, Midwest, and West. During 1997, the Company derived approximately 48% of its net revenue from radio operations, approximately 22% from television operations, and approximately 30% from outdoor advertising operations. The Company has its principal executive offices at 200 Concord Plaza, Suite 600, San Antonio, Texas 78216 (telephone: 210-822-2828). COMPANY STRATEGY The Company's overall strategy is to acquire and develop a diverse array of media assets which enable the Company to assist its customers in employing the most effective and cost-efficient methods to market their products and services. Accordingly, the Company has assembled a diversified portfolio of assets encompassing radio broadcasting, television broadcasting and outdoor advertising. The Company plans to use this diversified collection of assets, along with the operating expertise of its management, to continue generating internal growth. The Company believes it can augment this internal growth with the opportunistic acquisition of additional media assets. Such potential acquisitions will be evaluated based on their strategic value to the Company, their potential to deliver attractive rates of return to the Company's shareholders, to add revenue and cash flow to its operating results, and to improve the performance of the Company's existing assets. Historically, the Company has been able to generate significant returns for its investors while maintaining financial flexibility through the prudent use of leverage. The Company believes that this prudent use of leverage has also contributed to the Company's relatively low cost of capital. The Company believes that focusing on its clients' goals, creating a sales-intensive operating organization, and maintaining a conservative financial position are synergistic aspects of its operating strategy. The Company believes that the potential exists for cooperation between its various business segments and that it can help its customers market their products and services more effectively and efficiently by offering greater flexibility in the choice of media outlets for marketing messages. The 3 4 Company is now able to offer additional advertising solutions for its customers in those markets where it simultaneously operates radio stations with television stations or outdoor advertising displays. In this way, the Company believes that its combination of assets will allow it to offer greater value to its customers. Additionally, the Company intends to use its various business segments to cross-promote one another when possible. Broadcast Strategy The Company's broadcast strategy is to identify and acquire under-performing stations on favorable terms and to utilize management's extensive operating experience to improve the performance of such stations through effective programming, reduction of costs, and aggressive promotion, marketing and sales. In addition, the Company employs a marketing strategy that emphasizes direct sales to local customers rather than through advertising agencies and other intermediaries. The Company believes that this focus has enabled its stations to achieve market revenue shares exceeding their audience shares. The Company believes that clustering broadcasting assets together in markets leads to substantial operating advantages. The Company attempts to cluster radio stations in each of its principal markets, and believes that by controlling a larger share of the total advertising inventory in a particular market, it can offer advertisers more attractive packages of advertising options. The Company also believes that its cluster approach will allow it to operate its stations with more highly skilled local management teams and eliminate duplicative operating and overhead expenses. Within its television group, the Company's goal is to own and program one station in each of its markets and to program an additional station under a Local Marketing Agreement ("LMA") in each such market. In seven of its television markets, the Company already programs an additional television station under an LMA. Outdoor Advertising Strategy The Company's outdoor advertising strategy is to expand its market presence in the outdoor advertising business and improve its operating results by (i) managing the advertising rates and occupancy levels of its displays to maximize market revenues; (ii) attracting new categories of advertisers to the outdoor medium through significant investments in sales and marketing resources; (iii) increasing focus on local advertising sales; (iv) constructing new displays and upgrading its existing displays; (v) taking advantage of technological advances which increase both sales force productivity and production department efficiency; (vi) acquiring additional displays in its existing markets and expanding into additional markets where the Company already has a broadcasting presence as well as into the country's largest media markets and their surrounding regional areas; and (vii) making opportunistic acquisitions of displays in new markets. The Company believes this strategy enhances its ability to effectively respond to advertisers' needs. To support this outdoor advertising operating strategy, the Company has decentralized its operating structure related to outdoor advertising in order to place authority, autonomy and accountability at the market level and provide local management with the tools necessary to oversee sales, display development, administration and production and to identify suitable acquisition candidates. The Company also maintains a fully-staffed sales and marketing office in New York which services national outdoor advertising accounts and supports the Company's local sales force in each market. The Company believes that one of its strongest competitive advantages is its unique blend of highly experienced corporate and local market management. 4 5 RECENT DEVELOPMENTS Grupo Acir Acquisition On March 12, 1998, the Company entered into a definitive agreement to acquire 40% of the equity of Grupo Acir Communicaciones, S.A. de C.V. ("Grupo Acir") for $57,500,000 (the "Grupo Acir Acquisition"). Grupo Acir is one of the largest radio broadcasters in Mexico. It owns or programs affiliations 164 stations serving 72 markets in Mexico. Of the 164 stations, 65 are owned and operated by Grupo Acir and 99 are affiliated with one of its eight national digital networks. Seven of these owned stations are located in Mexico City, Mexico's largest media market. Due to constraints under Mexican Law, the Company's investment is being made through a Mexican trustee which will vote the Company's shares. Consummation of the Grupo Acir Acquisition is subject to numerous closing conditions, including, without limitation, receiving all required regulatory approvals of the Mexican government. More Group Acquisition On March 5, 1998, the Company agreed to make a cash offer (the "More Group Acquisition") for all of the issued and to be issued shares of More Group Plc, an outdoor advertising company organized under the laws of the United Kingdom (the "More Group"), for j10.425 per share (approximately $17.20 per share on March 5, 1998). As of such date, the aggregate consideration for all of such shares was approximately $735.7 million. This offer was recommended to More Group shareholders by More Group's board of directors. More Group operates in 22 countries and has approximately 90,000 display faces, including approximately 50,000 street furniture panels and approximately 40,000 billboards. Consummation of the More Group Acquisition is subject to acceptance by the holders of at least 90% of the total shares of More Group or such lesser percentage as the Company may decide. This condition will not be satisfied unless the Company shall have acquired or agreed to acquire More Group shares carrying in aggregate more than 50% of the voting rights then exercisable at a general meeting of More Group. The More Group Acquisition is also subject to the receipt of all necessary approvals, including regulatory approvals, there being no material adverse change in the business of More Group and its subsidiaries taken as a whole, and numerous other conditions. Universal Outdoor Merger On October 23, 1997, the Company and Universal Outdoor Holdings, Inc. ("Universal") entered into a Merger Agreement (the "Merger Agreement"). Universal is a leading outdoor advertising company operating approximately 34,000 advertising display faces predominantly in the Midwest, Northeast and Southeast. Pursuant to the Merger Agreement, a wholly-owned subsidiary of the Company will be merged with and into Universal, with Universal continuing as the surviving corporation and a wholly owned subsidiary of the Company (the "Universal Merger"). On February 6, 1998, the stockholders of Universal voted to approve the Universal Merger. Subject to the terms and conditions of the Merger Agreement, each share of Universal common stock outstanding immediately prior to the consummation of the Universal Merger will be converted into 0.67 shares of the Company's Common Stock. Outstanding warrants and options to acquire shares of Universal common stock held by certain senior level employees of Universal will be canceled in exchange for shares of the Company's Common Stock. It is anticipated that approximately 19.3 million shares of the Company's Common Stock will be issued in the Universal Merger, representing approximately 15.7% of the shares of the Company's Common Stock expected to be outstanding after the Universal Merger. In connection with the Universal Merger, Daniel L. Simon, the current President and Chief Executive Officer of Universal, entered into an employment agreement with the Company pursuant to 5 6 which he will become, upon consummation of the Universal Merger, the Vice Chairman and Chief Operating Officer of Universal, Eller Media Corporation, a subsidiary of the Company ("Eller Media"), their respective subsidiaries and affiliate companies and any successor company or affiliates of the Company which are in the business of outdoor advertising. Consummation of the Universal Merger is subject to numerous closing conditions, including the receipt of all regulatory approvals and other necessary approvals. Paxson Radio Acquisition On October 1, 1997, the Company acquired six radio news and sports networks and approximately 350 outdoor advertising display faces from Paxson Communications Corp. ("Paxson"). On December 8, 1997, the Company acquired 43 radio stations from Paxson and certain affiliates of Paxson (the "Paxson Radio Acquisition"). The total purchase price for such acquisitions was approximately $629 million in cash. Prior to the consummation of the acquisition of the radio stations on December 8, 1997, the Company entered into a commercial time brokerage agreement with respect to most of such radio stations and commercial time sales agreements with respect to certain other radio stations. All of the radio stations and display faces referred to above are located in Florida except for four radio stations located in Tennessee. In connection with the acquisitions of seven of the radio stations from Paxson in the Jacksonville, Florida and the Mobile, Alabama/Pensacola, Florida markets, the Company received temporary waivers of the Federal Communications Commission's ("FCC") one-to-a-market rule which generally prohibits the common ownership of radio and television stations in the same market. Such waivers are conditioned upon the outcome of the FCC's pending ownership attribution rulemaking proceeding. Some divestitures could be required at the conclusion of the rulemaking proceeding. Should divestitures be necessary, the Company will be required to submit applications to the FCC seeking consent to sell any nonconforming stations within six months following finality of the rulemaking. On December 8, 1997, the Company acquired options from Paxson to purchase a radio station in Tampa, Florida and a radio station in Pensacola, Florida for a total of approximately $3 million in cash. The Company and Paxson are parties to commercial time sales agreements with respect to such stations. The Company presently intends to exercise its option to acquire the radio station in Tampa, Florida for approximately $1 million and has divested an existing radio station it owned in Tampa in order to obtain FCC approval of the exercise of such option. 6 7 Eller Media Acquisition On April 10, 1997, the Company acquired approximately 93% of the then outstanding stock of Eller Media for a total consideration of approximately $627 million, consisting of approximately $329 million in cash and 6,643,636 shares of the Company Common Stock (approximately $298 million in the Company Common Stock based on a price per share of $44.8625 per share) (the "Eller Media Acquisition"). Immediately following the consummation of the Eller Media Acquisition, the Company retired approximately $417 million of Eller Media's outstanding bank debt through borrowings under the Credit Facility. In addition, the Company issued options (with an estimated fair value of approximately $51 million) to purchase 1,468,182 shares of the Company Common Stock in connection with the assumption of Eller Media's outstanding stock options. The Company also agreed to issue 147,858 shares of Common Stock pursuant to certain phantom stock plan obligations assumed by the Company as part of the Eller Media Acquisition. The holders of the approximately 7% of the then outstanding capital stock of Eller Media not purchased by the Company have the right to require the Company to acquire such stock for 1,081,469 shares of the Company's Common Stock until April 10, 2002. From and after April 10, 2004 (or before such date upon the occurrence of certain events), the Company will have the right to acquire this minority interest stake in Eller Media for 1,081,469 shares of Common Stock. On April 29, 1997, Karl Eller, the Chief Executive Officer of Eller Media, was appointed to the Company's Board of Directors. Mr. Eller currently is employed by the Company to run Eller Media as a subsidiary of the Company pursuant to an employment contract which is due to expire on August 18, 1999. In addition, Mr. Eller and other members of the Eller Media management team have a significant stake in the Company's stock options through the conversion of existing Eller Media stock options into options to purchase the Company's Common Stock. Heftel Broadcasting Corporation On February 14, 1997, the Company's nonconsolidated affiliate, Heftel, then the largest Spanish language radio broadcasting company, completed a merger with Tichenor Media System, Inc. ("Tichenor" and the "Tichenor Merger"), then the third largest Spanish language radio broadcasting company. Following the Tichenor Merger, Heftel owns or programs 36 radio stations in 11 markets. As a result of the Tichenor Merger, the sale by the Company of 350,000 shares of Heftel's voting common stock and subsequent issuances of common stock by Heftel, the Company's total ownership interest in Heftel has been reduced to approximately 28.7% of the total outstanding common stock of Heftel (voting and non- voting). In the Tichenor Merger, all of the voting common stock of Heftel owned by the Company and shares of Tichenor's common stock owned by the Company were converted into shares of convertible nonvoting common stock of Heftel on a one- for-one basis in order to comply with the cross-interest policy of the Federal Communications Commission. See "-- Regulation of the Company's Business." Other Completed and Pending Acquisitions During the period from December 31, 1997 through March 12, 1998, the Company completed the acquisition of 21 additional radio stations for approximately $110.7 million in five markets and completed the acquisition of or obtained the rights to lease 4,592 display faces for approximately $103.5 million in nine markets. During the period from December 31, 1997 through March 12, 1998, in addition to the pending Universal Merger and More Group Acquisition, the Company entered into definitive agreements to purchase 16 display faces for approximately $2.2 million in four markets. In addition, acquisitions to purchase four additional radio stations for approximately $9.8 million in two markets are pending pursuant to definitive agreements executed prior to December 31, 1997. All of these acquisitions of broadcast properties are subject to the approval of the FCC and, in some cases, the Federal Trade 7 8 Commission (the "FTC") and the Antitrust Division of the United States Department of Justice (the "Antitrust Division"), as well as certain other closing conditions. Public Offerings On May 19, 1997, the Company completed the offering and sale of 5,093,790 shares of Common Stock in an underwritten public offering for a total of $279,564,544 in proceeds. On May 21, 1997, the Company sold an additional 1,000,000 shares of Common Stock in connection with the exercise of an underwriters' over-allotment option for a total of $47,334,000 in proceeds. On September 18, 1997, the Company completed the offering and sale of 8,000,000 shares of Common Stock in a block trade with Salomon Brothers Inc for a total of $504,000,000 in proceeds. On October 15, 1997, the Company completed the offering and sale of $300,000,000 aggregate principal amount of 7.25% Debentures due October 15, 2027 in an underwritten public offering for a total of $292,689,000 in proceeds. On March 30, 1998, the Company completed the offering and sale of 6,000,000 shares of Common Stock and $500,000,000 aggregate principal amount of 2.625% Senior Convertible Notes due April 1, 2003 in concurrent public offerings for a total of $578,160,000 and $492,500,000 in proceeds, respectively. The proceeds from the various offerings were used to repay borrowings outstanding under the Company's revolving credit facility, to finance acquisitions and for general corporate purposes. EMPLOYEES At January 1, 1998, the Company had approximately 5,400 domestic employees: 3,500 in radio operations, 800 in television operations, 1,000 in outdoor operations and 100 in corporate activities. INDUSTRY SEGMENTS The Company consists of three principal business segments -- radio broadcasting, television broadcasting and outdoor advertising. The radio segment includes both stations for which the Company is the licensee and stations for which the Company programs and/or sells air time under LMAs or joint sales agreements ("JSAs"). The radio segment also operates eleven networks. The television segment includes both television stations for which the Company is the licensee and stations programmed under LMAs. The outdoor advertising segment has advertising display faces in 15 major domestic markets. Information relating to the industry segments of the Company's operations, currently radio, television and outdoor for 1997, and radio and television for 1996 and 1995 is included in "Note K: Segment Data" in the Notes to Consolidated Financial Statements in the Company's Annual Report to Shareholders and hereby is incorporated by reference as well as the information set forth under "Radio Broadcasting," "Television Broadcasting" and "Outdoor Advertising." Radio Broadcasting The following table sets forth certain selected information with regard to each of the Company's 56 AM and 117 FM radio stations which it owned or programmed, or for which it sold airtime, as of December 31, 1997. 8 9
AM FM MARKET STATIONS STATIONS TOTAL ------ -------- -------- ----- ARKANSAS Little Rock . . . . . . . . . . . . . . . . . . . . . . -- 5 5 CALIFORNIA Monterrey . . . . . . . . . . . . . . . . . . . . . . . 2(a) 4(a) 6 CONNECTICUT New Haven . . . . . . . . . . . . . . . . . . . . . . . 2 1 3 FLORIDA Florida Keys . . . . . . . . . . . . . . . . . . . . . -- 3 3 Ft. Myers/Naples . . . . . . . . . . . . . . . . . . . 1 4 5 Jacksonville . . . . . . . . . . . . . . . . . . . . . 2 4 6 Miami/Ft. Lauderdale . . . . . . . . . . . . . . . . . 3 5 8 Orlando . . . . . . . . . . . . . . . . . . . . . . . . 2 4 6 Panama City . . . . . . . . . . . . . . . . . . . . . . 1 4 5 Pensacola . . . . . . . . . . . . . . . . . . . . . . . -- 2(b) 2 Tallahassee 1 4 5 Tampa/St. Petersburg . . . . . . . . . . . . . . . . . 4(c) 5 9 West Palm Beach . . . . . . . . . . . . . . . . . . . . 1 2 3 KENTUCKY Louisville . . . . . . . . . . . . . . . . . . . . . . 3 4 7 LOUISIANA New Orleans . . . . . . . . . . . . . . . . . . . . . . 2 5 7 MASSACHUSETTS Springfield . . . . . . . . . . . . . . . . . . . . . . 1 1 2 MICHIGAN Grand Rapids . . . . . . . . . . . . . . . . . . . . . 2 4 6 NEW YORK Albany . . . . . . . . . . . . . . . . . . . . . . . . 1(d) 3(d) 4 NORTH CAROLINA Winston-Salem . . . . . . . . . . . . . . . . . . . . . 1 2 3 Raleigh . . . . . . . . . . . . . . . . . . . . . . . . 1 4 5 OHIO Cleveland . . . . . . . . . . . . . . . . . . . . . . . 1 2 3 Dayton . . . . . . . . . . . . . . . . . . . . . . . 1(a) 2(a) 3 OKLAHOMA Oklahoma City . . . . . . . . . . . . . . . . . . . . . 3(c) 4 7 Tulsa . . . . . . . . . . . . . . . . . . . . . . . . . 2(c) 4(b)(c) 6 PENNSYLVANIA Lancaster . . . . . . . . . . . . . . . . . . . . . . . 1 1 2 Reading . . . . . . . . . . . . . . . . . . . . . . . . 1 1 2 RHODE ISLAND Providence . . . . . . . . . . . . . . . . . . . . . . -- 2 2 SOUTH CAROLINA Columbia . . . . . . . . . . . . . . . . . . . . . . . 1 3 4 TENNESSEE Cookeville . . . . . . . . . . . . . . . . . . . . . . 2 2 4 Memphis . . . . . . . . . . . . . . . . . . . . . . . . 3 4 7 TEXAS Austin . . . . . . . . . . . . . . . . . . . . . . . . 1 3 4 El Paso . . . . . . . . . . . . . . . . . . . . . . . . 1 2 3 Houston . . . . . . . . . . . . . . . . . . . . . . . . 3(e) 4(c) 7 San Antonio . . . . . . . . . . . . . . . . . . . . . . 2 3(b) 5 VIRGINIA Norfolk . . . . . . . . . . . . . . . . . . . . . . . . -- 4 4 Richmond . . . . . . . . . . . . . . . . . . . . . . . 3 3 6 WISCONSIN Milwaukee . . . . . . . . . . . . . . . . . . . . . . . 1 3 4 --- --- ---- Total . . . . . . . . . . . . . . . . . . . . 56 117 173 == === ===
_________________ (a) Stations programmed pursuant to an LMA (FCC licenses not owned by the Company). (b) Includes one station for which the Company sells airtime pursuant to a JSA (FCC license not owned by the Company). (c) Includes one station programmed pursuant to an LMA (FCC license not owned by the Company). (d) Stations owned by Radio Enterprises, Inc., in which the Company owns an 80% interest. (e) Includes two stations which are owned by CCC-Houston AM, Ltd., in which the Company owns an 80% interest. 9 10 The Company also owns the Kentucky News Network based in Louisville, Kentucky, the Virginia News Network based in Richmond, Virginia, the Oklahoma News Network based in Oklahoma City, Oklahoma, the Voice of Southwest Agriculture Network based in San Angelo, Texas, the Clear Channel Sports Network based both in College Station, Texas, and Des Moines, Iowa, the Alabama Radio Network based in Birmingham, Alabama, the Tennessee Radio Network based in Nashville, Tennessee, the University of Miami Sports Network based in Miami, Florida, the Florida Radio Network based in Orlando, Florida, the University of Florida Sports Network based in Gainesville, Florida and Orlando, Florida, and the Penn State Sports Network based in Trevose, Pennsylvania. In addition, the Company owns a 50% equity interest in the Australian Radio Network Pty, Ltd., which operates ten radio stations in Australia, a one-third equity interest in the New Zealand Radio Network, which operates 52 radio stations throughout New Zealand, a 50% equity interest in Radio Bonton, a.s., which operates a radio station in the Czech Republic, and a 32.3% non-voting equity interest in Heftel Broadcasting Corporation, a leading domestic Spanish- language broadcaster which operates 36 radio stations in the 11 domestic markets. The Company's radio stations employ various formats for their programming. A station's format is important in determining the size and characteristics of its listening audience. Advertising rates charged by a radio station are based primarily on the station's ability to attract audiences having certain demographic characteristics in the market area which advertisers want to reach, as well as the number of stations competing in the market. Advertisers often tailor their advertisements to appeal to selected population or demographic segments. The Company pays the cost of producing the programming for each station. Generally, the Company designs formats for its own stations, but has also used outside consultants and program syndicators for program material. Most of the Company's radio revenue is generated from the sale of local advertising. Additional revenue is generated from the sale of national advertising, network compensation payments and barter and other miscellaneous transactions. The Company has focused its sales effort on selling directly to local advertisers. Direct contact with its customers has aided the Company's sales personnel in developing long-standing customer relationships, which the Company believes are a competitive advantage. The Company's sales personnel are paid on a commission basis, which emphasizes this direct local focus. The Company believes that this focus has enabled some of its stations to achieve market revenue shares exceeding their audience shares in a given year. Each of the Company's radio stations also engages independent sales representatives to assist it in obtaining national advertising. The representatives obtain advertising through national advertising agencies and receive a commission from the Company based on the Company's net revenue from the advertising obtained. In February 1996, the Company formed an alliance with one of the nation's largest national advertising representation firms, whereby the firm will dedicate certain personnel to work exclusively for the Company's radio stations. The Company believes this arrangement will help its stations to achieve higher shares of national advertising revenue. The major costs associated with radio broadcasting are related to personnel and programming. In an effort to monitor these costs, corporate management routinely reviews staffing levels and programming costs. Combined with the centralized accounting functions, this monitoring enables the Company to effectively control expenses. Corporate management also advises local station managers on programming and other broad policy matters and is responsible for long-range planning, allocating resources and financial reporting and controls. 10 11 Television Broadcasting The following table sets forth certain selected information with regard to each of the Company's 18 television stations and one satellite station which it owned or programmed as of December 31, 1997.
