-----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, JDmTdBdYSVALIVoJsLCfAaHuOwWbk5mEypUnUsbvlS0oNoMC8r7wWcmK2kxBQBOM 28ti9b/FdII1GoSzvWprDw== 0000950134-98-009554.txt : 19981211 0000950134-98-009554.hdr.sgml : 19981211 ACCESSION NUMBER: 0000950134-98-009554 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981209 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981210 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 SEC ACT: SEC FILE NUMBER: 001-09645 FILM NUMBER: 98766709 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 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): December 9, 1998 (December 9, 1998) CLEAR CHANNEL COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) Texas 1-9645 74-1787536 (State or other jurisdiction (Commission File Number) (IRS Employer incorporation) Identification No.) 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (210) 822-2828 2 ITEM 5. OTHER EVENTS. On October 8, 1998, Clear Channel Communications, Inc., a Texas corporation (the "Company"), Jacor Communications, Inc., a Delaware corporation ("Jacor"), and CCU Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Jacor will be merged (the "Merger") with and into Sub, with Sub surviving the Merger and continuing its operations as a wholly-owned subsidiary of the Company. The Merger will be a tax-free, stock-for-stock transaction. Upon the terms and subject to the conditions set forth in the Merger Agreement, upon consummation of the Merger, each share of Jacor common stock will be converted into the right to receive the Company's common stock, based upon the average closing price of the Company's common stock during the 25 consecutive trading days ending on the second trading day prior to the closing date, as follows:
Average Closing Price Conversion Of the Company's Stock Number ---------------------- ------------------------------ Less than or equal to $42.86 1.40 Above $42.86 but less than or equal to $44.44 1.40 to 1.35 ($60.00 in value) Above $44.44 but less than $50.00 1.35
If the average closing price is $50.00 or more, the conversion number will be calculated as the quotient obtained by dividing (A) $67.50 plus the product of $0.675 and the amount by which the average closing price exceeds $50.00, by (B) the average closing price. Based upon the closing price of the Clear Channel common stock of $37.00 on Wednesday, October 7, 1998, the merger is valued at approximately $4.4 billion Consummation of the Merger is subject to numerous conditions, including the receipt of all regulatory approvals and stockholder approvals by both companies' shareholders. 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of business acquired REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Jacor Communications, Inc. We have audited the accompanying consolidated balance sheets of Jacor Communications, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jacor Communications, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Cincinnati, Ohio February 11, 1998 4 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (In thousands, except share amounts)
1997 1996 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 28,724 $ 78,137 Accounts receivable, less allowance for doubtful accounts of $6,195 in 1997 and $3,950 in 1996 135,073 79,502 Prepaid expenses and other 33,790 8,963 Total current assets 197,587 166,602 ---------- ---------- Property and equipment, net 206,809 131,488 Intangible assets, net 2,128,718 1,290,172 Other assets 68,764 116,680 ---------- ---------- Total assets $2,601,878 $1,704,942 ========== ========== LIABILITIES Current liabilities: Accounts payable $ 17,294 $ 12,600 Accrued expenses and other 68,971 30,774 Accrued payroll 15,246 7,562 Accrued income taxes 16,738 4,596 ---------- ---------- Total current liabilities 118,249 55,532 Long-term debt 987,500 670,000 Liquid Yield Option Notes 125,300 118,682 Deferred tax liability 338,867 264,878 Other liabilities 115,611 108,914 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: 45,689,677 in 1997 and 31,287,221 in 1996 457 313 Additional paid-in capital 863,086 432,721 Common stock warrants 31,500 26,500 Unrealized gain on investments -- 2,042 Retained earnings 21,308 25,360 ---------- ---------- Total shareholders' equity 916,351 486,936 ---------- ---------- Total liabilities and shareholders' equity $2,601,878 $1,704,942 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 5 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 1997, 1996 and 1995 (In thousands, except per share amounts)
1997 1996 1995 --------- --------- --------- Broadcast revenue $ 595,229 $ 250,461 $ 133,103 Less agency commissions 64,655 26,700 14,212 --------- --------- --------- Net revenue 530,574 223,761 118,891 Broadcast operating expenses 356,783 151,065 87,290 Depreciation and amortization 78,485 23,404 9,483 Corporate general and administrative expenses 14,093 9,932 3,501 --------- --------- --------- Operating income 81,213 39,360 18,617 Interest expense (82,315) (32,244) (1,444) Gain on sale of assets 11,135 2,539 -- Other income, net 2,971 5,716 1,092 --------- --------- --------- Income before income taxes and extraordinary loss 13,004 15,371 18,265 Income tax expense (9,600) (7,300) (7,300) --------- --------- --------- Income before extraordinary loss 3,404 8,071 10,965 Extraordinary loss, net of income tax benefit (7,456) (2,966) -- --------- --------- --------- Net (loss) income $ (4,052) $ 5,105 $ 10,965 ========= ========= ========= Basic net (loss) income per common share: Before extraordinary loss $ .08 $ .32 $ .58 Extraordinary loss (.18) (.12) -- --------- --------- --------- Net (loss) income per common share $ (.10) $ .20 $ .58 ========= ========= ========= Diluted net (loss) income per common share: Before extraordinary loss $ .08 $ .30 $ .53 Extraordinary loss (.18) (.11) -- --------- --------- --------- Net (loss) income per common share $ (.10) $ .19 $ .53 ========= ========= ========= Number of common shares used in Basic calculation 40,460 25,433 18,908 ========= ========= ========= Number of common shares used in Diluted calculation 42,163 26,442 20,532 ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 6 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the years ended December 31, 1997, 1996 and 1995 (In thousands)
Common Stock ---------------- Additional Common Unrealized Shares Stated Paid-In Stock Gain on Retained Value Capital Warrants Investments Earnings Total - ------------------------------------------------------------------------------------------------------------- Balances, December 31, 1994 19,590 $ 196 $139,168 $ 390 -- $ 9,290 $ 149,044 Purchase and retirement of stock (1,515) (15) (21,679) -- -- -- (21,694) Employee stock purchases 44 1 474 -- -- -- 475 Exercise of stock options 28 -- 195 -- -- -- 195 Other 10 -- 90 (2) -- -- 88 Net income -- -- -- -- -- 10,965 10,965 - ------------------------------------------------------------------------------------------------------------- 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 Unrealized gain on investments -- -- -- -- $ 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 - -------------------------------------------------------------------------------------------------------------
(Continued) 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, 1997, 1996 and 1995 (In thousands) (Continued)
Common Stock ---------------- Additional Common Unrealized Shares Stated Paid-In Stock Gain on Retained Value Capital Warrants Investments Earnings Total - -------------------------------------------------------------------------------------------------------------------- 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 Sale of investments -- -- -- -- (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 ====================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 8 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1997, 1996 and 1995 (In thousands)
1997 1996 1995 -------- -------- -------- Cash flows from operating activities: Net (loss) income $ (4,052) $ 5,105 $ 10,965 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 17,836 7,661 3,251 Amortization of intangible assets 60,649 15,743 6,232 Extraordinary loss 7,456 2,966 -- Non-cash interest expense 6,618 4,327 -- Provision for bad debts and other 1,155 1,870 1,374 Deferred income taxes (6,648) (233) (560) Gain on sale of assets (11,135) (2,539) -- Changes in operating assets and liabilities, net of effects of acquisitions and disposals: Accounts receivable (37,495) (18,626) (2,344) Prepaid expense and other assets (9,637) (4,076) 1,029 Accounts payable 4,694 10,054 (424) Accrued expenses and other liabilities 26,599 2,655 1,102 -------- -------- -------- Net cash provided by operating activities 56,040 24,907 20,625 -------- -------- --------
(Continued) 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, 1997, 1996 and 1995 (In thousands) (Continued)
1997 1996 1995 --------- --------- --------- Cash flows from investing activities: Capital expenditures $ (19,980) $ (11,852) $ (4,969) Cash paid for acquisitions (680,206) (826,302) (34,008) Deposits on broadcast stations (51,410) (23,608) -- Purchase of intangible assets -- -- (15,536) Proceeds from sale of assets 93,263 6,595 -- Loans originated and other -- (4,097) (9,827) --------- --------- --------- Net cash used by investing activities (658,333) (859,264) (64,340) --------- --------- --------- Cash flows from financing activities: Issuance of long-term debt 627,700 973,000 45,500 Issuance of common stock 246,161 316,726 758 Repayment of long-term debt (310,200) (471,600) -- Payment of financing costs (13,659) (27,435) -- Stock options exercised 2,272 -- -- Issuance of LYONs -- 115,172 -- Purchase of common stock -- -- (21,694) Other 606 (806) (387) --------- --------- --------- Net cash provided by financing activities 552,880 905,057 24,177 --------- --------- --------- Net (decrease) increase in cash and cash equivalents (49,413) 70,700 (19,538) Cash and cash equivalents at beginning of year 78,137 7,437 26,975 --------- --------- --------- Cash and cash equivalents at end of year $ 28,724 $ 78,137 $ 7,437 ========= ========= ========= Supplemental disclosures of cash flow information: Cash paid for: Interest $ 72,191 $ 5,300 $ 1,400 Income taxes $ 5,383 $ 4,992 $ 6,662 Supplemental schedule of non-cash investing and financing activities: Fair value of assets exchanged $ 120,000 $ 170,000 -- Liabilities assumed in acquisitions $ 120,325 $ 296,187 --
