-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R2ZQmC+W8gmPUtd2NQdNFT439wG+eBi09mtJF8XZclEjaYtv5gGUlefILhJkFYkb B4dzMeIVs6WEVKhf83eFhw== 0000702808-97-000006.txt : 19970329 0000702808-97-000006.hdr.sgml : 19970329 ACCESSION NUMBER: 0000702808-97-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: JACOR COMMUNICATIONS INC CENTRAL INDEX KEY: 0000702808 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 310978313 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12404 FILM NUMBER: 97567684 BUSINESS ADDRESS: STREET 1: 50 E RIVERCENTER BLVD STREET 2: 12TH FLOOR CITY: COVINGTON STATE: KY ZIP: 41011 BUSINESS PHONE: 6066552267 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-12404 JACOR COMMUNICATIONS, INC. A Delaware Corporation Employer Identification No. 31-0978313 50 East RiverCenter Blvd. 12th Floor Telephone (606) 655-2267 Covington, Kentucky 41011 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value Common Stock Purchase Warrants expiring September 18, 2001 Common Stock Purchase Warrants expiring February 27, 2002 Other securities for which reports are submitted pursuant to Section 15(d) of the Act: 9 3/4% Senior Subordinated Notes due 2006 10 1/8% Senior Subordinated Notes due 2006 Liquid Yield Option Notes due 2011 Indicate by check mark whether the Registrant, Jacor Communications, Inc., (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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stock held by nonaffiliates of Registrant as of February 28, 1997 was $632,466,454. The number of common shares outstanding as of February 28, 1997 was 34,834,780. There are 91 pages in this document. The index of exhibits appears on page 74. Documents incorporated by Reference: Portions of Registrant's definitive Proxy Statement to be filed during April 1997 in connection with the Annual Meeting of Shareholders presently scheduled to be held on May 28, 1997 are incorporated by reference into Part III of this Form 10-K. JACOR COMMUNICATIONS, INC. INDEX TO ANNUAL REPORT ON FORM 10-K Page Part I Item 1 Business 3 Item 2 Properties 34 Item 3 Legal Proceedings 34 Item 4 Submission of Matters to a Vote of Security Holders * Part II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 35 Item 6 Selected Financial Data 36 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 38 Item 8 Financial Statements and Supplementary Data 46 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure * Part III Item 10 Directors and Executive Officers of the Registrant 46 Item 11 Executive Compensation 46 Item 12 Security Ownership of Certain Beneficial Owners and Management 46 Item 13 Certain Relationships and Related Transactions 46 Part IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 71 * The response to this Item is "none". Item 1. BUSINESS Jacor Communications, Inc. ("Jacor" or the "Company") is a holding company engaged primarily in the radio broadcasting business. As of February 28, 1997, Jacor entities owned and/or operated 95 radio stations located across the United States in 21 broadcast areas: Los Angeles, Atlanta, Denver, San Diego, St. Louis, Cincinnati, Tampa, Portland, OR, Columbus, OH, Kansas City, MO, Jacksonville, Toledo, Lexington, Boise, Venice/Englewood, FL, Salt Lake City, Las Vegas, Louisville, Rochester, Charleston, SC, and Casper and one television station located in the Cincinnati broadcast area. Jacor also has joint sales agreements to sell advertising time for one station in Cincinnati, one station in Denver, one station in Salt Lake City and one station in Louisville. Jacor further provides programming for and sells air time to two stations in Baja California, Mexico pursuant to an exclusive sales agency agreement. Jacor also has entered into agreements to acquire an additional 27 radio stations, which will expand its presence in Rochester, Lexington and Portland, and allow Jacor to enter the Des Moines, Cedar Rapids, Lima, Sarasota/Bradenton, Santa Barbara and Fort Collins/Greeley broadcast areas. Recently Completed Acquisitions and Dispositions. In February 1996, Jacor entered into an agreement to acquire Citicasters Inc. ("Citicasters") now known as Jacor Communications Company ("JCC"), through a merger of a wholly owned Jacor subsidiary with and into Citicasters. Citicasters owned 19 radio stations, located in Atlanta, Phoenix, Tampa, Portland, Kansas City, Cincinnati, Sacramento, Columbus and two television stations, one located in Tampa and one in Cincinnati. The Citicasters merger enhanced Jacor's existing station portfolios in Atlanta, Tampa and Cincinnati and created new multiple radio station platforms in Phoenix, Portland, Kansas City, Sacramento and Columbus. Jacor consummated the Citicasters merger in September 1996 for an approximate aggregate value of $801.2 million, which included the purchase of all outstanding shares of Citicasters common stock, the assumption of Citicasters outstanding indebtedness and the issuance of warrants to purchase an aggregate of 4,400,000 shares of Jacor Common Stock at an exercise price of $28.00 per full share (the "Citicasters Warrants"). In order to complete the Citicasters merger, Jacor agreed with the Antitrust Division to divest WKRQ-FM in Cincinnati no later than February 1997 (See "Pending Transactions" below). Also, in February 1996, Jacor entered into an agreement to acquire Noble Broadcast Group, Inc. ("Noble"), which owned ten radio stations serving Denver, St. Louis and Toledo, and the right to provide programming to and sell the air time for one AM and one FM station located in Baja California, Mexico. The Noble acquisition enhanced Jacor's existing portfolio in Denver where it now owns eight stations, in addition to creating new multiple station platforms in St. Louis and Toledo. Jacor consummated the Noble acquisition in July 1996 for an aggregate consideration of approximately $160 million in cash. In February 1996, Jacor sold the business and certain operating assets of radio stations WMYU-FM and WWST-FM in Knoxville. Jacor received approximately $6.5 million in cash for this sale, generating a gain of approximately $2.5 million. In March 1996, Jacor entered into an agreement for the sale of the assets of WBRD-AM in Tampa for approximately $0.5 million in cash. The sale of WBRD-AM was completed in June 1996. In March 1996, Jacor entered into an agreement to acquire the FCC licenses of WCTQ-FM and WAMR-AM in Venice, Florida and to purchase certain real estate and transmission facilities necessary to operate the stations. In June 1996, Jacor consummated this acquisition for a purchase price of approximately $4.4 million. In June 1996, Jacor entered into an agreement to acquire the FCC licenses of WLAP-AM,WMXL-FM and WWYC-FM servicing Lexington, Kentucky and to purchase real estate and transmission facilities necessary to operate the stations. In August 1996, Jacor consummated this acquisition for a purchase price of approximately $14 million. Also, in June 1996, Jacor agreed to finance the purchase by Critical Mass Media, Inc. ("CMM") of a 40% interest in a newly formed limited liability company that agreed to purchase for approximately $0.5 million the assets of Duncan American Radio, Inc. CMM is a marketing research and radio consulting business which is owned by a limited partnership of which Jacor is the 5% general partner and a corporation wholly owned by Randy Michaels, the Chief Executive Officer of Jacor, is the 95% limited partner. This transaction was completed by Jacor in June 1996. In August 1996, Jacor entered into agreements with Sarasota-Charlotte Broadcasting Corporation to acquire certain assets, a construction permit and related real estate for unconstructed radio station WEDD-FM in Englewood, Florida for an aggregate of $0.8 million. Jacor completed this transaction in February 1997. In September 1996, Jacor entered into a binding agreement with a subsidiary of Gannett Co., Inc. ("Gannett") to effect an exchange of Jacor's Tampa television station, WTSP-TV, acquired by Jacor in the Citicasters merger, for six of Gannett's radio stations (the "Gannett Exchange"). The stations Jacor acquired are KIIS-FM and KIIS-AM in Los Angeles, KSDO-AM and KKBH-FM in San Diego and WUSA-FM and WDAE-AM in Tampa-St. Petersburg. The Company has renamed WUSA-FM to WAKS-FM, as Gannett retained the WUSA-FM call letters. The Gannett Exchange enhanced Jacor's existing station portfolios in San Diego and Tampa and created a new multiple radio station platform in the Los Angeles broadcast area. In connection with the closing of the Gannett Exchange, Jacor and Gannett agreed that they will value the exchanged assets at $170.0 million for tax purposes. Jacor believes that this transaction constituted a tax-free like-kind exchange. In October 1996, the Company entered into a definitive merger agreement