FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-12404 JACOR COMMUNICATIONS, INC. An Ohio Corporation Employer Identification No. 31-0978313 1300 PNC Center 201 East Fifth Street Cincinnati, Ohio 45202 Telephone (513) 621-1300 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No At October 31, 1994, 19,590,293 shares of common stock were outstanding. JACOR COMMUNICATIONS, INC. INDEX Page Number PART I. Financial Information Item 1. - Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1994 and December 31, 1993 3 Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 1994 and 1993 4 Condensed Consolidated Statements of Shareholders' Equity (Deficit) for the nine months ended September 30, 1994 and 1993 5 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1994 and 1993 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 19 PART II. Other Information Item 6. - Exhibits and Reports on Form 8-K 25 Signatures 26 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, 1994 1993 (UNAUDITED) (AUDITED) ASSETS Current assets: Cash and cash equivalents $ 23,258,885 $ 28,617,599 Accounts receivable, less allowance for doubtful accounts of $1,385,400 in 1994 and $1,082,000 in 1993 24,857,894 19,449,289 Other current assets 4,640,414 1,997,149 Total current assets 52,757,193 50,064,037 Property and equipment, net 22,876,833 23,072,887 Intangible assets, net 89,130,823 84,991,361 Other assets 5,645,359 1,780,244 Total assets $170,410,208 $159,908,529 LIABILITIES Current liabilities: Accounts payable $ 3,040,245 $ 2,011,460 Accrued payroll 2,127,679 3,218,239 Accrued federal, state and local income tax 3,633,095 2,025,485 Other current liabilities 3,761,935 4,150,097 Total current liabilities 12,562,954 11,405,281 Other liabilities 3,922,960 190,057 Deferred tax liability 8,203,344 7,900,000 Total liabilities 24,689,258 19,495,338 SHAREHOLDERS' EQUITY Common stock, no par value, $.10 per share stated value 1,958,981 1,949,982 Additional paid-in capital 137,150,045 136,634,368 Common stock warrants 390,280 390,397 Retained earnings 6,221,644 1,438,444 Total shareholders' equity 145,720,950 140,413,191 Total liabilities and shareholders' equity $170,410,208 $159,908,529 The accompanying notes are an integral part of the condensed consolidated financial statements. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the three months and nine months ended September 30, 1994 and 1993 (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Broadcast revenue $31,912,183 $29,469,525 $ 87,543,871 $74,071,603 Less agency commissions 3,413,707 3,163,042 9,253,147 7,986,021 Net revenue 28,498,476 26,306,483 78,290,724 66,085,582 Broadcast operating expenses 20,496,794 19,399,250 59,919,688 51,947,001 Depreciation and amortization 2,519,255 2,725,513 7,235,023 7,411,941 Corporate general and administrative expenses 698,212 827,750 2,506,449 2,534,801 Operating income 4,784,215 3,353,970 8,629,564 4,191,839 Interest expense (137,591) (608,203) (428,065) (2,354,263) Other income, net 286,660 32,751 797,601 124,372 Income before income taxes 4,933,284 2,778,518 8,999,100 1,961,948 Income tax expense (2,303,900) (1,885,200) (4,215,900) (1,400,000) Net income $ 2,629,384 $ 893,318 $ 4,783,200 $ 561,948 Income per common share $ 0.12 $ 0.06 $ 0.22 $ 0.04 Number of common shares used in per share computations 21,413,359 15,237,638 21,454,531 13,278,741 The accompanying notes are an integral part of the condensed consolidated financial statements. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) for the nine months ended September 30, 1994 and 1993 Common Stock Preferred Stock Shares Stated Value Shares Par Value - - ----------------------------------------------------------------------------- Balances, December 31, 1992 428,015 $ 42,802 683,181 $ 68,318 To give effect to the Restructuring and to the application of push-down accounting 8,710,655 871,065 (683,181) (68,318) - - ------------------------------------------------------------------------------ Balances, January 1, 1993 9,138,670 913,867 -0- -0- Issuance of Common Stock 3,484,321 348,432 Retirement of Treasury Stock (46,586) (4,659) Issuance of Common Stock- 1993 Rights Offering 345,476 34,548 Issuance of Common Stock- Directors subscription 80,000 8,000 Issuance of Common Stock- purchase of KAZY(FM) 964,006 96,401 Exercise of Stock Options 52,886 5,289 Other 1,560 156 Net income - - ------------------------------------------------------------------------------ Balances, September 30, 1993 14,020,333 $1,402,034 -0- -0- ============================================================================== Balances, December 31, 1993 19,499,812 $1,949,982 -0- $ -0- Exercise of Stock Options 89,310 8,931 Other 688 68 Net income - - ------------------------------------------------------------------------------ Balances, September 30, 1994 19,589,810 $1,958,981 -0- $ -0- ============================================================================== The accompanying notes are an integral part of the condensed consolidated financial statements. Additional Common Paid-In Capital Stock Common Preferred Warrants - - ------------------------------------------------------------------------------ Balances, December 31, 1992 $19,497,537 $ 5,263,929 $ 895,800 To give effect to the Restructuring and to the application of push-down accounting 36,994,455 (5,263,929) (492,995) - - ------------------------------------------------------------------------------ Balances, January 1, 1993 56,491,992 -0- 402,805 Issuance of Common Stock 19,651,571 Retirement of Treasury Stock (6,923,254) Issuance of Common Stock- 1993 Rights Offering 1,703,542 Issuance of Common Stock- Directors subscription 451,200 Issuance of Common Stock- purchase of KAZY(FM) 5,436,993 Exercise of Stock Options 275,914 Other 12,849 (9,012) Net income - - ------------------------------------------------------------------------------ Balances, September 30, 1993 $77,100,807 $ -0- $ 393,793 ============================================================================== Balances, December 31, 1993 $136,634,368 $ -0- $ 390,397 Exercise of Stock Options 503,708 