The accompanying notes are an integral part of the consolidated financial statements. 10 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS Description of Business As of December 31, 1997 the Company owned and/or operated 159 radio stations and one television station in 39 broadcast areas throughout the United States. The Company also engages in businesses complementary to its radio and television stations, including producing and distributing syndicated programs, traffic reporting services for radio and television, and research services. 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. 11 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: Broadcasting licenses 40 Years Goodwill 40 Years Contracts and other intellectual property 3 to 25 Years 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 and licenses 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 and licenses will be reduced accordingly. 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. 12 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. Earnings per share calculations have been made in compliance with Statement on Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 became effective for the fourth quarter of 1997 calculations. Prior year calculations have been restated to reflect the adoption of SFAS 128. 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 1997 presentation. These changes had no impact on previously reported results of operations or shareholders' equity. 13 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. ACQUISITIONS COMPLETED 1997 RADIO STATION 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. As a result of the acquisitions, approximately $49.8 million in goodwill was recorded by the Company, representing acquisition costs in excess of the fair value of identifiable tangible and intangible assets acquired. 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 one station in San Diego, California for $6.0 million and one station in Lexington, Kentucky for $3.5 million. Completed 1997 Broadcasting Services Acquisitions In June 1997, the Company acquired by merger a company that produces syndicated network radio programs and services which it distributes in exchange for commercial broadcast time that it resold to national advertisers. The total consideration paid by the Company including payment for certain Premiere Radio Networks, Inc. ("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. Approximately $104.0 million in goodwill was recorded by the Company in conjunction with the acquisition. In April 1997, the Company acquired substantially all of 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 Schlessinger Show 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. 14 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. ACQUISITIONS, Continued COMPLETED 1996 RADIO STATION ACQUISITIONS AND EXCHANGES In 1996, the Company effected the following transactions: acquired 36 radio stations and two television stations in 14 broadcast areas; acquired the right to provide programming to and sell air time for two radio stations in one broadcast area; exchanged via like-kind exchange one television station for 6 radio stations in two existing broadcast areas and one new broadcast area, and; financed the purchase of a 40% interest in a newly formed, limited liability company. For the above transactions, the Company paid approximately $974.0 million in cash. 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 1997 and 1996 acquisitions had taken place at the beginning of 1996 and 1997, unaudited pro forma consolidated results of operations would have been as follows:
Pro Forma (Unaudited) Year Ended December 31, 1997 1996 -------- -------- Net revenue $591,093 $542,089 Net income (loss) before extraordinary loss 403 (12,614) Diluted income (loss) per common share $ .01 $ (.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. 15 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. ACQUISITIONS, Continued RADIO STATION ACQUISITIONS COMPLETED SUBSEQUENT TO DECEMBER 31, 1997 The Company completed the purchase of eight radio stations in three existing broadcast areas and one new broadcast area for $25.5 million in cash, and completed a like-kind exchange of six radio stations in one broadcast area for four radio stations in one broadcast area. BROADCASTING SERVICES ACQUISITIONS COMPLETED SUBSEQUENT TO DECEMBER 31, 1997 The Company acquired two radio broadcasting service companies for $3.1 million in cash, plus additional contingent consideration of up to $1.6 million payable over three years. Pending Acquisitions and Dispositions In December 1997 the Company entered into a binding agreement to purchase the assets of Nationwide Communications, Inc.'s 17 radio stations (the "Nationwide Transaction") for $620.0 million, of which $30.0 million was placed in escrow in 1997. The stations are located in Dallas, Houston, Minneapolis, Phoenix, Baltimore, San Diego, Cleveland and Columbus. The Company anticipates this transaction will close in the second quarter of 1998. The Company has signed a letter of intent to sell two radio stations in the San Diego broadcast area for $65.2 million upon the consummation of the Nationwide Transaction. In January 1998, the Company entered into a binding agreement to acquire all of the stock of Chancellor Broadcasting Co., syndicator of Art Bell's national network radio programs, Talk Radio Network, Inc., syndicator of 17 radio programs, and radio station KOPE-FM in Medford, Oregon, for approximately $9.0 million. IN FEBRUARY 1998, THE COMPANY ENTERED INTO A BINDING AGREEMENT WITH SMITH BROADCASTING, INC. TO PURCHASE A CONSTRUCTION PERMIT FOR A NEW FM RADIO STATION IN VANCOUVER, WASHINGTON FOR APPROXIMATELY $20.7 MILLION IN CASH, ALL OF WHICH WAS PAID IN ESCROW IN 1998. THE COMPANY HAS ENTERED INTO AGREEMENTS TO PURCHASE FCC LICENSES AND SUBSTANTIALLY ALL OF THE BROADCAST ASSETS OF 14 STATIONS IN NINE OF THE COMPANY'S EXISTING BROADCAST AREAS AND IN TWO NEW BROADCAST AREAS FOR A TOTAL PURCHASE PRICE OF APPROXIMATELY $68.1 MILLION IN CASH, OF WHICH $12.0 MILLION HAS ALREADY BEEN PAID IN ESCROW THROUGH DECEMBER 31, 1997, AND TO EXCHANGE THE ASSETS OF ONE STATION FOR ANOTHER STATION IN ONE BROADCAST AREA. THE COMPANY HAS ALSO ENTERED INTO AGREEMENTS TO SELL THE FCC LICENSES AND SUBSTANTIALLY ALL OF THE BROADCAST ASSETS OF TWO RADIO STATIONS IN ONE BROADCAST AREA FOR APPROXIMATELY $0.2 MILLION IN CASH. 16 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. SUBSEQUENT OFFERINGS In February 1998, the Company completed offerings of debt and equity securities, as described below. 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 (the "Stock Offering"). Net proceeds to the Company from the Stock Offering were approximately $245.9 million. The Company issued $120.0 million in aggregate principal amount at maturity of 8% Senior Subordinated Notes (the "8% Notes") due 2010. Net proceeds to the Company were $117.1 million. The Company issued 4 3/4% Liquid Yield Option Notes 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. The 1998 LYONs are convertible, at the option of the holder, at any time on or prior to maturity, into Common Stock at a conversion rate of 6.245 shares per each 1998 LYON, for an aggregate of approximately 2.7 million shares of common stock. Net proceeds from the issuance of the 1998 LYONs were $161.9 million. A portion of the net proceeds from the above transactions was used to pay off the Revolving Credit Facility. The remainder will be used to fund the pending acquisitions, and are currently held in short-term, highly liquid securities. 17 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1997 and 1996 consist of the following (in thousands):
1997 1996 --------- --------- Land and land improvements $ 21,128 $ 14,269 Buildings 26,077 20,249 Equipment 162,885 97,491 Furniture and fixtures 19,919 7,524 Leasehold improvements 8,006 5,872 --------- --------- 238,015 145,405 Less accumulated depreciation (31,206) (13,917) --------- --------- $ 206,809 $ 131,488 ========= =========
5. INTANGIBLE ASSETS Intangible assets at December 31, 1997 and 1996 consist of the following (in thousands):
1997 1996 ----------- ----------- Broadcasting licenses $ 1,465,020 $ 987,953 Goodwill 404,684 250,884 Contracts and other intellectual assets 355,668 86,489 ----------- ----------- 2,225,372 1,325,326 Less accumulated amortization (96,654) (35,154) ----------- ----------- $ 2,128,718 $ 1,290,172 =========== ===========
18 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. OTHER ASSETS The Company's other assets at December 31, 1997 and 1996 consist of the following (in thousands):
December 31, December 31, 1997 1996 ------------ ------------ News Corp Warrants $ -- $ 39,800 Acquisition escrows 51,410 30,804 Marketable securities -- 13,965 Other 17,354 32,111 -------- -------- $ 68,764 $116,680 ======== ========
In February 1997, the Company sold its investment in the News Corp Warrants for $44.5 million in cash and recorded a pretax gain of $4.7 million. In May 1997, the Company sold its investment in Paxson Communications Corporation stock for $20.3 million in cash and recorded a pretax gain of $6.1 million. 19 JACOR COMMUNICATIONS,INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT The Company's debt obligations at December 31, 1997 and 1996 consist of the following (in thousands):
1997 1996 -------- -------- Credit Facility borrowings ............ $567,500 $400,000 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 -- -------- -------- $987,500 $670,000 ======== ========
New Credit Facility In September 1997, the Company, through Jacor Communications Company ("JCC"), entered into a new $1.15 billion credit facility (the "Credit Facility") with a syndicate of banks and other financial institutions. The Credit Facility replaces the Company's previous credit facility entered into in June 1996, as amended. The Credit Facility increased the Company's borrowing capacity by $400 million and consists of two components: (i) a revolving credit facility of up to $750 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 of up to $400 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. At December 31, 1997, the outstanding balance of the term loan was $400.0 million. Amounts repaid or prepaid under the Term Loan may not be reborrowed. 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 secured 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, with a minimum applicable margin 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, 1997, the average interest rate on Credit Facility borrowings was 6.60%. 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. 20 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 and 1996, the Company recognized extraordinary losses of approximately $7.5 million and $3.0 million, respectively, 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, 1997, the market value of the 10 1/8% Notes exceeded carrying value by approximately $8.6 million. At December 31, 1996 the market value of the 10 1/8% Notes exceeded carrying value by approximately $3.0 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, 1997, the market value of the 9 3/4% Notes exceeded carrying value by approximately $12.1 million. At December 31, 1996 the market value of the 9 3/4% Notes exceeded carrying value by approximately $3.4 million. 21 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 ON DECEMBER 15, 1997. THE 8 3/4% NOTES WILL BE REDEEMABLE AT THE OPTION OF THE COMPANY, IN WHOLE OR IN PART, AT ANYTIME 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, 1997 THE MARKET VALUE OF THE 8 3/4% NOTES EXCEEDED CARRYING VALUE BY APPROXIMATELY $3.8 MILLION. The 10 1/8% Notes, 9 3/4% Notes and 8 3/4% 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 and each of the Subsidiary Guarantors are wholly owned direct or indirect subsidiaries of Jacor. Separate financial statements of JCC and each of the Subsidiary Guarantors are not presented because Jacor believes that such information would not be material to investors. The direct and indirect non-guarantor subsidiaries of Jacor are inconsequential, both individually and in the aggregate. Additionally, there are no current restrictions on the ability of the Subsidiary Guarantors to make distributions to JCC, except to the extent provided by law generally. JCC's credit facility and the terms of the indentures governing the Notes do restrict the ability of JCC and of the Subsidiary Guarantors to make distributions to the Registrant. Summarized financial information with respect to Jacor and with respect to the Subsidiary Guarantors on a combined basis as of December 31, 1997, 1996 and 1995 and for each of the three years in the period ended December 31, 1997; and with respect to JCC as of December 31, 1997 and 1996 and for the year ended December 31, 1997 and for the period from June 6, 1996 to December 31, 1996 is as follows: 22 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT, Continued
