-----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, NdP8R3fBRmEQzBlHMDYfSR4mazly5biRN9syaWQcfrjJH5PomBvuVAt45ItLUpPq Z+r2AOERSH8NqVlJKHj+cg== 0000950129-99-001530.txt : 19990413 0000950129-99-001530.hdr.sgml : 19990413 ACCESSION NUMBER: 0000950129-99-001530 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990412 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEAR CHANNEL COMMUNICATIONS INC CENTRAL INDEX KEY: 0000739708 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 741787536 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-09645 FILM NUMBER: 99592035 BUSINESS ADDRESS: STREET 1: 200 CONCORD PLAZA STREET 2: STE 600 CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2108222828 MAIL ADDRESS: STREET 1: 200 CONCORD PLAZA SUITE 600 STREET 2: 200 CONCORD PLAZA SUITE 600 CITY: SAN ANTONIO STATE: TX ZIP: 78216 8-K/A 1 CLEAR CHANNEL COMMUNICATIONS, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 12, 1999 (December 10, 1998) Clear Channel Communications, Inc. (Exact name of registrant as specified in its charter) Texas (State of Incorporation) 1-9645 74-1787536 (Commission File Number) (I.R.S. Employer Identification No.) 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 (210) 822-2828 (Address and telephone number of principal executive offices) 2 Clear Channel Communications, Inc. Form 8-K/A Item 5 OTHER EVENTS. On December 10, 1998, Clear Channel Communications, Inc., a Texas corporation (the "Company"), filed a Current Report on Form 8-K. On February 23, 1999 the Company filed a Current Report on Form 8-K/A to amend the December 10, 1998 filing to adjust the pro forma information under item 7 (b). The Company is filing this amendment to include financial statements under item 7 (a) and the associated pro forma information under item 7 (b) as of and for the year ended December 31, 1998. Item 7 FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements of business acquired. 3 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Jacor Communications, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Jacor Communications, Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Cincinnati, Ohio February 12, 1999 4 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (In thousands, except share amounts)
1998 1997 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 20,051 $ 28,724 Accounts receivable, less allowance for doubtful accounts of $8,303 in 1998 and $6,195 in 1997 201,466 135,073 Prepaid expenses and other 32,796 33,790 ---------- ---------- Total current assets 254,313 197,587 Property and equipment, net 281,049 206,809 Intangible assets, net 2,749,348 2,104,221 Other assets 135,998 93,261 ---------- ---------- Total assets $3,420,708 $2,601,878 ========== ========== LIABILITIES Current liabilities: Current portion long-term debt $ 35,000 $ -- Accounts payable 20,015 17,294 Accrued expenses and other 86,184 68,971 Accrued payroll 16,238 15,246 Accrued income taxes 5,963 16,738 ---------- ---------- Total current liabilities 163,400 118,249 Long-term debt 1,289,574 987,500 Liquid Yield Option Notes 306,202 125,300 Deferred tax liability 345,478 338,867 Other liabilities 112,988 115,611 Commitments and contingencies SHAREHOLDERS' EQUITY Preferred stock, authorized and unissued 4,000,000 shares -- -- Common stock, no par value, $0.01 per share stated value; authorized 100,000,000 shares, issued and outstanding shares: 51,184,217 in 1998 and 45,689,677 in 1997 512 457 Additional paid-in capital 1,124,057 863,086 Common stock warrants 30,819 31,500 Accumulated other comprehensive income 25,428 -- Retained earnings 22,250 21,308 ---------- ---------- Total shareholders' equity 1,203,066 916,351 ---------- ---------- Total liabilities and shareholders' equity $3,420,708 $2,601,878 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 5 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME for the years ended December 31, 1998, 1997 and 1996 (In thousands, except per share amounts)
1998 1997 1996 --------- --------- --------- Broadcast revenue $ 850,720 $ 595,229 $ 250,461 Less agency commissions 96,252 64,655 26,700 --------- --------- --------- Net revenue 754,468 530,574 223,761 Broadcast operating expenses 497,861 356,783 151,065 Depreciation and amortization 120,392 78,485 23,404 Corporate general and administrative expenses 19,684 14,093 9,932 --------- --------- --------- Operating income 116,531 81,213 39,360 Interest expense (107,295) (82,315) (32,244) Gain on sale of assets 10,896 11,135 2,539 Other income 12,248 3,452 6,342 Other expense (3,338) (481) (626) --------- --------- --------- Income before income taxes and extraordinary loss 29,042 13,004 15,371 Income tax expense (28,100) (9,600) (7,300) --------- --------- --------- Income before extraordinary loss 942 3,404 8,071 Extraordinary loss, net of income tax benefit -- (7,456) (2,966) --------- --------- --------- Net income (loss) 942 (4,052) 5,105 --------- --------- --------- Other comprehensive income (loss) before tax: Unrealized gains on securities 42,380 2,697 3,403 Less: reclassification adjustment for gains included in net income -- (6,100) -- --------- --------- --------- Other comprehensive income, before tax 42,380 (3,403) 3,403 Income tax (expense) benefit related to items of other comprehensive income (16,952) 1,361 (1,361) --------- --------- --------- Other comprehensive income (loss), net of tax 25,428 (2,042) 2,042 --------- --------- --------- Comprehensive income (loss) $ 26,370 $ (6,094) $ 7,147 ========= ========= =========
(Continued) 6 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME for the years ended December 31, 1998, 1997 and 1996 (In thousands, except per share amounts) (Continued)
1998 1997 1996 -------- -------- -------- Basic net income (loss) per common share: Before extraordinary loss $ .02 $ .08 $ .32 Extraordinary loss -- (.18) (.12) -------- -------- -------- Net income (loss) per common share $ .02 $ (.10) $ .20 ======== ======== ======== Diluted net income (loss) per common share: Before extraordinary loss $ .02 $ .08 $ .30 Extraordinary loss -- (.18) (.11) -------- -------- -------- Net income (loss) per common share $ .02 $ (.10) $ .19 ======== ======== ======== Number of common shares used in Basic calculation 50,389 40,460 25,433 ======== ======== ======== Number of common shares used in Diluted calculation 54,565 42,163 26,442 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 7 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the years ended December 31, 1998, 1997 and 1996 (In thousands)
Common Stock Accumulated ----------------- Additional Common Other Shares Stated Paid-In Stock Comprehensive Retained Value Capital Warrants Income Earnings Total - -------------------------------------------------------------------------------------------------------- Balances, December 31, 1995 18,157 $ 182 $ 118,248 $ 388 -- $ 20,255 $ 139,073 Common stock offering 11,250 113 301,636 -- -- -- 301,749 Employee stock purchases 48 -- 672 -- -- -- 672 Exercise of stock options 106 1 650 -- -- -- 651 Conversion of warrants 1,726 17 14,704 (374) -- -- 14,347 Purchase of warrants -- -- (5,080) (14) -- -- (5,094) Issuance of warrants -- -- -- 26,500 -- -- 26,500 Other comprehensive income -- -- -- -- $ 2,042 -- 2,042 Stock related compensation -- -- 1,891 -- -- -- 1,891 Net income -- -- -- -- -- 5,105 5,105 - -------------------------------------------------------------------------------------------------------- Balances, December 31, 1996 31,287 313 432,721 26,500 2,042 25,360 486,936 Common stock offering 8,321 83 246,079 -- -- -- 246,162 Stock issued for acquisitions 5,774 58 179,370 -- -- -- 179,428 Employee stock purchases 87 1 2,137 -- -- -- 2,138 Exercise of stock options 220 2 3,030 -- -- -- 3,032 Issuance of warrants -- -- -- 5,000 -- -- 5,000 Other comprehensive income -- -- -- -- (2,042) -- (2,042) Other -- -- (251) -- -- -- (251) Net loss -- -- -- -- -- (4,052) (4,052) - -------------------------------------------------------------------------------------------------------- Balances, December 31, 1997 45,689 $ 457 $ 863,086 $ 31,500 -- $ 21,308 $ 916,351 - --------------------------------------------------------------------------------------------------------
(Continued) 8 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the years ended December 31, 1998, 1997 and 1996 (In thousands) (Continued)
Common Shares Accumulated ---------------- Additional Common Other Shares Stated Paid-In Stock Comprehensive Retained Value Capital Warrants Income Earnings Total - ------------------------------------------------------------------------------------------- Balances, December 31, 1997 45,689 $457 $863,086 $31,500 -- $21,308 $916,351 Common stock offering 5,073 51 244,888 -- -- -- 244,939 Employee stock purchases 70 -- 3,080 -- -- -- 3,080 Exercise of stock options 277 3 4,707 -- -- -- 4,710 Conversion of warrants 70 1 3,504 (681) -- -- 2,824 Other comprehensive income -- -- -- -- $25,428 -- 25,428 LYONs conversions 5 -- 194 -- -- -- 194 Other -- -- 4,598 -- -- -- 4,598 Net income -- -- -- -- -- 942 942 - ------------------------------------------------------------------------------------------- Balances, December 31, 1998 51,184 $512 $1,124,057 $30,819 $25,428 $22,250 $1,203,066 ===========================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 9 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1998, 1997 and 1996 (In thousands)
1998 1997 1996 -------- -------- -------- Cash flows from operating activities: Net income (loss) $ 942 $ (4,052) $ 5,105 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 26,457 17,836 7,661 Amortization of intangible assets 93,935 60,649 15,743 Extraordinary loss -- 7,456 2,966 Non-cash interest expense 17,227 6,618 4,327 Provision for bad debts and other 2,108 1,155 1,870 Deferred income taxes 14,956 (6,648) (233) Gain on sale of assets (10,896) (11,135) (2,539) Changes in operating assets and liabilities, net of effects of acquisitions and disposals: Accounts receivable (68,319) (37,495) (18,626) Prepaid expenses and other assets (1,451) (9,637) (4,076) Accounts payable 2,720 4,694 10,054 Accrued expenses and other liabilities 4,920 26,599 2,655 -------- -------- -------- Net cash provided by operating activities 82,599 56,040 24,907 -------- -------- --------
