FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-12404
JACOR COMMUNICATIONS, INC.
A Delaware Corporation Employer
Identification
No. 31-0978313
50 East RiverCenter Blvd.
12TH Floor
Covington, KY 41011
Telephone (606) 655-2267
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 twelve
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 ninety days.
Yes X No
At October 26, 1998, 51,073,198 shares of common stock were
outstanding.
<PAGE>
JACOR COMMUNICATIONS, INC.
INDEX
Page
Number
PART I. Financial Information
Item 1. - Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 1998 and December 31,
1997 3
Condensed Consolidated Statements of
Operations and Comprehensive Income for
the three months and nine months ended
September 30, 1998 and 1997 4
Condensed Consolidated Statements of
Cash Flows for the nine months ended
September 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 15
PART II. Other Information
Item 5. - Other Information 24
Item 6. - Exhibits and Reports on Form 8-K 24
Signatures 26
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<TABLE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(UNAUDITED)
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,084 $ 28,724
Accounts receivable, less allowance for
doubtful accounts of $8,115 in 1998
and $6,195 in 1997 198,327 135,073
Prepaid expenses and other 29,385 33,790
Total current assets 269,796 197,587
Property and equipment, net 260,212 206,809
Intangible assets, net 2,712,291 2,128,718
Other assets 85,369 68,764
Total assets $ 3,327,668 $ 2,601,878
LIABILITIES
Current liabilities:
Accounts payable, accrued expenses
and other current liabilities $ 137,958 $ 118,249
Total current liabilities 137,958 118,249
Long-term debt 1,229,565 987,500
Liquid Yield Option Notes 302,400 125,300
Deferred tax liability 358,995 338,867
Other liabilities 119,717 115,611
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, authorized and unissued
4,000,000 shares - -
Common stock, $0.01 par value; authorized
100,000,000 shares, issued and outstanding
shares: 51,051,484 in 1998 and 45,689,677
in 1997 511 457
Additional paid-in capital 1,114,520 863,086
Common stock warrants 31,500 31,500
Accumulated other comprehensive income 12,631 -
Retained earnings 19,871 21,308
Total shareholders' equity 1,179,033 916,351
Total liabilities and
shareholders' equity $ 3,327,668 $ 2,601,878
The accompanying notes are an integral
part of the condensed consolidated financial statements.
</TABLE>
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<TABLE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the three months and nine months ended September 30, 1998 and 1997
(In thousands, except per share amounts)
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Broadcast revenue $ 230,951 $ 161,733 $ 597,244 $ 413,689
Less agency commissions 26,443 17,173 66,872 44,748
Net revenue 204,508 144,560 530,372 368,941
Broadcast operating expenses 128,777 93,734 356,877 251,513
Depreciation and amortization 31,161 21,900 87,444 53,097
Corporate general and
administrative expenses 4,878 3,406 13,052 9,240
Operating income 39,692 25,520 72,999 55,091
Interest expense (27,526) (20,951) (76,563) (60,081)
Gain on sale and exchange of
radio stations and investments 10,896 - 10,896 10,801
Other income, net 1,677 214 10,431 2,733
Income before income taxes
and extraordinary loss 24,739 4,783 17,763 8,544
Income taxes 24,300 4,300 19,200 6,500
Income (loss) before
extraordinary loss 439 483 (1,437) 2,044
Extraordinary loss, net of
income tax credit - (1,900) - (7,456)
Net income (loss) $ 439 $ (1,417) $ (1,437) $ (5,412)
Other comprehensive income,
net of tax:
Unrealized gains on securities 21,052 - 21,052 -
Income tax expense related to
items of other comprehensive
income (8,421) - (8,421) -
Other comprehensive income,
net of tax 12,631 - 12,631 -
Comprehensive income (loss) $ 13,070 $ (1,417) $ 11,194 $ (5,412)
(Continued)
</TABLE>
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<TABLE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
for the three months and nine months ended September 30, 1998 and 1997
(in thousands, except per share amounts)
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic income (loss) per
common share:
Before extraordinary loss $ 0.01 $ 0.01 $(0.03) $ 0.05
Extraordinary loss - (0.04) - (0.19)
Net income (loss) per
common share $ 0.01 $(0.03) $(0.03) $(0.14)
Number of common shares used
in basic calculation 50,999 45,361 50,133 39,007
Diluted income (loss) per
common share:
Before extraordinary loss $ 0.01 $ 0.01 $(0.03) $ 0.05
Extraordinary loss - (0.04) - (0.18)
Net income (loss) per
common share $ 0.01 $(0.03) $(0.03) $(0.13)
Number of common shares used
in diluted calculation 55,287 48,415 50,133 41,071
The accompanying notes are an integral
part of the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1998 and 1997
(In thousands)
(UNAUDITED)
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $ 64,601 $ 31,109
Cash flows from investing activities:
Deposits paid on broadcast properties (11,209) (26,225)
Capital expenditures (23,354) (12,485)
Cash paid for acquisitions (671,442) (542,074)
Proceeds from sale of investments - 73,813
Proceeds from sale and exchange of
radio stations 10,400 19,450
Advances and other (4,500) -
Net cash used by investing activities (700,105) (487,521)
Cash flows from financing activities:
Issuance of long-term debt 439,539 474,700
Issuance of LYONs 166,950 -
Issuance of common stock 248,371 246,154
Repayment of long-term debt (197,500) (310,200)
Payment of finance costs (8,496) (13,927)
Other - 327
Net cash provided by financing
activities 648,864 397,054
Net increase (decrease) in cash and
cash equivalents 13,360 (59,358)
Cash and cash equivalents at
beginning of period 28,724 78,137
Cash and cash equivalents at end of period $ 42,084 $ 18,779
Supplemental schedule of non-cash investing
and financing activities:
Common stock issued in acquisitions $ - $ 179,428
Warrants issued in acquisitions - 5,000
Liabilities assumed in acquisitions 2,687 36,851
Fair value of assets exchanged, net of cash 265,150 104,000
The accompanying notes are an integral part
of the condensed consolidated financial statements.
</TABLE>
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The December 31, 1997 condensed consolidated balance sheet
data was derived from audited financial statements, but does
not include all disclosures required by generally accepted
accounting principles. The financial statements included
herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. Although certain information and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted
pursuant to such rules and regulations, the Company believes
that the disclosures are adequate to make the information
presented not misleading and reflect all adjustments
(consisting only of normal recurring adjustments) which are
necessary for a fair presentation of results of operations
for such periods. Results for interim periods may not be
indicative of results for the full year. It is suggested
that these financial statements be read in conjunction with
the consolidated financial statements for the year ended
December 31, 1997 and the notes thereto.
2. SUBSEQUENT EVENT
On October 8, 1998 the Company entered into a definitive
merger agreement with Clear Channel Communications, Inc.