NETWORK MARKET AFFILIATION ------ ----------- ALBANY/SCHENECTADY/TROY, NEW YORK WXXA-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX HARRISBURG/LEBANON/LANCASTER/YORK, PENNSYLVANIA WHP-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CBS WLYH-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN JACKSONVILLE, FLORIDA WAWS-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX WTEV-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN LITTLE ROCK, ARKANSAS KLRT-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX KASN-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN MEMPHIS, TENNESSEE WPTY-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ABC WLMT-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN MINNEAPOLIS, MINNESOTA WFTC-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX MOBILE, ALABAMA/PENSACOLA, FLORIDA WPMI-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NBC WJTC-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN PROVIDENCE/NEW BEDFORD, RHODE ISLAND WPRI-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CBS WNAC-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX TUCSON, ARIZONA KTTU-TV(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN TULSA, OKLAHOMA KOKI-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX KTFO-TV(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . UPN WICHITA, KANSAS KSAS-TV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX SALINA, KANSAS KAAS-TV(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . FOX
_________________ (a) LMA (FCC license not owned by the Company). (b) Station programmed by another party pursuant to an LMA. (c) Satellite station of KSAS-TV in Wichita, Kansas. The Company purchases the broadcast rights for the majority of its television programming for its Fox and UPN affiliates from various syndicators. The Company competes with other television stations within each market for these broadcast rights. These programming costs have declined in the past five years due to the decrease in the number of stations in the Company's markets competing for the same programming; however, they are expected to increase slightly in the foreseeable future. Moreover, the affiliation changes to NBC in Mobile, Alabama and to ABC in Memphis, Tennessee have reduced the Company's need to obtain outside programming. The primary sources of programming for the Company's affiliated television stations are their respective networks, which produce and distribute programming in exchange for each station's commitment to air the programming at specified times and for commercial announcement time during 11 12 the programming. For 1996, the Fox, NBC and ABC networks' primary programming was intended to appeal primarily to a target audience of 18-49 year old adults, while the CBS network's primary programming was intended to appeal primarily to a target audience of 25-54 year old adults. The second source of programming is the production of local news programming on the Fox, CBS, ABC and NBC affiliate stations in Jacksonville, Florida; Harrisburg, Pennsylvania; Memphis, Tennessee; Mobile, Alabama; Providence, Rhode Island; and Albany, New York, respectively. Local news programming traditionally has appealed to a target audience of adults 25 to 54 years of age. Because these viewers generally have increased buying power relative to viewers in other demographic groups, they are one of the most sought-after target audiences for advertisers. With such programming, these stations are able to attract advertisers to which they otherwise would not have access. Each Fox contract currently runs for a five year term expiring in 1998, except for the Fox contract for WXXA-TV Albany, New York, which expires in 1999, and may be renewed by Fox or the Company. Based on the performance of its Fox- affiliated stations to date, the Company expects it will continue to be able to renew its Fox contracts, although no assurances in this regard can be given. The network affiliation agreements with ABC (for WPTY-TV in Memphis, Tennessee, effective December 1, 1995), CBS (for WHP-TV in Harrisburg, Pennsylvania, renewed and effective December 18, 1995), NBC (for WPMI-TV in Mobile, Alabama, effective January 1, 1996) and UPN (for KTTU-TV in Tucson, Arizona, entered into in 1995) run for ten-year terms. Revenue is generated primarily from the sale of local and national advertising, as well as from fees received from the affiliate television networks. Advertising rates depend primarily on the quantitative and qualitative characteristics of the audience the Company can deliver to the advertiser. Local advertising is sold by the Company's sales personnel, while national advertising is sold by independent national sales representatives. The Company's broadcasting revenue is seasonal, with the fourth quarter typically generating the highest level of revenue and the first quarter typically generating the lowest. The fourth quarter generally reflects higher advertising in preparation for the holiday season and the effect of political advertising in election years. The Company's broadcasting results are dependent on a number of factors, including the general strength of the economy, population growth, ability to provide popular programming, relative efficiency of radio and television broadcasting compared to other advertising media, signal strength, technological capabilities and developments and governmental regulations and policies. The major costs associated with television broadcasting are related to personnel and programming. In an effort to monitor these costs, corporate management routinely reviews staffing levels and programming costs. Combined with the centralized accounting functions, this monitoring enables the Company to effectively control expenses. Corporate management also advises local station managers on programming and other broad policy matters and is responsible for long-range planning, allocating resources and financial reporting and controls. Outdoor Advertising Following the consummation of the Eller Media Acquisition, the Company, through its wholly owned subsidiary, Eller Media, became one of the largest domestic outdoor advertising companies based on its total advertising display faces. The following table sets forth certain selected information with regard to each of the Company's outdoor advertising display faces as of December 31, 1997: 12 13
TOTAL DISPLAY MARKET FACES(A) ------ -------- ARIZONA: Phoenix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359 CALIFORNIA: Los Angeles(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,863 San Francisco/Oakland(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,355 MIDWEST: Chicago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,838 Cleveland(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,258 Milwaukee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,187 SOUTHEAST: Atlanta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,628 Miami . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,052 Tampa(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,362 TEXAS: Dallas/Fort Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,110 El Paso . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,353 Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,214 San Antonio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,463 CONVENIENCE STORES: Various . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,921 UNION PACIFIC SOUTHERN PACIFIC(F): Various . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,697 ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,660 ======
_________________ (a) Display faces primarily include 20'x60' bulletins, 14 x48 bulletins, 12 x25 Premier Panels(TM), 25 x25 Premier Plus Panels(TM), 12 x25 30-sheet posters, 6 x12 8-sheet posters, and various transit displays. (b) Includes Los Angeles, San Diego, Orange, Riverside, San Bernardino and Ventura counties. (c) Includes San Francisco, Oakland, San Jose, Santa Cruz, Sacramento and Solano counties. (d) Includes Akron and Canton. (e) Includes Sarasota, Orlando and Bradenton. (f) Represents licenses managed under Union Pacific Southern Pacific License Management Agreement. The outdoor advertising industry is comprised of several large outdoor advertising and media companies with operations in multiple markets, as well as many smaller and local companies operating a limited number of structures in a single or few local markets. While the industry has experienced some consolidation within the past few years, the OAAA estimates that there are still approximately 1,000 companies in the outdoor advertising industry operating approximately 396,000 billboard displays. The Company expects the trend of consolidation in the outdoor advertising industry to continue. The Company's outdoor advertising strategy is to expand its market presence and improve its operating results by (i) managing the advertising rates and occupancy levels of its displays to maximize market revenues; (ii) attracting new categories of advertisers to the outdoor medium through significant investments in sales and marketing resources; (iii) increasing focus on local advertising sales; (iv) constructing new displays and upgrading its existing displays; (v) taking advantage of technological advances which increase both sales force productivity and production department efficiency; and (vi) acquiring additional displays in its existing markets and expanding into additional markets where the Company already has a broadcasting presence as well as into the country's largest media markets and 13 14 their surrounding regional areas. The Company believes this operating strategy enhances its ability to effectively respond to advertisers' needs. To support this operating strategy, the Company has decentralized its operating structure in order to place authority, autonomy and accountability for its outdoor advertising segment at the market level and provide local management with the tools necessary to oversee sales, display development, administration and production and to identify suitable acquisition candidates. The Company also maintains a fully-staffed sales and marketing office in New York which services national outdoor advertising accounts and supports the Company's local sales force in each market. The Company believes that one of its strongest competitive advantages is its unique blend of highly experienced corporate and local market management. The Company focuses its efforts on local sales. Local advertisers tend to have smaller advertising budgets and require greater assistance from the Company's production and creative personnel to design and produce advertising copy. In local sales, the Company often expends more sales efforts on educating customers regarding the benefits of outdoor media and helping potential customers develop an advertising strategy using outdoor advertising. While price and availability are important competitive factors, service and customer relationships are also critical components of local sales. The Company operates the following types of outdoor advertising billboards and displays: o Bulletins generally are 14 feet high by 48 feet wide (672 square feet wide) or 20 feet high by 60 feet wide (1,200 square feet) and consist of panels on which advertising copy is displayed. Bulletin advertising copy is either printed with computer-generated graphics on a single sheet of vinyl that is "wrapped" around the structure, or is hand painted and attached to the outdoor advertising structure. Bulletins also include "wallscapes" that are painted on vinyl surfaces or directly on the sides of buildings, typically four stories or less. Because of their greater impact and higher cost, bulletins are usually located on major highways and freeways. In addition, wallscapes are located on major freeways, commuter and tourist routes and in downtown business districts. o Premier Panels(TM) generally are 12 feet high by 25 feet wide (300 square feet) and have vinyl wrapped around the display face. Premier Panels(TM) are built on superior 30-sheet poster locations that deliver a "bulletin- like" display. The Company also offers unique Premier Plus(TM)panels, 25 feet high by 25 feet wide (625 square feet), that consist of two stacked 30-sheet posters which are converted into one larger individual display face. o 30-sheet posters generally are 12 feet high by 25 feet wide (300 square feet) and are the most common type of billboard. Advertising copy for 30-sheet posters consists of lithographed or silk-screened paper sheets supplied by the advertiser that are pasted and applied like wallpaper to the face of the display. Thirty-sheet posters are typically concentrated on major surface arteries. o 8-sheet posters usually are 6 feet high by 12 feet wide (72 square feet). Displays are prepared and mounted in the same manner as 30-sheet posters. Most 8-sheet posters, because of their smaller size, are concentrated on city streets targeting pedestrian traffic. o Transit displays are lithographed or silk-screened paper sheets located on bus and commuter train exteriors, commuter rail terminals, interior train cars, bus shelters and subway platforms. The Company's transit customers include the San Francisco Bay Area Rapid Transit (BART) and the Metropolitan Rail (METRA) in Chicago. Billboards generally are mounted on structures owned by the outdoor advertising company and located on sites that are either owned or leased by it or on which it has acquired a permanent easement. 14 15 Bus shelters are usually constructed, owned and maintained by the outdoor service provider under revenue-sharing arrangements with a municipality or transit authority. During 1997, the Company invested approximately $14.2 million for new display construction and for ongoing enhancement of its existing display inventory. Over 90% of the Company's bulletin inventory has been retrofitted for vinyl. Advertising rates are based on a particular display's exposure (or number of "impressions" delivered) in relation to the demographics of the particular market and its location within that market. The number of "impressions" delivered by a display is measured by the number of vehicles passing the site during a defined period and is weighted to give effect to such factors as its proximity to other displays, the speed and viewing angle of approaching traffic, the national average of adults riding in vehicles and whether the display is illuminated. The number of impressions delivered by a display is verified by independent auditing companies. The Company has a diversified customer base in its outdoor advertising segment of over 3,000 advertisers and advertising agency clients. The size and geographic diversity of the Company's markets allow it to attract national advertisers, often by packaging displays in several of its markets in a single contract to allow a national advertiser to simplify its purchasing process and present its message in several markets. National advertisers generally seek wide exposure in major markets and therefore tend to make larger purchases. The Company competes for national advertisers primarily on the basis of price, location of displays, availability and service. COMPETITION The Company's three business segments are in highly competitive industries. The Company's radio and television stations and outdoor advertising properties compete for audiences and advertising revenues with other radio and television stations and outdoor advertising companies, as well as with other media, such as newspapers, magazines, cable television, and direct mail, within their respective markets. Audience ratings and market shares are subject to change and any adverse change in a particular market could have a material adverse effect on the Company's revenue in that market. Future operations are subject to many variables which could have an adverse effect upon the Company's financial performance, including economic conditions, both general and relative to the broadcasting industry; shifts in population and other demographics; the level of competition for advertising dollars; fluctuations in operating costs; technological changes and innovations; changes in labor conditions; and changes in governmental regulations and policies and actions of federal regulatory bodies. There can be no assurance that the Company will be able to maintain or increase its current audience ratings and advertising revenues. REGULATION OF THE COMPANY'S BUSINESS Existing Regulation and 1996 Legislation Television and radio broadcasting are subject to the jurisdiction of the Federal Communications Commission ("FCC") under the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act prohibits the operation of a television or radio broadcasting station except under a license issued by the FCC and empowers the FCC, among other things, to issue, renew, revoke and modify broadcasting licenses; assign frequency bands; determine stations' frequencies, locations, and power; regulate the equipment used by stations; adopt other regulations to carry out the provisions of the Communications Act; impose penalties for violation of such regulations; and impose fees for processing applications and other administrative functions. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. Under the Communications Act, the FCC also regulates certain aspects of the operation of cable television systems and other electronic media that compete with broadcast stations. 15 16 The Telecommunications Act of 1996 ("the 1996 Act") represented the most comprehensive overhaul of the country's telecommunications laws in more than 60 years. The Communications Act originated at a time when telephone and broadcasting technologies were quite distinct and addressed different consumer needs. As a consequence, both the statute and its implementing regulatory scheme were designed to compartmentalize the various sectors of the telecommunications industry. The 1996 Act removed or relaxed the statutory barriers to telephone company ("telephone company") entry into the video programming delivery business, to cable company provision of telephone service, and to common ownership of broadcast television and cable properties. The 1996 Act also significantly changed both the process for renewal of broadcast station licenses and the broadcast ownership rules. First, the 1996 Act established a "two-step" renewal process that limits the FCC's discretion to consider applications filed in competition with an incumbent's renewal application. The 1996 Act also substantially liberalized the national broadcast ownership rules, eliminating the national radio limits and easing the national restrictions of TV ownership. The 1996 Act also relaxed local radio ownership restrictions, but left local TV restrictions in place pending further FCC review. The FCC has already implemented some of these changes through Commission Orders. This new regulatory flexibility has engendered aggressive local, regional, and/or national acquisition campaigns. Removal of previous station ownership limitations on leading incumbents (i.e., existing networks and major station groups) has increased sharply the competition for and the prices of attractive stations. License Grant and Renewal Prior to the passage of the 1996 Act, television and radio broadcasting licenses generally were granted or renewed for a period of five and seven years, respectively, upon a finding by the FCC that the "public interest, convenience, and necessity" would be served thereby. At the time an application is made for renewal of a television or radio license, parties in interest may file petitions to deny the application, and such parties, including members of the public, may comment upon the service the station has provided during the preceding license term. In addition, prior to passage of the 1996 Act, any person was permitted to file a competing application for authority to operate on the station's channel and replace the incumbent licensee. Renewal applications were granted without a hearing if there were no competing applications or if issues raised by petitioners to deny such applications were not serious enough to cause the FCC to order a hearing. If competing applications were filed, a full comparative hearing was required. Under the 1996 Act, the statutory restriction on the length of broadcast licenses has been amended to allow the FCC to grant broadcast licenses for terms of up to eight years. The 1996 Act also requires renewal of a broadcast license if the FCC finds that (1) the station has served the public interest, convenience, and necessity; (2) there have been no serious violations of either the Communications Act or the FCC's rules and regulations by the licensee; and (3) there have been no other serious violations which taken together constitute a pattern of abuse. In making its determination, the FCC may still consider petitions to deny but cannot consider whether the public interest would be better served by a person other than the renewal applicant. Instead, under the 1996 Act, competing applications for the same frequency may be accepted only after the Commission has denied an incumbent's application for renewal of license. Although in the vast majority of cases broadcast licenses are granted by the FCC even when petitions to deny are filed against them, there can be no assurance that any of the Company's stations' licenses will be renewed. 16 17 Multiple Ownership Restrictions The FCC has promulgated rules that, among other things, limit the ability of individuals and entities to own or have an official position or ownership interest above a certain level (an "attributable" interest, as defined more fully below) in broadcast stations, as well as other specified mass media entities. Prior to the passage of the 1996 Act, these rules included limits on the number of radio and television stations that could be owned on both a national and local basis. On a national basis, the rules generally precluded any individual or entity from having an attributable interest in more than 20 AM radio stations, 20 FM radio stations and 12 television stations. Moreover, the aggregate audience reach of the co-owned television stations could not exceed 25% of all U.S. television households. The 1996 Act completely revised the television and radio ownership rules via changes the FCC implemented in two orders issued on March 8, 1996. With respect to television, the 1996 Act and the FCC's subsequently issued orders eliminated the 12-station limit for station ownership and increased the national audience reach limitation from 25% to 35%. On a local basis, however, the 1996 Act did not alter current FCC rules limiting an individual entity to maintaining an attributable interest in only one television station in a market. The 1996 Act did require the FCC to conduct a rulemaking proceeding, however, to determine whether to narrow the geographic scope of the local television cross-ownership rule (the so-called "TV duopoly rule") to permit some two-station combinations in certain (large) markets. At the time of the passage of the 1996 Act, the FCC had already initiated a rulemaking to consider whether the television duopoly rule should be retained, modified or eliminated. That proceeding remains pending. With respect to radio licensees, the 1996 Act and the FCC's subsequently issued rule changes eliminated the national ownership restriction, allowing any one entity to own nationally any number of AM or FM broadcast stations. The 1996 Act and the FCC's new rules also greatly eased local radio ownership restrictions. As with the old rules, the maximum allowable varies depending on the number of radio stations within a market. In markets with more than 45 stations, one company may own, operate, or control eight stations, with no more than five in any one service (AM or FM). In markets of 30-44 stations, one company may own seven stations, with no more than four in any one service; in markets with 15-29 stations, one entity may own six stations, with no more than four in any one service. In markets with 14 commercial stations or less, one company may own up to five stations or 50% of all of the stations, whichever is less, with no more than three in any one service. In 1992, the FCC placed limitations on LMAs through which the licensee of one radio station provides the programming for another licensee's station in the same market. Stations operating in the same service (e.g., where both stations are AM) and in the same market are prohibited from simulcasting more than 25% of their programming. Moreover, in determining the number of stations that a single entity may control, an entity programming a station pursuant to an LMA is required, under certain circumstances, to count that station toward its maximum even though it does not own the station. In a pending rulemaking, the FCC is seeking comment on issues of control and attribution with respect to time brokerage agreements or LMAs entered into by television stations. A number of cross-ownership rules pertain to licensees of television and radio stations. FCC rules, the Communications Act or both generally prohibit an individual or entity from having an attributable interest in both a television station and a radio station, daily newspaper or cable television system that is located in the same local market area served by the television station. The FCC has employed a liberal waiver policy with respect to the TV/radio cross-ownership restriction (the so-called "one-to-a-market" rule), generally permitting common ownership of one AM, one FM and one TV station in any of the 25 largest markets, provided there are at least 30 separately owned stations remaining after the proposed sale. The 1996 Act directed the Commission to extend its one-to-a-market waiver policy to the top 50 markets, consistent with the public interest, convenience and necessity. Moreover, in a pending rulemaking the FCC has proposed eliminating the one-to-a-market rule entirely. 17 18 The 1996 Act eliminated a statutory prohibition against common ownership of television broadcast stations and cable systems serving the same area, but left the current FCC rule in place. The 1996 Act stipulates that the FCC should not consider the repeal of the statutory ban in any review of its applicable rules. The legislation also eliminated the FCC's former network/cable cross-ownership limitations, but allowed the FCC to adopt regulations if necessary to ensure carriage, appropriate channel positioning, and nondiscriminatory treatment of non-affiliated broadcast stations on network-owned cable systems. The FCC eliminated the restriction and determined that additional safeguards were not necessary at this time. The 1996 Act does not alter the FCC's newspaper/broadcast cross-ownership restrictions. However, the FCC is considering whether to change the policy pursuant to which it considers waivers of the radio/newspaper cross-ownership rule. Finally, the 1996 Act and the FCC's subsequently issued rule changes revised the long-standing "dual network" rule to permit television broadcast stations to affiliate with an entity that maintains two or more networks, unless the combination is composed of (a) two of the four existing networks (ABC, CBS, NBC or Fox) or (b) any of the four existing networks and one of the two emerging networks (WBN or UPN). Expansion of the Company's broadcast operations in particular areas and nationwide will continue to be subject to the FCC's ownership rules and any further changes the FCC or Congress may adopt. Significantly, the 1996 Act requires the Commission to review its remaining ownership rules biennially as part of its regulatory reform obligations to determine whether its various rules are still necessary. The first such biennial review commenced March 13, 1998, with the FCC's adoption of a notice of inquiry soliciting comment on its ownership rules. The Company cannot predict the impact of the biennial review process or any other agency or legislative initiatives upon the FCC's broadcast rules. Further, the 1996 Act's relaxation of the FCC's ownership rules has increased the level of competition in one or more of the markets in which the Company's stations are located. Under the FCC's ownership rules, a direct or indirect purchaser of certain types of securities of the Company could violate FCC regulations if that purchaser owned or acquired an "attributable" or "meaningful" interest in other media properties in the same areas as stations owned by the Company or in a manner otherwise prohibited by the FCC. All officers and directors of a licensee, as well as general partners, limited partners who are not properly "insulated" from management activities, and stockholders who own five percent or more of the outstanding voting stock of a licensee (either directly or indirectly), generally will be deemed to have an attributable interest in the license. Certain institutional investors who exert no control or influence over a licensee may own up to ten percent of such outstanding voting stock before attribution occurs. Under current FCC regulations, debt instruments, non-voting stock, properly insulated limited partnership interests (as to which the licensee certifies that the limited partners are not "materially involved" in the management and operation of the subject media property) and voting stock held by minority stockholders in cases in which there is a single majority stockholder generally are not subject to attribution. The FCC's "cross-interest" policy, which precludes an individual or entity from having a "meaningful" (even though not attributable) interest in one media property and an attributable interest in a broadcast, cable or newspaper property in the same area, may be invoked in certain circumstances to reach interests not expressly covered by the multiple ownership rules. A rulemaking proceeding pending at the FCC is designed to permit a "thorough review of [its] broadcast media attribution rules." Among the issues on which comment was sought were (i) whether to change the voting stock attribution benchmarks from five percent to ten percent and, for passive investors, from ten percent to twenty percent; (ii) whether there are any circumstances in which non-voting stock interests, which are currently considered non-attributable, should be considered attributable; (iii) whether the FCC should eliminate its single majority shareholder exception (pursuant to which voting interests in excess of five percent are not considered recognizable if a single shareholder owns 18 19 more than fifty percent of the voting power); (iv) whether to relax insulation standards for business development companies and other widely-held limited partnerships; (v) how to treat limited liability companies and other new business forms for attribution purposes; (vi) whether to eliminate or codify the cross-interest policy; and (vii) whether to adopt a new policy which would consider whether multiple cross interests or other significant business relationships (such as time brokerage agreements, debt relationships or holdings of nonattributable interests), which individually do not raise concerns, raise issues with respect to diversity and competition. The Commission also is to consider whether to make debt attributable in certain instances as well as the circumstances, if any, in which television LMAs should be considered to be an attributable interest. The Company cannot predict with certainty when this proceeding will be concluded or whether any of these standards will be changed. Should the attribution rules be changed, the Company is unable to predict what effect, if any, such changes would have on the Company or its activities. To the best of the Company's knowledge at present, no officer, director or five percent stockholder of the Company holds an interest in another television station, radio station, cable television system or daily newspaper that is inconsistent with the FCC's ownership rules and policies or the Company's continued ownership of its television stations. Alien Ownership Restrictions The Communications Act restricts the ability of foreign entities or individuals to own or hold certain interests in broadcast licenses. Foreign governments, representatives of foreign governments, non-U.S. citizens, representatives of non-U.S. citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-U.S. citizens, collectively, may directly or indirectly own or vote up to twenty percent of the capital stock of a licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by non-U.S. citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before a broadcast license may be granted to or held by any such corporation, and the FCC has made such an affirmative finding only in limited circumstances. The Company, which serves as a holding company for subsidiaries that serve as licensees for the stations, therefore may be restricted from having more than one-fourth of its stock owned or voted directly or indirectly by non-U.S. citizens, foreign governments, representatives of non- foreign governments, or foreign corporations. The Communications Act previously also prohibited grant of a broadcast station license (i) to any corporation with an alien officer or director, or (ii) to any corporation controlled by another corporation with any alien officers or more than one-fourth alien directors. The restrictions on non-U.S. citizens serving as officers or directors of licensees and their parent corporations were eliminated, however, by the 1996 Act. Other Regulations Affecting Broadcast Stations The FCC has significantly reduced its past regulation of broadcast stations, including elimination of formal ascertainment requirements and guidelines concerning amounts of certain types of programming and commercial matter that may be broadcast. In 1990, the U.S. Supreme Court refused to review a lower court decision that upheld the FCC's 1987 action invalidating most aspects of the Fairness Doctrine, which had required broadcasters to present contrasting views on controversial issues of public importance. The FCC may, however, continue to regulate other aspects of fairness obligations in connection with certain types of broadcasts. The United States Court of Appeals for the District of Columbia Circuit has scheduled for oral argument on May 8, 1998 a petition of the Radio and Television New Directors Association and the National Association of Broadcasters seeking to repeal the FCC's personal attack and political editorial rules. In addition, 19 20 there are FCC rules and policies, and rules and policies of other federal agencies, that regulate matters such as network-affiliate relations, the ability of stations to obtain exclusive rights to air syndicated programming, cable systems' carriage of syndicated and network programming on distant stations, political advertising practices, equal employment opportunity, application procedures and other areas affecting the business or operations of broadcast stations. The FCC has adopted rules to implement the Children's Television Act of 1990 ("Children's Television Act"), which, among other provisions, limits the permissible amount of commercial matter in children's programs and requires each television station to present "educational and informational" children's programming. The FCC also has adopted renewal processing guidelines effectively requiring television stations to broadcast an average of three hours per week of children's educational programming. In addition, the FCC has adopted rules that require television stations to broadcast, over an 8 to 10 year transition period which commenced on January 1, 1998, increasing and set percentages of closed captioned programming. The closed captioning rules are currently under reconsideration at the FCC. Recent Developments, Proposed Legislation and Regulation In January 1996, the Supreme Court refused to review lower court decisions that upheld the FCC's restrictions on the broadcast of indecent material and also upheld the agency's policy of imposing substantial monetary sanctions on repeat offenders of the indecency rules. The rules require stations to limit the airing of indecent programming to a 10 p.m.-6 a.m. "safe harbor" period. On March 13, 1998, the FCC approved a television programming rating system developed by the television industry which will allow parents to "black-out" programs that contain material they consider inappropriate for children. On March 13, 1998, the FCC also adopted technical requirements for the implementation of the so-called "v-chip technology" which will enable parents to program television sets so that certain programming will be inaccessible to children. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation and ownership of the Company's broadcast properties. In addition to the changes and proposed changes noted above, such matters include, for example, the license renewal process, spectrum use fees, political advertising rates, potential restrictions on the advertising of certain products (beer and wine, for example), the rules and policies to be applied in enforcing the FCC's equal employment opportunity regulations, and additional closed captioning requirements for emergency information. Other matters that could affect the Company's broadcast properties include technological innovations and developments generally affecting competition in the mass communications industry, such as the recent initiation of direct broadcast satellite service, the continued establishment of wireless cable systems and low power television stations, and the advent of telephone company participation in the provision of video programming service. Distribution of Video Services by Telephone Companies. Recent actions by Congress, the FCC and the courts all presage significant future involvement in the provision of video services by telephone companies. The Company cannot predict either the timing or the extent of such involvement. These developments all relate to a former provision of the Communications Act that prohibited a local telephone company from providing video programming directly to subscribers within the company's telephone service areas. As applied by government regulators historically, the former provision prevented telephone companies from providing cable service over either the telephone network or a separate cable system located within the telephone service area. That provision has now been superseded by the 1996 Act, which provides for telephone company entry into the distribution of video services either under the laws and rules applicable to cable systems as operators of so-called "wireless cable 20 21 systems", as common carriers or under new rules devised by the FCC for "open video systems" subject to certain common carrier requirements. The 1996 Act also eliminated the FCC's "video dialtone" ("VDT") rules, which allowed telephone companies to provide a transport "platform" to multiple video programmers (including, potentially, competing program packages) on a non-discriminatory, common carrier basis. (The legislation does not affect any VDT systems approved prior to enactment of the 1996 Act). Congress instead has determined that telephone companies may offer video programming either as a traditional cable operator, as a so-called "wireless cable" operator, as a common carrier, or through operation of an "open video system." Although Congress specifically preempted the FCC's VDT rules, the legislation's directives for open video systems resemble the rules adopted or proposed for VDT systems in certain respects. These include the requirements that (1) the operator of an open video system offer carriage capacity to various video programming providers under nondiscriminatory rates, terms, and conditions; and (2) if demand for carriage exceeds the channel capacity of the open video system, the operator generally is barred from devoting more than one-third of the system's capacity to programming provided by itself or an affiliate. The 1992 Cable Act. On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"). The FCC began implementing the requirements of the 1992 Cable Act in 1993, and final implementation proceedings remain pending regarding certain of the rules and regulations previously adopted. Certain statutory provisions, such as signal carriage, retransmission consent, and equal employment opportunity requirements, have a direct effect on television broadcasting. Other provisions are focused exclusively on the regulation of cable television but can still be expected to have an indirect effect on the Company because of the competition between over-the-air television stations and cable systems. The signal carriage, or "must carry," provisions of the 1992 Cable Act require cable operators to carry the signals of local commercial and non-commercial television stations and certain low power television stations. Systems with 12 or fewer usable activated channels and more than 300 subscribers must carry the signals of at least three local commercial television stations. A cable system with more than 12 usable activated channels, regardless of the number of subscribers, must carry the signals of all local commercial television stations, up to one-third of the aggregate number of usable activated channels of such a system. The 1992 Cable Act also includes a retransmission consent provision that prohibits cable operators and other multi-channel video programming distributors ("MVPDs") from carrying broadcast signals without obtaining the station's consent in certain circumstances. The "must carry" and retransmission consent provisions are related in that a local television broadcaster, on a cable system-by-cable system basis, must make a choice once every three years whether to proceed under the "must carry" rules or to waive the right to mandatory but uncompensated carriage and negotiate a grant of retransmission consent to permit the cable system to carry the station's signal, in most cases in exchange for some form of consideration from the cable operator. Cable systems and other MVPDs must obtain retransmission consent to carry all distant commercial stations other than "super stations" delivered via satellite. On March 31, 1997, in a 5-4 decision, the U.S. Supreme court upheld the constitutionality of the must-carry provisions of the 1992 Cable Act. As a result, the regulatory scheme promulgated by the FCC to implement the must-carry provisions of the 1992 Cable Act will remain in effect. Whether and to what extent such must-carry rights will extend to the new digital television signals (see below) to be broadcast by licensed television stations (including those owned by the Company) over the next several years is still a matter to be determined in a rulemaking proceeding likely to be initiated by the FCC in 1998. 