Jacor JCC ---------------------------- -------------------------------------------- 1997 1996 1995 1997 1996 ----------- ----------- ----------- ----------- ----------- Operating Statement Data (in thousands): Net revenue -- -- -- -- -- Equity in earnings of subsidiaries $ (1,958) $ 10,237 $ 10,965 $ 3,191 $ 11,864 Operating (loss) income (15,387) 305 10,965 3,191 11,864 (Loss) income before extraordinary items (4,052) 5,105 10,965 5,498 13,203 Net (loss) income (4,052) 5,105 10,965 (1,958) 10,237 Balance Sheet Data (in thousands): Current assets $ 1,316 $ 1,538 $ 41,203 $ 75,626 Non-current assets 1,165,970 722,918 2,122,648 1,615,504 Current liabilities 28,853 16,253 13,184 9,975 Non-current liabilities 222,082 221,267 1,478,765 1,056,348 Shareholders' equity 916,351 486,936 671,902 273,384
Combined Subsidiary Guarantors --------------------- 1997 1996 1995 ---------- ---------- ---------- Operating Statement Data (in thousands): Net revenue $ 530,574 $ 223,761 $ 118,891 Equity in earnings of subsidiaries -- -- -- Operating income 95,306 49,292 18,617 Income before extraordinary items 3,191 11,864 18,617 Net income 3,191 11,864 10,965 Balance Sheet Data (in thousands): Current assets $ 155,068 $ 89,438 Non-current assets 2,446,810 1,615,504 Current liabilities 76,212 29,304 Non-current liabilities 1,609,315 1,188,702 Shareholders' equity 916,351 486,936
23 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. LIQUID YIELD OPTION NOTES In June 1996, the Company issued 5 1/2% Liquid Yield Option Notes ("LYONs") due 2011 in the aggregate principal amount at maturity of $259.9 million. Each LYON had an issue price of $443.14 and a principal amount at maturity of $1,000. At December 31, 1997 the accreted value of the LYONs was $125.3 million which included $6.6 million of interest accreted during 1997. At December 31, 1996 the accreted value of the LYONs was $118.7 million which included $3.5 million of interest accreted during 1996. Each 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 LYON. The LYONs are not redeemable by the Company prior to June 12, 2001. 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 LYONs will 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, 1997, the market value of the LYONs exceeded the carrying value by approximately $64.4 million. At December 31, 1996, the market value of the LYONs was less than the carrying value by approximately $3.0 million. 9. CAPITAL STOCK 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. In connection with a 1996 Stock Offering, the Company determined that it would convert the 1,983,605 outstanding 1993 Warrants into the right to receive the Fair Market Value (as defined) calculated to be $19.70 per Warrant. Prior to the conversion, the Company issued 1,726,004 shares of Common Stock with proceeds aggregating approximately $14.3 million upon exercise of such warrants by the holders. The Company used approximately $5.1 million of these proceeds to fund the conversion of the remaining 1993 Warrants presented for redemption. 24 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, 1997, 618 shares were available for grant. 1997 Long-Term Incentive Stock Plan In April 1997, the Board of Directors of the Company adopted the 1997 Long-Term Incentive Stock Plan ("the Long-Term 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, 1997, 1,166,312 shares were available for grant. 1997 Non-Employee Directors Stock Plan and Stock Purchase Plan In April 1997, the Board of Directors of the Company adopted the 1997 Non-Employee Directors Stock Plan (the "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, 1997, 310,000 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. 25 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, 1995, 1996 and 1997 is as follows:
Number of Weighted Average Shares Exercise Price --------- ---------------- 1995: Outstanding at beginning of year ...... 1,351,310 $ 6.16 Granted ............................... 245,000 $ 14.61 Exercised ............................. (27,790) $ 5.81 Outstanding at end of year ............ 1,568,520 $ 7.52 Exercisable at end of year ............ 1,093,340 $ 6.57 Available for grant at end of year .... 1,092,618 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
26 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-Sholes option-pricing model with the following assumptions for grants in 1997, 1996 and 1995, 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 1997, 1996 and 1995 follows:
1997 1996 1995 -------- -------- -------- Weighted-average fair value of options granted at-the-money $ 12.26 $ 9.42 $ 5.70 Weighted-average fair value of options granted at a premium -- $ 8.46 $ 5.33 Weighted-average fair value of options granted at a discount $ 28.15 -- -- Weighted-average fair value of all options granted during the year $ 16.29 $ 9.07 $ 5.44
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, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------------- ------------------- Weighted Weighted Weighted Range of Number Average Average Number Average Exercise Outstanding Remaining Exercise Exercisable Exercise Prices at 12/31/97 Life Price at 12/31/97 Price - ---------------- ----------- --------- -------- ----------- -------- $5.74 to $9.65 1,239,865 5.44 $ 6.29 1,239,865 $ 6.29 $12.70 to $19.96 356,641 7.91 $ 15.94 299,341 $ 15.89 $21.25 to $30.66 1,379,123 9.02 $ 26.53 676,638 $ 25.84 $37.25 to $45.94 49,000 9.56 $ 39.57 12,250 $ 39.80 - ---------------- ----------- --------- -------- ----------- -------- $ 5.74 to $45.94 3,024,629 7.43 $ 17.20 2,228,095 $ 13.72
27 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 74,767 shares for approximately $23.27 per share and 12,376 shares for approximately $32.19 per share in 1997, 47,232 shares for $14.24 per share in 1996 and 43,785 shares for $10.84 per share in 1995. The fair market value of the right to acquire common stock under the Stock Purchase Plan was $8.40 per share granted on January 1 and $9.80 per share granted on July 1 in 1997, $4.81 per share in 1996 and $3.71 per share in 1995. 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 1997, 1996 and 1995 would approximate amounts below (in thousands, except per share amounts):
1997 1996 1995 -------- -------- -------- Net (loss)income: As reported $ (4,052) $ 5,105 $ 10,965 Pro forma $(10,691) $ 3,826 $ 10,398 Diluted net (loss)income per common share: As reported $ (0.10) $ 0.19 $ 0.52 Pro forma $ (0.25) $ 0.14 $ 0.50
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-Sholes 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. 28 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. INCOME TAXES Income tax expense for the years ended December 31, 1997, 1996 and 1995 is summarized as follows (in thousands):
Federal State Total -------- -------- -------- 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 (1,631) (346) (1,977) -------- -------- -------- $ 4,369 $ 954 $ 5,323 ======== ======== ======== 1995: Current $ 6,600 $ 1,260 $ 7,860 Deferred (500) (60) (560) -------- -------- -------- $ 6,100 $ 1,200 $ 7,300 ======== ======== ========
The provisions for income tax differ from the amount computed by applying the statutory federal income tax rate due to the following:
1997 1996 1995 -------- -------- -------- Federal income tax at the statutory rate $ 5,173 $ 5,627 $ 6,393 Amortization not deductible 3,449 1,262 606 State income taxes, net of any current federal income tax benefit 589 620 780 Other 389 (209) (479) -------- -------- -------- $ 9,600 $ 7,300 $ 7,300 ======== ======== ========
29 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, 1997, 1996 and 1995 are as follows:
1997 1996 1995 --------- --------- --------- Deferred tax assets: Accrued expenses and reserves $ (7,479) $ (11,104) $ (1,992) Net operating loss carryforwards (11,461) (12,000) -- Other (4,047) (2,098) (142) --------- --------- --------- (22,987) (25,202) (2,134) Deferred tax liabilities: Property and equipment 35,614 32,427 12,208 Intangibles 326,240 257,653 (1,457) --------- --------- --------- 361,854 290,080 10,751 Net liability $ 338,867 $ 264,878 $ 8,617 ========= ========= =========
At December 31, 1997 the Company had net operating loss carryforwards of $28,653. The loss carryforwards expire in the years 2008 through 2011 if not used. 30 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, 1997 are payable as follows (in thousands): 1998 $18,122 1999 15,674 2000 11,328 2001 7,538 2002 4,799 Thereafter 9,980 ------- $67,441 =======
Rental expense was approximately $8,010, $3,996 and $3,471 for the years ended December 31, 1997, 1996 and 1995, 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 $1,977,052, $756,618 and $334,253 in 1997, 1996 and 1995, respectively. 31 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):
1997 1996 1995 -------- -------- -------- Net income before extraordinary item $ 3,404 $ 8,071 $ 10,965 Weighted average shares - basic 40,460 25,433 18,908 Effect of dilutive securities: Stock options 996 658 413 Warrants 357 -- 911 Other 350 351 300 -------- -------- -------- Weighted average shares - diluted 42,163 26,442 20,532 ======== ======== ======== Basic EPS $ .08 $ .32 $ .58 Diluted EPS $ .08 $ .30 $ .53
The Company's LYONs can be converted into approximately 3.5 million shares of Jacor common stock at the option of the holder. Assuming conversion of the LYONs as of January 1, 1997 and 1996 would result in an increase in per share amounts before extraordinary items, therefore, the LYONs are not included in the computation of diluted EPS. In February 1998, the Company completed an offering of 5.1 million shares of common stock and Liquid Yield Option Notes which can be converted into approximately 2.7 million shares of common stock at the option of the holder. 32 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 requires the reporting of comprehensive income in financial statements by all entities that provide a full set of financial statements. The term "comprehensive income" describes the total of all components of comprehensive income including net income. The statement only deals with reporting and display issues. It does not consider recognition or measurement issues. The Company will implement SFAS 130 in the first quarter of 1998. Also in June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 provides accounting guidance for reporting information about operating segments in annual financial statements and requires such enterprises to report selected information about operating segments in interim financial reports. The statement uses a "management approach" to identify operating segments and provides specific criteria for operating segments. SFAS 131 is effective for the year ended December 31, 1998 and will be required for interim periods in 1999. The Company is currently evaluating the impact SFAS 131 will have on its financial statements, if any. 33 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (UNAUDITED)
