Clear Channel 2005 Shareholder letter
2005
Dear fellow shareholders,
RADIO
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TV
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OUTDOOR
Leadership is never easy. And sometimes it requires the courage to change course. In that context, 2005 was one of the most significant – and successful – in our company’s history. First and foremost, we continued our longstanding focus of improving existing operations and driving profitability across each of our leading businesses. Company-wide revenues for 2005 were $6.6 billion and net earnings were $936 million. We also maintained our commitment to returning capital to shareholders by returning more than $1.4 billion in 2005, through a combination of share repurchases and dividends. In fact, we increased our regular quarterly dividend by 50%, and purchased approximately 6% of our own stock. In addition to the operational improvements and investments we made throughout the year, we also undertook a strategic realignment to unlock the value within each of our great businesses by creating enhanced environments for those businesses to grow. Specifically, we offered 10% of Clear Channel Outdoor to the public via an initial public offering and spun-off 100% of Clear Channel Entertainment to shareholders in a tax-efficient manner. The strategic realignment was a logical next step for our company and has already provided shareholders with near-term benefits. Clear Channel Communications (NYSE: CCU), Clear Channel Outdoor (NYSE: CCO) and Clear Channel Entertainment (now known as Live Nation (NYSE: LYV)) can now each pursue enhanced equity returns by optimally capitalizing each business. We have also sharpened management focus, created separate currencies to pursue growth opportunities and improved our ability to attract, retain and reward employees in a way that’s more aligned with shareholders. We have achieved all this while maintaining strong balance sheets and maintaining our focus on investing and returning free cash flow in a manner that ensures we are building long-term value. The strategic realignment has already resulted in value creation for shareholders. But we are equally excited about the opportunity for value creation over the long-term. Leading Positive Change A recurring theme at Clear Channel, especially over the past few years, has been “Leading Change.” We are pleased to report that in 2005 we continued to lead change in each of our industries, and to innovate at all levels of our organization. Here are just a few of the areas we were especially proud of in 2005:
Radio Quite simply, Clear Channel Radio set the standard for leadership in 2005. All media platforms are undergoing incredible change as the transition to the digital experience accelerates. We continue to be at the forefront of this dynamic landscape and are leading change into an exciting world of tomorrow. Clear Channel Radio’s outstanding content found more new distribution vehicles in 2005 than in any other year in our history. From the Internet to iPods to cell phones to mobile navigation devices to HD digital radios, Clear Channel Radio content is everywhere the next generation of consumers is headed. And the new business relationships we have with companies like Apple, Yahoo!, Motorola, BMW and Garmin increase our strategic insight every day. But of equal importance, we improved the quality of what we offer today.
Revenue (In millions of dollars)
2005 2004 2003 2002 2001
$0 $2,000
$6,610 $6,635 $6,251 $5,941 $5,462
$4,000 $6,000 $8,000 $10,000
In 2005 we significantly reduced the number of commercial minutes across our entire station group. Combined with our programming efforts, we experienced improvements in ratings and listenership across our entire portfolio. Time spent listening to Clear Channel Radio stations grew in 2005 compared to 2004 and more of our stations occupied market leading positions as well. The radio listening experience in 2005 was better than ever before. In 2005, our work to continually improve both the quality and the depth of our traditional service to listeners, advertisers and local communities was again unparalleled. We began the year by aggressively converting our stations’ primary broadcasts to HD digital radio and are on track to upgrade more than 90% of our stations in the Top 100 markets in the U.S. by the end of 2007. In addition, we laid the foundation for an aggressive roll-out of new digital channels in our local markets, as HD digital radio enables us to expand the number of signals a market receives. The ability to “multicast” provides us with the opportunity to offer local markets with new radio channels, with original programming that appeals to a wider group of people and interests. Given the potential and importance of this initiative for the radio industry, we kicked off 2006 with the announcement of forming the HD Digital Radio Alliance. Working with other major broadcasters, we’ve created an unprecedented alliance to move our new digital medium forward. By accelerating the roll-out of HD digital radio, we are providing radio listeners and advertisers with more choices and higher quality programming. Over time, we will be able to layer on more advanced services, such as traffic and weather on demand, perhaps by subscription, or through advertiser support. The potential is immense for Clear Channel Radio, and the reality of HD digital radio is here today. As you read this, we have already begun programming and multicasting channels in 28 markets. And we are taking our success here to receiver makers, automakers and retailers so that the enormous benefits of HD digital radio can reach millions of people more quickly. In addition to our significant leadership of the industry, we also pursued direct opportunities to expand our relationships with listeners, advertisers and artists – through an improved listening environment on our AM/FM stations and through pursuing new platforms and distribution methods. We’ve always known our programming was both unique and valuable, especially in our local communities. But in 2005 we demonstrated that the Internet, iPodtype devices, cell phones and even mobile navigation devices provide new opportunities for us to leverage our stations brands and programming beyond an AM/FM broadcast. In short, we are turning competitors into distribution channels. On the Internet, we stream more than 500 of our stations, and 80 of those offer podcasts of exclusive content. We also have more than 900 Web sites with rich, exclusive on-demand programming. In just 12 short months, our Online Music & Radio unit has gone from a contender to a true competitor of much more established online offerings. We are a primary content provider to Motorola’s much-celebrated iRadio cell-phone service. And we also provide real-time traffic content and data for mobile navigation systems. Feeding all of these initiatives has been a massive effort, underway for some 18 months, to improve the overall radio listening experience and strengthen our platform for advertisers. In 2005 we were successful in developing new