Other 11,969 (117) Net income - - ------------------------------------------------------------------------------ Balances, September 30, 1994 $137,150,045 $ -0- $ 390,280 ============================================================================== Retained Earnings Treasury Stock (Deficit) Shares Amount Total - - ------------------------------------------------------------------------------ Balances, December 31, 1992 $(69,680,819) 46,586 $(6,927,913) $(50,840,346) To give effect to the Restructuring and to the application of push-down accounting 69,680,819 101,721,097 - - ------------------------------------------------------------------------------ Balances, January 1, 1993 -0- 46,586 (6,927,913) 50,880,751 Issuance of Common Stock 20,000,003 Retirement of Treasury Stock (46,586) 6,927,913 Issuance of Common Stock- 1993 Rights Offering 1,738,090 Issuance of Common Stock- Directors subscription 459,200 Issuance of Common Stock- purchase of KAZY(FM) 5,533,394 Exercise of Stock Options 281,203 Other 3,993 Net income 561,948 561,948 - - ------------------------------------------------------------------------------ Balances, September 30, 1993 $ 561,948 -0- $ -0- $ 79,458,582 ============================================================================== Balances, December 31, 1993 $ 1,438,444 -0- $ -0- $140,413,191 Exercise of Stock Options 512,639 Other 11,920 Net income 4,783,200 4,783,200 - - ------------------------------------------------------------------------------ Balances, September 30, 1994 $ 6,221,644 -0- $ -0- $145,720,950 ============================================================================== JACOR COMMUNICATIONS, INC. AN CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the nine months ended September 30, 1994 and 1993 (UNAUDITED) 1994 1993 Cash flows from operating activities: Net income $ 4,783,200 $ 561,948 Adjustments to reconcile net income to net cash used by operating activities: Depreciation 1,846,365 1,652,946 Amortization of intangibles 5,388,658 5,660,562 Provision for losses on accounts and notes receivable 920,192 658,303 Increase (decrease) in deferred tax liability (561,700) 900,000 Refinancing fees (1,994,801) Other (597,897) (465,255) Change in current assets and current liabilities net of effects of acquisitions and disposals: Increase in accounts receivable (5,552,176) (7,553,065) (Increase) decrease in other current assets (1,998,272) 529,693 Increase (decrease) in accounts payable 757,575 (347,864) Increase (decrease) in accrued payroll, accrued interest and other current liabilities 582,050 (252,815) Net cash provided (used) by operating activities 5,567,995 (650,348) Cash flows from investing activities: Payments received on notes receivable 1,300,000 12,500 Capital expenditures (1,471,367) (1,073,286) Cash paid for acquisitions (3,233,812) (1,826,419) Purchase of intangible assets (6,243,109) (2,033,737) Net proceeds from the sale of assets 1,919,189 Loans originated and other (3,652,440) (43,784) Net cash used by investing activities (11,381,539) (4,964,726) Cash flows from financing activities: Proceeds from issuance of long-term debt 48,000,000 Proceeds from issuance of common stock 524,559 22,483,591 Collection of stock subscriptions receivable 5,740,000 Reduction in long-term debt (74,956,176) Payment of restructuring expenses (69,729) (4,890,930) Net cash provided (used) by financing activities 454,830 (3,623,515) Net decrease in cash and cash equivalents (5,358,714) (9,238,589) Cash and cash equivalents at beginning of period 28,617,599 12,429,574 Cash and cash equivalents at end of period $23,258,885 $ 3,190,985 The accompanying notes are an integral part of the condensed consolidated financial statements. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. FINANCIAL STATEMENTS The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, the Company believes that the disclosures are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of results of operations for such periods. Results for interim periods may not be indicative of results for the full year. It is suggested that these financial statements be read in conjunction with the consolidated financial statements for the year ended December 31, 1993 and the notes thereto. 2. RESTRUCTURING AND CHANGE IN CONTROL On January 11, 1993, the Company completed a recapitalization plan that substantially modified its debt and capital structure (the "Restructuring"). Such Restructuring was accounted for as if it had been completed January 1, 1993. The Restructuring consisted of the following five basic parts: (1) An infusion of equity by Zell/Chilmark Fund L.P. (hereinafter, "Zell/Chilmark") by way of a merger (the "Merger") of a corporation wholly owned by Zell/Chilmark with and into the Company, which resulted in an equity restructuring of the Company, including: (i) the conversion of every share of the Company's common stock outstanding prior to the Merger into 0.0423618 shares of a new class of capital stock, the Class A Common Stock (the "New Class A Common Stock"), and warrants ("Warrants") to purchase 0.1611234 additional shares of a new class of non- voting common stock, the Class B Common Stock (the "New Class B Common Stock"); (ii) the conversion of every share of the Company's preferred stock outstanding prior to the Merger, together with any accumulated and unpaid dividends thereon, into 0.2026505 shares of New Class B Common Stock, and Warrants to purchase 0.7707796 shares of New Class B Common Stock; (iii) the distribution of cash, at the rate of $5.74 per share and $0.20 per Warrant, in lieu of New Common Stock and Warrants to those shareholders of record who so elected, and to all holders in lieu of any fractional shares of New Common Stock or fractional Warrants; and (iv) the issuance to Zell/Chilmark of 1,032,060 shares of New Class B Common Stock and 593,255 Warrants to purchase that number of shares of New Class B Common Stock. (2) A concurrent issuance of equity securities by the Company in exchange for the cancellation of approximately $81,500,000 of debt held by the Company's senior lenders and various subordinated