FORM 10-Q/A
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.
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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.
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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. Total
amounts which could potentially become payable, assuming the
merger was completed on September 30, 1998, are approximately
$1.537 billion. The Company believes that financing to repay any
debt which may come due upon consummation of the merger will be
provided or arranged by Clear Channel.
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.
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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:
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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.