Operating Income Before Depreciation & Amortization, Non-Cash Compensation (In millions of Dollars) and Gain on Disposition of Assets (Net) (In millions of dollars)
2005 2004 2003 2002 2001
$0 $500 $1,000
$2,059 $2,228 $2,089 $2,039 $1,789
$1,500 $2,000 $2,500
10 Year Stock Performance
(Cumulative Total Return, adjusted for stock splits and dividends. Reflects an investment of $1,000 on 12/31/95)
12000 10000 8000 6000 4000 2000 0 1996 1998 2000 2002 2004
Clear Channel
S&P 500 Index
programming, creating exciting new formats, attracting some very strong talent and reducing commercial clutter. Notably, we had tremendous success in 2005 launching new local Spanish language formats and progressive talk. Key nationally recognized talent added in 2005 included Steve Harvey and Ty Pennington, as well as programming from Fox News Radio. As part of our efforts to reduce clutter, we transitioned to using more effective, shorter duration spots. Advertiser response has been overwhelmingly positive and there is now a fundamental shift occurring in the industry towards this new way of maximizing the value of radio’s ad time. While this initiative (which we and the industry call “Less is More”) reduced our total radio advertising revenue in 2005, we have improved our ability to deliver value and results to our customers for years to come. Improving the listening experience and delivering results to our advertisers in our international radio operations led to one of our most successful years ever in 2005. Working closely with our local joint venture partners, our 240 stations in Australia, New Zealand and Mexico continue to rank among the market leaders in their respective markets. The Australian Radio Network put up ratings successes in Sydney, Melbourne and Adelaide, leading to our third consecutive year of above-market revenue growth. The New Zealand Radio Network increased audience and listening levels to historic levels, introduced a new traffic network, and also out-performed market revenue growth for the third year in a row. And along with Grupo Acir, our partner in Mexico, we reached record ratings levels in our home base of Mexico City and continued to drive revenue improvement with a solution-based selling culture which is bringing new customers to radio. Overall, our international radio operations are well positioned for long-term growth. Our success hasn’t been by accident. Our initiatives are a direct result of being a vital part of the communities we serve, taking risks and leading change with a focus on the long-term. Our investments in programming, our focus on reducing commercial clutter and ability to leverage our programming brands to other platforms highlight our focus on the long-term, as well as our ability to lead change. Looking ahead, because of our efforts in 2005, we now expect to outpace radio industry advertising growth in 2006 and beyond. This was perhaps our most important accomplishment in 2005. Outdoor Clear Channel Outdoor is the global leader in the fast growing outdoor industry and continues to remain one of our most attractive businesses. In 2005, Clear Channel Outdoor continued its strong performance, growing revenues 9% for the full year, once again continuing its trend as our fastest growing division.
As part of our strategic realignment, in November 2005 we offered 10% of Clear Channel Outdoor to the public in an initial public offering. In doing so, we raised just over $600 million for Clear Channel Communications shareholders and provided Clear Channel Outdoor with increased focus and financial flexibility. We have often spoken of the renaissance that is occurring in our outdoor business. Technology continues to improve the value outdoor can provide advertisers as fragmentation occurs across all other media. While new technology is a challenge for most other mediums, for outdoor it is most certainly a benefit. For example, by rolling out new digital signage networks we can program outdoor advertising by day-part, advertising coffee during the morning commute and sandwiches in the afternoon. In addition, with the measurement of outdoor advertising effectiveness continuing to improve, all the arrows are pointing in the right direction. Highlighting the power and effectiveness of our outdoor advertising network, in 2005 we announced the first-ever global outdoor advertising campaign. By partnering with UNICEF, we mounted a global HIV/AIDS awareness campaign that spanned more than 50 countries on five continents. This unprecedented campaign took advantage of Clear Channel Outdoor’s unique ability to reach motorists, pedestrians, commuters and shoppers in the world’s cities by appearing on billboards, bus shelters, railway stations, buses and airports. We believe that Clear Channel Outdoor will thrive in the years ahead and that shareholders of both Clear Channel Communications and Clear Channel Outdoor will benefit from its performance. Please see the letter to shareholders of Clear Channel Outdoor for more information on this great company in which Clear Channel Communications shareholders’ owns 90%. Television Our 41 television stations across the country continue to remain an integral part of their local community fabric. In 2005, Clear Channel Television continued its focus on localism, especially in regards to improving local news coverage in all day parts. Our stations also continued to be ranked among the leaders within their markets and in many cases are able to serve audiences in a powerful way by cobranding with our radio stations in the market. In 2005 we also leveraged the reach of the Internet. In fact, this initiative was so successful in 2005 that we recently launched it as a full-integrated Web site design and management service, called Inergize Digital Media, to provide our expertise to non-Clear Channel television stations. This type of growth initiative highlights not only the entrepreneurial spirit within Clear Channel Television, but within our entire company. Furthermore, our commitment to Digital High Definition has continued to develop, with all of our stations transmitting in high definition; and many of them taking advantage of the digital capabilities by offering multicast video services. We were also recently pleased to promote our own Don Perry to succeed William Moll as president and chief executive officer of Clear Channel Television. Don Perry has been a senior member of our television team since 1996. Bill Moll will continue to serve as chairman of Clear Channel Television, after holding the CEO post since 2001. We look forward to keeping you updated on this division’s progress.