to acquire Regent Communications, Inc. ("Regent") through a merger of Regent with and into the Company. Regent owned, operated or represented 19 radio stations located in Kansas City, Salt Lake City, Las Vegas, Louisville and Charleston. During February 1997, the Company consummated the Regent merger for the approximate aggregate value of $185 million, which included (i) the issuance of approximately 3.55 million shares of Jacor common stock valued at $105.9 million, (ii) the issuance of warrants to acquire 500,000 shares of the Company's common stock at $40 per share valued at $5 million and (iii) the assumption of approximately $6 million of debt and other liabilities and $68 million in cash. In October 1996, Jacor entered into a binding agreement with Clear Channel Radio, Inc. ("Clear Channel") to purchase KTWO-AM, KMGW-FM and the Wyoming Radio Network in Casper, Wyoming for a purchase price of $1.9 million. In December 1996, Jacor and Clear Channel consummated the transaction. Also, in October 1996, Jacor entered into a binding agreement with Colfax Communications, Inc. ("Colfax") to acquire KIDO-AM and KLTB-FM in Boise, Idaho and KARO-FM in Caldwell, Idaho for a purchase price of $11.0 million. Jacor and Colfax consummated the transaction in January 1997. Also in October 1996, the Company entered into a binding agreement with Palmer Broadcasting Limited Partnership whereby the Company would acquire the FCC licenses and assets of WHO-AM and KLYF-FM in Des Moines and WMT-AM and WMT-FM in Cedar Rapids for a purchase price of $52.5 million in cash. The Company consummated this transaction in March 1997. Pending Transactions. In May 1996, the Company entered into an agreement with Enterprise Media of Toledo, L.P. to acquire the FCC licenses of WIOT-FM and WCWA-AM in Toledo, Ohio and to purchase real estate and transmission facilities necessary to operate the stations. The purchase price for the assets is $13.0 million which amount has been placed in escrow pending the closing of the transaction. In July 1996, Jacor entered into an agreement with New Wave Communications, L.P. and New Wave Broadcasting, Inc. (collectively "New Wave") to acquire the FCC licenses of WSPB-AM, WSRZ-FM and WYNF-FM in Sarasota, Florida and to purchase leasehold interests in real estate and transmission facilities necessary to operate the stations (the "New Wave Transaction"). The purchase price for the assets is $12.5 million, subject to a maximum purchase price of $15.0 million based upon the timing of the closing. In October 1996, Jacor also entered into binding agreements with Par Broadcasting Company, Inc. and Par Broadcasting Company (collectively, "Par") to purchase four radio stations in San Diego, KOGO-AM, KCBQ-AM, KIOZ-FM and KKLQ-FM, for $72.0 million in cash (the "Par Transaction") and with Entertainment Communications, Inc. ("Entercom") to sell two radio stations in Sacramento, KSEG-FM and KRXQ-FM, for $45.0 million in cash (the "Entercom Transaction"). Although these transactions are not directly contingent upon each other, Jacor anticipates that these transactions will occur in a manner that permits the transactions to be treated as a tax-free like-kind exchange. Jacor received early termination of the HSR Act waiting period with respect to the Par Transaction on January 28, 1997. The HSR Act waiting period with respect to the Entercom Transaction expired on December 1, 1996, and the FCC staff granted its initial approval of the Entercom Transaction on January 7, 1997. Jacor has entered into a time brokerage agreement with Entercom such that Entercom commenced the activities contemplated by the time brokerage agreement with regard to the Sacramento stations on January 1, 1997. Par has entered into a time brokerage agreement with Jacor such that Jacor may commence the activities contemplated by the time brokerage agreement with regard to the San Diego stations prior to the consummation of the Par Transaction. In October 1996, Jacor entered into a binding agreement with Nationwide Communications, Inc. ("Nationwide") whereby Jacor will exchange the assets of its two radio stations in Phoenix, KSLX-AM and KSLX-FM, for the assets of Nationwide's two radio stations in San Diego, KGB-FM and KPOP-AM (the "Nationwide Exchange"). The assets to be exchanged are valued by Jacor and Nationwide at approximately $45.0 million. Jacor anticipates that this transaction will constitute a tax-free like-kind exchange. Jacor has entered into a time brokerage agreement with Nationwide such that prior to the consummation of the Nationwide Exchange Nationwide may commence the activities contemplated by the time brokerage agreement with regard to the Phoenix stations, and Jacor may commence the activities contemplated by the time brokerage agreement with regard to the San Diego stations. The FCC staff granted its initial approval of the Nationwide Exchange on December 23, 1996. A timely filed Petition for Expedited Limited Reconsideration was filed at the FCC concerning the transaction by Compass Radio of San Diego, Inc., the licensee of KXST-FM, Oceanside, California. Such filing stays the occurrence of a final order. Jacor received early termination of the HSR Act waiting period with respect to the Nationwide Exchange on January 23, 1997. Jacor has also entered into a letter of intent to sell KCBQ-AM in San Diego, upon its acquisition from Par, to JS Communications, Inc. An FCC application for the assignments of KCBQ-AM to JS Communications, Inc. was filed in February 1997. No binding agreement has yet been entered into with JS Communications, Inc. Together, the Par Transaction, the Nationwide Exchange and the contemplated sale of KCBQ-AM will enhance Jacor's existing radio station portfolio in San Diego, where Jacor will then own eight stations. In November 1996, Jacor entered into a binding agreement with Stanford Capital Communications, Inc. ("Stanford") to acquire the FCC licenses and operating assets of radio stations WKQQ-FM in Lexington, Kentucky and WXZZ-FM and WTKT-AM in Georgetown, Kentucky (the "Stanford Transaction"). The purchase price for the assets is $24.0 million in cash, of which $1.2 million has been placed in escrow pending the closing of the transaction. In addition, Jacor was assigned an option to purchase certain real estate for $0.1 million in cash. The Stanford Transaction is contingent upon the successful closing of Stanford's agreement to purchase WKQQ-FM, WXZZ-FM and WTKT-AM from Village Communications, Inc. ("Village"). Stanford has assigned to Jacor its rights under a time brokerage agreement with Village such that Jacor will commence the activities contemplated by the time brokerage agreement upon the expiration or termination of the applicable waiting period under the HSR Act. FCC applications were filed in December 1996. In December 1996, Jacor entered into four separate binding agreements with unaffiliated parties whereby Jacor will acquire the FCC licenses and assets of a total of six radio stations. Jacor will acquire (i) WAZU-FM (formerly WAHC-FM), licensed to Circleville, Ohio, and WHQK-FM (formerly WAKS-FM), licensed to Marysville, Ohio, from Tel Lease, Inc.; (ii) KGLL-FM in Greeley, Colorado from Duchossois Communications Company of Colorado, Inc. (the "Duchossois Transaction"); (iii) KCOL-AM and KPAW-FM in Fort Collins, Colorado from University Broadcasting Company, L.P. (the "University Transaction"); and (iv) WJCM-AM in Sebring, Florida from Rumbuat Management, Inc. Jacor intends to relocate WJCM-AM. The aggregate purchase price for the six radio stations is approximately $15.7 million, of which approximately $4 million has been placed in escrow pending the closing of the transactions. The closing of each of the Duchossois Transaction and the University Transaction is contingent upon the closing of the other of such two transactions. An objection was filed at the FCC concerning the University Transaction. The FCC will make a determination on the objection prior to or contemporaneously with its action on the assignment application for the University Transaction. Jacor has entered into a time brokerage agreement with Tel Lease, Inc. such that Jacor commenced the activities contemplated by the time brokerage agreement with regard to WAZU-FM and WHQK-FM on December 7, 1996. FCC applications for these transactions were filed in December 1996 and January 1997, respectively. Also in December 1996, Jacor entered into a binding agreement with American Radio Systems Corporation and American Radio Systems License Corp. (together, "ARS") whereby Jacor will exchange the assets of WKRQ-FM, licensed to Cincinnati, for the assets of WVOR-FM, WHAM-AM and WHTK-AM, licensed to Rochester, New York, and an option to purchase WNVE-FM, licensed to South Bristol, New York, from The Great Lakes Wireless