Item 1. BUSINESS
Jacor Communications, Inc. ("Jacor" or the "Company"), a wholly- owned subsidiary of Clear Channel Communications, Inc. ("Clear Channel"), is a holding company engaged primarily in radio broadcasting and providing related services to radio broadcasting companies. The Company operates in a single reportable segment, broadcasting radio and television. As of March 15, 2000, the broadcasting radio and television segment includes 257 radio stations owned and/or operated in 77 broadcast areas throughout the United States, six radio stations operated under joint sales agreements or exclusive agency agreements, Premiere Radio Networks, Inc., a radio syndication business, two television stations located in the Cincinnati and Defiance, Ohio broadcast areas and other miscellaneous immaterial broadcast related businesses.
Jacor has also entered into agreements to acquire an additional seven radio stations, which will expand its presence in two existing broadcast areas and allow the Company to enter one new broadcast area, and to dispose of the assets of seventeen radio stations and the intellectual property of another radio station in twelve broadcast areas.
At close of business on May 4, 1999 the Company consummated a merger with Clear Channel (the "Clear Channel Merger" or "Merger"), whereby each share of Jacor common stock was exchanged for Clear Channel common stock. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for a detailed discussion of the Merger.
Business Strategy
Jacor's strategic objective is to maximize revenue and broadcast cash flow (defined herein) by becoming the leading radio broadcaster in geographically diverse broadcast areas and by leveraging its expertise in programming production, syndication and distribution. Specifically, Jacor's business strategy centers upon:
Broadcast Area Revenue Leadership. Jacor strives to maximize its audience ratings in each of its broadcast areas in order to capture the largest share of the radio advertising revenue in that area and to attract advertising away from other media. Jacor believes that the most effective way to capture a higher percentage of advertising revenue is to operate multiple radio stations within a broadcast area, tailoring each station's programming to deliver highly effective access to a target demographic. In implementing its multi-station strategy, Jacor utilizes its programming expertise over a broad range of radio formats to create distinct station personalities within a broadcast area. Jacor further enhances its ability to increase its revenues through a more complete coverage of the listener base by being an industry leader in successfully operating AM stations.
Development of "Stick" Properties. In addition to acquiring developed, cash flow producing stations, Jacor also strategically acquires underdeveloped "stick" properties (i.e., properties with insignificant ratings and/or little or no positive broadcast cash flow). Jacor believes that acquisitions of strategically located "stick" properties often provide greater potential for revenue and broadcast cash flow growth than do acquisitions of developed properties. Historically, Jacor has been able to improve the ratings, revenue and broadcast cash flow of its "stick" properties with increased marketing and focused programming that complements its existing radio station formats and by leveraging the management expertise and operational support of regional clusters. Additionally, Jacor increases the revenue and broadcast cash flow of "stick" properties by encouraging advertisers to buy advertising in a package with its more established stations. Jacor believes that the Company's portfolio of "stick" properties creates significant potential for revenue and broadcast cash flow growth.
Development of Regional Clusters Around Core Broadcast Areas. Jacor believes it can leverage its position as the leader in a core broadcast area to create additional revenue and broadcast cash flow opportunities by building regional multi-station clusters around Jacor's core broadcast areas. Utilizing programming from its core broadcast areas, Jacor provides its regional clusters with high quality programming which would not otherwise be economically viable in such smaller broadcast areas, thereby spreading the costs associated with the delivery of such programming across a greater number of stations. By improving the ratings of its regional stations with such enhanced programming, Jacor believes it can generate incremental revenue and broadcast cash flow.
Additionally, Jacor strengthens its strategic position in the radio industry through the operation of businesses that provide services to radio broadcasting companies. Jacor owns a leading producer and distributor of syndicated radio programming, research, and other services, a leading provider of satellite and network services for the radio broadcasting industry and a leading provider of traffic reporting services in the San Diego, Los Angeles, and Santa Ana, California, Tampa, Florida and Denver, Colorado broadcast areas.
In addition to generating cash flow, these broadcast related services enhance the Company's ability to (i) increase ratings for its existing stations, (ii) transform "stick" properties into broadcast cash flow producing properties and (iii) maintain long- term relationships with Jacor's on-air talent. By combining the national reach of the Company's radio stations with the network sales forces acquired by Jacor, the Company seeks to maximize the value of commercial broadcast inventory that it can then resell to national advertisers.
Radio Station Overview
The following table and the accompanying footnotes set forth certain information as of March 15, 2000 regarding the 246 radio stations that will be owned and/or operated by Jacor upon completion of all pending acquisitions and dispositions.
[FN] ___________
(T) Designates tied.
(1) Jacor also owns a pending application for a construction permit in Vancouver, Washington, and the broadcast assets only of a station in Port St. Joe, Florida.
(2) Share and rank information is derived from the Fall 1999 Arbitron Metro Area Rating Survey.
(3) These stations do not have Arbitron ratings.
(4) Jacor provides programming to and sells airtime for WGST-FM in Atlanta, Georgia; KBKO-AM and KSPE-FM in Ellwood, California; WBTF-FM in Lexington, Kentucky; KRVK-FM, KTRS-FM and KWYY-FM in Casper, Wyoming; and WBTJ-FM, WBBG-FM, WICT-FM, WPAO-AM, WRTK-AM and WTNX-FM in Youngstown, Ohio pursuant to Local Marketing Agreements (LMAs). At any time after September 30, 1999 and before September 30, 2003 Cherokee Broadcasting can "put" WGST-FM to Jacor for a price of $31.0 million. At any time after May 21, 2003 and before September 30, 2003, Jacor can "call" the station for the same price.
(5) Excludes XTRA-AM, XTRA-FM and XHRM-FM, stations Jacor provides programming to and sells airtime for under exclusive agency agreements.
(6) Excludes WJGR-AM and WZAZ-AM, Jacksonville, Florida, and WSSP-FM in Charleston, South Carolina on which Jacor sells advertising time pursuant to a Joint Sales Agreement (JSA).
(7) Station is not currently broadcasting.
(8) These broadcast areas are not ranked by Arbitron.
(9) Acquirer is operating station under LMA.
All rankings by revenue or billings that are contained in the above table are based on 1998 information contained in Duncan's Radio Market Guide (1999 ed.). All information concerning ratings and audience listening information is derived from the Fall 1999 Arbitron Metro Area Ratings Survey (the "Fall 1999 Arbitron"). A Jacor subsidiary owns a 40% interest in a limited liability company that purchased the assets formerly owned by Duncan American Radio, Inc.
Premiere Radio Networks, Inc.
Jacor currently owns, produces and distributes syndicated programming for radio broadcasting through its wholly-owned subsidiary, Premiere Radio Networks, Inc. ("Premiere"), including such programs as The Rush Limbaugh Show and The Dr. Laura Program. The Rush Limbaugh Show is a nationally syndicated talk radio program broadcast on more than 600 radio stations. The Dr. Laura Program is a nationally syndicated talk radio program broadcast on more than 450 radio stations. Currently these programs are the two highest rated syndicated talk radio programs in the United States. Premiere is also the producer and distributor of other syndicated programs and services, including Rick Dees in the Morning, Rick Dees Weekly Top 40, After MidNite with Blair Garner and The Jim Rome Show.
Premiere's services include comprehensive radio research services, morning show prep and internet content services, and a national, in-house sales force. Premiere's Mediabase 24/7 research service provides music play lists and on-air promotion tracking and call-out research for eleven radio formats, which research services help radio station affiliates increase their audience share and ratings. Several leading radio industry publications now use Mediabase 24/7 music charts, as do 26 record labels. Instead of requiring cash payments, Premiere provides the research services in exchange for the right to broadcast an agreed amount of commercial advertisements during the radio station's broadcast. This practice makes Premiere's services more attractive to radio stations which have limited cash resources and/or excess inventory of available advertising time. The total amount of broadcast time that Premiere has available for sale to advertisers constitutes Premiere's commercial broadcast inventory.
Premiere's national, in-house network radio sales force and infrastructure sells commercial broadcast inventory to more than 500 national advertisers. Premiere leverages its sales force and generates additional revenues without significant additional overhead costs by providing network advertising sales representation services, on a commission basis, to third-party radio networks and independent syndicated programming and service suppliers that do not have their own sales forces. Premiere is presently the second largest network radio advertising sales representative in the United States in terms of its gross billings. It presently represents nineteen independent radio networks, including WOR Radio Networks, TM Century and Accutrack.
Television
Jacor owns a television station in the Cincinnati broadcast area where it currently owns and operates multiple radio stations, and one low-power television station in Defiance, Ohio. By operating a television station in Cincinnati where Jacor has a significant radio presence, Jacor has realized operating efficiencies including shared news departments and reduction of administrative overhead. Jacor currently operates the Cincinnati television station under a temporary waiver of a Federal Communications Commission ("FCC") rule that restricts ownership of television and radio stations in the same market. This waiver will continue until at least the year 2004 when the FCC is scheduled to undertake a comprehensive review and reevaluation of its broadcast ownership rules.
The following table sets forth certain information regarding the Cincinnati television station and the broadcast area in which it operates:
[FN]
___________
T Designates tied.
(1) Rankings for Designated Market Area ("DMA"), 6:00 a.m. to 2:00 a.m., Sunday-Saturday for "TV Households" and "Adults aged 25-54." This market information is from the November 1999 Nielsen Station Index. Similar information is not available for the Defiance, Ohio television station.
Advertising
Radio stations generate the majority of their revenue from the sale of advertising time to local and national spot advertisers and national network advertisers. Radio serves primarily as a medium for local advertising. The growth in total radio advertising revenue tends to be fairly stable and has generally grown at a rate faster than the Gross National Product ("GNP"). Advertising revenue has risen more rapidly during the past 10 years than either inflation or the GNP. Total advertising revenue for the radio industry in 1998 was approximately $15.4 billion, as reported by the Radio Advertising Bureau, its highest level in the industry's history.
During the year ended December 31, 1999, approximately 80% of Jacor's radio station broadcast revenue was generated from the sale of local advertising and approximately 20% from the sale of national advertising. Jacor believes that radio is one of the most efficient, cost-effective means for advertisers to reach specific demographic groups. The advertising rates charged by Jacor's radio stations are based primarily on (i) the station's ability to attract an audience in the demographic groups targeted by its advertisers (as measured principally by quarterly Arbitron rating surveys that quantify the number of listeners tuned to the station defined at various times), (ii) the number of stations in the market that compete for the same demographic group, (iii) the supply of and demand for radio advertising time and (iv) the supply and pricing of alternative advertising media.
Jacor emphasizes an aggressive local sales effort because local advertising represents a large majority of Jacor's revenues. Jacor's local advertisers include automotive, retail, financial institutions and services and health care. Each station's local sales staff solicits advertising, either directly from the local advertiser or through an advertising agency for the local advertisers. Jacor pays a higher commission rate to the sales staff for generating direct sales because Jacor believes that through a strong relationship directly with the advertiser, it can better understand the advertiser's business needs and more effectively design an advertising campaign to help the advertiser sell its product. Jacor employs personnel in each market to produce commercials for the advertisers. National advertising sales for most of Jacor's stations are made by Jacor's national sales managers in conjunction with the efforts of an independent advertising representative who specializes in national sales and is compensated on a commission-only basis.
Jacor believes that sports broadcasting, absent unusual circumstances, is a stable source of advertising revenues. There is less competition for the sports listener, since only one radio station can offer a particular game. In addition, due to the higher degree of audience predictability, sports advertisers tend to sign contracts which are generally longer term and more stable than Jacor's other advertisers. Jacor's sales staffs are particularly skilled in sales of sports advertising.
According to the Radio Advertising Bureau's publication Radio Marketing Guide and Fact Book for Advertisers, Fall 1999 to Spring 2000, each week radio reaches approximately 95.4% of all Americans over the age of 12. More than one-half of all radio listening is done outside the home, in contrast to other advertising mediums, and four out of five adults are reached by car radio each week. The average listener spends approximately three hours and 12 minutes per weekday listening to radio. The highest portion of radio listenership occurs during the morning, particularly between the time a listener wakes up and the time the listener reaches work. This "morning drive time" period reaches more than 82% of people over 12 years of age each week and, as a result, radio advertising sold during this period achieves premium advertising rates.
Jacor believes operating multiple stations in a market gives it significant opportunities in competing for advertising dollars. Each multiple station platform better positions Jacor to access a significant share of a given demographic segment making Jacor stations more attractive to advertisers seeking to reach that segment of the population.
Competition
The radio broadcasting industry is a highly competitive business. The success of each of Jacor's stations will depend significantly upon its audience ratings and its share of the overall advertising revenue within its market. Jacor's stations will compete for listeners and advertising revenue directly with other radio stations as well as many other advertising media within their respective markets. Radio stations compete for listeners primarily on the basis of program content and by hiring high-profile talent that appeals to a particular demographic group. By building in each of its markets a strong listener base comprised of a specific demographic group, Jacor will be able to attract advertisers seeking to reach those listeners.
In addition to management experience, factors which are material to competitive position include the station's rank among radio stations in its market, transmitter power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other stations in the market area, and other advertising media in that market. Jacor attempts to improve its competitive position with promotional campaigns aimed at the demographic groups targeted by its stations and by sales efforts designed to attract advertisers. The FCC's policies and rules permit joint ownership and joint operation of local radio stations in certain circumstances. Those stations taking advantage of these joint arrangements may in certain circumstances have lower operational costs and may be able to offer advertisers more attractive rates and services.
Jacor's audience ratings and competitive position will be subject to change, and any adverse change in a particular market could have a material adverse effect on the revenue of Jacor's stations in that market. Although Jacor believes that each of its stations will be able to compete effectively in the market, there can be no assurance that any one of its stations will be able to maintain or increase its current audience ratings and advertising revenue.
Although the radio broadcasting industry is highly competitive, some legal restrictions on entry exist. The operation of a radio broadcast station requires a license from the FCC and the number of radio stations that can operate in a given market is limited by the availability of the FM and AM radio frequencies that the FCC will license in that market.
Jacor's stations also compete directly for advertising revenues with other media, including broadcast television, cable television, newspapers, magazines, direct mail, coupons and billboard advertising. In addition, the radio broadcasting industry is subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems and the Internet and by digital audio broadcasting. Increasingly, audiences are able to access audio program services over the Internet, including out-of- market stations and programming not otherwise available over broadcast stations. This activity introduces new competition for audience attention, particularly for people who might otherwise listen to local radio stations in the workplace. The Internet also creates new competition for advertisers, both for spots within programming and with respect to ancillary advertising outlets such as web pages. The Internet is still evolving rapidly, and Jacor cannot assure that these developments will not have an adverse effect on its future operations. The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes and compact discs. Greater population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have an adverse effect on the radio broadcasting industry. Jacor also competes with other radio station groups to purchase additional stations.
Television stations compete for audiences and advertising revenues with radio and other television stations and multichannel video program distributors in their market areas and with other advertising media such as newspapers, magazines, outdoor advertising and direct mail. Competition for sales of television advertising time is based primarily on the anticipated and actually delivered size and demographic characteristics of audiences as determined by various services, price, the time of day when the advertising is to be broadcast, competition from other television stations, including affiliates of broadcast television networks, cable television systems and other media and general economic conditions. Competition for audiences is based primarily on the selection of programming, the acceptance of which is dependent on the reaction of the viewing public, which is often difficult to predict. Additional elements that are material to the competitive position of television stations include management experience, authorized power and assigned frequency. The broadcasting industry is continually faced with technical changes and innovations, the popularity of competing entertainment and communications media, changes in labor conditions, and governmental restrictions or actions of Federal regulatory bodies, including the FCC, any of which could possibly have a material effect on a television station's operations and profits. There are sources of video service other than conventional television stations, the most common being cable television, which can increase competition for a broadcast television station by bringing into its market distant broadcast signals not otherwise available to the station's audience, serving as a distribution system for national satellite-delivered programming and other non-broadcast programming originated on a cable system and selling advertising time to local advertisers. Other principal sources of competition include home video exhibition, direct-to-home broadcast satellite television services and multichannel multipoint distribution services.
Moreover, technological advances and regulatory changes affecting program delivery through fiber optic telephone lines and video compression could lower entry barriers for new video channels and encourage the development of increasingly specialized "niche" programming. The Telecom Act permits telephone companies to provide video distribution services via radio communication, on a common carrier basis, as "cable systems" or as "open video systems", each pursuant to different regulatory schemes. Jacor is unable to predict the effect that these technological and regulatory changes will have on the broadcast television industry and on the future profitability and value of a particular broadcast television station.
The Internet also may have a substantial competitive impact on television stations, either by providing an alternative means of distributing video programming (through streaming or other technologies) or by otherwise attracting audience and thereby reducing the audiences for broadcast television. The Internet is undergoing rapid changes and development and Jacor cannot evaluate its effects.
Jacor cannot predict what other matters might be considered in the future, nor can it judge in advance what impact, if any, the implementation of any of these proposals or changes might have on its business.
Regulation of Business
Existing Regulation and 1996 Legislation
Television and radio broadcasting are subject to the jurisdiction of the FCC under the Communications Act of 1934 (the "Communications Act"). The Communications Act prohibits the operation of a television or radio broadcasting station except under a license issued by the FCC and empowers the FCC, among other things, to:
- - issue, renew, revoke and modify broadcasting licenses; - - assign frequency bands; - - determine stations' frequencies, locations, and power; - - regulate the equipment used by stations; - - adopt other regulations to carry out the provisions of the Communications Act; - - impose penalties for violation of such regulations; and - - impose fees for processing applications and other administrative functions.
The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. Under the Communications Act, the FCC also regulates certain aspects of the operation of cable television systems and other electronic media that compete with broadcasting stations.
The Telecommunications Act of 1996 (the "1996 Act") represented the most comprehensive overhaul of the country's telecommunications laws in more than 60 years. The Communications Act originated at a time when telephone and broadcasting technologies were quite distinct and addressed different consumer needs. As a consequence, both the statute and its implementing regulatory scheme were designed to compartmentalize the various sectors of the telecommunications industry. The 1996 Act removed or relaxed the statutory barriers to telephone company entry into the video programming delivery business, to cable company provision of telephone service, and to common ownership of broadcast television and cable properties.
The 1996 Act also significantly changed both the process for renewal of broadcast station licenses and the broadcast ownership rules. The 1996 Act established a "two-step" renewal process that limits the FCC's discretion to consider applications filed in competition with an incumbent's renewal application. The 1996 Act also substantially liberalized the national broadcast ownership rules, eliminating the national radio limits and easing the national restrictions on television ownership. The 1996 Act also relaxed local radio ownership restrictions, but left local television ownership restrictions in place pending further FCC review.
This new regulatory flexibility has engendered aggressive local, regional, and/or national acquisition campaigns. Removal of previous station ownership limitations on leading media companies, such as existing networks and major station groups, has increased sharply the competition for and the prices of attractive stations.
License Grant and Renewal
Prior to the passage of the 1996 Act, television and radio broadcasting licenses generally were granted or renewed for periods of five and seven years, respectively, upon a finding by the FCC that the "public interest, convenience, and necessity" would be served thereby. At the time an application is made for renewal of a television or radio license, parties in interest may file petitions to deny the application, and others may object informally to grant of the application. Such parties, including members of the public, may comment upon matters related to whether renewal is warranted, including the service the station has provided during the preceding license term. Prior to passage of the 1996 Act, any person or entity also was permitted to file a competing application for authority to operate on the station's channel and replace the incumbent licensee. Renewal applications were granted without a hearing if there were no competing applications and if issues raised by petitioners to deny or informal objectors to such applications were not serious enough to cause the FCC to order a hearing. If competing applications were filed, or if sufficiently serious issues were raised by a petitioner or objector, a full comparative hearing was required.
Under the 1996 Act, the statutory restriction on the length of broadcast licenses has been amended to allow the FCC to grant broadcast licenses to both television and radio stations for terms of up to eight years. The 1996 Act also requires renewal of a broadcast license if the FCC finds that
- - the station has served the public interest, convenience, and necessity; - - there have been no serious violations of either the Communications Act or the FCC's rules and regulations by the licensee; and - - there have been no other serious violations which taken together constitute a pattern of abuse.
In making its determination, the FCC may still consider petitions to deny and informal objections, and may order a hearing if such petitions or objections raise sufficiently serious issues, but cannot consider whether the public interest would be better served by a person or entity other than the renewal applicant. Instead, under the 1996 Act, competing applications for the same frequency may be accepted only after the FCC has denied an incumbent's application for renewal of license.
Although in the vast majority of cases broadcast licenses are renewed by the FCC even when petitions to deny or informal objections are filed, there can be no assurance that any of our stations' licenses will be renewed at the expiration of their terms.
Multiple Ownership Restrictions
The FCC has promulgated rules that, among other things, limit the ability of individuals and entities to own or have an "attributable interest" in broadcast stations, as well as other specified mass media entities. Prior to the passage of the 1996 Act, these rules included limits on the number of radio and television stations that could be owned on both a national and local basis. On a national basis, the rules generally precluded any individual or entity from having an attributable interest in more than 20 AM radio stations, 20 FM radio stations and 12 television stations. Moreover, the aggregate audience reach of the co-owned television stations could not exceed 25% of all U.S. television households.
The 1996 Act completely revised the television and radio ownership rules via changes the FCC implemented in two orders issued on March 8, 1996. With respect to television, the 1996 Act and the FCC's subsequently issued orders eliminated the 12-station national limit for station ownership and increased the national audience reach limitation from 25% to 35%. On a local basis, however, the 1996 Act did not alter current FCC rules prohibiting an individual or entity from holding an attributable interest in more than one television station in a market. The 1996 Act did require the FCC to conduct a rulemaking proceeding, however, to determine whether to retain or modify this so- called "TV duopoly rule," including narrowing the rule's geographic scope and permitting some two-station combinations at least in certain (large) markets. In August 1999, the FCC completed this rulemaking and adopted a revised television duopoly rule. Under the new rule, permissible common ownership of television stations is dictated by Nielsen Designated Market Areas, or "DMAs." A company may own two television stations in a DMA if the stations' Grade B contours do not overlap. Conversely, a company may own television stations in separate DMAs even if the stations' service contours do overlap. Furthermore, a company may own two television stations in a DMA with overlapping Grade B contours if (i) at least eight independently owned and operating full-power television stations will remain in the DMA after the combination; and (ii) at least one of the commonly owned stations is not among the top four stations in the market in terms of audience share. The FCC will presumptively waive these criteria and allow the acquisition of a second same-market television station where the station being acquired is shown to be "failed" or "failing" (under specific FCC definitions of those terms), or authorized but not built. A buyer seeking such a waiver must also demonstrate that it is the only buyer ready, willing, and able to operate the station, and that sale to an out-of-market buyer would result in an artificially depressed price.
With respect to radio licensees, the 1996 Act and the FCC's subsequently issued rule changes eliminated the national ownership restriction, allowing one entity to own nationally any number of AM or FM broadcast stations. The 1996 Act and the FCC's implementing rules also greatly eased local radio ownership restrictions. The maximum allowable number of stations that may be commonly owned in a market varies depending on the number of radio stations within that market, as determined using a method prescribed by the FCC. In markets with more than 45 stations, one company may own, operate, or control eight stations, with no more than five in any one service (AM or FM). In markets of 30-44 stations, one company may own seven stations, with no more than four in any one service; in markets with 15-29 stations, one entity may own six stations, with no more than four in any one service. In markets with 14 commercial stations or less, one company may own up to five stations or 50% of all of the stations, whichever is less, with no more than three in any one service. These new rules permit common ownership of substantially more stations in the same market than did the FCC's prior rules, which at most allowed ownership of no more than two AM stations and two FM stations even in the largest markets.
Irrespective of FCC rules governing radio ownership, however, the Antitrust Division of the United States Department of Justice ("Antitrust Division") and the Federal Trade Commission ("FTC") have the authority to determine that a particular transaction presents antitrust concerns. Following the passage of the 1996 Act, the Antitrust Division has become more aggressive in reviewing proposed acquisitions of radio stations, particularly in instances where the proposed acquirer already owns one or more radio stations in a particular market and seeks to acquire another radio station in the same market. The Antitrust Division has, in some cases, obtained consent decrees requiring radio station divestitures in a particular market based on allegations that acquisitions would lead to unacceptable concentration levels. The FCC has also been more aggressive in independently examining issues of market concentration when considering radio station acquisitions. The FCC has delayed its approval of numerous proposed radio station purchases by various parties because of market concentration concerns, and generally will not approve radio acquisitions where the Antitrust Division has expressed concentration concerns, even if the acquisition complies with the FCC's numerical station limits. Moreover, in recent months the FCC has followed a policy of giving specific public notice of its intention to conduct additional ownership concentration analysis, and soliciting public comment on "the issue of concentration and its effect on competition and diversity," with respect to certain applications for consent to radio station acquisitions based on advertising revenue shares or other criteria.
In 1992, the FCC adopted rules with respect to so-called local marketing agreements, or "LMAs", by which the licensee of one radio station provides substantially all the programming for another licensee's station in the same market and sells all of the advertising within that programming. Under these rules, in determining the number of radio stations that a single entity may control, an entity that owns one or more radio stations in a market and programs a station in the same market pursuant to an LMA is required, under certain circumstances, to count the LMA station toward its local radio ownership limits even though it does not own the station. As a result, in a market where Jacor or Clear Channel own one or more radio stations, the Company generally cannot provide programming under an LMA to another radio station if the station cannot be acquired under the local radio ownership rules.
In August 1999, the FCC adopted rules for television LMAs similar to those that govern radio LMAs. As is the case for radio LMAs, an entity that owns a television station and programs more than 15% of the broadcast time on another television station in the same market is now required to count the LMA station toward its television ownership limits even though it does not own the station. Thus, in the future with respect to markets in which Jacor or Clear Channel own television stations, the Company generally will not be able to enter into an LMA with another television station in the same market if the station cannot be acquired under the revised television duopoly rule.
In adopting these new rules concerning television LMAs, however, the FCC provided "grandfathering" relief for LMAs that were in effect at the time of the rule change. Television LMAs that were in place at the time of the new rules and were entered into before November 5, 1996, were allowed to continue at least through 2004, when the FCC is scheduled to undertake a comprehensive review and re- evaluation of its broadcast ownership rules. Such LMAs entered into after November 5, 1996, were allowed to continue until August 5, 2001, at which point they must be terminated unless they comply with the revised television duopoly rule.
A number of cross-ownership rules pertain to licensees of television and radio stations. FCC rules, the Communications Act or both generally prohibit an individual or entity from having an attributable interest in both a television station and a daily newspaper or cable television system that is located in the same market served by the television station.
Prior to August 1999, FCC rules also generally prohibited common ownership of a television station and one or more radio stations in the same market, although the FCC in many cases allowed such combinations under waivers of the rule. In August 1999, however, the FCC comprehensively revised its radio/television cross-ownership rule. The revised rule permits the common ownership of one television and up to seven same-market radio stations, or up to two television and six same-market radio stations, if the market will have at least twenty separately owned broadcast, newspaper and cable "voices" after the combination. Common ownership of up to two television and four radio stations is permissible when ten "voices" will remain, and common ownership of up to two television and one radio station is permissible in all markets regardless of voice count. The radio/television limits, moreover, are subject to the compliance of the television and radio components of the combination with the television duopoly rule and the local radio ownership limits, respectively. Waivers of the radio/television cross- ownership rule are available only where the station being acquired is "failed" (i.e., off the air for at least four months or involved in court-supervised involuntary bankruptcy or insolvency proceedings). A buyer seeking such a waiver must also demonstrate that it is the only buyer ready, willing, and able to operate the station, and that sale to an out-of-market buyer would result in an artificially depressed price.
There are nine markets where Jacor or Clear Channel own both radio and television stations under temporary and conditional waivers of the prior radio/television cross- ownership rule. In some of these markets, the number of radio stations Jacor or Clear Channel own complies with the limit imposed by the revised rule, and Clear Channel has asked the FCC to permanently authorize its common ownership of its radio and television stations in such markets. In those markets where the number of radio stations Jacor or Clear Channel own exceeds the limit under the revised rule, the present television/radio combinations nonetheless may be retained at least until 2004, when the FCC is scheduled to undertake a comprehensive review and re-evaluation of its broadcast ownership rules. As with grandfathered television LMAs, beginning in September 2000 Clear Channel will have the opportunity to obtain permanent authorization for its non-compliant radio/television combinations by demonstrating to the FCC, among other things, the public interest benefits the combinations have produced and the extent to which the combinations have enabled the television stations involved to convert to digital operation.