Local Spirit With all the exciting changes and innovations we instituted in our businesses in 2005, we must never forget the valuable role our company plays in serving as a lifeline to communities. We are also privileged to have the ability to be an essential conduit for organizing, raising and channeling resources to those who need it most. We were reminded of this in 2005 as we saw some of the worst natural disasters in modern history. From the victims of the Tsunami overseas to Hurricane Katrina here at home, our businesses played pivotal roles in both supporting and leading relief efforts. In addition to raising tens of millions of dollars, the heroic efforts witnessed in 2005 were as vast as our local operations. It is difficult to put into words the significant role we played in bringing hope and assistance to those in need. However, we would be remiss not to mention a few incredible stories from 2005. In response to the aftermath of Hurricane Katrina, the radio groups serving New Orleans and the surrounding area came together to form the United Radio Broadcasters of New Orleans. Clear Channel was a major contributor to this initiative and by coming together and pooling our resources, we were able to provide the community with news, updates and a connection with the outside world at a critical time. Our company as a whole raised over $65 million for the victims of Katrina in just the two months after the hurricane hit. Major sources of this record donation included employee donations, benefit concerts and relief drives, radiothons, telethons and drives for critical supplies including food, water and clothing organized by Clear Channel radio and television stations, the airing of celebrity public service announcements in support of the American Red Cross and Clear Channel’s hurricane relief Web site, StormAid.com, honored by the U.S. Library of Congress, and outdoor billboard space encouraging support of the American Red Cross and StormAid.com. Clear Channel Outdoor also transported used vinyl billboard advertisements to the Gulf Coast and distributed the material for use as much-needed roofing on devastated homes and businesses. We are very proud that these efforts were above and beyond the hundreds of thousands of hours of community service we conduct each and every year at the local, regional and national level, within each of our divisions and at the corporate level as well. For example, for the second straight year we received the Corporate Star Award from the National Multiple Sclerosis Society, recognizing Clear Channel’s nationwide community service and philanthropic efforts. And St. Jude Children’s Research Hospital honored Clear Channel with a special medal of recognition for raising $7.7 million in the first half of the year alone to treat and cure catastrophic childhood diseases, the only award of its kind that St. Jude’s has bestowed in its 43-year history. We also received national awards from the American Red Cross and from the USO for our service to these organizations. In addition, we received the 2005 Spirit of Life Award from the world-renowned cancer, diabetes and HIV/AIDS research and treatment center, City of
Hope, for Clear Channel’s efforts to support research, treatment and educational programs related to these life-threatening diseases. We also continued to be the country’s largest supporter of the Ad Council by airing public service campaigns that raise the awareness of our nation’s most important concerns and educate the public on where to find support and answers. Conclusion In conclusion, if 2005 was a year of focus for Clear Channel, 2006 will be a year of execution and results. All the pieces are in place. Our balance sheet is strong and we continue to generate significant amounts of free cash flow. And we will continue to be aggressive in returning capital to shareholders through a combination of dividends and share repurchases. By investing in our businesses, leading change and tightening the focus of our company, we have improved our ability to deliver growth in 2006 and beyond. The stage for growth has been set and early indications for 2006 are encouraging across each of our leading businesses. Radio is poised for growth as we continue to attract incredible talent, launch new and exciting formats and embrace and benefit from new technologies and delivery methods. In addition, trends in the outdoor advertising industry are excellent and as a leader, we expect to benefit by a disproportionate amount. With our local television stations playing an increasingly valuable role in their local communities, we have never been more excited about the future of our company. Finally, we would like to personally thank all those who have been instrumental in making Clear Channel a stronger company. The ongoing support and dedication of our employees, partners, customers and shareholders has been our most valuable asset and will continue to play the leading role in driving our long-term success. In addition, with the spin-off of our entertainment division completed in December 2005, we would like to wish our former employees and partners at Live Nation much success in their future. We look forward to keeping you updated on our accomplishments in 2006. Sincerely,
L. Lowry Mays Chairman
Mark P. Mays Chief Executive Officer
Randall T. Mays President and Chief Financial Officer