("Clear Channel") for a tax-free, stock for stock
transaction (the "Merger"). Upon consummation of the
Merger, each outstanding share of Jacor common stock will be
converted into Clear Channel common stock, based upon the
average closing price of Clear Channel common stock during
the twenty-five consecutive trading days ending on the
second trading day prior to the closing date, as follows:
Average Closing Price of Clear Channel Stock Conversion Ratio
Less than or equal to $42.86........................... 1.400
Above $42.86 but less than or equal to $44.44.......... 1.400 to 1.350
Above $44.44 but less than $50.00...................... 1.350
If the average closing price is $50.00 or more, the
Conversion Ratio will be calculated as the quotient obtained
by dividing (A) $67.50 plus the product of $.675 and the
amount by which the average closing price exceeds $50.00, by
(B) the average closing price. If the average closing price
is less than or equal to $37.50, the Merger agreement may be
terminated by the Company, upon notice to Clear Channel, on
one of the two trading days prior to the closing date.
Completion of the Merger is conditioned on, among other
things, stockholder approval and receipt of Federal
Communications Commission and other regulatory approvals.
The Company expects to consummate the Merger by September
30, 1999.
Upon consummation of the Merger, a change in control event
will have occurred with respect to covenants in the
Company's credit facility, liquid yield option notes and
each outstanding issue of the senior subordinated notes.
Such change in control would give the credit facility
lenders the right to require repayment of amounts borrowed
under the facility, and require the Company to offer
repayment of the senior subordinated notes at 101% of the
principal amount and the liquid yield option notes at their
issue price plus accrued original issue discount at such
date.
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. SUBSEQUENT EVENT, Continued
In August 1998, the Company entered into an advisory
agreement with Equity Group Investments, Inc. ("EGI"), an
affiliate of the Company's largest stockholder, the Zell
Chilmark Fund L.P., whereby the Company agreed to pay EGI a
fee equal to .75% of the equity value of the Company, as
defined in the advisory agreement, on any change in control
event. The Zell Chilmark Fund L.P. has entered into a
voting agreement pursuant to which it agreed to vote its
shares in favor of the proposal to approve the Merger.
3. ACQUISITIONS AND DISPOSITIONS
Completed Radio Station Acquisitions and Dispositions
First Six Months Transactions
In the first six months of 1998, the Company completed the
following: acquisitions of 16 radio stations in four
existing and five new broadcast areas for a purchase price
of approximately $61.6 million in cash, of which
approximately $17.3 million was placed in escrow in 1997.
The company also disposed of three stations in two broadcast
areas for approximately $0.3 million in cash and completed a
like-kind exchange of broadcast properties, exchanging four
stations in Kansas City, Missouri for six stations in
Dayton, Ohio, valued at $70.0 million. The exchange values
approximated the carrying values of such stations, therefore
no gain or loss was recorded on the exchange.
Nationwide Related Transactions
In August 1998, the Company completed the acquisition of
substantially all broadcast related assets of Nationwide
Communications Inc. ("Nationwide") for total cash
consideration of approximately $555 million, of which $30.0
million was placed in escrow in 1997, plus acquisition
costs. Simultaneously with the Nationwide acquisition, but
in separate transactions, the Company effected the exchange
and sale of certain radio stations in order to satisfy
antitrust concerns raised by the Department of Justice in
connection with the Nationwide acquisition. For financial
reporting purposes, the Company recorded the exchange of
eight radio stations as sale transactions, receiving non-
cash consideration in the form of nine radio stations with
aggregate fair values of $195 million. Additionally, one
other radio station was sold for $10.1 million in cash. The
Company recorded net pre-tax gains of $10.9 million, which
was measured by the difference between the fair value of the
radio stations exchanged or sold and the carrying value of
the properties. The Company believes that such transactions
qualify as a tax-deferred like-kind exchange, therefore, the
income tax expense of $14 million associated with the gains
is included in the deferred component of income tax expense.
The radio stations received in the exchange transactions
were recorded as purchase transactions at their respective
fair values. The following radio stations were included in
the transactions:
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS AND DISPOSITIONS, Continued
Stations Stations Received
Purchased from Exchanged in Exchange
Nationwide or Sold Transaction
WCOL-FM, WFII-AM, WLVQ-FM, WAZU-FM, WMJI-FM, WMMS-FM
WNCI-FM (Columbus, OH) WHOK-FM (Columbus, OH) (Cleveland)
WPOC-FM (Baltimore) WKNR-FM (Cleveland) KUFX-FM (Fremont, CA)
WGAR-FM (Cleveland) KSGS-AM, KMJZ-FM WOCT-FM, WCAO-AM
(Minneapolis) (Baltimore)
KDMX-FM, KEGL-FM KKLQ-FM, KJQY-FM KLOU-FM, KSD-FM
(Dallas) (San Diego) (St. Louis)
KHMX-FM, KTBZ-FM KOME-FM
(Houston) (San Jose, CA)
KSGS-AM, KMJZ WTAE-FM (Pittsburgh)
(Minneapolis)
KGLQ-FM, KZZP-FM
(Phoenix)
KMCG-FM, KXGL-FM
(San Diego)
July Transactions
The Company acquired KIST-FM (formerly KLDZ-FM) in Santa
Barbara, California from James F. McKeon and Christine Perry
for $1.5 million in cash.
The Company acquired KFJO-FM (formerly KZWC-FM) in Walnut
Creek, California from KZWC Broadcasting, Inc. for $4.5
million in cash.
August Transactions
The Company acquired KSJO-FM in San Jose, California from
American Radio Systems for $30.0 million in cash, of which
$1.5 million was placed in escrow in 1997.
The Company acquired KRWQ-FM, KMED-AM, KZZE-FM, and KKJJ-FM
in Medford, Oregon from Hill Radio, Inc., Crater
Broadcasting Company, Pro Promotions, Inc. and Ashland
Broadcasting LLC, respectively, for $12.5 million in cash.
The Company acquired the stock of KOPE Radio, Inc., owner of
KOPE-FM in Medford, Oregon for approximately $0.5 million in
cash.
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS AND DISPOSITIONS, Continued
The Company acquired the intellectual property of KQOL-FM in
Las Vegas, Nevada from Centennial Broadcasting, LLC and
Centennial Broadcasting License, LLC for $3.0 million in
cash.
The Company acquired KDIF-AM in Riverside, California from
Hispanic Radio Broadcasters for $2.7 million in cash.
The Company acquired WHEL-FM in Helen, Georgia from
Southeast Radio Company, Inc. for $3.0 million in cash.
The Company acquired the stock of Tsunami Communications,
Inc. ("Tsunami"), owner of KTCL-FM in Fort Collins, Colorado
and KIIX-AM in Wellington, Colorado, for $0.5 million in
cash and the assumption of approximately $5.9 million in
debt owed by Tsunami to a wholly-owned subsidiary of the
Company.
September Transactions
The Company acquired WLSN-FM in Greenville, Ohio from Treaty
City Broadcasting for $3.4 million in cash.
The Company acquired the stock of M3X, Inc., owner of KRKT-
AM and KRKT-FM in Albany, Oregon for approximately $3.8
million in cash.
Completed Broadcasting Services Acquisitions
In the first nine months of 1998, the Company completed
acquisitions of two broadcasting service companies and the
assets of three other broadcasting service companies for a
purchase price of approximately $12.7 million in cash, a
note payable of approximately $0.8 million, plus additional
contingent consideration of up to $1.6 million payable over
three years.