21 22 The 1992 Cable Act also codified the FCC's basic equal employment opportunity ("EEO") rules and the use of certain EEO reporting forms currently filed by radio and television broadcast stations. In addition, pursuant to the 1992 Cable Act's requirements, the FCC has adopted new rules providing for a review of the EEO performance of each broadcast station at the mid-point of its license term (in addition to renewal time). Such a review will give the FCC an opportunity to evaluate whether the licensee is in compliance with the FCC's processing criteria and notify the licensee of any deficiency in its employment profile. Among the other rulemaking proceedings conducted by the FCC to implement provisions of the 1992 Cable Act have been those concerning cable rate regulation, cable technical standards, cable multiple ownership limits and competitive access to programming. The 1992 Cable Act was amended in several important respects by the 1996 Act. Most notably, as discussed above, the 1996 Act repealed the cross-ownership ban between cable and telephone entities and the FCC's current video dialtone rules. These provisions, among others, foreshadow significant future involvement in the provision of video services by telephone companies. The Company cannot predict the impact that telephone company entry into video programming will have upon the broadcasting industry. The 1996 Act also repealed or curtailed several cable-related ownership and cross-ownership restrictions. For example, as noted above, the 1996 Act eliminated the broadcast network/cable cross-ownership limitations and the statutory prohibition on TV/cable cross-ownership. Advanced Television Service. On April 3, 1997, the FCC announced that it had adopted rules that will allow television broadcasters to provide digital television ("DTV") to consumers. The FCC also adopted a table of allotments for DTV, which will provide eligible existing broadcasters with a second channel on which to provide DTV service. On February 23, 1998, in response to numerous petitions for reconsideration, the FCC announced its adoption of orders affirming, with some modifications, the FCC's April 3, 1997 decisions. The FCC's DTV allotment plan is based on the use of a "core" DTV spectrum between channels 2-51. Ultimately, the FCC plans to recover the channels currently used for analog broadcasting and will decide at a later date the use of the spectrum ultimately recovered. Television broadcasters will be allowed to use their channels according to their best business judgment. Such uses can include multiple standard definition program channels, data transfer, subscription video, interactive materials, and audio signals, although broadcasters will be required to provide a free digital video programming service that is at least comparable to today's analog service. Broadcasters will not be required to air "high definition" programming or, initially, to simulcast their analog programming on the digital channel. Affiliates of ABC, CBS, NBC and FOX in the top 10 television markets will be required to be on the air with a digital signal by May 1, 1999. Affiliates of those networks in markets 11-30 will be required to be on the air with digital by November 1, 1999, and remaining commercial broadcasters by May 1, 2002. The FCC stated that broadcasters will remain public trustees and that it will issue a notice to determine the extent of broadcasters' future public interest obligations. The Company will incur considerable expense in the conversion of DTV and is unable to predict the extent of timing of consumer demand for any such DTV services. Digital Audio Radio Service. In January 1995, the FCC adopted rules to allocate spectrum for satellite digital audio radio service ("DARS"). Satellite DARS systems potentially could provide for regional or nationwide distribution of radio programming with fidelity comparable to compact disks. An auction for satellite DARS spectrum was held in April 1997, and the Commission has issued two authorizations to launch and operate satellite DARS service. The FCC also has undertaken an inquiry into the terrestrial broadcast of DARS signals, addressing, among other things, the need for spectrum outside the existing FM band and the role of existing broadcasters. Further, laboratory testing of a 22 23 number of competing in-band on-channel DARS technologies, has been done with many of the systems progressing to the next stage of field testing. The Company cannot predict the impact of either satellite DARS service or terrestrial DARS service on its business. Direct Broadcast Satellite Systems. The FCC has authorized the provision of video programming directly to home subscribers through high-powered direct broadcast satellites ("DBS"). DBS systems currently are capable of broadcasting as many as 175 channels of digital television service directly to subscribers equipped with 18-inch receive dishes and decoders. Currently, several entities, including DirecTV, Inc., an affiliate of Hughes Communications Galaxy, United States Satellite Broadcasting Company and EchoStar Satellite Corporation ("EchoStar"), provide DBS service to consumers throughout the country. Other DBS operators hold licenses, but have not yet commenced service. Generally, the signal of local television broadcast stations are not carried on DBS systems. In early 1997, however, EchoStar and ASkyB, a joint venture of MCI Telecommunications and The News Corporation, proposed to launch a 500-channel service, including local broadcast signals. Although the proposed transaction collapsed, the desire among some DBS providers to retransmit local television station signals continues. In response to a petition by EchoStar, the United States Copyright Office has opened a proceeding to determine whether local retransmission of television station signals to subscribers within those stations' local markets is permissible under a separate compulsory copyright license available to satellite distributors. EchoStar has started distributing local signals to major markets, via either off- air antenna to served households or via satellite to unserved households. Following the collapse of the deal to merge ASkyB into EchoStar, MCI agreed to sell its DBS authorization to PRIMESTAR Partners, LP, a fixed satellite service similar to DBS, in which the country's five largest cable operators have interests. The transaction has been opposed and regulatory approval for the deal is pending. In February 1998, the FCC initiated a rulemaking proceeding to consider streamlining rules for the DBS service and to consider whether rules should be adopted to limit or prohibit the common ownership of cable and DBS interests. As part of the 1996 Act, Congress required the FCC to promulgate regulations to prohibit restrictions that impair a viewer's ability to receive video programming services through over-the-air reception devices, multipoint distribution service, or direct broadcast satellite services. The legislation also awarded the FCC exclusive jurisdiction to regulate the provision of direct-to-home satellite services, and limited the authority of local jurisdictions to tax direct-to-home satellite service providers. The foregoing does not purport to be a complete summary of all the provisions of the Communications Act, the 1996 Act, or the 1992 Cable Act, nor of the regulations and policies of the FCC thereunder. Proposals for additional or revised regulations and requirements are pending before and are being considered by Congress and federal regulatory agencies from time to time. Also, various of the foregoing matters are now, or may become, the subject of court litigation, and the Company cannot predict the outcome of any such litigation or the impact on its broadcast business. Outdoor Advertising The outdoor advertising industry is subject to governmental regulation at the federal, state and local level. Federal law, principally the Highway Beautification Act of 1965, encourages states, by the threat of withholding federal appropriations for the construction and improvement of highways within 23 24 such states, to implement legislation to restrict billboards located within 660 feet of, or visible from, interstate and primary highways except in commercial or industrial areas. All of the states have implemented regulations at least as restrictive as the Highway Beautification Act, including the prohibition on the construction of new billboards adjacent to federally-aided highways and the removal at the owner's expense and without any compensation of any illegal signs on such highways. The Highway Beautification Act, and the various state statutes implementing it, require the payment of just compensation whenever governmental authorities require legally erected and maintained billboards to be removed from federally-aided highways. The states and local jurisdictions have, in some cases, passed additional and more restrictive regulations on the construction, repair, upgrading, height, size and location of, and, in some instances, content of advertising copy being displayed on outdoor advertising structures adjacent to federally-aided highways and to other thoroughfares. Such regulations, often in the form of municipal building, sign or zoning ordinances, specify minimum standards for the height, size and location of billboards. In some cases, the construction of new billboards or relocation of existing billboards is prohibited. Some jurisdictions also have restricted the ability to enlarge or upgrade existing billboards, such as converting from wood to steel or from non-illuminated to illuminated structures. From time to time governmental authorities order the removal of billboards by the exercise of eminent domain. Amortization of billboards has also been adopted in varying forms in certain jurisdictions. Amortization permits the billboard owner to operate its billboard as a non-conforming use for a specified period of time, after which it must remove or otherwise conform its billboards to the applicable regulations at its own cost without any compensation. Amortization and other regulations requiring the removal of billboards without compensation have been subject to litigation in state and federal courts and cases have reached differing conclusions as to the constitutionality of these regulations. Some local jurisdictions, within the Company's existing markets (Houston and San Francisco) have adopted amortization ordinances. The Houston ordinance has been the subject of litigation for over five years and is currently not being enforced. The Company believes that its operations will not be materially effected by this ordinance even if it is enforced. The Company's operations have not been materially affected by the San Francisco amortization ordinances since its signs conform to effective ordinances and state law currently prevents the effectiveness of other ordinances which require removal of signs without compensation. There can be no assurance that the Company will be successful in negotiating acceptable arrangements in circumstances in which its displays are subject to removal or amortization, and what effect, if any, such regulations may have on the Company's operations. In addition, the Company is unable to predict what additional regulations may be imposed on outdoor advertising in the future. Legislation regulating the content of billboard advertisements and additional billboard restrictions have been introduced in Congress from time to time in the past. Changes in laws and regulations affecting outdoor advertising at any level of government could have a material adverse effect on the Company. Tobacco and Alcohol Advertising In August 1996, the U.S. Food and Drug Administration ("FDA") issued final regulations governing certain marketing practices in the tobacco industry, including a prohibition of tobacco product billboard advertisements within 1,000 feet of schools and playgrounds and a requirement that all tobacco product advertisements on billboards be in black and white and contain only text. These regulations, which were due to become effective in August 1997, were challenged by members of the tobacco and advertising industry in a lawsuit brought in North Carolina federal district court. In that case, the court upheld the authority of the FDA to regulate tobacco products by limiting access of such products to persons under 18 years of age and by requiring tobacco manufacturers to label such products in accordance with FDA regulations. Nevertheless, the court struck down the FDA restrictions on the 24 25 promotion and advertising of tobacco products. Both industry and the FDA have appealed this decision. Arguments before the Fourth Circuit were heard on August 11, 1997, and it is unclear what action an appellate court will take in this matter. To date, the FDA's regulations covering promotion and advertising of tobacco products have not become effective and no decision by the court has been reached. On a pro forma basis assuming the Eller Media Acquisition occurred on January 1, 1997, less than 12% and 5% of the Company's outdoor advertising 1997 net revenues were derived from tobacco and alcohol advertising, respectively. Regardless of whether the FDA is found to have jurisdiction over promotion and advertising of tobacco, and thus have the ability to place limits on billboard advertising, it appears that the FTC has begun to take regulatory action in this area. The FTC has wide-ranging authority over advertising practices, and it is within its regulatory authority to investigate unfair and deceptive trade practices, including advertising, pertaining to FDA-regulated products. In May 1997, the FTC charged the R.J. Reynolds Company ("R.J. Reynolds") with unfair trade practices regarding the promotion of tobacco products to children through the use of the "Joe Camel" advertising campaign. The FTC sought an order that would, among other things, prohibit R.J. Reynolds from using the "Joe Camel" campaign to advertise to children and require R.J. Reynolds to institute corrective advertising to discourage persons under age 18 from smoking. In July 1997, it was reported that R.J. Reynolds decided to terminate the "Joe Camel" campaign. The remaining issues in the litigation are still pending. While the action against R.J. Reynolds was not focused directly on billboard advertising, because of increasing regulatory and political pressure it is possible that the FTC will take further action to limit the content and placement of outdoor advertising, including, without limitation, the content and placement of outdoor advertising relating to the sale of tobacco products to children. Outdoor advertising of tobacco products also may be affected by state law or city regulations. For example, California and Texas have passed legislation to restrict tobacco billboard advertising near locations frequented by children. The Texas law levies a tax on tobacco billboards to raise money for tobacco education programs. As a result of law suits brought in Texas and Florida, several tobacco companies have entered settlement agreements with these respective state governments. Part of the settlement agreement in Texas includes the elimination of billboard and other outdoor advertising of tobacco products. This agreement may be superseded by the national settlement agreement pending before Congress. The settlement agreement in Florida also calls for the discontinuation of all billboard advertising for tobacco products in the state. The Florida ban on billboard advertising reportedly went into effect on February 9, 1998. Other states are considering state-wide bans on tobacco billboard advertising or may do so in the future. With regard to city governments, in 1995, the Court of Appeals for the Fourth Circuit upheld the validity of a Baltimore, Maryland city ordinance prohibiting the placement of outdoor advertisements of cigarettes in publicly visible locations, such as billboards, signboards and sides of buildings. Subsequently, the United States Supreme Court declined to review an appeal of this case. Following the Baltimore ordinance, several city governments have introduced legislation to ban outdoor tobacco advertising near schools and other locations where children are likely to assemble or to ban tobacco billboard advertising citywide. The City of Chicago, Illinois where the Company transacts business, has recently enacted a ban on tobacco and alcohol billboard advertising in certain parts of the city. The Chicago ordinance is being challenged in court on constitutional free-speech grounds. In addition, the City Council of New York City, New York recently passed a bill which bars outdoor tobacco advertising within 1,000 feet of schools, playgrounds, day care centers, youth centers and amusement arcades. Some cities are proposing even broader restrictions. For instance, a San Francisco, California Board of Supervisors committee recently proposed a complete ban on outdoor tobacco advertising, including a ban on billboards, kiosks and even private business window displays. Milwaukee, Wisconsin has proposed an ordinance that would ban outdoor advertising for tobacco products in most public 25 26 places, except interstate highways, industrial areas, and sport and convention sites. The Milwaukee ordinance also would prohibit convenience stores from displaying tobacco-related posters in windows and would limit tobacco-related signs inside stores to black and white ads with no artwork. County governments also have taken action in this area. A local council in Anne Arundel County, Maryland voted to ban most tobacco billboard advertising in the county. Similarly, Clark and Skamania counties in Washington State have issued regulations prohibiting tobacco billboard advertising from areas that youths frequent, such as schools and parks. Finally, King County, Washington and a company that owns almost all of the billboard display faces in the county have entered into an agreement whereby the company will voluntarily discontinue all tobacco advertising on billboards throughout the county. It is likely that other state, city, or local governments have or will pass similar ordinances to limit outdoor advertising of tobacco products in the future. In addition to the decisions mentioned above, certain cigarette manufacturers who are defendants in numerous class action suits throughout the U.S. have proposed an out of court settlement with respect to such suits that includes restrictions on billboard advertising by these and other cigarette manufacturers. It has been reported that, as a part of the proposed settlement, the tobacco industry will agree to a complete ban on all outdoor advertising, such as on billboards, in stadiums, and in store window displays. The proposed settlement agreement is pending before Congress. President Clinton and Congressional leaders have met to discuss bipartisan cooperation on tobacco control legislation in an effort to work out a compromise. It appears that restrictions on tobacco billboard advertising may be implemented through legislation, although some have argued that it would be unconstitutional for Congress to impose such restrictions without the consent of the tobacco industry. If legislation is not enacted, it is likely that restrictions on billboard advertising nevertheless will be achieved through consensual agreement between the tobacco industry and state and federal governments. There can be no assurance as to the effect of these regulations, potential legislation or settlement discussions on the Company's business and on their net revenues and financial position. A reduction in billboard advertising by the tobacco industry would cause an immediate reduction in the Company's direct revenue from such advertisers and would simultaneously increase the available space on the existing inventory of billboards in the outdoor advertising industry. This could in turn result in a lowering of outdoor advertising rates in each of the Company's outdoor advertising markets or limit the ability of industry participants to increase rates for some period of time. Any regulatory change or settlement agreement restricting the Company's or the tobacco industry's ability to utilize outdoor advertising for tobacco products could have a material adverse effect on the Company. Antitrust Matters An important element of the Company's growth strategy involves the acquisition of additional radio and television stations and outdoor advertising display faces, many of which are likely to require preacquisition antitrust review by the Federal Trade Commission (the "FTC") and the Antitrust Division of the United States Department of Justice (the "Antitrust Division"). Following passage of the 1996 Act, the Antitrust Division has become more aggressive in reviewing proposed acquisitions of radio stations and radio station networks, particularly in instances where the proposed acquirer already owns one or more radio stations in a particular market and the acquisition involves another radio station in the same market. Recently, the Antitrust Division has obtained consent decrees requiring an acquirer to dispose of at least one radio station in a particular market where the acquisition otherwise would have resulted in a concentration of market share by the acquirer. There can be no assurance that the Antitrust Division or the FTC will not seek to bar the Company from acquiring additional radio stations or outdoor 26 27 advertising display faces in a market where the Company's existing stations or display faces already have a significant market share. Environmental Matters As the owner, lessee or operator of various real properties and facilities, the Company is subject to various federal, state and local environmental laws and regulations. Historically, compliance with such laws and regulations has not had a material adverse effect on the Company's business. There can be no assurance, however, that compliance with existing or new environmental laws and regulations will not require the Company to make significant expenditures in the future. INTERNATIONAL BUSINESS RISKS AND EXCHANGE RATE RISK The Company currently derives a portion of its earnings from international operations. The risks of doing business in foreign countries include potential adverse changes in the diplomatic relations of foreign countries with the United States, hostility from local populations, adverse effects of currency exchange controls, restrictions on the withdrawal of foreign investment and earnings, government policies against businesses owned by non-nationals, expropriations of property, the potential instability of foreign governments and the risk of insurrections that could result in losses against which the Company is not insured. The Company's international operations also are subject to economic uncertainties, including, among others, risks of renegotiation or modification of existing agreements or arrangements with governmental authorities, foreign exchange restrictions and changes in taxation structure. A portion of the Company's earnings are derived from international operations and a portion of the Company's assets are invested overseas. Accordingly, fluctuations in the values of foreign currencies and in the value of the U.S. dollar may cause currency translation losses for the Company or reduced earnings, or both. The Company cannot predict the effect of exchange rate fluctuations upon future operating results. CERTAIN FORWARD-LOOKING STATEMENTS This report, including the documents incorporated by reference, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "1933 Act"). Discussions containing such forward- looking statements may be found in the material set forth under "Business," as well as within the report generally. In addition, when used in this report, the words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially from those described in the forward-looking statements as a result of the risk factors set forth herein and the matters set forth in this report generally. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. ITEM 2. PROPERTIES The Company's corporate headquarters is in San Antonio, Texas. The lease agreement for the approximately 12,000 square feet of office space in San Antonio expires on February 28, 2001. The types of properties required to support each of the Company's radio and television stations and outdoor advertising branches listed in Item 1 above include offices, studios, transmitter sites, antenna sites and production facilities. A radio or television station's studios are generally housed with its offices in 27 28 downtown or business districts. A radio or television station's transmitter sites and antenna sites generally are located in a manner that provides maximum market coverage. An outdoor branch and production facility is generally located in an industrial/warehouse district. The studios and offices of the Company's radio and television stations and outdoor advertising branches are located in leased or owned facilities. These leases generally have expiration dates that range from one to twenty years. The Company either owns or leases its transmitter and antenna sites. These leases generally have expiration dates that range from five to fifteen years. The Company does not anticipate any difficulties in renewing those leases that expire within the next several years or in leasing other space, if required. The Company owns substantially all of the equipment used in its broadcasting and outdoor businesses. The Company owns or has permanent easements on relatively few parcels of real property that serve as the sites for its outdoor displays. The Company's remaining outdoor display sites are leased. The Company's leases are for varying terms ranging from month-to-month or year-to-year to terms of ten years or longer, and many provide for renewal options. There is no significant concentration of displays under any one lease or subject to negotiation with any one landlord. The Company believes that an important part of its management activity is to negotiate suitable lease renewals and extensions. As noted in Item 1 above, as of December 31, 1997, the Company owns or programs 173 radio stations and 18 television stations, and owns or leases approximately 57,660 outdoor advertising display faces in various markets throughout the United States. See "Business -- Industry Segments." Therefore, no one property is material to the Company's overall operations. The Company believes that its properties are in good condition and suitable for its operations. ITEM 3. LEGAL PROCEEDINGS The Company from time to time becomes involved in various claims and lawsuits incidental to its business, including defamation actions. In the opinion of management, after consultation with counsel, any ultimate liability arising out of currently pending claims and lawsuits will not have a material effect on the financial condition or operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders in the fourth quarter of fiscal year 1997. 28 29 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by Item 5 is included in "Note M: Quarterly Results of Operations" to the Company's Consolidated Financial Statements in the Company's Annual Report to Shareholders and is incorporated herein by reference. There were approximately 466 shareholders of record as of March 6, 1998. Presently, the Company expects to retain its earnings for the development and expansion of its business and does not anticipate paying cash dividends in 1998. However, any future decision by the Board of Directors to pay cash dividends will depend, among other factors, the Company's earnings, financial position, capital requirements and loan covenant restrictions. The Company's current bank credit agreement allows for the payment of dividends subject to certain loan covenant restrictions. There are no restrictions on dividends payable wholly in capital stock of the Company. At March 6, 1998 the market price of the Company's Common Stock was $94.25 per share. ITEM 6. SELECTED FINANCIAL DATA The information required by Item 6 is incorporated by reference to the information set forth under the caption "Selected Financial Data" in the Company's Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by Item 7 is included in the information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report to Shareholders and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information required by Item 7A. is included in the information set for the under the caption "Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report to Shareholders and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by Item 8 and the Report of Independent Auditors is included in the "1997 Financial Report" in the Company's Annual Report to Shareholders and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable 29 30 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company believes that one of its most important assets is its experienced management team. With respect to its operations, general managers are responsible for the day-to-day operation of their respective broadcasting stations or outdoor branch locations. The Company believes that the autonomy of its general managers enables it to attract top quality managers capable of implementing the Company's aggressive marketing strategy and reacting to competition in the local markets. Most general managers have stock options in the Company. As an additional incentive, a portion of each manager's compensation is related to the performance of the profit centers for which he or she is responsible. In an effort to monitor expenses, corporate management routinely reviews staffing levels and operating costs. Combined with the centralized accounting functions, this monitoring enables the Company to control expenses effectively. Corporate management also advises local general managers on broad policy matters and is responsible for long-range planning, allocating resources, and financial reporting and controls. The information required by Item 10 with respect to the directors and nominees for election to the Board of Directors of the Company is incorporated by reference to the information set forth under the caption "Election of Directors" and "Compliance With Section 16(A) of the Exchange Act," in the Company's Definitive Proxy Statement dated March 24, 1998. The following information is submitted with respect to the executive officers of the Company as of December 31, 1997.
Age on December 31, Officer Name 1997 Position Since L. Lowry Mays 62 Chairman/Chief Executive Officer 1972 Mark P. Mays 34 President 1989 Randall T. Mays 32 Executive Vice President/Chief Financial Officer 1993 Herbert W. Hill, Jr. 38 Senior Vice President/Chief Accounting Officer 1989 Kenneth E. Wyker 36 Vice President/Legal Affairs 1993 S. Houston Lane IV 25 Vice President/Finance 1997 J. Stanley Webb 54 Senior Vice President/Radio Operations 1984 George Sosson 47 Senior Vice President/Radio Operations 1996 James D. Smith 49 Senior Vice President/Capital Asset Management 1984 Dave Ross 47 Vice President/GM WHYI-FM, WBGG-FM 1994 William R. Riordan 40 Exec. Vice President/COO Clear Channel Television 1990 Karl Eller 69 Chief Executive Officer - Eller Media 1997 Scott Eller 41 President - Eller Media 1997 Paul Meyer 55 Executive Vice President/ General Counsel - Eller Media 1997 Timothy Donmoyer 32 Executive Vice President/ Chief Financial Officer - Eller Media 1997
The officers named above serve until the next Board of Directors meeting immediately following the Annual Meeting of Shareholders. Mr. L. Mays is the founder of the Company and was the President and Chief Executive Officer of the Company and its predecessor from 1972 to February 1997. Since that time, Mr. L. Mays has 30 31 served as Chairman and Chief Executive Officer of the Company. He has been a director of the Company since its inception. Mr. M. Mays was Senior Vice President of Operations from February 1993 until his appointment as President in February 1997. Prior thereto he was Vice President and Treasurer of the Company for the remainder of the relevant five- year period. Mr. R. Mays was appointed Executive Vice President/Chief Financial Officer in February 1997. Prior thereto, he was Vice President/Treasurer since he joined the Company in January 1993. Prior thereto, he was an associate for Goldman Sachs & Co. for the remainder of the relevant five-year period. Mr. H. Hill was appointed Senior Vice President/Chief Accounting Officer in February 1997. Prior thereto, he was the Vice President/Controller of the Company since January 1989 and Principal Financial Officer since June 1991 Mr. K. Wyker was appointed Senior Vice President for Legal Affairs in February 1997. Prior thereto he was Vice President/General Counsel since he joined the Company in July 1993. Prior thereto, he was Corporate Counsel at Greater Media for the remainder of the relevant five-year period. Mr. H. Lane was appointed Vice President/Finance in February 1997. Prior thereto, he was an analyst with Credit Suisse First Boston from July 1995 to February 1997. Prior thereto, he was a student at the University of Texas for the remainder of the relevant five-year period. Mr. J. Stanley Webb was appointed Senior Vice President/Radio Operations in May, 1996. Prior thereto, he was Vice President/General Manager of the Company's radio stations in Austin, Texas for the remainder of the relevant five-year period. Mr. George Sosson was appointed Senior Vice President/Radio Operations in August 1996. He was an equity investor and managing General Partner of Radio Equity Partners, LP from 1993 to the time he joined the Company. Prior thereto, he was Vice President responsible for the operations of all of the FM radio stations owned by CBS for the remainder of the relevant five-year period. Mr. J. Smith was appointment as Senior Vice President/Capital Management in January 1997. Prior thereto, he was Vice President/General Manager of the Company's radio stations in Tulsa, Oklahoma for the remainder of the relevant five-year period. Mr. D. Ross, was elected as an officer of the Company in October 1994. Prior thereto, he was Executive Vice President and General Manager of WHYI-FM with Metroplex Communications, Inc. for the remainder of the relevant five-year period. Mr. W. Riordan was appointed Executive Vice President and Chief Operating Officer of Clear Channel Television, Inc. in November 1995. Prior thereto, he was General Manager of WFTC-TV from August 1993 to November 1995. Prior thereto, he served as General Manager of KSAS-TV for the relevant five-year period. Mr. K. Eller was appointed Chief Executive Officer - Eller Media in April 1997. Prior thereto, he was the Chief Executive Officer of Eller Media Company from August 1995 to April 1997 and he was the Chief Executive Officer of Eller Outdoor Advertising for the remainder of the relevant five-year period. Mr. S. Eller was appointed President - Eller Media in April 1997. Prior thereto, he was the President of Eller Media Company from August 1996 to April 1997. Prior thereto, he as the Executive 31 32 Vice President of Eller Media Company from August 1995 to August 1996. Prior thereto, he was the Executive Vice President of Eller Outdoor Advertising for the remainder of the relevant five-year period Mr. P. Meyer was appointed Executive Vice President/General Counsel - Eller Media in April 1997. Prior thereto, he was Executive Vice President and General Counsel of Eller Media Company from April 1996 to April 1997. Prior thereto, he was Managing Partner of Meyer, Hendricks, Bivens & Moyes, LLC., and its predecessor law firms for the remainder of the relevant five-year period. Mr. T. Donmoyer was appointed Executive Vice President/Chief Financial Officer - Eller Media in April 1997. Prior thereto, he was Executive Vice President and Chief Financial Officer of Eller Media Company from October 1995 to April 1997. Prior thereto, he was an Associate Director of Bear, Stearns & Co., Inc. for the remainder of the relevant five-year period. There is no family relationship between any of the executive officers of the Company except that Mark P. Mays, President/COO and Randall T. Mays, Executive Vice President/CFO, are the sons of the Chairman/CEO, L. Lowry Mays. In addition, Scott Eller, President of Eller Media is the son of the Chief Executive Officer of Eller Media, Karl Eller. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference to the information set forth under the caption "Executive Compensation" in the Company's Definitive Proxy Statement dated March 24, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference to the Company's Definitive Proxy Statement dated March 24, 1998 under the headings "Security Ownership of Certain Beneficial Owners and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference to the Company's Definitive Proxy Statement dated March 24, 1998 under the heading "Certain Transactions." 32 33 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a)1. Financial Statements. The following consolidated financial statements included in the Company's Annual Report to Shareholders are incorporated by reference in Item 8. Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Earnings for the Years Ended December 31, 1997, 1996 and 1995. Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995. Notes to Consolidated Financial Statements (a)2. Financial Statement Schedule. The following financial statement schedule of the Company for the years ended December 31, 1997, 1996 and 1995 and related report of independent auditors are filed as part of this report and should be read in conjunction with the consolidated financial statements. 33 34 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Allowance for doubtful accounts In thousands of dollars
Charges Balance at to Costs, Write-off Balance Beginning Expenses of Accounts at end of Description of period and other Receivable Period ----------- ---------- --------- ---------- --------- $1,004(1) 2,352 Year ended December 31, 1995 $3,118 $3,356 $2,664 $3,810 ------- ------- ------- ------- $2,880(1) 2,376 Year ended December 31, 1996 $3,810 $5,256 $2,999 $6,067 ------- ------- ------- ------- $4,251(1) 4,006 Year ended December 31, 1997 $6,067 $8,257 $4,474 $9,850 ------- ------- ------- -------
(1) Allowance for accounts receivable acquired in acquisitions net of deletions related to dispositions. 34 35 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Accumulated Amortization of Intangibles In thousands of dollars
Charges Balance at to Costs, Balance Beginning Expenses at end of Description of period and other Deletions (1) Period ----------- ---------- --------- ------------- --------- Year ended December 31, 1995 $33,862 $18,389 $ 59 $52,192 ------- ------- ------- ------- Year ended December 31, 1996 $52,192 $26,454 $78,646 ------- ------- ------- ------- Year ended December 31, 1995 $78,646 $62,507 $ 87 $141,066 ------- ------- ------- -------
(1) Related to disposition of stations and fully amortized intangible assets. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a)3. Exhibits.
EXHIBIT NUMBER DESCRIPTION 2.1 Agreement and Plan of Merger dated as of October 23, 1997, among Universal Outdoor Holdings, Inc., the Company, and UH Merger Sub, Inc. (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated November 3, 1997). 3.1 Current Articles of Incorporation of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 3.2 Second Amended and Restated Bylaws of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
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EXHIBIT NUMBER DESCRIPTION 4.1 Buy-Sell Agreement by and between Clear Channel Communications, Inc., L. Lowry Mays, B. J. McCombs, John M. Schaefer and John W. Barger, dated May 31, 1977 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1 (Reg. No. 33-289161) dated April 19, 1984). 4.2 Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York as Trustee (incorporated by reference to exhibit 4.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.1 Incentive Stock Option Plan of Clear Channel Communications, Inc. as of January 1, 1984 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1 (Reg. No. 33-289161) dated April 19, 1984). 10.2 Australia Radio Network Shareholders Agreement dated February 1995 by and between APN Broadcasting Investments Pty Ltd, Australian Provincial Newspapers Holdings Limited, APN Broadcasting Pty Ltd, Clear Channel Radio, Inc. and Clear Channel Communications, Inc. (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated May 26, 1995). 10.3 Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.4 Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.5 Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.6 Option Agreement for Officer (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.7 Asset Purchase Agreement, dated as of May 9, 1996, by and among REP New England G.P., REP Southeast G.P., REP Ft. Myers G.P., REP Rhode Island G.P., REP Florida G.P., REP WHYN G.P., REP WWBB G.P., S.E. Licensee G.P., REP WCKT G.P., RI Licensee G.P., Radio Station Management, Inc., Clear Channel Radio, Inc., and Clear Channel Radio Licenses, Inc. (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated June 5, 1996). 10.8 Tender Offer Agreement dated June 1, 1996 by and between Clear Channel Radio, Inc. and Heftel Broadcasting Corporation (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 dated June 14, 1996). 10.9 Stock Purchase Agreement dated June 1, 1996 by and between Clear Channel Radio, Inc. and Heftel Broadcasting Corporation dated June 1, 1996 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 dated June 14, 1996).
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EXHIBIT NUMBER DESCRIPTION 10.10 Employment Agreement dated February 10, 1997 by and between Clear Channel Communications, Inc. and L. Lowry Mays (incorporated by reference to exhibit 10.12 of the Company's Annual Report on Form 10-K dated March 31, 1997). 10.11 Stock Purchase Agreement dated February 25, 1997 by and among Clear Channel Communications, Inc., Eller Media Corporation and the Stockholders of Eller Media Corporation (incorporated by reference to the exhibits of the Company's Annual Report on Form 10-K dated March 31, 1997). 10.12 Amendment to Stock Purchase Agreement dated April 10, 1997 by and between Clear Channel Communications, Inc., Eller Media Corporation and the Stockholders of Eller Media Corporation (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated April 17, 1997). 10.13 Registration Rights Agreement dated April 10, 1997 by and between Clear Channel Communications, Inc. and the Stockholders of Eller Media Corporation (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated April 17, 1997). 10.14 Stockholders Agreement dated April 10, 1997 by and between Clear Channel Communications, Inc. and EM Holdings LLC (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated April 17, 1997). 10.15 Escrow Agreement dated April 10, 1997 by and between Clear Channel Communications, Inc., EM Holdings LLC and Chase Trust Company of California (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated April 17, 1997). 10.16 Third Amended and Restated Credit Agreement by and among Clear Channel Communications, Inc., NationsBank of Texas, N.A., as administrative lender, the First National Bank of Boston, as documentation agent, the Bank of Montreal and Toronto Dominion (Texas), Inc., as co-syndication agents, and certain other lenders dated April 10, 1997 (the "Credit Facility") (incorporated by reference to the exhibits of the Company's Amendment No. 1 to the Registration Statement on Form S-3 (Reg. No. 333-25497) dated May 9, 1997). 10.17 Asset Purchase Agreement dated August 25, 1997 by and among Paxson Communications Corporation, Clear Channel Metroplex, Inc., Clear Channel Metroplex Licenses, Inc. and Clear Channel Communications, Inc. (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 10.18 Asset Purchase Agreement dated August 25, 1997 by and among Paxson Communications Corporation, L. Paxson, Inc., Clear Channel Metroplex, Inc., Clear Channel Metroplex Licenses, Inc. and Clear Channel Communications, Inc. (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997).
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EXHIBIT NUMBER DESCRIPTION 10.19 First Amendment to the Credit Facility dated September 17, 1997 (incorporated by reference to exhibit 4.1 to the Company's Current Report on Form 8-K filed October 14, 1997). 10.20 Voting Agreement dated as of October 23, 1997 by and among Clear Channel Communications, Inc. and Daniel L. Simon (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated November 3, 1997). 10.21 Voting Agreement dated as of October 23, 1997 by and among Clear Channel Communications, Inc. and Daniel L. Simon (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated November 3, 1997). 10.22 Resale Agreement dated as of October 23, 1997 by and among Clear Channel Communications, Inc. and Brian T. Clingen (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-4 (Reg. No. 333-43747) dated January 5, 1998). 10.23 Second Amendment to the Credit Facility dated November 7, 1997. 10.24 Third Amendment to the Credit Facility dated December 29, 1997. 13 Annual Report to Shareholders. 21 Subsidiaries of the Company. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of KPMG. 23.3 Consent of KPMG Peat Marwick LLP. 24 Power of Attorney (included on signature page) 27 Financial Data Schedule 99.1 Report of Independent Auditors on Financial Statement Schedule - Ernst & Young LLP. 99.2 Report of Independent Auditors - KPMG 99.3 Report of Independent Auditors - KPMG Peat Marwick LLP
(b) Reports on Form 8-K. The Company filed a report on Form 8-K dated October 14, 1997 which reported that the Company had amended its Third Amended and Restated Credit Agreement to eliminate the requirement that the Company's Restricted Subsidiaries execute Subsidiary Guarantees. The Company filed a report on Form 8-K dated October 31, 1997 which reported that the Company had entered into a Agreement and Plan of Merger with Universal Outdoor Holdings, Inc. 38 39 pursuant to which a wholly-owned subsidiary of the Company would be merged with and into Universal Outdoor Holdings, Inc. with Universal Outdoor Holdings, Inc. surviving the merger and becoming a wholly-owned subsidiary of the Company. The Universal Merger is described under the caption "Recent Developments" in Item 1 of Part I of this Form 10-K. The Company filed a report on Form 8-K dated December 22, 1997 which reported the Company's acquisition of substantially all of the assets of 43 radio stations, six radio news and sports networks and approximately 350 outdoor advertising display faces owned by Paxson Communications Corporation in the states of Florida and Tennessee. The report included the Combined Balance Sheet of Paxson Radio, a division of Paxson Communications Corporation ("Paxson Radio"), at December 31, 1996, and the related Combined Statement of Operations and Divisional Equity and Combined Statement of Cash Flows for the year ended December 31, 1996, with a Report of Independent Certified Public Accountants dated November 3, 1997. Also included were unaudited quarterly financial information including the Combined Balance Sheet of Paxson Radio at September 30, 1997, and the related Combined Statement of Operations and Divisional Equity and Combined Statement of Cash Flows for the nine months ended September 30, 1997 and 1996. Also included were an unaudited pro forma condensed consolidated balance sheet of the Company and its subsidiaries at December 31, 1996, unaudited pro forma condensed consolidated statements of operations of the Company and its subsidiaries for the year ended December 31, 1996 and the nine months ended September 30, 1997. The Paxson Radio Acquisition is described under the caption "Recent Developments" in Item 1 of Part I of this Form 10-K. 39 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 30, 1998. CLEAR CHANNEL COMMUNICATIONS, INC. By: /s/ L. Lowry Mays L. Lowry Mays Chairman and Chief Executive Officer Each person whose signature appears below authorizes L. Lowry Mays, Mark P. Mays, Randall T. Mays and Herbert W. Hill, Jr., or any one of them, each of whom may act without joinder of the others, to execute in the name of each such person who is then an officer or director of the Registrant and to file any amendments to this annual report on Form 10-K necessary or advisable to enable the Registrant to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such changes in such report as such attorney-in-fact may deem appropriate. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /S/ L. Lowry Mays Chairman, Chief Executive Officer and Director March 30, 1998 L. Lowry Mays /S/ Randall T. Mays Senior Vice President and Chief Financial March 30, 1998 Randall T. Mays Officer (Principal Financial Officer) /S/ Herbert W. Hill, Jr. Senior Vice President and Chief Accounting March 30, 1998 Herbert W. Hill, Jr. Officer (Principal Accounting Officer) /S/ B. J. McCombs Director March 30, 1998 B. J. McCombs /S/ Allan D. Feld Director March 30, 1998 Alan D. Feld /S/ Theodore H. Strauss Director March 30, 1998 Theodore H. Strauss /S/ John H. Williams Director March 30, 1998 John H. Williams /S/ Karl Eller Director March 30, 1998 Karl Eller
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EXHIBIT NUMBER DESCRIPTION 2.1 Agreement and Plan of Merger dated as of October 23, 1997, among Universal Outdoor Holdings, Inc., the Company, and UH Merger Sub, Inc. (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated November 3, 1997). 3.1 Current Articles of Incorporation of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 3.2 Second Amended and Restated Bylaws of the Company (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 4.1 Buy-Sell Agreement by and between Clear Channel Communications, Inc., L. Lowry Mays, B. J. McCombs, John M. Schaefer and John W. Barger, dated May 31, 1977 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1 (Reg. No. 33-289161) dated April 19, 1984). 4.2 Senior Indenture dated October 1, 1997, by and between Clear Channel Communications, Inc. and The Bank of New York as Trustee (incorporated by reference to exhibit 4.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.1 Incentive Stock Option Plan of Clear Channel Communications, Inc. as of January 1, 1984 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1 (Reg. No. 33-289161) dated April 19, 1984). 10.2 Australia Radio Network Shareholders Agreement dated February 1995 by and between APN Broadcasting Investments Pty Ltd, Australian Provincial Newspapers Holdings Limited, APN Broadcasting Pty Ltd, Clear Channel Radio, Inc. and Clear Channel Communications, Inc. (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated May 26, 1995). 10.3 Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.4 Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.5 Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995).