(Continued) The accompanying notes are an integral part of the consolidated financial statements. 10 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1998, 1997 and 1996 (In thousands) (Continued)
1998 1997 1996 --------- --------- --------- Cash flows from investing activities: Capital expenditures $ (36,232) $ (19,980) $ (11,852) Cash paid for acquisitions (786,992) (680,206) (826,302) Deposits on broadcast stations (13,219) (51,410) (23,608) Proceeds from sale of assets 10,400 93,263 6,595 Loans originated and other (10,000) -- (4,097) --------- --------- --------- Net cash used by investing activities (836,043) (658,333) (859,264) --------- --------- --------- Cash flows from financing activities: Issuance of long-term debt 534,539 627,700 973,000 Issuance of common stock 249,243 248,433 431,898 Repayment of long-term debt (197,500) (310,200) (471,600) Payment of financing costs (8,461) (13,659) (27,435) Issuance of LYONs 166,950 -- -- Other -- 606 (806) --------- --------- --------- Net cash provided by financing activities 744,771 552,880 905,057 --------- --------- --------- Net (decrease) increase in cash and cash equivalents (8,673) (49,413) 70,700 Cash and cash equivalents at beginning of year 28,724 78,137 7,437 --------- --------- --------- Cash and cash equivalents at end of year $ 20,051 $ 28,724 $ 78,137 ========= ========= ========= Supplemental disclosures of cash flow information: Cash paid for: Interest $ 87,253 $ 72,191 $ 5,300 Income taxes $ 8,588 $ 5,383 $ 4,992 Supplemental schedule of non-cash investing and financing activities: Fair value of assets exchanged $ 258,566 $ 120,000 $ 170,000 Liabilities assumed in acquisitions $ 19,263 $ 120,325 $ 296,187
The accompanying notes are an integral part of the consolidated financial statements. 11 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS Description of Business The Company operates in a single reportable segment, radio, which derives its revenue from the sale of commercial broadcast inventory. The radio segment includes all of the Company's radio stations owned or operated and Premiere, a radio syndication business. The Company also aggregates into the category "other", one television station and several broadcast related businesses that provide market research, traffic reporting and satellite connectivity. As of December 31, 1998 the Company owned and/or operated 214 radio stations and one television station in 57 broadcast areas throughout the United States. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Jacor Communications, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Revenues Revenues for commercial broadcasting advertisements are recognized when the commercial is broadcast. Revenues from syndicated program fees are recognized over the term of the contracts. Barter Transactions Barter transactions are reported at the estimated fair value of the product or service received. Revenue from barter transactions (advertising provided in exchange for goods and services) is recognized as income when advertisements are broadcast, and merchandise or services received are charged to expense when received or used. If merchandise or services are received prior to the broadcast of the advertising, a liability (deferred barter revenue) is recorded. If the advertising is broadcast before the receipt of the goods or services, a receivable is recorded. Consolidated Statements of Cash Flows For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. The effect of barter transactions has been eliminated. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and accounts receivable. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising the Company's customer base and their dispersion across many different geographic areas of the country. 12 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS, Continued Property and Equipment Property and equipment are stated at cost less accumulated depreciation; depreciation is provided on the straight-line basis over the estimated useful lives of the assets as follows: Land improvements 20 Years Buildings 25 Years Equipment 3 to 20 Years Furniture and fixtures 5 to 12 Years Leasehold improvements Life of lease Intangible Assets Intangible assets are stated at cost less accumulated amortization; amortization is provided principally on the straight-line basis over the following lives: FCC Broadcasting licenses 40 Years Goodwill 40 Years Contracts and other intellectual property 3 to 25 Years Effective January 1, 1996, the Company adopted Statement of Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Prior to 1996, the Company accounted for the impairment of intangible assets under Accounting Principles Board (APB) Opinion No. 17. The adoption of this statement did not impact the Company's policy for reviewing the carrying value of intangible assets. The carrying value of intangible assets is reviewed by the Company when events or circumstances suggest that the recoverability of an asset may be impaired. If this review indicates that goodwill, FCC licenses and other intangible assets will not be recoverable, as determined based on the undiscounted cash flows of the entity over the remaining amortization period, the carrying value of the goodwill, FCC licenses, and other intangible assets will be reduced to their respective fair values. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Fair Value of Financial Instruments The fair value of the Company's publicly traded debt is based on quoted market prices. It was not practicable to estimate the fair value of borrowings under the Company's Credit Facility since there is no liquid market for this debt. 13 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS, Continued Earnings Per Share Basic earnings per share equals net earnings divided by the weighted average number of common shares outstanding. Diluted earnings per share equals net earnings divided by the weighted average number of common shares outstanding after giving effect to other dilutive securities. Stock Based Compensation Plans The Company accounts for its employee and director stock based compensation plans in accordance with APB Opinion No. 25. The Company has elected not to adopt the cost recognition provisions of Statement of Financial Accounting Standards No. 123, ("SFAS 123") "Accounting for Stock Based Compensation". The Company follows only the disclosure provisions of SFAS 123 as permitted by the statement. Reclassifications Certain prior year amounts have been reclassed to conform to 1998 presentation. These changes had no impact on previously reported results of operations or shareholders' equity. 14 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. CLEAR CHANNEL MERGER 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" or the "Clear Channel 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. As a result of the Merger, all options and stock appreciation rights for Jacor common stock not vested at the effective time of the Merger become fully vested and exercisable one day before the effective time of the Merger. Clear Channel will assume all of these options and stock appreciation rights on the same terms and conditions as were applicable prior to the effective time of the Merger. The holders may exercise such options and stock appreciation rights for or with respect to shares of Clear Channel common stock at an exercise price adjusted to reflect the exchange ratio of the Merger. 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. 15 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. ACQUISITIONS COMPLETED 1998 ACQUISITIONS AND DISPOSITIONS 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.l 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 certain of the transactions qualify as tax-deferred like-kind exchanges, therefore, the income tax expense of approximately $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:
Stations Received in Exchange Stations Transaction or Purchased from Exchanged Purchased from Nationwide or Sold Other Parties -------------- --------- ----------------- 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-FM WTAE-AM (Pittsburgh) (Minneapolis) KGLQ-FM, KZZP-FM (Phoenix) KMCG-FM, KXGL-FM (San Diego)