The 1996 Act eliminated a statutory prohibition against common ownership of television broadcast stations and cable systems serving the same area, but left the current FCC rule in place. The 1996 Act stipulates that the FCC should not consider the repeal of the statutory ban in any review of its applicable rules. The legislation also eliminated the FCC's former network/cable cross-ownership limitations, but allowed the FCC to adopt regulations if necessary to ensure carriage, appropriate channel positioning, and nondiscriminatory treatment of non-affiliated broadcast stations on network-owned cable systems. The FCC eliminated the restriction and determined that additional safeguards were not necessary at this time.
The 1996 Act did not alter the FCC's newspaper/broadcast cross-ownership restrictions. However, the FCC is considering whether to change the policy pursuant to which it considers waivers of the radio/newspaper cross-ownership rule. Finally, the 1996 Act and the FCC's subsequently issued rule changes revised the long-standing "dual network" rule to permit television broadcast stations to affiliate with an entity that maintains two or more networks, unless the combination is composed of (a) two of the four existing networks (ABC, CBS, NBC or FOX) or (b) any of the four existing networks and one of the two emerging networks (WB or UPN).
Expansion of the Company's broadcast operations in particular areas and nationwide will continue to be subject to the FCC's ownership rules and any further changes the FCC or Congress may adopt. Significantly, the 1996 Act requires the FCC to review its remaining ownership rules biennially as part of its regulatory reform obligations to determine whether its various rules are still necessary. The first such biennial review commenced March 13, 1998, with the FCC's adoption of a notice of inquiry soliciting comment on its ownership rules. In this notice of inquiry, the FCC has requested specific comment on
- - the manner in which the FCC counts stations for purposes of the local radio multiple ownership rule; - - the "UHF discount," under which UHF television stations are attributed with only 50% of their reach for purposes of the national television audience reach limit; - - the prohibition on common ownership of a daily newspaper and a radio or TV broadcast station in the same market; and - - the prohibition on common ownership of a television station and a cable system in the same market.
We cannot predict the impact of the biennial review process or any other agency or legislative initiatives upon the FCC's broadcast rules. Further, the 1996 Act's relaxation of the FCC's ownership rules has increased the level of competition in many markets in which our stations are located.
Under the FCC's ownership rules, a direct or indirect purchaser of certain types of our securities could violate FCC regulations or policies if that purchaser owned or acquired an "attributable" interest in other media properties in the same areas as stations owned by us or in a manner otherwise prohibited by the FCC. All officers and directors of a licensee and any direct or indirect parent, as well as general partners, limited partners and limited liability company members who are not properly "insulated" from management activities, and stockholders who own five percent or more of the outstanding voting stock of a licensee, either directly or indirectly, generally will be deemed to have an attributable interest in the license. Certain institutional investors who exert no control or influence over a licensee may own up to twenty percent of such outstanding voting stock before attribution occurs. Under current FCC regulations, debt instruments, non-voting stock, properly insulated limited partnership and limited liability company interests as to which the licensee certifies that the interest holders are not "materially involved" in the management and operation of the subject media property, and voting stock held by minority stockholders in cases in which there is a single majority stockholder generally are not subject to attribution unless such interests implicate the FCC's recently-adopted "equity/debt plus," or "EDP," rule. Under the EDP rule, an aggregate interest in excess of 33% of a licensee's total asset value (equity plus debt) is attributable if the interest holder is either a major program supplier (providing over 15% of the licensee's station's total weekly broadcast programming hours) or a same-market media owner (including broadcasters, cable operators, and newspapers). To the best of our knowledge at present, none of our officers, directors or five percent stockholders holds an interest in another television station, radio station, cable television system or daily newspaper that is inconsistent with the FCC's ownership rules and policies.
Alien Ownership Restrictions
The Communications Act restricts the ability of foreign entities or individuals to own or hold certain interests in broadcast licenses. Foreign governments, representatives of foreign governments, non-U.S. citizens, representatives of non-U.S. citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-U.S. citizens, collectively, may directly or indirectly own or vote up to twenty percent of the capital stock of a corporate licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by non-U.S. citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before a broadcast license may be granted to or held by any such corporation, and the FCC has made such an affirmative finding only in limited circumstances. Since we or our parent serve as a holding company for subsidiaries that serve as licensees for our stations, we may be restricted from having more than one- fourth of our stock owned or voted directly or indirectly by non-U.S. citizens, foreign governments, representatives of non-foreign governments, or foreign corporations.
Other Regulations Affecting Broadcast Stations
General. The FCC has significantly reduced its past regulation of broadcast stations, including elimination of formal ascertainment requirements and guidelines concerning amounts of certain types of programming and commercial matter that may be broadcast. There are, however, FCC rules and policies, and rules and policies of other federal agencies, that regulate matters such as network-affiliate relations, the ability of stations to obtain exclusive rights to air syndicated programming, cable systems' carriage of local television stations and of syndicated and network programming on distant stations, political advertising practices, application procedures and other areas affecting the business or operations of broadcast stations.
Children's Television Programming. The FCC has adopted rules to implement the Children's Television Act of 1990, which, among other provisions, limits the permissible amount of commercial matter in children's programs and requires each television station to present "educational and informational" children's programming. The FCC also has adopted renewal processing guidelines effectively requiring television stations to broadcast an average of three hours per week of children's educational programming.
Closed Captioning. The FCC has adopted rules requiring closed captioning of broadcast television programming. The rules require generally that (i) 100% of all new programming first published or exhibited on or after January 1, 1998 must be closed captioned within eight years, and (ii) 75% of "old" programming which first aired prior to January 1, 1998 must be closed captioned within 10 years, subject to certain exemptions.
Television Violence. The 1996 Act contains a number of provisions relating to television violence. First, pursuant to the 1996 Act, the television industry has developed a ratings system which the FCC has approved. Furthermore, also pursuant to the 1996 Act, the FCC has adopted rules requiring certain television sets to include the so-called "V-chip," a computer chip that allows blocking of rated programming. Under these rules, half of all television receiver models with picture screens 13 inches or greater were required to have the "V-chip" by July 1, 1999, and all such models were required to have the "V-chip" by January 1, 2000. In addition, the 1996 Act requires that all television license renewal applications filed after May 1, 1995 contain summaries of written comments and suggestions received by the station from the public regarding violent programming.
Recent Developments, Proposed Legislation and Regulation
Equal Employment Opportunity. In April 1998, the U.S. Court of Appeals for the D.C. Circuit concluded that the affirmative action requirements of the FCC's Equal Employment Opportunity ("EEO") regulations were unconstitutional. The FCC responded to the court's ruling in September 1998 by suspending its requirements for the filing by broadcasters of annual employment reports and program reports. In January 2000, the FCC adopted new EEO rules, which (1) require broadcast licensees to widely disseminate information about job openings to all segments of the community; and (2) give broadcasters the choice of implementing two FCC-suggested supplemental recruitment measures or, alternatively, designing their own broad recruitment/outreach program. The FCC also reinstated its requirement that broadcasters file annual employment reports and other EEO-related forms with the FCC.
Distribution of Video Services by Telephone Companies. Recent actions by Congress, the FCC and the courts all presage significant future involvement in the provision of video services by telephone companies. We cannot predict either the timing or the extent of such involvement. These developments all relate to a former provision of the Communications Act that prohibited a local telephone company from providing video programming directly to subscribers within the company's telephone service areas. As applied by government regulators historically, the former provision prevented telephone companies from providing cable service over either the telephone network or a separate cable system located within the telephone service area. That provision has now been superseded by the 1996 Act, which provides for telephone company entry into the distribution of video services either under the laws and rules applicable to cable systems as operators of so-called "wireless cable systems", as common carriers or under new rules devised by the FCC for "open video systems" subject to certain common carrier requirements.
The 1996 Act also eliminated the FCC's "video dialtone" rules, which allowed telephone companies to provide a transport "platform" to multiple video programmers, including, potentially, competing program packages, on a non- discriminatory, common carrier basis. The legislation does not affect any video dialtone systems approved prior to enactment of the 1996 Act. Congress instead has determined that telephone companies may offer video programming either as a traditional cable operator, as a so-called "wireless cable" operator, as a common carrier, or through operation of an "open video system." Although Congress specifically preempted the FCC's video dialtone rules, the legislation's directives for open video systems resemble the rules adopted or proposed for video dialtone systems in certain respects. These include the requirements that the operator of an open video system offer carriage capacity to various video programming providers under nondiscriminatory rates, terms, and conditions; and if demand for carriage exceeds the channel capacity of the open video system, the operator generally is barred from devoting more than one-third of the system's capacity to programming provided by itself or an affiliate.
The 1992 Cable Act. On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which, among other matters, includes provisions respecting the carriage of television stations' signals by cable television systems. The signal carriage, or "must carry," provisions of the 1992 Cable Act require cable operators to carry the signals of local commercial and non-commercial television stations and certain low power television stations. Systems with 12 or fewer usable activated channels and more than 300 subscribers must carry the signals of at least three local commercial television stations. A cable system with more than 12 usable activated channels, regardless of the number of subscribers, must carry the signals of all local commercial television stations, up to one-third of the aggregate number of usable activated channels of such a system. The 1992 Cable Act also includes a retransmission consent provision that prohibits cable operators and other multi-channel video programming distributors from carrying broadcast signals without obtaining the station's consent in certain circumstances. The "must carry" and retransmission consent provisions are related in that a local television broadcaster, on a cable system-by-cable system basis, must make a choice once every three years whether to proceed under the "must carry" rules or to waive the right to mandatory but uncompensated carriage and negotiate a grant of retransmission consent to permit the cable system to carry the station's signal, in most cases in exchange for some form of consideration from the cable operator. Cable systems and other multi-channel video programming distributors must obtain retransmission consent to carry all distant commercial stations other than "super stations" delivered via satellite.
In March 1997, the U.S. Supreme Court upheld the constitutionality of the must-carry provisions of the 1992 Cable Act. As a result, the regulatory scheme promulgated by the FCC to implement the must-carry provisions of the 1992 Cable Act remains in effect. Whether and to what extent such must-carry rights will extend to the new digital television signals (see below) to be broadcast by licensed television stations, including those owned by us, over the next several years is still a matter to be determined in an ongoing rulemaking proceeding initiated by the FCC in July 1998. FCC rules that impose no or limited obligations on cable systems and other multi-channel video programming distributors to carry the digital signals of television broadcast stations in their local markets could adversely affect our operations.
The 1992 Cable Act was amended in several important respects by the 1996 Act. Most notably, as discussed above, the 1996 Act repealed the cross-ownership ban between cable and telephone entities and the FCC's former video dialtone rules. These actions, among other regulatory developments, permit involvement by telephone companies in providing video services. We cannot predict the impact that telephone company entry into video programming will have upon the broadcasting industry.
The 1996 Act also repealed or curtailed several cable- related ownership and cross-ownership restrictions. For example, as noted above, the 1996 Act eliminated the broadcast network/cable cross-ownership limitations and the statutory prohibition on TV/cable cross-ownership.
Advanced Television Service. The FCC has taken a number of steps to implement digital television broadcasting service in the United States. In December 1996, the FCC adopted a digital television broadcast standard and, in April 1997, adopted decisions in several pending rulemaking proceedings that establish service rules and a plan for implementing digital television. The FCC adopted a digital television table of allotments that provides all authorized television stations with a second channel on which to broadcast a digital television signal. The FCC has attempted to provide digital television coverage areas that are comparable to stations' existing service areas. The FCC has ruled that television broadcast licensees may use their digital channels for a wide variety of services such as high- definition television, multiple standard definition television programming, audio, data, and other types of communications, subject to the requirement that each broadcaster provide at least one free video channel equal in quality to the current technical standard.
Digital television channels will generally be located in the range of channels from channel 2 through channel 51. Stations must construct their DTV facilities and be on the air with a digital signal according to a schedule by the FCC based on the type of station and the size of the market in which it is located. For example, all ABC, CBS, NBC and FOX network affiliates in the 10 largest markets were required to be on the air with a digital signal by May 1, 1999. Affiliates of the four major networks in the top 30 markets were required to be transmitting digital signals by November 1, 1999. All other commercial broadcasters must follow suit by May 1, 2002.
The FCC's plan calls for the digital television transition period to end in the year 2006, at which time the FCC expects that television broadcasters will cease non-digital broadcasting and return one of their two channels to the government, allowing that spectrum to be recovered for other uses. Under the Balanced Budget Act, however, the FCC is authorized to extend the December 31, 2006 deadline for reclamation of a television station's non-digital channel if, in any given case:
- - one or more television stations affiliated with ABC, CBS, NBC or FOX in a market is not broadcasting digitally, and the FCC determines that such stations have "exercised due diligence" in attempting to convert to digital broadcasting; or
- - less than 85% of the television households in the station's market subscribe to a multichannel video service that carries at least one digital channel from each of the local stations in that market, and less than 85% of the television households in the market can receive digital signals off the air using either a set-top converter box for an analog television set or a new digital television set.
The FCC is currently considering whether cable television system operators should be required to carry local stations' digital television signals in addition to the currently required carriage of such stations' analog signals. In July 1998, the FCC issued a Notice of Proposed Rulemaking posing seven different options for the carriage of digital signals and solicited comments from all interested parties. The FCC has yet to issue a decision on this matter.
The FCC also is considering the impact of low power television ("LPTV") stations on digital broadcasting. Currently, stations in the LPTV service are authorized with "secondary" frequency use status, and, as such, may not cause interference to, and must accept interference from, full service television stations. With the conversion to DTV now underway, LPTV stations, which already were required to protect existing analog television stations, are now required to protect the new DTV stations and allotments as well. Thus, if an LPTV station causes interference to a new DTV station, the LPTV station must either find a suitable replacement channel or, if unable to do so, cease operating. In recognition of the consequences the DTV transition could have on many LPTV stations, legislation enacted in November 1999 created a new "Class A" LPTV service that will afford some measure of primary status (i.e., interference protection) to certain qualifying LPTV stations. Thus, in the future, full service television stations will have to provide interference protection to all LPTV stations certified as Class A. In accordance with the recently enacted law, in January 2000, the FCC sought comment on proposed rules for the new Class A television service. Congress has directed the FCC to finalize its rules by March 28, 2000. We cannot predict the form of the new rules or the impact of such rules on our operation.
In December 1999, the FCC commenced a proceeding seeking comment on the public interest obligations of digital television broadcasters. Specifically, the Commission is requesting information in four general areas: (1) the new flexibility and capabilities of digital television, such as multiple channel transmission; (2) service to local communities in terms of providing information on public interest activities and disaster relief; (3) enhancing access to the media by persons with disabilities and using DTV to encourage diversity in the digital era; and (4) enhancing the quality of political discourse. The FCC stated that it was not proposing new rules or policies, but merely seeking to create a forum for public debate on how broadcasters can best serve the public interest during and after the transition to DTV.
Implementation of digital television will improve the technical quality of television signals received by viewers and will give television broadcasters the flexibility to provide new services, including high definition television or multiple programs of standard definition television and data transmission. However, the implementation of digital television will also impose substantial additional costs on television stations because of the need to replace equipment and because some stations will need to operate at higher utility costs. In addition, the 1996 Act allows the FCC to charge a spectrum fee to broadcasters who use the digital spectrum to offer subscription-based services. The FCC has adopted rules that require broadcasters to pay a fee of 5% of gross revenues received from ancillary or supplementary uses of the digital spectrum for which they charge subscription fees. We cannot predict what future actions the FCC might take with respect to digital television, nor can we predict the effect of the FCC's present digital television implementation plan or such future actions on our business. We and our parent company will incur considerable expense in the conversion to digital television and are unable to predict the extent or timing of consumer demand for digital television services.
Digital Audio Radio Service. In January 1995, the FCC adopted rules to allocate spectrum for satellite digital audio radio service. Satellite digital audio radio service systems potentially could provide for regional or nationwide distribution of radio programming with fidelity comparable to compact discs. The FCC has issued two authorizations to launch and operate satellite digital audio radio service. The FCC also has undertaken an inquiry regarding rules for the terrestrial broadcast of digital audio radio service signals, addressing, among other things, the need for spectrum outside the existing FM band and the role of existing broadcasters. We cannot predict the impact of either satellite digital audio radio service or terrestrial digital audio radio service on our business.
Low Power FM Radio Service. In January 2000, the FCC created two new classes of noncommercial low power FM radio stations ("LPFM"). One class (LP100) will operate with a maximum power of 100 watts and a service radius of about 3.5 miles. The other class (LP10) will operate with a maximum power of 10 watts and a service radius of about 1 to 2 miles. In establishing the new LPFM service, the FCC said that its goal is to create a class of radio stations designed "to serve very localized communities or underrepresented groups within communities." We cannot predict the impact of low power FM radio stations on our business.
Direct Broadcast Satellite Systems. There are currently in operation several direct broadcast satellite systems that serve the United States, and it is anticipated that additional systems will become operational over the next several years. Direct broadcast satellite systems provide programming on a subscription basis to those who have purchased and installed a satellite signal receiving dish and associated decoder equipment. Direct broadcast satellite systems claim to provide visual picture quality comparable to that found in movie theaters and aural quality comparable to digital audio compact discs. We cannot predict the impact of direct broadcast satellite systems on our business.
Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation and ownership of our broadcast properties. In addition to the changes and proposed changes noted above, such matters include, for example, the license renewal process, spectrum use fees, political advertising rates, and potential restrictions on the advertising of certain products such as beer and wine. Other matters that could affect our broadcast properties include technological innovations and developments generally affecting competition in the mass communications industry, such as direct broadcast satellite service, the continued establishment of wireless cable systems and low power television stations, digital television and radio technologies, the establishment of a low power FM radio service, and the advent of telephone company participation in the provision of video programming service.
The foregoing is a brief summary of certain provisions of the Communications Act, the 1996 Act, the 1992 Cable Act, and specific regulations and policies of the FCC thereunder. This description does not purport to be comprehensive and reference should be made to the Communications Act, the 1996 Act, the 1992 Cable Act, the FCC's rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of broadcast stations. Proposals for additional or revised regulations and requirements are pending before and are being considered by Congress and federal regulatory agencies from time to time. Also, various of the foregoing matters are now, or may become, the subject of court litigation, and we cannot predict the outcome of any such litigation or its impact on our broadcast business.
Energy and Environmental Matters
Jacor's source of energy used in its broadcasting operations is electricity. No limitations have been placed on the availability of electrical power, and management believes its energy sources are adequate. Management believes that Jacor is currently in material compliance with all statutory and administrative requirements as related to environmental quality and pollution control.
Environmental Matters
The Company is subject to federal, state and local laws, regulations and ordinances that (i) govern activities or operations that may have adverse environmental effects (such as emissions to air, discharges to water, and the generation, handling, storage and disposal of solid and hazardous wastes) or (ii) impose liability for the costs of cleanup or other remediation of contaminated property, including damages from spills, disposals or other releases of hazardous substances or wastes, in certain circumstances without regard to fault. In certain cases, such liabilities may result from historical operations conducted on the Company's properties by previous owners or operators of such properties. The Company has not incurred, and does not expect to incur, any material expenditures or liabilities related to environmental matters.
Employees
As of December 31, 1999, Jacor employed approximately 4,800 persons, 3,700 on a full-time and 1,100 on a part-time basis. Each Jacor broadcast area has its own complement of employees which generally include a general manager, sales manager, operations manager, business manager, advertising sales staff, on-air personalities and clerical personnel.
Item 2.
Item 2. Property Holdings
Jacor owns and leases space for the office and studio facilities at its radio station and broadcast service locations throughout the United States. The same is true for Jacor's tower sites and antennae.
Jacor owns substantially all of its equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. The towers, antennae and other transmission equipment used by Jacor's stations are in generally good condition. In management's opinion, the quality of the signals range from good to excellent, and Jacor is committed to maintaining and updating its equipment and transmission facilities in order to achieve the best possible signal in the market area.
Expansion of Jacor's operations generally comes from the acquisition of stations and their facilities. Jacor attempts to consolidate new stations into existing locations whenever feasible. Any future need for additional office and studio space at existing locations will be satisfied by the construction of additions to the Jacor-owned facilities and, in the case of leased facilities, the lease of additional space or the relocation of the office and studio. Jacor's office and studio facilities are all located in downtown or suburban office buildings and are capable of being relocated to any suitable office facility in the station market area. Similarly, although many of Jacor's tower sites are strategically located, all are capable of being relocated to suitable sites in their particular station market areas.
Jacor leases approximately 19,162 square feet for its corporate offices in Covington, Kentucky under a lease expiring in 2008 with a five-year renewal option.
Although Jacor believes its properties are generally adequate for its operations, opportunities to upgrade facilities are continuously reviewed.
Item 3.
Item 3. Legal Proceedings
From time to time, Jacor becomes involved in various claims and lawsuits that are incidental to its business. In the opinion of Jacor's management, there are no material legal proceedings pending against Jacor.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company completed a tax-free, stock for stock merger with Clear Channel as of close of business May 4, 1999, whereby shares of Jacor common stock were exchanged for shares of Clear Channel stock at an agreed upon ratio. Upon conclusion of the Merger, Clear Channel became the sole shareholder of the Company, owning one outstanding share of Jacor common stock, therefore there is no market for the Company's common stock.
Prior to the Clear Channel Merger, the Company's common stock traded on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol "JCOR". The following table presents the high and low sale prices for the Company's common stock for each quarter of 1998 and the first quarter of 1999 as reported on The Nasdaq National Market. The stock price as of close of business May 4, 1999 was $80.25.
Price Range of Common Stock
High Low 1st Quarter............................ $63.00 $46.00 2nd Quarter............................ 63.63 50.25 3rd Quarter............................ 65.25 45.31 4th Quarter............................ 65.00 36.88
1st Quarter............................ $77.25 $62.75
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
CLEAR CHANNEL MERGER
On October 8, 1998 the Company entered into a definitive merger agreement with Clear Channel Communications, Inc. ("Clear Channel") for a tax-free, stock for stock transaction (the "Merger" or the "Clear Channel Merger"). The Company and Clear Channel consummated the Merger at the close of business May 4, 1999. Pursuant to terms of the agreement, each share of Jacor common stock was exchanged for 1.1573151 shares of Clear Channel common stock. Upon conclusion of the Merger, Clear Channel became the sole shareholder of the Company, owning one outstanding share of Jacor common stock.
Upon consummation of the Merger, a change in control event occurred with respect to the Company's credit facility, liquid yield option notes and the senior subordinated notes. Such change in control gave the credit facility lenders the right to require repayment of amounts borrowed under the facility, and required the Company to offer repayment of the senior subordinated notes at 101% of the principal amount and the liquid yield option notes at their issue price plus accrued original issue discount at such date.
As a result of the Merger, all options and stock appreciation rights for Jacor common stock not vested at the effective time of the Merger became fully vested and exercisable one day before the effective time of the Merger. Clear Channel assumed all of these options and stock appreciation rights on the same terms and conditions as were applicable prior to the effective time of the Merger. The holders may exercise such options and stock appreciation rights for or with respect to shares of Clear Channel common stock at an exercise price adjusted to reflect the exchange ratio of the Merger.
Additionally, the Merger resulted in each holder of the Company's common stock warrants becoming entitled to exercise such warrants for shares of Clear Channel common stock instead of Jacor common stock. Upon the exercise of such warrants after the Merger, the holders of such warrants will receive that number of shares of Clear Channel common stock that the holder would have received if he or she had exercised such warrants for shares of Jacor common stock immediately prior to the effective time of the Merger, as adjusted to reflect the exchange ratio of the Merger.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
GENERAL
The following discussion should be read in conjunction with the financial statements beginning on page 49.
This Report includes certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. When used in this Report, the words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially from those described in the forward- looking statement as a result of the matters discussed in this Report generally. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.
In the following analysis, management discusses broadcast cash flow. Broadcast cash flow should not be considered in isolation from, or as a substitute for, operating income, net income or cash flow and other consolidated income or cash flow statement data computed in accordance with generally accepted accounting principles or as a measure of the Company's profitability or liquidity. Although this measure of performance is not calculated in accordance with generally accepted accounting principles, it is widely used in the broadcasting industry as a measure of a company's operating performance. Broadcast cash flow assists in comparing performance on a consistent basis across companies without regard to depreciation and amortization, which can vary significantly depending on accounting methods (particularly where acquisitions are involved). It also excludes non-operating factors such as historical cost bases, and the effect of corporate general and administrative expenses, which generally do not relate directly to the performance of broadcasting entities.
The performance of a broadcasting group, such as the Company, is customarily measured by its ability to generate broadcast cash flow. The primary source of the Company's revenue is the sale of broadcasting time on its stations for advertising. The Company also generates revenue through the sale of broadcasting time on non-owned radio stations in exchange for providing syndicated programming and comprehensive radio research services to the stations, by providing sales representation services to third parties, and through syndicated program fees. The Company's significant operating expenses are employee salaries, sports broadcasting rights fees, programming expenses, advertising and promotion expenses, rental of premises for studios and transmitting equipment and music license royalty fees.
The Company's radio station revenue is affected primarily by the advertising rates the Company's stations are able to charge. These rates are, in large part, based on a station's ability to attract audiences in the demographic groups targeted by its advertisers, as principally measured by Arbitron Metro Area Ratings Surveys.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
GENERAL, Continued
Most advertising contracts are short-term and run only for a few weeks. Most of the Company's revenue is generated from local advertising, which is sold by the station's sales staff. In 1999, approximately 80% of the Company's gross station revenue was from local advertising and approximately 20% was from national advertising. A station's local sales staff solicits advertising, either directly from the local advertiser or through an advertising agency for the local advertiser. National advertising sales for most of the Company's stations are made by the Company's national sales managers in conjunction with the efforts of an independent advertising representative who specializes in national sales and is compensated on a commission-only basis.
The Company's broadcasting services include the distribution of syndicated radio programs and comprehensive radio research services. The Company enters into contracts with radio stations throughout the country to supply them with syndicated programs such as The Rush Limbaugh Show and The Dr. Laura Program. The Company generates revenue from distributing its syndicated programming in two ways: (i) selling commercial broadcast inventory received in exchange for the syndicated programming, and (ii) cash programming fees. Aside from The Rush Limbaugh Show and The Dr. Laura Program, most of the Company's syndicated programs are sold in exchange for commercial broadcast inventory. In those cases, the Company's revenues depend on how successful the Company is in selling air time to advertisers at attractive rates.
The Company, through its wholly owned subsidiary, Premiere Radio Networks, Inc. ("Premiere"), also provides research services, including music play lists and on-air promotion tracking and call-out research, for eleven radio formats, in exchange for commercial broadcast inventory instead of on a cash basis. This practice makes the services more attractive to radio stations which have limited cash resources and/or excess commercial broadcast inventory. Premiere's in house sales force sells commercial broadcast inventory to more than 500 national advertisers. Premiere leverages its sales force and generates additional revenues without significant additional overhead costs by providing network advertising sales representation services, on a commission basis, to third-party networks and independent syndicated programming and service suppliers that do not have their own sales forces.
Sports broadcasting and the full-service programming features play an integral part in the Company's operating strategy. As a result, because of the rights fees and related costs of broadcasting professional baseball and football, the costs related to the full-service programming features of its AM radio stations, as well as the Company's business strategy to acquire "stick" properties (i.e., properties with insignificant ratings and/or little or no positive broadcast cash flow), the Company's broadcast cash flow margins are typically lower than its competitors'.
General economic conditions have an impact on the Company's business and financial results. From time to time the broadcast areas in which the Company operates experience weak economic conditions that may negatively affect revenue of the Company. However, management believes that this impact is somewhat softened by the Company's diverse geographical presence. The financial results of the Company's business are seasonal. Revenues are generally higher in the second, third and fourth calendar quarters than in the first quarter.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Recent liquidity needs have been driven by the Company's acquisition strategy. The Company's acquisitions since 1996 have been financed with funds raised through a combination of debt and equity instruments. The Company currently has sufficient resources to finance all pending acquisitions.
Financing Activities
Cash used by financing activities was $125.8 million for the year ended December 31, 1999, as compared to cash provided of $744.8 million for the year ended December 31, 1998 and $552.9 million for the year ended December 31, 1997. The change between years is due primarily to payment of the outstanding debt under the Company's credit facility and $22.1 million of the Company's senior subordinated notes due to the Clear Channel Merger. Additionally, the change is due in part to the amount of cash necessary for the acquisition of radio stations and broadcasting related service companies in the respective years.