September 30, December 31, 1998 1997 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 42,084 $ 28,724 Accounts receivable, less allowance for doubtful accounts of $8,115 in 1998 and $6,195 in 1997 198,327 135,073 Prepaid expenses and other 29,385 33,790 ----------- ----------- Total current assets 269,796 197,587 Property and equipment, net 260,212 206,809 Intangible assets, net 2,712,291 2,128,718 Other assets 85,369 68,764 ----------- ----------- Total assets $ 3,327,668 $ 2,601,878 =========== =========== LIABILITIES Current liabilities: Accounts payable, accrued expenses and other current liabilities $ 137,958 $ 118,249 ----------- ----------- Total current liabilities 137,958 118,249 Long-term debt 1,229,565 987,500 Liquid Yield Option Notes 302,400 125,300 Deferred tax liability 358,995 338,867 Other liabilities 119,717 115,611 Commitments and contingencies SHAREHOLDERS' EQUITY Preferred stock, authorized and unissued 4,000,000 shares -- -- Common stock, $0.01 par value; authorized 100,000,000 shares, issued and outstanding shares: 51,051,484 in 1998 and 45,689,677 in 1997 511 457 Additional paid-in capital 1,114,520 863,086 Common stock warrants 31,500 31,500 Accumulated other comprehensive income 12,631 -- Retained earnings 19,871 21,308 ----------- ----------- Total shareholders' equity 1,179,033 916,351 ----------- ----------- Total liabilities and shareholders' equity $ 3,327,668 $ 2,601,878 =========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements. 34 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME For the three months and nine months ended September 30, 1998 and 1997 (In thousands, except per share amounts) (UNAUDITED) ----------
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Broadcast revenue $ 230,951 $ 161,733 $ 597,244 $ 413,689 Less agency commissions 26,443 17,173 66,872 44,748 --------- --------- --------- --------- Net revenue 204,508 144,560 530,372 368,941 Broadcast operating expenses 128,777 93,734 356,877 251,513 Depreciation and amortization 31,161 21,900 87,444 53,097 Corporate general and administrative expenses 4,878 3,406 13,052 9,240 --------- --------- --------- --------- Operating income 39,692 25,520 72,999 55,091 Interest expense (27,526) (20,951) (76,563) (60,081) Gain on sale and exchange of radio stations and investments 10,896 -- 10,896 10,801 Other income, net 1,677 214 10,431 2,733 --------- --------- --------- --------- Income before income taxes and extraordinary loss 24,739 4,783 17,763 8,544 Income taxes 24,300 4,300 19,200 6,500 --------- --------- --------- --------- Income (loss) before extraordinary loss 439 483 (1,437) 2,044 Extraordinary loss, net of income tax credit -- (1,900) -- (7,456) --------- --------- --------- --------- Net income (loss) $ 439 $ (1,417) $ (1,437) $ (5,412) --------- --------- --------- --------- Other comprehensive income, net of tax: Unrealized gains on securities 21,052 -- 21,052 -- Income tax expense related to items of other comprehensive income (8,421) -- (8,421) -- --------- --------- --------- --------- Other comprehensive income, net of tax 12,631 -- 12,631 -- --------- --------- --------- --------- Comprehensive income (loss) $ 13,070 $ (1,417) $ 11,194 $ (5,412) ========= ========= ========= =========
(Continued) 35 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME for the three months and nine months ended September 30, 1998 and 1997 (in thousands, except per share amounts) (UNAUDITED) ----------
Three Months Ended Nine Months Ended September 30 September 30 ------------------------ ------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Basic income (loss) per common share: Before extraordinary loss $ 0.01 $ 0.01 $ (0.03) $ 0.05 Extraordinary loss -- (0.04) -- (0.19) ---------- ---------- ---------- ---------- Net income (loss) per common share $ 0.01 $ (0.03) $ (0.03) $ (0.14) ========== ========== ========== ========== Number of common shares used in basic calculation 50,999 45,361 50,133 39,007 ========== ========== ========== ========== Diluted income (loss) per common share: Before extraordinary loss $ 0.01 $ 0.01 $ (0.03) $ 0.05 Extraordinary loss -- (0.04) -- (0.18) ---------- ---------- ---------- ---------- Net income (loss) per common share $ 0.01 $ (0.03) $ (0.03) $ (0.13) ========== ========== ========== ========== Number of common shares used in diluted calculation 55,287 48,415 50,133 41,071 ========== ========== ========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements. 36 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the nine months ended September 30, 1998 and 1997 (In thousands) (UNAUDITED) ----------
1998 1997 ---- ---- Cash flows from operating activities: Net cash provided by operating activities $ 64,601 $ 31,109 --------- --------- Cash flows from investing activities: Deposits paid on broadcast properties (11,209) (26,225) Capital expenditures (23,354) (12,485) Cash paid for acquisitions (671,442) (542,074) Proceeds from sale of investments -- 73,813 Proceeds from sale and exchange of radio stations 10,400 19,450 Advances and other (4,500) -- --------- --------- Net cash used by investing activities (700,105) (487,521) --------- --------- Cash flows from financing activities: Issuance of long-term debt 439,539 474,700 Issuance of LYONs 166,950 -- Issuance of common stock 248,371 246,154 Repayment of long-term debt (197,500) (310,200) Payment of finance costs (8,496) (13,927) Other -- 327 --------- --------- Net cash provided by financing activities 648,864 397,054 --------- --------- Net increase (decrease) in cash and cash equivalents 13,360 (59,358) Cash and cash equivalents at beginning of period 28,724 78,137 --------- --------- Cash and cash equivalents at end of period $ 42,084 $ 18,779 ========= ========= Supplemental schedule of non-cash investing and financing activities: Common stock issued in acquisitions $ -- $ 179,428 Warrants issued in acquisitions -- 5,000 Liabilities assumed in acquisitions 2,687 36,851 Fair value of assets exchanged, net of cash 265,150 104,000
The accompanying notes are an integral part of the condensed consolidated financial statements. 37 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. FINANCIAL STATEMENTS The December 31, 1997 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, the Company believes that the disclosures are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of results of operations for such periods. Results for interim periods may not be indicative of results for the full year. It is suggested that these financial statements be read in conjunction with the consolidated financial statements for the year ended December 31, 1997 and the notes thereto. 2. SUBSEQUENT EVENT On October 8, 1998 the Company entered into a definitive merger agreement with Clear Channel Communications, Inc. ("Clear Channel") for a tax-free, stock for stock transaction (the "Merger"). Upon consummation of the Merger, each outstanding share of Jacor common stock will be converted into Clear Channel common stock, based upon the average closing price of Clear Channel common stock during the twenty-five consecutive trading days ending on the second trading day prior to the closing date, as follows:
AVERAGE CLOSING PRICE OF CLEAR CHANNEL STOCK CONVERSION RATIO Less than or equal to $42.86........................... 1.400 Above $42.86 but less than or equal to $44.44.......... 1.400 to 1.350 Above $44.44 but less than $50.00...................... 1.350
If the average closing price is $50.00 or more, the Conversion Ratio will be calculated as the quotient obtained by dividing (A) $67.50 plus the product of $.675 and the amount by which the average closing price exceeds $50.00, by (B) the average closing price. If the average closing price is less than or equal to $37.50, the Merger agreement may be terminated by the Company, upon notice to Clear Channel, on one of the two trading days prior to the closing date. Completion of the Merger is conditioned on, among other things, stockholder approval and receipt of Federal Communications Commission and other regulatory approvals. The Company expects to consummate the Merger by September 30, 1999. Upon consummation of the Merger, a change in control event will have occurred with respect to covenants in the Company's credit facility, liquid yield option notes and each outstanding issue of the senior subordinated notes. Such change in control would give the credit facility lenders the right to require repayment of amounts borrowed under the facility, and require the Company to offer repayment of the senior subordinated notes at 101% of the principal amount and the liquid yield option notes at their issue price plus accrued original issue discount at such date. 38 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2. SUBSEQUENT EVENT, Continued In August 1998, the Company entered into an advisory agreement with Equity Group Investments, Inc. ("EGI"), an affiliate of the Company's largest stockholder, the Zell Chilmark Fund L.P., whereby the Company agreed to pay EGI a fee equal to .75% of the equity value of the Company, as defined in the advisory agreement, on any change in control event. The Zell Chilmark Fund L.P. has entered into a voting agreement pursuant to which it agreed to vote its shares in favor of the proposal to approve the Merger. 3. ACQUISITIONS AND DISPOSITIONS COMPLETED RADIO STATION ACQUISITIONS AND DISPOSITIONS FIRST SIX MONTHS TRANSACTIONS In the first six months of 1998, the Company completed the following: acquisitions of 16 radio stations in four existing and five new broadcast areas for a purchase price of approximately $61.6 million in cash, of which approximately $17.3 million was placed in escrow in 1997. The company also disposed of three stations in two broadcast areas for approximately $0.3 million in cash and completed a like-kind exchange of broadcast properties, exchanging four stations in Kansas City, Missouri for six stations in Dayton, Ohio, valued at $70.0 million. The exchange values approximated the carrying values of such stations, therefore no gain or loss was recorded on the exchange. NATIONWIDE RELATED TRANSACTIONS In August 1998, the Company completed the acquisition of substantially all broadcast related assets of Nationwide Communications Inc. ("Nationwide") for total cash consideration of approximately $555 million, of which $30.0 million was placed in escrow in 1997, plus acquisition costs. Simultaneously with the Nationwide acquisition, but in separate transactions, the Company effected the exchange and sale of certain radio stations in order to satisfy antitrust concerns raised by the Department of Justice in connection with the Nationwide acquisition. For financial reporting purposes, the Company recorded the exchange of eight radio stations as sale transactions, receiving non-cash consideration in the form of nine radio stations with aggregate fair values of $195 million. Additionally, one other radio station was sold for $10.1 million in cash. The Company recorded net pre-tax gains of $10.9 million, which was measured by the difference between the fair value of the radio stations exchanged or sold and the carrying value of the properties. The Company believes that such transactions qualify as a tax-deferred like-kind exchange, therefore, the income tax expense of $14 million associated with the gains is included in the deferred component of income tax expense. The radio stations received in the exchange transactions were recorded as purchase transactions at their respective fair values. The following radio stations were included in the transactions: 39 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. ACQUISITIONS AND DISPOSITIONS, Continued