16 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. ACQUISITIONS, Continued Other Transactions Also during 1998, the Company completed acquisitions of 47 radio stations in 10 existing and 17 new broadcast areas for a purchase price consisting of approximately $237.0 million in cash, of which $18.8 million was placed in escrow in 1997, and the assumption of approximately $10.7 million in debt owed to wholly-owned subsidiaries of the Company. The Company also completed two separate exchanges of broadcast properties, exchanging five stations in two broadcast areas for seven stations in two broadcast areas. The Company sold six broadcast properties in three broadcast areas for approximately $1.1 million in cash. During 1998, the Company completed acquisitions of two broadcasting service companies and the assets of five other broadcasting service companies for a purchase price of approximately $14.5 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. COMPLETED 1997 ACQUISITIONS AND DISPOSITIONS During 1997, the Company completed acquisitions of 86 radio stations in 33 broadcast areas for a purchase price consisting of (i) $344.4 million in cash, of which $26.1 million was placed in escrow in 1996, (ii) the issuance of approximately 4.3 million shares of common stock valued at $126.8 million, and (iii) the issuance of warrants to acquire 500,000 shares of common stock at $40 per share valued at $5.0 million. The Company also completed three separate like-kind exchanges of broadcast properties, exchanging five stations and net cash of $11.0 million, of which $3.6 million was placed in escrow in 1996, for nine stations. The Company sold two stations in two broadcast areas for $9.5 million. In June, the Company acquired by merger Premiere, a company that produces syndicated network radio programs and services which it distributes in exchange for commercial broadcast time that is resold to national advertisers. The total consideration paid by the Company including payment for certain Premiere warrants and stock options, was $189.8 million, consisting of $138.8 million in cash and the issuance of 1,416,886 shares of common stock. 17 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. ACQUISITIONS, Continued In April 1997, the Company acquired substantially all the assets relating to the broadcast distribution and related print and electronic media publishing businesses of Radio-Active Media (formerly EFM Media Management), for $50.0 million in cash. Additionally, in October 1997, the Company acquired the rights to The Dr. Laura Program from Synergy Broadcasting, Inc. and the assets of Multiverse Networks, L.L.C., a network radio sales representation firm, for $71.5 million in cash. The Company completed the acquisition of two additional broadcasting service companies for a purchase price of approximately $29.0 million. All of the above 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 each of the 1998 and 1997 acquisitions had taken place at the beginning of 1997, unaudited pro forma consolidated results of operations would have been as follows:
Pro Forma (Unaudited) Year Ended December 31, 1998 1997 --------- --------- Net revenue $ 824,616 $ 714,853 Net loss before extraordinary loss (9,568) (14,263) Diluted loss per common share before extraordinary loss $ (.19) $ (.28)
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. Acquisitions Completed Subsequent to December 31, 1998 The Company purchased the FCC licenses and substantially all of the assets of 21 and the stock of two radio stations in two existing and nine new broadcast areas and the FCC license and substantially all of the assets of one television station in one new broadcast area for approximately $106.9 million in cash, of which approximately $10.0 million was placed in escrow in 1997 and 1998. 18 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. ACQUISITIONS, Continued Pending Acquisitions and Dispositions As of March 5, 1999, the Company has entered into agreements to purchase FCC licenses and substantially all of the broadcast assets of 13 stations and the stock of one station in six of the Company's existing broadcast areas and in three new broadcast areas for a total purchase price of approximately $22.3 million in cash, of which $2.6 million has already been paid in escrow through December 31, 1998. In connection with the Clear Channel Merger (See Footnote 2) the Company has signed letters of intent to divest of five stations in Louisville, Kentucky and the format of one and FCC license of another station in Tampa, Florida. These dispositions will close simultaneously with the Clear Channel Merger. 19 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1998 and 1997 consist of the following (in thousands):
1998 1997 --------- --------- Land and land improvements $ 28,043 $ 21,128 Buildings 34,671 26,077 Equipment 239,861 162,885 Furniture and fixtures 23,040 19,919 Leasehold improvements 10,587 8,006 --------- --------- 336,202 238,015 Less accumulated depreciation (55,153) (31,206) --------- --------- $ 281,049 $ 206,809 ========= =========
5. INTANGIBLE ASSETS Intangible assets at December 31, 1998 and 1997 consist of the following (in thousands):
1998 1997 ---------- ---------- Broadcasting licenses $2,077,776 $1,465,020 Goodwill 452,720 404,684 Contracts and other intellectual assets 400,674 331,171 ---------- ---------- 2,931,170 2,200,875 Less accumulated amortization (181,822) (96,654) ---------- ---------- $2,749,348 $2,104,221 ========== ==========
20 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. OTHER ASSETS The Company's other assets at December 31, 1998 and 1997 consist of the following (in thousands):
1998 1997 -------- -------- Deferred finance costs $ 32,607 $ 24,497 Deposits on broadcast properties 38,961 51,410 Marketable securities 27,428 -- Other 37,002 17,354 -------- -------- $135,998 $ 93,261 ======== ========
At December 31, 1998 the Company recorded an unrealized gain, net of tax, of $25.4 million on an investment in a marketable equity security. In January 1999 the Company sold the investment and recognized a pretax gain of $83.5 million. Included in Other at December 31, 1998 is a $9.2 million note receivable from a company which provides real estate services to Jacor, and employs a Director of Jacor in a principal position. 21 JACOR COMMUNICATIONS,INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT The Company's debt obligations at December 31, 1998 and 1997 consist of the following (in thousands):
1998 1997 ---------- -------- Credit Facility borrowings........ $ 750,000 $567,500 10 1/8% Senior Subordinated Notes, due 2006....................... 100,000 100,000 9 3/4% Senior Subordinated Notes, due 2006....................... 170,000 170,000 8 3/4% Senior Subordinated Notes, due 2007....................... 150,000 150,000 8% Senior Subordinated Notes, due 2010....................... 119,574 -- ---------- -------- $1,289,574 $987,500 ========== ========
Credit Facility The Company, through Jacor Communications Company ("JCC"), has a $1.15 billion credit facility (the "Credit Facility") with a group of banks and other financial institutions. The Credit Facility consists of two components: (i) a revolving credit facility ("Revolving Credit Facility") of up to $750.0 million with a mandatory commitment reduction of $50.0 million on June 30, 2000 continuing semi-annually through June 2003, and a final maturity date of December 31, 2004; and (ii) a term loan ("Term Loan") of up to $400.0 million with a scheduled reduction of $35.0 million on December 31, 1999 with increasing semi-annual reductions thereafter and a final maturity date of December 31, 2004. Amounts repaid or prepaid under the Term Loan may not be reborrowed. At December 31, 1998, the Company had $400.0 million of outstanding indebtedness under the Term Loan, $385.0 million of outstanding indebtedness under the Revolving Credit Facility and available borrowings of $365.0 million. The loans under the Credit Facility are guaranteed by each of the Company's direct and indirect subsidiaries other than certain immaterial subsidiaries. JCC's obligations under the Credit Facility are collateralized by a first priority lien on the capital stock of the Company's subsidiaries, an assignment of all intercompany debt and of certain time brokerage agreements, and by the guarantee of JCC's parent company, Jacor Communications, Inc. ("Jacor"). 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 December 31, 1998, the average interest rate on Credit Facility borrowings was 6.20%. 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. 22 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT, Continued The Credit Facility contains covenants and provisions that restrict, among other things, the Company's ability to: (i) incur additional indebtedness; (ii) incur liens on its property; (iii) make investments and advances; (iv) enter into guarantees and other contingent obligations; (v) merge or consolidate with or acquire another person or engage in other fundamental changes; (vi) engage in certain sales of assets; (vii) engage in certain transactions with affiliates; and (viii) make restricted junior payments. The Credit Facility also requires the satisfaction of certain financial performance criteria (including a consolidated interest coverage ratio, a debt-to-operating cash flow ratio and a consolidated operating cash flow available for fixed charges ratio) and the repayment of loans under the Credit Facility with proceeds of certain sales of assets and debt issuances. In 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 due to significant amendments to the Company's Credit Facility. 10 1/8% Senior Subordinated Notes Due 2006 Interest on the 10 1/8% Senior Subordinated Notes (the "10 1/8% Notes") is payable semi-annually. The 10 1/8% Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after June 15, 2001. The redemption prices commence at 105.063% and are reduced by 1.688% annually until June 15, 2004 when the redemption price is 100%. At December 31, 1998, the market value of the 10 1/8% Notes exceeded carrying value by approximately $11.5 million. At December 31, 1997 the market value of the 10 1/8% Notes exceeded carrying value by approximately $8.6 million. 9 3/4% Senior Subordinated Notes Due 2006 Interest on the 9 3/4% Senior Subordinated Notes (the "9 3/4% Notes") is payable semi-annually. The 9 3/4% Notes will be redeemable at the option of the Company, in whole or part, at any time on or after December 15, 2001. The redemption prices commence at 104.875% and are reduced by 1.625% annually until December 15, 2004 when the redemption price is 100%. At December 31, 1998, the market value of the 9 3/4% Notes exceeded carrying value by approximately $17.9 million. At December 31, 1997 the market value of the 9 3/4% Notes exceeded carrying value by approximately $12.1 million. 