creditors; (3) The sale to Zell/Chilmark of most of the equity securities issued in exchange for such cancellation of debt and Zell/Chilmark's reoffer of Warrants acquired by Zell/Chilmark under the Restructuring to those senior lenders who retained equity securities; (4) The offering of rights (the "Rights") to (i) Zell/Chilmark, (ii) the Company's creditors who retained New Common Stock acquired in the Restructuring and (iii) other holders of New Common Stock who were also shareholders on November 27, 1992, to acquire in the aggregate 1,000,000 shares of New Common Stock at a price of $5.74 per share; and (5) An increase in the authorized capital stock to 44,000,000 shares and the reservation of 1,519,218 shares of New Common Stock for issuance after the Restructuring pursuant to a proposed new management stock option plan ("Management Options"). As a result of the Company's restructuring and merger, the Company's Amended and Restated Articles of Incorporation were amended to (i) increase the authorized capital shares of the Company to 44,000,000, (ii) authorize two classes of no par value common stock, designated the "New Class A Common Stock" and the "New Class B Common Stock", each with 20,000,000 shares authorized for the class, (collectively, the "New Common Stock"), and (iii) create two classes of no par value preferred stock, designated the "New Class A Preferred Stock" and the "New Class B Preferred Stock", each with 2,000,000 shares authorized (collectively, the "New Preferred Stock"). No New Preferred Stock has been issued. Upon the grant by the Federal Communications Commission ("FCC") on April 23, 1993 of approval of a transfer of control of the Company to Zell/Chilmark, the New Class B Common Stock automatically converted into Class A Common Stock, the Class A Common Stock was designated "Common Stock" and shares formerly authorized as Class B Common Stock were added to increase the authorized shares of such Common Stock to 40,000,000 shares. The dilution to those who were shareholders prior to the Restructuring and the resultant impact of the Restructuring on the Company's common stock ownership are as follows: Equity Distribution After Restructuring (1) Common Stock Received Common Stock Pursuant to Common Purchase the 1992 Shares Warrants Rights Percent Received Received Offering Primary(2) Diluted(3) Zell/Chilmark 7,288,931 657,668 983,344 91.44% 80.74% Senior Creditors 402,431 -0- -0- 4.45% 3.64% Other Creditors 10,000 30,710 -0- 0.11% 0.37% Preferred Shareholders prior to the Restructuring 6,416 38,355 -0- 0.07% 0.40% Common Shareholders prior to the Restructuring 338,505 1,287,501 16,656 3.93% 14.85% 8,046,283 2,014,234 1,000,000 100.00% 100.00% <FN> (1) Does not give effect to (a) the 3,484,321 shares of Common Stock issued to Zell/Chilmark in March 1993 as part of a refinancing; (b) the 964,006 shares of Common Stock issued to Zell/Chilmark in July 1993 for the purchase of radio station KAZY(FM); or (c) the sale of 5,462,500 shares of Common Stock by the Company in November 1993 through a public offering. (2) Before exercise of Warrants and Management Options. (3) After giving effect to the exercise of Warrants but not Management Options. 3. BASIS OF PRESENTATION The Company implemented the Restructuring described in Note 2 using the push-down method of accounting as if the Restructuring was consummated on January 1, 1993. Push-down accounting is a procedure whereby subsidiaries use their parent companies' purchase accounting principles in preparing their financial statements. In accordance with the push-down method of accounting, the Company's net assets were restated generally at current replacement value, the restructured debts were stated at amounts supported by the underlying documents and the accumulated deficit was adjusted to a zero balance. Coincident with the implementation of the aforementioned push- down accounting, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Such change resulted in the establishment of a deferred income tax liability of approximately $6,500,000. A reconciliation of the Company's historical shareholders' deficit as of December 31, 1992 with shareholders' equity at January 1, 1993 as reflected in the accompanying Condensed Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 1993 is set forth below. Such reconciliation gives effect to the Restructuring and to the application of push-down accounting. ($000) (UNAUDITED) Additional Redeemable Paid-In Common Convertible Capital, Additional Common Dividends Stock Preferred Preferred Common Paid-In Stock Transaction Payable Warrants Stock Stock Stock Capital Warrants Balances, December 31, 1992 $ 1,030 $ 487 $ 68 $ 5,264 $ 43 $ 19,497 $ 896 Adjustments: Exchange of redeemable common stock warrants for New Common Stock (487) 2 485 Exchange of old common stock for New Common (43) Stock 43 Issuance of New Common Stock to Zell/Chilmark 87 4,913 Issuance of New Common Stock in Rights Offering 100 5,640 Issuance of New Common Stock to creditors 665 37,499 Cancellation of common stock warrants 896 (896) Additional Redeemable Paid-In Common Convertible Capital Additional Common Dividends Stock Preferred Preferred Common Paid-In Stock Transaction Payable Warrants Stock Stock Stock Capital Warrants Issuance of New Common Stock to preferred shareholders and others and other preferred stock purchases (1,030) (68) (5,264) 17 6,202 Issuance of New Common Stock Warrants (387) 403* Costs of issuance of New Common Stock and Rights Offering (1,125) Forgiveness of indebtedness Equity effects of push-down accounting: Adjustment of net asset carrying values 10,064 Restructuring costs Elimination of accumulated deficit (27,193) Net adjustments (1,030) (487) (68) (5,264) 871 36,994 (493) Balances, January 1, 1993 $ 0 $ 0 $ 0 $ 0 $ 914 $ 56,491 $ 403 * Includes 79,275 Warrants at $0.20 each issued in connection with cancellation of indebtedness. Accumulated Treasury Transaction Deficit Stock Balances, December 31, 1992 $ (69,681) $(6,928) Pro Forma Adjustments: Exchange of redeemable common stock warrants for New Common Stock Exchange of current