STATIONS STATIONS RECEIVED PURCHASED FROM EXCHANGED IN EXCHANGE NATIONWIDE OR SOLD TRANSACTION WCOL-FM, WFII-AM, WLVQ-FM, WAZU-FM, WMJI-FM, WMMS-FM WNCI-FM (Columbus, OH) WHOK-FM (Columbus, OH) (Cleveland) WPOC-FM (Baltimore) WKNR-FM (Cleveland) KUFX-FM (Fremont, CA) WGAR-FM (Cleveland) KSGS-AM, KMJZ-FM WOCT-FM, WCAO-AM (Minneapolis) (Baltimore) KDMX-FM, KEGL-FM KKLQ-FM, KJQY-FM KLOU-FM, KSD-FM (Dallas) (San Diego) (St. Louis) KHMX-FM, KTBZ-FM KOME-FM (Houston) (San Jose, CA) KSGS-AM, KMJZ WTAE-FM (Pittsburgh) (Minneapolis) KGLQ-FM, KZZP-FM (Phoenix) KMCG-FM, KXGL-FM (San Diego)
JULY TRANSACTIONS The Company acquired KIST-FM (formerly KLDZ-FM) in Santa Barbara, California from James F. McKeon and Christine Perry for $1.5 million in cash. The Company acquired KFJO-FM (formerly KZWC-FM) in Walnut Creek, California from KZWC Broadcasting, Inc. for $4.5 million in cash. AUGUST TRANSACTIONS The Company acquired KSJO-FM in San Jose, California from American Radio Systems for $30.0 million in cash, of which $1.5 million was placed in escrow in 1997. The Company acquired KRWQ-FM, KMED-AM, KZZE-FM, and KKJJ-FM in Medford, Oregon from Hill Radio, Inc., Crater Broadcasting Company, Pro Promotions, Inc. and Ashland Broadcasting LLC, respectively, for $12.5 million in cash. The Company acquired the stock of KOPE Radio, Inc., owner of KOPE-FM in Medford, Oregon for approximately $0.5 million in cash. 40 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. ACQUISITIONS AND DISPOSITIONS, Continued The Company acquired the intellectual property of KQOL-FM in Las Vegas, Nevada from Centennial Broadcasting, LLC and Centennial Broadcasting License, LLC for $3.0 million in cash. The Company acquired KDIF-AM in Riverside, California from Hispanic Radio Broadcasters for $2.7 million in cash. The Company acquired WHEL-FM in Helen, Georgia from Southeast Radio Company, Inc. for $3.0 million in cash. The Company acquired the stock of Tsunami Communications, Inc. ("Tsunami"), owner of KTCL-FM in Fort Collins, Colorado and KIIX-AM in Wellington, Colorado, for $0.5 million in cash and the assumption of approximately $5.9 million in debt owed by Tsunami to a wholly-owned subsidiary of the Company. SEPTEMBER TRANSACTIONS The Company acquired WLSN-FM in Greenville, Ohio from Treaty City Broadcasting for $3.4 million in cash. The Company acquired the stock of M3X, Inc., owner of KRKT-AM and KRKT-FM in Albany, Oregon for approximately $3.8 million in cash. COMPLETED BROADCASTING SERVICES ACQUISITIONS In the first nine months of 1998, the Company completed acquisitions of two broadcasting service companies and the assets of three other broadcasting service companies for a purchase price of approximately $12.7 million in cash, a note payable of approximately $0.8 million, plus additional contingent consideration of up to $1.6 million payable over three years. The above acquisitions and all 1997 acquisitions have been accounted for as purchases. The excess cost over the fair value of net assets acquired is being amortized over 40 years. The results of operations of the acquired businesses are included in the Company's financial statements since the respective dates of acquisition. Assuming the above acquisitions had taken place at the beginning of 1997, unaudited pro forma consolidated results of operations would have been as follows (in thousands except per share amounts):
Pro forma (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 ------------------ ---------------- Net revenue $ 216,472 $ 181,449 $ 598,315 $ 517,171 Income (loss) before extraordinary items $ 1,207 $ 159 $ 751 $ (6,670) Diluted income (loss) per common share before extraordinary items $ 0.02 $ 0.00 $ 0.01 $ (0.13)
41 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. ACQUISITIONS AND DISPOSITIONS, Continued These unaudited pro forma amounts do not purport to be indicative of the results that might have occurred if the foregoing transactions had been consummated on the indicated dates. PENDING RADIO STATION ACQUISITIONS AND DISPOSITIONS The Company has entered into agreements to purchase the stock of one and acquire the assets of 40 radio stations in 14 new markets and seven existing markets for approximately $156.1 million in cash, of which approximately $11.3 million has been placed in escrow, to exchange the assets of one station for another station in the same broadcast area, and to dispose of three stations in one market for approximately $0.7 million in cash. 4. ISSUANCE OF COMMON STOCK In February 1998, the Company completed an offering of 4,560,000 shares of common stock at $50.50 per share net of underwriting discounts of $2.02 per share (the "Offering"). The over-allotment option was also exercised by the underwriters resulting in the issuance of an additional 513,000 shares. Net proceeds to the Company from the Offering were approximately $244.9 million. 5. ISSUANCE OF SUBORDINATED NOTES In February 1998, the Company issued 8% Senior Subordinated Notes (the "8% Notes") in the aggregate principal amount at maturity of $120.0 million. Net proceeds to the Company were $117.1 million. The 8% Notes will mature on February 15, 2010. Interest on the 8% Notes is payable semi-annually. The 8% Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after February 15, 2003. The redemption prices commence at 104.00% and are reduced by .80% annually until February 15, 2008 when the redemption price is 100%. The 8% Notes and the previously issued 10 1/8% Notes, 9 3/4% Notes, and 8 3/4% Notes (collectively the "Notes") are obligations of Jacor Communications Company ("JCC"), and are jointly and severally, fully and unconditionally guaranteed on a senior subordinated basis by Jacor and by all of the Company's subsidiaries (the "Subsidiary Guarantors"). JCC and the Subsidiary Guarantors constitute all of the wholly owned direct or indirect subsidiaries of Jacor and JCC, and JCC is the sole direct subsidiary of Jacor. Separate financial statements of JCC and each of the Subsidiary Guarantors are not presented because Jacor believes that such information would not be material to investors. The direct and indirect non-guarantor subsidiaries of Jacor are inconsequential, both individually and in the aggregate. Additionally, there are no current restrictions on the ability of the Subsidiary Guarantors to make distributions to JCC, except to the extent provided by law generally. JCC's credit facility and the terms of the indentures governing the Notes do restrict the ability of JCC and of the Subsidiary Guarantors to make distributions to the Registrant. 42 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5. ISSUANCE OF SUBORDINATED NOTES, Continued The indentures contain certain covenants which impose certain limitations and restrictions on the ability of the Company to incur additional indebtedness, pay dividends or make other distributions, make certain loans and investments, apply the proceeds of asset sales (and use the proceeds thereof), create liens, enter into certain transactions with affiliates, merge, consolidate or transfer substantially all its assets and make investments in unrestricted subsidiaries. Summarized financial information with respect to Jacor, JCC and with respect to the Subsidiary Guarantors on a combined basis as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 is as follows:
Jacor JCC -------------------------------- ------------------------------ September 30, September 30, September 30, September 30, 1998 1997 1998 1997 ---- ---- ---- ---- Operating Statement Data (in thousands): Net revenue -- -- -- -- Equity in earnings of subsidiaries $ 5,498 $ (5,560) $ 2,692 $ 1,251 Operating (loss) income (8,101) (15,601) 2,692 1,251 (Loss) income before extraordinary items (1,437) (5,412) 5,498 1,896 Net (loss) income (1,437) (5,412) 5,498 (5,560) Balance Sheet Data (in thousands): Current assets $ 1,408 $ 38,470 Non-current assets 1,620,200 2,823,444 Current liabilities 43,404 21,509 Non-current liabilities 399,171 2,168,058 Shareholders' equity 1,179,033 672,347
43 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5. ISSUANCE OF SUBORDINATED NOTES, Continued
Combined Subsidiary Guarantors ------------------------------- September 30, September 30, 1998 1997 ---- ---- Operating Statement Data (in thousands): Net revenue $ 530,372 $ 368,941 Equity in earnings of subsidiaries -- -- Operating income 86,598 65,132 Income before extraordinary items 2,692 1,251 Net income 2,692 1,251 Balance Sheet Data (in thousands): Current assets $ 229,918 Non-current assets 3,058,125 Current liabilities 73,045 Non-current liabilities 2,035,965 Shareholders' equity 1,179,033
6. LIQUID YIELD OPTION NOTES In February 1998, the Company issued 4 3/4% Liquid Yield Option Notes due 2018 (the "1998 LYONs") in the aggregate principal amount at maturity of $426.9 million. Each 1998 LYON had an issue price of $391.06 and a principal amount at maturity of $1,000.00. The 1998 LYONs are convertible, at the option of the holder, at any time on or prior to maturity, into common stock at a conversion rate of 6.245 shares per each 1998 LYON, for an aggregate of approximately 2.7 million shares of common stock. Net proceeds from the issuance of the 1998 LYONs were $161.9 million. 7. EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share ("EPS") computations for income before extraordinary items for the three months and nine months ended September 30, 1998 and 1997 (in thousands except per share amounts):
Three Months Ended Nine Months Ended ------------------- -------------------- 1998 1997 1998 1997 Income (loss) before extraordinary loss $ 439 $ 483 $ (1,437) $ 2,044 ======== ======== ======== ======== Weighted average shares - basic 50,999 45,361 50,133 39,007 Effect of dilutive securities: Stock options 1,505 1,124 - 942 Warrants 2,398 1,579 - 771 Other 385 351 - 351 -------- -------- -------- -------- Weighted average shares - diluted 55,287 48,415 50,133 41,071 ======== ======== ======== ======== Basic EPS $ 0.01 $ 0.01 $ (0.03) $ 0.05 Diluted EPS $ 0.01 $ 0.01 $ (0.03) $ 0.05
44 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7. EARNINGS PER SHARE, Continued The Company's 1996 Liquid Yield Option Notes and 1998 LYONs (collectively, the "LYONs") can be converted into approximately 6.2 million shares of common stock at the option of the holder. Assuming conversion of the LYONs for the three and nine months ended September 30, 1998 and 1997 would result in an increase in per share amounts, therefore the LYONs are not included in the computation of diluted EPS. 8. INVESTMENTS In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", the Company classifies investments in equity securities as available for sale and carries the investments at fair value, based on quoted market prices. The net unrealized gains or losses are reported within shareholders' equity, net of income taxes. Realized gains and losses are recorded based on the specific identification method. The following table summarizes the Company's securities:
Unrealized Unrealized Fair Cost Gains Losses Value ---- ---------- ---------- ----- Corporate Equity Securities $ 2,804,084 $ 21,773,972 $ (722,173) $ 21,051,799
The unrealized gain reported in shareholders' equity is net of $8,420,720 of income taxes computed using statutory rates. 9. RECENT PRONOUNCEMENTS In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 requires the reporting of comprehensive income in financial statements by all entities that provide a full set of financial statements. The term "comprehensive income" describes the total of all components of comprehensive income including net income. The statement only deals with reporting and display issues. It does not consider recognition or measurement issues. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 provides accounting guidance for reporting information about operating segments in annual financial statements and requires such enterprises to report selected information about operating segments in interim financial reports. The statement uses a "management approach" to identify operating segments and provides specific criteria for operating segments. SFAS 131 is effective for the year ended December 31, 1998 and will be required for interim periods in 1999. The Company is currently evaluating the impact SFAS 131 will have on its financial statements, if any. 45 In June 1998, the FASB issued Statement No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. The statement is effective for fiscal quarters of fiscal years beginning after June 15, 1999. The Company currently has no derivative instruments or hedging activities. 46 (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 have been adjusted to their estimated fair values based upon a preliminary purchase price allocation. The unaudited pro forma combined condensed statements of operations for the year ended December 31, 1997 and the nine months ended September 30, 1998 give effect to the merger as if it had occurred on January 1, 1997 and January 1, 1998, respectively. The unaudited pro forma combined condensed balance sheet at September 30, 1998 gives effect to the merger as if it occurred on September 30, 1998. The unaudited pro forma combined condensed statement of operations for the year ended December 31, 1997 was prepared based upon the historical statement of operations of Clear Channel, adjusted to reflect the acquisitions of 93% of the outstanding capital stock of Eller, the radio assets and certain outdoor advertising assets of Paxson, all of the outstanding capital stock of More and the merger with Universal, as if such acquisitions and merger had occurred on January 1, 1997 ("1997 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, The EFM Companies, and Premiere, as if such acquisitions had occurred on January 1, 1997 ("1997 Jacor Pro Forma"). The unaudited pro forma combined condensed statement of operations for the nine months ended September 30, 1998 was prepared based upon the historical statement of operations of Clear Channel, adjusted to reflect the merger with Universal and the acquisition of More as if such merger and acquisition had occurred on January 1, 1998 ("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 as if such acquisition had occurred on January 1, 1998 ("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 incorporated herein by reference. 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. 47 CLEAR CHANNEL AND JACOR UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (IN THOUSANDS OF DOLLARS) SEPTEMBER 30, 1998
CLEAR CHANNEL PRO FORMA AND JACOR CLEAR CHANNEL JACOR MERGER PRO FORMA HISTORICAL HISTORICAL ADJUSTMENT MERGER ------------- ---------- ---------- ------------- ASSETS Current assets: Cash and cash equivalents.................... $ 48,192 $ 42,084 $ (50,000) $ 40,276 Accounts receivable, net..................... 287,067 198,327 -- 485,394 Other current assets......................... 65,603 29,385 -- 94,988 ---------- ---------- ---------- ----------- Total Current Assets................... 400,862 269,796 (50,000) 620,658 Property, plant & equipment, net............... 1,713,449 260,212 -- 1,973,661 Intangible assets: Contract valuations.......................... 275,211 360,000 -- 635,211 Licenses and goodwill........................ 4,362,111 2,508,450 1,613,629 8,484,190 Other intangible assets...................... 74,552 -- -- 74,552 ---------- ---------- ---------- ----------- 4,711,874 2,868,450 1,613,629 9,193,953 Less accumulated amortization.................. (254,869) (156,159) 156,159 (254,869) ---------- ---------- ---------- ----------- 4,457,005 2,712,291 1,769,788 8,939,084 Other assets: Notes receivable............................. 53,675 -- -- 53,675 Investments in and advances to, nonconsolidated affiliates................. 346,215 -- -- 346,215 Other assets................................. 41,189 85,369 -- 126,558 Other investments............................ 248,890 -- -- 248,890 ---------- ---------- ---------- ----------- TOTAL ASSETS........................... $7,261,285 $3,327,668 $1,719,788 $12,308,741 ========== ========== ========== =========== LIABILITIES Current liabilities: Accounts payable, accrued expenses and other current liabilities........................ $ 238,166 $ 137,958 $ -- $ 376,124 Current portion of long-term debt............ 4,049 -- -- 4,049 ---------- ---------- ---------- ----------- Total Current Liabilities.............. 242,215 137,958 -- 380,173 Long-term debt................................. 2,405,849 1,229,565 -- 3,635,414 Deferred income taxes.......................... 163,104 358,995 -- 522,099 Other long-term liabilities.................... 92,913 119,717 -- 212,630 Convertible debt............................... 575,000 -- -- 575,000 Liquid yield options notes..................... -- 302,400 53,630 356,030 Minority interest.............................. 18,502 -- -- 18,502 Shareholders' equity: Preferred stock.............................. -- -- -- -- Common stock................................. 24,856 511 6,639 32,006 Additional paid-in capital................... 3,322,268 1,114,520 1,680,950 6,117,738 Common stock warrants........................ -- 31,500 11,071 42,571 Retained earnings............................ 214,621 19,871 (19,871) 214,621 Other........................................ 49,288 -- -- 49,288 Unrealized gain on investments............... 154,642 12,631 (12,631) 154,642 Cost of shares held in treasury.............. (1,973) -- -- (1,973) ---------- ---------- ---------- ----------- Total Shareholders' Equity............. 3,763,702 1,179,033 1,666,158 6,608,893 ---------- ---------- ---------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................... $7,261,285 $3,327,668 $1,719,788 $12,308,741 ========== ========== ========== ===========
48 CLEAR CHANNEL AND JACOR UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1997
CLEAR CHANNEL 1997 1997 PRO FORMA AND JACOR CLEAR CHANNEL JACOR MERGER PRO FORMA PRO FORMA PRO FORMA ADJUSTMENT MERGER ------------- --------- ---------- ------------- Net revenue.......................... $1,273,983 $650,844 $ -- $1,924,827 Operating expenses................... 749,796 435,301 -- 1,185,097 Depreciation and amortization........ 289,689 102,887 82,765 475,341 Corporate expenses................... 30,675 14,093 -- 44,768 ---------- -------- -------- ---------- Operating income (loss).............. 203,823 98,563 (82,765) 219,621 Interest expense..................... 218,437 117,710 -- 336,147 Other income (expense) -- net........ 187 12,060 -- 12,247 ---------- -------- -------- ---------- Income (loss) before income taxes.... (14,427) (7,087) (82,765) (104,279) Income tax (expense) benefit......... (25,791) (1,096) -- (26,887) ---------- -------- -------- ---------- Income (loss) before equity in earnings of nonconsolidated affiliates......................... (40,218) (8,183) (82,765) (131,166) Equity in earnings (loss) of nonconsolidated affiliates......... 6,029 -- -- 6,029 ---------- -------- -------- ---------- Net income (loss) before extraordinary items................ $ (34,189) $ (8,183) $(82,765) $ (125,137) ========== ======== ======== ========== Net income (loss) before extraordinary items per common share: Basic.............................. $ (.16) $ (.43) ========== ========== Diluted............................ $ (.17) $ (.43) ========== ========== Other Data: After tax cash flow(1)............... $ 291,162 $ 94,704 $ -- $ 385,866 ========== ======== ======== ========== After tax cash flow per common share -- diluted(2)................ $ 1.29 $ 1.30 ========== ==========
- ------------------------- (1) After-tax cash flow is defined as net income (loss) before unusual items plus depreciation, amortization of intangibles (including nonconsolidated affiliates) and deferred taxes. After-tax cash flow is not presented as a measure of operating results and does not purport to represent cash provided by operating activities. After-tax cash flow should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. (2) After-tax cash flow per share is defined as after-tax cash flow divided by weighted average common shares and common share equivalents outstanding assuming dilution. 49 CLEAR CHANNEL AND JACOR UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) NINE MONTHS ENDED SEPTEMBER 30, 1998
CLEAR CHANNEL 1998 1998 PRO FORMA AND JACOR CLEAR CHANNEL JACOR MERGER PRO FORMA PRO FORMA PRO FORMA ADJUSTMENT MERGER ------------- --------- ---------- ------------- Net revenue....................... $1,109,521 $589,184 $ -- $1,698,705 Operating expenses................ 659,215 391,942 -- 1,051,157 Depreciation and amortization..... 251,923 97,352 46,915 396,190 Corporate expenses................ 32,864 13,052 -- 45,916 ---------- -------- -------- ---------- Operating income (loss)........... 165,519 86,838 (46,915) 205,442 Interest expense.................. 133,781 80,470 -- 214,251 Other income (expense) -- net..... 3,817 10,728 -- 14,545 ---------- -------- -------- ---------- Income (loss) before income taxes........................... 35,555 17,096 (46,915) 5,736 Income tax (expense) benefit...... (45,339) (18,485) -- (63,824) ---------- -------- -------- ---------- Income (loss) before equity in earnings of nonconsolidated affiliates...................... (9,784) (1,389) (46,915) (58,088) Equity in earnings (loss) of nonconsolidated affiliates...... 9,692 -- -- 9,692 ---------- -------- -------- ---------- Net income (loss) before extraordinary items............. $ (92) $ (1,389) $(46,915) $ (48,396) ========== ======== ======== ========== Net income (loss) before extraordinary items per common share: Basic........................... $ (.00) $ (.15) ========== ========== Diluted......................... $ (.00) $ (.14) ========== ========== Other Data: After tax cash flow(1)............ $ 289,352 $ 95,963 $ -- $ 385,315 ========== ======== ======== ========== After tax cash flow per common share -- diluted(2)............. $ 1.13 $ 1.16 ========== ==========