23 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT, Continued 8 3/4% Senior Subordinated Notes Due 2007 In June 1997, the Company completed an offering of $150 million of its 8 3/4% Senior Subordinated Notes (the "8 3/4% Notes"). The 8 3/4% Notes will mature on June 15, 2007. Interest on the 8 3/4% Notes is payable semi-annually on June 15 and December 15 of each year, commencing December 15, 1997. The 8 3/4% Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after June 15, 2002. The redemption prices commence at 104.375% and are reduced by 1.458% annually until June 15, 2005 when the redemption price is 100%. At December 31, 1998 the market value of the 8 3/4% Notes exceeded carrying value by approximately $11.6 million. At December 31, 1997, the market value of the 8 3/4% Notes exceeded carrying value by approximately $3.8 million. 8% Senior Subordinated Notes Due 2010 In February 1998, the Company completed an offering of $120 million of its 8% Senior Subordinated Notes (the "8% Notes"). The 8% Notes will mature on February 15, 2010. Interest on the 8% Notes is payable semi-annually on February 15 and August 15 of each year, commencing August 15, 1998. 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 104.0% and are reduced by 0.8% annually until February 2008 when the redemption price is 100%. At December 31, 1998 the market value of the 8% Notes exceeded carrying value by approximately $6.6 million. The 10 1/8% Notes, 9 3/4% Notes, 8 3/4% Notes, and 8% Notes (the "Notes") are obligations of 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 is a wholly-owned subsidiary of Jacor and the Subsidiary Guarantors are wholly-owned subsidiaries of JCC. 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. 24 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT, Continued Summarized financial information with respect to Jacor and with respect to the Subsidiary Guarantors on a combined basis as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998; and with respect to JCC as of December 31, 1998 and 1997 and for the years ended December 31, 1998, December 31, 1997 and for the period from June 6, 1996 to December 31, 1996 is as follows:
Jacor JCC ---------------------------------------- --------------------------------------- 1998 1997 1996 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- --------- Operating Statement Data (in thousands): Net revenue -- -- -- -- -- -- Equity in earnings of subsidiaries $ 1,277 $ (1,958) $ 10,237 $ 967 $ 3,191 $ 11,864 Operating (loss) income (18,954) (15,387) 305 967 3,191 11,864 Income (loss) before extraordinary items 942 (4,052) 5,105 1,277 5,498 13,203 Net income (loss) 942 (4,052) 5,105 1,277 (1,958) 10,237 Balance Sheet Data (in thousands): Current assets $ 6,090 $ 1,316 -- $ 27,634 $ 41,203 -- Non-current assets 1,622,014 1,165,970 -- 2,884,237 2,122,648 -- Current liabilities 22,075 28,853 -- 13,771 13,184 -- Non-current liabilities 402,964 222,082 -- 2,224,921 1,478,765 -- Shareholders' equity 1,203,065 916,351 -- 673,179 671,902 -- Statement of Cash Flow Data (in thousands): Operating activities $ (19,234) $ (13,643) $ (9,482) $ 8,460 $ 2,521 $ 5,266 Investing activities (2,597) 88,460 2,098 (800,211) (731,616) (849,910) Financing activities 22,444 (76,278) 7,384 782,465 683,829 915,345 Net change in cash and cash equivalents 613 (1,461) -- (9,286) (45,266) 70,701 Cash and cash equivalents at beginning of period (613) 848 -- 29,337 74,603 7,436 Cash and cash equivalents at end of period -- (613) -- 20,051 29,337 78,137
25 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT, Continued
Combined Subsidiary Guarantors 1998 1997 1996 ----------- ----------- ----------- Operating Statement Data (in thousands): Net revenue $ 754,468 $ 530,574 $ 223,761 Equity in earnings of subsidiaries -- -- -- Operating income 136,762 95,306 49,292 Income before extraordinary items 967 3,191 11,864 Net income 967 3,191 11,864 Balance Sheet Data (in thousands): Current assets $ 220,589 $ 155,068 -- Non-current assets 3,200,118 2,446,810 -- Current liabilities 92,554 76,212 -- Non-current liabilities 2,125,088 1,609,315 -- Shareholders' equity 1,203,065 916,351 -- Statement of Cash Flow Data (in thousands): Operating activities $ 93,373 $ 67,162 $ 29,123 Investing activities (33,235) (15,177) (11,452) Financing activities (60,138) (54,671) (17,671) Net change in cash and cash equivalents -- (2,686) -- Cash and cash equivalents at beginning of period -- 2,686 -- Cash and cash equivalents at end of period -- -- --
26 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. LIQUID YIELD OPTION NOTES 1998 Liquid Yield Option Notes In February 1998, the Company issued 4 3/4% Liquid Yield Option Notes ("1998 LYONs") due 2018 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. At December 31, 1998 the accreted value of the 1998 LYONs was $174.1 million which included $7.2 million of interest accreted during 1998. Each 1998 LYON is 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 1998 LYON. The 1998 LYONs are not redeemable by the Company prior to February 9, 2003. Thereafter, the LYONs are redeemable for cash at any time at the option of the Company, in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption. The 1998 LYONs can be purchased by the Company, at the option of the holder, on February 9, 2003, February 9, 2008, and February 9, 2013 for a purchase price of $494.52, $625.35 and $790.79 (representing issue price plus accrued original issue discount to each date), respectively, representing a 4 3/4% yield per annum to the holder on such date. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or common stock, or any combination thereof. At December 31, 1998 the market value of the 1998 LYONs exceeded the carrying value by approximately $31.3 million. 1996 Liquid Yield Option Notes In June 1996, the Company issued 5 1/2% Liquid Yield Option Notes ("1996 LYONs") due 2011 in the aggregate principal amount at maturity of $259.9 million. Each 1996 LYON had an issue price of $443.14 and a principal amount at maturity of $1,000. At December 31, 1998 the accreted value of the 1996 LYONs was $132.1 million which included $7.0 million of interest accreted during 1998. At December 31, 1997 the accreted value of the 1996 LYONs was $125.3 million which included $6.6 million of interest accreted during 1997. Each 1996 LYON is convertible, at the option of the holder, at any time on or prior to maturity, into Common Stock at a conversion rate of 13.412 shares per 1996 LYON. The 1996 LYONs are not redeemable by the Company prior to June 12, 2001. Thereafter, the 1996 LYONs are redeemable for cash at any time at the option of the Company, in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption. 27 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. LIQUID YIELD OPTION NOTES, Continued The 1996 LYONs can be purchased by the Company, at the option of the holder, on June 12, 2001 and June 12, 2006, for a purchase price of $581.25 and $762.39 (representing issue price plus accrued original issue discount to each date), respectively, representing a 5 1/2% yield per annum to the holder on such date. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or common stock, or any combination thereof. At December 31, 1998, the market value of the 1996 LYONs exceeded the carrying value by approximately $99.9 million. At December 31, 1997, the market value of the 1996 LYONs exceeded the carrying value by approximately $64.4 million. 9. CAPITAL STOCK Common Stock In February 1998, the Company completed an offering of 5,073,000 shares of common stock at $50.50 per share net of underwriting discounts of $2.02 per share. Net proceeds to the Company were approximately $244.9 million. Warrants In connection with a 1997 acquisition, the Company issued warrants to acquire 500,000 shares of common stock with an exercise price of $40 per share. The warrants expire in February 2002. In connection with a 1996 acquisition, the Company issued warrants to acquire 4,400,000 shares of common stock with an exercise price of $28 per share. The warrants expire in September 2001. 28 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. STOCK BASED COMPENSATION PLANS 1993 Stock Option Plan Under the Company's 1993 stock option plan (the "1993 Plan"), options to acquire up to 2,769,218 shares of common stock can be granted to directors, officers and key employees at no less than the fair market value of the underlying stock on the date of grant. The 1993 Plan permits the granting of non-qualified stock options (NQSOs) as well as incentive stock options(ISOs). Between 25% and 30% of the options vest on the date of grant and between 20% and 30% vest on each of the next three anniversaries of the grant date. Options expire 10 years after grant and the plan will terminate no later than February 7, 2003. At December 31, 1998, 618 shares were available for grant. 1997 Long-Term Incentive Stock Plan The 1997 Long-Term Incentive Stock Plan ("the Long-Term Plan") authorizes the issuance of up to 1,800,000 shares of Common Stock pursuant to the grant or exercise of stock options, including NQSOs and ISOs, restricted stock, stock appreciation rights (SARs), and certain other instruments to executive officers and other key employees, subject to board approval and certain other restrictions. Stock options may not be granted at less than the fair market value of the underlying stock on the date of grant. Twenty-five percent of the options vest on the date of the grant and 25% vest on each of the next three anniversaries of the grant date. Options expire 10 years after grant. At December 31, 1998, 284,512 shares were available for grant. 1997 Non-Employee Directors Stock Plan and Stock Purchase Plan The 1997 Non-Employee Directors Stock Plan (the "Directors Stock Plan") authorizes the issuance of up to 350,000 shares of Jacor Common Stock pursuant to the grant or exercise of NQSOs, SARs, restricted stock and other performance instruments. Stock options may not be granted at less than the fair market value of the underlying stock on the date of grant. Twenty-five percent of the options vest on the date of the grant and 25% vest on each of the next three anniversaries of the grant date. Options expire 10 years after grant. At December 31, 1998, 270,000 shares were available for grant. Also, the Company adopted a stock purchase plan for its non-employee directors authorizing the issuance of up to 150,000 shares of Jacor common stock. Stock may be purchased at a 15% discount from fair value and purchases are limited to $100,000 per director in a calendar year. 29 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. STOCK BASED COMPENSATION PLANS, Continued Information pertaining to the plans for the years ended December 31, 1996, 1997 and 1998 is as follows:
Number of Weighted Average Shares Exercise Price --------- ---------------- 1996: Outstanding at beginning of year ...... 1,568,520 $ 7.52 Granted ............................... 594,500 $ 23.63 Exercised ............................. (106,410) $ 6.10 Outstanding at end of year ............ 2,056,610 $ 12.26 Exercisable at end of year ............ 1,507,000 $ 8.68 Available for grant at end of year .... 523,118 1997: Outstanding at beginning of year ...... 2,056,610 $ 12.26 Granted ............................... 1,196,188 $ 24.92 Exercised ............................. (212,679) $ 11.61 Surrendered ........................... (15,490) $ 26.71 Outstanding at end of year ............ 3,024,629 $ 17.20 Exercisable at end of year ............ 2,228,095 $ 13.72 Available for grant at end of year .... 1,476,930 1998: Outstanding at beginning of year ...... 3,024,629 $ 17.20 Granted ............................... 921,800 $ 53.31 Exercised ............................. (245,698) $ 15.32 Surrendered ........................... (9,083) $ 22.52 Outstanding at end of year ............ 3,691,648 $ 26.33 Exercisable at end of year ............ 2,435,686 $ 18.37 Available for grant at end of year .... 555,130
30 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. STOCK BASED COMPENSATION PLANS, Continued The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for grants in 1998, 1997 and 1996, respectively: risk-free interest rates are different for each grant and range from 5.24% to 6.51%; the expected lives of options are 5 years; and volatility of approximately 35% for all grants. A summary of the fair value of options granted in 1998, 1997 and 1996 follows:
1998 1997 1996 ------ ------ ------ Weighted-average fair value of options granted at-the-money $30.87 $12.26 $ 9.42 Weighted-average fair value of options granted at a premium -- -- $ 8.46 Weighted-average fair value of options granted at a discount -- $28.15 -- Weighted-average fair value of all options granted during the year $30.87 $16.29 $ 9.07
The options granted at a discount in 1997 were related to approximately 304,000 options outstanding to purchase Premiere common stock, which were converted to equivalent Jacor NQSOs at the time of the merger. The following table summarizes information about stock options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - -------------------------------------------------------- --------------------- Weighted Weighted Weighted Range of Number Average Average Number Average Exercise Outstanding Remaining Exercise Exercisable Exercise Prices at 12/31/98 Life Price at 12/31/98 Price -------- ----------- --------- -------- ----------- -------- $5.74 to $9.65 1,109,172 4.32 $ 6.10 1,109,172 $ 6.10 $12.70 to $19.96 300,929 6.48 $ 15.98 295,929 $ 15.93 $21.25 to $30.66 1,313,247 8.13 $ 26.46 779,260 $ 25.93 $37.25 to $45.94 49,000 8.55 $ 39.57 24,500 $ 39.80 $52.87 to $60.66 919,300 9.09 $ 53.28 226,825 $ 53.28 ----------- ----------- $ 5.74 to $60.66 3,691,648 8.26 $ 26.34 2,435,686 $ 18.40 =========== ===========
31 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. STOCK BASED COMPENSATION PLANS, Continued Employee Stock Purchase Plan Under the 1995 Employee Stock Purchase Plan, the Company is authorized to issue up to 700,000 shares of common stock to its full-time and part-time employees, all of whom are eligible to participate. Under the terms of the Plan, employees can choose each year to have up to 10 percent of their annual base earnings withheld to purchase the Company's common stock. The purchase price of the stock is 85% of the lower of its beginning-of-period or end-of-period market price. Under the Plan, the Company sold 66,151 shares for approximately $43.80 per share and 3,441 shares for approximately $52.06 per share in 1998, 74,767 shares for approximately $23.27 per share and 12,376 shares for approximately $32.19 per share in 1997 and 47,232 shares for $14.24 per share in 1996. The fair market value of the right to acquire common stock under the Stock Purchase Plan was $15.74 per share granted on January 1 and $15.73 per share granted on July 1 in 1998, $8.40 per share granted on January 1 and $9.80 per share granted on July 1 in 1997 and $4.81 per share in 1996. Had the compensation cost for the Company's stock-based compensation plans been determined consistent with SFAS 123, the Company's net income (loss) and net income (loss) per common share for 1998, 1997 and 1996 would approximate amounts below (in thousands, except per share amounts):
1998 1997 1996 -------- -------- ------- Net income (loss): As reported $ 942 $ (4,052) $ 5,105 Pro forma $(17,729) $(10,691) $ 3,826 Diluted net income (loss) per common share: As reported $ 0.02 $ (0.10) $ 0.19 Pro forma $ (0.31) $ (0.25) $ 0.14
In 1996, the Company recorded compensation expense of approximately $1.9 million related to stock units issued to officers and directors and stock options issued to non-employees of the Company. The expense related to the stock units was equal to the fair value of the stock for which the units can be converted into on the date of grant. The fair value of the options was determined using the Black-Scholes option pricing model and the following assumptions: risk-free interest rate of 5.79%; expected life of 5 years; and volatility of approximately 35%. The options were 100% vested on the date of grant. 32 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. INCOME TAXES Income tax expense for the years ended December 31, 1998, 1997 and 1996 is summarized as follows (in thousands):
Federal State Total ------- -------- ------- 1998: Current $10,640 $ 2,500 $13,140 Deferred 12,060 2,900 14,960 ------- -------- ------- $22,700 $ 5,400 $28,100 ======= ======== ======= 1997: Current $13,200 $ 3,000 $16,200 Deferred (5,400) (1,200) (6,600) ------- -------- ------- 7,800 1,800 9,600 Tax benefit from extraordinary loss (4,000) (900) (4,900) ------- -------- ------- $ 3,800 $ 900 $ 4,700 ======= ======== ======= 1996: Current $ 6,185 $1,348 $7,533 Deferred (185) (48) (233) ------- -------- ------- 6,000 1,300 7,300 Tax benefit from extraordinary loss (1,600) (380) (1,980) ------- -------- ------- $ 4,400 $ 920 $ 5,320 ======= ======== =======
The provisions for income tax differ from the amount computed by applying the statutory federal income tax rate due to the following:
1998 1997 1996 ------- ------- ------- Federal income tax at the statutory rate $10,167 $ 5,173 $ 5,627 Amortization not deductible 14,446 3,449 1,262 State income taxes, net of any current federal income tax benefit 3,498 589 620 Other (11) 389 (209) ------- ------- ------- $28,100 $ 9,600 $ 7,300 ======= ======= =======
33 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. INCOME TAXES, continued The tax effects of the significant temporary differences which comprise the deferred tax liability at December 31, 1998, 1997 and 1996 are as follows (in thousands):
1998 1997 1996 -------- -------- -------- Deferred tax assets: Accrued expenses and reserves $ (4,555) $ (7,479) $(11,104) Net operating loss carryforwards (7,235) (11,461) (12,000) Other (1,682) (4,047) (2,098) -------- -------- -------- (13,472) (22,987) (25,202) Deferred tax liabilities: Property and equipment 40,289 35,614 32,427 Intangibles 317,762 326,240 257,653 -------- -------- -------- 358,051 361,854 290,080 -------- -------- -------- Net liability $344,579 $338,867 $264,878 ======== ======== ========
At December 31, 1998 the Company had net operating loss carryforwards of $18,086. The loss carryforwards expire in the years 2008 through 2012 if not used. 34 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. COMMITMENTS AND CONTINGENCIES Lease and Contractual Obligations The Company and its subsidiaries lease certain land and facilities used in their operations. The Company also has various employment agreements with broadcast personalities that provide base compensation. Future minimum payments under leases and employment agreements as of December 31, 1998 are payable as follows (in thousands): 1999 $ 71,811 2000 56,047 2001 40,333 2002 23,960 2003 19,272 Thereafter 38,965 -------- $250,388 ========
Rental expense was approximately $11,955, $8,010 and $3,996 for the years ended December 31, 1998, 1997 and 1996, respectively. Legal Proceedings From time to time, the Company becomes involved in various claims and lawsuits that are incidental to its business. In the opinion of the Company's management, there are no material legal proceedings pending against the Company. 13. RETIREMENT PLAN The Company maintains a defined contribution retirement plan covering substantially all employees who have met eligibility requirements. The Company matches participating employee contributions at a rate of 50% of the employee's first 4% contributed, up to $160,000 of annual compensation. Total expense related to this plan was $2,558,647, $1,977,052 and $756,618 in 1998, 1997 and 1996, respectively. 35 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. 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 years ended December 31, as follows (in thousands except per share amounts):
1998 1997 1996 ------- ------- ------- Net income before extraordinary item $ 942 $ 3,404 $ 8,071 Weighted average shares - basic 50,389 40,460 25,433 Effect of dilutive securities: Stock options 1,465 996 658 Warrants 2,326 357 -- Other 385 350 351 ------- ------- ------- Weighted average shares - diluted 54,565 42,163 26,442 ======= ======= ======= Basic EPS $ .02 $ .08 $ .32 Diluted EPS $ .02 $ .08 $ .30