The above acquisitions and all 1997 acquisitions have been
accounted for as purchases. The excess cost over the fair
value of net assets acquired is being amortized over 40
years. The results of operations of the acquired businesses
are included in the Company's financial statements since the
respective dates of acquisition. Assuming the above
acquisitions had taken place at the beginning of 1997,
unaudited pro forma consolidated results of operations would
have been as follows (in thousands except per share
amounts):
Pro forma (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Net revenue $216,472 $181,449 $598,315 $517,171
Income (loss) before
extraordinary items $ 1,207 $ 159 $ 751 $ (6,670)
Diluted income (loss) per
common share before
extraordinary items $ 0.02 $ 0.00 $ 0.01 $ (0.13)
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS AND DISPOSITIONS, Continued
These unaudited pro forma amounts do not purport to be
indicative of the results that might have occurred if the
foregoing transactions had been consummated on the indicated
dates.
Pending Radio Station Acquisitions and Dispositions
The Company has entered into agreements to purchase the
stock of one and acquire the assets of 40 radio stations in
14 new markets and seven existing markets for approximately
$156.1 million in cash, of which approximately $11.3 million
has been placed in escrow, to exchange the assets of one
station for another station in the same broadcast area, and
to dispose of three stations in one market for approximately
$0.7 million in cash.
4. ISSUANCE OF COMMON STOCK
In February 1998, the Company completed an offering of
4,560,000 shares of common stock at $50.50 per share net of
underwriting discounts of $2.02 per share (the "Offering").
The over-allotment option was also exercised by the
underwriters resulting in the issuance of an additional
513,000 shares. Net proceeds to the Company from the
Offering were approximately $244.9 million.
5. ISSUANCE OF SUBORDINATED NOTES
In February 1998, the Company issued 8% Senior Subordinated
Notes (the "8% Notes") in the aggregate principal amount at
maturity of $120.0 million. Net proceeds to the Company
were $117.1 million. The 8% Notes will mature on February
15, 2010. Interest on the 8% Notes is payable semi-
annually. The 8% Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or after
February 15, 2003. The redemption prices commence at
104.00% and are reduced by .80% annually until February 15,
2008 when the redemption price is 100%.
The 8% Notes and the previously issued 10 1/8% Notes, 9 3/4%
Notes, and
8 3/4% Notes (collectively the "Notes") are obligations of
Jacor Communications Company ("JCC"), and are jointly and
severally, fully and unconditionally guaranteed on a senior
subordinated basis by Jacor and by all of the Company's
subsidiaries (the "Subsidiary Guarantors"). JCC and the
Subsidiary Guarantors constitute all of the wholly owned
direct or indirect subsidiaries of Jacor and JCC, and JCC is
the sole direct subsidiary of Jacor. Separate financial
statements of JCC and each of the Subsidiary Guarantors are
not presented because Jacor believes that such information
would not be material to investors. The direct and indirect
non-guarantor subsidiaries of Jacor are inconsequential,
both individually and in the aggregate. Additionally, there
are no current restrictions on the ability of the Subsidiary
Guarantors to make distributions to JCC, except to the
extent provided by law generally. JCC's credit facility and
the terms of the indentures governing the Notes do restrict
the ability of JCC and of the Subsidiary Guarantors to make
distributions to the Registrant.
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. ISSUANCE OF SUBORDINATED NOTES, Continued
The indentures contain certain covenants which impose
certain limitations and restrictions on the ability of the
Company to incur additional indebtedness, pay dividends or
make other distributions, make certain loans and
investments, apply the proceeds of asset sales (and use the
proceeds thereof), create liens, enter into certain
transactions with affiliates, merge, consolidate or transfer
substantially all its assets and make investments in
unrestricted subsidiaries.
Summarized financial information with respect to Jacor, JCC
and with respect to the Subsidiary Guarantors on a combined
basis as of September 30, 1998 and for the nine months ended
September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Jacor JCC
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operating Statement
Data (in thousands):
Net revenue - - - -
Equity in earnings
of subsidiaries $ 5,498 $ (5,560) $ 2,692 $ 1,251
Operating (loss) income (8,101) (15,601) 2,692 1,251
(Loss) income before
extraordinary items (1,437) (5,412) 5,498 1,896
Net (loss) income (1,437) (5,412) 5,498 (5,560)
Balance Sheet Data
(in thousands):
Current assets $ 1,408 $ 38,470
Non-current assets 1,620,200 2,823,444
Current liabilities 43,404 21,509
Non-current
liabilities 399,171 2,168,058
Shareholders' equity 1,179,033 672,347
</TABLE>
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. ISSUANCE OF SUBORDINATED NOTES, Continued
Combined
Subsidiary Guarantors
September 30, September 30,
1998 1997
Operating Statement
Data (in thousands):
Net revenue $ 530,372 $ 368,941
Equity in earnings
of subsidiaries - -
Operating income 86,598 65,132
Income before
extraordinary items 2,692 1,251
Net income 2,692 1,251
Balance Sheet Data
(in thousands):
Current assets $ 229,918
Non-current assets 3,058,125
Current liabilities 73,045
Non-current
liabilities 2,035,965
Shareholders' equity 1,179,033
6. LIQUID YIELD OPTION NOTES
In February 1998, the Company issued 4 3/4% Liquid Yield
Option Notes due 2018 (the "1998 LYONs") in the aggregate
principal amount at maturity of $426.9 million. Each 1998
LYON had an issue price of $391.06 and a principal amount at
maturity of $1,000.00. The 1998 LYONs are convertible, at
the option of the holder, at any time on or prior to
maturity, into common stock at a conversion rate of 6.245
shares per each 1998 LYON, for an aggregate of approximately
2.7 million shares of common stock. Net proceeds from the
issuance of the 1998 LYONs were $161.9 million.
7. EARNINGS PER SHARE
The following is a reconciliation of the numerators and
denominators of
the basic and diluted earnings per share ("EPS")
computations for income before extraordinary items for the
three months and nine months ended September 30, 1998 and
1997 (in thousands except per share amounts):
Three Months Ended Nine Months Ended
1998 1997 1998 1997
Income (loss) before
extraordinary loss $ 439 $ 483 $(1,437) $ 2,044
Weighted average
shares - basic 50,999 45,361 50,133 39,007
Effect of dilutive
securities:
Stock options 1,505 1,124 - 942
Warrants 2,398 1,579 - 771
Other 385 351 - 351
Weighted average
shares - diluted 55,287 48,415 50,133 41,071
Basic EPS $ 0.01 $ 0.01 $(0.03) $ 0.05
Diluted EPS $ 0.01 $ 0.01 $(0.03) $ 0.05
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. EARNINGS PER SHARE, Continued
The Company's 1996 Liquid Yield Option Notes and 1998 LYONs
(collectively, the "LYONs") can be converted into
approximately 6.2 million shares of common stock at the
option of the holder. Assuming conversion of the LYONs for
the three and nine months ended September 30, 1998 and 1997
would result in an increase in per share amounts, therefore
the LYONs are not included in the computation of diluted
EPS.
8. INVESTMENTS
In accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", the Company
classifies investments in equity securities as available for
sale and carries the investments at fair value, based on
quoted market prices. The net unrealized gains or losses
are reported within shareholders' equity, net of income
taxes. Realized gains and losses are recorded based on the
specific identification method.