Investing Activities
Cash flows used for investing activities were $123.4 million for the year ended December 31, 1999 as compared to $836.0 million for the year ended December 31, 1998 and $658.3 million for the year ended December 31, 1997. The variations from year to year are related to varying station acquisition and disposition activities and capital expenditures, as described below.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES, Continued
Completed Acquisitions and Dispositions
During 1999, the Company acquired the stock of one and the broadcast assets and FCC licenses of 31 radio stations and one low-powered television station in five of the Company's existing broadcast areas and 14 new broadcast areas for cash consideration of approximately $116.7 million, of which approximately $10.5 million was placed in escrow in 1997 and 1998. These acquisitions were funded primarily through borrowings under the Company's credit facility, which was paid in full by Clear Channel at the date of the Merger. The broadcast assets and FCC licenses of 15 radio stations, and the broadcast assets of one additional radio station, valued at approximately $86.6 million, in two of the Company's existing broadcast areas and eight new broadcast areas, were purchased in part with proceeds held by a qualified intermediary from the sale of five and exchange of one station in two broadcast areas, valued at $103.0 million. The remaining cash held by the qualified intermediary was returned to the Company. The Company also purchased the stock of one broadcasting services company for approximately $55.0 million, with contingent consideration of up to approximately $13.2 million due in 2002. The Company also sold the broadcast assets and FCC license of one radio station for $5.0 million in cash.
Recently Completed Dispositions
During the first quarter of 2000, the Company disposed of the FCC licenses and substantially all of the broadcast assets of two stations in one broadcast area that had been placed in trust at the date of the Clear Channel Merger.
Pending Acquisitions and Dispositions
The Company has entered into agreements to purchase the stock of one and the FCC licenses and substantially all of the broadcast assets of 18 radio stations in five of the Company's existing broadcast areas and three new broadcast areas for approximately $32.6 million in cash, of which approximately $2.1 million has been placed in escrow. The Company expects all financing of its pending acquisitions will be provided by cash flows from operating activities or its parent company, Clear Channel.
The Company has also entered into agreements to sell the intellectual property of one station and the FCC licenses and broadcast assets of seventeen additional stations in twelve broadcast areas.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES, Continued
See the table beginning on page 5 for a detailed list by market of the 246 radio stations owned and/or operated by the Company upon completion of all pending acquisitions and dispositions.
Capital Expenditures
The Company had capital expenditures of $63.7 million, $36.2 million and $20.0 million for the years ended December 31, 1999, 1998 and 1997, respectively. The Company's capital expenditures for operations consist primarily of broadcasting equipment purchases, tower upgrades, and new facilities to consolidate duplicate operating locations. Additionally, in 1999 and 1998 capital expenditures included outlays of cash for the Company's ongoing digital automation project and in 1997 capital expenditures included a centralized accounting system and the Company's wide area network.
Operating Activities
For the year ended December 31, 1999, cash flow provided by operating activities was $237.3 million, as compared to $82.6 million for the year ended December 31, 1998 and $56.0 million for the year ended December 31, 1997. The change is primarily due to an increase in operating income related to acquisitions.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The Company operates in a single reportable segment, broadcast radio and television. At December 31, 1999, the segment includes 257 radio stations in 77 broadcast areas, Premiere, two television stations and several insignificant broadcast service companies. Substantially all revenues are generated from the sale of commercial broadcast inventory, market research, traffic reporting and satellite connectivity.
The Company's management evaluates each broadcast area's performance based on operating income before corporate expenses, interest expense, income taxes, gains or losses and miscellaneous expenses. Specific industry related performance measures also reviewed by management include "Broadcast Cash Flow", which excludes depreciation and amortization from the operating income measurement defined above.
Financial information for 1999 includes results of operations through May 4, 1999, stated on a historical cost basis and the results of operations from May 5, 1999 through December 31, 1999, after applying push down accounting as described in Note 2 of the consolidated financial statements.
Financial information for the Company's segment is as follows (in thousands):
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS, Continued
Discussion of Broadcast Radio and Television Segment Financial Statement Changes
The increase in net revenue from 1998 to 1999, and from 1997 to 1998 is due primarily to revenue generated at those properties owned or operated during 1999, but not during the comparable 1998 period, and during 1998, but not during the comparable 1997 period, respectively.
The increase in radio broadcast operating expenses from 1998 to 1999, and from 1997 to 1998 is due primarily to expenses incurred at those properties owned or operated during 1999 but not during the comparable 1998 period, and during 1998 but not during the comparable 1997 period, respectively.
Depreciation and amortization expense increased from 1998 to 1999 due to the write up of intangible assets to fair value due to the Clear Channel Merger. Depreciation and amortization expense increased from 1997 to 1998 due to acquisitions made during 1997 and 1998.
Operating income decreased from 1998 to 1999 due to the increase in amortization and depreciation expense. Operating income increased from 1997 to 1998 as a result of the acquisitions made throughout 1997 and 1998, and to a lesser extent, increases in operating performance.
Discussion of Other Consolidated Statements of Operations Data
Interest expense increased from 1998 to 1999, and from 1997 to 1998 due to increases in outstanding debt incurred in connection with the Company's acquisitions.
The gain on sale of assets in 1999 is the result of the exchange of five stations in Louisville, Kentucky and one station in Tampa, Florida prior to the Clear Channel Merger, as well as the sale of two of the Company's equity investments. The gain on sale of assets in 1998 resulted primarily from the exchange of two radio stations in San Diego, California and three radio stations in Columbus, Ohio in August 1998. The gain on the sale of assets in 1997 resulted primarily from the sale of the Company's investment in warrants in February 1997 and in an equity security in May 1997.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS, Continued
The increase in income tax expense from 1998 to 1999 was due to increased taxable income resulting from higher revenues, as well as gains on the sale of assets. The effective tax rate increased as well, as a result of an increase in non-deductible goodwill resulting from the Clear Channel Merger. Income tax expense increased from 1997 to 1998 due to approximately $14.8 million in deferred tax expense related to gains recorded on the exchange of certain radio stations.
The Company recognized an extraordinary loss in 1999 due to the tender offer on the Company's 10 1/8% Senior Subordinated Notes, 9 3/4% Senior Subordinated Notes, 8 3/4% Senior Subordinated Notes, and 8% Senior Subordinated Notes. See Footnote 7 to the Consolidated Financial Statements. The Company recognized extraordinary losses in 1997 related to the write off of debt financing costs due to significant amendments to the Company's Credit Facility.
Year 2000 Computer System Compliance
In prior years, the Company discussed the nature and progress of plans to become Year 2000 ready. In late 1999, Jacor completed the remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believe those systems successfully responded to the Year 2000 date changes. An immaterial amount was expensed to operations during 1999 in connection with remediating of the systems. Jacor is not aware of any material problems resulting from year 2000 issues, either with the Company's products, internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. SFAS 133 is amended by Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," and is effective for years beginning after June 15, 2000. The Company plans to adopt this statement in fiscal year 2001. Management does not believe adoption of this statement will materially impact our financial position or results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A is not applicable to the Company.
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Auditors - Ernst & Young LLP 47
Report of Independent Auditors - PricewaterhouseCoopers LLP 48
Consolidated Balance Sheets: December 31, 1999 and 1998 49
Consolidated Statements of Operations and Comprehensive Income: for the period from May 5, 1999 through December 31, 1999, the period from January 1, 1999 through May 4, 1999, and for the years ended December 31, 1998 and 1997 50
Consolidated Statements of Shareholders' Equity: for the period from May 5, 1999 through December 31, 1999, the period from January 1, 1999 through May 4, 1999, and the years ended December 31, 1998 and 1997 52
Consolidated Statements of Cash Flows: for the period from May 5, 1999 through December 31, 1999, the period from January 1, 1999 through May 4, 1999, and for the years ended December 31, 1998 and 1999 54
Notes to Consolidated Financial Statements 56
Quarterly Financial Data 79
Report of Independent Auditors
Board of Directors Jacor Communications
We have audited the accompanying consolidated balance sheet of Jacor Communications, Inc. as of December 31, 1999 and the related consolidated statements of operations and comprehensive income, shareholder's equity and cash flows for the period from May 5, 1999 through December 31, 1999, and the period from January 1, 1999 through May 4,1999 (Predecessor). 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 auditing standards generally accepted in the United States. 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. at December 31, 1999 and the consolidated results of its operations and its cash flows for the period from May 5, 1999 through December 31, 1999, and the period from January 1, 1999 to May 4, 1999 (Predecessor), in conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
March 24, 2000
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Jacor Communications, Inc.
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and comprehensive income, shareholders' equity and cash flows, as of and for each of the two years in the period ended December 31, 1998, present fairly, in all material respects, the financial position, results of operations and cash flows of Jacor Communications, Inc. and its subsidiaries as of and for each of the two years in the period ended December 31, 1998, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Jacor Communications, Inc. and its subsidiaries for any period subsequent to December 31, 1998.
PricewaterhouseCoopers LLP Cincinnati, Ohio February 12, 1999
[FN]
* Earnings per share information is not presented subsequent to May 4, 1999. At the date of the Merger all of the outstanding stock of the Company was exchanged for Clear Channel common stock rendering the calculation not meaningful.
The accompanying notes are an integral part of the consolidated financial statements.
(Continued)
The accompanying notes are an integral part of the consolidated financial statements.
(Continued)
The accompanying notes are an integral part of the consolidated financial statements.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
Description of Business
Jacor Communications, Inc. (the "Company" or "Jacor"), a wholly-owned subsidiary of Clear Channel Communications, Inc. ("Clear Channel"), operates in a single reportable segment, broadcast radio and television, which derives its revenue from the sale of commercial broadcast inventory, market research, traffic reporting and satellite connectivity. Prior to the Clear Channel Merger, the Company operated in a single reportable segment - Radio, which included all of the Company's radio stations and Premiere Radio Networks, Inc. Aggregated segments included in the caption "other" included one television station and various broadcast related businesses.
As of December 31, 1999 the Company owned, operated, and/or sold advertising time for 263 radio stations and two television stations in 77 broadcast areas throughout the United States.
On May 4, 1999 Jacor was merged with a wholly-owned subsidiary of Clear Channel Communications (the "Merger"), as more fully described in Note 2. The Merger was accounted for as a purchase business combination and, accordingly, purchase accounting adjustments, including goodwill, have been pushed down and are reflected in these financial statements subsequent to May 4, 1999. The financial statements for periods ended before May 5, 1999, were prepared using Jacor's historical basis of accounting and are designated as "Predecessor". The comparability of operating results for the Predecessor periods and the periods subsequent to the Merger date are affected by the purchase accounting adjustments.
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. Certain prior year amounts have been reclassed to conform to 1999 presentation. These changes had no impact on previously reported results of operations or shareholders' equity.
Revenue Recognition
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.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS, Continued
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents.
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.
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:
Buildings 10 to 30 Years Structures and site leases 2 to 20 Years Transmitter and studio equipment 7 to 15 Years Furniture and other equipment 2 to 10 Years Leasehold improvements Life of lease
Expenditures for repairs and maintenance are charged to operations as incurred. Expenditures for renewal and betterments are capitalized.
Intangible Assets
Intangible assets are stated at cost less accumulated amortization; amortization is provided principally on the straight-line basis over the following lives:
FCC Broadcasting licenses and goodwill 25 Years Contracts and other intellectual property 3 to 25 Years
Prior to the Clear Channel Merger, the Company amortized FCC broadcasting licenses and goodwill over 40 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, FCC licenses and other intangible assets will not be recoverable, as determined based on the undiscounted cash flows of the entity over the remaining amortization period, the carrying value of the goodwill, FCC licenses, and other intangible assets will be reduced to their respective fair values.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS, Continued
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.
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.
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CLEAR CHANNEL MERGER
On October 8, 1998 the Company entered into a definitive merger agreement with Clear Channel for a tax-free, stock for stock transaction (the "Merger" or the "Clear Channel Merger"). The Company and Clear Channel consummated the Merger at the close of business May 4, 1999. Pursuant to terms of the agreement, each share of Jacor common stock was exchanged for 1.1573151 shares of Clear Channel common stock. Upon conclusion of the Merger, Clear Channel became the sole shareholder of the Company, owning one outstanding share of Jacor common stock.
Clear Channel accounted for its acquisition of the Company as a purchase and purchase accounting adjustments, including goodwill, have been pushed down and reflected in the consolidated financial statements of the Company subsequent to May 4, 1999. The consolidated financial statements of the Company for the periods ended before May 5, 1999, were prepared using the Company's historical basis of accounting and are designated as "Predecessor." The comparability of operating results for the Predecessor and the periods subsequent to May 4, 1999 encompassing push down accounting are affected by the purchase accounting adjustments including the amortization of goodwill over a period of 25 years.
This purchase price allocation is preliminary pending completion of appraisals and other fair value analysis of assets and liabilities, which the Company anticipates will be completed during the second quarter of 2000. The following table summarizes the preliminary changes made to the accounts of the Company subsequent to May 4, 1999 as a result of applying push down accounting: Adjustments (in thousands)
Goodwill and other intangible assets $4,130,669 Total assets $4,130,669
Current liabilities $ 120,000 Long-term debt (638,837) Other liabilities 1,308,862 Shareholders' equity 3,340,644 Total liabilities and equity $4,130,669
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CLEAR CHANNEL MERGER, Continued
Upon consummation of the Merger, a change in control event occurred with respect to covenants in the Company's credit facility, LYONs and each outstanding issue of the senior subordinated notes. Such change in control gave the credit facility lenders the right to require repayment of amounts borrowed under the facility, and required 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. Approximately $22.1 million of senior subordinated notes were tendered in connection with the repayment offer.
As a result of the Merger, all options and stock appreciation rights for Jacor common stock not vested at the effective time of the Merger became fully vested and exercisable one day before the effective time of the Merger. Clear Channel assumed all of these options and stock appreciation rights on the same terms and conditions as were applicable prior to the effective time of the Merger. The holders may exercise such options and stock appreciation rights for or with respect to shares of Clear Channel common stock at an exercise price adjusted to reflect the exchange ratio of the Merger.
In August 1998, the Company entered into an advisory agreement with Equity Group Investments, Inc. ("EGI"), an affiliate of the Company's largest shareholder, 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. As a result of the Merger, EGI received a fee of approximately $38.2 million.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS
Completed 1999 Acquisitions and Dispositions
During 1999, the Company acquired the stock of one and the broadcast assets and FCC licenses of 31 radio stations and one low-powered television station in five of the Company's existing broadcast areas and 14 new broadcast areas for cash consideration of approximately $116.7 million in cash, of which approximately $10.5 million was placed in escrow in 1997 and 1998.
The Company also completed five separate transactions, selling five stations and exchanging one station in two broadcast areas, valued at $103.0 million, for the broadcast assets and FCC licenses of 15 radio stations, and the broadcast assets of one additional radio station, valued in total at approximately $86.6 million, in two of the Company's existing broadcast areas and eight new broadcast areas. The remaining cash held by the qualified intermediary was returned to the Company. Also in 1999, the Company purchased the stock of one broadcasting services company for approximately $55.0 million, with contingent consideration of up to $13.2 million due in 2002.
Additionally, the Company sold the broadcast assets and FCC license of one radio station for $5.0 million in cash.
Completed 1998 Acquisitions and Dispositions
Nationwide Related Transactions
In August 1998, the Company completed the acquisition of substantially all broadcast related assets of Nationwide Communications Inc. ("Nationwide") for total cash consideration of approximately $555 million, of which $30.0 million was placed in escrow in 1997, plus acquisition costs. Simultaneously with the Nationwide acquisition, but in separate transactions, the Company effected the exchange and sale of certain radio stations in order to satisfy antitrust concerns raised by the Department of Justice in connection with the Nationwide acquisition. For financial reporting purposes, the Company recorded the exchange of eight radio stations as sale transactions, receiving non- cash consideration in the form of nine radio stations with aggregate fair values of $195 million. Additionally, one other radio station was sold for $10.l million in cash. The Company recorded net pre-tax gains of $10.9 million, which was measured by the difference between the fair value of the radio stations exchanged or sold and the carrying value of the properties. The Company believes that certain of the transactions qualify as tax-deferred like-kind exchanges, therefore, the income tax expense of approximately $14 million associated with the gains is included in the deferred component of income tax expense. The radio stations received in the exchange transactions were recorded as purchase transactions at their respective fair values.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS, Continued
Other Transactions
Also during 1998, the Company completed acquisitions of 47 radio stations in 10 existing and 17 new broadcast areas for a purchase price consisting of approximately $237.0 million in cash, of which $18.8 million was placed in escrow in 1997, and the assumption of approximately $10.7 million in debt owed to wholly-owned subsidiaries of the Company.
The Company also completed two separate exchanges of broadcast properties, exchanging five stations in two broadcast areas for seven stations in two broadcast areas. The Company sold six broadcast properties in three broadcast areas for approximately $1.1 million in cash.
During 1998, the Company completed acquisitions of two broadcasting service companies and the assets of five other broadcasting service companies for a purchase price of approximately $14.5 million in cash, a note payable of approximately $0.8 million, plus additional contingent consideration of up to $1.6 million payable over three years.
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 25 years. Prior to the Clear Channel Merger, excess cost over the fair value of net assets acquired was 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. The Company's 1999 completed acquisitions both individually and in the aggregate are immaterial to the Company's results of operations. Assuming each of the 1998 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) Year Ended December 31, 1998 1997
Net revenue $824,616 $714,853 Net loss before extraordinary loss (9,568) (14,263) Diluted loss per common share before extraordinary loss $(.19) $(.28)
These unaudited pro forma amounts do not purport to be indicative of the results that might have occurred if the foregoing transactions had been consummated on the indicated dates.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS, Continued
Recently Completed Dispositions
During the first quarter of 2000, the Company disposed of the FCC licenses and substantially all of the broadcast assets of two stations in one broadcast area that had been placed in trust at the date of the Clear Channel Merger.
Pending Acquisitions and Dispositions
As of March 15, 2000, the Company has entered agreements to purchase the stock of one and the FCC licenses and substantially all of the broadcast assets of 18 radio stations in five of the Company's existing broadcast areas and three new broadcast areas for approximately $32.6 million in cash, of which approximately $2.1 million has been paid in escrow.
The Company has also entered into agreements to sell the intellectual property of one station and the FCC licenses and broadcast assets of seventeen additional stations in twelve broadcast areas.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 consist of the following (in thousands):
1999 1998
Land, buildings and improvements $ 93,776 $ 73,301 Transmitter and studio equipment 187,575 208,698 Furniture and other equipment 58,516 43,685 Construction in progress 19,697 10,518 359,564 336,202 Less accumulated depreciation (25,545) (55,153) $334,019 $281,049
5. INTANGIBLE ASSETS
Intangible assets at December 31, 1999 and 1998 consist of the following (in thousands):
1999 1998
Broadcasting licenses and goodwill $6,722,447 $2,530,496 Contracts and other intellectual assets 337,418 400,674 7,059,865 2,931,170 Less accumulated amortization (215,691) (181,822) $6,844,174 $2,749,348
The 1999 intangible assets reflect the effects of applying push down accounting due to the Clear Channel Merger.
6. OTHER ASSETS
At December 31, 1998 the Company recorded an unrealized gain, net of tax, of $25.4 million on an investment in a marketable equity security. In January 1999 the Company sold the investment and recognized a pretax gain of $83.5 million.
JACOR COMMUNICATIONS,INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT
The Company's debt obligations at December 31, 1999 and 1998 consist of the following (in thousands):
1999 1998
Credit Facility borrowings........ $ - $ 750,000 10 1/8% Senior Subordinated Notes, due 2006....................... 106,811 100,000 9 3/4% Senior Subordinated Notes, due 2006....................... 188,633 170,000 8 3/4% Senior Subordinated Notes, due 2007....................... 163,693 150,000 8% Senior Subordinated Notes, due 2010....................... 112,268 119,574 $ 571,405 $1,289,574
Credit Facility
Prior to the Clear Channel Merger, the Company, through Jacor Communications Company ("JCC"), had a $1.15 billion credit facility (the "Credit Facility") with a group of banks and other financial institutions (the "Lenders"). The Credit Facility consisted of two components, a revolving credit facility ("Revolving Credit Facility") of up to $750.0 million and a term loan ("Term Loan") of up to $400.0 million. At May 4, 1999, the Company had $400.0 million of outstanding indebtedness under the Term Loan and $450.0 million of outstanding indebtedness under the Revolving Credit Facility. Upon consummation of the Merger, a change in control event occurred with respect to covenants in the Credit Facility, giving the Credit Facility Lenders the right to require repayment of amounts borrowed under the Credit Facility. Clear Channel paid in full the outstanding balance under the Credit Facility at the date of the Merger. At December 31, 1998, the Company had $400.0 million of outstanding indebtedness under the Term Loan and $385.0 million of outstanding indebtedness under the Revolving Credit Facility. At December 31, 1998 the average interest rate on Credit Facility borrowings was 6.20%.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT, Continued
Senior Subordinated Notes
The Company has four series of Senior Subordinated Notes: 10 1/8% Senior Subordinated Notes (the "10 1/8% Notes") due 2006; 9 3/4% Senior Subordinated Notes (the "9 3/4% Notes") due 2006; 8 3/4% Senior Subordinated Notes (the "8 3/4% Notes) due 2007, and; 8% Senior Subordinated Notes (the "8% Notes") due 2010 (collectively, the "Notes"). At the date of the Merger, the Notes were revalued to fair market value, resulting in a merger premium of $30.5 million being added to the face value of the Notes. The following schedule summarizes information related to the Notes (in thousands):
Fair Market Interest Maturity Face Value at Payment Issue Date Value Merger Date Schedule
10 1/8% Notes 06/15/06 $100,000 $107,042 Semi-annual 9 3/4% Notes 12/15/06 $170,000 $182,363 Semi-annual 8 3/4% Notes 06/15/07 $150,000 $156,167 Semi-annual 8 % Notes 02/15/10 $120,000 $124,512 Semi-annual
As a result of the Clear Channel Merger, a change in control event occurred with respect to the Notes, requiring the Company to offer repayment of the Notes at 101% of the principal amount. Approximately $22.1 million of Notes were tendered in connection with the repayment offer. In December 1999, Clear Channel completed a tender offer for the Notes through an agent acting on the behalf of Clear Channel, whereby Notes with a face value of approximately $516.6 million were redeemed. Cash settlement of the amount due to the agent was completed on January 14, 2000, and included approximately $21.3 million in premiums and agency fees. Clear Channel recognized an extraordinary charge of approximately $13.2 million, net of approximately $8.1 million of income tax, in the fourth quarter of 1999. At 12/31/99, the Notes include the face value of the outstanding Notes, net of discount, accrued interest, unamortized merger premium, and tender premium and agency fees, as follows (in thousands):
Tender Face Unamortized Premium Value Face Value Accrued Merger and Agency after Issue at 12/31/99 Interest Premium Fees Tender
10 1/8% Notes $ 96,997 $ 407 $ 6,381 $ 3,026 $ 639 9 3/4% Notes $170,000 $ 690 $ 11,278 $ 6,665 $ 100 8 3/4% Notes $149,475 $ 544 $ 5,660 $ 8,014 $ 260 8 % Notes $101,057 $ 3,035 $ 4,615 $ 3,561 $ 234
As a wholly-owned subsidiary of Clear Channel, the Company also guarantees the outstanding debt of Clear Channel.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LIQUID YIELD OPTION NOTES
1998 Liquid Yield Option Notes
In February 1998, the Company issued 4 3/4% Liquid Yield Option Notes ("1998 LYONs") due 2018 in the aggregate principal amount at maturity of $426.9 million. Each 1998 LYON had an issue price of $391.06 and a principal amount at maturity of $1,000. At the date of the Merger, the 1998 LYONs were revalued to fair market value, resulting in a merger premium of approximately $48.5 million. As a result of the Clear Channel Merger, a change in control event occurred with respect to the 1998 LYONs, requiring the Company to offer repayment of the 1998 LYONs at their issue price plus accrued original issue discount at such date. Twenty-two 1998 LYONs were presented for repayment. At December 31, 1999, the 1998 LYONs had a balance, net of redemptions, conversions to common stock, amortization of premium, and accretion of interest, of approximately $229.3 million, and an approximate fair market value of $286.0 million. At December 31, 1998, the 1998 LYONs had a balance, net of redemptions, conversions to common stock, and accretion of interest, of approximately $174.1 million, and an approximate fair market value of $205.4 million.
Each 1998 LYON is convertible, at the option of the holder, at any time on or prior to maturity, into Clear Channel common stock at a conversion rate of 7.227 shares per 1998 LYON. At December 31, 1999, approximately 3.1 million shares of Clear Channel common stock were reserved for conversion of the 1998 LYONs.
The 1998 LYONs are not redeemable by the Company prior to February 9, 2003. Thereafter, the LYONs are redeemable for cash at any time at the option of the Company, in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption.
The 1998 LYONs can be purchased by the Company, at the option of the holder, on February 9, 2003, February 9, 2008, and February 9, 2013 for a purchase price of $494.52, $625.35 and $790.79 (representing issue price plus accrued original issue discount to each date), respectively, representing a 4 3/4% yield per annum to the holder on such date. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or Clear Channel common stock, or any combination thereof.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LIQUID YIELD OPTION NOTES, Continued
1996 Liquid Yield Option Notes
In June 1996, the Company issued 5 1/2% Liquid Yield Option Notes ("1996 LYONs") due 2011 in the aggregate principal amount at maturity of $259.9 million. Each 1996 LYON had an issue price of $443.14 and a principal amount at maturity of $1,000. At the date of the Merger, the 1996 LYONs were revalued to fair market value, resulting in a merger premium of approximately $132.2 million. As a result of the Clear Channel Merger, a change in control event occurred with respect to the 1996 LYONs, requiring the Company to offer repayment of the 1996 LYONs at their issue price plus accrued original issue discount at such date. One hundred fifty 1996 LYONs were presented for repayment. At December 31, 1999, the 1996 LYONs had a balance, net of redemptions, conversions to common stock, amortization of premium, and accretion of interest, of approximately $261.6 million, and an approximate fair market value of $344.8 million. At December 31, 1998, the 1996 LYONs had a balance, net of redemptions, conversions to common stock, and accretion of interest, of approximately $132.1 million, and an approximate fair market value of $232.0 million.
Each 1996 LYON is convertible, at the option of the holder, at any time on or prior to maturity, into Clear Channel common stock at a conversion rate of 15.522 shares per 1996 LYON. At December 31, 1999, approximately 3.9 million shares of Clear Channel common stock were reserved for conversion of the 1996 LYONs.
The 1996 LYONs are not redeemable by the Company prior to June 12, 2001. Thereafter, the 1996 LYONs are redeemable for cash at any time at the option of the Company, in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption.
The 1996 LYONs can be purchased by the Company, at the option of the holder, on June 12, 2001 and June 12, 2006, for a purchase price of $581.25 and $762.39 (representing issue price plus accrued original issue discount to each date), respectively, representing a 5 1/2% yield per annum to the holder on such date. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or Clear Channel common stock, or any combination thereof.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. CAPITAL STOCK
Common Stock
As a result of the Clear Channel Merger, each share of Jacor common stock was exchanged for 1.1573151 shares of Clear Channel common stock. Upon conclusion of the Merger, Clear Channel became the sole shareholder of the Company, owning one outstanding share of Jacor common stock.
In February 1998, the Company completed an offering of 5,073,000 shares of Jacor common stock at $50.50 per share, net of underwriting discounts of $2.02 per share. Net proceeds to the Company were approximately $244.9 million.
Warrants
1997 Warrants
In connection with the 1997 acquisition of Regent Communications, Inc., the Company issued warrants (the "1997 Warrants") to acquire 500,000 shares of Jacor common stock with an exercise price of $40 per share, expiring in February 2002. Upon consummation of the Merger, the 1997 Warrants were revalued to fair market value, resulting in an increase of $12.7 million.
1996 Warrants
In connection with the 1996 acquisition of Citicasters, Inc., the Company issued warrants (the "1996 Warrants") to acquire 4,400,000 shares of Jacor common stock with an exercise price of $28 per share, expiring in September 2001. Upon consummation of the Merger, the 1996 Warrants were revalued to fair market value, resulting in an increase of $210.2 million.
As a result of the Clear Channel Merger, each holder of the Company's 1997 Warrants and 1996 Warrants (collectively, the "Warrants") became entitled to exercise such Warrants for shares of Clear Channel common stock instead of Jacor common stock. Upon exercise of such Warrants after the date of the Merger, the holders of such Warrants will receive that number of shares of Clear Channel common stock that the holder would have received if she or he had exercised such Warrants for shares of Jacor common stock immediately prior to the effective time of the Merger, as adjusted to reflect the exchange ratio of the Merger.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK BASED COMPENSATION PLANS
As a result of the Merger, all options and stock appreciation rights issued under the Company's stock based compensation plans not vested at the effective time of the Merger became fully vested and exercisable one day before the effective time of the Merger. Clear Channel assumed all of these options and stock appreciation rights on the same terms and conditions as were applicable prior to the effective time of the Merger. The holders may exercise such options and stock appreciation rights for or with respect to shares of Clear Channel common stock at an exercise price adjusted to reflect the exchange ratio of the Merger. All shares previously available for grant under the Company's stock based compensation plans were no longer available subsequent to the Merger.