- ------------------------- (1) After-tax cash flow is defined as net income (loss) before unusual items plus depreciation, amortization of intangibles (including nonconsolidated affiliates) and deferred taxes. After-tax cash flow is not presented as a measure of operating results and does not purport to represent cash provided by operating activities. After-tax cash flow should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. (2) After-tax cash flow per share is defined as after-tax cash flow divided by weighted average common shares and common share equivalents outstanding assuming dilution. 50 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)............ 51,073,198 Exchange ratio (based on the estimated value per share of $38.7054(1)).............................................. 1.40 ------------- Clear Channel's common stock to be issued in the merger (in whole shares)............................................. 71,502,477 Estimated value per share................................... X $ 38.7054 ------------- $ 2,767,532 Estimated value of common stock options..................... 35,088 Estimated transaction costs................................. 50,000 ------------- Total estimated purchase price.................... $ 2,852,620 =============
(1) The estimated value per share of $38.7054 is calculated using the seven day average of the market closing price from three days prior to three days following the signing of the merger agreement. For purpose of these statements the total estimated purchase price was allocated as follows: Total estimated purchase price.............................. $ 2,852,620 Plus -- estimated fair value of LYONs notes in excess of carrying value............................................ 53,630 Plus -- estimated fair value of Jacor common stock warrants in excess of carrying value............................... 11,071 Less -- Jacor's net assets exchanged in the merger at September 30, 1998 adjusted for the elimination of existing net licenses and goodwill of $2,352,291.......... (1,204,758) ----------- Estimated excess purchase price (allocated to licenses and goodwill)................................................. $ 4,122,079 ===========
The estimated excess purchase price allocated to licenses and goodwill of $4,122,079 will be amortized over a 25 year period using the straight line method which will result in annual goodwill amortization of $164,883. 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. 51 CLEAR CHANNEL AND JACOR NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS, CONTINUED The pro forma merger adjustments at September 30, 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.............................. 1,613,629 (c) Decrease in accumulated amortization resulting from the elimination of Jacor's existing accumulated amortization on goodwill............................................... 156,159 (d) Record liquid yield option notes at estimated fair value.... 53,630 (e) Increase common stock to account for Clear Channel common stock given in the merger at $0.10 par value.............. 6,639 (f) Increase additional paid-in capital to account for Clear Channel common stock given in the merger at $38.7054 per share less $0.10 par value ($1,645,862) plus the value of Jacor stock options included in the Merger ($35,088)...... 1,680,950 (g) Record common stock warrants at estimated fair value........ 11,071 (h) Eliminate Jacor's existing retained earnings balance........ (19,871) (i) Eliminate Jacor's existing unrealized gain on investments balance................................................... (12,631)
INCREASE (DECREASE) TO INCOME ------------------- 12/31/97 9/30/98 -------- -------- (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........................ $(82,765) $(46,915)
52 CLEAR CHANNEL AND JACOR NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS, CONTINUED Pro forma basic and diluted share information is as follows:
12/31/97 9/30/98 -------- ------- (IN THOUSANDS) Basic Clear Channel pro forma weighted average shares outstanding............................................... 218,810 244,079 Jacor pro forma weighted average shares outstanding......... 49,348 50,133 Increase weighted average common stock outstanding to account for Clear Channel's common stock given in the merger at the exchange ratio of 1.40, (51,073 X .40)...... 20,429 20,429 ------- ------- Clear Channel and Jacor Pro Forma Merger.................... 288,587 314,641 ======= ======= Diluted Clear Channel pro forma weighted average shares outstanding............................................... 225,486 256,534 Jacor pro forma weighted average shares outstanding......... 51,051 54,347 Increase weighted average common stock outstanding to account for Clear Channel common stock given in the merger and to account for the dilution effect Jacor's common stock warrants, employee stock options and other dilutive shares have on the Company at the exchange ratio of 1.40, (52,776 X .40) and (55,287 X .40), respectively........... 21,110 22,115 ------- ------- Clear Channel and Jacor Pro Forma Merger.................... 297,647 332,996 ======= =======
53 CLEAR CHANNEL UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1997
CLEAR CHANNEL ELLER PRO FORMA PAXSON PRO FORMA UNIVERSAL HISTORICAL HISTORICAL ADJUSTMENT(1) HISTORICAL ADJUSTMENT(2) HISTORICAL ------------- ---------- ------------- ---------- ------------- ---------- Net revenue.................... $697,068 $56,642 $ -- $78,104 $ -- $209,639 Operating expenses............. 394,404 33,804 -- 63,362 (1,246) 101,613 Depreciation and amortization.................. 114,207 10,547 5,974 12,101 9,377 59,977 Noncash compensation expense... -- -- -- -- -- 8,289 Corporate expenses............. 20,883 2,318 -- 4,059 (4,059) -- -------- ------- ------- ------- -------- -------- Operating income (loss)........ 167,574 9,973 (5,974) (1,418) (4,072) 39,760 Interest expense............... 75,076 8,565 2,518 1,370 29,276 46,400 Other income (expense) -- net.............. 11,579 (4,082) -- (1,034) -- (2,621) -------- ------- ------- ------- -------- -------- Income (loss) before income taxes......................... 104,077 (2,674) (8,492) (3,822) (33,348) (9,261) Income tax (expense) benefit... (47,116) (3) 1,315 -- 13,339 -- -------- ------- ------- ------- -------- -------- Income (loss) before equity in earnings of nonconsolidated affiliates.................... 56,961 (2,677) (7,177) (3,822) (20,009) (9,261) Equity in earnings (loss) of non-consolidated affiliates... 6,615 -- -- -- -- -- -------- ------- ------- ------- -------- -------- Net income (loss).............. $ 63,576 $(2,677) $(7,177) $(3,822) $(20,009) $ (9,261) ======== ======= ======= ======= ======== ======== Net income (loss) per common share: Basic......................... $ .36 ======== Diluted....................... $ .33 ======== 1997 PRO FORMA MORE PRO FORMA CLEAR CHANNEL ADJUSTMENT(3) HISTORICAL ADJUSTMENT(4) PRO FORMA ------------- ---------- ------------- ------------- Net revenue.................... $ -- $232,530 $ -- $1,273,983 Operating expenses............. -- 157,859 -- 749,796 Depreciation and amortization.................. 30,881 23,592 23,033 289,689 Noncash compensation expense... (8,289) 1,327 (1,327) -- Corporate expenses............. -- 7,474 -- 30,675 -------- -------- -------- ---------- Operating income (loss)........ (22,592) 42,278 (21,706) 203,823 Interest expense............... -- 4,383 50,849 218,437 Other income (expense) -- net.............. -- (3,655) -- 187 -------- -------- -------- ---------- Income (loss) before income taxes......................... (22,592) 34,240 (72,555) (14,427) Income tax (expense) benefit... -- (10,705) 17,379 (25,791) -------- -------- -------- ---------- Income (loss) before equity in earnings of nonconsolidated affiliates.................... (22,592) 23,535 (55,176) (40,218) Equity in earnings (loss) of non-consolidated affiliates... -- (586) -- 6,029 -------- -------- -------- ---------- Net income (loss).............. $(22,592) $ 22,949 $(55,176) (34,189) ======== ======== ======== ========== Net income (loss) per common share: Basic......................... $ (.16) ========== Diluted....................... $ (.17) ==========
54 CLEAR CHANNEL UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) NINE MONTHS ENDED SEPTEMBER 30, 1998
1998 CLEAR CLEAR CHANNEL UNIVERSAL PRO FORMA MORE PRO FORMA CHANNEL HISTORICAL HISTORICAL ADJUSTMENT(5) HISTORICAL ADJUSTMENT(6) PRO FORMA ---------- ---------- ------------- ---------- ------------- ---------- Net revenue......................... $909,555 $55,292 $ -- $144,674 $ -- $1,109,521 Operating expenses.................. 517,562 30,826 -- 110,827 -- 659,215 Depreciation and amortization....... 201,422 15,517 7,720 15,699 11,565 251,923 Noncash compensation expense........ -- 106 (106) 3,476 (3,476) -- Corporate expenses.................. 25,739 1,414 -- 5,711 -- 32,864 -------- ------- ------- -------- -------- ---------- Operating income (loss)............. 164,832 7,429 (7,614) 8,961 (8,089) 165,519 Interest expense.................... 94,555 13,159 -- 3,715 22,352 133,781 Other income (expense) -- net....... 13,416 (23) -- (9,576) -- 3,817 -------- ------- ------- -------- -------- ---------- Income (loss) before income taxes... 83,693 (5,753) (7,614) (4,330) (30,441) 35,555 Income tax (expense) benefit........ (48,766) -- -- (3,301) 6,728 (45,339) -------- ------- ------- -------- -------- ---------- Income (loss) before equity in earnings of nonconsolidated affiliates........................ 34,927 (5,753) (7,614) (7,631) (23,713) (9,784) Equity in earnings (loss) of non- consolidated affiliates........... 10,063 -- -- (371) -- 9,692 -------- ------- ------- -------- -------- ---------- Net income (loss)................... $ 44,990 $(5,753) $(7,614) $ (8,002) $(23,713) $ (92) ======== ======= ======= ======== ======== ========== Net income (loss) per common share: Basic............................. $ .19 $ (.00) ======== ========== Diluted........................... $ .19 $ (.00) ======== ==========
55 CLEAR CHANNEL NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1997 ELLER ACQUISITION (1) Represents the pro forma effect of the acquisition of Eller assuming it was acquired January 1, 1997.
INCREASE(DECREASE) IN INCOME ------------------ (a) Increase in amortization of goodwill of $5,205 resulting from the additional goodwill created by the acquisition and a decrease in amortizable life from 40 years (Eller) to 25 years (Clear Channel) and additional depreciation of $769 related to the adjustment of fixed assets to fair value. ............ $(5,974) (b) Increase in interest expense due to a higher amount of average debt outstanding, which was partially offset by a lower average interest rate (6% average rate for Clear Channel and 8.8% for Eller during the first three months of 1997). ............................... (2,518) (c) Tax effect of the above adjustments to depreciation and interest expense at Clear Channel's effective federal and state tax rate of 40%. ........................... 1,315
PAXSON ACQUISITION (2) Represents the pro forma effect of the Paxson acquisition assuming it was acquired January 1, 1997.