old common stock for New Common Stock Issuance of New Common Stock to Zell/Chilmark Issuance of New Common Stock in Rights Offering Issuance of New Common Stock to creditors Cancellation of common stock warrants ACCUMULATED TREASURY TRANSACTION DEFICIT STOCK Issuance of New Common Stock to preferred shareholders and others and other preferred stock purchases Issuance of New Common Stock Warrants Costs of issuance of New Common Stock and Rights Offering Forgiveness of indebtedness 47,031 Equity effects of push-down accounting: Adjustment of net asset carrying values Restructuring costs (4,543) Elimination of accumulated deficit 27,193 Net adjustments 69,681 0 Balances, January 1, 1993 $ 0 $(6,928) All common share and per share data included in the financial statements and footnotes have been restated to reflect the conversion of every share of the Company's common stock outstanding prior to the Merger into 0.0423618 shares of new common stock as discussed above. The conversion was accounted for as a reverse stock split. The New Common Stock was recorded at its stated value of $0.10 per share. The difference between the stated value of common stock and the New Common Stock was credited to additional paid-in capital, common. The basis for the application of push-down accounting is set forth below. The financial statements only include the resulting revaluations pursuant to Zell/Chilmark's 91.44% ownership of the Company. There were no revaluations recorded for the minority interest ownership of the Company. The allocation of consideration given for the purchase of 91.44% of the Company by Zell/Chilmark is as follows: 8,272,276 Common Shares at $5.74 per share $ 47,483,000 629,117 new common stock Warrants at $0.20 per Warrant 126,000 New debt obligations 62,345,000 Assumption of certain current liabilities 14,918,000 Assumption of other liabilities 6,130,000 $131,002,000 Current assets $ 33,146,000 Property and equipment 19,845,000 Intangible assets (primarily FCC licenses) 76,577,000 Notes receivable and other assets 1,434,000 $131,002,000 4. PER SHARE DATA Income per share for the three months and nine months ended September 30, 1994 and 1993 is based on the weighted average number of common shares outstanding and gives effect to both dilutive stock options and dilutive stock purchase warrants during the period. Fully diluted earnings per share is not presented since it approximates primary earnings per share. 5. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For purposes of the condensed consolidated statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less, when purchased, to be cash equivalents. Income taxes aggregating $3,000,000 were paid during the nine months ended September 30, 1994. There were no income taxes paid during the nine months ended September 30, 1993. Interest paid was $381,393 (attributable to the annual commitment fee payable quarterly on the credit facility) and $2,649,000 for the nine months ended September 30, 1994 and 1993, respectively. The effect of barter transactions has been eliminated. The condensed consolidated statement of cash flows for the nine months ended September 30, 1993 reflects the changes in balance sheet accounts as of January 1, 1993, the date the restructuring was recorded. 6. ACQUISITIONS In March 1994, a subsidiary of the Company entered into an agreement to acquire the assets of radio station WIMJ(FM) in Cincinnati, Ohio for $9,500,000. The asset purchase is subject to FCC approval and the satisfaction of certain other conditions. Pending consummation of the transaction, the Company's subsidiary has entered into a Local Marketing Agreement which began April 7, 1994, and will expire on the earlier of June 30, 1995 or the purchase date. The acquisition of WIMJ(FM) is not expected to have a material effect on the Company's operations. 7. DEBT AGREEMENTS There was no debt outstanding at September 30, 1994 and December 31, 1993. Following completion of the Restructuring in January 1993 (see Note 2), the Company refinanced its senior debt in March 1993 (the "Refinancing") with a new group of lenders under a new credit facility described below. With the completion of the Refinancing, the Company's senior debt was reduced from $69,000,000 to $45,000,000. As part of this Refinancing, the Company raised $20,000,000 of additional equity from the issuance of 3,484,321 shares of Common Stock at $5.74 per share through a private placement to Zell/Chilmark. This $20,000,000, together with available cash, funded the reduction of the Company's senior debt. With the Refinancing, the Company entered into a new Credit Agreement (the "New Credit Agreement") in March 1993 with a group of lenders agented by Banque Paribas, with The First National Bank of Boston and Continental Bank N.A. acting as co-agents. In November 1993, the Company entered into the First Amendment to the New Credit Agreement (the "Amended Credit Agreement"). The Amended Credit Agreement provides for a senior secured reducing revolving credit facility with a commitment of $45,000,000 that expires on December 31, 2000 (the "Revolver") and a senior secured acquisition facility with a commitment of $55,000,000 that expires on September 30, 1996 (the "Acquisition Facility"). Both facilities are available for acquisitions permitted under conditions set forth in the Amended Credit Agreement. The indebtedness of the Company under the two facilities is collateralized by liens on substantially all of the assets of the Company and its operating subsidiaries and by a pledge of the operating subsidiaries' stock, and is guaranteed by those subsidiaries. The Amended Credit Agreement requires quarterly reductions of the Revolver commitments under the Amended Credit Agreement, and, under certain circumstances, requires mandatory prepayments of any outstanding loans and further commitment reductions under the Amended Credit Agreement. The Amended Credit Agreement contains restrictions pertaining to maintenance of financial ratios, capital expenditures, payment of dividends on distributions of capital stock and incurrence of additional