The following table summarizes the Company's securities:
Unrealized Unrealized Fair
Cost Gains Losses Value
Corporate Equity
Securities $2,804,084 $21,773,972 $(722,173) $21,051,799
The unrealized gain reported in shareholders' equity is net
of $8,420,720 of income taxes computed using statutory
rates.
9. RECENT PRONOUNCEMENTS
In the first quarter of 1998, the Company adopted Statement
of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income." SFAS 130 requires the
reporting of comprehensive income in financial statements by
all entities that provide a full set of financial
statements. The term "comprehensive income" describes the
total of all components of comprehensive income including
net income. The statement only deals with reporting and
display issues. It does not consider recognition or
measurement issues.
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 provides
accounting guidance for reporting information about
operating segments in annual financial statements and
requires such enterprises to report selected information
about operating segments in interim financial reports. The
statement uses a "management approach" to identify operating
segments and provides specific criteria for operating
segments. SFAS 131 is effective for the year ended December
31, 1998 and will be required for interim periods in 1999.
The Company is currently evaluating the impact SFAS 131 will
have on its financial statements, if any.
In June 1998, the FASB issued Statement No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance
sheet and measure such instruments at fair value. The
statement is effective for fiscal quarters of fiscal years
beginning after June 15, 1999. The Company currently has no
derivative instruments or hedging activities.
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
GENERAL
The following discussion should be read in conjunction with the
financial statements beginning on page 3.
This report includes certain forward-looking statements within
the meaning of Section 27A of the Securities Act. 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 matters discussed in this report generally.
The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances.
LIQUIDITY AND CAPITAL RESOURCES
Recent Developments
On October 8, 1998 the Company entered into a definitive merger
agreement with Clear Channel Communications, Inc. ("Clear
Channel") for a tax-free, stock for stock transaction (the
"Merger"). Upon consummation of the Merger, each outstanding
share of Jacor common stock will be converted into Clear Channel
common stock, based upon the average closing price of Clear
Channel common stock during the twenty-five consecutive trading
days ending on the second trading day prior to the closing date,
as follows:
Average Closing Price of Clear Channel Stock Conversion Ratio
Less than or equal to $42.86........................... 1.400
Above $42.86 but less than or equal to $44.44.......... 1.400 to 1.350
Above $44.44 but less than $50.00...................... 1.350
If the average closing price is $50.00 or more, the Conversion
Ratio will be calculated as the quotient obtained by dividing (A)
$67.50 plus the product of $.675 and the amount by which the
average closing price exceeds $50.00, by (B) the average closing
price. If the average closing price is less than or equal to
$37.50, the Merger agreement may be terminated by the Company,
upon notice to Clear Channel, on one of the two trading days
prior to the closing date.
Completion of the Merger is conditioned on, among other things,
stockholder approval and receipt of Federal Communications
Commission and other regulatory approvals. The Company expects
to consummate the Merger by September 30, 1999.
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES, Continued
Upon consummation of the Merger, a change in control event will
have occurred with respect to covenants in the Company's credit
facility, liquid yield option notes and each outstanding issue of
the senior subordinated notes. Such change in control would give
the credit facility lenders the right to require repayment of
amounts borrowed under the facility, and require the Company to
offer repayment of the senior subordinated notes at 101% of the
principal amount and the liquid yield option notes at their issue
price plus accrued original issue discount at such date.
In August 1998, the Company entered into an advisory agreement
with Equity Group Investments, Inc. ("EGI"), an affiliate of the
Company's largest stockholder, the Zell Chilmark Fund L.P.,
whereby the Company agreed to pay EGI a fee equal to .75% of the
equity value of the Company, as defined in the advisory
agreement, on any change in control event. The Zell Chilmark
Fund L.P. has entered into a voting agreement pursuant to which
it agreed to vote its shares in favor of the proposal to approve
the Merger.
Recent liquidity needs have been driven by the Company's
acquisition strategy. The Company's acquisitions since 1996 have
been financed with funds raised through a combination of debt and
equity instruments. An important factor in management's
financing decisions includes maintenance of leverage ratios
consistent with their long-term growth strategy. The Company
currently has borrowing capacity to finance the Company's
pending acquisitions and to pursue other acquisitions.
Based upon current levels of the Company's operations and
anticipated growth, it is expected that operating cash flow will
be sufficient to meet expenditures for operations, administrative
expenses and debt service for the foreseeable future.
Financing Activities
Cash provided by financing activities for the first nine months
of 1998 was $648.9 million compared to $397.1 million for the
first nine months of 1997.
Credit Facilities
The Company has a $1.15 billion credit facility (the "Credit
Facility") with a syndicate of banks and other financial
institutions. The Credit Facility provides loans to the Company
in two components: (i) a reducing revolving credit facility (the
"Revolving Credit Facility") of up to $750 million under which
the aggregate commitments will reduce on a semi-annual basis
commencing in June 2000; and (ii) a $400 million amortizing term
loan (the "Term Loan")that would reduce on a semi-annual basis
commencing in December 1999. The Term Loan and the Revolving
Credit Facility expire on December 31, 2004. Amounts repaid or
prepaid under the Term Loan may not be reborrowed. The Credit
Facility bears interest at a rate that fluctuates, with an
applicable margin ranging from 0.00% to a maximum of 1.75%, based
on the Company's ratio of total debt to earnings before interest,
taxes, depreciation and amortization for the four consecutive
fiscal quarters then most recently ended (the "Leverage Ratio"),
plus a bank base rate or a Eurodollar base rate, as applicable.
At October 26, 1998, the average interest rate on Credit Facility
borrowings was 6.49%. The Company pays interest on the unused
portion of the Revolving Credit Facility at a rate ranging from
0.250% to 0.375% per annum, based on the Company's Leverage
Ratio.
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES, Continued
As of October 26, 1998, the Company had $400.0 million of
outstanding indebtedness under the Term Loan, $290.0 million of
outstanding indebtedness under the Revolving Credit Facility, and
available borrowings of $460.0 million.
Debt and Equity Offerings
In February 1998, the Company completed offerings of 5.1 million
shares of common stock, 8% Senior Subordinated Notes due 2010,
and 4 3/4% Liquid Yield Option Notes (collectively the "February
1998 Offerings"). Net proceeds from the February 1998 Offerings
were $525.0 million, of which $197.5 million was used to pay off
the then outstanding balance of the Revolving Credit Facility.
The remaining proceeds were utilized in the Nationwide
Transaction (See Completed Acquisitions and Dispositions).
Investing Activities
Cash flows used for investing activities were $700.1 million for
the first nine months of 1998 as compared to $487.5 million for
the first nine months of 1997. The variations from year to year
are related to station acquisition activity, as described below,
as well as the sale of the Company's investments in the News
Corp. Warrants and Paxson Communications Corporation stock and
station dispositions.