Talking Machine, LLP ("Great Lakes") (the "ARS Transaction"). Jacor anticipates that the transfer of assets will constitute a tax-free like-kind exchange. FCC applications were filed with respect to this exchange in January 1997. The antitrust division has consented to closing this transaction and we anticipate it will close during the second quarter of 1997. In January 1997, Jacor entered into three separate binding agreements with entities affiliated with James E. Champlin whereby Jacor will acquire the FCC licenses and assets of four radio stations. Jacor will acquire (i) WLKT-FM, licensed to Lexington, Kentucky; (ii) WLRS-FM, licensed to Louisville, Kentucky and (iii) WMCC-FM and WLOC-AM, licensed to Munfordville, Kentucky. The aggregate purchase price for the four radio stations is $10.5 million. FCC applications were filed in January 1997. Also in January 1997, Jacor entered into a binding agreement to acquire (i) WIMA-AM and WIMT-FM, licensed in Lima, Ohio; (ii) WBUK-FM, licensed to Ft. Shawnee, Ohio; and (iii) the construction permit for WLVZ-FM, licensed to St. Marys, Ohio, from Lima Broadcasting Co. for an aggregate purchase price of $6.5 million. Jacor also exercised the option acquired in the ARS Transaction to purchase WNVE-FM, licensed to South Bristol, New York, and entered into a binding agreement to acquire WNVE-FM from Great Lakes for $5.5 million. An FCC application for the WNVE-FM assignment was filed in January 1997. In February 1997, the Company entered into an agreement to purchase the assets of WMAX-FM, licensed to Irondequoit, New York, WMHX-FM, licensed to Canandaigua, New York and WRCD-FM licensed to Honeoye Falls, New York for $7.0 million from Auburn Cablevision, Inc. In March 1997, the Company entered into an agreement to purchase the assets of KOTK-AM, Portland for $8.3 million from EXCL Communications, Inc. In March 1997, the Company entered into an agreement to purchase the assets of KQSB-AM and KTYD-FM in Santa Barbara, California and KSBL-FM in Carpinteria, California for $15 million. All of the Pending Transactions are subject to various conditions, including approval by the FCC. Business Strategy Jacor's strategic objective is to be a leading radio broadcaster in each of its broadcast areas. Jacor intends to acquire individual radio stations or radio groups that strengthen its strategic position and that maximize the operating performance of its broadcast properties. Specifically, Jacor's business strategy centers upon: Revenue Leadership. Jacor strives to maximize the audience ratings in each of its broadcast areas in order to capture the largest share of the radio advertising revenue and attract advertising away from other media in that broadcast area. Jacor focuses on those locations where it believes it has the potential to be a leading radio group. By operating multiple radio stations in its broadcast areas, Jacor is able to operate its stations at lower costs, supply more diverse programming and provide advertisers with the greatest access to targeted demographic groups. Acquisition and Development of Broadcast Properties. Jacor's acquisition strategy focuses on acquiring both developed, cash flow producing stations and underdeveloped "stick" properties (i.e., stations with insignificant ratings and little or no positive broadcast cash flow) that complement its existing portfolio and strengthen its overall strategic position. Jacor has been able to improve the ratings of "stick" properties with increased marketing and focused programming that complements its existing radio station formats. Additionally, Jacor increases the revenues and cash flow of "stick" properties by encouraging advertisers to buy advertising in a package with its more established stations. Jacor may enter new locations through acquisitions of radio groups that have multiple station ownership in their respective broadcast areas. Jacor may also seek to acquire individual stations in new locations that it believes are fragmented and where a revenue-leading position can be created through additional acquisitions. Jacor may exit locations it views as having limited strategic appeal by selling or exchanging existing stations for stations in other locations where Jacor operates, or for stations in new locations. Additionally, Jacor may enter new locations situated near Jacor's core broadcast areas. Jacor believes that it will be able to leverage the costs associated with the delivery of high quality, high cost programming of topical interest throughout these geographical regions, which programming would not otherwise be economically viable in such smaller broadcast areas. Utilizing this strategy, Jacor has recently entered into agreements or closed transactions to acquire radio stations in Venice/Englewood, Florida; Louisville, Kentucky; Lexington, Kentucky; Sarasota/Bradenton, Florida; Casper, Wyoming; Fort Collins/Greeley, Colorado and Lima, Ohio. Diverse Format Expertise. Jacor management has developed programming expertise over a broad range of radio formats. This management expertise enables Jacor to specifically tailor the programming of each station in a broadcast area in order to maximize Jacor's overall strategic position. Jacor utilizes sophisticated research techniques to identify opportunities within each broadcast area and programs its stations to provide complete coverage of a demographic or format type. This strategy allows Jacor to deliver highly effective access to a target demographic and to capture a higher percentage of advertising revenues. Distinct Station Personalities. Jacor engages in a number of creative programming and promotional efforts designed to create listener loyalty and station brand awareness. Through these efforts, management seeks to cultivate a distinct personality for each station based upon the unique characteristics of each broadcast area. Jacor hires dynamic on-air personalities for key morning and afternoon "drive times" and provides comprehensive news, traffic and weather reports to create active listening by the audience. This commitment to "foreground" or "high impact" programming has successfully generated significant audience share. One of the methods Jacor utilizes to develop the personality of its AM radio stations is by broadcasting professional sporting events and related programming. Currently, Jacor has the broadcast rights for the Cincinnati Reds, Colorado Rockies, Denver Broncos, Los Angeles Kings, Portland Trail Blazers, San Diego Chargers and Tampa Bay Devil Rays. During 1997, Jacor entered into an agreement to broadcast the Los Angeles Dodgers on KIIS-AM beginning in 1998. Sports broadcasting serves as a key "magnet" for attracting audiences to a station and then introducing them to other programming features, such as local and national news, entertaining talk, and weather and traffic reports. Strong AM Stations. Jacor is an industry leader in successfully operating AM stations. While many radio groups primarily utilize network or simulcast programming on their AM stations, Jacor also develops unique programming for its AM stations to build strong listener loyalty and awareness. Utilizing this operating focus and expertise, Jacor has developed its AM stations in Denver and Cincinnati into the revenue and ratings leaders among both AM and FM stations in their respective broadcast areas. Jacor's targeted AM programming adds to Jacor's ability to increase its revenues and results in more complete coverage of the listener base. Although the cost structure of a large-scale AM station generally results in lower operating margins than typical music-based FM stations, the majority of Jacor's AM stations generate substantial levels of broadcast cash flow. Historically, most other radio broadcast companies have not focused on their AM operations to the same extent as Jacor. Accordingly, most of the AM stations to be acquired meaningfully underperform Jacor's AM stations, and management believes such stations have the potential to generate significant incremental cash flow. Powerful Broadcast Signals. A station's ability to maintain a leadership position depends in part upon the strength of its broadcasting delivery system. A powerful broadcast signal enhances delivery range and clarity, thereby influencing listener preference and loyalty. Many of Jacor's stations' broadcasting signals are among the strongest in their respective broadcast areas, reinforcing its leadership position. Jacor opportunistically upgrades the power and quality of the signals of stations it acquires. Following the consummation of the Pending Transactions, Jacor expects that relatively inexpensive technical upgrades in certain broadcast areas will provide for significantly greater signal presence. Radio Station Overview The following table and the accompanying footnotes set forth certain information regarding the 123 radio stations that will be owned and/or operated by Jacor upon completion of the Pending Transactions.
