-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PSbgrIzxLIYp4uqN3CCfrSg1g5yVv5L2qkw7s4VBND6Yak4KtonHj7fp1wqV/UUD 9FvSq5Lg9KvNxJaU9Iw8Rg== 0000702808-98-000006.txt : 19981102 0000702808-98-000006.hdr.sgml : 19981102 ACCESSION NUMBER: 0000702808-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981030 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: JACOR COMMUNICATIONS INC CENTRAL INDEX KEY: 0000702808 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 310978313 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12404 FILM NUMBER: 98734550 BUSINESS ADDRESS: STREET 1: 50 E RIVERCENTER BLVD STREET 2: 12TH FLOOR CITY: COVINGTON STATE: KY ZIP: 41011 BUSINESS PHONE: 6066552267 MAIL ADDRESS: STREET 1: 50 EAST RIVERCENTER BLVD 12TH FLOOR CITY: COVINGTON STATE: KY ZIP: 41011 10-Q 1 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. 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 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (UNAUDITED)
September 30, December 31, 1998 1997 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.
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)
Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 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)
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)
Three Months Ended Nine Months Ended September 30 September 30 1998 1997 1998 1997 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.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the nine months ended September 30, 1998 and 1997 (In thousands) (UNAUDITED)
1998 1997 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.
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. 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: 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. 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) 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. 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:
Jacor JCC September 30, September 30, September 30, September 30, 1998 1997 1998 1997 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
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 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. 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. 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. 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: 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. 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. 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. 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". 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. 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. 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. 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. 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 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 (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. 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. 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. "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. 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 _______________________________ EX-27 2
5 1,000 9-MOS DEC-31-1998 SEP-30-1998 42,084 0 206,442 8,115 0 269,796 307,730 47,518 3,327,668 137,958 1,531,965 0 0 511 1,178,522 3,327,668 0 597,244 0 423,749 13,052 1,920 76,563 17,763 19,200 (1,437) 0 0 0 (1,437) (0.03) (0.03)
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