indebtedness. Interest under the Amended Credit Agreement is payable, at the option of the Company, at alternative rates equal to the Eurodollar rate plus 1.25% to 2.25% or the base rate announced by Banque Paribas plus 0.25% to 1.25%. The spreads over the Eurodollar rate and such base rate vary from time to time, depending upon the Company's financial leverage. In November 1994, the Company entered into the Third Amendment to the New Credit Agreement under which the Company will pay quarterly commitment fees equal to 1/2% reducing to 3/8% per annum on the aggregate unused portion of the aggregate commitment on both facilities, depending upon the Company's financial leverage. The Company also is required to pay certain other fees to the agent and the lenders for the administration of the facilities and the use of the Acquisition Facility. In accordance with the terms of the New Credit Agreement, the Company entered into an interest rate protection agreement in March 1993 on the notional amount of $22,500,000 for a three year term. This agreement provides protection against the rise in the three-month LIBOR interest rate beyond a level of 7.25%. The current three- month LIBOR interest rate is 5.69%. Unaudited pro forma results of operations, assuming the Refinancing together with the Zell/Chilmark private placement occurred on the first day of the period shown below, are as follows (dollars in thousands, except per share amounts): For the Nine Months Ended September 30, 1993 Historical Refinancing Total Pro As Reported Adjustment Forma Broadcast revenue $ 74,072 $ 74,072 Less agency commissions 7,986 7,986 Net revenue 66,086 66,086 Broadcast operating expenses 51,947 51,947 Depreciation and amortization 7,412 7,412 Corporate general and administrative expenses 2,535 2,535 Operating income 4,192 4,192 Interest expense (2,354) $ 666 (a) (1,688) Other income, net 124 124 Income before income tax 1,962 666 2,628 Income tax expense (1,400) (266)(b) (1,666) Net income $ 562 $ 400 $ 962 Net income per common share $ 0.04 $ 0.07 Number of common shares used in per share calculation 13,279 1,323 (c) 14,602 Adjustments to the unaudited pro forma results of operations are explained as follows: (a) To reflect the elimination of the interest associated with the restructuring debt facility and record the interest associated with the new refinancing debt facility as follows: Restructuring debt interest included in historical statements $ (2,354) Interest on new refinancing debt facility ($45,000,000 x 5%) 1,688 Pro forma adjustment $ (666) (b) To provide for the tax effect of pro forma adjustments using an estimated statutory rate of 40%. (c) To provide for the change in the weighted average outstanding common shares. 8. RELATED PARTY TRANSACTIONS In 1991, the Company sold the stock of its research subsidiary, Critical Mass Media, Inc. ("CMM"), to Randy Michaels, an officer who has since become the current president of the Company. Effective January 1, 1994, a subsidiary of the Company and a corporation wholly owned by Mr. Michaels formed a limited partnership (the "Partnership") in a transaction whereby the Partnership now owns all of the CMM stock and Mr. Michaels' corporation owns a 95% limited partnership interest in the Partnership. The Company's subsidiary obtained a 5% general partnership interest in exchange for its contribution of approximately $126,000 cash to the Partnership and is now the sole manager of the Partnership's business. In connection with the formation of the Partnership, the Company agreed that Mr. Michaels' corporation has the right between January 1, 1999 and January 1, 2000 to put its limited partnership interest to the Partnership's general partner in exchange for 300,000 shares of Common Stock. If the put is not exercised by January 1, 2000, the general partner has the right to call the limited partnership interest prior to 2001 in exchange for 300,000 shares of Common Stock. In addition, if certain events occur prior to January 1, 1999 including without limitation, Mr. Michaels' termination of employment by the Company or a significant reduction in his responsibilities, a reduction of Mr. Michaels' annual base salary by more than 10%, or generally any transaction by which any person or group other than Zell/Chilmark shall become the owner of more than 30% of the outstanding voting securities of the Company or Zell/Chilmark fails to have its designees constitute at least a majority of the members of the general partner's Board of Directors, then Mr. Michaels' corporation will have the right to either (a) purchase the Company's general partnership interest at a price generally equal to the balance of the partnership capital account, or (b) sell its limited partnership interest to the general partner in exchange for 300,000 shares of Common Stock. The transaction has been accounted for as a purchase, and the Partnership has been included in the condensed consolidated financial statements. 9. INCOME TAXES Income tax expense for the three months and nine months ended September 30, 1994 and 1993 is based on the estimated annual effective tax rate inclusive of federal, state and local taxes. The effective income tax rate differs from the expected statutory rate primarily due to the effect of certain state and local taxes and non-deductible goodwill amortization. 10. CAPITAL STOCK Warrants During the nine months ended September 30, 1994, 583 warrants were exercised. Stock Options During the nine months ended September 30, 1994, 89,310 options were exercised. In addition, options to purchase 10,000 shares were granted during this same period. The options vest 30% per year for the first two years after issuance and 20% per year for each of the next two years thereafter. The exercise price of the options that vested upon grant is $13.50 per share, and the options that subsequently vest on each anniversary of the grant date have an exercise price 4% greater than the options that vested in the previous year. Once an option vests, the exercise price for that option is fixed for the remaining term of the option. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company began 1994 with no outstanding debt and $28.6 million in cash and cash equivalents. The Company used the net proceeds (approximately $60 million) from the public offering during the fourth quarter of 1993 to repay all of its indebtedness and the remaining net proceeds (in the form of cash and cash equivalents) are available to finance acquisitions of radio groups and/or radio stations and for general corporate purposes. In conjunction with the public offering, the Company also entered into the First Amendment to the Credit Agreement (the "Amended Credit Agreement"). The Amended Credit Agreement provides for a senior secured reducing revolving credit facility with a commitment of $45 million ($43.3 million at September 30, 1994 - see following paragraph) that expires on December 31, 2000 (the "Revolver") and a senior secured acquisition facility with a commitment of $55 million (the "Acquisition Facility") that expires on September 30, 1996. The Amended Credit Agreement contains restrictive covenants, and the indebtedness thereunder is collateralized by liens on substantially all of the assets of the Company and its operating subsidiaries and by a pledge of the operating subsidiaries' stock. The indebtedness under the Amended Credit Agreement is guaranteed by those subsidiaries. Both facilities may be used for acquisitions permitted under conditions set forth in the Amended Credit Agreement. Interest under the Amended Credit Agreement is payable, at the option of the Company, at alternative rates equal to the Eurodollar rate plus 1.25% to 2.25% or the base rate announced by Banque Paribas plus 0.25% to 1.25%. The Amended Credit Agreement requires that the commitment under the Revolver be reduced in the quarter commencing January 1, 1994 (reduced by $1.7 million as of September 30, 1994), and continuing quarterly thereafter. After the Acquisition Facility commitment terminates on September 30, 1996, the Amended Credit Agreement requires 17 equal quarterly amortization payments. The Amended Credit Agreement further requires that, with certain exceptions, the Company prepay the loans and reduce the commitments under the Amended Credit Agreement with excess cash flow and the net proceeds from certain sales of assets and capital stock. The Company entered into an interest rate protection agreement in March 1993 on a notional amount of $22.5 million for a three-year term for a cost of $0.1 million. This agreement provided protection against the rise in the three-month LIBOR interest rate beyond a level of 7.25%. The current three-month LIBOR interest rate is 5.69%. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued LIQUIDITY AND CAPITAL RESOURCES, Continued During the nine months ended September 30, 1994, the Company, through its subsidiaries, made acquisitions, loans and capital expenditures of approximately $14.6 million. The Company expects to make further acquisitions, loans and capital expenditures in the range of $17.0 million to $21.0 million over the balance of 1994 and into early 1995. The Company has been authorized by its Board of Directors to purchase up to one million shares of its common stock from time- to-time in open-market or negotiated transactions. As of September 30, 1994 the Company had not acquired any shares under this authorization. Management believes that its existing cash balances, cash generated from operations and the availability of borrowings under the Amended Credit Agreement will be sufficient to meet its liquidity and capital needs for the foreseeable future, under existing market conditions. CASH FLOW Cash flows provided by operating activities, inclusive of working capital were $5.7 million and $0.7 million for the first nine months of 1994 and 1993, respectively, resulting primarily from the net income of $4.8 million and $0.7 million generated during the respective nine-month period. The additional $1.0 million of net cash provided for the 1994 nine-month period results from the excess of the depreciation and amortization add-back over the net change in working capital. Cash flows used by investing activities were ($11.5) million and ($5.0) million for the first nine months of 1994 and 1993, respectively, as a result of payments made for acquisitions, loans and capital expenditures. The 1994 amount is net of $3.2 million of payments received on notes and from the sale of assets. Cash flows used by financing activities were ($3.6) million during the first nine months of 1993 principally due to the refinancing of the Company's senior debt net of the issuance of additional common stock and the payment of restructuring expenses. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued RESULTS OF OPERATIONS THE NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1993 Broadcast revenue for the first nine months of 1994 was $87.5 million, an increase of $13.4 million or 18.2% from $74.1 million during the first nine months of 1993. This increase resulted from an increase in advertising rates in both local and national advertising and from the revenue generated at those properties owned or operated during the first nine months of 1994 but not during the comparable 1993 period. On a "same station" basis - reflecting results from stations operated in the first nine months of both 1994 and 1993 - broadcast revenue for the 1994 period was $81.6 million, an increase of $8.7 million or 11.8% from $72.9 million for the 1993 period. Agency commissions for the first nine months of 1994 were $9.3 million, an increase of $1.3 million or 15.9% from $8.0 million during the first nine months of 1993 due to the increase in broadcast revenue. Agency commissions increased at a lesser rate than broadcast revenue due to a greater proportion of direct sales. Broadcast operating expenses for the first nine months of 1994 were $59.9 million, an increase of $8.0 million or 15.3% from $51.9 million during the first nine months of 1993. These expenses increased as a result of expenses incurred at those properties owned or operated during the first nine months of 1994 but not during the