Target 1995 Combined Demographic Broadcast Pending Radio Revenue Target Share %/ Area/Station Acquisition (P) Rank Format Demographic Rank Los Angeles 5 KIIS-FM Contemporary Adults 18-34 4.5/6 Hit Radio KIIS-AM Contemporary Adults 18-34 - Hit Radio Atlanta 1 WPCH-FM Adult Women 25-54 9.2/3 Contemporary WGST-AM/FM(1) News Talk Men 25-54 5.0/8 WKLS-FM Album- Men 18-34 13.0/1 Oriented Rock Denver (2) 1 KOA-AM News Talk Men 25-54 10.9/2 KRFX-FM Classic Rock Men 25-54 12.4/1 KBPI-FM Rock Men 18-34 13.4/2 Alternative KTLK-AM Talk Adults 35-64 2.4/13 KHIH-FM Jazz Adults 25-54 4.9/8 KHOW-AM Talk Adults 25-54 2.2/13 KBCO-AM Talk Adults 25-54 - KBCO-FM Album Adults 25-54 5.7/7 Oriented Rock San Diego (3)(4)(8) 1 KHTS-FM Rhythmic Hits Adults 18-34 2.5/11 KSDO-AM News Talk Men 25-54 4.5/8 KKBH-FM Adult Women 25-54 2.8/9 Contemporary KOGO-AM P Talk Adults 1.4/22 KKLQ-FM P Contemporary Adults 18-34 4.0/7 Hit Radio KIOZ-FM P Album Men 18-34 7.9/3 Oriented Rock KGB-FM P Classic Rock Men 25-54 5.9/1 KPOP-AM P Nostalgia Adults 35-64 1.5/20 St. Louis 5 KMJM-FM Urban Adult Adults 25-54 5.3/6 Contemporary KATZ-FM Black Oldies Adults 25-54 2.1/16 KATZ-AM Urban Talk Adults 35-64 1.6/19 Cincinnati (2)(4) 1 WLW-AM News Talk Men 25-54 13.5/2 WEBN-FM Album Men 18-34 28.2/1 Oriented Rock WOFX-FM Classic Rock Men 25-54 5.7/5 WCKY-AM Talk Adults 35-64 6.8/4 WWNK-FM Adult Women 25-54 5.8/5 Contemporary WAQZ-FM Alternative Adults 18-34 4.0/9 WSAI-AM Nostalgia Adults 35-64 2.8/13 Tampa 1 WFLA-AM News Talk Adults 35-64 6.6/5 WFLZ-FM Contemporary Adults 18-34 15.2/1 Hit Radio WDUV-FM Beautiful/EZ Adults 35+ 9.4/1 WXTB-FM Album Men 18-34 19.2/1 Oriented Rock WTBT-FM Classic Rock Men 18-34 5.3/6 WAKS-FM (5) Hot Adult Women 18-34 10.3/2 Contemporary WDAE-AM Hot Adult Women 18-34 - Contemporary Portland 1 KEX-AM News Talk Adults 35-64 5.3/6 KKCW-FM Adult Women 25-54 12.1/1 Contemporary KKRZ-FM Contemporary Women 18-34 14.6/1 Hit Radio KOTK-AM P Talk Adults 35-64 2.2/13 Columbus 1 WTVN-AM Adult Talk/ Adults 35/64 8.3/3 Contemporary WLVQ-FM Album Men 18-34 13.0/2 Oriented Rock WZAZ-FM Alternative Adults 18-34 - WLOH-AM Nostalgic Adults 35-64 - WHQK-FM P Country Adults 25-54 - WAZU-FM P Rock Men 18-34 - WHOK-FM Country Adults 25-54 3.2/10 Kansas City 1 WDAF-AM Country Adults 7.7/3 KYYS-FM Album Men 18-34 11.4/3 Oriented Rock KMXV-FM Contemporary Adults 18-34 9.1/4 Hit Radio KUDL-FM Adult Women 25-54 8.9/1 Contemporary Salt Lake City (2) 1 KALL-AM Talk Adults 35-64 5.5/5 KODJ-FM Oldies Women 25-54 10.9/2 KKAT-FM Country Adults 25-54 4.8/7 KURR-FM New Rock Men 18-34 5.5/5 KZHT-FM Contemporary Women 18-34 5.3/8 Las Vegas 1 KFMS-FM Country Adults 25-54 6.2/4 KWNR-FM Country Adults 25-54 7.5/1 KBGO-FM Oldies Women 25-54 4.6/8 KSNE-FM Adult Women 25-54 10.8/1 Contemporary Louisville (2) 2 WDJX-FM Contemporary Adults 18-34 11.6/2 Hit Radio WFIA-AM Religion Adults 25-54 - WVEZ-FM Adult Women 25-54 7.7/2 Contemporary WSFR-FM Classic Rock Men 25-54 6.4/4 WLRS-FM P Adult Women 25-54 4.4/11 Contemporary Jacksonville 2 WJBT-FM Urban Adults 18-34 10.5/3 WQIK-FM Country Adults 25-54 9.5/2 WSOL-FM Adult Urban Adults 25-54 5.6/8 WZAZ-FM Urban Talk Adults 35-64 2.9/12 WJGR-AM Talk Adults 25-54 0.9/18 Rochester 2 WVOR-FM P Adult Adults 25-54 9.1/4 Contemporary WHAM-AM P News Talk Adults 25-54 8.7/3 WHTK-AM P Talk Adults 35-64 1.2/14T WNVE-FM P New Rock Men 18-34 - WMAX-FM P Alternative Adults 18-34 4.1/9 WMHX-FM P Alternative Adults 18-34 - WRCD-FM P New Adult Adults 25-54 .9/15 Contemporary Des Moines 1 WHO-AM News Talk Men 25-54 17.7/1 KLYF-FM Adult Women 25-54 11.5/2 Contemporary Toledo 1 WSPD-AM News Talk Adult 35-64 7.4/5 WVKS-FM Contemporary Adults 18-34 17.4/1 Hit Radio WRVF-FM Adult Women 25-54 12.2/3 WIOT-FM P Album Men 18-34 21.5/1 Oriented Rock WCWA-AM P Nostalgia Adults 35-64 2.5/10 Lexington 1 WMXL-FM Hot Adult Women 18-34 13.9/3 WWYC-FM Country Adults 7.9/4 WLAP-AM Sports Men 25-54 2.5/10 WKQQ-FM P Album Men 18-34 24.5/1 Oriented Rock WXZZ-FM P Rock Men 18-34 11.8/2T Alternative WTKT-AM P Rhythm and Adults 35-64 2.6/11 Blues WLKT-FM P Contemporary Adults 18-34 - Hit Radio Charleston, S.C. 2 WEZL-FM Country Adults 25-54 9.0/1 WXLY-FM Oldies Women 25-54 8.7/1 Boise (6) 2 KIDO-AM News Talk Adults 25-54 8.1/2 KARO-FM Clasic Rock Men 25-54 4.8/7 KLTB-FM Oldies Adults 25-54 5.8/6 Cedar Rapids (6) 1 WMT-AM Full Service Adults 35-64 11.3/4 WMT-FM Adult Women 25-54 17.7/3 Contemporary Sarasota/Bradenton (6) 1 WSRZ-FM P Oldies Women 25-64 7.1/2 WYNF-FM P Classic Rock Men 25-54 11.1/1 WSPB-AM P Business News Men 35-64 - Casper (6) 3 KTWO-AM Full Service/ Adults 35-64 14.6/3 Country KMGW-FM Adult Women 25-54 12.0/2 Contemporary Fort Collins/Greely (7) N/A KCOL-AM P News Talk Adults 35-64 - KPAW-FM P Oldies/Adult Adults 25-54 - Contemporary KGLL-FM P Country Adults 25-54 - Lima, Ohio (6) 1 WIMA-AM P News Talk Adults 35-64 7.4/3 WIMT-FM P Country Adults 25-54 19.8/1 WBUK-FM P Oldies Adults 25-54 10.3/3(T) WLVZ-FM (9) P - - - Venice/Englewood (7)(8) N/A WAMR-AM Talk Adults 25-54 - WCTQ-FM Country Adults 25-54 - WEDD-FM (9) - - - Santa Barbara KTYD-FM P 2 Rock Adults 18-34 4.9/6 KQSB-AM P Talk Adults 35-64 3.4/9 KSBL-FM P Adult Adults 25-54 10.2/1 Contemporary
___________ [FN] (1) Jacor provides programming and sells air time for the FM station pursuant to a TBA. (2) Excludes stations WAZU-AM in Cincinnati, KTCL-FM in Denver, WSJW-FM in Louisville and KBKK-FM in Salt Lake City for which Jacor sells advertising time pursuant to JSAs. (3) Excludes XTRA-FM and XTRA-AM, stations Jacor provides programming to and sells air time for under an exclusive sales agency agreement. (4) Excludes KCBQ-AM in San Diego and WKRQ-FM in Cincinnati which the Company will divest (see "Pending Transactions"). (5) WAKS-FM was formerly known as WUKS-FM and WUSA-FM. Jacor acquired the licenses and operating assets of WUSA-FM in the Gannett Exchange while Gannett retained the call letters. (6) Share and rank information is derived from the Spring 1996 Arbitron. (7) The Fort Collins/Greeley, Co. and Venice/Englewood, Fl. broadcast areas do not have Arbitron ranks. (8) Jacor also owns or has the right to purchase two insignificant stations in Munfordville, Ky. and one each in Sebring, Fl. and Morro Bay, Ca. (9) WEDD-FM and WLVZ-FM are unconstructed stations and, as such, are not yet operating. All rankings by revenue or billings that are contained in the above table are based on 1995 information contained in Duncan's Radio Market Guide (1996 ed.), Duncan's American Radio (Small Market Edition 1996), Duncan's American Radio (Spring 1996). Duncan's Radio Group Directory (1996-1997 ed.) and/or Broadcast Investment Analyst: Radio '96 Market Report. All information concerning ratings and audience listening information is derived from the Spring 1996 Arbitron Metro Area Ratings Survey (the "Spring 1996 Arbitron") and the Summer 1996 Arbitron Metro Area Ratings Survey (the "Summer 1996 Arbitron"). A Jacor affiliate owns a 40% interest in a limited liability company that purchased the assets formerly owned by Duncan American Radio, Inc. Television Jacor owns a television station in the Cincinnati broadcast area where it currently owns and operates multiple radio stations. By operating a television station in the broadcast area where Jacor has a significant radio presence, Jacor expects to realize significant operating efficiencies including shared news departments and reduction of administrative overhead. Jacor currently operates this television station under a temporary waiver of an FCC rule that restricts ownership of television and radio stations in the same market. This waiver will continue until at least six months after the FCC completes a pending rulemaking proceeding in which it is considering whether to substantially liberalize this rule. The following table sets forth certain information regarding the Cincinnati television station and the broadcast area in which it operates:
National TV Broadcast Households Adults Cable Broadcast Area in DMA(1) TV Aged Subscriber Network Area/Station Rank(1) (000s) Households 25-54 VHF UHF % Affiliation Commercial Stations in Broadcast Station Rank (1) Area Cincinnati/WKRC 29 793 3 1T 3 2 61 CBS