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.
1997 Long-Term Incentive Stock Plan
The 1997 Long-Term Incentive Stock Plan ("the Long-Term Plan") authorizes the issuance of up to 1,800,000 shares of Common Stock pursuant to the grant or exercise of stock options, including NQSOs and ISOs, restricted stock, stock appreciation rights (SARs), and certain other instruments to executive officers and other key employees, subject to board approval and certain other restrictions. Stock options may not be granted at less than the fair market value of the underlying stock on the date of grant. Twenty-five percent of the options vest on the date of the grant and 25% vest on each of the next three anniversaries of the grant date. Options expire 10 years after grant.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK BASED COMPENSATION PLANS, Continued
1997 Non-Employee Directors Stock Plan and Stock Purchase Plan
The 1997 Non-Employee Directors Stock Plan (the "Directors Stock Plan") authorizes the issuance of up to 350,000 shares of Jacor Common Stock pursuant to the grant or exercise of NQSOs, SARs, restricted stock and other performance instruments. Stock options may not be granted at less than the fair market value of the underlying stock on the date of grant. Twenty-five percent of the options vest on the date of the grant and 25% vest on each of the next three anniversaries of the grant date. Options expire 10 years after grant. 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.
Information pertaining to the plans for the years ended December 31, 1997 and 1998, and for the period ended May 4, 1999, is as follows:
Number of Weighted Average Shares Exercise Price
1997: Outstanding at beginning of year.. 2,056,610 $12.26 Granted........................... 1,196,188 $24.92 Exercised......................... (212,679) $11.61 Surrendered....................... (15,490) $26.71 Outstanding at end of year........ 3,024,629 $17.20 Exercisable at end of year........ 2,228,095 $13.72 Available for grant at end of year 1,476,930
1998: Outstanding at beginning of year.. 3,024,629 $17.20 Granted........................... 921,800 $53.31 Exercised......................... (245,698) $15.32 Surrendered....................... (9,083) $22.52 Outstanding at end of year........ 3,691,648 $26.33 Exercisable at end of year........ 2,435,686 $18.37 Available for grant at end of year 555,130
January 1 - May 4, 1999: Outstanding at beginning of year.. 3,691,648 $26.33 Granted........................... 310,950 $67.00 Exercised......................... (64,554) $18.25 Surrendered....................... (1,500) $28.63 Outstanding at May 4, 1999........ 3,936,544 $29.69
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK BASED COMPENSATION PLANS, Continued
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for grants in 1999, 1998, and 1997, 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 1999, 1998 and 1997 follows:
1999 1998 1997
Weighted-average fair value of options granted at-the-money $27.45 $30.87 $12.26 Weighted-average fair value of options granted at a discount - - $28.15 Weighted-average fair value of all options granted during the year $27.45 $30.87 $16.29
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 May 4, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE Weighted Weighted Weighted Range of Number Average Average Number Average Exercise Outstanding Remaining Exercise Exercisable Exercise Prices at 5/04/99 Life Price at 5/04/99 Price
$5.74 to $9.65 1,072,993 3.98 $ 6.11 1,072,993 $ 6.11
$12.70 to $19.96 293,929 6.14 $16.00 293,929 $16.00
$21.25 to $30.66 1,301,122 7.78 $26.46 959,634 $26.43
$37.25 to $52.88 894,800 8.67 $51.93 444,150 $52.08
$53.00 to $67.00 373,700 9.73 $65.59 102,497 $65.15
$ 5.74 to $67.00 3,936,544 8.56 $29.69 2,873,203 $23.12
On May 4, 1999, option holders exercised an additional 869,352 options which had become vested and exercisable as a result of the Merger.
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 24,936 shares for approximately $54.29 per share in 1999, 66,151 shares for approximately $43.80 per share and 3,441 shares for approximately $52.06 per share in 1998, and 74,767 shares for approximately $23.27 per share and 12,376 shares for approximately $32.19 per share in 1997. The fair market value of the right to acquire common stock under the Stock Purchase Plan was $19.59 per share in 1999, $15.74 per share granted on January 1 and $15.73 per share granted on July 1 in 1998, and $8.40 per share granted on January 1 and $9.80 per share granted on July 1 in 1997.
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 1999, 1998 and 1997 would approximate amounts below (in thousands, except per share amounts):
1999 1998 1997
Net income (loss): As reported $ 63,437 $ 942 $ (4,052) Pro forma $ 56,664 $(17,729) $(10,691)
Diluted net income (loss) per common share: As reported $ 1.07 $ 0.02 $ (0.10) Pro forma $ 0.92 $ (0.31) $ (0.25)
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES
Income tax expense for the periods ended December 31, 1999, 1998, 1997 and May 4, 1999 is summarized as follows (in thousands):
Federal State Total
December 31, 1999: Current $ 7,206 $ 3,091 $10,297 Deferred (8,421) (1,131) (9,552) $(1,215) $ 1,960 $ 745
May 4, 1999: Current $34,398 $ 2,498 $36,896 Deferred 13,580 1,824 15,404 $47,978 $ 4,322 $52,300
December 31, 1998: Current $10,640 $ 2,500 $13,140 Deferred 12,060 2,900 14,960 $22,700 $ 5,400 $28,100
December 31, 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
The provisions for income tax differ from the amount computed by applying the statutory federal income tax rate due to the following:
12/31/99 5/4/99 12/31/98 12/31/97 Federal income tax at the statutory rate $(16,449) $40,508 $10,167 $ 5,173 Amortization not deductible 30,964 3,949 14,446 3,449 State income taxes, net of any current federal income tax benefit 1,274 2,810 3,498 589 Acquisition costs and other (15,044) 5,033 (11) 389
$ 745 $52,300 $28,100 $ 9,600
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, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997 Deferred tax assets: Accrued expenses and reserves $ (7,705) $ (4,555) $ (7,479) Net operating loss carryforwards (13,832) (7,235) (11,461) Long term debt (98,347) - - Other - (1,682) (4,047) (119,884) (13,472) (22,987) Valuation allowance 13,832 - - (106,052) (13,472) (22,987)
Deferred tax liabilities: Property and equipment 25,381 40,289 35,614 Intangibles 858,989 318,661 326,240 Other 4,178 - - 888,548 358,950 361,854
Net liability $782,496 $345,478 $338,867
At December 31, 1999 the Company had net operating loss carryforwards of $36,400. The loss carryforwards expire in the years 2008 through 2012 if not used.
The Company established a valuation allowance in the current year against its operating loss carryforwards following an assessment of the likelihood of realizing such amounts. The amount of the valuation allowance was based on past operating history, as well as restrictions on the use of operating losses from acquisitions, tax planning strategies, and its expectation of the level and timing of future taxable income.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease office space and certain land and facilities used in their operations. Some of the lease agreements contain renewal options and annual rental escalation clauses (generally tied to the consumer price index or a maximum of 5%), as well as provisions for the payment of utilities and maintenance by the Company. Future minimum payments under noncancelable leases as of December 31, 1999 are payable as follows (in thousands):
2000 $ 44,213 2001 36,274 2002 25,154 2003 17,159 2004 10,037 Thereafter 67,863 $200,700
Jacor provides programming to and sells airtime for WGST-FM in Atlanta, Georgia. At any time after September 30, 1999 and before September 30, 2003 Cherokee Broadcasting can "put" WGST-FM to Jacor for a price of $31.0 million. At any time after May 21, 2003 and before September 30, 2003, Jacor can "call" the station for the same price.
Rental expense was approximately $34,460, $11,955 and $8,010 for the years ended December 31, 1999, 1998 and 1997, 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, liabilities, if any, arising from these actions are either covered by insurance or accrued reserves, or would not have a material adverse effect on the financial condition of the Company.
13. RETIREMENT PLAN
The Company maintained a defined contribution retirement plan covering substantially all employees who met eligibility requirements. The Company matched 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 $1,169,562, $2,558,647, and $1,977,052 for the period January 1 through April 23, 1999 and the 1998 and 1997 years, respectively.
On April 23, 1999 the plan was terminated due to the Clear Channel Merger. The Company subsequently received a favorable determination letter from the Internal Revenue Service and is in the process of distributing the assets of the retirement plan to the participants.
On July 1, 1999, employees were given the opportunity to enroll in Clear Channel's 401(k) savings plan. Both the employees and the Company make contributions to the plan. The Company also matches a portion of an employee's contribution. Company matched contributions vest to the employees based upon their year of service to the Company. Expense for the period July 1 through December 31, 1999 was $1,568,994.
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 period from January 1, 1999 through May 4, 1999, and the years ended December 31, 1998 and 1997 (in thousands except per share amounts):
January 1, through May 4, 1999 1998 1997 Net income before extraordinary item for basic EPS $ 63,437 $ 942 $ 3,404 LYONs interest expense, net of tax 2,686 - -
Net income before extraordinary item for diluted EPS $66,123 $ 942 $ 3,404
Weighted average shares - basic 51,299 50,389 40,460 Effect of dilutive securities:
Stock options 1,661 1,465 996 Warrants 2,817 2,326 357 LYONs 6,097 - - Other 42 385 350 Weighted average shares - diluted 61,916 54,565 42,163 Basic EPS $1.24 $ .02 $ .08 Diluted EPS $1.07 $ .02 $ .08
Earnings per share is not presented subsequent to May 4, 1999. At the date of the Merger all of the outstanding stock of the Company was converted into Clear Channel common stock rendering the calculation not meaningful.
Prior to the Merger, the Company's LYONs could be converted into approximately 6.1 million shares of common stock at the option of the holder. Assuming conversion of the LYONs as of January 1, 1998 and 1997 would result in an increase in per share amounts, therefore the LYONs are not included in the computation of diluted EPS. Due to the Merger, the LYONs are now convertible into shares of Clear Channel common stock at the Merger conversion ratio.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. SFAS 133 is amended by Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," and is effective for years beginning after June 15, 2000. The Company plans to adopt this statement in fiscal year 2001. Management does not believe adoption of this statement will materially impact our financial position or results of operations.
16. RELATED PARTY TRANSACTIONS
As described in Note 7, Clear Channel repaid $850 million that was outstanding under the Company's credit facility. This transaction is reflected in Due to Clear Channel, net. Net amounts due to Clear Channel accrue interest at 7%. The amounts due to Clear Channel have no stated repayment terms.
Clear Channel allocates shared corporate general and administrative expenses to Jacor based on Jacor's proportionate share of consolidated Clear Channel revenues. Expenses allocated to Jacor for the period May 5, 1999 through December 31, 1999 totaled approximately $4.8 million.
Supplementary Data
Quarterly Financial Data for the years ended December 31, 1999 and 1998 (in thousands, except per share data) (Unaudited)
Predecessor First April 1 May 5 Third Fourth Total Quarter through through Quarter Quarter Year May 4 June 30
Net revenue $194,663 $ 76,984 $170,079 $268,645 $276,342 $986,713 Operating income 14,255 10,991 15,873 11,948 2,419 55,486 Net income (loss) 41,849 21,588 (6,239) (20,576) (33,220) 3,402 Basic net income per common share (2) .82 .42
Diluted net income per common share (2) .70 .36
Predecessor
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year
Net revenue $142,028 $183,836 $204,508 $224,096 $754,468 Operating income 3,581 29,726 39,692 43,532 116,531 Net (loss) income (6,898) 5,022 439 2,379 942 Basic net (loss) income per common share (1) (0.14) 0.10 0.01 0.05 0.02
Diluted net (loss) income per common share (1) (0.14) 0.09 0.01 0.04 0.02
[FN]
NOTE:
(1) The sum of the quarterly net income (loss) per share amounts does not equal the annual amount reported as per share amounts are computed independently for each quarter.
(2) Earnings per share is not presented subsequent to May 4, 1999. At the date of the Merger all of the outstanding stock of the Company was exchanged for Clear Channel common stock rendering the calculation not meaningful.
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) List of Documents filed as part of this Report:
(1) Financial Statements
The financial statements of the Company as set forth under Item 8 of this Report on Form 10-K.
(2) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
The following Form 8-K was filed during the fourth quarter of 1999:
Form 8-K dated November 3, 1999. This Form 8-K described the Company dismissing its independent accountant, PricewaterhouseCoopers LLP, and engaging Ernst & Young LLP as its new independent accountant, effective November 3, 1999.
INDEX TO EXHIBITS
Exhibit Description of Exhibit Sequentially Number Numbered Page
2.1 Agreement and Plan of Merger dated as of October 8, 1998 ("Clear Channel Merger * Agreement") between Jacor Communications, Inc. ("Jacor"), Clear Channel Communications, Inc. and CCU Merger Sub (omitting schedules and exhibits not deemed material). Incorporated by reference to Exhibit 2 to Jacor's Current Report on Form 8-K dated October 9, 1998.
2.2 Warrant Agreement dated as of February 27, * 1997 between Jacor and KeyCorp Shareholder Services, Inc., as warrant agent. Incorporated by reference to Exhibit 2.2 to Jacor's Current Report on Form 8-K dated May 5, 1997, as amended.
2.3 Registration Rights Agreement dated as of * October 8, 1996 among Jacor and the parties listed in Schedule I thereto (included as Exhibit I to Regent Merger Agreement). Incorporated by reference to Exhibit 2.4 to Jacor's Current Report on Form 8-K dated October 23, 1996, as amended.
2.4 Warrant Agreement dated as of September 18, * 1996 between Jacor and KeyCorp Shareholder Services, Inc., as warrant agent. Incorporated by reference to Exhibit 4.1 to Jacor's Current Report on Form 8-K dated October 3, 1996.
2.5 Supplemental Agreement dated as of * September 18, 1996 between Jacor and KeyCorp Shareholder Services, Inc., as warrant agent. Incorporated by reference to Exhibit 4.2 of Jacor's Current Report on Form 8-K dated October 3, 1996.
2.6 Registration Rights Agreement dated as of * August 5, 1996 among Jacor, JCAC, Inc., Great American Insurance Company, American Financial Corporation, American Financial Enterprises, Inc., Carl H. Lindner, The Carl H. Lindner Foundation, and S. Craig Lindner. Incorporated by reference to Exhibit 2.22 to Jacor's Post-Effective Amendment No. 1 on Form S-3 to Form S-4 (File No. 333-6639).
3.1 Articles of Incorporation of Jacor. * Incorporated by reference to Exhibit 5 to Jacor's Form 8-A dated February 13, 1997.
3.2 Bylaws of Jacor. Incorporated by reference * to Exhibit 6 to Jacor's Form 8-A dated February 13, 1997.
4.1 Indenture dated as of December 17, 1996 * between Jacor Communications Company ("JCC") Jacor, the Subsidiary Guarantors named therein and The Bank of New York for JCC's 9 3/4% Senior Subordinated Notes due 2006 and Jacor's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.11 to Jacor's Form S-3 Registration Statement (File No. 333-19291).
4.2 Indenture dated as of June 12, 1996 between * Jacor and The Bank of New York for Jacor's Liquid Yield Option Notes Due 2011. Incorporated by reference to Exhibit 4.23 to Jacor's Form S-4 Registration Statement (File No. 333-6639).
4.3 Indenture dated as of June 12, 1996 among * Jacor, JCAC, Inc. and First Trust of Illinois, National Association for JCAC, Inc.'s 10 1/8% Senior Subordinated Notes due 2006 and Jacor's Guaranty thereof. Incorporated by reference to Exhibit 4.24 to Jacor's Form S-4 Registration Statement (File No. 333-6639).
4.4 Indenture dated as of June 17, 1997 between * JCC, Jacor, the Subsidiary Guarantors named therein and The Bank of New York for JCC's 8 3/4% Senior Subordinated Notes due 2007 and Jacor's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.1 to Jacor's Current Report on Form 8-K/A dated June 26, 1997.
4.11 First Supplemental Indenture Dated as of * September 16, 1997 (Supplemental to Indenture Dated as of June 12, 1996) between JCC, the Company and First Trust National Association for JCC's 10 1/8% Senior Subordinated Notes due 2006 and Jacor's Guaranty thereof. Incorporated by reference to Exhibit 4.5 to the Company's Current Report on Form 8-K dated September 30, 1997.
4.12 First Supplemental Indenture Dated as of * September 16, 1997 (Supplemental to Indenture Dated as of December 17, 1996) between JCC, the Company, the Subsidiary Guarantors named therein, and The Bank of New York for JCC's 9 3/4% Senior Subordinated Notes due 2006 and the Company's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.6 to the Company's Current Report on Form 8-K dated September 30, 1997.
4.13 First Supplemental Indenture Dated as of * September 16, 1997 (Supplemental to Indenture Dated as of June 17, 1997) between JCC, the Company, the Subsidiary Guarantors named therein, and The Bank of New York for JCC's 8 3/4% Senior Subordinated Notes due 2007 and Jacor's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.7 to the Company's Current Report on Form 8-K dated September 30, 1997.
4.14 Indenture dated as of February 9, 1998 among * Jacor Communications, Inc. ("Jacor"), Jacor Communications Company ("JCC"), the Subsidiary Guarantors named therein and the Bank of New York for JCC's 8% Senior Subordinated Notes due 2010 and Jacor's and the Subsidiary Guarantors Guaranty thereof. Incorporated by reference to Exhibit 4.20 of the Company's Form S-3 Registration Statement, File No. 333-51489.
4.15 Indenture dated as of February 9, 1998 * between Jacor and the Bank of New York for Jacor's Liquid Yield Option Notes due 2018. Incorporated by reference to Exhibit 4.21 of the Company's Form S-3 Registration Statement, File No. 333-51489.
10.1(+) Change in Control Agreement dated as of June * 12, 1998 by and between Jacor Communications, Inc. and Randy Michaels. Incorporated by reference to Exhibit 10.1 to Jacor's Quarterly Report on Form 10-Q dated August 14, 1998. (1)*
10.2(+) Change in Control Agreement dated as of June * 12, 1998 by and between Jacor Communications, Inc. and Martin R. Gausvik. Incorporated by reference to Exhibit 10.2 to Jacor's Quarterly Report on Form 10-Q dated August 14, 1998. (2)*
10.3(+) Advisory Agreement dated August 26, 1998 * between the Company and Equity Group Investments, Inc. Incorporated by reference to Exhibit 10.1 to Jacor's Quarterly Report on Form 10-Q dated October 30, 1998.
21 Subsidiaries of Registrant. **
Consent of Independent Auditors - Ernst & 86 23.1 Young LLP
Consent of Independent Auditors - 87 23.2 PricewaterhouseCoopers LLP
27 Financial Data Schedules. 88
[FN] __________________
(*) Incorporated by reference as indicated.
(**) Omitted pursuant to General Instructions I(1)(a) and (b) of Form 10-K.
(+) Management Contracts and Compensatory Arrangements.
(1) Identical agreements were also entered into as of June 12, 1998 between the Company and each of the following senior executive officers of the Company: Robert L. Lawrence, R. Christopher Weber, David H. Crowl, Thomas P. Owens, Jon M. Berry, Paul F. Solomon, John Hogan, Jerome L. Kersting and Jay Meyers.
(2) Identical agreements were also entered into as of June 12, 1998 between the Company and each of the following executive officers of the Company: Pamela C. Taylor, Nicholas J. Miller, William P. Suffa and Alfred Kenyon, III.
JACOR COMMUNICATIONS, INC, AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
JACOR COMMUNICATIONS, INC. (The Company)
Date March 29, 2000 By /s/ Randall T. Mays Randall T. Mays, Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Date March 29, 2000 /s/ L. Lowry Mays L. Lowry Mays (Principal Executive Officer) Director
Date March 29, 2000 /s/ Mark P. Mays Mark P. Mays Director
Date March 29, 2000 /s/ Randall T. Mays Randall T. Mays (Principal Accounting and Financial Officer) Director
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements (S-3 No. 333-21419 and S-3 No. 333-06639) of Jacor Communications, Inc. and in the related Prospectuses of our report dated March 24, 2000, with respect to the consolidated financial statements of Jacor Communications, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1999.
March 24, 2000 San Antonio, Texas Ernst & Young LLP
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-3 (File Nos. 333-21419 and 333- 06639) of Jacor Communications, Inc. of our report dated February 12, 1999 relating to our audits of the consolidated financial statements of Jacor Communications, Inc. and subsidiaries as of December 31, 1998 and 1997 and for each of the two years in the period ended December 31, 1998, which appears in this Form 10-K.
PricewaterhouseCoopers LLP Cincinnati, Ohio March 29, 2000
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company completed a tax-free, stock for stock merger with Clear Channel as of close of business May 4, 1999, whereby shares of Jacor common stock were exchanged for shares of Clear Channel stock at an agreed upon ratio. Upon conclusion of the Merger, Clear Channel became the sole shareholder of the Company, owning one outstanding share of Jacor common stock, therefore there is no market for the Company's common stock.
Prior to the Clear Channel Merger, the Company's common stock traded on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol "JCOR". The following table presents the high and low sale prices for the Company's common stock for each quarter of 1998 and the first quarter of 1999 as reported on The Nasdaq National Market. The stock price as of close of business May 4, 1999 was $80.25.
Price Range of Common Stock
High Low 1st Quarter............................ $63.00 $46.00 2nd Quarter............................ 63.63 50.25 3rd Quarter............................ 65.25 45.31 4th Quarter............................ 65.00 36.88
1st Quarter............................ $77.25 $62.75
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
CLEAR CHANNEL MERGER
On October 8, 1998 the Company entered into a definitive merger agreement with Clear Channel Communications, Inc. ("Clear Channel") for a tax-free, stock for stock transaction (the "Merger" or the "Clear Channel Merger"). The Company and Clear Channel consummated the Merger at the close of business May 4, 1999. Pursuant to terms of the agreement, each share of Jacor common stock was exchanged for 1.1573151 shares of Clear Channel common stock. Upon conclusion of the Merger, Clear Channel became the sole shareholder of the Company, owning one outstanding share of Jacor common stock.
Upon consummation of the Merger, a change in control event occurred with respect to the Company's credit facility, liquid yield option notes and the senior subordinated notes. Such change in control gave the credit facility lenders the right to require repayment of amounts borrowed under the facility, and required the Company to offer repayment of the senior subordinated notes at 101% of the principal amount and the liquid yield option notes at their issue price plus accrued original issue discount at such date.
As a result of the Merger, all options and stock appreciation rights for Jacor common stock not vested at the effective time of the Merger became fully vested and exercisable one day before the effective time of the Merger. Clear Channel assumed all of these options and stock appreciation rights on the same terms and conditions as were applicable prior to the effective time of the Merger. The holders may exercise such options and stock appreciation rights for or with respect to shares of Clear Channel common stock at an exercise price adjusted to reflect the exchange ratio of the Merger.
Additionally, the Merger resulted in each holder of the Company's common stock warrants becoming entitled to exercise such warrants for shares of Clear Channel common stock instead of Jacor common stock. Upon the exercise of such warrants after the Merger, the holders of such warrants will receive that number of shares of Clear Channel common stock that the holder would have received if he or she had exercised such warrants for shares of Jacor common stock immediately prior to the effective time of the Merger, as adjusted to reflect the exchange ratio of the Merger.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
GENERAL
The following discussion should be read in conjunction with the financial statements beginning on page 49.
This Report includes certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. When used in this Report, the words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially from those described in the forward- looking statement as a result of the matters discussed in this Report generally. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.
In the following analysis, management discusses broadcast cash flow. Broadcast cash flow should not be considered in isolation from, or as a substitute for, operating income, net income or cash flow and other consolidated income or cash flow statement data computed in accordance with generally accepted accounting principles or as a measure of the Company's profitability or liquidity. Although this measure of performance is not calculated in accordance with generally accepted accounting principles, it is widely used in the broadcasting industry as a measure of a company's operating performance. Broadcast cash flow assists in comparing performance on a consistent basis across companies without regard to depreciation and amortization, which can vary significantly depending on accounting methods (particularly where acquisitions are involved). It also excludes non-operating factors such as historical cost bases, and the effect of corporate general and administrative expenses, which generally do not relate directly to the performance of broadcasting entities.
The performance of a broadcasting group, such as the Company, is customarily measured by its ability to generate broadcast cash flow. The primary source of the Company's revenue is the sale of broadcasting time on its stations for advertising. The Company also generates revenue through the sale of broadcasting time on non-owned radio stations in exchange for providing syndicated programming and comprehensive radio research services to the stations, by providing sales representation services to third parties, and through syndicated program fees. The Company's significant operating expenses are employee salaries, sports broadcasting rights fees, programming expenses, advertising and promotion expenses, rental of premises for studios and transmitting equipment and music license royalty fees.
The Company's radio station revenue is affected primarily by the advertising rates the Company's stations are able to charge. These rates are, in large part, based on a station's ability to attract audiences in the demographic groups targeted by its advertisers, as principally measured by Arbitron Metro Area Ratings Surveys.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
GENERAL, Continued
Most advertising contracts are short-term and run only for a few weeks. Most of the Company's revenue is generated from local advertising, which is sold by the station's sales staff. In 1999, approximately 80% of the Company's gross station revenue was from local advertising and approximately 20% was from national advertising. A station's local sales staff solicits advertising, either directly from the local advertiser or through an advertising agency for the local advertiser. National advertising sales for most of the Company's stations are made by the Company's national sales managers in conjunction with the efforts of an independent advertising representative who specializes in national sales and is compensated on a commission-only basis.
The Company's broadcasting services include the distribution of syndicated radio programs and comprehensive radio research services. The Company enters into contracts with radio stations throughout the country to supply them with syndicated programs such as The Rush Limbaugh Show and The Dr. Laura Program. The Company generates revenue from distributing its syndicated programming in two ways: (i) selling commercial broadcast inventory received in exchange for the syndicated programming, and (ii) cash programming fees. Aside from The Rush Limbaugh Show and The Dr. Laura Program, most of the Company's syndicated programs are sold in exchange for commercial broadcast inventory. In those cases, the Company's revenues depend on how successful the Company is in selling air time to advertisers at attractive rates.
The Company, through its wholly owned subsidiary, Premiere Radio Networks, Inc. ("Premiere"), also provides research services, including music play lists and on-air promotion tracking and call-out research, for eleven radio formats, in exchange for commercial broadcast inventory instead of on a cash basis. This practice makes the services more attractive to radio stations which have limited cash resources and/or excess commercial broadcast inventory. Premiere's in house sales force sells commercial broadcast inventory to more than 500 national advertisers. Premiere leverages its sales force and generates additional revenues without significant additional overhead costs by providing network advertising sales representation services, on a commission basis, to third-party networks and independent syndicated programming and service suppliers that do not have their own sales forces.
Sports broadcasting and the full-service programming features play an integral part in the Company's operating strategy. As a result, because of the rights fees and related costs of broadcasting professional baseball and football, the costs related to the full-service programming features of its AM radio stations, as well as the Company's business strategy to acquire "stick" properties (i.e., properties with insignificant ratings and/or little or no positive broadcast cash flow), the Company's broadcast cash flow margins are typically lower than its competitors'.
General economic conditions have an impact on the Company's business and financial results. From time to time the broadcast areas in which the Company operates experience weak economic conditions that may negatively affect revenue of the Company. However, management believes that this impact is somewhat softened by the Company's diverse geographical presence. The financial results of the Company's business are seasonal. Revenues are generally higher in the second, third and fourth calendar quarters than in the first quarter.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Recent liquidity needs have been driven by the Company's acquisition strategy. The Company's acquisitions since 1996 have been financed with funds raised through a combination of debt and equity instruments. The Company currently has sufficient resources to finance all pending acquisitions.
Financing Activities
Cash used by financing activities was $125.8 million for the year ended December 31, 1999, as compared to cash provided of $744.8 million for the year ended December 31, 1998 and $552.9 million for the year ended December 31, 1997. The change between years is due primarily to payment of the outstanding debt under the Company's credit facility and $22.1 million of the Company's senior subordinated notes due to the Clear Channel Merger. Additionally, the change is due in part to the amount of cash necessary for the acquisition of radio stations and broadcasting related service companies in the respective years.