Completed Acquisitions and Dispositions
In August 1998, the Company completed the acquisition of
substantially all broadcast related assets of Nationwide
Communications Inc. ("Nationwide") for total cash consideration
of approximately $555 million, of which $30.0 million was placed
in escrow in 1997, plus acquisition costs. Simultaneously with
the Nationwide acquisition, but in separate transactions, the
Company effected the exchange and sale of certain radio stations
in order to satisfy antitrust concerns raised by the Department
of Justice in connection with the Nationwide acquisition. For
financial reporting purposes, the Company recorded the exchange
of eight radio stations as sale transactions, receiving non-cash
consideration in the form of nine radio stations with aggregate
fair values of $195 million. Additionally, one other radio
station was sold for $10.1 million in cash. The following radio
stations were included in the transactions:
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES, Continued
Stations Stations Received
Purchased from Exchanged in Exchange
Nationwide or Sold Transaction
WCOL-FM, WFII-AM, WLVQ-FM, WAZU-FM, WMJI-FM, WMMS-FM
WNCI-FM (Columbus, OH) WHOK-FM (Columbus, OH) (Cleveland)
WPOC-FM (Baltimore) WKNR-FM (Cleveland) KUFX-FM (Fremont, CA)
WGAR-FM (Cleveland) KSGS-AM, KMJZ-FM WOCT-FM, WCAO-AM
(Minneapolis) (Baltimore)
KDMX-FM, KEGL-FM KKLQ-FM, KJQY-FM KLOU-FM, KSD-FM
(Dallas) (San Diego) (St. Louis)
KHMX-FM, KTBZ-FM KOME-FM
(Houston) (San Jose, CA)
KSGS-AM, KMJZ WTAE-FM (Pittsburgh)
(Minneapolis)
KGLQ-FM, KZZP-FM
(Phoenix)
KMCG-FM, KXGL-FM
(San Diego)
Additionally, during the first nine months of 1998, the Company
completed the following: acquisitions of two radio stations and
the assets of 29 radio stations in seven existing and twelve new
broadcast areas; one like-kind exchange, whereby the Company
exchanged four stations in one broadcast area for six stations in
another broadcast area; the disposition of three stations, and;
acquisitions of two and the assets of three broadcasting related
businesses. The Company paid cash consideration for the above
transactions of approximately $145.9 million in cash in the first
nine months of 1998, in addition to approximately $18.8 million
placed in escrow in 1997 and the assumption of approximately $5.9
million in debt owed to a wholly-owned subsidiary of the Company.
The Company received cash consideration of approximately $0.3
million for the sale of three stations in two broadcast areas.
The acquisitions were funded through borrowings under the Credit
Facility.
Pending Acquisitions and Dispositions
The Company has entered into agreements to purchase the stock of
one and acquire the assets of 40 radio stations in seven existing
and 14 new markets for approximately $156.1 million in cash, of
which approximately $11.3 million has been placed in escrow, to
exchange the assets of one station for another station in the
same broadcast area, and to dispose of the assets of three
stations in one broadcast area for approximately $0.7 million in
cash.
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES, Continued
The Company will finance its pending acquisitions from borrowings
under the Revolving Credit Facility. The Company anticipates
after financing all pending acquisitions, available borrowings
under the Revolving Credit Facility will be approximately $315
million.
In May 1998, the Company filed an omnibus shelf registration
statement with the Securities and Exchange Commission for the
possible future registration and issuance of up to $500 million
of additional equity and/or debt securities.
The issuance of additional debt would negatively impact the
Company's debt-to-equity ratio and its results of operations and
cash flows due to higher amounts of interest expense. Any
issuance of additional equity would soften this impact to some
extent.
Capital Expenditures
The Company had capital expenditures of $23.4 million and $12.5
million for the nine months ended September 30, 1998 and 1997,
respectively. The Company's capital expenditures consist
primarily of broadcasting equipment, tower upgrades, and
purchases related to the Company's plan to replace and upgrade
business, programming, and connectivity technology.
Operating Activities
For the nine months ended September 30, 1998, cash flow provided
by operating activities was $64.6 million, as compared to $31.1
million for the nine months ended September 30, 1997. The change
is primarily due to an increase in operating income related to
acquisitions.
RESULTS OF OPERATIONS
The Nine Months Ended September 30, 1998 Compared to the Nine
Months Ended September 30, 1997
Broadcast revenue for the first nine months of 1998 was $597.2
million, an increase of $183.5 million or 44.4% from $413.7
million during the first nine months of 1997. This increase
resulted primarily from the revenue generated at those properties
owned or operated during the first nine months of 1998 but not
during the comparable 1997 period, including revenues generated
from commercial broadcast time received and rights fees from
syndicated programming. On a "same station" basis - reflecting
results from stations operated in the first nine months of both
1998 and 1997 - broadcast revenue for 1998 was $353.0 million, an
increase of $46.5 million or 15.2% from $306.5 million for 1997.
This increase resulted primarily from favorable ratings and a
strong advertising environment.
Agency commissions for the first nine months of 1998 were $66.9
million, an increase of $22.2 million or 49.7% from $44.7 million
during the first nine months of 1997 due to the increase in
broadcast revenue. On a "same station" basis, agency commissions
for the first nine months of 1998 were $40.4 million, an increase
of $4.9 million or 13.8% from $35.5 million for 1997 due to the
increase in broadcast revenue.
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS, Continued
Broadcast operating expenses for the first nine months of 1998
were $356.9 million, an increase of $105.4 million or 41.9% from
$251.5 million during the first nine months of 1997. These
expenses increased primarily as a result of expenses incurred at
those properties owned or operated during the first nine months
of 1998 but not during the comparable 1997 period. On a "same
station" basis, broadcast operating expenses for the first nine
months of 1998 were $204.6 million, an increase of $19.1 million
or 10.3% from $185.5 million for the first nine months of 1997.
This increase resulted primarily from increased selling and
promotion costs.
Depreciation and amortization for the first nine months of 1998
and 1997 was $87.4 million and $53.1 million, respectively. This
increase was due to acquisitions in the last three months of 1997
and the first nine months of 1998.
Operating income for the first nine months of 1998 was $73.0
million, an increase of $17.9 million or 32.5% from an operating
income of $55.1 million for the first nine months of 1997.
Interest expense in the first nine months of 1998 was $76.6
million, an increase of $16.5 million from $60.1 million in the
first nine months of 1997. Interest expense increased due to an
increase in outstanding debt that was incurred in connection with
acquisitions.
The gain on sale and exchange of assets in 1998 resulted
primarily from the exchange of two radio stations in San Diego,
California and three radio stations in Columbus, Ohio in August
1998 - see "Completed Acquisitions and Dispositions". The gain
on the sale and exchange of assets in 1997 resulted from the sale
of the Company's investment in News Corp. Warrants in February
1997 and in Paxson Communications Corporation ("Paxson") stock in
May 1997.
Income tax expense was $19.2 million and $6.5 million for the
first nine months of 1998 and 1997, respectively. Income tax
expense in the first nine months of 1998 included approximately
$14.8 million in deferred tax expense related to gains recorded
on the exchange of certain radio stations. The effective tax
rate on pre-tax income excluding the tax effected gain on
exchange of radio stations was approximately 64%, which differs
from statutory tax rates, primarily due to non-deductible
goodwill amortization from various acquisitions.
In the first nine months of 1997 the Company recognized an
extraordinary loss of approximately $7.5 million, net of income
tax credit, related to the write off of debt financing costs.