The Company's 1996 LYONs and 1998 LYONs (the "LYONs") can be converted into approximately 6.2 million shares of Jacor common stock at the option of the holder. Assuming conversion of the LYONs as of January 1, 1998 and 1997 would result in an increase in per share amounts before extraordinary items, therefore, the LYONs are not included in the computation of diluted EPS. 36 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. SEGMENT INFORMATION The Company operates in a single reportable segment, radio, which derives its revenue from the sale of commercial broadcast inventory. The radio segment includes all of the Company's radio stations owned or operated and Premiere, a radio syndication business. The Company also aggregates into the category "other", one television station and several broadcast related businesses that provide market research, traffic reporting and satellite connectivity. Intersegment sales consist primarily of license fees for syndicated programming and broadcast services provided to the Company's radio stations. Intersegment revenues are recorded at market value. No single customer provides more than 10% of the Company's revenues, and the Company derives less than 10% of its revenues from markets outside of the U.S. "Broadcast cash flow" means operating income before depreciation and amortization and corporate general and administrative expenses. The Company's management believes that broadcast cash flow is helpful in understanding cash flow generated from its broadcasting in comparing operating performance of the Company's broadcast entities to other broadcast companies. Broadcast cash flow is also a key factor in the Company's assessment of performance. Broadcast cash flow should not be considered an alternative to net income or operating income as an indicator of the Company's overall performance. Financial information for the Company's business segment is as follows (in thousands):
YEAR ENDED DECEMBER 31, 1998 RADIO OTHER CORPORATE ELIMINATIONS CONSOLIDATED ---------- --------- --------- ------------ ------------ Net broadcast revenue $ 700,079 $ 65,496 -- $ (11,107) $ 754,468 Broadcast operating expenses 457,597 51,371 -- (11,107) 497,861 Broadcast cash flow 242,482 14,125 -- -- 256,607 Corporate expenses -- -- $ 19,684 -- 19,684 Depreciation 21,813 3,506 1,138 -- 26,457 Amortization 87,166 5,397 1,372 -- 93,935 Operating income 133,503 5,222 (22,194) -- 116,531 Capital expenditures 28,474 4,761 2,997 -- 36,232 Radio station and other acquisitions 798,341 1,870 10,000 -- 810,211 Total assets 2,983,481 258,110 201,260 (22,143) 3,420,708
37 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. SEGMENT INFORMATION, Continued
YEAR ENDED DECEMBER 31, 1998 RADIO OTHER CORPORATE ELIMINATIONS CONSOLIDATED ---------- --------- --------- ------------ ------------ Net broadcast revenue $ 483,548 $ 51,576 -- $ (4,550) $ 530,574 Broadcast operating expenses 325,753 35,580 -- (4,550) 356,783 Broadcast cash flow 157,795 15,996 -- -- 173,791 Corporate expenses -- -- $ 14,093 -- 14,093 Depreciation 14,187 2,995 654 -- 17,836 Amortization 54,573 5,361 715 -- 60,649 Operating income 89,035 7,640 (15,462) -- 81,213 Capital expenditures 11,367 3,810 4,803 -- 19,980 Radio station and other acquisitions 703,287 28,329 -- -- 731,616 Total assets 2,208,992 253,864 143,020 (3,998) 2,601,878 YEAR ENDED DECEMBER 31, 1996 Net broadcast revenue $ 197,172 $ 28,673 -- $ (2,084) $ 223,761 Broadcast operating expenses 135,284 17,865 -- (2,084) 151,065 Broadcast cash flow 61,888 10,808 -- -- 72,696 Corporate expenses -- -- $ 9,932 -- 9,932 Depreciation 5,956 1,279 426 -- 7,661 Amortization 13,668 2,075 -- -- 15,743 Operating income 42,264 7,454 (10,358) -- 39,360 Capital expenditures 10,945 377 530 -- 11,852 Radio station and other acquisitions 849,370 540 -- -- 849,910 Total assets 1,311,791 180,811 214,866 (2,526) 1,704,942
38 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. RECENTLY ISSUED ACCOUNTING STANDARDS On January 1, 1999, the Company adopted AICPA Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," issued in March 1998. SOP 98-1 requires the capitalization of certain expenditures for software that are purchased or internally developed for use in the business. The Company believes the implementation of SOP 98-1 will not have a material impact on its financial reporting. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 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. 39 Supplementary Data Quarterly Financial Data for the years ended December 31, 1998 and 1997 (in thousands, except per share data) (Unaudited)
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year --------- --------- --------- --------- --------- 1998 Net revenue $ 142,028 $ 183,836 $ 204,508 $ 224,096 $ 754,468 Operating income 3,581 29,726 39,692 43,532 116,531 Net (loss) income (6,898) 5,022 439 2,379 942 Basic net (loss) income per common share (1) (0.14) 0.10 0.01 0.05 0.02 Diluted net (loss) income per common share (1) (0.14) 0.09 0.01 0.04 0.02
40 Quarterly Financial Data for the years ended December 31, 1998 and 1997 (in thousands, except per share data) (Unaudited), Continued
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year --------- --------- --------- ---------- --------- 1997 Net revenue $ 88,828 $ 135,553 $ 144,560 $ 161,633 $ 530,574 Operating income 5,392 24,179 25,520 26,122 81,213 Net (loss) income before extraordinary loss (2,584) 4,145 483 1,360 3,404 Net (loss) income (8,140) 4,145 (1,417) 1,360 (4,052) Basic net (loss) income per common share: (1) Before extraordinary loss (0.08) 0.ll 0.01 0.03 0.08 Extraordinary loss (0.17) -- (0.04) -- (0.18) --------- --------- --------- --------- --------- Basic net (loss) income per common share (0.25) 0.11 (0.03) 0.03 (0.10) Diluted net (loss) income per common share: (1) Before extraordinary loss (0.08) 0.10 0.01 0.03 0.08 Extraordinary loss (0.17) -- (0.04) -- (0.18) --------- --------- ---------- --------- --------- Diluted net (loss) income per common share (0.25) 0.10 (0.03) 0.03 (0.10)
- ------------------------- NOTE: (1) The sum of the quarterly net income (loss) per share amounts does not equal the annual amount reported as per share amounts are computed independently for each quarter. 41 (b) Pro forma financial information. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements give effect to the merger. For accounting purposes Clear Channel will account for the merger as a purchase of Jacor; accordingly the net assets of Jacor Communications, Inc. ("Jacor") have been adjusted to their estimated fair values based upon a preliminary purchase price allocation. The unaudited pro forma combined condensed statement of operations for the year ended December 31, 1998 give effect to the merger as if it had occurred on January 1, 1998. The unaudited pro forma combined condensed balance sheet at December 31, 1998 gives effect to the merger as if it occurred on December 31, 1998. The unaudited pro forma combined condensed statement of operations for the year ended December 31, 1998 was prepared based upon the historical statement of operations of Clear Channel, adjusted to reflect the merger with Universal Outdoor Holding, Inc. ("Universal"), and the acquisition of More Group, Plc ("More"), as if such merger and acquisition had occurred on January 1, 1998 ("Clear Channel Pro Forma"), and based upon the historical statement of operations of Jacor adjusted to reflect the acquisition of the assets of 17 radio stations from Nationwide Communications ("Nationwide") as if such acquisition had occurred on January 1, 1998 ("Jacor Pro Forma"). The unaudited pro forma combined condensed balance sheet was prepared based upon the historical balance sheet of Clear Channel and the historical balance sheet of Jacor. Certain amounts in Jacor's financial statements have been reclassified to conform to Clear Channel's presentation. The unaudited pro forma combined condensed financial statements should be read in conjunction with the historical financial statements of Jacor and Clear Channel. The unaudited pro forma combined condensed financial statements are not necessarily indicative of the actual results of operations or financial position that would have occurred had the merger and the above described acquisitions and merger transactions of Clear Channel and Jacor occurred on the dates indicated nor are they necessarily indicative of future operating results or financial position. 42 CLEAR CHANNEL AND JACOR UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (IN THOUSANDS OF DOLLARS) DECEMBER 31, 1998