Investing Activities
Cash flows used for investing activities were $123.4 million for the year ended December 31, 1999 as compared to $836.0 million for the year ended December 31, 1998 and $658.3 million for the year ended December 31, 1997. The variations from year to year are related to varying station acquisition and disposition activities and capital expenditures, as described below.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES, Continued
Completed Acquisitions and Dispositions
During 1999, the Company acquired the stock of one and the broadcast assets and FCC licenses of 31 radio stations and one low-powered television station in five of the Company's existing broadcast areas and 14 new broadcast areas for cash consideration of approximately $116.7 million, of which approximately $10.5 million was placed in escrow in 1997 and 1998. These acquisitions were funded primarily through borrowings under the Company's credit facility, which was paid in full by Clear Channel at the date of the Merger. The broadcast assets and FCC licenses of 15 radio stations, and the broadcast assets of one additional radio station, valued at approximately $86.6 million, in two of the Company's existing broadcast areas and eight new broadcast areas, were purchased in part with proceeds held by a qualified intermediary from the sale of five and exchange of one station in two broadcast areas, valued at $103.0 million. The remaining cash held by the qualified intermediary was returned to the Company. The Company also purchased the stock of one broadcasting services company for approximately $55.0 million, with contingent consideration of up to approximately $13.2 million due in 2002. The Company also sold the broadcast assets and FCC license of one radio station for $5.0 million in cash.
Recently Completed Dispositions
During the first quarter of 2000, the Company disposed of the FCC licenses and substantially all of the broadcast assets of two stations in one broadcast area that had been placed in trust at the date of the Clear Channel Merger.
Pending Acquisitions and Dispositions
The Company has entered into agreements to purchase the stock of one and the FCC licenses and substantially all of the broadcast assets of 18 radio stations in five of the Company's existing broadcast areas and three new broadcast areas for approximately $32.6 million in cash, of which approximately $2.1 million has been placed in escrow. The Company expects all financing of its pending acquisitions will be provided by cash flows from operating activities or its parent company, Clear Channel.
The Company has also entered into agreements to sell the intellectual property of one station and the FCC licenses and broadcast assets of seventeen additional stations in twelve broadcast areas.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES, Continued
See the table beginning on page 5 for a detailed list by market of the 246 radio stations owned and/or operated by the Company upon completion of all pending acquisitions and dispositions.
Capital Expenditures
The Company had capital expenditures of $63.7 million, $36.2 million and $20.0 million for the years ended December 31, 1999, 1998 and 1997, respectively. The Company's capital expenditures for operations consist primarily of broadcasting equipment purchases, tower upgrades, and new facilities to consolidate duplicate operating locations. Additionally, in 1999 and 1998 capital expenditures included outlays of cash for the Company's ongoing digital automation project and in 1997 capital expenditures included a centralized accounting system and the Company's wide area network.
Operating Activities
For the year ended December 31, 1999, cash flow provided by operating activities was $237.3 million, as compared to $82.6 million for the year ended December 31, 1998 and $56.0 million for the year ended December 31, 1997. The change is primarily due to an increase in operating income related to acquisitions.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The Company operates in a single reportable segment, broadcast radio and television. At December 31, 1999, the segment includes 257 radio stations in 77 broadcast areas, Premiere, two television stations and several insignificant broadcast service companies. Substantially all revenues are generated from the sale of commercial broadcast inventory, market research, traffic reporting and satellite connectivity.
The Company's management evaluates each broadcast area's performance based on operating income before corporate expenses, interest expense, income taxes, gains or losses and miscellaneous expenses. Specific industry related performance measures also reviewed by management include "Broadcast Cash Flow", which excludes depreciation and amortization from the operating income measurement defined above.
Financial information for 1999 includes results of operations through May 4, 1999, stated on a historical cost basis and the results of operations from May 5, 1999 through December 31, 1999, after applying push down accounting as described in Note 2 of the consolidated financial statements.
Financial information for the Company's segment is as follows (in thousands):
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS, Continued
Discussion of Broadcast Radio and Television Segment Financial Statement Changes
The increase in net revenue from 1998 to 1999, and from 1997 to 1998 is due primarily to revenue generated at those properties owned or operated during 1999, but not during the comparable 1998 period, and during 1998, but not during the comparable 1997 period, respectively.
The increase in radio broadcast operating expenses from 1998 to 1999, and from 1997 to 1998 is due primarily to expenses incurred at those properties owned or operated during 1999 but not during the comparable 1998 period, and during 1998 but not during the comparable 1997 period, respectively.
Depreciation and amortization expense increased from 1998 to 1999 due to the write up of intangible assets to fair value due to the Clear Channel Merger. Depreciation and amortization expense increased from 1997 to 1998 due to acquisitions made during 1997 and 1998.
Operating income decreased from 1998 to 1999 due to the increase in amortization and depreciation expense. Operating income increased from 1997 to 1998 as a result of the acquisitions made throughout 1997 and 1998, and to a lesser extent, increases in operating performance.
Discussion of Other Consolidated Statements of Operations Data
Interest expense increased from 1998 to 1999, and from 1997 to 1998 due to increases in outstanding debt incurred in connection with the Company's acquisitions.
The gain on sale of assets in 1999 is the result of the exchange of five stations in Louisville, Kentucky and one station in Tampa, Florida prior to the Clear Channel Merger, as well as the sale of two of the Company's equity investments. The gain on sale of assets in 1998 resulted primarily from the exchange of two radio stations in San Diego, California and three radio stations in Columbus, Ohio in August 1998. The gain on the sale of assets in 1997 resulted primarily from the sale of the Company's investment in warrants in February 1997 and in an equity security in May 1997.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS, Continued
The increase in income tax expense from 1998 to 1999 was due to increased taxable income resulting from higher revenues, as well as gains on the sale of assets. The effective tax rate increased as well, as a result of an increase in non-deductible goodwill resulting from the Clear Channel Merger. Income tax expense increased from 1997 to 1998 due to approximately $14.8 million in deferred tax expense related to gains recorded on the exchange of certain radio stations.
The Company recognized an extraordinary loss in 1999 due to the tender offer on the Company's 10 1/8% Senior Subordinated Notes, 9 3/4% Senior Subordinated Notes, 8 3/4% Senior Subordinated Notes, and 8% Senior Subordinated Notes. See Footnote 7 to the Consolidated Financial Statements. The Company recognized extraordinary losses in 1997 related to the write off of debt financing costs due to significant amendments to the Company's Credit Facility.
Year 2000 Computer System Compliance
In prior years, the Company discussed the nature and progress of plans to become Year 2000 ready. In late 1999, Jacor completed the remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believe those systems successfully responded to the Year 2000 date changes. An immaterial amount was expensed to operations during 1999 in connection with remediating of the systems. Jacor is not aware of any material problems resulting from year 2000 issues, either with the Company's products, internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. SFAS 133 is amended by Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," and is effective for years beginning after June 15, 2000. The Company plans to adopt this statement in fiscal year 2001. Management does not believe adoption of this statement will materially impact our financial position or results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A is not applicable to the Company.
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Auditors - Ernst & Young LLP 47
Report of Independent Auditors - PricewaterhouseCoopers LLP 48
Consolidated Balance Sheets: December 31, 1999 and 1998 49
Consolidated Statements of Operations and Comprehensive Income: for the period from May 5, 1999 through December 31, 1999, the period from January 1, 1999 through May 4, 1999, and for the years ended December 31, 1998 and 1997 50
Consolidated Statements of Shareholders' Equity: for the period from May 5, 1999 through December 31, 1999, the period from January 1, 1999 through May 4, 1999, and the years ended December 31, 1998 and 1997 52
Consolidated Statements of Cash Flows: for the period from May 5, 1999 through December 31, 1999, the period from January 1, 1999 through May 4, 1999, and for the years ended December 31, 1998 and 1999 54
Notes to Consolidated Financial Statements 56
Quarterly Financial Data 79
Report of Independent Auditors
Board of Directors Jacor Communications
We have audited the accompanying consolidated balance sheet of Jacor Communications, Inc. as of December 31, 1999 and the related consolidated statements of operations and comprehensive income, shareholder's equity and cash flows for the period from May 5, 1999 through December 31, 1999, and the period from January 1, 1999 through May 4,1999 (Predecessor). 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 auditing standards generally accepted in the United States. 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. at December 31, 1999 and the consolidated results of its operations and its cash flows for the period from May 5, 1999 through December 31, 1999, and the period from January 1, 1999 to May 4, 1999 (Predecessor), in conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
March 24, 2000
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Jacor Communications, Inc.
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and comprehensive income, shareholders' equity and cash flows, as of and for each of the two years in the period ended December 31, 1998, present fairly, in all material respects, the financial position, results of operations and cash flows of Jacor Communications, Inc. and its subsidiaries as of and for each of the two years in the period ended December 31, 1998, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Jacor Communications, Inc. and its subsidiaries for any period subsequent to December 31, 1998.
PricewaterhouseCoopers LLP Cincinnati, Ohio February 12, 1999
[FN]
* Earnings per share information is not presented subsequent to May 4, 1999. At the date of the Merger all of the outstanding stock of the Company was exchanged for Clear Channel common stock rendering the calculation not meaningful.
The accompanying notes are an integral part of the consolidated financial statements.
(Continued)
The accompanying notes are an integral part of the consolidated financial statements.
(Continued)
The accompanying notes are an integral part of the consolidated financial statements.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
Description of Business
Jacor Communications, Inc. (the "Company" or "Jacor"), a wholly-owned subsidiary of Clear Channel Communications, Inc. ("Clear Channel"), operates in a single reportable segment, broadcast radio and television, which derives its revenue from the sale of commercial broadcast inventory, market research, traffic reporting and satellite connectivity. Prior to the Clear Channel Merger, the Company operated in a single reportable segment - Radio, which included all of the Company's radio stations and Premiere Radio Networks, Inc. Aggregated segments included in the caption "other" included one television station and various broadcast related businesses.
As of December 31, 1999 the Company owned, operated, and/or sold advertising time for 263 radio stations and two television stations in 77 broadcast areas throughout the United States.
On May 4, 1999 Jacor was merged with a wholly-owned subsidiary of Clear Channel Communications (the "Merger"), as more fully described in Note 2. The Merger was accounted for as a purchase business combination and, accordingly, purchase accounting adjustments, including goodwill, have been pushed down and are reflected in these financial statements subsequent to May 4, 1999. The financial statements for periods ended before May 5, 1999, were prepared using Jacor's historical basis of accounting and are designated as "Predecessor". The comparability of operating results for the Predecessor periods and the periods subsequent to the Merger date are affected by the purchase accounting adjustments.
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. Certain prior year amounts have been reclassed to conform to 1999 presentation. These changes had no impact on previously reported results of operations or shareholders' equity.
Revenue Recognition
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.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS, Continued
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents.
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.
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:
Buildings 10 to 30 Years Structures and site leases 2 to 20 Years Transmitter and studio equipment 7 to 15 Years Furniture and other equipment 2 to 10 Years Leasehold improvements Life of lease
Expenditures for repairs and maintenance are charged to operations as incurred. Expenditures for renewal and betterments are capitalized.
Intangible Assets
Intangible assets are stated at cost less accumulated amortization; amortization is provided principally on the straight-line basis over the following lives:
FCC Broadcasting licenses and goodwill 25 Years Contracts and other intellectual property 3 to 25 Years
Prior to the Clear Channel Merger, the Company amortized FCC broadcasting licenses and goodwill over 40 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, FCC licenses and other intangible assets will not be recoverable, as determined based on the undiscounted cash flows of the entity over the remaining amortization period, the carrying value of the goodwill, FCC licenses, and other intangible assets will be reduced to their respective fair values.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS, Continued
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.
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.
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CLEAR CHANNEL MERGER
On October 8, 1998 the Company entered into a definitive merger agreement with Clear Channel for a tax-free, stock for stock transaction (the "Merger" or the "Clear Channel Merger"). The Company and Clear Channel consummated the Merger at the close of business May 4, 1999. Pursuant to terms of the agreement, each share of Jacor common stock was exchanged for 1.1573151 shares of Clear Channel common stock. Upon conclusion of the Merger, Clear Channel became the sole shareholder of the Company, owning one outstanding share of Jacor common stock.
Clear Channel accounted for its acquisition of the Company as a purchase and purchase accounting adjustments, including goodwill, have been pushed down and reflected in the consolidated financial statements of the Company subsequent to May 4, 1999. The consolidated financial statements of the Company for the periods ended before May 5, 1999, were prepared using the Company's historical basis of accounting and are designated as "Predecessor." The comparability of operating results for the Predecessor and the periods subsequent to May 4, 1999 encompassing push down accounting are affected by the purchase accounting adjustments including the amortization of goodwill over a period of 25 years.
This purchase price allocation is preliminary pending completion of appraisals and other fair value analysis of assets and liabilities, which the Company anticipates will be completed during the second quarter of 2000. The following table summarizes the preliminary changes made to the accounts of the Company subsequent to May 4, 1999 as a result of applying push down accounting: Adjustments (in thousands)
Goodwill and other intangible assets $4,130,669 Total assets $4,130,669
Current liabilities $ 120,000 Long-term debt (638,837) Other liabilities 1,308,862 Shareholders' equity 3,340,644 Total liabilities and equity $4,130,669
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CLEAR CHANNEL MERGER, Continued
Upon consummation of the Merger, a change in control event occurred with respect to covenants in the Company's credit facility, LYONs and each outstanding issue of the senior subordinated notes. Such change in control gave the credit facility lenders the right to require repayment of amounts borrowed under the facility, and required 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. Approximately $22.1 million of senior subordinated notes were tendered in connection with the repayment offer.
As a result of the Merger, all options and stock appreciation rights for Jacor common stock not vested at the effective time of the Merger became fully vested and exercisable one day before the effective time of the Merger. Clear Channel assumed all of these options and stock appreciation rights on the same terms and conditions as were applicable prior to the effective time of the Merger. The holders may exercise such options and stock appreciation rights for or with respect to shares of Clear Channel common stock at an exercise price adjusted to reflect the exchange ratio of the Merger.
In August 1998, the Company entered into an advisory agreement with Equity Group Investments, Inc. ("EGI"), an affiliate of the Company's largest shareholder, 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. As a result of the Merger, EGI received a fee of approximately $38.2 million.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS
Completed 1999 Acquisitions and Dispositions
During 1999, the Company acquired the stock of one and the broadcast assets and FCC licenses of 31 radio stations and one low-powered television station in five of the Company's existing broadcast areas and 14 new broadcast areas for cash consideration of approximately $116.7 million in cash, of which approximately $10.5 million was placed in escrow in 1997 and 1998.
The Company also completed five separate transactions, selling five stations and exchanging one station in two broadcast areas, valued at $103.0 million, for the broadcast assets and FCC licenses of 15 radio stations, and the broadcast assets of one additional radio station, valued in total at approximately $86.6 million, in two of the Company's existing broadcast areas and eight new broadcast areas. The remaining cash held by the qualified intermediary was returned to the Company. Also in 1999, the Company purchased the stock of one broadcasting services company for approximately $55.0 million, with contingent consideration of up to $13.2 million due in 2002.
Additionally, the Company sold the broadcast assets and FCC license of one radio station for $5.0 million in cash.
Completed 1998 Acquisitions and Dispositions
Nationwide Related Transactions
In August 1998, the Company completed the acquisition of substantially all broadcast related assets of Nationwide Communications Inc. ("Nationwide") for total cash consideration of approximately $555 million, of which $30.0 million was placed in escrow in 1997, plus acquisition costs. Simultaneously with the Nationwide acquisition, but in separate transactions, the Company effected the exchange and sale of certain radio stations in order to satisfy antitrust concerns raised by the Department of Justice in connection with the Nationwide acquisition. For financial reporting purposes, the Company recorded the exchange of eight radio stations as sale transactions, receiving non- cash consideration in the form of nine radio stations with aggregate fair values of $195 million. Additionally, one other radio station was sold for $10.l million in cash. The Company recorded net pre-tax gains of $10.9 million, which was measured by the difference between the fair value of the radio stations exchanged or sold and the carrying value of the properties. The Company believes that certain of the transactions qualify as tax-deferred like-kind exchanges, therefore, the income tax expense of approximately $14 million associated with the gains is included in the deferred component of income tax expense. The radio stations received in the exchange transactions were recorded as purchase transactions at their respective fair values.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS, Continued
Other Transactions
Also during 1998, the Company completed acquisitions of 47 radio stations in 10 existing and 17 new broadcast areas for a purchase price consisting of approximately $237.0 million in cash, of which $18.8 million was placed in escrow in 1997, and the assumption of approximately $10.7 million in debt owed to wholly-owned subsidiaries of the Company.
The Company also completed two separate exchanges of broadcast properties, exchanging five stations in two broadcast areas for seven stations in two broadcast areas. The Company sold six broadcast properties in three broadcast areas for approximately $1.1 million in cash.
During 1998, the Company completed acquisitions of two broadcasting service companies and the assets of five other broadcasting service companies for a purchase price of approximately $14.5 million in cash, a note payable of approximately $0.8 million, plus additional contingent consideration of up to $1.6 million payable over three years.
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 25 years. Prior to the Clear Channel Merger, excess cost over the fair value of net assets acquired was 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. The Company's 1999 completed acquisitions both individually and in the aggregate are immaterial to the Company's results of operations. Assuming each of the 1998 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) Year Ended December 31, 1998 1997
Net revenue $824,616 $714,853 Net loss before extraordinary loss (9,568) (14,263) Diluted loss per common share before extraordinary loss $(.19) $(.28)
These unaudited pro forma amounts do not purport to be indicative of the results that might have occurred if the foregoing transactions had been consummated on the indicated dates.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS, Continued
Recently Completed Dispositions
During the first quarter of 2000, the Company disposed of the FCC licenses and substantially all of the broadcast assets of two stations in one broadcast area that had been placed in trust at the date of the Clear Channel Merger.
Pending Acquisitions and Dispositions
As of March 15, 2000, the Company has entered agreements to purchase the stock of one and the FCC licenses and substantially all of the broadcast assets of 18 radio stations in five of the Company's existing broadcast areas and three new broadcast areas for approximately $32.6 million in cash, of which approximately $2.1 million has been paid in escrow.
The Company has also entered into agreements to sell the intellectual property of one station and the FCC licenses and broadcast assets of seventeen additional stations in twelve broadcast areas.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 consist of the following (in thousands):
1999 1998
Land, buildings and improvements $ 93,776 $ 73,301 Transmitter and studio equipment 187,575 208,698 Furniture and other equipment 58,516 43,685 Construction in progress 19,697 10,518 359,564 336,202 Less accumulated depreciation (25,545) (55,153) $334,019 $281,049
5. INTANGIBLE ASSETS
Intangible assets at December 31, 1999 and 1998 consist of the following (in thousands):
1999 1998
Broadcasting licenses and goodwill $6,722,447 $2,530,496 Contracts and other intellectual assets 337,418 400,674 7,059,865 2,931,170 Less accumulated amortization (215,691) (181,822) $6,844,174 $2,749,348
The 1999 intangible assets reflect the effects of applying push down accounting due to the Clear Channel Merger.
6. OTHER ASSETS
At December 31, 1998 the Company recorded an unrealized gain, net of tax, of $25.4 million on an investment in a marketable equity security. In January 1999 the Company sold the investment and recognized a pretax gain of $83.5 million.
JACOR COMMUNICATIONS,INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT
The Company's debt obligations at December 31, 1999 and 1998 consist of the following (in thousands):
1999 1998
Credit Facility borrowings........ $ - $ 750,000 10 1/8% Senior Subordinated Notes, due 2006....................... 106,811 100,000 9 3/4% Senior Subordinated Notes, due 2006....................... 188,633 170,000 8 3/4% Senior Subordinated Notes, due 2007....................... 163,693 150,000 8% Senior Subordinated Notes, due 2010....................... 112,268 119,574 $ 571,405 $1,289,574
Credit Facility
Prior to the Clear Channel Merger, the Company, through Jacor Communications Company ("JCC"), had a $1.15 billion credit facility (the "Credit Facility") with a group of banks and other financial institutions (the "Lenders"). The Credit Facility consisted of two components, a revolving credit facility ("Revolving Credit Facility") of up to $750.0 million and a term loan ("Term Loan") of up to $400.0 million. At May 4, 1999, the Company had $400.0 million of outstanding indebtedness under the Term Loan and $450.0 million of outstanding indebtedness under the Revolving Credit Facility. Upon consummation of the Merger, a change in control event occurred with respect to covenants in the Credit Facility, giving the Credit Facility Lenders the right to require repayment of amounts borrowed under the Credit Facility. Clear Channel paid in full the outstanding balance under the Credit Facility at the date of the Merger. At December 31, 1998, the Company had $400.0 million of outstanding indebtedness under the Term Loan and $385.0 million of outstanding indebtedness under the Revolving Credit Facility. At December 31, 1998 the average interest rate on Credit Facility borrowings was 6.20%.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT, Continued
Senior Subordinated Notes
The Company has four series of Senior Subordinated Notes: 10 1/8% Senior Subordinated Notes (the "10 1/8% Notes") due 2006; 9 3/4% Senior Subordinated Notes (the "9 3/4% Notes") due 2006; 8 3/4% Senior Subordinated Notes (the "8 3/4% Notes) due 2007, and; 8% Senior Subordinated Notes (the "8% Notes") due 2010 (collectively, the "Notes"). At the date of the Merger, the Notes were revalued to fair market value, resulting in a merger premium of $30.5 million being added to the face value of the Notes. The following schedule summarizes information related to the Notes (in thousands):
Fair Market Interest Maturity Face Value at Payment Issue Date Value Merger Date Schedule
10 1/8% Notes 06/15/06 $100,000 $107,042 Semi-annual 9 3/4% Notes 12/15/06 $170,000 $182,363 Semi-annual 8 3/4% Notes 06/15/07 $150,000 $156,167 Semi-annual 8 % Notes 02/15/10 $120,000 $124,512 Semi-annual
As a result of the Clear Channel Merger, a change in control event occurred with respect to the Notes, requiring the Company to offer repayment of the Notes at 101% of the principal amount. Approximately $22.1 million of Notes were tendered in connection with the repayment offer. In December 1999, Clear Channel completed a tender offer for the Notes through an agent acting on the behalf of Clear Channel, whereby Notes with a face value of approximately $516.6 million were redeemed. Cash settlement of the amount due to the agent was completed on January 14, 2000, and included approximately $21.3 million in premiums and agency fees. Clear Channel recognized an extraordinary charge of approximately $13.2 million, net of approximately $8.1 million of income tax, in the fourth quarter of 1999. At 12/31/99, the Notes include the face value of the outstanding Notes, net of discount, accrued interest, unamortized merger premium, and tender premium and agency fees, as follows (in thousands):
Tender Face Unamortized Premium Value Face Value Accrued Merger and Agency after Issue at 12/31/99 Interest Premium Fees Tender
10 1/8% Notes $ 96,997 $ 407 $ 6,381 $ 3,026 $ 639 9 3/4% Notes $170,000 $ 690 $ 11,278 $ 6,665 $ 100 8 3/4% Notes $149,475 $ 544 $ 5,660 $ 8,014 $ 260 8 % Notes $101,057 $ 3,035 $ 4,615 $ 3,561 $ 234
As a wholly-owned subsidiary of Clear Channel, the Company also guarantees the outstanding debt of Clear Channel.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LIQUID YIELD OPTION NOTES
1998 Liquid Yield Option Notes
In February 1998, the Company issued 4 3/4% Liquid Yield Option Notes ("1998 LYONs") due 2018 in the aggregate principal amount at maturity of $426.9 million. Each 1998 LYON had an issue price of $391.06 and a principal amount at maturity of $1,000. At the date of the Merger, the 1998 LYONs were revalued to fair market value, resulting in a merger premium of approximately $48.5 million. As a result of the Clear Channel Merger, a change in control event occurred with respect to the 1998 LYONs, requiring the Company to offer repayment of the 1998 LYONs at their issue price plus accrued original issue discount at such date. Twenty-two 1998 LYONs were presented for repayment. At December 31, 1999, the 1998 LYONs had a balance, net of redemptions, conversions to common stock, amortization of premium, and accretion of interest, of approximately $229.3 million, and an approximate fair market value of $286.0 million. At December 31, 1998, the 1998 LYONs had a balance, net of redemptions, conversions to common stock, and accretion of interest, of approximately $174.1 million, and an approximate fair market value of $205.4 million.
Each 1998 LYON is convertible, at the option of the holder, at any time on or prior to maturity, into Clear Channel common stock at a conversion rate of 7.227 shares per 1998 LYON. At December 31, 1999, approximately 3.1 million shares of Clear Channel common stock were reserved for conversion of the 1998 LYONs.
The 1998 LYONs are not redeemable by the Company prior to February 9, 2003. Thereafter, the LYONs are redeemable for cash at any time at the option of the Company, in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption.
The 1998 LYONs can be purchased by the Company, at the option of the holder, on February 9, 2003, February 9, 2008, and February 9, 2013 for a purchase price of $494.52, $625.35 and $790.79 (representing issue price plus accrued original issue discount to each date), respectively, representing a 4 3/4% yield per annum to the holder on such date. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or Clear Channel common stock, or any combination thereof.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LIQUID YIELD OPTION NOTES, Continued
1996 Liquid Yield Option Notes
In June 1996, the Company issued 5 1/2% Liquid Yield Option Notes ("1996 LYONs") due 2011 in the aggregate principal amount at maturity of $259.9 million. Each 1996 LYON had an issue price of $443.14 and a principal amount at maturity of $1,000. At the date of the Merger, the 1996 LYONs were revalued to fair market value, resulting in a merger premium of approximately $132.2 million. As a result of the Clear Channel Merger, a change in control event occurred with respect to the 1996 LYONs, requiring the Company to offer repayment of the 1996 LYONs at their issue price plus accrued original issue discount at such date. One hundred fifty 1996 LYONs were presented for repayment. At December 31, 1999, the 1996 LYONs had a balance, net of redemptions, conversions to common stock, amortization of premium, and accretion of interest, of approximately $261.6 million, and an approximate fair market value of $344.8 million. At December 31, 1998, the 1996 LYONs had a balance, net of redemptions, conversions to common stock, and accretion of interest, of approximately $132.1 million, and an approximate fair market value of $232.0 million.
Each 1996 LYON is convertible, at the option of the holder, at any time on or prior to maturity, into Clear Channel common stock at a conversion rate of 15.522 shares per 1996 LYON. At December 31, 1999, approximately 3.9 million shares of Clear Channel common stock were reserved for conversion of the 1996 LYONs.
The 1996 LYONs are not redeemable by the Company prior to June 12, 2001. Thereafter, the 1996 LYONs are redeemable for cash at any time at the option of the Company, in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption.
The 1996 LYONs can be purchased by the Company, at the option of the holder, on June 12, 2001 and June 12, 2006, for a purchase price of $581.25 and $762.39 (representing issue price plus accrued original issue discount to each date), respectively, representing a 5 1/2% yield per annum to the holder on such date. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or Clear Channel common stock, or any combination thereof.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. CAPITAL STOCK
Common Stock
As a result of the Clear Channel Merger, each share of Jacor common stock was exchanged for 1.1573151 shares of Clear Channel common stock. Upon conclusion of the Merger, Clear Channel became the sole shareholder of the Company, owning one outstanding share of Jacor common stock.
In February 1998, the Company completed an offering of 5,073,000 shares of Jacor common stock at $50.50 per share, net of underwriting discounts of $2.02 per share. Net proceeds to the Company were approximately $244.9 million.
Warrants
1997 Warrants
In connection with the 1997 acquisition of Regent Communications, Inc., the Company issued warrants (the "1997 Warrants") to acquire 500,000 shares of Jacor common stock with an exercise price of $40 per share, expiring in February 2002. Upon consummation of the Merger, the 1997 Warrants were revalued to fair market value, resulting in an increase of $12.7 million.
1996 Warrants
In connection with the 1996 acquisition of Citicasters, Inc., the Company issued warrants (the "1996 Warrants") to acquire 4,400,000 shares of Jacor common stock with an exercise price of $28 per share, expiring in September 2001. Upon consummation of the Merger, the 1996 Warrants were revalued to fair market value, resulting in an increase of $210.2 million.
As a result of the Clear Channel Merger, each holder of the Company's 1997 Warrants and 1996 Warrants (collectively, the "Warrants") became entitled to exercise such Warrants for shares of Clear Channel common stock instead of Jacor common stock. Upon exercise of such Warrants after the date of the Merger, the holders of such Warrants will receive that number of shares of Clear Channel common stock that the holder would have received if she or he had exercised such Warrants for shares of Jacor common stock immediately prior to the effective time of the Merger, as adjusted to reflect the exchange ratio of the Merger.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK BASED COMPENSATION PLANS
As a result of the Merger, all options and stock appreciation rights issued under the Company's stock based compensation plans not vested at the effective time of the Merger became fully vested and exercisable one day before the effective time of the Merger. Clear Channel assumed all of these options and stock appreciation rights on the same terms and conditions as were applicable prior to the effective time of the Merger. The holders may exercise such options and stock appreciation rights for or with respect to shares of Clear Channel common stock at an exercise price adjusted to reflect the exchange ratio of the Merger. All shares previously available for grant under the Company's stock based compensation plans were no longer available subsequent to the Merger.