Net loss for the first nine months of 1998 was $1.4 million,
compared to net loss of $5.4 million reported by the Company for
the first nine months of 1997.
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS, Continued
The Quarter Ended September 30, 1998 Compared to The Quarter
Ended September 30, 1997
Broadcast revenue for the third quarter of 1998 was $231.0
million, an increase of $69.3 million or 42.9% from $161.7
million during the same quarter of 1997. This increase resulted
primarily from the revenue generated at those properties owned or
operated during the third quarter of 1998 but not during the
comparable 1997 period, including revenues generated from
commercial broadcast time received and rights fees from
syndicated programming. On a "same station" basis - reflecting
results from stations operated since January 1, 1997 - broadcast
revenue for 1998 was $128.9 million, an increase of $19.4 million
or 17.7% from $109.5 million for 1997.
Agency commissions for the third quarter of 1998 were $26.4
million, an increase of $9.2 million or 53.5% from $17.2 million
during the third quarter of 1997 due to the increase in broadcast
revenue. On a "same station" basis, agency commissions for the
third quarter of 1998 were $14.7 million, an increase of $2.1
million or 16.7% from $12.6 million for the third quarter of
1997.
Broadcast operating expenses for the third quarter of 1998 were
$128.8 million, an increase of $35.1 million or 37.5% from $93.7
million during the comparable period of 1997. These expenses
increased primarily as a result of expenses incurred at those
properties, including broadcast related service businesses, owned
or operated during the third quarter of 1998 but not during the
comparable period of 1997. On a "same station" basis, broadcast
operating expenses for the third quarter of 1998 were $69.8
million, an increase of $5.8 million or 9.1% from $64.0 million
for the comparable period of 1997. This increase resulted
primarily from increased selling and promotion costs.
Depreciation and amortization for the third quarter of 1998 and
1997 was $31.2 million and $21.9 million, respectively. The
increase was due to acquisitions during the last three months of
1997 and the first nine months of 1998.
Operating income for the third quarter of 1998 was $39.7 million,
an increase of $14.2 million or 55.7% from an operating income of
$25.5 million for the same period of 1997.
Interest expense for the third quarter of 1998 was $27.5 million,
an increase of $6.5 million or 31.0% from $21.0 million for the
comparable period in 1997. Interest expense increased due to an
increase in outstanding debt that was incurred in connection with
acquisitions.
The gain on the sale and exchange of assets in the third quarter
of 1998 resulted primarily from the exchange of two radio
stations in San Diego, California and three radio stations in
Columbus, Ohio in August 1998 - see "Completed Acquisitions and
Dispositions".
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS, Continued
Income tax expense was $24.3 million for the third quarter of
1998 and $4.3 million for the third quarter of 1997. Income tax
expense in the third quarter of 1998 included approximately $14.8
million in deferred tax expense related to gains recorded on the
exchange of certain radio stations. The effective tax rate on
pre-tax income excluding the tax effected gain on exchange of
radio stations was approximately 69%, which differs from
statutory tax rates, primarily due to non-deductible goodwill
amortization from various acquisitions.
Net income for the third quarter of 1998 was $0.4 million,
compared to a loss of $1.4 million reported by the Company for
the comparable period in 1997.
Year 2000 Computer System Compliance
The year 2000 issue ("Y2K") is the result of computer programs
written with date sensitive codes that contain two digits (rather
than four) to define the year. As the year 2000 approaches,
certain computer systems may be unable to accurately process
certain date-based information as the program may interpret the
year 2000 as 1900.
In March 1998 the Company began implementing the assessment phase
of the Jacor Assessment and Compliance Plan to address the Y2K
issue in each broadcast area and has substantially completed a
Y2K assessment phase of its computer, broadcast and environmental
systems, redundant power systems and other critical systems
including: (i) digital audio systems (ii) traffic scheduling and
billing systems (iii) accounting and financial reporting systems,
and (iv) local and wide area networking infrastructure. As part
of the assessment phase, the Company has initiated formal
communication with all of its key business partners to identify
their exposure to the year 2000 issue. This assessment will
target potential external risks related to Y2K and is still in
progress, but is expected to be completed by the first quarter of
1999. Key business partners include local and national
advertisers, suppliers of communication services, financial
institutions and suppliers of utilities. Amounts related to the
assessment phase are primarily internal costs, are expensed as
incurred, and have not been material to date and are not expected
to be material through completion of the phase.
The remediation phase is the next step in the Company's Y2K plan.
Activities during this phase are in progress and include the
actual repair, replacement, or upgrade of the Company's systems
based on the findings of the assessment phase. New systems which
have been fully implemented and are Y2K compliant include
accounting and financial reporting and local and wide area
networks. A new digital audio system platform is currently being
implemented for all broadcast areas. The project is
approximately 60% complete and is expected to be completed in the
first quarter of 1999. Costs related to these new systems are
included in capital expenditures - see "Capital Expenditures".
The Company currently utilizes different software vendors for
traffic scheduling and billing and is currently evaluating the
replacement of all such systems with a new standardized system
for all broadcast areas. The traffic systems currently utilized
are all Y2K compliant, therefore the selection and implementation
of the new standardized system is not time critical with respect
to Y2K.
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS, Continued
The final plan phase, the testing phase, will include the actual
testing of the enhanced and upgraded systems. This process will
include internal and external user review confirmation, as well
as unit testing and integration testing with other system
interfaces. The testing schedule is being developed and will
begin during the first quarter of 1999 and is expected to be
completed by the end of the second quarter. Based on test
results and assessment of outside risks, contingency plans will
be developed as determined necessary. The Company would expect
to complete such plans by the end of the third quarter of 1999.
The Company anticipates minimal business disruption from both
external and internal factors. However, possible risks include,
but are not limited to, loss of power and communication links
which are not subject to the Company's control. The Company
believes that its Y2K compliance issues from all phases of the
Jacor Assessment and Compliance Plan will be resolved on a timely
basis and that any related costs will not have a material impact
on the company's operations, cash flows, or financial condition
of future periods.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 131 ("SFAS
131"), "Disclosures about Segments of an Enterprise and Related
Information". SFAS 131 provides accounting guidance for
reporting information about operating segments in annual
financial statements and requires such enterprises to report
selected information about operating segments in interim
financial reports. The statement uses a "management approach" to
identify operating segments and provides specific criteria for
operating segments. SFAS 131 is effective for the year ended
December 31, 1998 and will be required for interim periods in
1999. The Company is currently evaluating the impact SFAS 131
will have on its financial statements, if any.
In June 1998, the FASB issued Statement No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities".
SFAS 133 requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure
such instruments at fair value. The statement is effective for
fiscal quarters of fiscal years beginning after June 15, 1999.
The Company currently has no derivative instruments or hedging
activities.