INCREASE(DECREASE) IN INCOME ------------------ (d) Elimination of option plan compensation expense resulting from the elimination of the plan............ $ 1,246 (e) Increase in amortization expense resulting from the additional goodwill created by the acquisition........ (9,377) (f) Elimination of corporate general and administrative expenses resulting from the elimination of the Paxson corporate office................................................ 4,059 (g) Increase in interest expense (at an average interest rate of 6.5% for the first nine months of 1997) due to additional borrowing on Clear Channel's facility to finance the acquisition cost.......................... (29,276) (h) Tax effect of the above adjustment at Clear Channel's effective federal and state tax rate of 40%. ......... 13,339
56 CLEAR CHANNEL NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED UNIVERSAL MERGER (3) The pro forma merger adjustments for the year ended December 31, 1997 are as follows:
INCREASE (DECREASE) IN INCOME ------------------ (i) Increase in amortization expense resulting from the additional goodwill created by the merger............. $(30,881) (j) Decrease in Noncash compensation to reverse the effect of Financial Accounting Standards Board Statement No. 123 ("FAS 123") from the statement of operations as Clear Channel elected to follow Accounting Principles Board Opinion Number 25 ("APB 25") for earnings presentation and implemented FAS 123 for footnote disclosure only....................................... 8,289
MORE ACQUISITION (4) The pro forma adjustments for the year ended December 31, 1997 are as follows:
INCREASE (DECREASE) IN INCOME ------------------ (k) Increase in amortization expense resulting from the additional goodwill created by the acquisition. ...... $(23,033) (l) 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. ..................................... 1,327 (m) Increase in interest expense due to financing the acquisition price of More at Clear Channel's average interest rate of 6.62% for 1997. ..................... (50,849) (n) The tax effect of adjustment (l) at the 1997 UK statutory rate of 31.5% offset by the tax benefit of adjustment (m) at Clear Channel's federal U.S. tax rate in 1997 of 35%. ................................. 17,379
57 CLEAR CHANNEL NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED UNIVERSAL MERGER (5) The pro forma merger adjustments for the nine months ended September 30, 1998 are as follows:
INCREASE (DECREASE) IN INCOME ------------------ (o) Increase in amortization expense resulting from the additional goodwill created by the merger. ........... $(7,720) (p) Decrease in Noncash compensation to reverse the effect of FAS 123 from the statement of operations as the Company elected to follow APB 25 for earnings presentation and implemented FAS 123 for footnote disclosure only. ..................................... 106
MORE ACQUISITION (6) The pro forma adjustments for the nine months ended September 30, 1998 are as follows:
INCREASE (DECREASE) IN INCOME ------------------ (q) Increase in amortization expense resulting from the additional goodwill created by the acquisition. ...... $(11,565) (r) 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 (s) Increase in interest expense due to financing the acquisition price of More at Clear Channel's average interest rate of 6.62% for 1997. ..................... (22,352) (t) The tax effect of adjustment (r) at the 1998 UK statutory rate of 31.5% offset by the tax benefit of adjustment (s) at Clear Channel's federal U.S. tax rate in 1998 of 35%. ................................. 6,728
58 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1997
OTHER JACOR ACQUISITIONS OTHER NATIONWIDE ACQUISITION 1997 JACOR PRO FORMA ACQUISITIONS HISTORICAL PRO FORMA PRO FORMA JACOR HISTORICAL ADJUSTMENTS PRO FORMA NATIONWIDE ADJUSTMENTS ADJUSTMENTS PRO FORMA ---------- ------------ ------------ ---------- ----------- ----------- --------- Net revenue...................... $530,574 $25,321(a) $555,895 $ 97,997 $ 565(e) $ (3,613)(h) $ 650,844 Broadcast operating expenses..... 356,783 16,760(a) 373,543 81,958 723(e) (20,923)(h) 435,301 Depreciation and amortization.... 78,485 8,182(a) 86,667 10,129 2,084(e) 4,007(i) 102,887 Corporate general and administrative expenses........ 14,093 -- 14,093 3,623 -- (3,623)(h) 14,093 -------- ------- -------- -------- -------- -------- --------- Operating income (loss).......... 81,213 379 81,592 2,287 (2,242) 16,926 98,563 Interest expense, net............ (80,008) (9,303)(b) (89,311) (4,616) (3,197)(e) (20,586)(j) (117,710) Gain on sale of radio stations... 11,135 -- 11,135 44,132 (44,132)(f) -- 11,135 Other income (expense), net...... 664 298(c) 962 (37) -- -- 925 -------- ------- -------- -------- -------- -------- --------- Income (loss) before income taxes and extraordinary items........ 13,004 (8,626) 4,378 41,764 (49,571) (3,660) (7,087) Income tax (expense) credit...... (9,600) 4,358(d) (5,242) (14,309) 16,992(g) 1,464(k) (1,096) -------- ------- -------- -------- -------- -------- --------- Income (loss) before extraordinary items............ $ 3,404 $(4,268) $ (864) $ 27,455 $(32,579) $ (2,196) $ (8,183) ======== ======= ======== ======== ======== ======== ========= Income (loss) per common share: Basic.......................... $ .08 $ (.16) ======== ========= Diluted........................ $ .08 $ (.16) ======== =========
59 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) NINE MONTHS ENDED SEPTEMBER 30, 1998
HISTORICAL NATIONWIDE SIX MONTHS NATIONWIDE ACQUISITION 1998 JACOR ENDED PRO FORMA PRO FORMA JACOR HISTORICAL JUNE 30, 1998 ADJUSTMENTS ADJUSTMENTS PRO FORMA ---------- ------------- ----------- ----------- --------- Net revenue................... $530,372 $50,171 $ -- $ 8,641(l) $589,184 Broadcast operating expenses.................... 356,877 39,623 (738)(e) (3,820)(l) 391,942 Depreciation and amortization................ 87,444 5,044 299(e) 4,565(i) 97,352 Corporate general and administrative expenses..... 13,052 1,406 -- (1,406) 13,052 -------- ------- ----- -------- -------- Operating income (loss)....... 72,999 4,098 439 9,302 86,838 Interest expense, net......... (65,968) 452 -- (14,954)(j) (80,470) Gain on sale of radio stations.................... 10,896 -- -- -- 10,896 Other income (expense), net... (164) (4) -- -- (168) -------- ------- ----- -------- -------- Income (loss) before income taxes and extraordinary items....................... 17,763 4,546 439 (5,652) 17,096 Income tax (expense) credit... (19,200) (1,546) -- 2,261(k) (18,485) -------- ------- ----- -------- -------- Income (loss) before extraordinary items......... $ (1,437) $ 3,000 $ 439 $ (3,391) $ (1,389) ======== ======= ===== ======== ======== Income (loss) per common share: Basic....................... $ (.03) $ (.03)(m) ======== ======== Diluted..................... $ (.03) $ (.03)(m) ======== ========
60 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (a) These adjustments for the following acquisitions reflect additional revenues and expenses for the period January 1, 1997 to the acquisition consummation date. Depreciation and amortization expense adjustments reflect Jacor's purchase cost of the assets acquired.
YEAR ENDED DECEMBER 31, 1997 ---------------------------------- BROADCAST DEPRECIATION NET OPERATING AND REVENUE EXPENSES AMORTIZATION ------- --------- ------------ Premiere Radio Networks, Inc. (completed June 1997)........................................ $14,130 $ 9,276 $4,348 EFM Companies (completed April 1997)........... 11,191 7,484 3,834 ------- ------- ------ TOTAL................................ $25,321 $16,760 $8,182 ======= ======= ======
(b) The adjustment represents additional interest expense associated with Jacor's borrowings under its credit facility and the issuance of various debt securities in 1997. The assumed weighted average interest rate associated with the borrowings is 7.9%. (c) The adjustment represents miscellaneous income generated by Premiere for periods prior to the acquisition. (d) To provide for the tax effect of pro forma adjustments. The acquisition adjustments described in Note (a) include non-deductible goodwill amortization estimated to be approximately $1,350 for the year ended December 31, 1997. (e) The adjustments represent additional revenues and expenses, net of the elimination of time brokerage agreement fees, related primarily to Nationwide's acquisitions of radio stations in the Dallas, Phoenix and San Diego broadcast areas. Nationwide has operated a majority of the stations acquired in 1997 under local marketing agreements since January 1, 1997, therefore a significant amount of the revenues and operating expenses related to these stations are included in Nationwide's historical financial statements for the year ended December 31, 1997. 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. (f) The adjustment represents elimination of Nationwide's gain on the sale and exchange of certain radio stations in 1997. (g) To provide for the tax effect of Nationwide's pro forma adjustments relating to its 1997 acquisitions and divestitures at statutory rates. (h) To eliminate the results for the divestiture of two San Diego stations and estimated expense savings described below. Expense savings will result from the elimination of redundant broadcast operating expenses arising from the operation of multiple stations 61 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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, 1997 ----------------- ESTIMATED EXPENSE SAVINGS Corporate general and administrative...................... 3,623 Benefit Plan expenses..................................... 2,850 Commissions............................................... 675 Promotion and programming................................. 2,500 Personnel reductions...................................... 3,200 Other..................................................... 1,200 ------- TOTAL........................................... $14,048 =======
(i) 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. (j) 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. (k) To provide for the tax effect of pro forma adjustments using an assumed rate of 40%. (l) To reflect the revenues and broadcast operating expenses of the Nationwide stations for the period July 1, 1998 to the completion of the transaction on August 10, 1998, net of the elimination of results for the divestiture of two San Diego stations. The adjustment to broadcast operating expenses is also net of projected expense savings as follows:
NINE MONTHS ENDED SEPTEMBER 30, 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 ======
62 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (m) The pro forma weighted average shares outstanding includes all shares outstanding as of September 30, 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. 63 Item 7. (c) Index to Exhibits 23 Consent of PricewaterhouseCoopers LLP. (Filed herewith) 64 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Clear Channel Communications, Inc. Date: December 9, 1998 By: /s/ HERBERT W. HILL, JR. --------------------------- Herbert W. Hill, Jr. Senior Vice President and Chief Accounting Officer 65 Index to Exhibits 23 Consent of PricewaterhouseCoopers LLP. (Filed herewith) EX-23 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 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 on Forms S-8 (File No.'s 33-64463, 333-29717, and 333-61883) of our report dated February 11, 1998 on our audits of the consolidated financial statements of Jacor Communications, Inc. as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, which report is included in Clear Channel Communications, Inc.'s Current Report on Form 8-K dated December 9, 1998. PricewaterhouseCoopers LLP /s/ PricewaterhouseCoopers LLP Cincinnati, Ohio December 8, 1998 -----END PRIVACY-ENHANCED MESSAGE-----