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EXHIBIT NUMBER DESCRIPTION 10.6 Option Agreement for Officer (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-8 dated November 20, 1995). 10.7 Asset Purchase Agreement, dated as of May 9, 1996, by and among REP New England G.P., REP Southeast G.P., REP Ft. Myers G.P., REP Rhode Island G.P., REP Florida G.P., REP WHYN G.P., REP WWBB G.P., S.E. Licensee G.P., REP WCKT G.P., RI Licensee G.P., Radio Station Management, Inc., Clear Channel Radio, Inc., and Clear Channel Radio Licenses, Inc. (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated June 5, 1996). 10.8 Tender Offer Agreement dated June 1, 1996 by and between Clear Channel Radio, Inc. and Heftel Broadcasting Corporation (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 dated June 14, 1996). 10.9 Stock Purchase Agreement dated June 1, 1996 by and between Clear Channel Radio, Inc. and Heftel Broadcasting Corporation dated June 1, 1996 (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 dated June 14, 1996). 10.10 Employment Agreement dated February 10, 1997 by and between Clear Channel Communications, Inc. and L. Lowry Mays (incorporated by reference to exhibit 10.12 of the Company's Annual Report on Form 10-K dated March 31, 1997). 10.11 Stock Purchase Agreement dated February 25, 1997 by and among Clear Channel Communications, Inc., Eller Media Corporation and the Stockholders of Eller Media Corporation (incorporated by reference to the exhibits of the Company's Annual Report on Form 10-K dated March 31, 1997). 10.12 Amendment to Stock Purchase Agreement dated April 10, 1997 by and between Clear Channel Communications, Inc., Eller Media Corporation and the Stockholders of Eller Media Corporation (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated April 17, 1997). 10.13 Registration Rights Agreement dated April 10, 1997 by and between Clear Channel Communications, Inc. and the Stockholders of Eller Media Corporation (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated April 17, 1997). 10.14 Stockholders Agreement dated April 10, 1997 by and between Clear Channel Communications, Inc. and EM Holdings LLC (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated April 17, 1997). 10.15 Escrow Agreement dated April 10, 1997 by and between Clear Channel Communications, Inc., EM Holdings LLC and Chase Trust Company of California (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated April 17, 1997). 10.16 Third Amended and Restated Credit Agreement by and among Clear Channel Communications, Inc., NationsBank of Texas, N.A., as administrative lender, the First National Bank of Boston, as documentation agent, the Bank of Montreal and Toronto Dominion (Texas), Inc., as co-syndication agents, and certain other lenders dated April 10, 1997 (the "Credit Facility") (incorporated by reference to the exhibits of the Company's Amendment No. 1 to the Registration Statement on Form S-3 (Reg. No. 333-25497) dated May 9, 1997).
42 43
EXHIBIT NUMBER DESCRIPTION 10.17 Asset Purchase Agreement dated August 25, 1997 by and among Paxson Communications Corporation, Clear Channel Metroplex, Inc., Clear Channel Metroplex Licenses, Inc. and Clear Channel Communications, Inc. (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 10.18 Asset Purchase Agreement dated August 25, 1997 by and among Paxson Communications Corporation, L. Paxson, Inc., Clear Channel Metroplex, Inc., Clear Channel Metroplex Licenses, Inc. and Clear Channel Communications, Inc. (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-3 (Reg. No. 333-33371) dated September 9, 1997). 10.19 First Amendment to the Credit Facility dated September 17, 1997 (incorporated by reference to exhibit 4.1 to the Company's Current Report on Form 8-K filed October 14, 1997). 10.20 Voting Agreement dated as of October 23, 1997 by and among Clear Channel Communications, Inc. and Daniel L. Simon (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated November 3, 1997). 10.21 Voting Agreement dated as of October 23, 1997 by and among Clear Channel Communications, Inc. and Daniel L. Simon (incorporated by reference to the exhibits of the Company's Current Report on Form 8-K dated November 3, 1997). 10.22 Resale Agreement dated as of October 23, 1997 by and among Clear Channel Communications, Inc. and Brian T. Clingen (incorporated by reference to the exhibits of the Company's Registration Statement on Form S-4 (Reg. No. 333-43747) dated January 5, 1998). 10.23 Second Amendment to the Credit Facility dated November 7, 1997. 10.24 Third Amendment to the Credit Facility dated December 29, 1997. 13 Annual Report to Shareholders. 21 Subsidiaries of the Company. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of KPMG. 23.3 Consent of KPMG Peat Marwick LLP. 24 Power of Attorney (included on signature page) 27 Financial Data Schedule 99.1 Report of Independent Auditors on Financial Statement Schedule - Ernst & Young LLP. 99.2 Report of Independent Auditors - KPMG 99.3 Report of Independent Auditors - KPMG Peat Marwick LLP
43 EX-10.23 2 2ND AMENDMENT TO CREDIT FACILITY DATED 11/7/97 1 EXHIBIT 10.23 SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT THIS SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") is dated as of the 7th day of November, 1997, and entered into among Clear Channel Communications, Inc., a Texas corporation (herein, together with its successors and assigns, called the "Company"), the Lenders (as defined in the Credit Agreement as defined below), NATIONSBANK OF TEXAS, N.A., a national banking association, as Administrative Lender for itself and the Lenders (the "Administrative Lender"), THE FIRST NATIONAL BANK OF BOSTON, as Documentation Agent, BANK OF MONTREAL, as Co- Syndication Agent and TORONTO DOMINION (TEXAS), INC., as Co-Syndication Agent. WITNESSETH: WHEREAS, the Company, the Lenders and the Administrative Lender entered into a Third Amended and Restated Credit Agreement, dated April 10, 1997 (as amended, restated or otherwise modified from time to time, the "Credit Agreement"); WHEREAS, the Company, the Lenders and the Administrative Lender entered into a First Amendment to the Third Amended and Restated Credit Agreement, dated as of September 17, 1997; WHEREAS, the Company has requested that the Credit Agreement be amended to remove the limit on Institutional Debt that may be issued during the term of the Credit Agreement and to allow additional Institutional Debt to be issued with a final maturity date prior to the Maturity Date of the Credit Agreement; WHEREAS, the Lenders, the Administrative Lender and the Company have agreed to amend the Credit Agreement upon the terms and conditions set forth below; NOW, THEREFORE, for valuable consideration hereby acknowledged, the Company, the Lenders and the Administrative Lender agree as follows: SECTION 1. Definitions. In General. Unless specifically defined or redefined below, capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. SECTION 2. Section 7.1(f). Section 7.1(f) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 1 2 (f) So long as there exists no Default or Event of Default both before and after giving effect to the issuance of any Institutional Debt, Institutional Debt in an unlimited amount at any time outstanding; provided, that, (i) such debt is unsecured, (ii) such debt is at all times on terms and conditions reasonably satisfactory to the Determining Lenders, including but not limited to the absence of financial covenants and restrictions and events of default that are more restrictive than those under this Agreement, (iii) except as provided in the immediately following proviso, such debt has a final maturity and Weighted Average Life to Maturity (computed from the date of incurrence of such debt) at least one day longer than the Maturity Date and the Weighted Average Life to Maturity of the Obligations, and (iv) the Net Cash Proceeds from the issuance of such debt are applied in accordance with Section 2.5(d) hereof; provided, however, notwithstanding anything contained in Section 7.1(f)(iii) hereof to the contrary, Institutional Debt otherwise permitted under this Section 7.1(f) in the aggregate principal amount not to exceed $500,000,000 may have a final maturity of any date prior to the Maturity Date. SECTION 3. Conditions Precedent. This Second Amendment shall not be effective until the Administrative Lender shall have received executed signature pages from the Company, the Administrative Lender and Determining Lenders. SECTION 4. Representations and Warranties. The Company represents and warrants to the Lenders and the Administrative Lender that (a) this Second Amendment constitutes its legal, valid, and binding obligation, enforceable in accordance with the terms hereof (subject as to enforcement of remedies to any applicable bankruptcy, reorganization, moratorium, or other laws or principles of equity affecting the enforcement of creditors' rights generally), (b) there exists no Default or Event of Default under the Credit Agreement, (c) its representations and warranties set forth in the Credit Agreement and other Loan Documents are true and correct on the date hereof, (d) it has complied with all agreements and conditions to be complied with by it under the Credit Agreement and the other Loan Documents by the date hereof, and (e) the Credit Agreement, as amended hereby, and the other Loan Documents remain in full force and effect. SECTION 5. Entire Agreement; Ratification. THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. EXCEPT AS MODIFIED OR SUPPLEMENTED HEREBY, THE CREDIT AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION THEREWITH SHALL CONTINUE IN FULL FORCE AND EFFECT. -2- 3 SECTION 6. Counterparts. This Second Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof hereof, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. SECTION 7. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS, BUT GIVING EFFECT TO THE FEDERAL LAWS OF THE UNITED STATES. SECTION 8. CONSENT TO JURISDICTION. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR TEXAS STATE COURT SITTING IN DALLAS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE COMPANY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE LENDER OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE COMPANY AGAINST THE ADMINISTRATIVE LENDER OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATIVE LENDER OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN PAPER SHALL BE BROUGHT ONLY IN A COURT IN DALLAS, TEXAS. SECTION 9. WAIVER OF JURY TRIAL. THE COMPANY, THE ADMINISTRATIVE LENDER AND EACH LENDER HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN PAPER OR THE RELATIONSHIP ESTABLISHED THEREUNDER. ================================================================================ THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. ================================================================================ -3- 4 IN WITNESS WHEREOF, this Second Amendment to Third Amended and Restated Credit Agreement is executed as of the date first set forth above. CLEAR CHANNEL COMMUNICATIONS, INC. By: /s/ Randall T. Mays ------------------------------- Name: Randall T. Mays Title: Vice President -4- 5 NATIONSBANK OF TEXAS, N.A., Individually and as Administrative Lender /s/ Rosario Echeverria ------------------------ By: Rosario Echeverria Its: Vice President 901 Main Street 64th Floor Dallas, Texas 75202 Attn: Rosario Echeverria Title: Vice President -5- 6 BANKBOSTON, N.A., formerly known as THE FIRST NATIONAL BANK OF BOSTON, as a Lender and as Documentation Agent By: /s/ Lenny Mason ---------------------------- Name: Lenny Mason Title: Vice President 100 Federal Street Boston, Massachusetts 02110 Attn: Lenny Mason Title: Vice President -6- 7 BANK OF MONTREAL, as a Lender and as Co- Syndication Agent By: /s/ Rene Encarncion ----------------------------- Name: Rene Encarnacion Title: Director 430 Park Avenue New York, New York 10022 Attn: Ola Anderssen Title: Associate -7- 8 TORONTO DOMINION (TEXAS), INC., as a Lender and as Co-Syndication Agent By: /s/ Darlene Riedel -------------------------------- Name: Darlene Riedel Title: Vice President Houston Agency 909 Fannin Street, 17th Floor Houston, Texas 77010 Attn: Lisa Allison Title: -8- 9 ABN AMRO BANK, N.V., HOUSTON AGENCY By: /s/ Laurie C. Tuzo -------------------------------- Name: Laurie C. Tuzo Title: Group Vice President By: /s/ David P. Orr -------------------------------- Name: David P. Orr Title: Vice President Three Riverway, Suite 1700 Houston, Texas 77056 Attn: Ms. Laurie C. Tuzo Title: Group Vice President -9- 10 BANK BRUSSELS LAMBERT, New York Branch By: -------------------------------- Name: ------------------------- Title: ------------------------- By: -------------------------------- Name: ------------------------- Title: ------------------------- 630 Fifth Avenue, 6th floor New York, New York 10111 Attn: Craig Hallsteen Title: Vice President -10- 11 BANK OF HAWAII By: /s/ Robert L. Wilson --------------------------------- Name: Robert L. Wilson Title: Vice President 1850 N. Central Avenue Suite 400 Phoenix, Arizona 85004 Attn: Elizabeth McLean Title: -11- 12 BANK OF IRELAND - DUBLIN BRANCH By: /s/ Carmel McBride --------------------------------- Name: Title: Corporate Banking, B-2, Head Office Lower Baggot Street Dublin 2, Ireland Attn: Carmel McBride Title: Vice President -12- 13 THE BANK OF NEW YORK By: /s/ Edward Ryan, Jr. -------------------------------- Name: Edward Ryan, Jr. Title: Senior Vice President One Wall Street 16th Floor South New York, New York 10286 Attn: Ted Ryan Title: -13- 14 THE BANK OF NOVA SCOTIA By: /s/ Vincent J. Fitgerald, Jr. ----------------------------------- Name: Vincent J. Fitzgerald, Jr. Title: Authorized Signatory One Liberty Plaza 26th Floor New York, New York 10006 Attn: Paul Weissenberger Title: Relationship Manager -14- 15 NATEXIS BANQUE BFCE, (formerly known as Banque Francaise Du Commerce Exterieur) By: /s/ Ivan Kraus ----------------------------------- Name: Ivan Kraus Title: Associate By: /s/ Kevin Dooley ----------------------------------- Name: Kevin Dooley Title: Vice President 645 Fifth Avenue 20th Floor New York, New York 10022 Attn: Frederick Kammler Title: -15- 16 BANQUE PARIBAS By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: 2029 Century Park East Suite 3900 Los Angeles, California 90067 Attn: Bryan Petermann Title: Vice President -16- 17 BARCLAYS BANK PLC By: /s/ James K. Downey ---------------------------------- Name: James K. Downey Title: Associate Director BZW Division 388 Market Street, Suite 1700 San Francisco, California 94111 -17- 18 CREDIT AGRICOLE INDOSUEZ (f/k/a Caisse Nationale De Credit Agricole) By: /s/ Dean Balice --------------------------------- Name: Dean Balice Title: Senior Vice President By: /s/ David Bouhl, F.V.P. --------------------------------- Name: David Bouhl, F.V.P. Title: Head of Corporate Banking 600 Travis, Suite 2340 Houston, Texas 77002 Attn: Ken Coulter Title: Vice President -18- 19 THE CHASE MANHATTAN BANK, N.A. By: --------------------------------- Name: Title: 270 Park Avenue 37th Floor New York, New York 10017 Attn: James Kuster Title: Managing Director -19- 20 CIBC INC. By: /s/ Susan Hanna ------------------------------- Name: Susan Hanna Title: DIRECTOR, CIBC WOOD GUNDY SECURITY CORP., AS AGENT 425 Lexington Avenue New York, New York 10017 Attn: Susan Hanna Title: DIRECTOR, CIBC WOOD GUNDY SECURITY CORP., AS AGENT -20- 21 COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By: /s/ Anthony Rock --------------------------------- Name: Anthony Rock Title: Vice President By: /s/ Marcus Edward --------------------------------- Name: Marcus Edward Title: Vice President 520 Madison Avenue 37th Floor New York, New York 10022 Attn: Marcus Edward Title: Vice President -21- 22 CORESTATES BANK, N.A. By: --------------------------------- Name: Title: 1339 Chestnut Street Philadelphia, Pennsylvania 19107 Attn: Anthony B. Parisi Title: -22- 23 CREDIT SUISSE FIRST BOSTON By: /s/ Todd C. Morgan --------------------------------- Name: Todd C. Morgan Title: Vice President By: /s/ Judith E. Smith --------------------------------- Name: Judith E. Smith Title: Director Eleven Madison Avenue 19th Floor New York, New York 10010-3629 Attn: Joe Coneeny Title: Managing Director -23- 24 CRESTAR BANK By: /s/ J. Eric Millham --------------------------------- Name: J. Eric Millham Title: Vice President 919 E. Main Street 22th Floor Richmond, Virginia 23219 Attn: Eric Millham Title: Vice President -24- 25 THE DAI-ICHI KANGYO BANK, LTD. By: /s/ Kazuki Shimizu --------------------------------- Name: Kazuki Shimizu Title: Vice President One World Trade Center 48th Floor New York, New York 10048 Attn: Seiji Imai Title: Vice President -25- 26 FIRST UNION NATIONAL BANK By: /s/ Bruce Loftin --------------------------------- Name: Bruce Loftin Title: Senior Vice President Capital Markets Group - Communications One First Union Center 301 South College Street, 5th Floor Charlotte, North Carolina 28288-0735 Attn: Adrienne T. Musgnug Title: Vice President -26- 27 FLEET BANK, N.A. By: /s/ Michael A. Cerullo --------------------------------- Name: Michael A. Cerullo Title: Vice President Mail Stop NYNYS16K 1185 Avenue of the Americas 16th Floor New York, New York 10036 Attn: Michael A. Cerullo Title: Vice President -27- 28 THE FUJI BANK, LIMITED By: /s/ Philip C. Lauinger III --------------------------------- Name: Philip C. Lauinger III Title: Vice President & Manager One Houston Center Suite 4100 1221 McKinney Street Houston, Texas 77010 Attn: Phillip C. Lauinger III Title: Vice President and Manager -28- 29 HIBERNIA NATIONAL BANK By: /s/ Troy J. Villafarra --------------------------------- Name: Troy J. Villafarra Title: Vice President 313 Carondelet Street New Orleans, Louisiana 70130 Attn: Troy Villafarra Title: Vice President -29- 30 INDUSTRIAL BANK OF JAPAN By: /s/ Kevin Egan --------------------------------- Name: Kevin Egan Title: Vice President 1251 Avenue of the Americas 32nd Floor New York, New York 10020-1104 Attn: Jeff Cole Title: -30- 31 KEY CORPORATE CAPITAL INC. By: /s/ Kenneth J. Keeler --------------------------------- Name: Kenneth J. Keeler Title: Vice President Media & Telecommunications Finance Division 127 Public Square Cleveland, Ohio 44114-1306 Attn: Jason R. Weaver Title: Assistant Vice President -31- 32 THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH By: /s/ Sadao Muraoka --------------------------------- Name: Sadao Muraoka Title: Head of Southwest Region 165 Broadway New York, New York 10006 -32- 33 MELLON BANK, N.A. By: /s/ Nathan H. Kehm --------------------------------- Name: Nathan H. Kehm Title: Assistant Vice President One Mellon Bank Center, Room 4440 Pittsburgh, Pennsylvania 15258-0001 Attn: Lisa M. Pellow Title: Vice President -33- 34 MICHIGAN NATIONAL BANK By: /s/ Stephane Lubin --------------------------------- Name: Stephane Lubin Title: Relationship Manager Specialty Industries 10-36 27777 Inkster Road Farmington Hills, Michigan 48334-1036 Attn: Stephane Lubin Title: Vice President -34- 35 THE MITSUBISHI TRUST AND BANKING CORPORATION By: /s/ Beatrice Kossodo --------------------------------- Name: Beatrice Kossodo Title: Senior Vice President 520 Madison Avenue, 26th Floor New York, New York 10022 Attn: David Lerner Title: Vice President -35- 36 PNC BANK, NATIONAL ASSOCIATION By: /s/ Jeffrey E. Hauser --------------------------------- Name: Jeffrey E. Hauser Title: Vice President 1600 Market Street 21st Floor Philadelphia, Pennsylvania 19103 Attn: Jeff Hauser Title: Vice President -36- 37 THE ROYAL BANK OF SCOTLAND, PLC By: /s/ Karen Stefancic --------------------------------- Name: Karen Stefancic Title: Vice President 88 Pine Street 26th Floor New York, New York 10005 Attn: Karen Stefancic Title: Vice President -37- 38 THE SANWA BANK, LIMITED, DALLAS AGENCY By: --------------------------------- Name: Title: 4100 W. Texas Commerce Tower 2200 Ross Avenue Dallas, Texas 75201 Attn: Matthew Patrick Title: Vice President -38- 39 SOCIETE GENERALE By: /s/ Mark Vigil --------------------------------- Name: Mark Vigil Title: Vice President 1221 Avenue of the Americas New York, New York 10020 Attn: Mark Vigil Title: -39- 40 THE SUMITOMO BANK, LIMITED By: /s/ Reiji Sato --------------------------------- Name: Reiji Sato Title: Joint General Manager 700 Louisiana Suite 1750 Houston, Texas 77002 Attn: Daniel Payer Title: -40- 41 SUNTRUST BANK, CENTRAL FLORIDA, N.A. By: /s/ Janet P. Sammons --------------------------------- Name: Janet P. Sammons Title: Vice President 200 South Orange Avenue Orlando, Florida 32801 Attn: Chris Aguilar Title: First Vice President -41- 42 THE TOYO TRUST & BANKING COMPANY, LTD., NEW YORK BRANCH By: /s/ Takashi Mikumo --------------------------------- Name: Takashi Mikumo Title: Vice President 666 Fifth Avenue 33rd Floor Attn: Sharon Bonelli Title: Vice President -42- 43 UNION BANK OF CALIFORNIA, N.A. By: /s/ Christine P. Ball --------------------------------- Name: Christine P. Ball Title: Vice President 445 South Figueroa Street Los Angeles, California 90071 Attn: Christine Ball Title: Vice President -43- 44 WACHOVIA BANK OF GEORGIA, N.A. By: /s/ Carl E. Peoples --------------------------------- Name: Carl E. Peoples Title: Vice President 191 Peachtree Street 28th Floor, Mail Code 370 Atlanta, Georgia 30303 Attn: Carl E. Peoples Title: Vice President -44- 45 WELLS FARGO BANK (TEXAS), N.A., formerly known as FIRST INTERSTATE BANK OF TEXAS, N.A. By: /s/ Susan Coulter --------------------------------- Name: Susan Coulter Title: Vice President 100 Congress, Suite 150 Austin, Texas 78701 Attn: Susan Coulter Title: Vice President -45- 46 WESTDEUTSCHE LANDESBANK, GIROZENTRALE, New York Branch By: /s/ Kheil A. McIntyre --------------------------------- Name: Kheil A. McIntyre Title: Vice President By: /s/ Salvatore Battinelli --------------------------------- Name: Salvatore Battinelli Title: Vice President Credit Dept. 1211 Avenue of the Americas New York, New York 10036 Attn: Kheil McIntyre Title: Vice President -46- 47 WESTDEUTSCHE LANDESBANK, GIROZENTRALE By: /s/ Cynthia M. Niesen --------------------------------- Name: Cynthia M. Niesen Title: Managing Director By: /s/ James Veneau --------------------------------- Name: James Veneau Title: Analyst 1211 Avenue of the Americas New York, New York 10036 Attn: Kheil McIntyre Title: Vice President -47- EX-10.24 3 3RD AMEMDMENT TO CREDIT FACILITY DATED 12/29/97 1 EXHIBIT 10.24 THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT THIS THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") and limited conditional waiver (the "Waiver") are dated as of the 29th day of December, 1997, and entered into among Clear Channel Communications, Inc., a Texas corporation (herein, together with its successors and assigns, called the "Company"), the Lenders (as defined in the Credit Agreement as defined below), NATIONSBANK OF TEXAS, N.A., a national banking association, as Administrative Lender for itself and the Lenders (the "Administrative Lender"), THE FIRST NATIONAL BANK OF BOSTON, as Documentation Agent, BANK OF MONTREAL, as Co-Syndication Agent and TORONTO DOMINION (TEXAS), INC., as Co-Syndication Agent. WITNESSETH: WHEREAS, the Company, the Lenders and the Administrative Lender entered into a Third Amended and Restated Credit Agreement, dated April 10, 1997 (as amended, restated or otherwise modified from time to time, the "Credit Agreement"); WHEREAS, the Company, the Lenders and the Administrative Lender entered into a First Amendment to the Third Amended and Restated Credit Agreement, dated as of September 17, 1997; WHEREAS, the Company, the Lenders and the Administrative Lender entered into a Second Amendment to the Third Amended and Restated Credit Agreement, dated as of November 7, 1997; WHEREAS, the Company has informed the Administrative Lender that an Event of Default has been triggered under the Credit Agreement as a result of its Restricted Subsidiaries incurring in excess of $20,000,000 in Indebtedness in violation of Section 7.1(h) of the Credit Agreement and requested a Waiver of the corresponding Event of Default pursuant to Sections 8.01 (a), 8.1(c) and 8.1(e) of the Credit Agreement; WHEREAS, the Company has requested that the Credit Agreement be amended to extend by one year the period during which a non-binding post-closing syndication may occur; WHEREAS, the Company has requested that the Credit Agreement be amended to allow for an increase in the general Indebtedness basket from $20,000,000 to $50,000,000; -1- 2 WHEREAS, the Lenders, the Administrative Lender and the Company have agreed to amend the Credit Agreement and waive the Event of Default upon the terms and conditions set forth below; NOW, THEREFORE, for valuable consideration hereby acknowledged, the Company, the Lenders and the Administrative Lender agree as follows: SECTION 1. Definitions. (a) In General. Unless specifically defined or redefined below, capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. (b) Definition of Syndication Date. The definition of "Syndication Date" is hereby amended and restated in its entirety as follows: "Syndication Date" means the earlier of (a) the date notice is delivered to Borrower informing Borrower that the Commitment has increased to an amount not to exceed $2,000,000,000 and is available to be drawn as designated by Borrower or (b) December 31, 1998; provided, however, that no more than one such syndication shall occur during such period. SECTION 2. Section 5.13. Section 5.13 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: Section 5.13 Syndication. The Borrower shall assist the Administrative Lender and the Lenders in attempting to syndicate up to an additional $250,000,000 in excess of $1,750,000,000; it being understood that neither the Administrative Lender nor any Lender is obligated to syndicate such additional $250,000,000 or participate or obtain other lenders to participate in such syndication. The Borrower's assistance shall include, without limitation, (a) providing all information reasonably deemed necessary by the Administrative Lender and its Affiliates to assist in such syndication, (b) making available appropriate officers and representatives of the Borrower and its Subsidiaries to participate in information meetings for potential syndicate members and participants as the Administrative Lender and its Affiliates may reasonably request, and (c) in assembling and updating from time to time an information package for delivery to potential syndicate members and participants (the "Syndication Book"). The Borrower agrees it will be responsible for the contents of the Syndication Book (insofar as information furnished by it is concerned) and prior to dissemination by the Administrative Lender and its Affiliates of the Syndication Book. The Borrower will notify Administrative Lender and Lenders on or before December 31, 1998 of any increase in the Commitment above $1,750,000,000 as a result of any syndication. -2- 3 SECTION 3. Section 7.1(h). Section 7.1(h) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (a) Indebtedness (in addition to the Indebtedness otherwise permitted pursuant to this Section 7.1) of its Restricted Subsidiaries not to exceed $50,000,000 in aggregate principal amount outstanding at any time; and SECTION 4. Limited Conditional Waiver. The Company's request for a limited conditional waiver of its violation of Section 7.1(h) of the Credit Agreement caused by the incurrence of approximately $26,000,000 of Indebtedness by its Restricted Subsidiaries as a result of the Indebtedness of Eller Media resulting from its acquisitions and the related Events of Default pursuant to Sections 8.1(a), 8.1(c) and 8.01(e) of the Credit Agreement are hereby granted on a one-time only basis subject to the conditions precedent stated below. SECTION 5. Conditions Precedent. This Third Amendment shall not be effective until the Administrative Lender shall have received executed signature pages from the Company, the Administrative Lender and Determining Lenders. SECTION 6. Representations and Warranties. The Company represents and warrants to the Lenders and the Administrative Lender that (a) this Third Amendment constitutes its legal, valid, and binding obligation, enforceable in accordance with the terms hereof (subject as to enforcement of remedies to any applicable bankruptcy, reorganization, moratorium, or other laws or principles of equity affecting the enforcement of creditors' rights generally), (b) there exists no Default or Event of Default under the Credit Agreement other than as identified herein, (c) its representations and warranties set forth in the Credit Agreement and other Loan Documents are true and correct on the date hereof, (d) it has complied with all agreements and conditions to be complied with by it under the Credit Agreement and the other Loan Documents by the date hereof, and (e) the Credit Agreement, as amended hereby, and the other Loan Documents remain in full force and effect. SECTION 7. Entire Agreement; Ratification. THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. EXCEPT AS MODIFIED OR SUPPLEMENTED HEREBY, THE CREDIT AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION THEREWITH SHALL CONTINUE IN FULL FORCE AND EFFECT. SECTION 8. Counterparts. This Third Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making -3- 4 proof hereof, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. SECTION 9. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS, BUT GIVING EFFECT TO THE FEDERAL LAWS OF THE UNITED STATES. SECTION 10. CONSENT TO JURISDICTION. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR TEXAS STATE COURT SITTING IN DALLAS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE COMPANY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE LENDER OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE COMPANY AGAINST THE ADMINISTRATIVE LENDER OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATIVE LENDER OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN PAPER SHALL BE BROUGHT ONLY IN A COURT IN DALLAS, TEXAS. SECTION 11. WAIVER OF JURY TRIAL. THE COMPANY, THE ADMINISTRATIVE LENDER AND EACH LENDER HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN PAPER OR THE RELATIONSHIP ESTABLISHED THEREUNDER. ================================================================================ THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. ================================================================================ -4- 5 IN WITNESS WHEREOF, this Third Amendment to Third Amended and Restated Credit Agreement is executed as of the date first set forth above. CLEAR CHANNEL COMMUNICATIONS, INC. By: /s/ Randall T. Mays --------------------------------- Name: Randall T. Mays Title: CFO -5- 6 NATIONSBANK OF TEXAS, N.A., Individually and as Administrative Lender /s/ Rosario Echeverria ---------------------- By: Rosario Echeverria Its: Vice President 901 Main Street 64th Floor Dallas, Texas 75202 Attn: Rosario Echeverria Title: Vice President -6- 7 BANKBOSTON, N.A., formerly known as THE FIRST NATIONAL BANK OF BOSTON, as a Lender and as Documentation Agent By: --------------------------------- Name: Mark S. Denomme Title: Director 100 Federal Street Boston, Massachusetts 02110 Attn: Lenny Mason Title: Vice President -7- 8 BANK OF MONTREAL, as a Lender and as Co- Syndication Agent By: /s/ Rene Encarncion --------------------------------- Name: Rene Encarnacion Title: Director 430 Park Avenue New York, New York 10022 Attn: Ola Anderssen Title: Associate -8- 9 TORONTO DOMINION (TEXAS), INC., as a Lender and as Co-Syndication Agent By: /s/ Jimmy Simien --------------------------------- Name: Jimmy Simien Title: Vice President Houston Agency 909 Fannin Street, 17th Floor Houston, Texas 77010 Attn: Lisa Allison Title: -9- 10 ABN AMRO BANK, N.V., HOUSTON AGENCY By: /s/ Laurie C. Tuzo --------------------------------- Name: Laurie C. Tuzo Title: Group Vice President By: /s/ David P. Orr --------------------------------- Name: David P. Orr Title: Vice President Three Riverway, Suite 1700 Houston, Texas 77056 Attn: Ms. Laurie C. Tuzo Title: Group Vice President -10- 11 BANK BRUSSELS LAMBERT, New York Branch By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: 630 Fifth Avenue, 6th floor New York, New York 10111 Attn: Craig Hallsteen Title: Vice President -11- 12 BANK OF HAWAII By: /s/ Elizabeth O. Maclean --------------------------------- Name: Elizabeth O. Maclean Title: Vice President 1850 N. Central Avenue Suite 400 Phoenix, Arizona 85004 Attn: Elizabeth McLean Title: -12- 13 BANK OF IRELAND - DUBLIN BRANCH By: /s/ Carmel McBride --------------------------------- Name: Title: Corporate Banking, B-2, Head Office Lower Baggot Street Dublin 2, Ireland Attn: Carmel McBride Title: Vice President -13- 14 THE BANK OF NEW YORK By: /s/ Edward Ryan, Jr. --------------------------------- Name: Edward Ryan, Jr. Title: Senior Vice President One Wall Street 16th Floor South New York, New York 10286 Attn: Ted Ryan Title: -14- 15 THE BANK OF NOVA SCOTIA By: /s/ Margot C. Bright --------------------------------- Name: Margot C. Bright Title: Authorized Signatory One Liberty Plaza 26th Floor New York, New York 10006 Attn: Townsend Devereux Title: Relationship Manager -15- 16 NATEXIS BANQUE BFCE, (formerly known as Banque Francaise Du Commerce Exterieur) By: /s/ Kevin Dooley --------------------------------- Name: Kevin Dooley Title: Vice President By: /s/ Evan Kraus --------------------------------- Name: Evan Kraus Title: Associate 645 Fifth Avenue 20th Floor New York, New York 10022 Attn: Frederick Kammler Title: -16- 17 BANQUE PARIBAS By: /s/ David Pastre --------------------------------- Name: David Pastre Title: Vice President By: /s/ Stanley P. Berkman --------------------------------- Name: Stanley P. Berkman Title: Managing Director 2029 Century Park East Suite 3900 Los Angeles, California 90067 -17- 18 BARCLAYS BANK PLC By: /s/ James K. Downey --------------------------------- Name: James K. Downey Title: Associate Director BZW Division 388 Market Street, Suite 1700 San Francisco, California 94111 -18- 19 CREDIT AGRICOLE INDOSUEZ (f/k/a Caisse Nationale De Credit Agricole) By: /s/ Dean Balice --------------------------------- Name: Dean Balice Title: Senior Vice President By: /s/ David Bouhl, F.V.P. --------------------------------- Name: David Bouhl, F.V.P. Title: Head of Corporate Banking 600 Travis, Suite 2340 Houston, Texas 77002 Attn: Ken Coulter Title: Vice President -19- 20 THE CHASE MANHATTAN BANK, N.A. By: --------------------------------- Name: Title: 270 Park Avenue 37th Floor New York, New York 10017 Attn: James Kuster Title: Managing Director -20- 21 CIBC INC. By: /s/ Susan Hanna --------------------------------- Name: Susan Hanna Title: EXECUTIVE DIRECTOR, CIBC Oppenheimer Corp., AS AGENT 425 Lexington Avenue New York, New York 10017 Attn: Susan Hanna Title: EXECUTIVE DIRECTOR, CIBC Oppenheimer Corp., AS AGENT -21- 22 COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By: /s/ Anthony Rock --------------------------------- Name: Anthony Rock Title: Vice President By: /s/ Marcus Edward --------------------------------- Name: Marcus Edward Title: Vice President 520 Madison Avenue 37th Floor New York, New York 10022 Attn: Marcus Edward Title: Vice President -22- 23 CORESTATES BANK, N.A. By: /s/ Douglas E. Blackman --------------------------------- Name: Douglas E. Blackman Title: Vice President 1339 Chestnut Street Philadelphia, Pennsylvania 19107 Attn: Douglas E. Blackman Title: Vice President -23- 24 CREDIT SUISSE FIRST BOSTON By: /s/ Todd C. Morgan --------------------------------- Name: Todd C. Morgan Title: Vice President By: /s/ Judith E. Smith --------------------------------- Name: Judith E. Smith Title: Director Eleven Madison Avenue 19th Floor New York, New York 10010-3629 Attn: Joe Coneeny Title: Managing Director -24- 25 CRESTAR BANK By: /s/ J. Eric Millham --------------------------------- Name: J. Eric Millham Title: Vice President 919 E. Main Street 22th Floor Richmond, Virginia 23219 Attn: Eric Millham Title: Vice President -25- 26 THE DAI-ICHI KANGYO BANK, LTD. By: /s/ Kazuki Shimizu --------------------------------- Name: Kazuki Shimizu Title: Vice President One World Trade Center 48th Floor New York, New York 10048 Attn: Kazuki Shimizu Title: Vice President -26- 27 FIRST UNION NATIONAL BANK By: /s/ Bruce Loftin --------------------------------- Name: Bruce Loftin Title: Senior Vice President Capital Markets Group - Communications One First Union Center 301 South College Street, 5th Floor Charlotte, North Carolina 28288-0735 Attn: Adrienne T. Musgnug Title: Vice President -27- 28 FLEET BANK, N.A. By: /s/ Michael A. Cerullo --------------------------------- Name: Michael A. Cerullo Title: Vice President Mail Stop NYNYS16K 1185 Avenue of the Americas 16th Floor New York, New York 10036 Attn: Michael A. Cerullo Title: Vice President -28- 29 THE FUJI BANK, LIMITED By: /s/ Philip C. Lauinger III --------------------------------- Name: Philip C. Lauinger III Title: Vice President & Manager One Houston Center Suite 4100 1221 McKinney Street Houston, Texas 77010 Attn: Phillip C. Lauinger III Title: Vice President and Manager -29- 30 HIBERNIA NATIONAL BANK By: /s/ Troy J. Villafarra --------------------------------- Name: Troy J. Villafarra Title: Vice President 313 Carondelet Street New Orleans, Louisiana 70130 Attn: Troy Villafarra Title: Vice President -30- 31 INDUSTRIAL BANK OF JAPAN By: /s/ Kevin Egan --------------------------------- Name: Kevin Egan Title: Vice President 1251 Avenue of the Americas 32nd Floor New York, New York 10020-1104 Attn: Jeff Cole Title: -31- 32 KEY CORPORATE CAPITAL INC. By: /s/ Jason R. Weaver --------------------------------- Name: Jason R. Weaver Title: Vice President Media & Telecommunications Finance Division 127 Public Square Cleveland, Ohio 44114-1306 Attn: Jason R. Weaver Title: Assistant Vice President -32- 33 THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH By: --------------------------------- Name: Title: 165 Broadway New York, New York 10006 -33- 34 MELLON BANK, N.A. By: /s/ Thomas P. Joyce --------------------------------- Name: Thomas P. Joyce Title: Vice President One Mellon Bank Center, Room 4440 Pittsburgh, Pennsylvania 15258-0001 Attn: Thomas P. Joyce Title: Vice President -34- 35 MICHIGAN NATIONAL BANK By: /s/ Draga B. Palincas --------------------------------- Name: Draga B. Palincas Title: Vice President Specialty Industries 10-36 27777 Inkster Road Farmington Hills, Michigan 48334-1036 Attn: Draga B. Palincas Title: Vice President -35- 36 THE MITSUBISHI TRUST AND BANKING CORPORATION By: /s/ Toshihiro Hayashi --------------------------------- Name: Toshihiro Hayashi Title: Senior Vice President 520 Madison Avenue, 26th Floor New York, New York 10022 Attn: David Lerner Title: Vice President -36- 37 PNC BANK, NATIONAL ASSOCIATION By: /s/ Jeffrey E. Hauser --------------------------------- Name: Jeffrey E. Hauser Title: Vice President 1600 Market Street 21st Floor Philadelphia, Pennsylvania 19103 Attn: Jeff Hauser Title: Vice President -37- 38 THE ROYAL BANK OF SCOTLAND, PLC By: /s/ Karen Stefancic --------------------------------- Name: Karen Stefancic Title: Vice President 88 Pine Street 26th Floor New York, New York 10005 Attn: Karen Stefancic Title: Vice President -38- 39 THE SANWA BANK, LIMITED By: /s/ Eric Reimer --------------------------------- Name: Eric Reimer Title: Assistant Vice President 4100 W. Texas Commerce Tower 2200 Ross Avenue Dallas, Texas 75201 Attn: Matthew Patrick Title: Vice President -39- 40 SOCIETE GENERALE By: /s/ Mark Vigil --------------------------------- Name: Mark Vigil Title: Vice President 1221 Avenue of the Americas New York, New York 10020 Attn: Mark Vigil Title: -40- 41 THE SUMITOMO BANK, LIMITED By: /s/ Reiji Sato --------------------------------- Name: Reiji Sato Title: Joint General Manager 700 Louisiana Suite 1750 Houston, Texas 77002 Attn: Daniel Payer Title: -41- 42 SUNTRUST BANK, CENTRAL FLORIDA, N.A. By: /s/ Jorge Arrieta --------------------------------- Name: Jorge Arrieta Title: Vice President 200 South Orange Avenue Orlando, Florida 32801 Attn: Chris Aguilar Title: First Vice President -42- 43 THE TOYO TRUST & BANKING COMPANY, LTD., NEW YORK BRANCH By: /s/ Takashi Mikumo --------------------------------- Name: Takashi Mikumo Title: Vice President 666 Fifth Avenue 33rd Floor Attn: Sharon Bonelli Title: Vice President -43- 44 UNION BANK OF CALIFORNIA, N.A. By: /s/ Christine P. Ball --------------------------------- Name: Christine P. Ball Title: Vice President 445 South Figueroa Street Los Angeles, California 90071 Attn: Christine Ball Title: Vice President -44- 45 WACHOVIA BANK OF GEORGIA, N.A. By: /s/ David K. Alexander --------------------------------- Name: David K. Alexander Title: Senior Vice President 191 Peachtree Street 28th Floor, Mail Code 370 Atlanta, Georgia 30303 Attn: Steven M. Takei Title: Vice President -45- EX-13 4 ANNUAL REPORT TO SECURITY HOLDERS 1 EXHIBIT 13 1997 ACCOMPLISHMENTS RECORD REVENUES Achieved record revenues of $790 million, an increase of 98 percent over 1996. RECORD PROFITS AT THE OPERATING LEVEL Reported $302.7 million in operating income before depreciation and amortization, an increase of 97 percent over 1996. RECORD AFTER TAX CASH FLOW Produced $213.4 million in after tax cash flow, an increase of 99 percent over 1996. RECORD AFTER TAX CASH FLOW PER COMMON SHARE-DILUTED Earned $2.33 of after tax cash flow per common share, an increase of 62 percent over 1996. CONTINUED GROWTH OF STOCK PRICE Clear Channel's common stock price per share increased 120 percent during 1997 and has compounded at an annual average rate of 89 percent over the last five years and 57 percent over the last ten. ADDITION TO THE S&P 500 The Company was added to the widely followed S&P 500 in recognition of its industry leadership. OUTDOOR ADVERTISING Emerged as a leader in the Outdoor Advertising Industry by acquiring Eller Media Company, announcing a proposed merger with Universal Outdoor, and making an offer to purchase More Group Plc. PUBLIC DEBT OFFERING Received an investment grade debt rating from both Moody's and S&P, and subsequently raised approximately $300 million in the Company's first public debt offering. CONTINUED EQUITY FINANCING Issued approximately $1.1 billion in equity in order to maintain conservative financial leverage and take advantage of attractive opportunities. ENLARGED CREDIT FACILITY Increased the size of the Company's revolving credit facility to $1.75 billion. DOMESTIC RADIO ACQUISITIONS Continued the expansion of our radio group by adding 70 stations during 1997, bringing the total number of stations owned or programmed to 173; most notable was the acquisition of 43 stations from Paxson Communications Corporation. INTERNATIONAL RADIO EXPANSION The Australian Radio Network, which is 50 percent owned by Clear Channel, acquired two additional stations during 1997. Clear Channel also acquired a 50 percent interest in Radio Bonton s.a., a company which operates one FM radio station in the Czech Republic. Finally, an agreement was reached with Radio Shanghai by which Clear Channel will sell airtime on 13 radio stations broadcasting in Shanghai, China. WIRELESS COMMUNICATION TOWER INDUSTRY Invested in American Tower Corporation, which has subsequently announced an agreement to merge with American Tower Systems and create the definitive leader in that industry. ENRICHED MANAGEMENT TEAM Continued to develop management teams at the local level; these have become the single greatest strength of the Company. Additionally, through promotions and recruitment, enhanced the support group overseeing these managers. FINANCIAL HIGHLIGHTS In Thousands Except Per Share Amounts
1997 1996 % Change Gross revenue $790,178 $398,094 98% Operating income before depreciation and amortization 302,664 153,407 97% Operating income 167,574 99,090 69% Net income 63,576 37,696 69% Net income per common share - diluted $ .67 $ 0.51 31% After tax cash flow(1) 213,445 107,318 99% After tax cash flow per common share - diluted (1) $ 2.33 $ 1.44 62%
(1) Defined as net income before unusual items plus depreciation, amortization of intangibles (including nonconsolidated affiliates) and deferred taxes. 44 2 FINANCIAL HIGHLIGHTS [GROSS REVENUE GRAPH] [OPERATING INCOME GRAPH] [AFTER TAX CASH FLOW GRAPH] [AFTER TAX CASH FLOW PER COMMON SHARE - DILUTED GRAPH] Clear Channel Communications, Inc. o 1997 ANNUAL REPORT o 1 45 3 LETTER TO THE SHAREHOLDERS Dear Fellow Shareholders: I am pleased to report that nineteen ninety-seven was the most successful year in our Company's history. We enjoyed continued success in our broadcasting business, setting new records for after tax cash flow. In addition, our entry into the outdoor advertising business has been well rewarded with immediate financial success. After tax cash flow per share, the most important measure of our Company's success, increased sixty-two percent from $1.44 in 1996 to $2.33 in 1997. Gross revenues increased from $398.1 million to $790.2 million from 1996 to 1997, an increase of ninety-eight percent, while operating income before depreciation and amortization increased from $153.4 million to $302.7 million over the same period. These strong fundamentals contributed to the ongoing growth of shareholder value. Clear Channel's common stock price increased 120 percent during the past year. Our Company's stock price has compounded at an annual average rate of fifty-seven percent over the last decade, making it one of the best performing stocks on the New York Stock Exchange during that period. BROADCASTING The Telecommunications Act of 1996 initiated a wave of consolidation in the radio industry that continued throughout 1997. Since our last annual report, our Company has increased the number of radio stations, it owns, programs or sells airtime on from 109 to 184 stations which are located in forty domestic markets (this includes all pending transactions). In addition to these radio stations, our Company continues to successfully operate eighteen television stations in eleven markets across the United States. Clear Channel also continues to have a significant interest in the field of Spanish language radio broadcasting through its 32.3% stake in Heftel Broadcasting. Finally, during 1997 Clear Channel added to its international operations by acquiring two new stations in Australia and one in the Czech Republic. The largest of our 1997 radio acquisitions was the purchase of Paxson Communications' forty-three stations during the fourth quarter of 1997. These assets are an excellent addition to Clear Channel because they are clustered in Florida, a region of rapid growth and attractive markets. Even in the brief time since the acquisition, we have begun to capitalize on the excellent local management and infrastructure at these stations, continuing their tradition of community service and development into truly excellent performers. The decision to concentrate on Florida is consistent with our Company's long-standing policy of making investments that have an inherent growth profile. During 1997 a great deal of our radio station acquisitions were located in markets where Clear Channel already had a presence. By making these `tuck-in' acquisitions of broadcasting stations, we not only improve the operations of the acquired assets but also enhance the performance of our existing stations in that market. Stronger station groups allow our Company to provide its clients with more choices and greater flexibility. The following 'tuck-in' acquisitions were added during 1997: WZZU-FM, WFXC-FM, WFXK-FM and WDUR-AM in Raleigh, NC; WQMF-FM and WHKW-FM in Louisville, KY; KHOM-FM in New Orleans, LA; KJOJ-AM in Houston, TX; WVTI-FM in Grand Rapids, MI; WMIL-FM, WZTR-FM and WOKY-AM in Milwaukee, WI; WKII-AM, WXRM-FM and WOLZ-FM in Fort Myers, FL; WMFX-FM and WOIC-AM in Columbia, SC; WLAN-AM/FM in Lancaster, PA; KMVK-FM, KSSN-FM and KOLL-FM in Little Rock, AR; and KQSY-FM in Tulsa, OK. During the year we also closed on transactions that added five new markets to our Company's radio broadcasting operations. WODE-FM and WEEX-AM in Allentown, PA; KTOM-FM, KDON-FM, KOCN-FM, KRQC-FM, KTOM-AM and KDON-AM in Monterey, CA; WING-FM, WGTZ-FM and WING-AM in Dayton, OH; WKXI-FM, WJMI-FM, WOAD-AM and WKXI-AM in Jackson, MS were all deals that added markets to the Clear Channel family. In Albany, NY Clear Channel has an 80% interest in Radio Enterprises, Inc., which owns WQBK-FM, WTMM-AM, WQBJ-FM and WXCR-FM. During the year, our television operations continued in their tradition of strong performance and leadership. As with our radio business, we continually strive to give each station an identity consistent with the community it serves in order to enhance viewer loyalty and distinguish it from its competitors. Across the 2 o Clear Channel Communications, Inc. o 1997 ANNUAL REPORT 46 4 Company during 1997, plans were made for the conversion of each of our television stations to digital broadcasting. We are excited about the opportunities that this new platform will give Clear Channel to serve our viewers. Our ongoing strategy of affiliating the majority of our stations with the most rapidly growing networks gives the entire group a more attractive growth profile. Additionally, our substantial investment last year in news operations has begun to pay a healthy dividend to our Company and the viewers it serves. SPANISH LANGUAGE BROADCASTING Clear Channel's investment in Heftel Broadcasting continues to give our Company a means of participating in the rapidly growing Spanish language broadcasting arena. We remain very excited about the growth prospects for this business. Spanish speaking listeners have been a traditionally underserved demographic group, which allows Heftel the opportunity for rapid expansion. Heftel is the leading domestic Spanish language radio broadcaster, with stations in eleven of the top fifteen Spanish language radio markets. Although our investment is a passive, nonvoting interest, we are confident that Heftel's outstanding management team will continue to produce long term value for its shareholders. Heftel's price per share increased in value by 197 percent during 1997, making the value of Clear Channel's stake approximately $664 million at December 31, 1997. OUTDOOR ADVERTISING Nineteen ninety-seven was also a year marked by our Company's entry into the outdoor advertising sector. Not only did we close on our first major outdoor acquisition, Eller Media Company, but we also initiated a merger with Universal Outdoor. On October 23, 1997, our Company entered into a stock for stock merger agreement with Universal Outdoor valued at approximately $1.7 billion. The proposed merger is expected to close during the first half of 1998, at which time Universal shareholders will receive .67 shares of Clear Channel stock for each share of Universal stock held. Through this merger, our Company will become the largest domestic outdoor advertising company, with a leading presence in twenty-one of the top thirty-five media markets across the United States. The Universal transaction adds display faces in twenty-two markets in which our Company's existing outdoor company did not operate. Additionally, eight of Universal's outdoor advertising markets overlap with our Company's existing operations, including such markets as Memphis, Tampa, Jacksonville, Orlando, Minneapolis, Dallas, Chicago and Milwaukee. This merger demonstrates our Company's continuing commitment to leadership in all media segments in which the Company is a participant and is a testament to our continuing commitment and enthusiasm toward the outdoor advertising business. Universal was founded in 1973 and has grown rapidly over the past three years through strategic acquisitions in the middle and eastern United States. The acquisition is highly complimentary to the Eller operation, whose geographic concentration is in the middle and western United States. Additionally, in March of 1998 Clear Channel announced that it had offered to purchase the stock of More Group Plc. More Group is based in London, England, and has operations in 22 countries. These countries are located primarily in Europe. We see this acquisition as a further step in our Company's international expansion. Our acquisition of More Group will provide us with a platform to continue to expand on a global basis. It also is an example of our ability to invest our capital in ways that will augment Clear Channel's growth. Further information on More Group can be found later in this Annual Report. Another strategic outdoor acquisition completed during 1997 was our purchase of the Union Pacific Railroad Company outdoor advertising display license portfolio, which is comprised of approximately 4,000 licenses to operate displays on railroad rights-of-way. The Company acquired the right to manage this portfolio for the next twenty-five years. The agreement also calls for our Company to develop and manage new displays along the railroad right-of-way, which is concentrated in California, Illinois and Texas, during the next twenty-five years. During 1997, aside from the purchases mentioned above, our Company completed numerous separate acquisitions of outdoor advertising displays in eleven markets, including Los Angeles, Dallas, Chicago, Milwaukee, Houston, Atlanta and San Antonio. These acquisitions enhance our Company's outdoor advertising coverage in these important markets and further enable us to provide superior service to our clients. They also create economies of scale and help us to operate more efficiently and profitably in our served markets. During the coming year we will continue to focus our attention on finding innovative new ways to help our clients market their products and services. We are confident about the growth prospects of our outdoor business. Additionally, we will remain a consolidator of the industry to the extent that we are able to make investments that meet our acquisition criteria. Clear Channel Communications, Inc. o 1997 ANNUAL REPORT o 3 47 5 INTERNATIONAL During the past twelve months Clear Channel has continued to extend its strong position as a broadcaster both in Australia and New Zealand through its subsidiaries, the Australian Radio Network and the New Zealand Radio Network. Within both of these countries, consolidation continues to develop in much the same way that it has in the United States. 1997 also marked the beginning of our Company's radio presence in Eastern Europe. In May, Clear Channel acquired a fifty-percent interest in Radio Bonton, a radio station serving the Czech Republic. The owner of the remaining portion of this station is Bonton s.a., a large, diversified Czech media company. We are hopeful that this single station will serve as an effective foothold for further expansion in that region. Finally, in December of this past year we were successful in drafting preliminary agreements with Radio Shanghai, which operates thirteen radio stations and one cable television station serving the Shanghai, China market. The agreement calls for Clear Channel to assist in selling airtime on these fourteen stations, which cover approximately fifty million Chinese citizens, and also calls for sharing of certain training programs and programming content. We are very pleased with this accord and see it as a platform for our Company's continued growth in Asia. Foremost in our minds in pursuing international opportunities is the maintenance of a conservative and prudent approach toward evaluating the possibilities for expansion. While we understand that emerging marketplaces hold strong potential for advertising-based businesses, it is equally important to proceed at a pace that ensures proper protection of those investments. We are committed to the continued search for broadcasting and outdoor operations in countries that enjoy stable currencies, attractive industry dynamics, rapid growth of advertising expenditures, and sound political infrastructures. CROSS-MEDIA SYNERGIES During 1997 our Company renewed its attention to the area of maximizing the value of owning multiple types of media outlets in a given market. The benefits to our clients of being able to provide more than one conduit through which to market their products and services are quite substantial. In addition, our Company can often utilize capacity within those alternative media to more effectively market its own services. For example, in the eleven markets where we have broadcasting and outdoor operations (including all pending transactions), we use vacant outdoor advertising space to effectively promote listenership or viewership of our Company's broadcasting stations in that particular market. In the eight markets where we have radio and television broadcasting operations, we can utilize unsold airtime in both media to encourage individuals to watch our television stations or listen to our radio stations. For this reason it is important that we continue to establish these cross-media overlaps within markets; we believe the long-term value they create can be significant. CAPITAL MARKETS During 1997, Clear Channel received an Investment Grade rating from both Standard & Poor's Corporate Ratings and Moody's Investors Service on its Senior Debt. This rating reflects the strength of our Company's balance sheet, which Management has always felt to be a great asset. The investment grade rating made it attractive for our Company to enter the public debt markets for the first time. In October, our Company raised approximately $300 million, pricing thirty-year debentures at a coupon of 7.25%. In addition to this issuance of public debt, Clear Channel refinanced its existing Revolving Credit Facility, increasing the amount available under that line to $1.75 billion. Clear Channel continues to have one of the lowest costs of capital of its peers, which we view as a strategic advantage in our consolidating industries. In addition, during 1997, our Company continued to improve on its access to capital by issuing 20,737,426 new common shares which strengthened our balance sheet and provided additional acquisition capacity, should proper opportunities become available. STRATEGIC DIRECTION Our Company continues to be committed to its proven corporate strategy: o Decentralized, flexible, entrepreneurial business units that place an emphasis on simplifying structures and procedures, o Sound centralized financial management, o Growth through internal expansion of existing operations, supplemented by strategic acquisitions, o Internal capital investment to improve quality and market leadership, o Insistence on adherence to the highest standards of integrity and business conduct, and o Significant attention to long-term strategic planning. The growth of our core businesses is healthy, and the markets we serve continue to be excellent environments in which to achieve our long-term goals. Our position within these markets is, as it has been in the past, one of leadership. To the over 5,500 members of our team who made 1997 possible, I personally thank you. And to our shareholders, rest assured that we continue to work hard to enhance the long-term value of your investment. /s/ LOWRY MAYS Lowry Mays Chairman and CEO March 9, 1998 4 o Clear Channel Communications, Inc. o 1997 ANNUAL REPORT 48 6 DOMESTIC RADIO STATIONS ALABAMA Mobile WKSJ FM Country WKSJ AM Country WMXC FM Adult Contemporary WRKH FM Classic Rock WDWG FM Country WNTM AM News/Talk WNSP FM (1) Sports ARKANSAS Little Rock KQAR FM Contemporary Hits KMJX FM Classic Rock KDDK FM Country KSSN FM Country KOLL FM Oldies CALIFORNIA Monterey KTOM AM Country KDON AM Contemporary Hits KOCN FM Oldies KDON FM Contemporary Hits KRQC FM Classic Rock KTOM FM Country CONNECTICUT New Haven WKCI FM Contemporary Hits WAVZ AM Nostalgia WELI AM News/Talk FLORIDA Florida Keys WAVK FM Adult Contemporary WKRY FM Soft Adult Contemporary WFKZ FM Adult Contemporary Ft. Myers/Naples WCKT FM Country WQNU FM Country WKII AM Nostalgia WXRM FM Soft Adult Contemporary WOLZ FM Oldies Jacksonville WZNZ AM News WNZS AM Sports WFSJ FM Jazz WROO FM Country WPLA FM Rock WBGB FM Classic Rock Miami/Ft. Lauderdale WFTL AM News WINZ AM News/Sports WIOD AM News/Talk WPLL FM Rock WLVE FM Jazz WZTA FM Rock WHYI FM Contemporary Hits WBGG FM Classic Rock Orlando WWNZ AM News WQTM AM Sports WSHE FM Modern Rock WJRR FM Rock WMGF FM Adult Contemporary WTKS FM Talk Panama City WDIZ AM Sports/Talk WSHF FM Adult Contemporary WPBH FM Oldies WFSY FM Adult Contemporary WPAP FM Country Pensacola WYCL FM (1) Oldies WTKX FM Rock Tallahassee WNLS AM News/Talk WJZT FM Jazz WTNT FM Country WSNI FM Oldies WXSR FM Modern Rock Tampa/St. Petersburg WILV FM Adult Contemporary WHNZ AM (1)(2) News WZTM AM News WSJT FM Jazz WHPT FM Classic Rock WSRR FM Modern Adult Contemporary WRBQ AM Adult Urban Contemporary WRBQ FM Country West Palm Beach WBZT AM News/Talk/Sports WKGR FM Classic Rock WOLL FM Oldies KENTUCKY Louisville WHAS AM News/Talk/Sports WAMZ FM Country WHKW FM Country WTFX FM Modern Rock WWKY AM News/Talk/Sports WKJK AM Adult Standards WQMF FM Classic Rock LOUISIANA New Orleans WODT AM Blues WQUE FM Urban Contemporary WYLD AM Gospel WYLD FM Urban Adult Contemporary WNOE FM Country KKND FM Alternative Rock KUMX FM Contemporary Hits MASSACHUSETTS Springfield WHYN AM News/Talk/Sports WHYN FM Adult Contemporary MICHIGAN Grand Rapids WOOD AM Talk WOOD FM Adult Contemporary WBCT FM Country WTKG AM News/Talk/Sports WCUZ FM Country WVTI FM Contemporary Hits MISSISSIPPI Jackson WKXI AM Solid Gold Urban Oldies WKXI FM Urban Contemporary WOAD AM Urban Contemporary WJMI FM Rhythm & Blues NORTH CAROLINA Greensboro WXRA FM Alternative Rock WTQR FM Country WSJS AM News/Talk Raleigh WQOK FM Urban Contemporary WNNL FM Gospel WDUR AM Urban Oldies WFXC FM Urban Adult WFXK FM Urban Adult NEW YORK Albany WQBK FM Alternative Rock WQBJ FM Alternative Rock WTMM AM News/Talk WXCR FM Classic Rock OHIO Cleveland WNCX FM Classic Rock WERE AM News/Talk WENZ FM Alternative Rock Dayton WING FM Classic Rock WING AM News/Talk/Sports WGTZ FM Contempory Hits (1) Joint Sales Agreement or Local Marketing Agreement (2) Pending Acquisition Clear Channel Communications, Inc. o 1997 ANNUAL REPORT o 5 49 7 OKLAHOMA Oklahoma City KTOK AM News/Talk/Sports KEBC AM News/Talk/Spanish KJYO FM Contemporary Hits WKY AM (1) News/Talk KTST FM Country KXXY FM Country KQSR FM Soft Rock Tulsa KAKC AM News/Sports/Oldies KMOD FM Album Oriented Rock KQLL AM (1)(2) Sports/Talk KQLL FM (1)(2) Oldies KOAS FM (1)(2) Smooth Jazz KMRX FM Modern Rock PENNSYLVANIA Allentown WODE FM Oldies WEEX AM Country Lancaster WLAN FM Hot Adult Contemporary WLAN AM Big Band Reading WRAW AM Middle of the Road WRFY FM Contemporary Hits RHODE ISLAND Providence WWBB FM Oldies WWRX FM Classic Rock SOUTH CAROLINA Columbia WWDM FM Urban Contemporary WARQ FM Alternative Rock WMFX FM Classic Rock WOIC AM Urban Gold TENNESSEE Cookeville WHUB AM Country WPTN AM News/Talk WGIC FM Adult Contemporary WGSQ FM Country Memphis WHRK FM Urban Contemporary WDIA AM Adult Urban WEGR FM Classic Rock WREC AM News/Talk WRXQ FM Alternative Rock KJMS FM Urban Adult Contemporary KWAM AM Religious TEXAS Austin KPEZ FM Classic Rock KHFI FM Contemporary Hits KEYI FM Oldies KFON AM Sports El Paso KPRR FM Contemporary Hits KHEY FM Country KHEY AM Oldies Houston KPRC AM News/Talk/Sports KSEV AM News/Talk/Sports KMJQ FM Adult Urban Contemporary KBXX FM Urban Contemporary KHYS FM (1) Rhythmic CHR KJOJ AM Christian/Talk KJOJ FM Rhythmic CHR San Antonio WOAI AM News/Talk/Sports KQXT FM Adult Contemporary KTKR AM News/Talk/Sports KAJA FM Country KSJL FM (1) Urban Adult Contemporary VIRGINIA Norfolk WOWI FM Urban Contemporary WJCD FM Smooth Jazz WSVV FM Adult Urban Contemporary WSVY FM Adult Urban Contemporary Richmond WRVA AM News/Talk/Sports WRNL AM Sports WRVQ FM Contemporary Hits WRXL FM Album Oriented Rock WTVR FM Soft AC WTVR AM Nostalgia WISCONSIN Milwaukee WKKV FM Urban Contemporary WMIL FM Country WOKY AM Adult Standards WZTR FM Oldies NETWORKS ALABAMA Birmingham Alabama Radio Network FLORIDA Coral Gables Clear Channel Sports Gainesville Clear Channel Sports Maitland Florida