___________ [FN] (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." "T" designates tied. This market information is from Nielsen. 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 in 1996 of $11.3 billion, as reported by the Radio Advertising Bureau, was its highest level in the industry's history. During the year ended December 31, 1996, approximately 80% of Jacor's broadcast revenue (adjusted to include the effect of Jacor's acquisitions), would have been 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 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 Radio Marketing Guide and Fact Book for Advertisers, 1995-1996, each day, radio reaches approximately 76.5% 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 three out of four adults are reached by car radio each week. The average listener spends approximately three hours and 20 minutes per day 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 85% of people over 12 years of age 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; Changes in the Broadcasting Industry 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. Recent changes in the FCC's policies and rules permit increased joint ownership and joint operation of local radio stations. 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. 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 disks. 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. The FCC has allocated spectrum for a new technology, satellite digital audio radio services ("DARS"), to deliver audio programming. The FCC has proposed, but not yet adopted licensing and operating rules for DARS, so that the allocated spectrum is not yet available for service. Jacor cannot predict when and in what form such rules will be adopted. The FCC granted a waiver in September 1995 to permit one potential DARS operator to commence construction of a DARS satellite system, with the express notice that the FCC might not license such operator to provide DARS, nor would such waiver prejudge the ongoing rule making proceeding. DARS may provide a medium for the delivery by satellite or terrestrial means of multiple new audio programming formats to local and/or national audiences. Digital technology also may be used in the future by terrestrial radio broadcast stations either on existing or alternate broadcasting frequencies, and the FCC has stated that it will consider making changes to its rules to permit AM and FM radio stations to offer digital sound following industry analysis of technical standards. In addition, the FCC has authorized an additional 100 kHz of band width for the AM band and will soon allocate frequencies in this new band to certain existing AM station licensees that applied for migration prior to the FCC's cut-off date. At the end of a transition period, those licensees will be required to return to the FCC either the license for their existing AM band station or the license for the expanded AM band station. None of the stations to be affiliated with the Company have sought authorizations for operations on the expanded AM band, because such signals operate at a lower power and have less coverage and thereby are not consistent with Jacor's strategic objectives. Television stations compete for audiences and advertising revenues with radio and other television stations and multichannel video delivery systems 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 other television broadcast 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 continuously 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 broadcasting television station by bringing into its market distant broadcasting 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 ("DBS") entertainment services and multichannel multipoint distribution services ("MMDS"). Moreover, technology advances and regulatory changes affecting programming 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 technological and regulatory changes will have on the broadcast television industry and on the future profitability and value of a particular broadcast television station. Recent acquisitions of, or investments in, cable multiple-system operators ("MSOs") by local exchange carriers ("LECs") by Regional Bell Operating Companies ("RBOCs") in the United States, market tests by both LECs and cable MSOs in various states, and major infrastructure upgrades announced by both LECs and cable MSOs, presage major expansion of wired communications networks and consequently their capacities to deliver video programming. The Telecom Act repealed the "telephone company/cable television cross-ownership prohibition," thereby enabling LECs, including the RBOCs, to provide cable television service in their telephone service areas. LECs may not, however, acquire more than a 10 percent ownership interest in, or enter into joint ventures with, cable systems in their telephone service areas. The Telecom Act also gives LECs the option to provide video programming services over an open video system, or ("OVS"), in which programming on no more than one-third of the system's channels may be selected by the LEC or its affiliates. The OVS model may be attractive to LECs because it is not subject to many of the regulatory requirements applicable to traditional cable systems, such as the requirement to obtain a local cable television franchise. In addition, a number of LECs have announced their intention to provide video programming services over MMDS "wireless cable" systems. In addition, the FCC authorizes DBS services throughout the United States. Currently, two FCC permittees, DirecTv and United States Satellite Broadcasting, provide subscription DBS services via high power communications satellites and small dish receivers, and other companies provide direct-to-home video service using lower powered satellites and larger receivers. Additional companies are expected to commence direct-to-home operations in the near future. DBS and MMDS, as well as other new technologies, will further increase competition in the delivery of video programming. 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. Federal Regulation of Broadcasting The ownership, operation and sale of stations are subject to the jurisdiction of the FCC, which acts under authority granted by the Communications Act. Among other things, the FCC assigns frequency bands for broadcasting; determines the particular frequencies, locations and power of stations; issues, renews, revokes and modifies station licenses; determines whether to approve changes in ownership or control of station licenses; regulates equipment used by stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations; and has the power to impose penalties for violations of its rules or the Communications Act. On February 8, 1996, the President signed the Telecom Act. The Telecom Act, among other measures, directs the FCC to (a) eliminate the national radio ownership limits; (b) increase the local radio ownership limits as specified in the Telecom Act; (c) issue broadcast licenses for periods of eight years; (d) eliminate the opportunity for the filing of competing applications against broadcast renewal applications; and (e) modify the rules governing in-market radio-television ownership. Certain of these measures have been adopted by the FCC. Other provisions of the Telecom Act will be acted upon by the FCC through rule-making proceedings. Radio stations in the United States operate either by Amplitude Modulation (AM), conducted on 107 different frequencies located between 540 and 1600 kilohertz (kHz) (plus 10 frequencies between 1610-1710 kHz on the newly expanded AM band) in the low frequency band of the electromagnetic spectrum, or by Frequency Modulation (FM), conducted on approximately 100 different frequencies located between 88 and 108 megahertz (MHZ) at the very high frequency band of the electromagnetic spectrum. Television stations in the United States operate as either Very High Frequency (VHF) stations (channels 2 through 13) or Ultra High Frequency (UHF) stations (channels 14 through 69). UHF stations in many cases have a weaker signal and therefore do not achieve the same coverage as VHF stations. License Grants and Renewals. The Communications Act provides that a broadcast station license may be granted to an applicant if the grant would serve the public interest, convenience and necessity, subject to certain limitations referred to below. In making licensing determinations, the FCC considers the legal, technical, financial and other qualifications of the applicant, including compliance with the Communications Act's limitations on alien ownership, compliance with various rules limiting common ownership of broadcast, cable and newspaper properties, and the "character" of the licensee and those persons holding "attributable" interests in the licensee. Broadcast station licenses are granted for specific periods of time and, upon application, are renewable for additional terms. The Telecom Act amends the Communications Act to provide that broadcast station licenses be granted, and thereafter renewed, for a term not to exceed eight years, if the FCC finds that the public interest, convenience, and necessity would be served. The FCC has not yet implemented the change in license terms provided in the Telecom