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.
1997 Long-Term Incentive Stock Plan
The 1997 Long-Term Incentive Stock Plan ("the Long-Term Plan") authorizes the issuance of up to 1,800,000 shares of Common Stock pursuant to the grant or exercise of stock options, including NQSOs and ISOs, restricted stock, stock appreciation rights (SARs), and certain other instruments to executive officers and other key employees, subject to board approval and certain other restrictions. Stock options may not be granted at less than the fair market value of the underlying stock on the date of grant. Twenty-five percent of the options vest on the date of the grant and 25% vest on each of the next three anniversaries of the grant date. Options expire 10 years after grant.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK BASED COMPENSATION PLANS, Continued
1997 Non-Employee Directors Stock Plan and Stock Purchase Plan
The 1997 Non-Employee Directors Stock Plan (the "Directors Stock Plan") authorizes the issuance of up to 350,000 shares of Jacor Common Stock pursuant to the grant or exercise of NQSOs, SARs, restricted stock and other performance instruments. Stock options may not be granted at less than the fair market value of the underlying stock on the date of grant. Twenty-five percent of the options vest on the date of the grant and 25% vest on each of the next three anniversaries of the grant date. Options expire 10 years after grant. 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.
Information pertaining to the plans for the years ended December 31, 1997 and 1998, and for the period ended May 4, 1999, is as follows:
Number of Weighted Average Shares Exercise Price
1997: Outstanding at beginning of year.. 2,056,610 $12.26 Granted........................... 1,196,188 $24.92 Exercised......................... (212,679) $11.61 Surrendered....................... (15,490) $26.71 Outstanding at end of year........ 3,024,629 $17.20 Exercisable at end of year........ 2,228,095 $13.72 Available for grant at end of year 1,476,930
1998: Outstanding at beginning of year.. 3,024,629 $17.20 Granted........................... 921,800 $53.31 Exercised......................... (245,698) $15.32 Surrendered....................... (9,083) $22.52 Outstanding at end of year........ 3,691,648 $26.33 Exercisable at end of year........ 2,435,686 $18.37 Available for grant at end of year 555,130
January 1 - May 4, 1999: Outstanding at beginning of year.. 3,691,648 $26.33 Granted........................... 310,950 $67.00 Exercised......................... (64,554) $18.25 Surrendered....................... (1,500) $28.63 Outstanding at May 4, 1999........ 3,936,544 $29.69
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK BASED COMPENSATION PLANS, Continued
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for grants in 1999, 1998, and 1997, 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 1999, 1998 and 1997 follows:
1999 1998 1997
Weighted-average fair value of options granted at-the-money $27.45 $30.87 $12.26 Weighted-average fair value of options granted at a discount - - $28.15 Weighted-average fair value of all options granted during the year $27.45 $30.87 $16.29
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 May 4, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE Weighted Weighted Weighted Range of Number Average Average Number Average Exercise Outstanding Remaining Exercise Exercisable Exercise Prices at 5/04/99 Life Price at 5/04/99 Price
$5.74 to $9.65 1,072,993 3.98 $ 6.11 1,072,993 $ 6.11
$12.70 to $19.96 293,929 6.14 $16.00 293,929 $16.00
$21.25 to $30.66 1,301,122 7.78 $26.46 959,634 $26.43
$37.25 to $52.88 894,800 8.67 $51.93 444,150 $52.08
$53.00 to $67.00 373,700 9.73 $65.59 102,497 $65.15
$ 5.74 to $67.00 3,936,544 8.56 $29.69 2,873,203 $23.12
On May 4, 1999, option holders exercised an additional 869,352 options which had become vested and exercisable as a result of the Merger.
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 24,936 shares for approximately $54.29 per share in 1999, 66,151 shares for approximately $43.80 per share and 3,441 shares for approximately $52.06 per share in 1998, and 74,767 shares for approximately $23.27 per share and 12,376 shares for approximately $32.19 per share in 1997. The fair market value of the right to acquire common stock under the Stock Purchase Plan was $19.59 per share in 1999, $15.74 per share granted on January 1 and $15.73 per share granted on July 1 in 1998, and $8.40 per share granted on January 1 and $9.80 per share granted on July 1 in 1997.
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 1999, 1998 and 1997 would approximate amounts below (in thousands, except per share amounts):
1999 1998 1997
Net income (loss): As reported $ 63,437 $ 942 $ (4,052) Pro forma $ 56,664 $(17,729) $(10,691)
Diluted net income (loss) per common share: As reported $ 1.07 $ 0.02 $ (0.10) Pro forma $ 0.92 $ (0.31) $ (0.25)
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES
Income tax expense for the periods ended December 31, 1999, 1998, 1997 and May 4, 1999 is summarized as follows (in thousands):
Federal State Total
December 31, 1999: Current $ 7,206 $ 3,091 $10,297 Deferred (8,421) (1,131) (9,552) $(1,215) $ 1,960 $ 745
May 4, 1999: Current $34,398 $ 2,498 $36,896 Deferred 13,580 1,824 15,404 $47,978 $ 4,322 $52,300
December 31, 1998: Current $10,640 $ 2,500 $13,140 Deferred 12,060 2,900 14,960 $22,700 $ 5,400 $28,100
December 31, 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
The provisions for income tax differ from the amount computed by applying the statutory federal income tax rate due to the following:
12/31/99 5/4/99 12/31/98 12/31/97 Federal income tax at the statutory rate $(16,449) $40,508 $10,167 $ 5,173 Amortization not deductible 30,964 3,949 14,446 3,449 State income taxes, net of any current federal income tax benefit 1,274 2,810 3,498 589 Acquisition costs and other (15,044) 5,033 (11) 389
$ 745 $52,300 $28,100 $ 9,600
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, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997 Deferred tax assets: Accrued expenses and reserves $ (7,705) $ (4,555) $ (7,479) Net operating loss carryforwards (13,832) (7,235) (11,461) Long term debt (98,347) - - Other - (1,682) (4,047) (119,884) (13,472) (22,987) Valuation allowance 13,832 - - (106,052) (13,472) (22,987)
Deferred tax liabilities: Property and equipment 25,381 40,289 35,614 Intangibles 858,989 318,661 326,240 Other 4,178 - - 888,548 358,950 361,854
Net liability $782,496 $345,478 $338,867
At December 31, 1999 the Company had net operating loss carryforwards of $36,400. The loss carryforwards expire in the years 2008 through 2012 if not used.
The Company established a valuation allowance in the current year against its operating loss carryforwards following an assessment of the likelihood of realizing such amounts. The amount of the valuation allowance was based on past operating history, as well as restrictions on the use of operating losses from acquisitions, tax planning strategies, and its expectation of the level and timing of future taxable income.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease office space and certain land and facilities used in their operations. Some of the lease agreements contain renewal options and annual rental escalation clauses (generally tied to the consumer price index or a maximum of 5%), as well as provisions for the payment of utilities and maintenance by the Company. Future minimum payments under noncancelable leases as of December 31, 1999 are payable as follows (in thousands):
2000 $ 44,213 2001 36,274 2002 25,154 2003 17,159 2004 10,037 Thereafter 67,863 $200,700
Jacor provides programming to and sells airtime for WGST-FM in Atlanta, Georgia. At any time after September 30, 1999 and before September 30, 2003 Cherokee Broadcasting can "put" WGST-FM to Jacor for a price of $31.0 million. At any time after May 21, 2003 and before September 30, 2003, Jacor can "call" the station for the same price.
Rental expense was approximately $34,460, $11,955 and $8,010 for the years ended December 31, 1999, 1998 and 1997, 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, liabilities, if any, arising from these actions are either covered by insurance or accrued reserves, or would not have a material adverse effect on the financial condition of the Company.
13. RETIREMENT PLAN
The Company maintained a defined contribution retirement plan covering substantially all employees who met eligibility requirements. The Company matched 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 $1,169,562, $2,558,647, and $1,977,052 for the period January 1 through April 23, 1999 and the 1998 and 1997 years, respectively.
On April 23, 1999 the plan was terminated due to the Clear Channel Merger. The Company subsequently received a favorable determination letter from the Internal Revenue Service and is in the process of distributing the assets of the retirement plan to the participants.
On July 1, 1999, employees were given the opportunity to enroll in Clear Channel's 401(k) savings plan. Both the employees and the Company make contributions to the plan. The Company also matches a portion of an employee's contribution. Company matched contributions vest to the employees based upon their year of service to the Company. Expense for the period July 1 through December 31, 1999 was $1,568,994.
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 period from January 1, 1999 through May 4, 1999, and the years ended December 31, 1998 and 1997 (in thousands except per share amounts):
January 1, through May 4, 1999 1998 1997 Net income before extraordinary item for basic EPS $ 63,437 $ 942 $ 3,404 LYONs interest expense, net of tax 2,686 - -
Net income before extraordinary item for diluted EPS $66,123 $ 942 $ 3,404
Weighted average shares - basic 51,299 50,389 40,460 Effect of dilutive securities:
Stock options 1,661 1,465 996 Warrants 2,817 2,326 357 LYONs 6,097 - - Other 42 385 350 Weighted average shares - diluted 61,916 54,565 42,163 Basic EPS $1.24 $ .02 $ .08 Diluted EPS $1.07 $ .02 $ .08
Earnings per share is not presented subsequent to May 4, 1999. At the date of the Merger all of the outstanding stock of the Company was converted into Clear Channel common stock rendering the calculation not meaningful.
Prior to the Merger, the Company's LYONs could be converted into approximately 6.1 million shares of common stock at the option of the holder. Assuming conversion of the LYONs as of January 1, 1998 and 1997 would result in an increase in per share amounts, therefore the LYONs are not included in the computation of diluted EPS. Due to the Merger, the LYONs are now convertible into shares of Clear Channel common stock at the Merger conversion ratio.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. SFAS 133 is amended by Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," and is effective for years beginning after June 15, 2000. The Company plans to adopt this statement in fiscal year 2001. Management does not believe adoption of this statement will materially impact our financial position or results of operations.
16. RELATED PARTY TRANSACTIONS
As described in Note 7, Clear Channel repaid $850 million that was outstanding under the Company's credit facility. This transaction is reflected in Due to Clear Channel, net. Net amounts due to Clear Channel accrue interest at 7%. The amounts due to Clear Channel have no stated repayment terms.
Clear Channel allocates shared corporate general and administrative expenses to Jacor based on Jacor's proportionate share of consolidated Clear Channel revenues. Expenses allocated to Jacor for the period May 5, 1999 through December 31, 1999 totaled approximately $4.8 million.
Supplementary Data
Quarterly Financial Data for the years ended December 31, 1999 and 1998 (in thousands, except per share data) (Unaudited)
Predecessor First April 1 May 5 Third Fourth Total Quarter through through Quarter Quarter Year May 4 June 30
Net revenue $194,663 $ 76,984 $170,079 $268,645 $276,342 $986,713 Operating income 14,255 10,991 15,873 11,948 2,419 55,486 Net income (loss) 41,849 21,588 (6,239) (20,576) (33,220) 3,402 Basic net income per common share (2) .82 .42
Diluted net income per common share (2) .70 .36
Predecessor
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year
Net revenue $142,028 $183,836 $204,508 $224,096 $754,468 Operating income 3,581 29,726 39,692 43,532 116,531 Net (loss) income (6,898) 5,022 439 2,379 942 Basic net (loss) income per common share (1) (0.14) 0.10 0.01 0.05 0.02
Diluted net (loss) income per common share (1) (0.14) 0.09 0.01 0.04 0.02
[FN]
NOTE:
(1) The sum of the quarterly net income (loss) per share amounts does not equal the annual amount reported as per share amounts are computed independently for each quarter.
(2) Earnings per share is not presented subsequent to May 4, 1999. At the date of the Merger all of the outstanding stock of the Company was exchanged for Clear Channel common stock rendering the calculation not meaningful.
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) List of Documents filed as part of this Report:
(1) Financial Statements
The financial statements of the Company as set forth under Item 8 of this Report on Form 10-K.
(2) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
The following Form 8-K was filed during the fourth quarter of 1999:
Form 8-K dated November 3, 1999. This Form 8-K described the Company dismissing its independent accountant, PricewaterhouseCoopers LLP, and engaging Ernst & Young LLP as its new independent accountant, effective November 3, 1999.
INDEX TO EXHIBITS
Exhibit Description of Exhibit Sequentially Number Numbered Page
2.1 Agreement and Plan of Merger dated as of October 8, 1998 ("Clear Channel Merger * Agreement") between Jacor Communications, Inc. ("Jacor"), Clear Channel Communications, Inc. and CCU Merger Sub (omitting schedules and exhibits not deemed material). Incorporated by reference to Exhibit 2 to Jacor's Current Report on Form 8-K dated October 9, 1998.
2.2 Warrant Agreement dated as of February 27, * 1997 between Jacor and KeyCorp Shareholder Services, Inc., as warrant agent. Incorporated by reference to Exhibit 2.2 to Jacor's Current Report on Form 8-K dated May 5, 1997, as amended.
2.3 Registration Rights Agreement dated as of * October 8, 1996 among Jacor and the parties listed in Schedule I thereto (included as Exhibit I to Regent Merger Agreement). Incorporated by reference to Exhibit 2.4 to Jacor's Current Report on Form 8-K dated October 23, 1996, as amended.
2.4 Warrant Agreement dated as of September 18, * 1996 between Jacor and KeyCorp Shareholder Services, Inc., as warrant agent. Incorporated by reference to Exhibit 4.1 to Jacor's Current Report on Form 8-K dated October 3, 1996.
2.5 Supplemental Agreement dated as of * September 18, 1996 between Jacor and KeyCorp Shareholder Services, Inc., as warrant agent. Incorporated by reference to Exhibit 4.2 of Jacor's Current Report on Form 8-K dated October 3, 1996.
2.6 Registration Rights Agreement dated as of * August 5, 1996 among Jacor, JCAC, Inc., Great American Insurance Company, American Financial Corporation, American Financial Enterprises, Inc., Carl H. Lindner, The Carl H. Lindner Foundation, and S. Craig Lindner. Incorporated by reference to Exhibit 2.22 to Jacor's Post-Effective Amendment No. 1 on Form S-3 to Form S-4 (File No. 333-6639).
3.1 Articles of Incorporation of Jacor. * Incorporated by reference to Exhibit 5 to Jacor's Form 8-A dated February 13, 1997.
3.2 Bylaws of Jacor. Incorporated by reference * to Exhibit 6 to Jacor's Form 8-A dated February 13, 1997.
4.1 Indenture dated as of December 17, 1996 * between Jacor Communications Company ("JCC") Jacor, the Subsidiary Guarantors named therein and The Bank of New York for JCC's 9 3/4% Senior Subordinated Notes due 2006 and Jacor's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.11 to Jacor's Form S-3 Registration Statement (File No. 333-19291).
4.2 Indenture dated as of June 12, 1996 between * Jacor and The Bank of New York for Jacor's Liquid Yield Option Notes Due 2011. Incorporated by reference to Exhibit 4.23 to Jacor's Form S-4 Registration Statement (File No. 333-6639).
4.3 Indenture dated as of June 12, 1996 among * Jacor, JCAC, Inc. and First Trust of Illinois, National Association for JCAC, Inc.'s 10 1/8% Senior Subordinated Notes due 2006 and Jacor's Guaranty thereof. Incorporated by reference to Exhibit 4.24 to Jacor's Form S-4 Registration Statement (File No. 333-6639).
4.4 Indenture dated as of June 17, 1997 between * JCC, Jacor, the Subsidiary Guarantors named therein and The Bank of New York for JCC's 8 3/4% Senior Subordinated Notes due 2007 and Jacor's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.1 to Jacor's Current Report on Form 8-K/A dated June 26, 1997.
4.11 First Supplemental Indenture Dated as of * September 16, 1997 (Supplemental to Indenture Dated as of June 12, 1996) between JCC, the Company and First Trust National Association for JCC's 10 1/8% Senior Subordinated Notes due 2006 and Jacor's Guaranty thereof. Incorporated by reference to Exhibit 4.5 to the Company's Current Report on Form 8-K dated September 30, 1997.
4.12 First Supplemental Indenture Dated as of * September 16, 1997 (Supplemental to Indenture Dated as of December 17, 1996) between JCC, the Company, the Subsidiary Guarantors named therein, and The Bank of New York for JCC's 9 3/4% Senior Subordinated Notes due 2006 and the Company's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.6 to the Company's Current Report on Form 8-K dated September 30, 1997.
4.13 First Supplemental Indenture Dated as of * September 16, 1997 (Supplemental to Indenture Dated as of June 17, 1997) between JCC, the Company, the Subsidiary Guarantors named therein, and The Bank of New York for JCC's 8 3/4% Senior Subordinated Notes due 2007 and Jacor's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.7 to the Company's Current Report on Form 8-K dated September 30, 1997.
4.14 Indenture dated as of February 9, 1998 among * Jacor Communications, Inc. ("Jacor"), Jacor Communications Company ("JCC"), the Subsidiary Guarantors named therein and the Bank of New York for JCC's 8% Senior Subordinated Notes due 2010 and Jacor's and the Subsidiary Guarantors Guaranty thereof. Incorporated by reference to Exhibit 4.20 of the Company's Form S-3 Registration Statement, File No. 333-51489.
4.15 Indenture dated as of February 9, 1998 * between Jacor and the Bank of New York for Jacor's Liquid Yield Option Notes due 2018. Incorporated by reference to Exhibit 4.21 of the Company's Form S-3 Registration Statement, File No. 333-51489.
10.1(+) Change in Control Agreement dated as of June * 12, 1998 by and between Jacor Communications, Inc. and Randy Michaels. Incorporated by reference to Exhibit 10.1 to Jacor's Quarterly Report on Form 10-Q dated August 14, 1998. (1)*
10.2(+) Change in Control Agreement dated as of June * 12, 1998 by and between Jacor Communications, Inc. and Martin R. Gausvik. Incorporated by reference to Exhibit 10.2 to Jacor's Quarterly Report on Form 10-Q dated August 14, 1998. (2)*
10.3(+) Advisory Agreement dated August 26, 1998 * between the Company and Equity Group Investments, Inc. Incorporated by reference to Exhibit 10.1 to Jacor's Quarterly Report on Form 10-Q dated October 30, 1998.
21 Subsidiaries of Registrant. **
Consent of Independent Auditors - Ernst & 86 23.1 Young LLP
Consent of Independent Auditors - 87 23.2 PricewaterhouseCoopers LLP
27 Financial Data Schedules. 88
[FN] __________________
(*) Incorporated by reference as indicated.
(**) Omitted pursuant to General Instructions I(1)(a) and (b) of Form 10-K.
(+) Management Contracts and Compensatory Arrangements.
(1) Identical agreements were also entered into as of June 12, 1998 between the Company and each of the following senior executive officers of the Company: Robert L. Lawrence, R. Christopher Weber, David H. Crowl, Thomas P. Owens, Jon M. Berry, Paul F. Solomon, John Hogan, Jerome L. Kersting and Jay Meyers.
(2) Identical agreements were also entered into as of June 12, 1998 between the Company and each of the following executive officers of the Company: Pamela C. Taylor, Nicholas J. Miller, William P. Suffa and Alfred Kenyon, III.
JACOR COMMUNICATIONS, INC, AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
JACOR COMMUNICATIONS, INC. (The Company)
Date March 29, 2000 By /s/ Randall T. Mays Randall T. Mays, Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Date March 29, 2000 /s/ L. Lowry Mays L. Lowry Mays (Principal Executive Officer) Director
Date March 29, 2000 /s/ Mark P. Mays Mark P. Mays Director
Date March 29, 2000 /s/ Randall T. Mays Randall T. Mays (Principal Accounting and Financial Officer) Director
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements (S-3 No. 333-21419 and S-3 No. 333-06639) of Jacor Communications, Inc. and in the related Prospectuses of our report dated March 24, 2000, with respect to the consolidated financial statements of Jacor Communications, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1999.
March 24, 2000 San Antonio, Texas Ernst & Young LLP
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-3 (File Nos. 333-21419 and 333- 06639) of Jacor Communications, Inc. of our report dated February 12, 1999 relating to our audits of the consolidated financial statements of Jacor Communications, Inc. and subsidiaries as of December 31, 1998 and 1997 and for each of the two years in the period ended December 31, 1998, which appears in this Form 10-K.
PricewaterhouseCoopers LLP Cincinnati, Ohio March 29, 2000
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
CLEAR CHANNEL MERGER
On October 8, 1998 the Company entered into a definitive merger agreement with Clear Channel Communications, Inc. ("Clear Channel") for a tax-free, stock for stock transaction (the "Merger" or the "Clear Channel Merger"). The Company and Clear Channel consummated the Merger at the close of business May 4, 1999. Pursuant to terms of the agreement, each share of Jacor common stock was exchanged for 1.1573151 shares of Clear Channel common stock. Upon conclusion of the Merger, Clear Channel became the sole shareholder of the Company, owning one outstanding share of Jacor common stock.
Upon consummation of the Merger, a change in control event occurred with respect to the Company's credit facility, liquid yield option notes and the senior subordinated notes. Such change in control gave the credit facility lenders the right to require repayment of amounts borrowed under the facility, and required the Company to offer repayment of the senior subordinated notes at 101% of the principal amount and the liquid yield option notes at their issue price plus accrued original issue discount at such date.
As a result of the Merger, all options and stock appreciation rights for Jacor common stock not vested at the effective time of the Merger became fully vested and exercisable one day before the effective time of the Merger. Clear Channel assumed all of these options and stock appreciation rights on the same terms and conditions as were applicable prior to the effective time of the Merger. The holders may exercise such options and stock appreciation rights for or with respect to shares of Clear Channel common stock at an exercise price adjusted to reflect the exchange ratio of the Merger.
Additionally, the Merger resulted in each holder of the Company's common stock warrants becoming entitled to exercise such warrants for shares of Clear Channel common stock instead of Jacor common stock. Upon the exercise of such warrants after the Merger, the holders of such warrants will receive that number of shares of Clear Channel common stock that the holder would have received if he or she had exercised such warrants for shares of Jacor common stock immediately prior to the effective time of the Merger, as adjusted to reflect the exchange ratio of the Merger.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
GENERAL
The following discussion should be read in conjunction with the financial statements beginning on page 49.
This Report includes certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. When used in this Report, the words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially from those described in the forward- looking statement as a result of the matters discussed in this Report generally. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.
In the following analysis, management discusses broadcast cash flow. Broadcast cash flow should not be considered in isolation from, or as a substitute for, operating income, net income or cash flow and other consolidated income or cash flow statement data computed in accordance with generally accepted accounting principles or as a measure of the Company's profitability or liquidity. Although this measure of performance is not calculated in accordance with generally accepted accounting principles, it is widely used in the broadcasting industry as a measure of a company's operating performance. Broadcast cash flow assists in comparing performance on a consistent basis across companies without regard to depreciation and amortization, which can vary significantly depending on accounting methods (particularly where acquisitions are involved). It also excludes non-operating factors such as historical cost bases, and the effect of corporate general and administrative expenses, which generally do not relate directly to the performance of broadcasting entities.
The performance of a broadcasting group, such as the Company, is customarily measured by its ability to generate broadcast cash flow. The primary source of the Company's revenue is the sale of broadcasting time on its stations for advertising. The Company also generates revenue through the sale of broadcasting time on non-owned radio stations in exchange for providing syndicated programming and comprehensive radio research services to the stations, by providing sales representation services to third parties, and through syndicated program fees. The Company's significant operating expenses are employee salaries, sports broadcasting rights fees, programming expenses, advertising and promotion expenses, rental of premises for studios and transmitting equipment and music license royalty fees.
The Company's radio station revenue is affected primarily by the advertising rates the Company's stations are able to charge. These rates are, in large part, based on a station's ability to attract audiences in the demographic groups targeted by its advertisers, as principally measured by Arbitron Metro Area Ratings Surveys.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
GENERAL, Continued
Most advertising contracts are short-term and run only for a few weeks. Most of the Company's revenue is generated from local advertising, which is sold by the station's sales staff. In 1999, approximately 80% of the Company's gross station revenue was from local advertising and approximately 20% was from national advertising. A station's local sales staff solicits advertising, either directly from the local advertiser or through an advertising agency for the local advertiser. National advertising sales for most of the Company's stations are made by the Company's national sales managers in conjunction with the efforts of an independent advertising representative who specializes in national sales and is compensated on a commission-only basis.
The Company's broadcasting services include the distribution of syndicated radio programs and comprehensive radio research services. The Company enters into contracts with radio stations throughout the country to supply them with syndicated programs such as The Rush Limbaugh Show and The Dr. Laura Program. The Company generates revenue from distributing its syndicated programming in two ways: (i) selling commercial broadcast inventory received in exchange for the syndicated programming, and (ii) cash programming fees. Aside from The Rush Limbaugh Show and The Dr. Laura Program, most of the Company's syndicated programs are sold in exchange for commercial broadcast inventory. In those cases, the Company's revenues depend on how successful the Company is in selling air time to advertisers at attractive rates.
The Company, through its wholly owned subsidiary, Premiere Radio Networks, Inc. ("Premiere"), also provides research services, including music play lists and on-air promotion tracking and call-out research, for eleven radio formats, in exchange for commercial broadcast inventory instead of on a cash basis. This practice makes the services more attractive to radio stations which have limited cash resources and/or excess commercial broadcast inventory. Premiere's in house sales force sells commercial broadcast inventory to more than 500 national advertisers. Premiere leverages its sales force and generates additional revenues without significant additional overhead costs by providing network advertising sales representation services, on a commission basis, to third-party networks and independent syndicated programming and service suppliers that do not have their own sales forces.
Sports broadcasting and the full-service programming features play an integral part in the Company's operating strategy. As a result, because of the rights fees and related costs of broadcasting professional baseball and football, the costs related to the full-service programming features of its AM radio stations, as well as the Company's business strategy to acquire "stick" properties (i.e., properties with insignificant ratings and/or little or no positive broadcast cash flow), the Company's broadcast cash flow margins are typically lower than its competitors'.
General economic conditions have an impact on the Company's business and financial results. From time to time the broadcast areas in which the Company operates experience weak economic conditions that may negatively affect revenue of the Company. However, management believes that this impact is somewhat softened by the Company's diverse geographical presence. The financial results of the Company's business are seasonal. Revenues are generally higher in the second, third and fourth calendar quarters than in the first quarter.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Recent liquidity needs have been driven by the Company's acquisition strategy. The Company's acquisitions since 1996 have been financed with funds raised through a combination of debt and equity instruments. The Company currently has sufficient resources to finance all pending acquisitions.
Financing Activities
Cash used by financing activities was $125.8 million for the year ended December 31, 1999, as compared to cash provided of $744.8 million for the year ended December 31, 1998 and $552.9 million for the year ended December 31, 1997. The change between years is due primarily to payment of the outstanding debt under the Company's credit facility and $22.1 million of the Company's senior subordinated notes due to the Clear Channel Merger. Additionally, the change is due in part to the amount of cash necessary for the acquisition of radio stations and broadcasting related service companies in the respective years.
Investing Activities
Cash flows used for investing activities were $123.4 million for the year ended December 31, 1999 as compared to $836.0 million for the year ended December 31, 1998 and $658.3 million for the year ended December 31, 1997. The variations from year to year are related to varying station acquisition and disposition activities and capital expenditures, as described below.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES, Continued
Completed Acquisitions and Dispositions
During 1999, the Company acquired the stock of one and the broadcast assets and FCC licenses of 31 radio stations and one low-powered television station in five of the Company's existing broadcast areas and 14 new broadcast areas for cash consideration of approximately $116.7 million, of which approximately $10.5 million was placed in escrow in 1997 and 1998. These acquisitions were funded primarily through borrowings under the Company's credit facility, which was paid in full by Clear Channel at the date of the Merger. The broadcast assets and FCC licenses of 15 radio stations, and the broadcast assets of one additional radio station, valued at approximately $86.6 million, in two of the Company's existing broadcast areas and eight new broadcast areas, were purchased in part with proceeds held by a qualified intermediary from the sale of five and exchange of one station in two broadcast areas, valued at $103.0 million. The remaining cash held by the qualified intermediary was returned to the Company. The Company also purchased the stock of one broadcasting services company for approximately $55.0 million, with contingent consideration of up to approximately $13.2 million due in 2002. The Company also sold the broadcast assets and FCC license of one radio station for $5.0 million in cash.