CLEAR CHANNEL PRO FORMA AND JACOR CLEAR CHANNEL JACOR MERGER PRO FORMA HISTORICAL HISTORICAL ADJUSTMENT MERGER ------------- ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents.................... $ 36,498 $ 20,051 $ (50,000) $ 6,549 Accounts receivable, net..................... 307,372 201,466 -- 508,838 Other current assets......................... 66,090 32,796 -- 98,886 ------------ ------------ ------------ ------------ Total Current Assets................... 409,960 254,313 (50,000) 614,273 Property, plant & equipment, net............... 1,915,787 281,049 -- 2,196,836 Intangible assets: Contract valuations.......................... 393,748 400,674 -- 794,422 Licenses and goodwill........................ 4,223,432 2,530,496 2,487,582 9,241,510 Other intangible assets...................... 89,577 -- -- 89,577 ------------ ------------ ------------ ------------ 4,706,757 2,931,170 2,487,582 10,125,509 Less accumulated amortization.................. (315,275) (181,822) 181,822 (315,275) ------------ ------------ ------------ ------------ 4,391,482 2,749,348 2,669,404 9,810,234 Other assets: Notes receivable............................. 53,675 -- -- 53,675 Investments in and advances to, nonconsolidated affiliates................. 324,835 -- -- 324,835 Other assets................................. 109,269 135,998 -- 245,267 Other investments............................ 334,910 -- -- 334,910 ------------ ------------ ------------ ------------ TOTAL ASSETS........................... $ 7,539,918 $ 3,420,708 $ 2,619,404 $ 13,580,030 ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable, accrued expenses and other current liabilities........................ $ 250,180 $ 128,400 $ -- $ 378,580 Current portion of long-term debt............ 7,964 35,000 -- 42,964 ------------ ------------ ------------ ------------ Total Current Liabilities.............. 258,144 163,400 -- 421,544 Long-term debt................................. 2,323,643 1,289,574 -- 3,613,217 Deferred income taxes.......................... 383,564 345,478 -- 729,042 Other long-term liabilities.................... 75,533 112,988 -- 188,521 Liquid yield options notes..................... -- 306,202 131,195 437,397 Minority interest.............................. 15,605 -- -- 15,605 Shareholders' equity: Preferred stock.............................. -- -- -- -- Common stock................................. 26,370 512 6,086 32,968 Additional paid-in capital................... 4,067,297 1,124,057 2,521,424 7,712,778 Common stock warrants........................ -- 30,819 8,377 39,196 Retained earnings............................ 223,662 22,250 (22,250) 223,662 Other........................................ 6,888 -- -- 6,888 Unrealized gain on investments............... 161,185 25,428 (25,428) 161,185 Cost of shares held in treasury.............. (1,973) -- -- (1,973) ------------ ------------ ------------ ------------ Total Shareholders' Equity............. 4,483,429 1,203,066 2,488,209 8,174,704 ------------ ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................... $ 7,539,918 $ 3,420,708 $ 2,619,404 $ 13,580,030 ============ ============ ============ ============
43 CLEAR CHANNEL AND JACOR UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1998
CLEAR CHANNEL PRO FORMA AND JACOR CLEAR CHANNEL JACOR MERGER PRO FORMA PRO FORMA PRO FORMA ADJUSTMENT MERGER ------------- --------- ---------- ------------- Net revenue.......................... $ 1,550,906 $ 813,280 $ -- $ 2,364,186 Operating expenses................... 908,918 539,294 -- 1,448,212 Depreciation and amortization........ 355,473 130,300 99,160 584,933 Corporate expenses................... 44,950 21,090 -- 66,040 ----------- ----------- ----------- ----------- Operating income (loss).............. 241,565 122,596 (99,160) 265,001 Interest expense..................... 174,992 121,797 -- 296,789 Other income (expense) -- net........ 3,211 19,802 -- 23,013 ----------- ----------- ----------- ----------- Income (loss) before income taxes.... 69,784 20,601 (99,160) (8,775) Income tax (expense) benefit......... (68,926) (24,275) -- (93,201) ----------- ----------- ----------- ----------- Income (loss) before equity in earnings of nonconsolidated affiliates......................... 858 (3,674) (99,160) (101,976) Equity in earnings of nonconsolidated affiliates......... 8,091 -- -- 8,091 ----------- ----------- ----------- ----------- Net income (loss) before extraordinary items................ $ 8,949 $ (3,674) $ (99,160) $ (93,885) =========== =========== =========== =========== Net income (loss) before extraordinary items per common share: Basic.............................. $ 0.04 $ (0.30) =========== =========== Diluted............................ $ 0.04 $ (0.30) =========== ===========
44 CLEAR CHANNEL AND JACOR NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) Clear Channel and Jacor unaudited pro forma combined condensed financial statements reflect the merger, accounted for as a purchase, as follows: Jacor common stock outstanding (in whole shares)............ 51,184,217 Exchange ratio (based on the estimated value per share of $38.7054)................................................. 1.289 ------------- Clear Channel's common stock to be issued in the merger (in whole shares)............................................. 65,976,456 Estimated value per share................................... X $ 55.00 ------------- $ 3,628,705 Estimated value of common stock options..................... 23,374 Estimated transaction costs................................. 50,000 ------------- Total estimated purchase price.................... $ 3,702,079 =============
For purpose of these statements the total estimated purchase price was allocated as follows: Total estimated purchase price.............................. $ 3,702,079 Plus -- estimated fair value of LYONs notes in excess of carrying value............................................ 131,195 Plus -- estimated fair value of Jacor common stock warrants in excess of carrying value............................... 8,377 Less -- Jacor's net assets exchanged in the merger at December 31, 1998 adjusted for the elimination of existing net licenses and goodwill of $2,348,674.......... (1,176,427) ----------- Estimated excess purchase price (allocated to licenses and goodwill)................................................. $ 5,018,078 ===========
The estimated excess purchase price allocated to licenses and goodwill of $5,018,078 will be amortized over a 25 year period using the straight line method which will result in annual goodwill amortization of $200,723. This pro forma is based on the maximum exchange ratio of 1.289 shares of Clear Channel common shares per each share of Jacor common shares, as based on the average closing price of $55.00 per share calculated using the average closing prices around December 31, 1998. As the exchange ratio is variable, based on the moving average market price of Clear Channel's common stock, the following analysis gives effect to a range of possible pro forma results for selected items based on market prices varying from $60.00 to $75.00 per share.
WEIGHTED AVERAGE NET LOSS PER COMMON SHARES COMMON SHARE ---------------------- TOTAL ASSETS NET LOSS BASIC & DILUTED BASIC DILUTED ------------ -------- --------------- ------- ------- (IN THOUSANDS) At and for the year ended December 31, 1998 Price of Clear Channel Stock: $60.00 $13,750,813 $(100,716) $(0.33) 308,938 327,171 =========== ========= ====== ======= ======= $65.00 $13,919,120 $(107,449) $(0.35) 306,686 324,735 =========== ========= ====== ======= ======= $70.00 $14,090,327 $(114,297) $(0.38) 304,792 322,687 =========== ========= ====== ======= ======= $75.00 $14,262,032 $(121,165) $(0.40) 303,154 320,915 =========== ========= ====== ======= =======
45 CLEAR CHANNEL AND JACOR NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS, CONTINUED The unaudited pro forma combined condensed balance sheet is based on the assumption that Jacor's debt holders will accept the transfer of debt to Clear Channel. However, Clear Channel must offer to purchase all outstanding senior subordinated notes at 101% of the principal amount. Clear Channel must also offer to purchase all liquid yield option notes at their accreted value of $306,202 million. It is unlikely that the debt holders will accept Clear Channel's offer, as the fair value of this debt is greater than the required offer. If all of Jacor's debt holders would accept Clear Channel's offer, the pro forma total debt balance would decrease by $125.8 million. The unaudited pro forma combined condensed financial statements of operations excludes the effect of any divestiture of stations, which may be required for regulatory approval, as Clear Channel intends the funds received from any divestiture to be reinvested in acquisitions of similar stations in other markets. Neither Clear Channel nor Jacor anticipates that any required divestitures will be significant. The unaudited pro forma combined condensed financial statements of operations also excludes the effect of retired or refinanced debt as any retirement or refinancing of debt will not occur at or prior to the closing of the merger. If the merger agreement is terminated under certain circumstances, Jacor must pay Clear Channel a fee of $115 million as a result of such termination. The pro forma merger adjustments at December 31, 1998 are as follows:
INCREASE (DECREASE) ---------- (a) Decrease in cash and cash equivalents resulting from estimated merger expenses................................. $ (50,000) (b) Increase in goodwill and licenses equal to the excess purchase price of the merger.............................. 2,487,582 (c) Decrease in accumulated amortization resulting from the elimination of Jacor's existing accumulated amortization on goodwill............................................... 181,822 (d) Record liquid yield option notes at estimated fair value.... 131,195 (e) Increase common stock to account for Clear Channel common stock given in the merger at $0.10 par value.............. 6,086 (f) Increase additional paid-in capital to account for Clear Channel common stock given in the merger at $55.00 per share less $0.10 par value ($2,498,050) plus the value of Jacor stock options included in the Merger ($23,374)...... 2,521,424 (g) Record common stock warrants at estimated fair value........ 8,377 (h) Eliminate Jacor's existing retained earnings balance........ (22,250) (i) Eliminate Jacor's existing unrealized gain on investments balance................................................... (25,428)
The pro forma merger adjustment for the year ended December 31, 1998 is as follows:
(DECREASE) TO INCOME ------------------- (j) Increase in amortization expense resulting from the additional goodwill created by the merger and a change in the life of goodwill amortization from 40 years (Jacor's policy) to 25 years (Clear Channel's policy). This amortization expense results in a permanent difference and will not be deductible for federal income tax purposes........................ $(99,160)