Act. Generally, the FCC renews licenses without a hearing. The Telecom Act amends the Communications Act to require the FCC to grant an application for renewal of a broadcast station license if: (1) the station has served the public interest, convenience and necessity; (2) there have been no serious violations by the licensee of the Communications Act or the rules and regulations of the FCC; and (3) there have been no other violations by the licensee of the Communications Act or the rules and regulations of the FCC which, taken together, would constitute a pattern of abuse. Pursuant to the Telecom Act, competing applications against broadcast renewal applications will no longer be entertained. The Telecom Act provides that if the FCC, after notice and an opportunity for a hearing, decides that the requirements for renewal have not been met and that no mitigating factors warrant lesser sanctions, it may deny a renewal application. Only thereafter may the FCC accept applications by third parties to operate on the frequency of the former licensee. The Communications Act continues to authorize the filing of petitions to deny against license renewal applications during particular periods of time following the filing of renewal applications. Petitions to deny can be used by interested parties, including members of the public, to raise issues concerning the qualifications of the renewal applicant. License renewals (expiring in 2003) were granted in 1996 for Jacor's Florida, Georgia, Iowa, South Carolina, Indiana, and certain of its Kentucky and Ohio radio stations. Presently pending are renewal applications for six of Jacor's Ohio radio stations, two St. Louis radio stations and four Kansas City radio stations. The six Ohio radio stations are subject to a petition challenging the renewal of their licenses and those of certain other broadcasters for alleged failure to comply with equal employment opportunity policies. Jacor has responded to that petition and anticipates obtaining license renewals for full terms for these Ohio stations. The applications for WFIA-AM and WDJX-FM, Louisville, are the subject of a petition to deny filed by a former employee against whom a non-compete provision was enforced. Renewal applications are presently pending for WCWA-AM and WIOT-FM, Toledo (also subject to a petition to deny on EEO grounds). Renewal applications will be filed in 1997 for the remainder of Jacor's station licenses that are currently due to expire in 1997 and for other stations to be acquired. Jacor does not anticipate any material difficulty in obtaining license renewals for full terms in the future. When the FCC considers a proposed transfer of control of an FCC licensee that holds multiple FCC licenses, some of which licenses are subject to pending renewal applications, the FCC's past policy has been either to defer action on the transfer application until the pending renewals have been granted or to grant the transfer application conditioned on the transfer not being consummated until the renewals have been granted. The FCC has recently modified that policy to provide that so long as there are no unresolved issues pertaining to the qualifications of the transferor or the transferee and so long as the transferee is willing to substitute itself as the renewal applicant, the FCC will grant a transfer application for a licensee holding multiple licenses and permit consummation of the transfer notwithstanding the pendency of renewal applications for one or several of the licensee's stations. To date, the FCC has not extended this policy to transactions where all the stations being sold are subject to renewal applications, such as involving WCWA-AM/WIOT-FM and the Palmer stations, and it is not expected that the FCC will allow the assignment of these stations to Jacor until the renewals for these stations are issued. License Assignments and Transfers of Control. The Communications Act prohibits the assignment of a license or the transfer of control of a corporation holding such a license without the prior approval of the FCC. Applications to the FCC for such assignments or transfers are subject to petitions to deny by interested parties and must satisfy requirements similar to those for renewal and new station applicants. Ownership Rules. Rules of the FCC limit the number and location of broadcast stations in which one licensee (or any party with a control position or attributable ownership interest therein) may have an attributable interest. The FCC, pursuant to the Telecom Act, eliminated the "national radio ownership rule." Consequently, there now is no limit imposed by the FCC to the number of radio stations one party may own nationally. The "local radio ownership rule" limits the number of stations in a radio market in which any one individual or entity may have a control position or attributable ownership interest. Pursuant to the Telecom Act, the FCC revised its rules to increase the local radio ownership limits as follows: (a) in markets with 45 or more commercial radio stations, a party may own up to eight commercial radio stations, no more than five of which are in the same service (AM or FM); (b) in markets with 30-44 commercial radio stations, a party may own up to seven commercial radio stations, no more than four of which are in the same service; (c) in markets with 15-29 commercial radio stations, a party may own up to six commercial radio stations, no more than four of which are in the same service; and (d) in markets with 14 or fewer commercial radio stations, a party may own up to five commercial radio stations, no more than three of which are in the same service, provided that no party may own more than 50% of the commercial stations in the market. In addition, the FCC has a "cross interest" policy that may prohibit a party with an attributable interest in one station in a market from also holding either a "meaningful" non-attributable equity interest (e.g., non-voting stock, voting stock, limited partnership interests) or key management position in another station in the same market, or which may prohibit local stations from combining to build or acquire another local station. The FCC is presently evaluating its cross-interest policy as well as policies governing attributable ownership interests. Jacor cannot predict whether the FCC will adopt any changes in these policies or, if so, what the new policies will be. Under the current rules, an individual or other entity owning or having voting control of 5% or more of a corporation's voting stock is considered to have an attributable interest in the corporation and its stations, except that banks holding such stock in their trust accounts, investment companies, and certain other passive interests are not considered to have an attributable interest unless they own or have voting control over 10% or more of such stock. The FCC is currently evaluating whether to raise the foregoing benchmarks to 10% and 20%, respectively. An officer or director of a corporation or any general partner of a partnership also is deemed to hold an attributable interest in the media license. Jacor cannot predict whether the FCC will adopt these or any other proposals. Under current FCC rules, shareholders of the Company with 5% or more of the outstanding votes (except for qualified institutional investors, for which the 10% benchmark is applicable), if any, are considered to hold attributable interests in the Company. Such holders of attributable interests must comply with or obtain waivers of the FCC's multiple and cross ownership limits. Other than Zell/Chilmark Fund L.P. (the holder of approximately 38.3% of Jacor's Common Stock), no individuals or entity has reported to the SEC that it has acquired 5% or more of the outstanding stock of Jacor; however certain qualified investors need not submit such a report until 45 days after the end of the calendar year. In the event that Jacor learns of a new attributable shareholder and if such shareholder holds interests that exceed the FCC limits on media ownership, Jacor has the corporate power to redeem stock of its shareholder to the extent necessary to be in compliance with FCC and Communications Act requirements, including limits on media ownership by attributable parties and alien ownership. The rules also generally prohibit the acquisition of an ownership or control position in a television station and one or more radio stations serving the same market (termed the "one-to-a-market" rule). Current FCC policy looks favorably upon waiver requests relating to television and AM/FM radio combinations in the top 25 television markets where at least 30 separately owned broadcast stations will remain after the combination. One-to-a-market waiver requests in other markets, as well as those in the top 25 television