Recently Completed Dispositions
During the first quarter of 2000, the Company disposed of the FCC licenses and substantially all of the broadcast assets of two stations in one broadcast area that had been placed in trust at the date of the Clear Channel Merger.
Pending Acquisitions and Dispositions
The Company has entered into agreements to purchase the stock of one and the FCC licenses and substantially all of the broadcast assets of 18 radio stations in five of the Company's existing broadcast areas and three new broadcast areas for approximately $32.6 million in cash, of which approximately $2.1 million has been placed in escrow. The Company expects all financing of its pending acquisitions will be provided by cash flows from operating activities or its parent company, Clear Channel.
The Company has also entered into agreements to sell the intellectual property of one station and the FCC licenses and broadcast assets of seventeen additional stations in twelve broadcast areas.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES, Continued
See the table beginning on page 5 for a detailed list by market of the 246 radio stations owned and/or operated by the Company upon completion of all pending acquisitions and dispositions.
Capital Expenditures
The Company had capital expenditures of $63.7 million, $36.2 million and $20.0 million for the years ended December 31, 1999, 1998 and 1997, respectively. The Company's capital expenditures for operations consist primarily of broadcasting equipment purchases, tower upgrades, and new facilities to consolidate duplicate operating locations. Additionally, in 1999 and 1998 capital expenditures included outlays of cash for the Company's ongoing digital automation project and in 1997 capital expenditures included a centralized accounting system and the Company's wide area network.
Operating Activities
For the year ended December 31, 1999, cash flow provided by operating activities was $237.3 million, as compared to $82.6 million for the year ended December 31, 1998 and $56.0 million for the year ended December 31, 1997. The change is primarily due to an increase in operating income related to acquisitions.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The Company operates in a single reportable segment, broadcast radio and television. At December 31, 1999, the segment includes 257 radio stations in 77 broadcast areas, Premiere, two television stations and several insignificant broadcast service companies. Substantially all revenues are generated from the sale of commercial broadcast inventory, market research, traffic reporting and satellite connectivity.
The Company's management evaluates each broadcast area's performance based on operating income before corporate expenses, interest expense, income taxes, gains or losses and miscellaneous expenses. Specific industry related performance measures also reviewed by management include "Broadcast Cash Flow", which excludes depreciation and amortization from the operating income measurement defined above.
Financial information for 1999 includes results of operations through May 4, 1999, stated on a historical cost basis and the results of operations from May 5, 1999 through December 31, 1999, after applying push down accounting as described in Note 2 of the consolidated financial statements.
Financial information for the Company's segment is as follows (in thousands):
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS, Continued
Discussion of Broadcast Radio and Television Segment Financial Statement Changes
The increase in net revenue from 1998 to 1999, and from 1997 to 1998 is due primarily to revenue generated at those properties owned or operated during 1999, but not during the comparable 1998 period, and during 1998, but not during the comparable 1997 period, respectively.
The increase in radio broadcast operating expenses from 1998 to 1999, and from 1997 to 1998 is due primarily to expenses incurred at those properties owned or operated during 1999 but not during the comparable 1998 period, and during 1998 but not during the comparable 1997 period, respectively.
Depreciation and amortization expense increased from 1998 to 1999 due to the write up of intangible assets to fair value due to the Clear Channel Merger. Depreciation and amortization expense increased from 1997 to 1998 due to acquisitions made during 1997 and 1998.
Operating income decreased from 1998 to 1999 due to the increase in amortization and depreciation expense. Operating income increased from 1997 to 1998 as a result of the acquisitions made throughout 1997 and 1998, and to a lesser extent, increases in operating performance.
Discussion of Other Consolidated Statements of Operations Data
Interest expense increased from 1998 to 1999, and from 1997 to 1998 due to increases in outstanding debt incurred in connection with the Company's acquisitions.
The gain on sale of assets in 1999 is the result of the exchange of five stations in Louisville, Kentucky and one station in Tampa, Florida prior to the Clear Channel Merger, as well as the sale of two of the Company's equity investments. The gain on sale of assets in 1998 resulted primarily from the exchange of two radio stations in San Diego, California and three radio stations in Columbus, Ohio in August 1998. The gain on the sale of assets in 1997 resulted primarily from the sale of the Company's investment in warrants in February 1997 and in an equity security in May 1997.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS, Continued
The increase in income tax expense from 1998 to 1999 was due to increased taxable income resulting from higher revenues, as well as gains on the sale of assets. The effective tax rate increased as well, as a result of an increase in non-deductible goodwill resulting from the Clear Channel Merger. Income tax expense increased from 1997 to 1998 due to approximately $14.8 million in deferred tax expense related to gains recorded on the exchange of certain radio stations.
The Company recognized an extraordinary loss in 1999 due to the tender offer on the Company's 10 1/8% Senior Subordinated Notes, 9 3/4% Senior Subordinated Notes, 8 3/4% Senior Subordinated Notes, and 8% Senior Subordinated Notes. See Footnote 7 to the Consolidated Financial Statements. The Company recognized extraordinary losses in 1997 related to the write off of debt financing costs due to significant amendments to the Company's Credit Facility.
Year 2000 Computer System Compliance
In prior years, the Company discussed the nature and progress of plans to become Year 2000 ready. In late 1999, Jacor completed the remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believe those systems successfully responded to the Year 2000 date changes. An immaterial amount was expensed to operations during 1999 in connection with remediating of the systems. Jacor is not aware of any material problems resulting from year 2000 issues, either with the Company's products, internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. SFAS 133 is amended by Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," and is effective for years beginning after June 15, 2000. The Company plans to adopt this statement in fiscal year 2001. Management does not believe adoption of this statement will materially impact our financial position or results of operations.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A is not applicable to the Company.
Item 8.
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Auditors - Ernst & Young LLP 47
Report of Independent Auditors - PricewaterhouseCoopers LLP 48
Consolidated Balance Sheets: December 31, 1999 and 1998 49
Consolidated Statements of Operations and Comprehensive Income: for the period from May 5, 1999 through December 31, 1999, the period from January 1, 1999 through May 4, 1999, and for the years ended December 31, 1998 and 1997 50
Consolidated Statements of Shareholders' Equity: for the period from May 5, 1999 through December 31, 1999, the period from January 1, 1999 through May 4, 1999, and the years ended December 31, 1998 and 1997 52
Consolidated Statements of Cash Flows: for the period from May 5, 1999 through December 31, 1999, the period from January 1, 1999 through May 4, 1999, and for the years ended December 31, 1998 and 1999 54
Notes to Consolidated Financial Statements 56
Quarterly Financial Data 79
Report of Independent Auditors
Board of Directors Jacor Communications
We have audited the accompanying consolidated balance sheet of Jacor Communications, Inc. as of December 31, 1999 and the related consolidated statements of operations and comprehensive income, shareholder's equity and cash flows for the period from May 5, 1999 through December 31, 1999, and the period from January 1, 1999 through May 4,1999 (Predecessor). 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 auditing standards generally accepted in the United States. 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. at December 31, 1999 and the consolidated results of its operations and its cash flows for the period from May 5, 1999 through December 31, 1999, and the period from January 1, 1999 to May 4, 1999 (Predecessor), in conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
March 24, 2000
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Jacor Communications, Inc.
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and comprehensive income, shareholders' equity and cash flows, as of and for each of the two years in the period ended December 31, 1998, present fairly, in all material respects, the financial position, results of operations and cash flows of Jacor Communications, Inc. and its subsidiaries as of and for each of the two years in the period ended December 31, 1998, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Jacor Communications, Inc. and its subsidiaries for any period subsequent to December 31, 1998.
PricewaterhouseCoopers LLP Cincinnati, Ohio February 12, 1999
[FN]
* Earnings per share information is not presented subsequent to May 4, 1999. At the date of the Merger all of the outstanding stock of the Company was exchanged for Clear Channel common stock rendering the calculation not meaningful.
The accompanying notes are an integral part of the consolidated financial statements.
(Continued)
The accompanying notes are an integral part of the consolidated financial statements.
(Continued)
The accompanying notes are an integral part of the consolidated financial statements.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
Description of Business
Jacor Communications, Inc. (the "Company" or "Jacor"), a wholly-owned subsidiary of Clear Channel Communications, Inc. ("Clear Channel"), operates in a single reportable segment, broadcast radio and television, which derives its revenue from the sale of commercial broadcast inventory, market research, traffic reporting and satellite connectivity. Prior to the Clear Channel Merger, the Company operated in a single reportable segment - Radio, which included all of the Company's radio stations and Premiere Radio Networks, Inc. Aggregated segments included in the caption "other" included one television station and various broadcast related businesses.
As of December 31, 1999 the Company owned, operated, and/or sold advertising time for 263 radio stations and two television stations in 77 broadcast areas throughout the United States.
On May 4, 1999 Jacor was merged with a wholly-owned subsidiary of Clear Channel Communications (the "Merger"), as more fully described in Note 2. The Merger was accounted for as a purchase business combination and, accordingly, purchase accounting adjustments, including goodwill, have been pushed down and are reflected in these financial statements subsequent to May 4, 1999. The financial statements for periods ended before May 5, 1999, were prepared using Jacor's historical basis of accounting and are designated as "Predecessor". The comparability of operating results for the Predecessor periods and the periods subsequent to the Merger date are affected by the purchase accounting adjustments.
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. Certain prior year amounts have been reclassed to conform to 1999 presentation. These changes had no impact on previously reported results of operations or shareholders' equity.
Revenue Recognition
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.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS, Continued
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents.
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.
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:
Buildings 10 to 30 Years Structures and site leases 2 to 20 Years Transmitter and studio equipment 7 to 15 Years Furniture and other equipment 2 to 10 Years Leasehold improvements Life of lease
Expenditures for repairs and maintenance are charged to operations as incurred. Expenditures for renewal and betterments are capitalized.
Intangible Assets
Intangible assets are stated at cost less accumulated amortization; amortization is provided principally on the straight-line basis over the following lives:
FCC Broadcasting licenses and goodwill 25 Years Contracts and other intellectual property 3 to 25 Years
Prior to the Clear Channel Merger, the Company amortized FCC broadcasting licenses and goodwill over 40 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, FCC licenses and other intangible assets will not be recoverable, as determined based on the undiscounted cash flows of the entity over the remaining amortization period, the carrying value of the goodwill, FCC licenses, and other intangible assets will be reduced to their respective fair values.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS, Continued
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.
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.
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CLEAR CHANNEL MERGER
On October 8, 1998 the Company entered into a definitive merger agreement with Clear Channel for a tax-free, stock for stock transaction (the "Merger" or the "Clear Channel Merger"). The Company and Clear Channel consummated the Merger at the close of business May 4, 1999. Pursuant to terms of the agreement, each share of Jacor common stock was exchanged for 1.1573151 shares of Clear Channel common stock. Upon conclusion of the Merger, Clear Channel became the sole shareholder of the Company, owning one outstanding share of Jacor common stock.
Clear Channel accounted for its acquisition of the Company as a purchase and purchase accounting adjustments, including goodwill, have been pushed down and reflected in the consolidated financial statements of the Company subsequent to May 4, 1999. The consolidated financial statements of the Company for the periods ended before May 5, 1999, were prepared using the Company's historical basis of accounting and are designated as "Predecessor." The comparability of operating results for the Predecessor and the periods subsequent to May 4, 1999 encompassing push down accounting are affected by the purchase accounting adjustments including the amortization of goodwill over a period of 25 years.
This purchase price allocation is preliminary pending completion of appraisals and other fair value analysis of assets and liabilities, which the Company anticipates will be completed during the second quarter of 2000. The following table summarizes the preliminary changes made to the accounts of the Company subsequent to May 4, 1999 as a result of applying push down accounting: Adjustments (in thousands)
Goodwill and other intangible assets $4,130,669 Total assets $4,130,669
Current liabilities $ 120,000 Long-term debt (638,837) Other liabilities 1,308,862 Shareholders' equity 3,340,644 Total liabilities and equity $4,130,669
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CLEAR CHANNEL MERGER, Continued
Upon consummation of the Merger, a change in control event occurred with respect to covenants in the Company's credit facility, LYONs and each outstanding issue of the senior subordinated notes. Such change in control gave the credit facility lenders the right to require repayment of amounts borrowed under the facility, and required 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. Approximately $22.1 million of senior subordinated notes were tendered in connection with the repayment offer.
As a result of the Merger, all options and stock appreciation rights for Jacor common stock not vested at the effective time of the Merger became fully vested and exercisable one day before the effective time of the Merger. Clear Channel assumed all of these options and stock appreciation rights on the same terms and conditions as were applicable prior to the effective time of the Merger. The holders may exercise such options and stock appreciation rights for or with respect to shares of Clear Channel common stock at an exercise price adjusted to reflect the exchange ratio of the Merger.
In August 1998, the Company entered into an advisory agreement with Equity Group Investments, Inc. ("EGI"), an affiliate of the Company's largest shareholder, 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. As a result of the Merger, EGI received a fee of approximately $38.2 million.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS
Completed 1999 Acquisitions and Dispositions
During 1999, the Company acquired the stock of one and the broadcast assets and FCC licenses of 31 radio stations and one low-powered television station in five of the Company's existing broadcast areas and 14 new broadcast areas for cash consideration of approximately $116.7 million in cash, of which approximately $10.5 million was placed in escrow in 1997 and 1998.
The Company also completed five separate transactions, selling five stations and exchanging one station in two broadcast areas, valued at $103.0 million, for the broadcast assets and FCC licenses of 15 radio stations, and the broadcast assets of one additional radio station, valued in total at approximately $86.6 million, in two of the Company's existing broadcast areas and eight new broadcast areas. The remaining cash held by the qualified intermediary was returned to the Company. Also in 1999, the Company purchased the stock of one broadcasting services company for approximately $55.0 million, with contingent consideration of up to $13.2 million due in 2002.
Additionally, the Company sold the broadcast assets and FCC license of one radio station for $5.0 million in cash.
Completed 1998 Acquisitions and Dispositions
Nationwide Related Transactions
In August 1998, the Company completed the acquisition of substantially all broadcast related assets of Nationwide Communications Inc. ("Nationwide") for total cash consideration of approximately $555 million, of which $30.0 million was placed in escrow in 1997, plus acquisition costs. Simultaneously with the Nationwide acquisition, but in separate transactions, the Company effected the exchange and sale of certain radio stations in order to satisfy antitrust concerns raised by the Department of Justice in connection with the Nationwide acquisition. For financial reporting purposes, the Company recorded the exchange of eight radio stations as sale transactions, receiving non- cash consideration in the form of nine radio stations with aggregate fair values of $195 million. Additionally, one other radio station was sold for $10.l million in cash. The Company recorded net pre-tax gains of $10.9 million, which was measured by the difference between the fair value of the radio stations exchanged or sold and the carrying value of the properties. The Company believes that certain of the transactions qualify as tax-deferred like-kind exchanges, therefore, the income tax expense of approximately $14 million associated with the gains is included in the deferred component of income tax expense. The radio stations received in the exchange transactions were recorded as purchase transactions at their respective fair values.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS, Continued
Other Transactions
Also during 1998, the Company completed acquisitions of 47 radio stations in 10 existing and 17 new broadcast areas for a purchase price consisting of approximately $237.0 million in cash, of which $18.8 million was placed in escrow in 1997, and the assumption of approximately $10.7 million in debt owed to wholly-owned subsidiaries of the Company.
The Company also completed two separate exchanges of broadcast properties, exchanging five stations in two broadcast areas for seven stations in two broadcast areas. The Company sold six broadcast properties in three broadcast areas for approximately $1.1 million in cash.
During 1998, the Company completed acquisitions of two broadcasting service companies and the assets of five other broadcasting service companies for a purchase price of approximately $14.5 million in cash, a note payable of approximately $0.8 million, plus additional contingent consideration of up to $1.6 million payable over three years.
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 25 years. Prior to the Clear Channel Merger, excess cost over the fair value of net assets acquired was 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. The Company's 1999 completed acquisitions both individually and in the aggregate are immaterial to the Company's results of operations. Assuming each of the 1998 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) Year Ended December 31, 1998 1997
Net revenue $824,616 $714,853 Net loss before extraordinary loss (9,568) (14,263) Diluted loss per common share before extraordinary loss $(.19) $(.28)
These unaudited pro forma amounts do not purport to be indicative of the results that might have occurred if the foregoing transactions had been consummated on the indicated dates.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS, Continued
Recently Completed Dispositions
During the first quarter of 2000, the Company disposed of the FCC licenses and substantially all of the broadcast assets of two stations in one broadcast area that had been placed in trust at the date of the Clear Channel Merger.
Pending Acquisitions and Dispositions
As of March 15, 2000, the Company has entered agreements to purchase the stock of one and the FCC licenses and substantially all of the broadcast assets of 18 radio stations in five of the Company's existing broadcast areas and three new broadcast areas for approximately $32.6 million in cash, of which approximately $2.1 million has been paid in escrow.
The Company has also entered into agreements to sell the intellectual property of one station and the FCC licenses and broadcast assets of seventeen additional stations in twelve broadcast areas.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 consist of the following (in thousands):
1999 1998
Land, buildings and improvements $ 93,776 $ 73,301 Transmitter and studio equipment 187,575 208,698 Furniture and other equipment 58,516 43,685 Construction in progress 19,697 10,518 359,564 336,202 Less accumulated depreciation (25,545) (55,153) $334,019 $281,049
5. INTANGIBLE ASSETS
Intangible assets at December 31, 1999 and 1998 consist of the following (in thousands):
1999 1998
Broadcasting licenses and goodwill $6,722,447 $2,530,496 Contracts and other intellectual assets 337,418 400,674 7,059,865 2,931,170 Less accumulated amortization (215,691) (181,822) $6,844,174 $2,749,348
The 1999 intangible assets reflect the effects of applying push down accounting due to the Clear Channel Merger.
6. OTHER ASSETS
At December 31, 1998 the Company recorded an unrealized gain, net of tax, of $25.4 million on an investment in a marketable equity security. In January 1999 the Company sold the investment and recognized a pretax gain of $83.5 million.
JACOR COMMUNICATIONS,INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT
The Company's debt obligations at December 31, 1999 and 1998 consist of the following (in thousands):
1999 1998
Credit Facility borrowings........ $ - $ 750,000 10 1/8% Senior Subordinated Notes, due 2006....................... 106,811 100,000 9 3/4% Senior Subordinated Notes, due 2006....................... 188,633 170,000 8 3/4% Senior Subordinated Notes, due 2007....................... 163,693 150,000 8% Senior Subordinated Notes, due 2010....................... 112,268 119,574 $ 571,405 $1,289,574
Credit Facility
Prior to the Clear Channel Merger, the Company, through Jacor Communications Company ("JCC"), had a $1.15 billion credit facility (the "Credit Facility") with a group of banks and other financial institutions (the "Lenders"). The Credit Facility consisted of two components, a revolving credit facility ("Revolving Credit Facility") of up to $750.0 million and a term loan ("Term Loan") of up to $400.0 million. At May 4, 1999, the Company had $400.0 million of outstanding indebtedness under the Term Loan and $450.0 million of outstanding indebtedness under the Revolving Credit Facility. Upon consummation of the Merger, a change in control event occurred with respect to covenants in the Credit Facility, giving the Credit Facility Lenders the right to require repayment of amounts borrowed under the Credit Facility. Clear Channel paid in full the outstanding balance under the Credit Facility at the date of the Merger. At December 31, 1998, the Company had $400.0 million of outstanding indebtedness under the Term Loan and $385.0 million of outstanding indebtedness under the Revolving Credit Facility. At December 31, 1998 the average interest rate on Credit Facility borrowings was 6.20%.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT, Continued
Senior Subordinated Notes
The Company has four series of Senior Subordinated Notes: 10 1/8% Senior Subordinated Notes (the "10 1/8% Notes") due 2006; 9 3/4% Senior Subordinated Notes (the "9 3/4% Notes") due 2006; 8 3/4% Senior Subordinated Notes (the "8 3/4% Notes) due 2007, and; 8% Senior Subordinated Notes (the "8% Notes") due 2010 (collectively, the "Notes"). At the date of the Merger, the Notes were revalued to fair market value, resulting in a merger premium of $30.5 million being added to the face value of the Notes. The following schedule summarizes information related to the Notes (in thousands):
Fair Market Interest Maturity Face Value at Payment Issue Date Value Merger Date Schedule
10 1/8% Notes 06/15/06 $100,000 $107,042 Semi-annual 9 3/4% Notes 12/15/06 $170,000 $182,363 Semi-annual 8 3/4% Notes 06/15/07 $150,000 $156,167 Semi-annual 8 % Notes 02/15/10 $120,000 $124,512 Semi-annual
As a result of the Clear Channel Merger, a change in control event occurred with respect to the Notes, requiring the Company to offer repayment of the Notes at 101% of the principal amount. Approximately $22.1 million of Notes were tendered in connection with the repayment offer. In December 1999, Clear Channel completed a tender offer for the Notes through an agent acting on the behalf of Clear Channel, whereby Notes with a face value of approximately $516.6 million were redeemed. Cash settlement of the amount due to the agent was completed on January 14, 2000, and included approximately $21.3 million in premiums and agency fees. Clear Channel recognized an extraordinary charge of approximately $13.2 million, net of approximately $8.1 million of income tax, in the fourth quarter of 1999. At 12/31/99, the Notes include the face value of the outstanding Notes, net of discount, accrued interest, unamortized merger premium, and tender premium and agency fees, as follows (in thousands):
Tender Face Unamortized Premium Value Face Value Accrued Merger and Agency after Issue at 12/31/99 Interest Premium Fees Tender
10 1/8% Notes $ 96,997 $ 407 $ 6,381 $ 3,026 $ 639 9 3/4% Notes $170,000 $ 690 $ 11,278 $ 6,665 $ 100 8 3/4% Notes $149,475 $ 544 $ 5,660 $ 8,014 $ 260 8 % Notes $101,057 $ 3,035 $ 4,615 $ 3,561 $ 234
As a wholly-owned subsidiary of Clear Channel, the Company also guarantees the outstanding debt of Clear Channel.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LIQUID YIELD OPTION NOTES
1998 Liquid Yield Option Notes
In February 1998, the Company issued 4 3/4% Liquid Yield Option Notes ("1998 LYONs") due 2018 in the aggregate principal amount at maturity of $426.9 million. Each 1998 LYON had an issue price of $391.06 and a principal amount at maturity of $1,000. At the date of the Merger, the 1998 LYONs were revalued to fair market value, resulting in a merger premium of approximately $48.5 million. As a result of the Clear Channel Merger, a change in control event occurred with respect to the 1998 LYONs, requiring the Company to offer repayment of the 1998 LYONs at their issue price plus accrued original issue discount at such date. Twenty-two 1998 LYONs were presented for repayment. At December 31, 1999, the 1998 LYONs had a balance, net of redemptions, conversions to common stock, amortization of premium, and accretion of interest, of approximately $229.3 million, and an approximate fair market value of $286.0 million. At December 31, 1998, the 1998 LYONs had a balance, net of redemptions, conversions to common stock, and accretion of interest, of approximately $174.1 million, and an approximate fair market value of $205.4 million.
Each 1998 LYON is convertible, at the option of the holder, at any time on or prior to maturity, into Clear Channel common stock at a conversion rate of 7.227 shares per 1998 LYON. At December 31, 1999, approximately 3.1 million shares of Clear Channel common stock were reserved for conversion of the 1998 LYONs.
The 1998 LYONs are not redeemable by the Company prior to February 9, 2003. Thereafter, the LYONs are redeemable for cash at any time at the option of the Company, in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption.
The 1998 LYONs can be purchased by the Company, at the option of the holder, on February 9, 2003, February 9, 2008, and February 9, 2013 for a purchase price of $494.52, $625.35 and $790.79 (representing issue price plus accrued original issue discount to each date), respectively, representing a 4 3/4% yield per annum to the holder on such date. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or Clear Channel common stock, or any combination thereof.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LIQUID YIELD OPTION NOTES, Continued
1996 Liquid Yield Option Notes
In June 1996, the Company issued 5 1/2% Liquid Yield Option Notes ("1996 LYONs") due 2011 in the aggregate principal amount at maturity of $259.9 million. Each 1996 LYON had an issue price of $443.14 and a principal amount at maturity of $1,000. At the date of the Merger, the 1996 LYONs were revalued to fair market value, resulting in a merger premium of approximately $132.2 million. As a result of the Clear Channel Merger, a change in control event occurred with respect to the 1996 LYONs, requiring the Company to offer repayment of the 1996 LYONs at their issue price plus accrued original issue discount at such date. One hundred fifty 1996 LYONs were presented for repayment. At December 31, 1999, the 1996 LYONs had a balance, net of redemptions, conversions to common stock, amortization of premium, and accretion of interest, of approximately $261.6 million, and an approximate fair market value of $344.8 million. At December 31, 1998, the 1996 LYONs had a balance, net of redemptions, conversions to common stock, and accretion of interest, of approximately $132.1 million, and an approximate fair market value of $232.0 million.
Each 1996 LYON is convertible, at the option of the holder, at any time on or prior to maturity, into Clear Channel common stock at a conversion rate of 15.522 shares per 1996 LYON. At December 31, 1999, approximately 3.9 million shares of Clear Channel common stock were reserved for conversion of the 1996 LYONs.
The 1996 LYONs are not redeemable by the Company prior to June 12, 2001. Thereafter, the 1996 LYONs are redeemable for cash at any time at the option of the Company, in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption.
The 1996 LYONs can be purchased by the Company, at the option of the holder, on June 12, 2001 and June 12, 2006, for a purchase price of $581.25 and $762.39 (representing issue price plus accrued original issue discount to each date), respectively, representing a 5 1/2% yield per annum to the holder on such date. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or Clear Channel common stock, or any combination thereof.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. CAPITAL STOCK
Common Stock
As a result of the Clear Channel Merger, each share of Jacor common stock was exchanged for 1.1573151 shares of Clear Channel common stock. Upon conclusion of the Merger, Clear Channel became the sole shareholder of the Company, owning one outstanding share of Jacor common stock.
In February 1998, the Company completed an offering of 5,073,000 shares of Jacor common stock at $50.50 per share, net of underwriting discounts of $2.02 per share. Net proceeds to the Company were approximately $244.9 million.
Warrants
1997 Warrants
In connection with the 1997 acquisition of Regent Communications, Inc., the Company issued warrants (the "1997 Warrants") to acquire 500,000 shares of Jacor common stock with an exercise price of $40 per share, expiring in February 2002. Upon consummation of the Merger, the 1997 Warrants were revalued to fair market value, resulting in an increase of $12.7 million.
1996 Warrants
In connection with the 1996 acquisition of Citicasters, Inc., the Company issued warrants (the "1996 Warrants") to acquire 4,400,000 shares of Jacor common stock with an exercise price of $28 per share, expiring in September 2001. Upon consummation of the Merger, the 1996 Warrants were revalued to fair market value, resulting in an increase of $210.2 million.
As a result of the Clear Channel Merger, each holder of the Company's 1997 Warrants and 1996 Warrants (collectively, the "Warrants") became entitled to exercise such Warrants for shares of Clear Channel common stock instead of Jacor common stock. Upon exercise of such Warrants after the date of the Merger, the holders of such Warrants will receive that number of shares of Clear Channel common stock that the holder would have received if she or he had exercised such Warrants for shares of Jacor common stock immediately prior to the effective time of the Merger, as adjusted to reflect the exchange ratio of the Merger.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK BASED COMPENSATION PLANS
As a result of the Merger, all options and stock appreciation rights issued under the Company's stock based compensation plans not vested at the effective time of the Merger became fully vested and exercisable one day before the effective time of the Merger. Clear Channel assumed all of these options and stock appreciation rights on the same terms and conditions as were applicable prior to the effective time of the Merger. The holders may exercise such options and stock appreciation rights for or with respect to shares of Clear Channel common stock at an exercise price adjusted to reflect the exchange ratio of the Merger. All shares previously available for grant under the Company's stock based compensation plans were no longer available subsequent to the Merger.
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.