46 CLEAR CHANNEL AND JACOR NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS, CONTINUED Pro forma basic and diluted share information is as follows:
(IN THOUSANDS) Basic Clear Channel pro forma weighted average shares outstanding............................................... 245,572 Jacor pro forma weighted average shares outstanding......... 50,389 Increase weighted average common stock outstanding to account for Clear Channel's common stock given in the merger at the exchange ratio of 1.289..................... 15,587 ------- Clear Channel and Jacor Pro Forma Merger.................... 311,548 ======= Diluted Clear Channel pro forma weighted average shares outstanding............................................... 258,635 Jacor pro forma weighted average shares outstanding......... 54,565 Increase weighted average common stock outstanding to account for Clear Channel common stock given in the merger and to account for the dilution effect of Jacor's common stock warrants, employee stock options and other dilutive shares have on the Company at the exchange ratio of 1.289..................................................... 16,794 ------- Clear Channel and Jacor Pro Forma Merger.................... 329,994 =======
47 CLEAR CHANNEL UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1998
CLEAR CLEAR CHANNEL UNIVERSAL PRO FORMA MORE PRO FORMA CHANNEL HISTORICAL HISTORICAL ADJUSTMENT(1) HISTORICAL ADJUSTMENT(2) PRO FORMA ---------- ---------- ------------- ---------- ------------- ---------- Net revenue......................... $1,350,940 $55,292 $ -- $144,674 $ -- $1,550,906 Operating expenses.................. 767,265 30,826 -- 110,827 -- 908,918 Depreciation and amortization....... 304,972 15,517 7,720 15,699 11,565 355,473 Noncash compensation expense........ -- 106 (106) 3,476 (3,476) -- Corporate expenses.................. 37,825 1,414 -- 5,711 -- 44,950 -------- ------- ------- -------- -------- ---------- Operating income (loss)............. 240,878 7,429 (7,614) 8,961 (8,089) 241,565 Interest expense.................... 135,766 13,159 -- 3,715 22,352 174,992 Other income (expense) -- net....... 12,810 (23) -- (9,576) -- 3,211 -------- ------- ------- -------- -------- ---------- Income (loss) before income taxes... 117,922 (5,753) (7,614) (4,330) (30,441) 69,784 Income tax (expense) benefit........ (72,353) -- -- (3,301) 6,728 (68,926) -------- ------- ------- -------- -------- ---------- Income (loss) before equity in earnings of nonconsolidated affiliates........................ 45,569 (5,753) (7,614) (7,631) (23,713) 858 Equity in earnings (loss) of non- consolidated affiliates........... 8,462 -- -- (371) -- 8,091 -------- ------- ------- -------- -------- ---------- Net income (loss)................... $ 54,031 $(5,753) $(7,614) $ (8,002) $(23,713) $ 8,949 ======== ======= ======= ======== ======== ========== Net income per common share: Basic............................. $ 0.23 $ 0.04 ======== ========== Diluted........................... $ 0.22 $ 0.04 ======== ==========
48 CLEAR CHANNEL NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED UNIVERSAL MERGER (1) The pro forma merger adjustments for the year ended December 31, 1998 are as follows:
INCREASE (DECREASE) IN INCOME ------------------ (a) Increase in amortization expense resulting from the additional goodwill created by the merger. ........... $(7,720) (b) Decrease in noncash compensation to reverse the effect of Financial Accounting Standards Board Statement No. 123 ("FAS 123") from the statement of operations as the Company elected to follow Accounting Principles Board Opinion Number 25("APB 25") for earnings presentation and implemented FAS 123 for footnote disclosure only. .... 106
MORE ACQUISITION (2) More is headquartered in London. Accordingly, More's financial statements are reported in British Pounds. The statement of operations was translated into US Dollars using the average exchange rate for the period and the balance sheet was translated into US Dollars using the exchange rate at the end of the period. The pro forma adjustments for the year ended December 31, 1998 are as follows:
INCREASE (DECREASE) IN INCOME ------------------ (c) Increase in amortization expense resulting from the additional goodwill created by the acquisition. ...... $(11,565) (d) Decrease in noncash compensation to reverse the effect of FAS 123 from the statement of operations as Clear Channel elected to follow APB 25 for earnings presentation and implemented FAS 123 for footnote disclosure only. ..................................... 3,476 (e) Increase in interest expense due to financing the acquisition price of More at Clear Channel's average interest rate of 5.78% for 1998. ..................... (22,352) (f) The tax effect of adjustment (d) at the 1998 UK statutory rate of 31.5% offset by the tax benefit of adjustment (e) at Clear Channel's federal U.S. tax rate in 1998 of 35%. ................................. 6,728
49 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1998
HISTORICAL NATIONWIDE SIX MONTHS NATIONWIDE ACQUISITION JACOR ENDED PRO FORMA PRO FORMA JACOR HISTORICAL JUNE 30, 1998 ADJUSTMENTS ADJUSTMENTS PRO FORMA ---------- ------------- ----------- ----------- --------- Net revenue................ $754,468 $50,171 $ -- $ 8,641(e) $813,280 Broadcast operating expenses................. 497,861 39,623 (738)(a) 2,548(e)(g) 539,294 Depreciation and amortization............. 120,392 5,044 299(a) 4,565(b) 130,300 Corporate general and administrative expenses................. 19,684 1,406 -- --(g) 21,090 -------- ------- ----- -------- -------- Operating income (loss).... 116,531 4,098 439 1,528 122,596 Interest expense, net...... 107,295 (452) -- 14,954(c) 121,797 Gain on sale of radio stations................. 10,896 -- -- -- 10,896 Other income (expense), net...................... 8,910 (4) -- -- 8,906 -------- ------- ----- -------- -------- Income (loss) before income taxes and extraordinary items.................... 29,042 4,546 439 (13,426) 20,601 Income tax (expense) credit................... (28,100) (1,546) -- 5,371(d) (24,275) -------- ------- ----- -------- -------- Income (loss) before extraordinary items...... $ 942 $ 3,000 $ 439 $ (8,055) $ (3,674) ======== ======= ===== ======== ======== Income (loss) per common share: Basic.................... $ 0.02 $ (0.08)(f) ======== ======== Diluted.................. $ 0.02 $ (0.08)(f) ======== ========
50 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (a) The adjustments for the six months ended June 30, 1998 represent the elimination of time brokerage agreement fees and additional depreciation and amortization expenses resulting from the allocation of Nationwide's purchase price of KXGL in San Diego. (b) The adjustment reflects the additional depreciation and amortization expense resulting from the allocation of Jacor's purchase price to the assets acquired including an increase in property and equipment and identifiable intangible assets to their estimated fair market values. (c) The adjustment reflects additional interest expense related to additional borrowings under Jacor's credit facility, its 8% Notes and its 4 3/4% Liquid Yield Option Notes offering completed during February of 1998 to finance, in part, the acquisition of Nationwide. (d) To provide for the tax effect of pro forma adjustments using an assumed rate of 40%. (e) Additional revenues and expenses related to Nationwide Stations from July 1, 1998 to the date of acquisition consummation, net of elimination of the results for the divestiture of two San Diego stations. (f) The pro forma weighted average shares outstanding includes all shares outstanding as of December 31, 1998. The pro forma weighted averages shares outstanding of Jacor do not reflect any outstanding options and warrants or the assumed conversion of the LYON's as they are antidilutive. (g) The Company has experienced and anticipates continuing to experience significant expense savings, which are not reflected in the pro forma statements of operations, resulting from the elimination of redundant broadcast operating expenses arising from the operation of multiple stations in broadcast areas, changes in benefit plan and compensation structures to conform with Jacor's and the elimination of Nationwide's corporate office function.
YEAR ENDED DECEMBER 31, 1998 ----------------- ESTIMATED EXPENSE SAVINGS Corporate general and administrative..... $1,406 Benefit plan expenses.................... 1,741 Commissions.............................. 413 Promotion and programming................ 1,527 Personnel reductions..................... 1,955 Other.................................... 732 ------ TOTAL.......................... 7,774 Income Taxes............................. 3,110 ------ TOTAL, net of taxes............ $4,664 ======
(c) Index to Exhibits 23 Consent of PricewaterhouseCoopers LLP. (filed herewith) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Clear Channel Communications, Inc. Date April 12, 1999 By /s/ HERBERT W. HILL, JR. Herbert W. Hill, Jr. Senior Vice President/ Chief Accounting Officer Index to Exhibits 23 Consent of PricewaterhouseCoopers LLP. (filed herewith) EX-23 2 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Clear Channel Communications, Inc. on Form S-3 (File No. 333-51957), on Form S-4 (File No. 333-57987 and 333-72839) and on Forms S-8 ( File No.'s 33-64463, 333-29717, and 333-61883) of our report dated February 12, 1999 on our audits of the consolidated financial statements of Jacor Communications, Inc. and subsidiaries as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998, which report is included in Clear Channel Communications, Inc.'s Current Report on Form 8-K/A dated April 12, 1999. PricewaterhouseCoopers LLP /s/ PricewaterhouseCoopers LLP Cincinnati, Ohio April 9, 1999 -----END PRIVACY-ENHANCED MESSAGE-----