Radio Network IOWA Des Moines Clear Channel Sports KENTUCKY Louisville Kentucky News Network OKLAHOMA Oklahoma City Oklahoma News Network PENNSYLVANIA State College Clear Channel Sports TENNESSEE Nashville Tennessee Radio Network TEXAS San Angelo Voice of Southwest Agriculture College Station Clear Channel Sports VIRGINIA Richmond Virginia News Network (1) Joint Sales Agreement or Local Marketing Agreement (2) Pending Acquisition 6 o Clear Channel Communications, Inc. o 1997 ANNUAL REPORT 50 8 DOMESTIC TELEVISION ALABAMA Mobile WPMI NBC TV15 WJTC UPN TV44 (1) ARIZONA Tucson KTTU UPN TV18 ARKANSAS Little Rock KLRT FOX TV16 KASN UPN TV38 (1) FLORIDA Jacksonville WAWS FOX TV30 WTEV UPN TV47 (1) KANSAS Wichita KSAS FOX TV24 MINNESOTA Minneapolis WFTC FOX TV29 NEW YORK Albany WXXA FOX TV23 OKLAHOMA Tulsa KOKI FOX TV23 KTFO UPN TV41 (1) PENNSYLVANIA Harrisburg/Lebanon/ Lancaster WHP CBS TV21 WLYH UPN TV15 (1) RHODE ISLAND Providence WPRI CBS TV12 WNAC FOX TV64 (1) TENNESSEE Memphis WPTY ABC TV24 WLMT UPN TV30 (1) OUTDOOR ARIZONA Phoenix Bulletins Tucson Bulletins (2) 30 Sheet Posters (2) CALIFORNIA Los Angeles Shelters 30 Sheet Posters Bulletins Wallscapes Sacramento Shelters 30 Sheet Posters Bulletins San Diego Shelters 30 Sheet Posters Bulletins San Francisco Shelters 8 Sheet Posters 30 Sheet Posters Bulletins Transits Wallscapes DELAWARE Wilmington 8 Sheet Posters (2) 30 Sheet Posters (2) Bulletins (2) FLORIDA Jacksonville 30 Sheet Posters (2) Bulletins (2) Miami Shelters Ocala/Gainesville 30 Sheet Posters (2) Bulletins (2) Orlando Bulletins 30 Sheet Posters (2) Tampa Shelters 30 Sheet Posters Bulletins GEORGIA Atlanta 8 Sheet Posters 30 Sheet Posters Bulletins ILLINOIS Chicago 8 Sheet Posters (2) 30 Sheet Posters (2) Bulletins Transits (2) Wallscapes (2) INDIANA Indianapolis 8 Sheet Posters (2) 30 Sheet Posters (2) Bulletins (2) Transit (2) IOWA Des Moines 8 Sheet Posters (2) 30 Sheet Posters (2) Bulletins (2) MARYLAND Baltimore Shelters (2) 30 Sheet Posters (2) Bulletins (2) Transits (2) Salisbury 30 Sheet Posters (2) Bulletins (2) MINNESOTA Minneapolis 30 Sheet Posters (2) Bulletins (2) NEW YORK New York 8 Sheet Posters (2) 30 Sheet Posters (2) Bulletins (2) OHIO Akron/Canton 30 Sheet Posters Bulletins Cleveland 30 Sheet Posters Bulletins Wallscapes PENNSYLVANIA Philadelphia Shelters (2) 30 Sheet Posters (2) Bulletins (2) SOUTH CAROLINA Myrtle Beach 30 Sheet Posters (2) Bulletins (2) TENNESSEE Chatanooga 30 Sheet Posters (2) Bulletins (2) Memphis Shelters (2) 8 Sheet Posters (2) 30 Sheet Posters (2) Bulletins (2) TEXAS Dallas 8 Sheet Posters (2) 30 Sheet Posters (2) Bulletins El Paso 8 Sheet Posters 30 Sheet Posters Bulletins Houston 8 Sheet Posters 30 Sheet Posters Bulletins San Antonio 8 Sheet Posters 30 Sheet Posters Bulletins WISCONSIN Milwaukee 8 Sheet Posters (2) 30 Sheet Posters Bulletins ATLANTIC COAST Bulletins (2) GULF COAST Bulletins (2) WASHINGTON D.C. 30 Sheet Posters (2) Bulletins (2) MALL MEDIA 250 throughout United States (1) Joint Sales Agreement or Local Marketing Agreement (2) Pending Acquisition Clear Channel Communications, Inc. o 1997 ANNUAL REPORT o 7 51 9 INVESTMENT HIGHLIGHTS [TEN YEAR CUMULATIVE RETURN] [PERFORMANCE GRAPH] 8 o Clear Channel Communications, Inc. o 1997 ANNUAL REPORT 52 10 PRO FORMA DOMESTIC REVENUE BY MARKET [WORLD] Clear Channel Communications, Inc. o 1997 ANNUAL REPORT o 9 53 11 DOMESTIC OPERATIONS [MAP OF THE UNITED STATES] 10 o Clear Channel Communications, Inc. o 1997 ANNUAL REPORT [PICTURE OF AUSTRALIA] AUSTRALIAN RADIO NETWORK 2WS FM Sydney, NSW Hits and Memories 101.7 MHz MIX106 FM Sydney, NSW Soft Adult Contemporary 106.5 MHz ONE FM Western Sydney, NSW Adult Contemporary 101.1 MHz GOLD104 FM Melbourne, Victoria Gold 104.3 MHz TTFM FM Melbourne, Victoria Hot Adult Contemporary 101.1 MHz 4KQ AM Brisbane, Queensland Adult Contemporary 693 KHz 4BH AM Brisbane, Queensland Soft Adult Contemporary 882 KHz 106.3 FM Canberra Adult Contemporary 106.3 MHz 5AD FM Adelaide, SA Adult Contemporary 105.3 MHz 5DN AM Adelaide, SA News/Talk 1323 KHz [PICTURE OF NEW ZEALAND] RADIO NEW ZEALAND NETWORK COMMUNITY RADIO Radio Waitomo Te Kuiti 1170AM Radio Forestland Tokoroa 1413AM King Country Radio Taumarunui 1512AM Lakeland FM Taupo 96.7FM Gisborne's 2ZG 945AM Hawera's 2ZH 1557AM River City FM Wanganui 89.6FM Radio Wairarapa Masterton 846AM Radio Marlborough Blenheim 97FM, 1539AM & 1584AM Radio Scenicland Greymouth 90.5FM, Greymouth 93.1 & 91.1FM Reefton 97.3FM Westport 90.9FM Buller 1287AM South Westland Ashburton's 3ZE 92.5FM & 873AM Radio Waitaki Oamaru 1395AM CLASSIC HITS FM 97FM Auckland 90FM Wellington 98FM Christchurch 1026AM Radio Northland 98.6FM Hamilton's ZHFM 95BOP FM Bay of Plenty 97FM Rotorua 89FM Bay City Radio, Hawkes Bay 90FM Taranaki 97.8FM Manawatu 90FM Nelson 99FM Timaru 89FM Dunedin 98.8FM Invercargill's ZAFM ZM & CLASSIC ROCK 91ZM Wellington 90.9 & 93.5FM 91ZM Christchurch 91.3FM 93ZM Whangarei 93.1FM 96ZM Dunedin 95.8FM 98.3FM Rotoru Classic Rock 96FM Napier Classic Rock Q91FM 90.6 NEWSTALK ZB Auckland 1080AM & 89.4FM Wellington 1035AM Christchurch 1098AM Waikato 1296AM Bay of Plenty 1008AM Hawkes Bay 1278AM Taranaki 1053AM & 1557AM Manawatu 927AM Dunedin 1044AM Southland 864AM Clear Channel Communications, Inc. o 1997 ANNUAL REPORT o 11 54 12 MORE GROUP PLC [GEOGRAPHIC REVENUE DISTRIBUTION - 1997 CHART] [PRODUCT LINE REVENUE DISTRIBUTION - 1997 CHART] On March 5, 1998, Clear Channel Communications, Inc., announced that it had reached an agreement with the board of More Group Plc regarding the terms of a recommended cash offer to acquire all of the issued shares of More Group. The offer values each More Group share at (pound)10.30. More Group is one of the world's leading outdoor advertising companies. It employs more than 1,000 people in 22 countries and operates over 90,000 fixed advertising panels worldwide. Although the majority of its assets are located in Europe, the Company also has operations in the United States, Asia, and Australia. The company operates a number of brands - Adshel (50,000 street furniture panels), More O'Ferrall, Superboards and WW (40,000 billboards) and More Trans (Transport contracts). From an established, market-leading base in the UK and Ireland, More has developed organically and by acquisition to become one of the world's leading outdoor advertising companies. In addition to developing its market shares through innovative product engineering, More has been at the forefront of consolidation activity in Europe and Asia. It has now established strong market share throughout the world and is well placed to secure further street furniture and transport tenders in its domestic market and internationally. [CHART] 12 o Clear Channel Communications, Inc. o 1997 ANNUAL REPORT 55 13 CORPORATE OFFICERS CORPORATE Lowry Mays Chairman Chief Executive Officer Mark P. Mays President Chief Operating Officer Randall Mays Executive Vice President Chief Financial Officer Kathryn Johnson Vice President Communications Herbert W. Hill, Jr. Senior Vice President Chief Accounting Officer David Wilson Vice President Controller Kenneth E. Wyker Senior Vice President for Legal Affairs Demetra Koelling Vice President Corporate Counsel Rick Wolf Vice President Corporate Counsel Houston Lane Vice President Finance Ida Chycinski Vice President Cash Management Deborah Williams Vice President Corporate Taxation Dr. Ed Cohen Vice President Research Susan Ross Director of Corporate Reporting RADIO James Smith Senior Vice President Operations & Capital Management George L. Sosson Senior Vice President Operations-East Stan Webb Senior Vice President Operations-Central Peter Ferrara Senior Vice President Operations-Florida Radio Vice Presidents David Arcara, Albany Jeff Frank, Allentown Judy Lakin, Austin Walt Tiburski, Cleveland Steve Patterson, Columbia Dave Thomas, Cookeville David Macejko, Dayton Bill Struck, El Paso Jim Keating, Ft. Myers Skip Essick, Grand Rapids Howard Nemenz, Greensboro Carl Hamilton, Houston Ernest Jackson, Houston Dan Patrick, Houston Kevin Webb, Jackson Linda Byrd, Jacksonville Joel Day, Florida Keys Mike Shannon, Lancaster/Reading Richard D. Booth, Little Rock Bob Scherer, Louisville Mark Thomas, Louisville Bruce Demps, Memphis Sherri Sawyer, Memphis David Ross, Miami Ronna Woulfe, Miami Terry Wood, Milwaukee David Coppock, Mobile Miles Chandler, Montery Faith Zila, New Haven Earnest James, New Orleans Janet Armstead, Norfolk John Moen, Oklahoma City Jenny Sue Rhoades, Orlando Jimmy Vineyard, Panama City Jeanie Hufford, Pensacola Matt Chase, Providence Wayne Jefferson, Raleigh Carl McNeill, Richmond Linda Forem, Richmond Reggie Jordan, Richmond Robert T. Cohen, San Antonio Elizabeth D. Kocurek, San Antonio Gary James, Springfield David Manning, Tallahassee Skip Schmidt, Tampa Kevin Malone, Tampa Allen McLaughlin, Tulsa David D'Eugenio, West Palm Beach RADIO NETWORKS VICE PRESIDENTS Rick Green, Clear Channel News Networks Kevin Moore, Clear Channel Sports Networks OUTDOOR ELLER MEDIA COMPANY Karl Eller, Chairman & CEO Scott Eller, President Tim Donmoyer, CFO/Exec. VP DIVISION PRESIDENTS John Jacobs, Atlanta Ken Blakey, Chicago Bill Platko, Cleveland Gene Leehan, Dallas S. Doak Hoover, El Paso Michelle Costa, Houston Paul Sara, Milwaukee Dennis Wazaney, New York Bill Hooper, Northern California Bruce Seidel, Orange County Manny Molina, Phoenix Dan Creel, San Antonio Ignacio Ayala, South Florida George Manyak, Southern California S. Wayne Mock, Tampa Bay TELEVISION Rip Riordan Executive Vice President/ Chief Operating Officer TELEVISION VICE PRESIDENTS David M. D'Antuono, Albany John F. Feeser, III, Harrisburg Josh McGraw, Jacksonville Chuck Spohn, Little Rock Jack L. Peck, Memphis Steve Spendlove, Minneapolis Sharon Moloney, Mobile Deborah J. Sinay, Providence Jack Jacobson, Tuscon Hal Capron, Tulsa Randy Pratt, Wichita INTERNATIONAL Richard D. Novik President Mary Ann Chapman Vice President Business Development - China AUSTRALIA John Hamilton Chief Financial Officer NEW ZEALAND Stephen Barron Chief Executive BOARD OF DIRECTORS Lowry Mays Chairman Chief Executive Officer Alan D. Feld Partner: Akin, Gump, Strauss, Hauer and Feld Red McCombs Private Investor Theodore H. Strauss* Senior Managing Director: Bear, Stearns & Co., Inc. John H. Williams* Senior Vice President: Everen Securities, Inc. Karl Eller Chairman & CEO: Eller Media Company FORM 10-K ANNUAL REPORT A copy of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission may be obtained without charge upon written request to: Herbert W. Hill, Jr. Senior Vice President Clear Channel Communications, Inc. P.O. Box 659512 San Antonio, Texas 78265-9512 INDEPENDENT AUDITORS Ernst & Young, LLP San Antonio, Texas TRANSFER AGENT AND REGISTRAR Bank of New York 101 Barclay Street 12 Floor West New York, NY 10286 ANNUAL MEETING OF SHAREHOLDERS The annual meeting of shareholders will be held at 200 Concord Plaza on the 1st floor in the Conference Room, San Antonio, Texas, at 11:00 am CDT on Tuesday, May 5, 1998 56 14 [LOGO] CLEAR CHANNEL COMMUNICATIONS, INC. [MAP] MAILING ADDRESS P.O. BOX 659512 SAN ANTONIO, TEXAS 78265-9512 CORPORATE ADDRESS 200 CONCORD PLAZA SUITE 600 SAN ANTONIO, TEXAS 78216-6940 210.822.2828 FACSIMILE 210.822.2299 WORLD WIDE WEB ADDRESS WWW.CLEARCHANNEL.COM 57 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPARISON OF 1997 VS. 1996 CONSOLIDATED Consolidated net revenue in 1997 increased 98% to $697.1 million from $351.7 million. Operating expenses increased 99% to $394.4 million, compared to $198.3 million for 1996. Operating income before depreciation and amortization in 1997 increased to $302.7 million from $153.4 million, or 97%. Depreciation and amortization increased 149% to $114.2 million from $45.8 million. Interest expense increased to $75.1 million from $30.1 million, or 150%. Other income (expense) -- net increased to $11.6 million from $2.2 million. Net income was $63.6 million for 1997, compared to $37.7 million in 1996. The corresponding earnings per common share-diluted was $.67 and $.51 for 1997 and 1996, respectively. Income tax expense (based on income before equity in earnings (loss) of nonconsolidated affiliates) in 1997 was $47.1 million, reflecting an annual average effective tax rate of 45%, compared to $28.4 million, or a 40% effective rate in 1996. Equity in earnings (loss) of nonconsolidated affiliates increased to $6.6 million in 1997 from $(5.2) million in 1996. The predominant reasons for the increase in net revenue and operating expenses are two fold: first, the revenue and expenses associated with the operations of Eller Media Corporation (Eller), an outdoor media company acquired in April of 1997. This new outdoor segment, including subsequent acquisitions and license management agreements of approximately 7,000 display faces, contributed 30% of the Company's revenue and 27% of the Company's operating expenses during 1997. Second, net revenue and operating expense increased from radio stations and networks acquired during 1997 and a full year of operations for those radio and television stations acquired during 1996. Station and network acquisitions are as follows:
ACQUIRED BEGAN LICENSE(1) OPERATIONS(2) STATION OR NETWORK LOCATION - ---------- ------------- ------------------ -------- 11/97 11/97 KQSY-FM (now KMRX-FM) Tulsa, OK 10/97 10/97 KMVK-FM (now KDDK-FM), KSSN-FM and KOLL-FM Little Rock, AR 10/97 10/97 Penn State Sports Network State College, PA 10/97 10/97 Miami Hurricane Sports Network Coral Gables, FL 10/97 10/97 Florida Gators Sports Network Gainesville, FL 10/97 10/97 Tennessee Radio Network Nashville, TN 10/97 10/97 Florida Radio Network Maitland, FL 10/97 10/97 Alabama Radio Network Birmingham, AL 10/97 10/97 WZTR-FM Milwaukee, WI 12/97 10/97 Paxson Radio (Paxson) WHUB-AM, WPTN-AM, WGIC-FM and WGSQ-FM Cookeville, TN WAVK-FM, WKRY-FM and WFKZ-FM Florida Keys, FL WZNZ-AM, WNZS-AM, WFSJ-FM WROO-FM, WPLA-FM and WTLK-FM Jacksonville, FL WFTL-AM, WINZ-AM, WIOD-AM WPLL-FM, WLVE-FM and WZTA-FM Miami, FL WTKX-FM Pensacola, FL WWNZ-AM, WQTM-AM, WSHE-FM WJRR-FM, WMGF-FM and WTKS-FM Orlando, FL WDIZ-AM, WSHF-FM, WPBH-FM,
58 16
ACQUIRED BEGAN LICENSE(1) OPERATIONS(2) STATION OR NETWORK LOCATION - ---------- ------------- ------------------ -------- WFSY-FM and WPAP-FM Panama City, FL WNLS-AM, WJZT-FM, WTNT-FM WSNI-FM and WXSR-FM Tallahassee, FL WKES-FM (now WILV-FM), WZTM-AM, WSJT-FM and WHPT-FM Tampa, FL WBZT-AM, WKGR-FM and WOLL-FM West Palm Beach, FL 10/97 WYCL-FM Pensacola, FL 10/97 WHNZ-AM Tampa/St. Petersburg, FL 9/97 9/97 WDUR-AM, WFXC-FM and WFXK-FM Raleigh, NC 9/97 KTOM-AM/FM, KDON-AM/FM, KOCN-FM and KRQC-FM Monterey, CA 8/97 8/97 WMFX-FM, WOIC-AM Columbia, SC 4/97 4/97 WKII-AM, WOLZ-FM and WFSN-FM (now WXRM-FM) Fort Myers, FL 3/97 3/97 WMIL-FM and WOKY-AM Milwaukee, WI 2/97 2/97 KHOM-FM (now KUMX-FM) New Orleans, LA 2/97 2/97 WAKX-FM (now WVTI-FM) Grand Rapids, MI 1/97 1/97 WQMF-FM and WHKW-FM Louisville, KY 12/96 12/96 Radio Equity Partners, LP (REP) WRXQ-FM, WEGR-FM, WREC-AM Memphis, TN WWBB-FM and WWRX-FM Providence, RI 12/96 12/96 KJMS-FM and KWAM-AM Memphis, TN 10/96 10/96 WHKW-AM (now WKJK-AM), WWKY-AM and WTFX-FM Louisville, KY 8/97 10/96 WLAN-AM/FM Lancaster, PA 8/96 8/96 Radio Equity Partners, LP (REP) WARQ-FM, WWDM-FM Columbia, SC WXRM-FM (now WQNU-FM) and WCKT-FM Ft. Myers/Naples, FL WSJS-AM, WTQR-FM, WXRA-FM Greensboro, NC WNOE-FM, KLJZ-FM (now KKND-FM) New Orleans, LA WHYN-AM/FM Springfield, MA KXXY-AM (now KEBC-AM), KXXY-FM and KTST-FM Oklahoma City, OK 3/97 8/96 Radio Enterprises, Inc.(3) WQBJ-FM, WXCR-FM, WQBK-AM (now WTMM-AM), and WQBK-FM Albany, NY 7/96 7/96 WPRI-TV Providence, RI 7/96 WNAC-TV Providence, RI 6/96 6/96 WTVR-AM/FM Richmond, VA 1/97 5/96 WZZU-FM (now WNNL-FM) Raleigh, NC 2/97 5/96 KJOJ-AM Houston, TX 5/96 5/96 US Radio, Inc. (USR) KHEY-AM/FM and KPRR-FM El Paso, TX KJOJ-FM Houston, TX KMJX-FM, KDDK-FM (now KQAR-FM) Little Rock, AR WHRK-FM and WDIA-AM Memphis, TN WKKV-FM Milwaukee, WI
59 17
ACQUIRED BEGAN LICENSE(1) OPERATIONS(2) STATION OR NETWORK LOCATION - ---------- ------------- ------------------ -------- WJCD-FM and WOWI-FM Norfolk, VA WQOK-FM Raleigh, NC WRAW-AM, WRFY-FM Reading, PA 10/96 5/96 WSVY-FM Norfolk, VA 10/96 5/96 WCUZ-AM (now WTKG-AM) and WCUZ-FM Grand Rapids, MI 11/96 5/96 WMYK-FM (now WSVV-FM) Norfolk, VA 5/96 KQLL-AM/FM and KOAS-FM Tulsa, OK 2/96 2/96 WOOD-AM/FM, WBCT-FM Grand Rapids, MI 10/95 10/95 Voice of Southwest Agriculture Radio Network San Angelo, TX 10/95 10/95 WHP-TV Harrisburg, PA 10/95 WLYH-TV Harrisburg, PA 7/95 WKY-AM Oklahoma City, OK 6/95 WTEV-TV Jacksonville, FL 1/95 1/95 KMJQ-FM Houston, TX 1/95 1/95 KPRC-AM and KSEV-AM(3) Houston, TX 5/96 11/94 WENZ-FM Cleveland, OH 8/96 3/93 KEYI-FM and KFON-AM Austin, TX
- --------------- (1) Represents the date in which the Company consummated the purchase of the FCC license. (2) Represents the date from which the results of the stations operations are included with the results of the Company. This date may precede the acquisition date as a result of the Company executing a local marketing agreement (LMA) or joint sales agreement (JSA) as broker for the station. (3) The Company acquired an 80% interest in these stations. The tangible and intangible assets acquired through the purchases of Eller and the above mentioned stations and networks account for the majority of the increase in depreciation and amortization for 1997. Interest expense increased as a result of greater average borrowing levels and higher average borrowing rates, 6.3% in 1996 to 6.6% in 1997. Other income increased primarily as a result of a $6.2 million gain from the sale of 350,000 shares of common stock in Heftel Broadcasting. Income tax expense rose due to the increase in taxable earnings as well as an increase in the average effective tax rate from 40% in 1996 to 45% in 1997. The effective tax rate increased as a result of the increase in nondeductible amortization expense principally associated with the acquisition of Eller. Equity in earnings (loss) of nonconsolidated affiliates increased in 1997 primarily as a result of the solid financial performance by Heftel. An additional increase resulted from the purchase of a 30% interest in American Tower Corporation, the leading independent domestic owner and operator of wireless communication towers. These increases were partially offset by an eroding currency valuation in Australia and New Zealand. Equity in earnings (loss) of nonconsolidated affiliates is included in the results of operations for the Company's radio segment. RADIO Net revenue in 1997 increased 53% to $332.6 million from $217.2 million. Operating expenses increased 59% to $201.2 million, compared to $126.6 million for 1996. Operating income before depreciation and amortization in 1997 increased to $131.4 million from $90.6 million, or 45%. Depreciation and amortization increased 74% to $48.5 million from $27.8 million in 1996. Operating income increased 32% to $82.9 million in 1997 from $62.8 million in 1996. 60 18 The majority of the increase in net revenue, operating expenses and depreciation and amortization was due to the aforementioned radio and network acquisitions. At December 31, 1997, the radio segment included 156 stations for which the Company owned the Federal Communications Commission (FCC) license and 17 stations programmed under local marketing or time brokerage agreements. These 173 radio stations operate in 40 different markets. TELEVISION Net revenue in 1997 increased 17% to $157.1 million from $134.6 million. Operating expenses in 1997 increased 19% to $85.1 million compared to $71.7 million for 1996. Operating income before depreciation and amortization in 1997 increased to $71.9 million from $62.8 million, or 14%. Depreciation and amortization decreased .6% to $17.9 million from $18.0 million. Operating income increased 21% to $54.0 million in 1997 from $44.8 million in 1996. The increase in net revenue was primarily due to a full year of operations for the aforementioned television acquisitions that occurred in July of 1996 and from improved ratings at several of the television stations. Operating expenses rose predominately due to the inclusion of a full year of operations for the aforementioned television station acquisitions and the increase in selling expenses related to the increase in revenue. At December 31, 1997, the television segment included 11 television stations for which the Company owned the FCC license and seven stations for which the Company programmed under time sales or time brokerage agreements. These 18 television stations operate in 11 different markets. OUTDOOR Net revenue and operating expenses in 1997 was $207.4 million and $108.1 million, respectively. Operating income before depreciation and amortization in 1997 was $99.3 million. Depreciation and amortization was $47.8 million resulting in operating income of $51.5 million in 1997. Assuming the acquisition of Eller was effective at the beginning of 1996, pro forma net revenue in 1997 would have increased 11% to $264.1 million from 1996 pro forma of $237.0 million. Pro forma operating expenses in 1997 increased .1% to $141.9 million compared to $141.8 million for 1996 pro forma. Pro forma operating income before depreciation and amortization in 1997 increased to $122.2 million from $95.2 million, or 28%. Pro forma depreciation and amortization increased .2% to $64.3 million from $64.2 million. Pro forma operating income increased 86% to $57.8 million in 1997 from $31.0 million in 1996. Pro forma revenue increased primarily due to improved occupancy and increased rates for usage of display faces. This also resulted in the increased pro forma operating income before depreciation and amortization and pro forma operating income. At December 31, 1997, the outdoor segment operated 57,660 display faces in 17 different markets. COMPARISON OF 1996 VS. 1995 CONSOLIDATED Consolidated net revenue in 1996 increased 41% to $351.7 million from $250.1 million. Operating expenses in 1996 increased 44% to $198.3 million, compared to $137.5 million for 1995. Operating income before depreciation and amortization in 1996 increased to $153.4 million from $112.6 million, or 36%. Depreciation and amortization increased 36% to $45.8 million from $33.8 million. Interest expense increased to $30.1 million from $20.8 million, or 45%. Other income (expense) increased from $(.8) million to $2.2 million. Net income was $37.7 million for 1996, compared to $32.0 million in 1995. Income tax expense (based on income before equity in net income/loss of, and other income from, nonconsolidated affiliates) in 1996 was $28.4 million, reflecting an annual average effective tax rate of 40%, compared to $20.3 million, or a 41% effective rate in 1995. Equity in net income (loss) of, and other income from, nonconsolidated affiliates decreased to $(5.2) million in 1996 from $2.5 million in 1995. 61 19 The majority of the increase in net revenue was due to the additional revenue associated with the radio and television stations acquired in 1996 and the inclusion of a full year of operations for those stations acquired in 1995. These stations are listed in the aforementioned table. Operating expenses rose due to the increase in selling expenses associated with this revenue increase and the additional operating expenses associated with the above acquisitions. The major cause of the increase in depreciation and amortization was the acquisition of the tangible and intangible assets associated with the purchases of the above mentioned stations. The majority of the increase in interest expense was due to an increase in the average amount of debt outstanding which was partially offset by a decrease in the average interest rate from 6.8% in 1995 to 6.3% in 1996. Income tax expense increased because of the increase in earnings. The equity in net income (loss) of, and other income from, nonconsolidated affiliates resulted from: one, the Company's purchase in May 1995 of a 50% interest in the Australian Radio Network Pty. Ltd. (ARN), which owns and operates radio stations and a radio representation company in Australia; two, the purchase in May 1995 of 21.4%, and the purchase in August 1996 of an additional 41.8%, of the outstanding common stock of Heftel Broadcasting Corporation (Heftel), a publicly-traded Spanish-language radio broadcaster in the United States; and three, the purchase in July 1996 of a 33.33% (one-third) interest in the New Zealand Radio Network (NZRN), which owns and operates 52 radio stations in New Zealand. The majority of the decrease in equity in net income (loss) of, and other income from, nonconsolidated affiliates was due to the Company's equity interest in certain employment contract payments, severance costs, and other write-offs totaling $44.7 million related to Heftel's reorganization. All of these equity investments are included in results of operations for the Company's radio segment. RADIO Net revenue in 1996 increased 51% to $217.2 million from $144.2 million. Operating expenses increased 45% to $126.6 million, compared to $87.5 million for 1995. Operating income before depreciation and amortization in 1996 increased to $90.6 million from $56.7 million, or 60%. Depreciation and amortization increased 39% to $27.8 million from $20 million. Operating income increased 71% to $62.8 million in 1996 from $36.7 million in 1995. The majority of the increase in net revenue, operating expenses and depreciation and amortization was due to the aforementioned radio and network acquisitions. At December 31, 1996, the radio segment included 91 stations for which the Company owned the FCC license and 15 stations programmed under local marketing or time brokerage agreements, all of which operated in 26 different markets. With the passage of the Telecommunications Act (the Act) in February 1996, the limit on the maximum number of licenses that one company may own in the United States was eliminated, and the limit on the number of licenses that one company may own in any given market was changed. This limit depends on the size of the market; in the largest markets, for example, one company may not own more than eight licenses total, with no more than five licenses of one service (AM or FM). This allows the Company significant flexibility in future growth in its radio broadcasting operations. TELEVISION Net revenue in 1996 increased 27% to $134.6 million from $105.8 million. Operating expenses in 1996 increased 43% to $71.7 million compared to $50.0 million for 1995. Operating income before depreciation and amortization in 1996 increased to $62.8 million from $55.8 million, or 13%. Depreciation and amortization increased 31% to $18.0 million from $13.8 million. Operating income increased 7% to $44.8 million in 1996 from $42.1 million in 1995. The majority of the increase in net revenue was due to the inclusion of the aforementioned television acquisitions in 1996 and 1995. Operating expenses rose due to the increase in selling expenses associated with these revenue increases, the inclusion of the aforementioned television acquisitions in 1996 and 1995, and the start-up costs of the news departments at four television stations. 62 20 The major cause of the increase in depreciation and amortization was the acquisition of tangible and intangible assets associated with the purchase of the aforementioned television stations. At December 31, 1996, the television segment included eleven television stations for which the Company owned the FCC license and seven stations, which the Company programmed under time sales or time brokerage agreements, all of which operated in eleven different markets. With passage of the Act in February 1996, the restrictions on ownership of television stations include a national ownership limit of stations that reach no more than 35% of the total United States television audience and the limit of one license per market for any one broadcaster. This allows the Company greater opportunity to expand into additional markets in television broadcasting. LIQUIDITY AND CAPITAL RESOURCES The major sources of capital for the Company have been cash flow from operations, advances on its revolving long-term line of credit facility (the Credit Facility), other borrowings, and funds provided by the initial stock offering in 1984 and subsequent stock offerings in July 1991, October 1993, June 1996, May 1997 and September 1997. Historically, cash flow has exceeded earnings by a significant amount due to high amortization and depreciation expense. Effective April 10, 1997, the Company refinanced the Credit Facility, increasing the borrowing limit to $1.75 billion. The Credit Facility converts into a reducing revolving line of credit on the last business day of September 2000, with quarterly repayment of the outstanding principal balance to begin the last business day of September 2000 and continue during the subsequent five year period, with the entire balance to be repaid by the last business day of June 2005. On September 9, 1997, the Company filed a shelf registration statement on Form S-3 covering a combined $1.5 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 which may be issued from time to time by the Company's three Delaware statutory business trusts and guarantees of such preferred securities by the Company. On October 9, 1997 the Company completed an offering of $300 million, 7.25% debentures due October 15, 2027 resulting in net proceeds to the Company of $294.3 million. Interest on the debentures is payable semiannually on each April 15 and October 15, beginning April 15, 1998. The Company, at its option, may at any time redeem all or any portion of the debentures at a redemption price equal to 100% of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semiannual basis at the applicable Treasury Yield plus 25 basis points, plus accrued interest to the date of redemption, whichever is greater. On May 14, 1997, the Company completed an offering of 6,093,790 shares of Common Stock. On September 12, 1997, the Company completed an offering of 8,000,000 shares of Common Stock. The net proceeds to the Company were approximately $288.4 million and $503.3 million, respectively. During 1997, the Company used the Credit Facility and cash flow from operations to purchase broadcasting assets (radio stations) totaling $784.2 million, outdoor assets (display faces and license management agreements) totaling $490.3 million and equity interest in American Tower Corporation for $32.5 million. In addition to these acquisitions, the Company loaned $35.4 million to third parties in order to facilitate the purchase of certain broadcast assets and refinanced $417 million of long-term debt assumed as a part of the acquisition of Eller. Advances on the Credit Facility totaled $1,695.4 million. The Company made principal payments on the Credit Facility totaling $1,197.3 million, including $748.0 million, which represents a portion of the proceeds from the Company's stock offerings in May 1997 and September 1997, and $292.7 million, which represents a portion of the proceeds from the Company's debt offering in October 1997. Through mid-February of 1998, the Company purchased the broadcasting assets of certain radio stations in Mobile, AL, Monterey, CA, Allentown, PA and in Jackson, MS for approximately $24.0 million, $23.2 million, $29.0 million, and $20.0 million, respectively. The Credit Facility and cash flow from operations 63 21 provided funding. After giving effect to the above-mentioned transactions and other borrowings of $16.8 million, the Company had $1,328.2 million outstanding under the Credit Facility, with $384.5 million available for future borrowings. Interest rates on most of the borrowings adjust every 30 days. Based on the $1,215.2 million outstanding debt under the Credit Facility at December 31, 1997, a 1% increase in interest rates would result in a net after tax charge to the Company's earnings of approximately $7.5 million. In addition, other notes payable amounting to $38.5 million were outstanding at December 31, 1997. The Company also had $24.7 million in unrestricted cash and cash equivalents at December 31, 1997. The Company expects that cash flow from operations in 1998 will be sufficient to make all required interest and principal payments on long-term debt. On October 23, 1997 the Company entered into a definitive agreement to merge with Universal Outdoor Holdings, Inc., (Universal) an international corporation with over 34,000 display faces in 23 markets. The merger, which is subject to certain closing conditions and regulatory approvals, is structured as an exchange of stock; each share of Universal common stock will be exchanged for .67 shares of the Company's stock. On February 6, 1998, the Universal common stock shareholders voted to approve the adoption of the agreement and plan of merger between Universal and the Company. Upon consummation of this merger, the Company will issue approximately 19.3 million shares of its common stock and assume approximately $566 million in long-term debt. The Company intends to account for this merger as a purchase transaction and expects to consummate this merger during the first half of 1998. On March 5, 1998 the Company announced an agreement with the Board of Directors of More Group Plc (More Group), an outdoor advertising company based in the United Kingdom, regarding the terms of a recommended cash offer to acquire all of the issued shares of More Group. The offer values each More Group share at L10.30 or approximately $17.00. The total value of this transaction will be approximately $735.7 million. This transaction is subject to certain regulatory approvals and other closing conditions. If these conditions are met, this transaction is expected to close during 1998. The Company intends to fund this transaction through the Credit Facility and additional funds generated from either equity and/or debt offerings. CAPITAL EXPENDITURES AND PROGRAM COMMITMENTS Capital expenditures in 1997 increased 57% to $31.0 million from $19.7 million in 1996. The majority of the increase was attributable to the purchase of display structures in the outdoor segment. Capital expenditures made during 1997 were as follows:
RADIO TELEVISION(1) OUTDOOR ----- ------------- ------- IN MILLIONS OF DOLLARS Land and buildings.......................................... $4.6 $2.5 $ 1.7 Broadcasting and other equipment............................ $4.4 $4.5 -- Display structures and other equipment...................... -- -- $13.3 ---- ---- ----- $9.0 $7.0 $15.0
- --------------- (1) Capital expenditures related to the conversion to digital television are expected to begin in the last quarter of 1998 and to be completed by the end of 2002. The Company's television stations and sports networks have entered into programming commitments to purchase the broadcast rights to various feature films, syndicated shows, sports events and other programming. Total commitments for such programming at December 31, 1997 were $38.8 million. These commitments were not available for broadcast at December 31, 1997, but are expected to become available over the next few years, at which time the commitments will be recorded. Most commitments are payable over a period not exceeding five years. The Company anticipates funding any subsequent broadcasting or outdoor capital expenditures and program commitments with the Credit Facility and cash flow generated from operations. 64 22 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 generally accepted accounting principles 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 the Company's 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 generally accepted auditing standards 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 65 23 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, 1997 and 1996, and the related consolidated statements of earnings, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 Heftel Broadcasting Corporation, in which the Company has a 32% interest and of Australian Radio Network Pty Ltd, in which the Company has a 50% interest, have been audited by other auditors whose reports have been furnished to us; insofar as our opinion on the consolidated financial statements relates to data included for Heftel Broadcasting Corporation for 1997 and for the Australian Radio Network Pty Ltd, for 1996, it is based solely on their reports. We conducted our audits in accordance with generally accepted auditing standards. 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 provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the consolidated 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, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Ernst & Young LLP San Antonio, Texas March 11, 1998 66 24 CLEAR CHANNEL COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS
ASSETS ------ In thousands of dollars December 31, 1997 1996 Current Assets Cash and cash equivalents $ 24,657 $ 16,701 Accounts receivable, less allowance of $9,850 in 1997 and $6,067 in 1996 155,962 79,182 Film rights - current 14,826 14,188 Income tax receivable 3,202 3,093 Total Current Assets 198,647 113,164 Property, plant and equipment Land, buildings and improvements 84,118 46,550 Structures and site leases 487,857 Transmitter and studio equipment 215,755 153,255 Furniture and other equipment 46,584 21,164 Construction in progress 39,992 4,284 874,306 225,253 Less accumulated depreciation 128,022 77,415 746,284 147,838 Intangible Assets Network affiliation agreements 33,727 33,727 Licenses and goodwill 2,175,944 764,233 Covenants not-to-compete 24,892 22,992 Other intangible assets 19,593 8,712 2,254,156 829,664 Less accumulated amortization 141,066 78,646 2,113,090 751,018 Other Notes receivable 35,373 52,750 Film rights 14,171 13,437 Investments in, and advances to, nonconsolidated affiliates 266,691 230,660 Other assets 30,122 10,807 Other investments 51,259 5,037 Total Assets $3,455,637 $1,324,711
67 25 CLEAR CHANNEL COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, 1997 1996 CURRENT LIABILITIES Accounts payable $ 11,904 $ 9,865 Accrued interest 9,950 6,272 Accrued expenses 34,489 8,236 Deferred income 1,340 1,300 Current portion of long-term debt 13,294 1,479 Current portion of film rights liability 15,875 16,310 Total Current Liabilities 86,852 43,462 Long-term debt 1,540,421 725,132 Film rights liability 15,551 13,797 Deferred income taxes 10,114 11,283 Deferred income 9,750 11,250 Other long-term liabilities 25,378 -- Minority interest 20,787 6,356 SHAREHOLDERS' EQUITY Preferred Stock, par value $1.00 per share, authorized 2,000,000 shares, no shares issued and outstanding -- -- Common Stock, par value $.10 per share, authorized 150,000,000 and 100,000,000 shares, issued and outstanding 98,232,893 and 76,992,078 shares in 1997 and 1996, respectively 9,823 7,699 Additional paid-in capital 1,541,865 398,622 Retained earnings 169,631 106,055 Other 2,398 1,226 Unrealized gain on investments 23,754 -- Cost of shares (38,207 in 1997 and 26,878 in 1996) held in treasury (687) (171) Total Shareholders' Equity 1,746,784 513,431 Total Liabilities And Shareholders' Equity $ 3,455,637 $ 1,324,711
See Notes to Consolidated Financial Statements 68 26 CLEAR CHANNEL COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF EARNINGS In thousands of dollars, except per share data
Year Ended December 31, 1997 1996 1995 Gross revenue $ 790,178 $ 398,094 $ 283,357 Less: agency commissions 93,110 46,355 33,298 Net revenue 697,068 351,739 250,059 Operating expenses 394,404 198,332 137,504 Depreciation and amortization 114,207 45,790 33,769 Operating income before corporate expenses 188,457 107,617 78,786 Corporate expenses 20,883 8,527 7,414 Operating income 167,574 99,090 71,372 Interest expense 75,076 30,080 20,752 Other income (expense) - net 11,579 2,230 (803) Income before income taxes 104,077 71,240 49,817 Income taxes 47,116 28,386 20,292 Income before equity in earnings (loss) of nonconsolidated affiliates 56,961 42,854 29,525 Equity in earnings (loss) of nonconsolidated affiliates 6,615 (5,158) 2,489 Net income $ 63,576 $ 37,696 $ 32,014 Net income per common share: Basic $ .72 $ .51 $ .46 Diluted $ .67 $ .51 $ .46
See Notes to Consolidated Financial Statements 69 27 CLEAR CHANNEL COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
In thousands of dollars Cumulative Additional Translation Unrealized Common Paid-in Retained Adjustment Gain on Treasury Stock Capital Earnings and Other Investments Stock Total ------- ----------- ---------- ----------- ----------- -------- ---------- Balances at January 1, 1995 $1,723 $92,535 $36,346 $ -- $ -- $ (71) $130,533 Net income for year 32,014 32,014 Exercise of stock options 7 627 (100) 534 Currency translation adjustment 102 102 Unrealized gains on investments, net of tax 530 530 Stock split 1,729 (1,729) -- ------ ---------- -------- ------ ------- ------ ---------- Balances at December 31, 1995 3,459 91,433 68,360 102 530 (171) 163,713 Net income for year 37,695 37,695 Exercise of stock options 5 301 306 Proceeds from sale of Common Stock 385 310,738 311,123 Currency translation adjustment 1,124 1,124 Reversal of unrealized gains on investments, net of tax (530) (530) Stock split 3,850 (3,850) -- ------ ---------- -------- ------ ------- ------ ---------- Balances at December 31, 1996 7,699 398,622 106,055 1,226 -- (171) 513,431 Net income for year 63,576 63,576 Proceeds from sale of Common Stock 1,409 790,310 791,719 Common Stock and stock option issued for business acquisition 665 348,023 6,633 355,321 Exercise of stock options 50 4,910 (397) (516) 4,047 Currency translation adjustment (5,064) (5,064) Unrealized gains on investments, net of tax 23,754 23,754 ------ ---------- -------- ------ ------- ------ ---------- Balances at December 31, 1997 $9,823 $1,541,865 $169,631 $2,398 $23,754 $ (687) $1,746,784 ====== ========== ======== ====== ======= ====== ==========
See Notes to Consolidated Financial Statements 70 28 CLEAR CHANNEL COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands of dollars Year Ended December 31, 1997 1996 1995 Cash Flows From Operating Activities: Net income $ 63,576 $ 37,696 $ 32,014 Reconciling Items: Depreciation 51,700 19,337 15,380 Amortization of intangibles 62,507 26,453 18,389 Deferred taxes 18,300 5,730 2,953 Amortization of film rights 16,735 15,038 11,263 Payments on film liabilities (17,289) (14,627) (10,353) Recognition of deferred income (1,460) (810) -- (Gain) loss on disposal of assets (1,129) (41) 405 Gain on sale of other investments (3,819) -- -- Equity in (earnings) loss of non- consolidated affiliates (2,778) 7,933 -- Dividends received from nonconsolidated affiliates -- 7,207 -- Decrease minority interest (617) -- -- Changes in operating assets and liabilities: Increase accounts receivable (20,752) (10,606) (11,545) Increase deferred income -- 13,360 -- Increase (decrease) accounts payable (5,271) 4,489 (372) Increase (decrease) accrued interest 3,598 5,764 (233) Increase (decrease) accrued expenses and other liabilities 1,628 (320) 3,831 Increase (decrease) accrued income and other taxes (109) (8,999) 2,598 Net cash provided by operating activities $ 164,820 $ 107,604 $ 64,330
71 29
Year Ended December 31, 1997 1996 1995 Cash Flows From Investing Activities: Decrease in restricted cash $ -- $ -- $ 38,500 Decrease (increase) in notes receivable - net 17,377 (52,750) -- Increase in investments in and advances to nonconsolidated affiliates - net (38,317) (163,295) (81,279) Purchases of investments (25,101) (3,113) (500) Proceeds from sale of investments 6,333 -- -- Purchases of property, plant and equipment (30,956) (19,723) (15,110) Proceeds from disposal of assets 2,410 16 383 Acquisition of broadcasting assets (784,204) (550,630) (105,136) Acquisition of outdoor assets (490,345) -- -- Increase in other intangible assets (10,881) (2,895) (1,870) (Increase) decrease in other-net 7,891 (4,374) 5,340 Net cash used in investing activities (1,345,793) (796,764) (159,672) Cash Flows From Financing Activities: Proceeds of long-term debt 2,013,160 718,575 162,600 Payments on long-term debt (1,614,821) (326,400) (64,800) Payments of current maturities (5,176) (3,134) (4,419) Proceeds from exercise of stock options 4,047 306 534 Proceeds from issuance of common stock 791,719 311,123 -- Net cash provided by financing activities 1,188,929 700,470 93,915 Net increase (decrease) in cash and cash equivalents 7,956 11,310 (1,427) Cash and cash equivalents at beginning of year 16,701 5,391 6,818 Cash and cash equivalents at end of year $ 24,657 $ 16,701 $ 5,391
See Notes to Consolidated Financial Statements 72 30 CLEAR CHANNEL COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 1997 presentation. Cash and Cash Equivalents: Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less. Prepaid Land Lease: Most of the Company's outdoor advertising structures are located on leased land. Land rents are typically paid in advance for periods ranging from one to twelve months. Prepaid land leases are expensed ratably over the related rental term. Film Rights: The capitalized costs of film rights are recorded when the license period begins and the film rights are available for use. The rights are amortized based on the number of showings or license period. Unamortized film rights assets are classified as current or noncurrent based on estimated usage. Amortization of film rights is included in operating expenses. Film rights liabilities are classified as current or noncurrent based on anticipated payments. Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation is computed principally by 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 - 10 to 30 years Structures and site leases - 10 to 20 years Transmitter and studio equipment - 7 to 15 years Furniture and other equipment - 5 to 10 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. 73 31 Intangible Assets: Intangible assets are stated at cost and are being amortized using the straight-line method. Excess cost over the fair value of net assets acquired (goodwill) and certain licenses are generally amortized over 25 years. Covenants not-to-compete are amortized over the respective lives of the agreements. Network affiliation agreements are amortized over 10 years. Leases are amortized over the remaining lease terms. The periods of amortization are evaluated annually to determine whether circumstances warrant revision. Long-Lived Assets: Impairment losses on long lived assets (including related goodwill) are recognized when indicators of impairment are present and the estimated future undiscounted cash flows are not sufficient to recover the assets' carrying value. Other Investments: Other investments are composed primarily of equity securities. These securities are classified as available-for-sale and carried at fair value based on quoted market prices. The unrealized gains or losses on these investments, net of tax, are reported as a separate component of shareholders' equity. The average cost method is used to compute the realized gains and losses on sales of equity securities. Financial Instruments: The carrying amounts of financial instruments approximate their fair value. 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. Revenue Recognition: Radio and television broadcast 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. Revenues from design, production and certain other services are recognized as the services are provided. Payments received in advance of billings are recorded as deferred revenue. 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. 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 not significant. Foreign Currency: Foreign currency translation adjustments, which result from the translation of financial statement information into U.S. dollars for the Company's investments in Australian Radio Network Pty Ltd. (ARN) and New Zealand Radio Network (NZRN), are accounted for as a separate component of shareholders' equity. Transaction gains or losses are recorded as income or expense as incurred. Stock Based Compensation: The Company uses the intrinsic value method in accounting for its stock based employee compensation plan. 74 32 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. Earnings Per Share: In 1997, the Company adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share. The adoption of this new accounting standard, which required the restatement of all presented periods' earnings per share data, did not have a material impact on the Company. NOTE B - BUSINESS ACQUISITIONS In April of 1997, the Company acquired approximately 93% of the outstanding stock of Eller Media, Inc. (Eller). Eller's operations included approximately 50,000 outdoor advertising display faces in 15 major metropolitan markets. As consideration for the stock acquired, the Company paid cash of approximately $329 million and issued common stock of the Company in the aggregate value of approximately $298 million. In addition, the Company issued options on the Company's common stock with an aggregate value of approximately $51 million in connection with the assumption of Eller's outstanding stock options. In addition, the Company assumed approximately $417 million of Eller's long-term debt, which was refinanced at the closing date using the Company's credit facility. This acquisition was accounted for as a purchase with resulting goodwill of approximately $655 million. Subsequent to the acquisition of Eller, the Company has acquired approximately 3,000 additional display faces and executed license management agreements for approximately 4,000 display faces, for an aggregate consideration of $161.7 million. Also during 1997, the Company acquired substantially all of the broadcasting assets of 70 radio stations, including four stations that the Company acquired an 80% interest therein, and six news, sports and agricultural networks in 22 markets. The most significant acquisition was 43 radio stations, six news, sports and agricultural networks and approximately 350 display faces acquired from Paxson Communications, Inc. for approximately $629 million during the fourth quarter of 1997. During 1996 the Company acquired substantially all of the broadcasting assets of 49 radio stations, and two television stations in 20 markets. During 1995, the Company acquired substantially all of the broadcasting assets of three radio stations, including two stations that the Company acquired an 80% interest therein, two television stations and one news and agricultural network in three markets. At December 31, 1997, the Company programmed 17 radio stations and seven television stations under a local marketing agreement or a joint sales agreement and does not own the FCC license. The following is a summary of the assets acquired and the consideration given for the above stated acquisitions:
In thousands of dollars 1997 1996 1995 Property, plant and equipment $ 629,207 $ 47,579 $ 15,013 Accounts receivable 56,028 15,656 3,095 Licenses, goodwill and other assets 1,460,505 488,251 93,716 Total assets acquired 2,145,740 551,486 111,824 Less: Seller financing (1,400) -- -- Liabilities assumed (507,456) (856) (5,288) Minority interest (15,047) -- -- Common Stock and stock options issued (348,688) -- -- Cash paid for acquisitions $ 1,274,549 $ 550,630 $ 105,136
75 33 The results of operations for 1997, 1996, and 1995 include the operations of each station, for which the Company purchased the license, from the respective date of acquisition. Unaudited pro forma consolidated results of operations, assuming each of the acquisitions had occurred at January 1, 1995, would have been as follows:
Pro Forma (Unaudited) Year Ended December 31, In thousands of dollars, except per share data 1997 1996 1995 Net revenue $ 831,814 $ 670,481 $ 665,015 Net income (loss) $ 29,891 $ (22,773) $ (23,930) Net income (loss) per common share-diluted $ .28 $ (.30) $ (.32)
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 each of the businesses been acquired at the beginning of 1995, nor is it indicative of future results of operations. NOTE C - INVESTMENTS Australian Radio Network: In May of 1995, the Company purchased a 50% interest in ARN, an Australian company that owns and operates radio stations, a narrowcast radio broadcast service and a radio representation company in Australia. New Zealand Radio Network: In July 1996 the Company purchased a one-third interest in NZRN, which purchased all of the stock of Radio New Zealand Commercial, formerly a government-owned company consisting of 52 radio stations throughout New Zealand. Heftel Broadcasting Corporation: In May of 1995, the Company purchased 21.4% of the outstanding common stock of Heftel Broadcasting Corporation (Heftel) a Spanish-language radio broadcaster in the United States. In August of 1996, the Company purchased an additional 41.8% of the outstanding common stock of Heftel. In January of 1997, the Company purchased an interest from the Tichenor family, which was subsequently exchanged for Heftel common stock at the time of Heftel's merger with Tichenor Media System, Inc. (Tichenor), another Spanish-language radio broadcaster with stations in major Hispanic markets in the United States. In February of 1997, the Company sold 350,000 shares of its Heftel common stock as a selling shareholder in a secondary stock offering in which Heftel issued an additional 4.8 million shares of common stock. The Company recognized a gain of approximately $6.2 million as a result of this transaction. Also, Heftel issued another 5.6 million shares of its common stock in connection with its merger with Tichenor. As a result of these transactions, the Company's interest in Heftel was 32.3% of the total number of shares of Heftel's common stock outstanding at December 31, 1997. American Tower Corporation: In July of 1997 the Company purchased a thirty percent (30%) interest in American Tower Corporation (ATC), the leading independent domestic owner and operator of wireless communication towers. The following table summarizes the Company's investments in these nonconsolidated affiliates:
In thousands of dollars ARN NZRN Heftel ATC Total At December 31, 1996 $73,242 $29,393 $128,025 $ -- $230,660 Acquisition of 30% of ATC 32,510 32,510 Additional investment, net 8,807 944 (3,989) 45 5,807 Equity in net earnings (loss) 1,323 (4,202) 6,909 274 4,304 Amortization of excess cost -- -- (1,097) (429) (1,526) Foreign currency translation adjustment (2,763) (2,301) -- -- (5,064) At December 31, 1997 $80,609 $23,834 $129,848 $32,400 $266,691
76 34 These 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 income statement as "Equity in earnings (loss) of nonconsolidated affiliates". Other income derived from transactions with nonconsolidated affiliates consists of interest and management fees which aggregated $6.4 million in 1997, $4.5 million in 1996 and $1.4 million in 1995, less applicable income taxes of $2.5 million in 1997, $1.7 million in 1996 and $.4 million in 1995. Equity in the undistributed earnings (loss) included in "Retained earnings" for these investments was $2.1 million and $(2.2) million for December 31, 1997 and 1996, respectively. Summarized Financial Information: The following table presents summarized financial information for ARN and Heftel: Balance sheet information at December 31, 1997:
In thousands of dollars ARN(1) Heftel Current assets $ 12,633 $36,695 Noncurrent assets 215,119 475,554 Current liabilities 31,263 25,725 Noncurrent liabilities 121,705 96,564 Shareholders' equity 74,784 389,960 Income statement information for period investment held in 1997: Net revenues $72,116 $136,584 Operating expenses 52,077 82,064 Net income 10,749 18,772
(1) For presentation purposes only, data for ARN has been translated into U.S. dollars at the December 31, 1997 exchange rate and has been presented in conformity with Australian GAAP. The Company's equity in net income of ARN, which is based on U.S. GAAP, is not directly comparable to net income reported by ARN. The most significant difference involves the charge against results of operations for the amortization of radio licenses under U.S. GAAP, which is not recorded under Australian GAAP. The Company's share of such amortization for its investment in ARN was $2.9 million for the year ended December 31, 1997. 77 35 Notes Receivable: During 1997 and 1996, the Company provided approximately $35.4 million and $52.8 million respectively, in financing to third parties. The financing provided in 1997 was used to affect the acquisition of radio broadcasting operations. A total of $21.4 million was relieved as consideration for six FCC licenses acquired during January 1998. The remaining $14 million will be relieved as consideration for three FCC licenses expected to be acquired during the first half of 1998. The financing provided in 1996 was in the form of loans secured by the assets of certain radio stations. These loans, which were paid in full during 1997, were accounted for as notes receivable, with the related interest income recorded in other income. Other Investments: Other investments at December 31, 1997 include marketable equity securities recorded at market value of $62.2 million (cost basis of $23.9 million). During 1997, realized gains of $3.8 million were recorded in "Other income (expense) - net." At December 31, 1997, unrealized gains, net of tax, of $23.8 million were recorded as a separate component of shareholders equity. NOTE D - LONG-TERM DEBT Long-term debt at December 31, 1997 and 1996 consisted of the following:
In thousands of dollars December 31, 1997 1996 Debentures, 7.25%, interest payable semi-annually on April 15 and October 15, beginning April 15, 1998, principal to be paid in full on October 15, 2027.(1) $ 300,000 $ -- Revolving long-term line of credit facility payable to banks, three years interest only through September 1999, payable quarterly, rate based upon prime, LIBOR or Fed funds rate, (6.3% at December 31, 1997) at the Company's discretion, principal to be paid in full by June 2005, $534.8 million remains undrawn, secured by 100% of the Common Stock of the Company's wholly owned subsidiaries (2) 1,215,221 717,175 Other long-term debt 38,494 9,436 1,553,715 726,611 Less: current portion 13,294 1,479 Total long-term debt $1,540,421 $725,132
(1) Proceeds from issuance of debentures totaled $294.3 million, net of fees and initial offering discount. The fees and initial offering discount are being amortized as interest expense over 30 years and at December 31, 1997, were $5.7 million. (2) This facility converts into a reducing revolving line of credit on the last business day of September 2000, with quarterly repayment of the principal to begin on that date and continue quarterly through the last business day of June 2005, when the commitment must be paid in full. Of the $534.8 million undrawn, $9.6 million is unavailable due to a guarantee and $27.7 million is unavailable due to letters of credit. This leaves $497.5 million available at December 31, 1997 for future borrowings under the credit facility. 78 36 The Company's current line of credit agreement with banks contains certain covenants that substantially restrict, among other matters, the payment of cash dividends and the pledging of assets. Future maturities of long-term debt at December 31, 1997 are as follows:
In thousands of dollars 1998 $13,294 1999 7,344 2000 2,185 2001 2,200 2002 88,994 2003 and thereafter 1,439,698 $1,553,715
The Company currently hedges a portion of its outstanding debt with interest rate swap agreements that effectively fix the interest at rates from 5.5% to 8.5% on $565 million of its current borrowings. These agreements expire from February 1998 to October 2000. The fair value of these agreements at December 31, 1997 and settlements of interest during 1997 were not material. NOTE E - COMMITMENTS 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. As of December 31, 1997, the Company's future minimum rental commitments, under noncancelable lease agreements with terms in excess of one year, consist of the following:
In thousands of dollars 1998 $37,596 1999 32,448 2000 26,714 2001 22,898 2002 18,315 2003 and thereafter 71,064 $209,035
Rent expense charged to operations for 1997, 1996 and 1995 was $76.5 million, $5.3 million and $4.5 million, respectively. The Company's film rights commitments and related film assets are recorded on the earliest date the rights are available for telecast. At December 31, 1997, the future payments on these film rights liabilities are as follows:
In thousands of dollars 1998 $15,875 1999 9,359 2000 5,472 2001 676 2002 44 $31,426
79 37 Commitments for additional film license agreements in the amount of $26.3 million have been executed; however, they are not included in the amounts above because the programs were not available for telecast as of December 31, 1997. In addition, commitments for sports rights have been executed in the amount of $8.3 million for future radio and television broadcast of sporting events. NOTE F - CONTINGENCIES 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 adequate 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. NOTE G - INCOME TAXES Significant components of the provision for income taxes are as follows:
In thousands of dollars 1997 1996 1995 Current - federal $28,321 $22,214 $16,085 Deferred 18,299 5,730 2,953 State 3,012 2,159 1,692 Total $49,632 $30,103 $20,730
Included in current-federal is $2.5 million, $1.7 million and $.4 million for 1997, 1996 and 1995, respectively, related to taxes on other income from nonconsolidated affiliates, which has been included as a reduction in "Equity in earnings (loss) of nonconsolidated affiliates". The remaining $47.1 million, $28.4 million and $20.3 million for 1997, 1996 and 1995, respectively, have been reflected as income tax expense. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1997 and 1996 are as follows:
In thousands of dollars 1997 1996 Deferred Tax Liabilities: Excess tax depreciation $18,190 $7,409 Excess tax amortization 13,514 4,868 Film amortization 809 809 Basis reduction of acquired assets 2,670 413 Gain on sale of assets 3,175 -- Other 752 -- Total deferred tax liabilities 39,110 13,499 Deferred Tax Assets: Gain on sale of assets 386 374 Deferred income 6,291 -- Operating loss carry forwards 11,087 1,581 Accrued expenses 8,603 -- Bad debt reserves 1,903 -- Other 726 261 Total deferred tax assets 28,996 2,216 Net deferred tax liabilities $10,114 $11,283
The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is: 80 38 In thousands of dollars
1997 1996 1995 Amount Percent Amount Percent Amount Percent Income tax expense at statutory rates $38,772 35% $26,651 35% $17,926 35% State income taxes, net of federal tax benefit 1,958 2% 1,403 2% 1,100 2% Amortization of goodwill 7,093 6% 1,493 2% 1,543 4% Other - net 1,809 2% 556 1% 161 $49,632 45% $30,103 40% $20,730 41%
The Company has certain net operating loss carryforwards amounting to approximately $29.2 million, which expire beginning in the year 2011. NOTE H - CAPITAL STOCK Stock Splits and Dividends: In October 1996 and October 1995, the Board of Directors authorized two-for-one stock splits distributed on December 2, 1996 and November 30, 1995, respectively, to stockholders of record on November 13, 1996 and November 15, 1995, respectively. A total of 38.5 million and 17.3 million shares, respectively, were issued in connection with the 1996 and 1995 stock splits. All share, per share, stock price and stock option amounts shown in the financial statements (except the Consolidated Statement of Changes in Shareholders' Equity) and related footnotes have been restated to reflect the stock splits. Eller Put/Call Agreement: The Company granted to the former Eller stockholders certain demand and piggyback registration rights relating to the shares of common stock received by them. The holders of the remaining outstanding shares of Eller capital stock, not purchased by the Company, have the right to put such stock to the Company for approximately 1.1 million shares of the Company's common stock until April 10, 2002. From and after April 10, 2004, the Company will have the right to call this minority interest stake in Eller for 1.1 million shares of the Company's common stock.