1997 Long-Term Incentive Stock Plan
The 1997 Long-Term Incentive Stock Plan ("the Long-Term Plan") authorizes the issuance of up to 1,800,000 shares of Common Stock pursuant to the grant or exercise of stock options, including NQSOs and ISOs, restricted stock, stock appreciation rights (SARs), and certain other instruments to executive officers and other key employees, subject to board approval and certain other restrictions. Stock options may not be granted at less than the fair market value of the underlying stock on the date of grant. Twenty-five percent of the options vest on the date of the grant and 25% vest on each of the next three anniversaries of the grant date. Options expire 10 years after grant.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK BASED COMPENSATION PLANS, Continued
1997 Non-Employee Directors Stock Plan and Stock Purchase Plan
The 1997 Non-Employee Directors Stock Plan (the "Directors Stock Plan") authorizes the issuance of up to 350,000 shares of Jacor Common Stock pursuant to the grant or exercise of NQSOs, SARs, restricted stock and other performance instruments. Stock options may not be granted at less than the fair market value of the underlying stock on the date of grant. Twenty-five percent of the options vest on the date of the grant and 25% vest on each of the next three anniversaries of the grant date. Options expire 10 years after grant. 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.
Information pertaining to the plans for the years ended December 31, 1997 and 1998, and for the period ended May 4, 1999, is as follows:
Number of Weighted Average Shares Exercise Price
1997: Outstanding at beginning of year.. 2,056,610 $12.26 Granted........................... 1,196,188 $24.92 Exercised......................... (212,679) $11.61 Surrendered....................... (15,490) $26.71 Outstanding at end of year........ 3,024,629 $17.20 Exercisable at end of year........ 2,228,095 $13.72 Available for grant at end of year 1,476,930
1998: Outstanding at beginning of year.. 3,024,629 $17.20 Granted........................... 921,800 $53.31 Exercised......................... (245,698) $15.32 Surrendered....................... (9,083) $22.52 Outstanding at end of year........ 3,691,648 $26.33 Exercisable at end of year........ 2,435,686 $18.37 Available for grant at end of year 555,130
January 1 - May 4, 1999: Outstanding at beginning of year.. 3,691,648 $26.33 Granted........................... 310,950 $67.00 Exercised......................... (64,554) $18.25 Surrendered....................... (1,500) $28.63 Outstanding at May 4, 1999........ 3,936,544 $29.69
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK BASED COMPENSATION PLANS, Continued
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for grants in 1999, 1998, and 1997, 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 1999, 1998 and 1997 follows:
1999 1998 1997
Weighted-average fair value of options granted at-the-money $27.45 $30.87 $12.26 Weighted-average fair value of options granted at a discount - - $28.15 Weighted-average fair value of all options granted during the year $27.45 $30.87 $16.29
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 May 4, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE Weighted Weighted Weighted Range of Number Average Average Number Average Exercise Outstanding Remaining Exercise Exercisable Exercise Prices at 5/04/99 Life Price at 5/04/99 Price
$5.74 to $9.65 1,072,993 3.98 $ 6.11 1,072,993 $ 6.11
$12.70 to $19.96 293,929 6.14 $16.00 293,929 $16.00
$21.25 to $30.66 1,301,122 7.78 $26.46 959,634 $26.43
$37.25 to $52.88 894,800 8.67 $51.93 444,150 $52.08
$53.00 to $67.00 373,700 9.73 $65.59 102,497 $65.15
$ 5.74 to $67.00 3,936,544 8.56 $29.69 2,873,203 $23.12
On May 4, 1999, option holders exercised an additional 869,352 options which had become vested and exercisable as a result of the Merger.
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 24,936 shares for approximately $54.29 per share in 1999, 66,151 shares for approximately $43.80 per share and 3,441 shares for approximately $52.06 per share in 1998, and 74,767 shares for approximately $23.27 per share and 12,376 shares for approximately $32.19 per share in 1997. The fair market value of the right to acquire common stock under the Stock Purchase Plan was $19.59 per share in 1999, $15.74 per share granted on January 1 and $15.73 per share granted on July 1 in 1998, and $8.40 per share granted on January 1 and $9.80 per share granted on July 1 in 1997.
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 1999, 1998 and 1997 would approximate amounts below (in thousands, except per share amounts):
1999 1998 1997
Net income (loss): As reported $ 63,437 $ 942 $ (4,052) Pro forma $ 56,664 $(17,729) $(10,691)
Diluted net income (loss) per common share: As reported $ 1.07 $ 0.02 $ (0.10) Pro forma $ 0.92 $ (0.31) $ (0.25)
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES
Income tax expense for the periods ended December 31, 1999, 1998, 1997 and May 4, 1999 is summarized as follows (in thousands):
Federal State Total
December 31, 1999: Current $ 7,206 $ 3,091 $10,297 Deferred (8,421) (1,131) (9,552) $(1,215) $ 1,960 $ 745
May 4, 1999: Current $34,398 $ 2,498 $36,896 Deferred 13,580 1,824 15,404 $47,978 $ 4,322 $52,300
December 31, 1998: Current $10,640 $ 2,500 $13,140 Deferred 12,060 2,900 14,960 $22,700 $ 5,400 $28,100
December 31, 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
The provisions for income tax differ from the amount computed by applying the statutory federal income tax rate due to the following:
12/31/99 5/4/99 12/31/98 12/31/97 Federal income tax at the statutory rate $(16,449) $40,508 $10,167 $ 5,173 Amortization not deductible 30,964 3,949 14,446 3,449 State income taxes, net of any current federal income tax benefit 1,274 2,810 3,498 589 Acquisition costs and other (15,044) 5,033 (11) 389
$ 745 $52,300 $28,100 $ 9,600
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, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997 Deferred tax assets: Accrued expenses and reserves $ (7,705) $ (4,555) $ (7,479) Net operating loss carryforwards (13,832) (7,235) (11,461) Long term debt (98,347) - - Other - (1,682) (4,047) (119,884) (13,472) (22,987) Valuation allowance 13,832 - - (106,052) (13,472) (22,987)
Deferred tax liabilities: Property and equipment 25,381 40,289 35,614 Intangibles 858,989 318,661 326,240 Other 4,178 - - 888,548 358,950 361,854
Net liability $782,496 $345,478 $338,867
At December 31, 1999 the Company had net operating loss carryforwards of $36,400. The loss carryforwards expire in the years 2008 through 2012 if not used.
The Company established a valuation allowance in the current year against its operating loss carryforwards following an assessment of the likelihood of realizing such amounts. The amount of the valuation allowance was based on past operating history, as well as restrictions on the use of operating losses from acquisitions, tax planning strategies, and its expectation of the level and timing of future taxable income.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease office space and certain land and facilities used in their operations. Some of the lease agreements contain renewal options and annual rental escalation clauses (generally tied to the consumer price index or a maximum of 5%), as well as provisions for the payment of utilities and maintenance by the Company. Future minimum payments under noncancelable leases as of December 31, 1999 are payable as follows (in thousands):
2000 $ 44,213 2001 36,274 2002 25,154 2003 17,159 2004 10,037 Thereafter 67,863 $200,700
Jacor provides programming to and sells airtime for WGST-FM in Atlanta, Georgia. At any time after September 30, 1999 and before September 30, 2003 Cherokee Broadcasting can "put" WGST-FM to Jacor for a price of $31.0 million. At any time after May 21, 2003 and before September 30, 2003, Jacor can "call" the station for the same price.
Rental expense was approximately $34,460, $11,955 and $8,010 for the years ended December 31, 1999, 1998 and 1997, 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, liabilities, if any, arising from these actions are either covered by insurance or accrued reserves, or would not have a material adverse effect on the financial condition of the Company.
13. RETIREMENT PLAN
The Company maintained a defined contribution retirement plan covering substantially all employees who met eligibility requirements. The Company matched 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 $1,169,562, $2,558,647, and $1,977,052 for the period January 1 through April 23, 1999 and the 1998 and 1997 years, respectively.
On April 23, 1999 the plan was terminated due to the Clear Channel Merger. The Company subsequently received a favorable determination letter from the Internal Revenue Service and is in the process of distributing the assets of the retirement plan to the participants.
On July 1, 1999, employees were given the opportunity to enroll in Clear Channel's 401(k) savings plan. Both the employees and the Company make contributions to the plan. The Company also matches a portion of an employee's contribution. Company matched contributions vest to the employees based upon their year of service to the Company. Expense for the period July 1 through December 31, 1999 was $1,568,994.
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 period from January 1, 1999 through May 4, 1999, and the years ended December 31, 1998 and 1997 (in thousands except per share amounts):
January 1, through May 4, 1999 1998 1997 Net income before extraordinary item for basic EPS $ 63,437 $ 942 $ 3,404 LYONs interest expense, net of tax 2,686 - -
Net income before extraordinary item for diluted EPS $66,123 $ 942 $ 3,404
Weighted average shares - basic 51,299 50,389 40,460 Effect of dilutive securities:
Stock options 1,661 1,465 996 Warrants 2,817 2,326 357 LYONs 6,097 - - Other 42 385 350 Weighted average shares - diluted 61,916 54,565 42,163 Basic EPS $1.24 $ .02 $ .08 Diluted EPS $1.07 $ .02 $ .08
Earnings per share is not presented subsequent to May 4, 1999. At the date of the Merger all of the outstanding stock of the Company was converted into Clear Channel common stock rendering the calculation not meaningful.
Prior to the Merger, the Company's LYONs could be converted into approximately 6.1 million shares of common stock at the option of the holder. Assuming conversion of the LYONs as of January 1, 1998 and 1997 would result in an increase in per share amounts, therefore the LYONs are not included in the computation of diluted EPS. Due to the Merger, the LYONs are now convertible into shares of Clear Channel common stock at the Merger conversion ratio.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. SFAS 133 is amended by Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," and is effective for years beginning after June 15, 2000. The Company plans to adopt this statement in fiscal year 2001. Management does not believe adoption of this statement will materially impact our financial position or results of operations.
16. RELATED PARTY TRANSACTIONS
As described in Note 7, Clear Channel repaid $850 million that was outstanding under the Company's credit facility. This transaction is reflected in Due to Clear Channel, net. Net amounts due to Clear Channel accrue interest at 7%. The amounts due to Clear Channel have no stated repayment terms.
Clear Channel allocates shared corporate general and administrative expenses to Jacor based on Jacor's proportionate share of consolidated Clear Channel revenues. Expenses allocated to Jacor for the period May 5, 1999 through December 31, 1999 totaled approximately $4.8 million.
Supplementary Data
Quarterly Financial Data for the years ended December 31, 1999 and 1998 (in thousands, except per share data) (Unaudited)
Predecessor First April 1 May 5 Third Fourth Total Quarter through through Quarter Quarter Year May 4 June 30
Net revenue $194,663 $ 76,984 $170,079 $268,645 $276,342 $986,713 Operating income 14,255 10,991 15,873 11,948 2,419 55,486 Net income (loss) 41,849 21,588 (6,239) (20,576) (33,220) 3,402 Basic net income per common share (2) .82 .42
Diluted net income per common share (2) .70 .36
Predecessor
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year
Net revenue $142,028 $183,836 $204,508 $224,096 $754,468 Operating income 3,581 29,726 39,692 43,532 116,531 Net (loss) income (6,898) 5,022 439 2,379 942 Basic net (loss) income per common share (1) (0.14) 0.10 0.01 0.05 0.02
Diluted net (loss) income per common share (1) (0.14) 0.09 0.01 0.04 0.02
[FN]
NOTE:
(1) The sum of the quarterly net income (loss) per share amounts does not equal the annual amount reported as per share amounts are computed independently for each quarter.
(2) Earnings per share is not presented subsequent to May 4, 1999. At the date of the Merger all of the outstanding stock of the Company was exchanged for Clear Channel common stock rendering the calculation not meaningful.
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) List of Documents filed as part of this Report:
(1) Financial Statements
The financial statements of the Company as set forth under Item 8 of this Report on Form 10-K.
(2) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
The following Form 8-K was filed during the fourth quarter of 1999:
Form 8-K dated November 3, 1999. This Form 8-K described the Company dismissing its independent accountant, PricewaterhouseCoopers LLP, and engaging Ernst & Young LLP as its new independent accountant, effective November 3, 1999.
INDEX TO EXHIBITS
Exhibit Description of Exhibit Sequentially Number Numbered Page
2.1 Agreement and Plan of Merger dated as of October 8, 1998 ("Clear Channel Merger * Agreement") between Jacor Communications, Inc. ("Jacor"), Clear Channel Communications, Inc. and CCU Merger Sub (omitting schedules and exhibits not deemed material). Incorporated by reference to Exhibit 2 to Jacor's Current Report on Form 8-K dated October 9, 1998.
2.2 Warrant Agreement dated as of February 27, * 1997 between Jacor and KeyCorp Shareholder Services, Inc., as warrant agent. Incorporated by reference to Exhibit 2.2 to Jacor's Current Report on Form 8-K dated May 5, 1997, as amended.
2.3 Registration Rights Agreement dated as of * October 8, 1996 among Jacor and the parties listed in Schedule I thereto (included as Exhibit I to Regent Merger Agreement). Incorporated by reference to Exhibit 2.4 to Jacor's Current Report on Form 8-K dated October 23, 1996, as amended.
2.4 Warrant Agreement dated as of September 18, * 1996 between Jacor and KeyCorp Shareholder Services, Inc., as warrant agent. Incorporated by reference to Exhibit 4.1 to Jacor's Current Report on Form 8-K dated October 3, 1996.
2.5 Supplemental Agreement dated as of * September 18, 1996 between Jacor and KeyCorp Shareholder Services, Inc., as warrant agent. Incorporated by reference to Exhibit 4.2 of Jacor's Current Report on Form 8-K dated October 3, 1996.
2.6 Registration Rights Agreement dated as of * August 5, 1996 among Jacor, JCAC, Inc., Great American Insurance Company, American Financial Corporation, American Financial Enterprises, Inc., Carl H. Lindner, The Carl H. Lindner Foundation, and S. Craig Lindner. Incorporated by reference to Exhibit 2.22 to Jacor's Post-Effective Amendment No. 1 on Form S-3 to Form S-4 (File No. 333-6639).
3.1 Articles of Incorporation of Jacor. * Incorporated by reference to Exhibit 5 to Jacor's Form 8-A dated February 13, 1997.
3.2 Bylaws of Jacor. Incorporated by reference * to Exhibit 6 to Jacor's Form 8-A dated February 13, 1997.
4.1 Indenture dated as of December 17, 1996 * between Jacor Communications Company ("JCC") Jacor, the Subsidiary Guarantors named therein and The Bank of New York for JCC's 9 3/4% Senior Subordinated Notes due 2006 and Jacor's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.11 to Jacor's Form S-3 Registration Statement (File No. 333-19291).
4.2 Indenture dated as of June 12, 1996 between * Jacor and The Bank of New York for Jacor's Liquid Yield Option Notes Due 2011. Incorporated by reference to Exhibit 4.23 to Jacor's Form S-4 Registration Statement (File No. 333-6639).
4.3 Indenture dated as of June 12, 1996 among * Jacor, JCAC, Inc. and First Trust of Illinois, National Association for JCAC, Inc.'s 10 1/8% Senior Subordinated Notes due 2006 and Jacor's Guaranty thereof. Incorporated by reference to Exhibit 4.24 to Jacor's Form S-4 Registration Statement (File No. 333-6639).
4.4 Indenture dated as of June 17, 1997 between * JCC, Jacor, the Subsidiary Guarantors named therein and The Bank of New York for JCC's 8 3/4% Senior Subordinated Notes due 2007 and Jacor's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.1 to Jacor's Current Report on Form 8-K/A dated June 26, 1997.
4.11 First Supplemental Indenture Dated as of * September 16, 1997 (Supplemental to Indenture Dated as of June 12, 1996) between JCC, the Company and First Trust National Association for JCC's 10 1/8% Senior Subordinated Notes due 2006 and Jacor's Guaranty thereof. Incorporated by reference to Exhibit 4.5 to the Company's Current Report on Form 8-K dated September 30, 1997.
4.12 First Supplemental Indenture Dated as of * September 16, 1997 (Supplemental to Indenture Dated as of December 17, 1996) between JCC, the Company, the Subsidiary Guarantors named therein, and The Bank of New York for JCC's 9 3/4% Senior Subordinated Notes due 2006 and the Company's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.6 to the Company's Current Report on Form 8-K dated September 30, 1997.
4.13 First Supplemental Indenture Dated as of * September 16, 1997 (Supplemental to Indenture Dated as of June 17, 1997) between JCC, the Company, the Subsidiary Guarantors named therein, and The Bank of New York for JCC's 8 3/4% Senior Subordinated Notes due 2007 and Jacor's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.7 to the Company's Current Report on Form 8-K dated September 30, 1997.
4.14 Indenture dated as of February 9, 1998 among * Jacor Communications, Inc. ("Jacor"), Jacor Communications Company ("JCC"), the Subsidiary Guarantors named therein and the Bank of New York for JCC's 8% Senior Subordinated Notes due 2010 and Jacor's and the Subsidiary Guarantors Guaranty thereof. Incorporated by reference to Exhibit 4.20 of the Company's Form S-3 Registration Statement, File No. 333-51489.
4.15 Indenture dated as of February 9, 1998 * between Jacor and the Bank of New York for Jacor's Liquid Yield Option Notes due 2018. Incorporated by reference to Exhibit 4.21 of the Company's Form S-3 Registration Statement, File No. 333-51489.
10.1(+) Change in Control Agreement dated as of June * 12, 1998 by and between Jacor Communications, Inc. and Randy Michaels. Incorporated by reference to Exhibit 10.1 to Jacor's Quarterly Report on Form 10-Q dated August 14, 1998. (1)*
10.2(+) Change in Control Agreement dated as of June * 12, 1998 by and between Jacor Communications, Inc. and Martin R. Gausvik. Incorporated by reference to Exhibit 10.2 to Jacor's Quarterly Report on Form 10-Q dated August 14, 1998. (2)*
10.3(+) Advisory Agreement dated August 26, 1998 * between the Company and Equity Group Investments, Inc. Incorporated by reference to Exhibit 10.1 to Jacor's Quarterly Report on Form 10-Q dated October 30, 1998.
21 Subsidiaries of Registrant. **
Consent of Independent Auditors - Ernst & 86 23.1 Young LLP
Consent of Independent Auditors - 87 23.2 PricewaterhouseCoopers LLP
27 Financial Data Schedules. 88
[FN] __________________
(*) Incorporated by reference as indicated.
(**) Omitted pursuant to General Instructions I(1)(a) and (b) of Form 10-K.
(+) Management Contracts and Compensatory Arrangements.
(1) Identical agreements were also entered into as of June 12, 1998 between the Company and each of the following senior executive officers of the Company: Robert L. Lawrence, R. Christopher Weber, David H. Crowl, Thomas P. Owens, Jon M. Berry, Paul F. Solomon, John Hogan, Jerome L. Kersting and Jay Meyers.
(2) Identical agreements were also entered into as of June 12, 1998 between the Company and each of the following executive officers of the Company: Pamela C. Taylor, Nicholas J. Miller, William P. Suffa and Alfred Kenyon, III.
JACOR COMMUNICATIONS, INC, AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
JACOR COMMUNICATIONS, INC. (The Company)
Date March 29, 2000 By /s/ Randall T. Mays Randall T. Mays, Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Date March 29, 2000 /s/ L. Lowry Mays L. Lowry Mays (Principal Executive Officer) Director
Date March 29, 2000 /s/ Mark P. Mays Mark P. Mays Director
Date March 29, 2000 /s/ Randall T. Mays Randall T. Mays (Principal Accounting and Financial Officer) Director
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements (S-3 No. 333-21419 and S-3 No. 333-06639) of Jacor Communications, Inc. and in the related Prospectuses of our report dated March 24, 2000, with respect to the consolidated financial statements of Jacor Communications, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1999.
March 24, 2000 San Antonio, Texas Ernst & Young LLP
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-3 (File Nos. 333-21419 and 333- 06639) of Jacor Communications, Inc. of our report dated February 12, 1999 relating to our audits of the consolidated financial statements of Jacor Communications, Inc. and subsidiaries as of December 31, 1998 and 1997 and for each of the two years in the period ended December 31, 1998, which appears in this Form 10-K.
PricewaterhouseCoopers LLP Cincinnati, Ohio March 29, 2000
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) List of Documents filed as part of this Report:
(1) Financial Statements
The financial statements of the Company as set forth under Item 8 of this Report on Form 10-K.
(2) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
The following Form 8-K was filed during the fourth quarter of 1999:
Form 8-K dated November 3, 1999. This Form 8-K described the Company dismissing its independent accountant, PricewaterhouseCoopers LLP, and engaging Ernst & Young LLP as its new independent accountant, effective November 3, 1999.
INDEX TO EXHIBITS
Exhibit Description of Exhibit Sequentially Number Numbered Page
2.1 Agreement and Plan of Merger dated as of October 8, 1998 ("Clear Channel Merger * Agreement") between Jacor Communications, Inc. ("Jacor"), Clear Channel Communications, Inc. and CCU Merger Sub (omitting schedules and exhibits not deemed material). Incorporated by reference to Exhibit 2 to Jacor's Current Report on Form 8-K dated October 9, 1998.
2.2 Warrant Agreement dated as of February 27, * 1997 between Jacor and KeyCorp Shareholder Services, Inc., as warrant agent. Incorporated by reference to Exhibit 2.2 to Jacor's Current Report on Form 8-K dated May 5, 1997, as amended.
2.3 Registration Rights Agreement dated as of * October 8, 1996 among Jacor and the parties listed in Schedule I thereto (included as Exhibit I to Regent Merger Agreement). Incorporated by reference to Exhibit 2.4 to Jacor's Current Report on Form 8-K dated October 23, 1996, as amended.
2.4 Warrant Agreement dated as of September 18, * 1996 between Jacor and KeyCorp Shareholder Services, Inc., as warrant agent. Incorporated by reference to Exhibit 4.1 to Jacor's Current Report on Form 8-K dated October 3, 1996.
2.5 Supplemental Agreement dated as of * September 18, 1996 between Jacor and KeyCorp Shareholder Services, Inc., as warrant agent. Incorporated by reference to Exhibit 4.2 of Jacor's Current Report on Form 8-K dated October 3, 1996.
2.6 Registration Rights Agreement dated as of * August 5, 1996 among Jacor, JCAC, Inc., Great American Insurance Company, American Financial Corporation, American Financial Enterprises, Inc., Carl H. Lindner, The Carl H. Lindner Foundation, and S. Craig Lindner. Incorporated by reference to Exhibit 2.22 to Jacor's Post-Effective Amendment No. 1 on Form S-3 to Form S-4 (File No. 333-6639).
3.1 Articles of Incorporation of Jacor. * Incorporated by reference to Exhibit 5 to Jacor's Form 8-A dated February 13, 1997.
3.2 Bylaws of Jacor. Incorporated by reference * to Exhibit 6 to Jacor's Form 8-A dated February 13, 1997.
4.1 Indenture dated as of December 17, 1996 * between Jacor Communications Company ("JCC") Jacor, the Subsidiary Guarantors named therein and The Bank of New York for JCC's 9 3/4% Senior Subordinated Notes due 2006 and Jacor's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.11 to Jacor's Form S-3 Registration Statement (File No. 333-19291).
4.2 Indenture dated as of June 12, 1996 between * Jacor and The Bank of New York for Jacor's Liquid Yield Option Notes Due 2011. Incorporated by reference to Exhibit 4.23 to Jacor's Form S-4 Registration Statement (File No. 333-6639).
4.3 Indenture dated as of June 12, 1996 among * Jacor, JCAC, Inc. and First Trust of Illinois, National Association for JCAC, Inc.'s 10 1/8% Senior Subordinated Notes due 2006 and Jacor's Guaranty thereof. Incorporated by reference to Exhibit 4.24 to Jacor's Form S-4 Registration Statement (File No. 333-6639).
4.4 Indenture dated as of June 17, 1997 between * JCC, Jacor, the Subsidiary Guarantors named therein and The Bank of New York for JCC's 8 3/4% Senior Subordinated Notes due 2007 and Jacor's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.1 to Jacor's Current Report on Form 8-K/A dated June 26, 1997.
4.11 First Supplemental Indenture Dated as of * September 16, 1997 (Supplemental to Indenture Dated as of June 12, 1996) between JCC, the Company and First Trust National Association for JCC's 10 1/8% Senior Subordinated Notes due 2006 and Jacor's Guaranty thereof. Incorporated by reference to Exhibit 4.5 to the Company's Current Report on Form 8-K dated September 30, 1997.
4.12 First Supplemental Indenture Dated as of * September 16, 1997 (Supplemental to Indenture Dated as of December 17, 1996) between JCC, the Company, the Subsidiary Guarantors named therein, and The Bank of New York for JCC's 9 3/4% Senior Subordinated Notes due 2006 and the Company's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.6 to the Company's Current Report on Form 8-K dated September 30, 1997.
4.13 First Supplemental Indenture Dated as of * September 16, 1997 (Supplemental to Indenture Dated as of June 17, 1997) between JCC, the Company, the Subsidiary Guarantors named therein, and The Bank of New York for JCC's 8 3/4% Senior Subordinated Notes due 2007 and Jacor's and the Subsidiary Guarantors' Guaranty thereof. Incorporated by reference to Exhibit 4.7 to the Company's Current Report on Form 8-K dated September 30, 1997.
4.14 Indenture dated as of February 9, 1998 among * Jacor Communications, Inc. ("Jacor"), Jacor Communications Company ("JCC"), the Subsidiary Guarantors named therein and the Bank of New York for JCC's 8% Senior Subordinated Notes due 2010 and Jacor's and the Subsidiary Guarantors Guaranty thereof. Incorporated by reference to Exhibit 4.20 of the Company's Form S-3 Registration Statement, File No. 333-51489.
4.15 Indenture dated as of February 9, 1998 * between Jacor and the Bank of New York for Jacor's Liquid Yield Option Notes due 2018. Incorporated by reference to Exhibit 4.21 of the Company's Form S-3 Registration Statement, File No. 333-51489.
10.1(+) Change in Control Agreement dated as of June * 12, 1998 by and between Jacor Communications, Inc. and Randy Michaels. Incorporated by reference to Exhibit 10.1 to Jacor's Quarterly Report on Form 10-Q dated August 14, 1998. (1)*
10.2(+) Change in Control Agreement dated as of June * 12, 1998 by and between Jacor Communications, Inc. and Martin R. Gausvik. Incorporated by reference to Exhibit 10.2 to Jacor's Quarterly Report on Form 10-Q dated August 14, 1998. (2)*
10.3(+) Advisory Agreement dated August 26, 1998 * between the Company and Equity Group Investments, Inc. Incorporated by reference to Exhibit 10.1 to Jacor's Quarterly Report on Form 10-Q dated October 30, 1998.
21 Subsidiaries of Registrant. **
Consent of Independent Auditors - Ernst & 86 23.1 Young LLP
Consent of Independent Auditors - 87 23.2 PricewaterhouseCoopers LLP
27 Financial Data Schedules. 88
[FN] __________________
(*) Incorporated by reference as indicated.
(**) Omitted pursuant to General Instructions I(1)(a) and (b) of Form 10-K.
(+) Management Contracts and Compensatory Arrangements.
(1) Identical agreements were also entered into as of June 12, 1998 between the Company and each of the following senior executive officers of the Company: Robert L. Lawrence, R. Christopher Weber, David H. Crowl, Thomas P. Owens, Jon M. Berry, Paul F. Solomon, John Hogan, Jerome L. Kersting and Jay Meyers.
(2) Identical agreements were also entered into as of June 12, 1998 between the Company and each of the following executive officers of the Company: Pamela C. Taylor, Nicholas J. Miller, William P. Suffa and Alfred Kenyon, III.
JACOR COMMUNICATIONS, INC, AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
JACOR COMMUNICATIONS, INC. (The Company)
Date March 29, 2000 By /s/ Randall T. Mays Randall T. Mays, Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Date March 29, 2000 /s/ L. Lowry Mays L. Lowry Mays (Principal Executive Officer) Director
Date March 29, 2000 /s/ Mark P. Mays Mark P. Mays Director
Date March 29, 2000 /s/ Randall T. Mays Randall T. Mays (Principal Accounting and Financial Officer) Director
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements (S-3 No. 333-21419 and S-3 No. 333-06639) of Jacor Communications, Inc. and in the related Prospectuses of our report dated March 24, 2000, with respect to the consolidated financial statements of Jacor Communications, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1999.
March 24, 2000 San Antonio, Texas Ernst & Young LLP
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-3 (File Nos. 333-21419 and 333- 06639) of Jacor Communications, Inc. of our report dated February 12, 1999 relating to our audits of the consolidated financial statements of Jacor Communications, Inc. and subsidiaries as of December 31, 1998 and 1997 and for each of the two years in the period ended December 31, 1998, which appears in this Form 10-K.
PricewaterhouseCoopers LLP Cincinnati, Ohio March 29, 2000