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 5. Other Information
In August 1998, the Company entered into an advisory agreement
with Equity Group Investments, Inc. ("EGI"), an affiliate of the
Company's largest stockholder, the Zell/Chilmark Fund L.P. The
advisory agreement provides that EGI will provide the Company
with consulting services with respect to certain proposed
mergers, acquisitions and similar transactions and will be
compensated for such services in accordance with the fee schedule
set forth in the agreement. A copy of the advisory agreement is
attached as an exhibit to this Form 10-Q. EGI has performed
similar services for the Company in the past and has been
compensated for such services as mutually agreed by the Company
and EGI. Two of the Company's directors, Samuel Zell and Sheli
Rosenberg, are the Chairman of the Board and Chief Executive
Officer of EGI, respectively. In addition, Rod Dammeyer and
Philip Handy, directors of the Company, are managing directors of
Equity Corporate Investments, an EGI affiliate.
On October 8, 1998, the Company entered into a definitive merger
agreement with Clear Channel Communications, Inc. ("Clear
Channel") and CCU Merger Sub. The merger agreement provides for a
tax-free, stock-for-stock exchange whereby the Company will
become a wholly-owned subsidiary of Clear Channel. For more
information about the proposed merger, see the Company's Form 8-K
filed with the Securities and Exchange Commission on October 9,
1998 as referenced in Item 6(b) of this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description Page
10.1(+) Advisory Agreement dated August 26, 1998 between
the Company and Equity Group Investments, Inc. 27
27 Financial Data Schedule 33
___________
(+) Management Contracts and Compensatory Arrangements.
(b) Reports on Form 8-K
The following Form 8/KA and Form 8-K were filed during the
third quarter of 1998:
Form 8-K/A dated August 14, 1998. On August 14, 1998, the
Company amended its prior Form 8-K, originally dated January
5, 1998 and amended on January 21, 1998 and April 30, 1998,
relating to the Company's entering into of a definitive
agreement to purchase the assets of 17 radio stations from
Nationwide Communications, Inc. and its affiliated entities.
This amendment was filed to include the historical unaudited
financial statements of Nationwide Communications for the six
months ended June 30, 1998 and the unaudited pro forma
financial statements for such six months period reflecting the
financial statement effect of such acquisition on the Company.
<PAGE>
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
Form 8-K dated September 15, 1998. This Form 8-K included the
audited historical financial statements of Tsunami
Communications, Inc. and M3X, Inc. The Company filed these
financial statements because the financial statements of these
acquired subsidiaries were not part of the Company's
historical audited consolidated financial statements, but were
required to be filed in conjunction with these new
subsidiaries' guarantees of certain debt securities that might
subsequently be offered by the Company pursuant to its omnibus
shelf registration previously filed with the Commission. The
Company's acquisitions of these entities were immaterial to
the Company.
The following Form 8-K was filed during the fourth quarter of
1998:
Form 8-K dated October 9, 1998. This Form 8-K described the
Company's entering into of a definitive merger agreement with
Clear Channel Communications, Inc. ("Clear Channel") and CCU
Merger Sub. As described more fully in the Form 8-K, the
merger agreement provides for a tax-free, stock-for-stock
exchange whereby the Company will become a wholly-owned
subsidiary of Clear Channel. The consideration to be provided
to the Company's stockholders is also more fully described
therein and elsewhere in this Form 10-Q.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JACOR COMMUNICATIONS, INC.
(Registrant)
DATED: October 29, 1998 BY /s/ R. Christopher Weber
R. Christopher Weber,
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 10.1
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT ("Agreement"), dated as of August 26,
1998, is by and between Equity Group Investments, Inc. ("EGI") and
Jacor Communications, Inc. (the "Company").
WHEREAS, the Company believes that the experience of EGI in
business and financial management generally, and merger and
acquisition transactions in particular, as well as EGI's extensive
knowledge of the Company and the Company's business, have been and
continue to be of great benefit to the Company;
WHEREAS, the Company desires to secure the services of EGI in
the event that the Company or any subsidiary is party to or
the subject of merger, acquisition and other similar
transactions; and
WHEREAS, EGI is willing to provide such services to the
Company, and the Company desires to secure such services from EGI,
subject to the compensation arrangements and other terms set forth
in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the respective agreements hereinafter set forth, and the mutual
benefits to be derived herefrom, EGI and the Company, intending to
be legally bound, hereby agree as follows:
1. Engagement. The Company hereby engages EGI as the
Company's non-exclusive financial advisor, and EGI hereby agrees to
provide financial advisory services to the Company, all on the
terms and subject to the conditions set forth below.
2. Services of EGI to the Company. EGI hereby agrees during
the term of this engagement to consult with the Company's senior
management ("Management") in such manner and on such business and
financial matters as may be reasonably requested from time to time
by Management, with respect to each tender offer, stock or asset
acquisition, stock or asset sale, merger, exchange offer,
recapitalization or other similar transaction involving the Company
or any direct or indirect subsidiary of the Company (a
"Transaction").
3. Personnel. EGI shall provide and devote the services of
such officers and employees of EGI as EGI shall deem appropriate
for the performance of this Agreement.
4. Advisory Fees. In consideration for the services
performed hereunder:
(i) the Company shall pay EGI a fee in an amount equal to 35 basis
points of the Enterprise Value of any Company Transaction;
provided that such Enterprise Value is in excess of $15,000,000;
and
<PAGE>
(ii) the Company shall pay EGI a fee in an amount equal to 75 basis
points of the Equity Value of any Change of Control Transaction.
Advisory fees payable pursuant hereto shall in each such case be
paid by or on behalf of the Company at the closing of the relevant
Transaction.
5. Expenses. The Company shall promptly reimburse EGI for
such reasonable travel expenses and other out-of-pocket fees and
expenses as may be incurred by EGI, its officers and employees in
connection with the rendering of services hereunder, regardless of
whether the Company Transaction or a Change of Control Transaction
with respect to which such expenses and fees were incurred is
consummated.
6. Term. This Agreement will continue from the date hereof
until terminated as provided in this Section 6. The Company shall
have the right to terminate this Agreement by written notice to EGI
upon the earliest to occur of (a) consummation of a Change of
Control Transaction, and (b) the second anniversary of the date of
this Agreement. EGI may terminate this Agreement at any time by
written notice to the Company. No termination of this Agreement,
whether pursuant to this paragraph or otherwise, shall affect the
Company's obligations with respect to the fees payable to EGI in
connection with completed or ongoing transactions (including any
transactions with respect to which EGI rendered any services or
performed any work, regardless of whether or not such transaction
shall have been consummated during the term of this Agreement, so
long as such transaction shall have been consummated within ninety
days after expiration of such term), and fees, costs and expenses
incurred by or on behalf of EGI in rendering services hereunder and
not paid or reimbursed by the Company as of the effective date of
such termination.
7. Liability. None of EGI, its directors, officers,
employees, shareholders, affiliates and agents shall be liable to
the Company, any Company subsidiary or any of their respective
affiliates for any loss, liability, damage or expense arising out
of or in connection with the performance of services contemplated
by this Agreement, unless such loss, liability, damage or expense
shall be judicially determined to result directly from their gross
negligence or intentional wrongdoing.
8. Indemnification. The Company agrees to indemnify and
hold harmless EGI and its directors, officers, employees,
shareholders, affiliates and agents against and from any and all
loss, liability, suits, claims, costs damages and expenses
(including attorneys' fees) arising from their performance
hereunder, except as a result of their judicially determined gross
negligence or intentional wrongdoing.