markets that involve the combination of a television station and more than one same service (AM or FM) radio station, presently are evaluated by the FCC pursuant to a fact-based, five-part, case-by-case review. The FCC also has an established policy for granting waivers that involve "failed" stations. The FCC currently is considering changes to its one-to-a-market waiver standards in a pending rule-making proceeding. The FCC also plans to review and possibly modify its current prohibitions relating to ownership or control positions in a daily newspaper and a broadcast station in the same market. In conjunction with Jacor's acquisition of the Citicasters stations, the FCC granted Jacor's request for waivers of the one-to-a-market rule to permit common ownership of radio stations and a television station in each of Cincinnati and Tampa-St. Petersburg, subject to the outcome in the pending rule-making proceeding. The FCC waiver directed that should divestiture be required as a result of that rule-making proceeding, Jacor will be required to file an application for FCC consent to sell the necessary stations within six months from the release of the FCC order in the rule-making proceeding. The Company disposed of WTSP-TV, St. Petersburg in December 1996. The sale of that station rendered moot the one-to-a-market waiver granted Jacor for radio and television ownership in Tampa-St. Petersburg. There can be no assurance that the FCC will adopt a revised one-to-a-market policy in its rule-making proceeding that would permit the Company to continue to own WKRC-TV, Cincinnati, along with all of its current Cincinnati-area radio stations. If divestitures are required, there can be no assurance that Jacor would be able to obtain full value for such stations or that such sales would not have a material adverse impact upon Jacor's business, financial condition or results of operations. In such event, Jacor's intention would be to seek reconsideration and/or appellate court review of the FCC's decision. Holders of non-voting stock generally will not be attributed an interest in the issuing entity, and holders of debt and instruments such as warrants, convertible debentures, options, or other non-voting interests with rights of conversion to voting interests generally will not be attributed such an interest unless and until such conversion is effected. The FCC is currently considering whether it should attribute non-voting stock, or perhaps non-voting stock interests when combined with other rights, such as voting shares or contractual relationships, along with its review of its other attribution policies. Jacor cannot predict whether the FCC will adopt these or other changes in its attribution policies. Under the Communications Act, broadcast licenses may not be granted, transferred or assigned to any corporation of which more than one-fifth of the capital stock is owned of record or voted by non-U.S. citizens or foreign governments or their representatives (collectively, "Aliens"). In addition, the Communications Act provides that no broadcast license may be held by any corporation of which more than one-fourth of the capital stock is owned of record or voted by Aliens, without an FCC public interest finding. The FCC has issued interpretations of existing law under which these restrictions in modified form apply to other forms of business organizations, including general and limited partnerships. The FCC also prohibits a licensee from continuing to control broadcast licenses if the licensee otherwise falls under Alien influence or control in a manner determined by the FCC to be in violation of the Communications Act or contrary to the public interest. No officers, directors or significant shareholders of Jacor are known by Jacor to be Aliens. Regulation of Broadcast Operations. In order to retain licenses, broadcasters are obligated, under the Communications Act, to serve the "public interest." Since the late 1970s, the FCC gradually has relaxed or eliminated many of the more formalized regulatory procedures and requirements developed to promote the broadcast of certain types of programming responsive to the problems, needs, and interests of a station's community of license. The regulatory changes have provided broadcast stations with increased flexibility to design their program formats and have provided relief from some record keeping and FCC filing requirements. However, licensees continue to be required to present programming that is responsive to significant community issues and to maintain certain records demonstrating such responsiveness. Complaints from listeners concerning a station's programming have been considered by the FCC when evaluating licensee renewal applications and at other times. Stations still are required to follow various rules promulgated under the Communications Act that regulate political broadcasts, political advertisements, sponsorship identifications, technical operations and other matters. "Equal Opportunity" and affirmative action requirements also exist. Failure to observe these or other rules can result in the imposition of monetary forfeitures or in the grant of a "short" (less than full term) license term or license revocation. The Telecom Act states that the FCC may deny, after a hearing, the renewal of a broadcast license for serious violations of the Communications Act or the FCC's rules or where there have been other violations which together constitute a pattern of abuse. The FCC has adopted rules regarding human exposure to levels of radio frequency ("RF") radiation. These rules require applicants for new broadcast stations, renewals of broadcast licenses or modification of existing licenses to inform the FCC at the time of filing such applications whether a new or existing broadcast facility would expose people to RF radiation in excess of certain guidelines. Agreements With Other Broadcasters. Over the past several years a significant number of broadcast licensees, including certain of Jacor's subsidiaries, have entered into cooperative agreements with other stations in their market. These agreements may take varying forms, subject to compliance with the requirements of the FCC's rules and policies and other laws. One typical example is a TBA or LMA between two separately owned stations serving a common service area, whereby the licensee of one station programs substantial portions of the broadcast day on the other licensee's station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during such program segments for its own account. Another is a JSA pursuant to which a licensee sells advertising time on both its own station or stations and on another separately owned station. The FCC has held that LMAs do not per se constitute a transfer of control and are not contrary to the Communications Act provided that the licensee of the station maintains complete responsibility for and control over operations of its broadcast station (including, specifically, control over station finances, personnel and programming) and complies with applicable FCC rules and with antitrust laws. At present, the FCC is considering whether it should treat as attributable multiple business arrangements among local stations, such as joint sales accompanied by debt financing. Jacor cannot predict whether the FCC would require the termination or restructuring of Jacor's JSAs or other arrangements in the future. Under certain circumstances, the FCC will consider a radio station brokering time on another radio station serving the same market to have an attributable ownership interest in the brokered station for purposes of the FCC's radio multiple ownership rules. In particular, a radio station is not permitted to enter into a LMA giving it the right to program more than 15% of the broadcast time, on a weekly basis, of another local radio station which it could not own under the FCC's local radio ownership rules. The FCC's rules also prohibit a radio licensee from simulcasting more than 25% of its programming on another radio station in the same broadcast service (i.e., AM-AM or FM-FM) whether it owns both stations or operates both through a LMA where both stations serve substantially the same geographic area. Legislation and Regulation of Television Operations. Television stations are regulated by the FCC pursuant to provisions of the Communications Act and the FCC rules that are in many instances the same or similar to those applicable to radio stations. Besides technical differences between television and radio, principal variances in regulation relate to limits on national and local ownership, LMAs and simulcasts, children's programming requirements, advanced television service, signal carriage rights on cable systems, license terms, "V-chip" technology and network/affiliate relations. The