comparable 1993 period and, to a lesser extent, increased selling and other payroll costs and programming costs. On a "same station" basis, broadcast operating expenses for the 1994 period were $54.2 million, an increase of $3.2 million or 6.1% from $51.0 million for the 1993 period. Station operating income excluding depreciation and amortization for the nine months ended September 30, 1994 was $18.4 million, an increase of $4.3 million or 29.9% from $14.1 million for the nine months ended September 30, 1993. On a "same station" basis, station operating income excluding depreciation and amortization for the 1994 period was $18.4 million, an increase of $4.5 million or 32.1% from $13.9 million for the 1993 period. Depreciation and amortization for the first nine months of 1994 and 1993 was $7.2 million and $7.4 million, respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued RESULTS OF OPERATIONS THE NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1993, Continued Operating income for the first nine months of 1994 was $8.6 million, an increase of $4.4 million or 105.9% from an operating income of $4.2 million during the first nine months of 1993. Interest expense for the first nine months of 1994 was $0.4 million, a decrease of $2.0 million or 81.8% from $2.4 million during the first nine months of 1993. Interest expense declined due to the reduction in outstanding debt. Net income for the first nine months of 1994 was $4.8 million, compared to net income of $0.6 million reported by the Company for the first nine months of 1993. The 1993 period includes income tax expense of $1.4 million while the 1994 period includes $4.2 million of income tax expense. The income tax expense for each period is based on the estimated annual effective tax rate. THE THREE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1993 Broadcast revenue for the third quarter of 1994 was $31.9 million, an increase of $2.4 million or 8.3% from $29.5 million during the third quarter of 1993. This increase resulted from an increase in advertising rates in both local and national advertising and from the revenue generated at those properties owned or operated during the 1994 third quarter but not during the comparable 1993 period. On a "same station" basis - reflecting results from stations operated in the third quarter of both 1994 and 1993 - broadcast revenue for the 1994 period was $29.6 million, an increase of $0.5 million or 1.7% from $29.1 million for the 1993 period. The 1994 third quarter "same station" revenue was depressed due to the professional baseball strike beginning in August 1994, resulting in a loss of revenue at three of the Company's stations which broadcast professional baseball. Agency commissions for the third quarter of 1994 were $3.4 million, an increase of $0.2 million or 7.9% from $3.2 million during the third quarter of 1993 due to the increase in broadcast revenue. Agency commissions increased at a lesser rate than broadcast revenue due to a greater proportion of direct sales. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued RESULTS OF OPERATIONS THE THREE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1993, Continued Broadcast operating expenses for the third quarter of 1994 were $20.5 million, an increase of $1.1 million or 5.7% from $19.4 million during the third quarter of 1993. These expenses increased as a result of expenses incurred at those properties owned or operated during the 1994 third quarter but not during the comparable 1993 period and, to a lesser extent, increased selling and other payroll costs and programming costs. On a "same station" basis, broadcast operating expenses for the 1994 period were $18.4 million, a decrease of $0.7 million or 3.5% from $19.1 million for the 1993 period. The 1994 third quarter decline in "same station" broadcast operating expenses resulted from a reduction in broadcast rights' fees for professional baseball due to the baseball strike beginning in August 1994. Station operating income excluding depreciation and amortization for the three months ended September 30, 1994 was $8.0 million, an increase of $1.1 million or 15.8% from the $6.9 million for the three months ended September 30, 1993. On a "same station" basis, station operating income excluding depreciation and amortization for the 1994 period was $7.9 million, an increase of $1.1 million or 15.3% from $6.8 million for the 1993 period. Depreciation and amortization for the third quarter of 1994 and 1993 was $2.5 million and $2.7 million, respectively. Operating income for the third quarter of 1994 was $4.8 million, an increase of $1.4 million or 42.6% from operating income of $3.4 million during the third quarter of 1993. Interest expense for the third quarter of 1994 was $0.1 million, a decrease of $0.5 million or 77.4% from $0.6 million during the third quarter of 1993. Interest expense declined due to the reduction in outstanding debt. Net income for the third quarter of 1994 was $2.6 million, compared to net income of $0.9 million reported by the Company for the third quarter of 1993. The 1993 period includes income tax expense of $1.9 million while the 1994 period includes $2.3 million of income tax expense. The income tax expense for each period is based on the estimated annual effective tax rate. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued RESULTS OF OPERATIONS OTHER Although the Company has significant net operating loss carryforwards for federal and other tax purposes, the Company's ability to use such losses to reduce its taxable income is severely limited because of the Restructuring. Further, as a result of the Restructuring, the net operating loss carryforwards and other tax attributes (including the tax basis in assets) will be reduced or eliminated, except to the extent the Company is permitted to apply the stock for debt exception provided under section 108 of the Internal Revenue Code (the "Code"). As a result of changes to the Code in 1993, the Company will be able to amortize certain of its costs in the purchase of broadcasting assets, particularly goodwill, on a more favorable basis than was previously the case. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION, Continued Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Number Description Page 11 Statement re computation of consolidated income per common share 27 27 Financial Data Schedule 28 99 Press Release dated November 3, 1994 29 (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. JACOR COMMUNICATIONS, INC. (Registrant) DATED: November 4, 1994 BY /s/ R. Christopher Weber R. Christopher Weber, Senior Vice President and Chief Financial Officer JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES EXHIBIT 11 Computation of Consolidated Income Per Common Share for the three months and nine months ended September 30, 1994 and 1993 Three Months Ended Nine Months Ended September 30 September 30 1994 1993 1994 1993 Income for primary and fully diluted computation: Income $2,629,384 $ 893,318 $4,783,200 $ 561,948 Primary (1): Weighted average common shares and all other dilutive securities: Common stock 19,589,120 13,799,539 19,566,685 12,111,621 Stock purchase warrants 779,639 676,258 822,893 494,020 Stock options 744,600 761,841 764,953 673,100 Contingently issuable common shares 300,000 300,000 21,413,359 15,237,638 21,454,531 13,278,741 Primary income (loss) per common share $ .12 $ .06 $ .22 $ .04 <FN> NOTES: 1. Fully diluted earnings per share is not presented since it approximates primary income per share. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES EXHIBIT 27 Financial Data Schedule for the nine months ended September 30, 1994 Fiscal-Year-End December 31, 1994 Period-End September 30, 1994 Item Description Amount (1) Cash and cash items 23,259 Marketable securities 0 Notes and accounts receivable-trade 26,243 Allowances for doubtful accounts 1,385 Inventory 0 Total current assets 52,757 Property, plant and equipment 26,676 Accumulated depreciation 3,799 Total assets 170,410 Total current liabilities 12,563 Bonds, mortgages and similar debt 0 Preferred stock-mandatory redemption 0 Preferred stock-no mandatory redemption 0 Common stock 1,959 Other stockholders' equity 143,762 Total liabilities and stockholders' equity 170,410 Net sales of tangible products 0 Total revenues 87,544 Cost of tangible goods sold 0 Total costs and expenses applicable to sale and revenues 69,173 Other costs and expenses 9,741 Provision for doubtful accounts and notes 920 Interest and amortization of debt discount 0 Income before taxes and other items 8,999 Income tax expense 4,216 Income/loss continuing operations 0 Discontinued operations 0 Extraordinary items 0 Cumulative effect - changes in accounting principles 0 Net income 4,783 Earnings per share - primary .22 Earnings per share - fully diluted .22 [FN] (1) Dollars in thousands except per share amounts. EXHIBIT 99 JACOR REPORTS CONTINUED IMPROVEMENTS IN BROADCAST CASH FLOW CINCINNATI, NOVEMBER 3 - Jacor Communications,Inc. (NASDAQ-JCOR), owner and operator of radio stations in six U.S. markets, today reported a 30-percent increase in broadcast cash flow during the nine months ended September 30, 1994, and a 16-percent increase in broadcast cash flow for the third quarter of 1994. Jacor's broadcast cash flow for the 1994 nine-month period rose 30 percent to $18.4 million from $14.1 million in the same nine-month period of 1993. Third quarter broadcast cash flow rose 16 percent to $8.0 million in 1994 from $6.9 million in the same quarter of 1993. Net revenues for the nine-month period rose 18 percent to $78.3 million from $66.1 million in the 1993 period. Third quarter 1994 net revenues rose 8 percent to $28.5 million from $26.3 million in the 1993 period. On a "same station" basis - reflecting results from stations operated in the first nine months of both 1994 and 1993 - Jacor's broadcast cash flow rose 32 percent to $18.4 million for the first nine months of 1994 from $13.9 million in the same period last year. Broadcast cash flow on the "same station" basis for the third quarter of 1994 rose 15 percent to $7.9 million from $6.8 million for the third quarter of 1993. The company reported net income of $4.8 million or 22 cents per share, during the first nine months of 1994. Results for the same period last year reflected net income of $0.6 million, or 4 cents per share. Net income for the third quarter of 1994 was $2.6 million or 12 cents per share, an increase of 194 percent from the net income of $0.9 million or 6 cents per share reported by the Company for the third quarter of 1993. Jacor Communications, Inc., headquartered in Cincinnati, is the nation's ninth largest radio group. The Company plans to pursue growth through continued acquisitions of complementary stations in its existing markets, and radio groups or individual stations with significant presence in the top 25 markets. CONTACT: Chris Weber 513/621-1300 or Kirk Brewer 312/466-4042 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the three months and nine months ended September 30, 1994 and 1993 (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Broadcast revenue $31,912,183 $29,469,525 $ 87,543,871 $74,071,603 Less agency commissions 3,413,707 3,163,042 9,253,147 7,986,021 Net revenue 28,498,476 26,306,483 78,290,724 66,085,582 Broadcast operating expenses 20,496,794 19,399,250 59,919,688 51,947,001 Broadcast cash flow (1) 8,001,682 6,907,233 18,371,036 14,138,581 Depreciation and amortization 2,519,255 2,725,513 7,235,023 7,411,941 Corporate general and administrative expenses 698,212 827,750 2,506,449 2,534,801 Operating income 4,784,215 3,353,970 8,629,564 4,191,839 Interest expense (137,591) (608,203) (428,065) (2,354,263) Other income, net 286,660 32,751 797,601 124,372 Income before income taxes 4,933,284 2,778,518 8,999,100 1,961,948 Income tax expense (2,303,900) (1,885,200) (4,215,900) (1,400,000) Net income $ 2,629,384 $ 893,318 $ 4,783,200 $ 561,948 Income per common share $ 0.12 $ 0.06 $ 0.22 $ 0.04 Number of common shares used in per share computations 21,413,359 15,237,638 21,454,531 13,278,741 <FN> (1) Operating income before depreciation and amortization and corporate general and administrative expenses.