9. EGI as Independent Contractor. EGI and the Company agree
that EGI shall perform services hereunder as an independent
contractor, retaining control over and responsibility for its own
operations and personnel. None of EGI and its officers, employees,
affiliates and agents shall be considered officers and employees of
the Company as a result of this Agreement nor shall any of them
have authority to contract in the name of or bind the Company by
reason of this Agreement, except as expressly agreed to in writing
by the Company and EGI.
<PAGE>
10. Notices. All notices provided for or permitted to be
given under this Agreement must be in writing and shall be deemed
delivered: (a) upon delivery if delivered in person; (b) three
business days after deposit in the United States mail, addressed to
the recipient, postage paid and registered or certified with return
receipt requested; (c) upon transmission if sent via telecopy, with
a confirmation copy sent via overnight mail, provided that
confirmation of such overnight delivery is received; or (d) one
business day after deposit with a national overnight courier
provided that confirmation of such overnight delivery is received.
Such notices, demands and other communications shall be sent to
each party at the address or telecopy number indicated below:
If to EGI:Equity Group Investments, Inc.
Two North Riverside Plaza, Suite 600
Chicago, Illinois 60606
Attn: Rod Dammeyer
Fax: (312) 902-1512
If to the
Company: Jacor Communications, Inc.
50 East RiverCenter Boulevard, 12th Floor
Covington, Kentucky 41011
Attn: Chief Financial Officer
Fax: (606) 292-0222
11. Entire Agreement; Modification. This Agreement (a)
contains the complete and entire understanding and agreement of EGI
and the Company with respect to the subject matter hereof, and (b)
supersedes all unperformed prior understandings, conditions and
agreements, oral or written, express or implied, respecting the
engagement of EGI in connection with potential Company
Transactions, Change of Control Transactions and the other subject
matter hereof. This Agreement may be amended or modified in a
writing duly executed by both of the parties hereto and not by any
course of conduct, course of dealing or purported oral amendment or
modification.
12. Waiver of Breach. The waiver by either party of a breach
of any provision of this Agreement by the other party shall not
operate or be construed as a waiver of any subsequent breach of
that provision or any other provision hereof.
13. Assignment. Neither EGI nor the Company may assign their
rights or obligations under this Agreement without the express
written consent of the other party hereto, except that EGI may
assign (a) this Agreement to any EGI affiliate reasonably believed
by EGI to be capable of adequately performing hereunder, and (b)
any and all of its rights under this Agreement to receive payment
of fees and reimbursement of EGI's expenses as provided in this
Agreement.
14. Successors. Subject to Section 13 hereof, this Agreement
and all the obligations and benefits hereunder shall be binding
upon and shall inure to the successors and permitted assigns of the
parties.
<PAGE>
15. Counterparts. This Agreement may be executed and
delivered by each party hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original
and both of which taken together shall constitute one and the same
agreement.
16. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict
construction will be applied against any party hereto.
17. CHOICE OF LAW. ALL ISSUES AND QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO
ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF
THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE
THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF DELAWARE.
18. Certain Defined Terms. For purposes of this Agreement,
the following terms have the meanings ascribed to them below:
"Change of Control Transaction" with respect to the
Company means any of the following:
A. the acquisition by any individual, entity or group, in
a single transaction or in a series of transactions,
of all or substantially all of the assets or capital
stock of the Company and its subsidiaries, taken as
a whole; provided; however, that for purposes of
this Section 18.A., any and all assets and capital
stock sold, assigned or otherwise transferred or
disposed of in order to satisfy actual or
anticipated regulatory requirements in
connection with a Company Transaction or a Change of
Control Transaction shall be deemed to have been
transferred to the individual, entity or group
which is acquiring all or substantially
all of the Company's other assets; or
B the consummation of a merger or
consolidation (i) as a result of which,
the holders of all of the issued and
outstanding common stock of the Company
immediately prior to such transaction own
less than 50% of the issued and
outstanding common stock of the Company
or surviving corporation, as the case may
be, or (ii) constituting a "merger of
equals" if after giving effect thereto,
less than 60% of the members of the Board
of Directors of the Company or surviving
corporation were, immediately prior to
such transaction, members of the Board of
Directors of the Company.
<PAGE>
"Company Transaction" means any Transaction that is not a
Change of Control Transaction.
"Enterprise Value" means the total value of the
transferred asset(s) or securities including, without limitation,
the aggregate amount of consideration (including the fair market
value of securities issued or sold) required to complete such
Transaction plus the amount of indebtedness, preferred stock or
similar items assumed or remaining outstanding. In the event of a
transaction involving the "swap" of assets (with or without other
consideration), the Enterprise Value shall be determined based on
the average value of the assets transferred by the Company and the
Assets received by the Company in exchange therefor, as reasonably
determined by the Company and agreed to by EGI, taking into account
third-party valuations, if any.
"Equity Value" means (A) the sum of the product of (x)
the per-share consideration payable for each class or series of
securities in connection with such Transaction, and (y) the number
of fully diluted shares of each such class or series of the
Company, which number shall include, without limitation, all issued
and outstanding shares, plus all director, officer, employee and
other options and units, all contingent shares, warrants and LYONs,
and all other securities and contract rights convertible,
exercisable or exchangeable directly or indirectly, for or into
common shares, in each case, on an "as converted" basis and without
regard to whether such securities or rights are currently "in the
money," exercisable, convertible or exchangeable or whether the
holder thereof elects to participate in the Transaction or has the
right to so elect, less (B) the aggregate amount of proceeds
payable to the Company in respect of the conversion, exercise and
exchange, as the case may be, of the securities and rights referred
to in clause (y) above. As clarification (and not by way of
limitation), the Company and EGI acknowledge and agree that the
number of fully diluted Company shares as of the date hereof,
calculated in the manner provided above, is approximately
66,257,000 and, as set forth in the example attached hereto as
Schedule A, would result in an Equity Value calculation as set
forth in such Schedule.
<PAGE>
IN WITNESS WHEREOF, EGI and the Company have caused this
Agreement to be duly executed and delivered on the date and year
first above written.
EQUITY GROUP INVESTMENTS, INC.
By: Rod Dammeyer
_______________________________
Its:
_______________________________
JACOR COMMUNICATIONS, INC.
By: R. Christopher Weber
_______________________________
Its: SVP & CFO
_______________________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 42,084
<SECURITIES> 0
<RECEIVABLES> 206,442
<ALLOWANCES> 8,115
<INVENTORY> 0
<CURRENT-ASSETS> 269,796
<PP&E> 307,730
<DEPRECIATION> 47,518
<TOTAL-ASSETS> 3,327,668
<CURRENT-LIABILITIES> 137,958
<BONDS> 1,531,965
0
0
<COMMON> 511
<OTHER-SE> 1,178,522
<TOTAL-LIABILITY-AND-EQUITY> 3,327,668
<SALES> 0
<TOTAL-REVENUES> 597,244
<CGS> 0
<TOTAL-COSTS> 423,749
<OTHER-EXPENSES> 13,052
<LOSS-PROVISION> 1,920
<INTEREST-EXPENSE> 76,563
<INCOME-PRETAX> 17,763
<INCOME-TAX> 19,200
<INCOME-CONTINUING> (1,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,437)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
