iHeartMedia 2001 Annual Report Download - page 37

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37
On a reported basis, revenue and divisional operating expenses increased primarily due to our
2000 acquisitions. Included in our fiscal year 2001 reported basis amounts are the revenues and
divisional operating expenses for a twelve-month period from our 2000 acquisitions, the most significant
being SFX Entertainment, Inc., acquired August 1, 2000, AMFM Inc. acquired on August 30, 2000, and
Donrey Media Group acquired on September 1, 2000. Our SFX acquisition, valued at approximately
$4.4 billion entered us into the live entertainment industry. This acquisition accounts for approximately
$1.6 billion of the total $2.6 billion increase in reported revenue for fiscal year 2001 as compared to
fiscal year 2000. Our AMFM acquisition, valued at $19.4 billion dramatically increased our ownership
of radio stations. This acquisition accounts for approximately $1.2 billion of the total $2.6 billion
increase in reported revenue for fiscal year 2001 as compared to fiscal year 2000. The increase in
reported revenue related to our less significant 2000 and 2001 acquisitions as well as the increase related
to SFX and AMFM were offset due to reasons discussed below in our pro forma presentation. Our SFX
and AMFM acquisitions account for approximately $1.5 billion and $728.2 million, respectively of the
total $2.4 billion increase in reported divisional operating expenses. In addition to this increase, reported
divisional operating expenses increased due to our less significant 2000 and 2001 acquisitions as well as
the reasons discussed below in our pro forma presentation.
Pro forma revenue decreased $424.7 million or 5% in fiscal year 2001 due to an overall softening
of the advertising industry, especially as compared to the strong advertising environment during the
majority of 2000. During 2001, advertising rates were lower in our radio and outdoor business related to
the decreased inventory demand within the advertising industry. As the advertising environment softens,
advertising rates decline and inventory demands weaken. Although the decrease in pro forma revenue
was apparent in most markets, of the $424.7 million decline, our top 25 domestic radio and outdoor
markets accounted for approximately $296.0 million, or 70% of the total decline. The decline in pro
forma revenue within these markets was predominately due to the decline in national advertising during
fiscal year 2001 as compared to fiscal year 2000. Similarly, our radio network revenue, which is
primarily national sales, declined approximately $45.1 million, or 11% of the total decline during 2001 as
compared to 2000, again directly related to the decline in the overall economy. The decline in pro forma
revenue was partially offset by an $84.4 million increase in pro forma revenue within our live
entertainment division. During 2001, we changed the mix of live music events within this division to
include approximately 48% more stadium and arena events as compared to the prior year. Stadium and
arenas are generally larger venues that allow for more ticket sales related to the increased seating
capacity.
Although pro forma revenue decreased 5%, pro forma divisional operating expenses increased
$167.2 million, or 3% in fiscal year 2001. This increase was partially due to the increase of selling costs
and artist payments related to our change in the mix of live music events within the entertainment
division as compared to fiscal year 2000. In addition, pro forma divisional operating expenses increased
in our other segments relating to the reorganization of these business units as well as other expenses
during the quarter ended December 31, 2001. These reorganizational expenses included severance,
hiring costs, expenses associated with the shutdown of business units, certain contracts cost, as well as
additional non-cash promotion expenses, totaling approximately $80.0 million. The additional $80.0
million of divisional operating expenses is comprised of approximately $50.6 million of expenses
associated with reorganization, restructuring, severance costs, and other miscellaneous items, with
severance payments being the most significant component of the total. The remaining $29.4 million
relates to divisional operating expenses associated with incremental costs under certain airport and transit
panel contracts within our outdoor division as well as additional non-cash promotion expenses within our
radio division. Divisional operating expenses also increased during 2001 within the outdoor division
related to new contract payments, and within our other segment associated with increases in television
contract payments. These increases in pro forma divisional operating expenses were partially offset by