Reconciliation Of Earnings Per Share: In thousands, except per share data 1997 1996 1995 Numerator: Net income $63,576 $37,696 $32,014 Effect of dilutive securities: Eller put/call agreement (2,577) -- -- Numerator for net income per common share-diluted $60,999 $37,696 $32,014 Denominator: Weighted average common shares 88,480 73,422 69,092 Effect of dilutive securities: Employee stock options 2,220 1,208 978 Eller put/call agreement 815 -- -- Dilutive potential common shares 3,035 1,208 978 Denominator for net income per common share-diluted 91,515 74,630 70,070 Net income per common share: Basic $.72 $.51 $.46 Diluted $.67 $.51 $.46
81 39 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 antidilutive 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. The following table presents a summary of the Company's stock options outstanding at and stock option activity during the years ended December 31, 1997, 1996 and 1995:
In thousands, except per share data Weighted Average Price Options Per Share Options outstanding at January 1, 1997 1,638 $9.00 Options granted in acquisition 1,468 13.00 Options granted 346 44.00 Options exercised (495) 5.00 Options forfeited (28) 34.00 Options outstanding at December 31, 1997 (1) 2,929 16.00 Weighted average fair value of options granted during 1997 35.00 Options outstanding at January 1, 1996 1,528 6.00 Options granted 233 28.00 Options exercised (107) 3.00 Options forfeited (16) 34.00 Options outstanding at December 31, 1996 1,638 9.00 Weighted average fair value of options granted during 1996 12.00 Options outstanding at January 1, 1995 1,657 5.00 Options granted 195 14.00 Options exercised (264) 2.00 Options forfeited (60) 8.00 Options outstanding at December 31, 1995 1,528 6.00 Weighted average fair value of options granted during 1995 6.00
(1) Vesting dates range from March 1993 to October 2002, and expiration dates range from January 1998 to April 2007 at exercise prices ranging from $3.26 to $61.00. There were 1.8 million shares available for future grants under the various option plans at December 31, 1997. 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 1997 and 1996: risk-free interest rates of 6.0%; a dividend yield of 0%. The volatility factors of the expected market price of the Company's common stock used was 31% and 34% for 1997 and 1996, respectively, and the weighted-average expected life of the option was five and six years for 1997 and 1996, respectively. 82 40 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:
In thousands, except per share data 1997 1996 Net Income As reported $63,576 $37,696 Pro forma $61,739 $37,498 Net income per common share Basic As reported $ .72 $ .51 Pro forma $ .70 $ .51 Diluted As reported $ .67 $ 51 Pro forma $ .67 $ .50
In February 1991, CCTV, a wholly owned subsidiary of the Company, adopted the 1991 Non-Qualified Stock Option Plan which authorized the granting of options to purchase 50,000 shares of CCTV Common Stock. In February 1993, CCTV elected to discontinue the granting of options under this plan. At December 31, 1997, there were 9,500 options outstanding under this plan, with an exercise date of January 1, 1999. At December 31, 1997, common shares reserved for future issuance aggregated approximately six million shares. NOTE I - EMPLOYEE BENEFIT PLANS The Company has a 401(k) Savings Plan (Plan) 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 deferred compensation to a maximum of $9,500 in 1997. Company matched contributions vest to the employees based upon their years of service to the Company. Contributions to this Plan of $1.2 million, $.7 million and $.5 million were charged to expense for 1997, 1996 and 1995, respectively. NOTE J - SUPPLEMENTAL INFORMATION
In thousands of dollars 1997 1996 1995 Supplemental Cash Flow: Cash paid for interest $71,399 $24,316 $20,985 Cash paid for taxes 49,741 35,669 18,132 Other Income (Expense) - net: Realized gains on sale of marketable securities $10,019 Gain on disposal of fixed assets 2,027 Minority interest (848) Interest income from notes receivable $ 1,779 Depreciation and Amortization: Goodwill and licenses $49,800 $19,700 $9,900
1997 1996 Other Current and Long-Term Liabilities: Acquisition accrual $15,236 Accrued compensation and benefits 12,159 $6,080 Outdoor advertising structure takedown accrual 11,539 Accrued insurance 5,915 Accrued property tax 5,089
83 41 NOTE K - SEGMENT DATA The Company consists of three principal business segments radio broadcasting, television broadcasting and outdoor advertising. At December 31, 1997, the radio segment included 156 stations for which the Company is the licensee and 17 stations operated under lease management or time brokerage agreements. These 173 stations operate in 40 markets. The radio segment also operates eight networks including seven news and agriculture and one sports network. At December 31, 1997, the television segment included 11 television stations for which the Company is the licensee and seven stations operated under lease management or time brokerage agreements. These 18 stations operate in 11 markets. At December 31, 1997, the outdoor segment operated 57,660 advertising display faces including 3,697 displays under license management agreements. These display faces are in 17 markets. Substantially all revenues are from unaffiliated companies.
In thousands of dollars 1997 1996 1995 Net revenue Radio $332,571 $217,189 $144,244 Television 157,062 134,550 105,815 Outdoor 207,435 -- -- Consolidated $697,068 $351,739 $250,059 Operating expenses Radio $201,182 $126,628 $87,531 Television 85,132 71,704 49,973 Outdoor 108,090 -- -- Consolidated $394,404 $198,332 $137,504 Depreciation Radio $13,252 $8,916 $6,974 Television 11,563 10,420 8,406 Outdoor 26,885 -- -- Consolidated $51,700 $19,336 $15,380 Amortization of intangibles Radio $35,215 $18,840 $13,007 Television 6,353 7,614 5,382 Outdoor 20,939 -- -- Consolidated $62,507 $26,454 $18,389 Operating income Radio $82,922 $62,805 $36,732 Television 54,014 44,812 42,054 Outdoor 51,521 -- -- Consolidated $188,457 $107,617 $78,786 Total identifiable assets Radio $1,840,908 $1,079,853 $340,685 Television 310,693 244,858 222,326 Outdoor 1,304,036 -- -- Consolidated $3,455,637 $1,324,711 $563,011 Capital expenditures Radio $8,913 $7,447 $5,243 Television 7,011 12,276 9,867 Outdoor 15,032 -- -- Consolidated $30,956 $19,723 $15,110
84 42 NOTE L - SUBSEQUENT EVENTS In January 1998 the Company closed its acquisitions of WMXC-FM, WNTM-AM, WDWG-FM, WKSJ-AM, WKSJ-FM and WRKH-FM, and signed a joint sales agreement for WNSP-FM in Mobile, Alabama for approximately $24.0 million, acquired KDON-FM, KDON-AM, KRQC-FM, KTOM-FM, KTOM-AM and KOCN-FM in Monterey, CA for approximately $23.2 million and acquired WODE-AM and WEEX-FM in Allentown, PA for approximately $29.0 million. In February 1998 the Company closed its acquisitions of WJMI-FM, WKXI-AM/FM, and WOAD-AM in Jackson, MS, for approximately $20.0 million. On October 23, 1997 the Company entered into a definitive agreement to merge with Universal Outdoor Holdings, Inc., (Universal) an international corporation with over 34,000 display faces in 23 markets. The merger, which is subject to certain closing conditions and regulatory approvals, is structured as an exchange of stock; each share of Universal common stock will be exchanged for .67 shares of the Company's stock. On February 6, 1998, the Universal common stock shareholders voted to approve the adoption of the agreement and plan of merger between Universal and the Company. Upon consummation of this merger, the Company will issue approximately 19.3 million shares of its common stock (valued at approximately $1,202 million) and assume approximately $566 million in long-term debt. The Company intends to account for this merger as a purchase transaction and expects to consummate this merger during the first half of 1998. On March 5, 1998 the Company announced an agreement with the Board of Directors of More Group, Plc (More Group) regarding the terms of a recommended cash offer to acquire all of the issued shares of More Group. The offer values each More Group share at (pound)10.30 or approximately $17.00. The total value of this transaction is approximately (pound)475 million or, $735.7 million. More Group, based in the United Kingdom, operates over 90,000 advertising displays in 22 countries. This transaction is subject to certain regulatory approvals and other closing conditions. If these conditions are met, this transaction is expected to close during 1998. NOTE M - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
In thousands of dollars, except per share data March 31, June 30, September 30, December 31, 1997 1996 1997 1996 1997 1996 1997 1996 Gross revenue $110,831 $70,140 $212,200 $92,406 $209,050 $107,189 $258,097 $128,359 Net revenue $ 98,289 $62,208 $186,779 $81,370 $184,108 $ 94,839 $227,892 $113,322 Operating expenses 63,055 38,230 103,678 43,762 99,809 53,409 127,862 62,931 Depreciation and amortization 15,946 8,755 32,724 10,589 31,546 13,022 33,991 13,424 Operating income before corporate expenses 19,288 15,223 50,377 27,019 52,753 28,408 66,039 36,967 Corporate expenses 2,854 1,674 5,017 1,804 5,828 2,170 7,184 2,879 Operating income 16,434 13,549 45,360 25,215 46,925 26,238 58,855 34,088 Interest expense 11,046 5,424 21,268 6,322 19,490 8,033 23,272 10,301 Other income (expense)- net 6,259 206 (1,060) (19) 2,442 480 3,938 1,563 Income before income taxes 11,647 8,331 23,032 18,874 29,877 18,685 39,521 25,350 Income taxes 4,962 2,810 12,345 7,356 14,335 7,261 15,474 10,959 Income before equity in earnings (loss) of nonconsolidated affiliates 6,685 5,521 10,687 11,518 15,542 11,424 24,047 14,391 Equity in earnings (loss) of nonconsolidated affiliates 914 717 4,407 1,030 3,067 (8,375) (1,773) 1,470 Net income $ 7,599 $ 6,238 $ 15,094 $ 12,548 $ 18,609 $ 3,049 $ 22,274 $ 15,861 Net income per common share: (1) Basic $ .10 $ .09 $ .18 $ .18 $ .21 $ .04 $ .23 $ .21 Diluted $ .10 $ .09 $ .16 $ .18 $ .19 $ .04 $ .22 $ .20 Stock price: (1) High $49.6250 $29.5625 $63.3750 $43.3750 $68.7500 $45.2500 $79.4375 $44.5625 Low 34.2500 20.3750 42.7500 26.7500 58.6250 35.6250 60.0000 30.5000
(1) Adjusted for two-for-one stock split effected in December 1996. The Company's Common Stock is traded on the New York Stock Exchange under the symbol CCU. 85 43 Results of operations information: In thousands of dollars, except per share data
Year ended December 31, 1997 1996 1995 1994 1993 Gross revenue $ 790,178 $ 398,094 $ 283,357 $ 200,695 $ 135,680 ------------ ------------ ------------ ------------ ------------ Net revenue $ 697,068 $ 351,739 $ 250,059 $ 178,053 $ 121,118 Operating expenses 394,404 198,332 137,504 105,380 78,925 Depreciation and amortization 114,207 45,790 33,769 24,669 17,447 ------------ ------------ ------------ ------------ ------------ Operating income before corporate expenses 188,457 107,617 78,786 48,004 24,746 Corporate expenses 20,883 8,527 7,414 5,100 3,464 ------------ ------------ ------------ ------------ ------------ Operating income 167,574 99,090 71,372 42,904 21,282 Interest expense 75,076 30,080 20,752 7,669 5,390 Other income (expense) - net 11,579 2,230 (803) 1,161 (196) ------------ ------------ ------------ ------------ ------------ Income before income taxes 104,077 71,240 49,817 36,396 15,696 Income taxes 47,116 28,386 20,292 14,387 6,573 ------------ ------------ ------------ ------------ ------------ Income before equity in earnings (loss) of nonconsolidated affiliates 56,961 42,854 29,525 22,009 9,123 Equity in earnings (loss) of noncon- solidated affiliates 6,615 (5,158) 2,489 0 0 ------------ ------------ ------------ ------------ ------------ Net income $ 63,576 $ 37,696 $ 32,014 $ 22,009 $ 9,123 ============ ============ ============ ============ ============ Net income per common share: (1) Basic $ .72 $ .51 $ .46 $ .32 $ .15 ============ ============ ============ ============ ============ Diluted $ .67 $ .51 $ .46 $ .32 $ .15 ============ ============ ============ ============ ============ Cash dividends per share (1) -- -- -- -- -- ============ ============ ============ ============ ============ Balance Sheet Data: Current assets $ 198,647 $ 113,164 $ 70,485 $ 53,945 $ 38,191 Property, plant and equipment - net 746,284 147,838 99,885 85,318 67,750 Total assets 3,455,637 1,324,711 563,011 411,594 227,577 Current liabilities 86,852 43,462 36,005 27,679 26,125 Long-term debt, net of current maturities 1,540,421 725,132 334,164 238,204 87,815 Shareholders' equity 1,746,784 513,431 163,713 130,533 98,343
86 44 (1) All per share amounts have been adjusted to reflect stock splits effected on the following dates and in the following ratios: Date of Split Ratio of Split December 1996 two-for-one November 1995 two-for-one February 1994 five-for-four February 1993 five-for-four
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk: At December 31, 1997, approximately 78% of the Company's long-term debt bears interest at variable rates. Accordingly, the Company's net income and after tax cash flow are affected by changes in interest rates. Assuming the current level of borrowings at variable rates and assuming a two percentage point change in the 1997 average interest rate under these borrowings, it is estimated that the Company's 1997 interest expense would have changed by $24.3 million resulting in a change in the Company's 1997 net income and after tax cash flow of $15.0 million. In the event of an adverse change in interest rates, management would likely take actions to further mitigate its exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, this analysis assumes no such actions. Further this analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment. At December 31, 1997, the Company had several interest rate protection agreements. Originally, Eller Media, Inc. (Eller) put these agreements in force to mitigate the interest rate risk on its long-term debt. Subsequently, ownership of these agreements transferred to the Company as a result of its acquisition of Eller on April 10, 1997. The fair value of these agreements are not material at December 31, 1997, are not expected to become material in the near-term, and have not been considered in the above analysis as the Company intends to terminate these agreements during 1998. Foreign Currency Risk: The Company's earnings are affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies as a result of its investments in Australia and New Zealand, both 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 theses foreign currencies at December 31, 1997 would change the Company's 1997 net income and after tax cash flow by $0.5 million. The Company's analysis does not consider the implications that such fluctuations could have on the overall economic activity that could exist in such an environment in either the U.S. or the foreign countries or on the results of operations of these foreign entities. Equity Price Risk: The carrying value of the Company's available-for-sale equity securities is affected by changes in their quoted market prices. It is estimated that a 20% change in the market prices of these securities would change their carrying value at December 31, 1997 by $12.4 million. 87 EX-21 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 - Subsidiaries of Registrant, Clear Channel Communications, Inc.
Name State of Incorporation Clear Channel Communications of Memphis, Inc. Texas Clear Channel Television, Inc. Nevada Clear Channel Radio, Inc. Nevada Clear Channel Television Licenses, Inc. Nevada Clear Channel Radio Licenses, Inc. Nevada Clear Channel Management, Inc. Delaware Clear Channel Metroplex, Inc. Nevada Clear Channel Metroplex Licenses, Inc. Nevada Clear Channel Holdings, Inc. Nevada Clear Channel Productions, Inc. Nevada CCC-Houston A M LTD Texas CCR Houston-Nevada, Inc. Nevada Clear Channel Real Estate, Inc. Nevada American Shelter Company, Inc. Illinois Blue Wallscapes, Inc. California CC-MCS, Inc. Texas Chicago Shelters Advertising, Inc. Illinois Clear Channel Communications International, Inc. Nevada Clear Channel Investments, Inc. Nevada Clear Channel Mexico, Inc. Nevada Clear Channel Peoples, Inc. Nevada Eller Investment Company, Inc. Arizona Eller Media Company Arizona Eller Outdoor Advertising Co. of Atlanta Arizona Eller Outdoor Advertising Company Arizona Eller Outdoor of El Paso, Inc. Texas Eller Target Media Group, LP California Eltex Investment Corp. Delaware Patrick Media Group, Inc. Delaware Peoples Broadcasting Company Pennsylvania PMG Holdings, Inc. Delaware PMG Target Media Holdings, Inc. Delaware Radio Enterprises, Inc. Delaware Shelter Advertising of America, Inc. Delaware Shelter Advertising of Hialeah, Inc. Florida Trendel Enterprises International, Inc. Florida Trendel International Development Corp. Florida Trendel, Inc. Florida
88 EX-23.1 6 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 - CONSENT OF INDEPENDENT AUDITORS - ERNST & YOUNG LLP We consent to the incorporation by reference in this Annual Report (Form 10-K) of Clear Channel Communications, Inc. of our report dated March 11, 1998 included in the 1997 Annual Report to Shareholders of Clear Channel Communications, Inc. We consent to the incorporation by reference in the shelf Registration Statement (Form S-3 No. 333-47367) and the Registration Statement (Form S-4 No. 333-43747) of Clear Channel Communications, Inc. of our reports dated March 11, 1998 with respect to the consolidated financial statements of Clear Channel Communications, Inc incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1997 and with respect to the related financial statement schedule included in this Annual Report (Form 10-K) for the year ended December 31, 1997. We also consent to the incorporation by reference in the Registration Statements (Forms S-8) pertaining to the 1984 Incentive Stock Option Plan of Clear Channel Communications, Inc. (No. 33-14193); the Clear Channel Communications, Inc. Nonqualified Stock Option Plan (No. 33-59772); the Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan, the Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan, the Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan; the Option Agreement for Officer (No. 33-64463); and the Non-Qualified Option Grant to Karl Eller dated April 10, 1997, the Non-Qualified Option Grant to Paul J. Meyer dated April 10, 1997, the Non-Qualified Option Grant to Timothy J. Donmoyer dated April 10, 1997, and the Eller Media Company Senior Management Incentive Plan of Clear Channel Communications, Inc. (No. 333-29717) of our report dated March 11, 1998 with respect to the consolidated financial statements of Clear Channel Communications, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1997 and with respect to the related financial statement schedule included in this Annual report (Form 10-K) for the year ended December 31, 1997. ERNST & YOUNG LLP San Antonio, Texas March 27, 1998 89 EX-23.2 7 CONSENT OF KPMG 1 EXHIBIT 23.2 - CONSENT OF INDEPENDENT AUDITORS - KPMG We consent to the incorporation by reference in the Registration Statements Form S-3 (No. 333-47367), in Registration Statements on Form S-8 (Nos. 33-14193, 33-59772, 33-64463, and 333-29717), and in the Registration Statement on Form S-4 (No. 333-43747) of our report dated March 4, 1997, relating to the 1996 consolidated financial statements of Australian Radio Network Pty Limited and its controlled entitles (such consolidated financial statements not separately presented in this Form 10-K), which report appears in the Annual Report of Clear Channel Communications, Inc. on Form 10-K for the year ended December 31, 1996. KPMG Sydney, Australia March 30, 1998 90 EX-23.3 8 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.3 - CONSENT OF INDEPENDENT AUDITORS - KPMG PEAT MARWICK LLP We consent to the incorporation by reference in the Registration Statements of Clear Channel Communications, Inc. on Form S-3 (No. 333-47367) and Form S-4 (No. 333-43747) of our report on the consolidated financial statements of Heftel Broadcasting Corporation and subsidiaries as of and for the year ended December 31, 1997, which report is included in the 1997 Annual Report on Form 10-K of Clear Channel Communications, Inc. We also consent to the incorporation by reference of the aforementioned report in the Registration Statements Form S-8 of the 1984 Incentive Stock Option Plan of Clear Channel Communications, Inc. (No. 33-14193); the Clear Channel Communications, Inc. Nonqualified Stock Option Plan (No. 33-59772); the Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan, the Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan, the Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan; the Option Agreement for Officer (No. 33-64463); and the Non-Qualified Option Grant to Karl Eller dated April 10, 1997, the Non-Qualified Option Grant to Paul J. Meyer dated April 10, 1997, the Non-Qualified Option Grant to Timothy J. Donmoyer dated April 10, 1997, and the Eller Media Company Senior Management Incentive Plan of Clear Channel Communications, Inc. (No. 333-29717). KPMG Peat Marwick LLP Dallas, Texas March 30, 1998 91 EX-27 9 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 DEC-31-1997 24,657 0 155,962 9,850 0 198,647 874,306 128,022 3,455,637 86,852 1,540,421 0 0 9,823 1,736,961 3,455,637 0 697,068 0 394,404 32,462 0 75,070 104,077 47,116 63,576 0 0 0 63,576 .72 .67
EX-99.1 10 REPORT OF IND. AUDITORS ON FINANCIAL STATEMENT SCH 1 EXHIBIT 99.1 - REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE We have audited the consolidated financial statements of Clear Channel Communications, Inc., as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, and have issued our report thereon dated March 11, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP March 11, 1998 San Antonio, Texas EX-99.2 11 REPORT OF INDEPENDENT AUDITORS - KPMG 1 EXHIBIT 99.2 REPORT OF INDEPENDENT AUDITORS - KPMG The Board of Directors of Australian Radio Network Pty Limited. We have audited the consolidated balance sheet of the Australian Radio Network Pty Limited and its controlled entities ("Australian Radio Network") as at December 31, 1996 and 1995, and the related consolidated profit and loss accounts and statements of cash flows for the years then ended all expressed in Australian dollars. These consolidated financial statements are the responsibility of the Australian Radio Network's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the Australian auditing standards that are substantially equivalent to United States generally accepted auditing standards. 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 provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Australian Radio Network as at December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in Australia. Generally accepted accounting principles in Australia vary in certain significant respects from generally accepted accounting principles in the United States. Application of generally accepted accounting principles in the United States would have affected results of operations for the year ended December 31, 1996 and the period May 11, 1995 to December 31, 1995, and shareholders' equity as of December 31, 1996 and 1995, to the extent summarized in the information accompanying the annual financial statements. KPMG Sydney, Australia 4 March, 1997 EX-99.3 12 REPORT OF INDEPENDENT AUDITORS - KPMG PEAT MARWICK 1 EXHIBIT 99.3 REPORT OF INDEPENDENT AUDITORS - KPMG PEAT MARWICK LLP INDEPENDENT AUDITORS' REPORT The Board of Directors Heftel Broadcasting Corporation: We have audited the consolidated balance sheet of Heftel Broadcasting Corporation and subsidiaries as of December 31, 1997 and the related statements of operations, stockholders' equity and cash flows for the year then ended (not presented separately herein). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. In our opinion, the 1997 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Heftel Broadcasting Corporation and subsidiaries as of December 31, 1997 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Dallas, Texas March 9, 1998 -----END PRIVACY-ENHANCED MESSAGE-----