current FCC rules prohibit combined local ownership or control of television stations with overlapping "Grade B" service contours (unless established waiver standards are met). An FCC rule-making proceeding is in process to determine whether to retain, modify or eliminate these local television ownership rules. The current FCC rules permit an entity to have an attributable interest in an unlimited number of television stations so long as such stations do not reach in the aggregate more than 35% of the national television audience. Additionally, the rules prohibit (with certain qualifications) the holder of an attributable interest in a television station from also having an attributable interest in a radio station, daily newspaper or cable television system serving a community located within the relevant coverage area of that television station. As noted above, the radio/television one-to-a-market rule is under review and the FCC also plans to review and possibly modify its current broadcast/daily newspaper restriction. Pursuant to the Telecom Act, the FCC eliminated the restriction of network ownership of cable systems. The FCC will monitor the response to this change to determine if additional rule changes are necessary to ensure nondiscriminatory carriage and channel positioning of nonaffiliated broadcast stations by network-owned cable systems. Presently, LMAs between television stations are not treated as attributable interests and there is no restriction on same-market television simulcasts. The FCC is considering in a pending rule-making proceeding whether to treat television LMAs similar to radio LMAs for multiple ownership rule purposes. Jacor's television station is not a participant in any LMAs. On August 8, 1996, the FCC amended its rules implementing the Children's Television Act of 1990 (the "CTA") to establish for broadcast television renewal applications filed after August 31, 1997, a "processing guideline" of at least three hours per week of educational and informational programming for children. A television station will receive FCC staff-level approval of the portion of its license renewal application pertaining to the CTA if it satisfied the processing guideline by broadcasting at least three weekly hours of "Core Programming," which is defined as education and informational programming that, among other things, (a) has serving the educational and informational needs of children "as a significant purpose," (b) has a specified educational and informational objective and a specified target child audience, (c) is regularly scheduled, weekly programming, (d) is at least 30 minute in length, and (e) airs between 7:00 a.m. and 10:00 p.m. Alternatively, a station may qualify for staff-level approval even if it broadcasts "somewhat less" than three hours per week of Core Programing by demonstrating that it has aired a weekly package of different types of educational and informational programming that is at least equivalent to three hours of Core Programming. A licensee that does not meet the processing guideline under either of these alternatives will be referred by the FCC's staff to the Commissioners of the FCC, who will evaluate the licensee's compliance with CTA on the basis of both its programming and its other efforts related to children's educational and informational programming. A television station ultimately found not to have complied with the CTA could face sanctions including monetary fines and the possible non-renewal of its broadcast license. The FCC is conducting a rule-making proceeding to devise a table of channel allotments in connection with the introduction of "advanced" or "high definition" television service ("DTV"). The FCC has preliminarily decided to allot a second broadcast channel to each full-power commercial television station for DTV operation. According to this preliminary decision, stations would be permitted to phase in their DTV operations over a period of several years following adoption of a final table of allotments, after which they would be required to surrender their non-DTV channel. The FCC has proposed allotting all full-service television stations a second broadcast channel for digital operation that substantially replicates the service areas of their existing stations. Under this proposal, most stations, including Jacor's station, would receive a digital channel assignment in the "core spectrum" between channels 7 and 51. This proposal is open for public comment. During the past year, Congress has considered proposals that would require incumbent broadcasters to bid at auctions for the additional spectrum required to effect a transition to DTV, or alternatively, would assign additional DTV spectrum to incumbent broadcasters and require the early surrender of their non-DTV channel for sale by public auction. It is not possible to predict if, or when, any of these proposals will be adopted or the effect, if any, adoption of such proposals would have on Jacor's television station. FCC regulations implementing the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") require each television broadcaster to elect, at three-year intervals beginning June 17, 1993, either to (a) require carriage of its signal by cable systems in the station's market ("must-carry") or (b) negotiate the terms on which such broadcast station would permit transmission of its signal by the cable systems within its market ("retransmission consent"). In a 2-1 decision issued on December 13, 1995, a special three-judge panel of the U.S. District Court for the District of Columbia upheld the constitutionality of the must-carry provisions. The District Court's decision has been appealed to the U.S. Supreme Court, which will hear the appeal during its 1996-1997 term, with a decision expected in the second calendar quarter of 1997. In the meantime, the FCC's must-carry regulations implementing the Cable Act remain in effect. Jacor cannot predict the outcome of the Supreme Court review of the case. Until the passage of the Telecom Act, television licenses were granted and renewed for a maximum of five years. The Telecom Act amends the Communications Act to provide that broadcast station licenses be granted, and thereafter renewed, for a term not to exceed eight years, if the FCC finds that the public interest, convenience, and necessity would be served. The FCC has not yet implemented the change in license terms provided in the Telecom Act. The Telecom Act also requires the broadcast and cable industries to develop and transmit an encrypted rating that would permit the blocking of violent or indecent video programming and allow telephone companies to operate cable television systems in their own service areas. Jacor's Cincinnati television station is a CBS-network affiliate and a VHF station. The FCC currently is reviewing certain of its rules governing the relationship between broadcast television networks and their affiliated stations. The FCC is conducting a rule-making proceeding to examine its rules prohibiting broadcast television networks from representing their affiliated stations for the sale of non-network advertising time and from influencing or controlling the rates set by their affiliates for the sale of such time. Separately, the FCC is conducting a rule-making proceeding to consider the relaxation or elimination of its rules prohibiting broadcast networks from (a) restricting their affiliates' right to reject network programming; (b) reserving an option to use specified amounts of their affiliates' broadcast time; and (c) forbidding their affiliates from broadcasting the programming of another network; and to consider the relaxation of its rule prohibiting network-affiliated stations from preventing other stations from broadcasting the programming of their network. Proposed Changes. The FCC has not yet implemented formally certain of the changes to its rules necessitated by the Telecom Act. Moreover, the Congress and the FCC have under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, (i) affect the operation, ownership and profitability of Jacor and its broadcast stations, (ii) result in the loss of audience share and advertising revenues of Jacor's radio broadcast stations, (iii) affect the ability of Jacor to acquire additional broadcast stations or finance such acquisitions, (iv) affect current cooperative agreements and/or financing arrangements with other radio broadcast licensees, or (v) affect Jacor's competitive position in relationship to other advertising media in its markets. Such matters include, for example, changes to the license authorization and renewal process; proposals to revise the FCC's equal employment opportunity rules and other matters relating to minority and female involvement in broadcasting; proposals to alter the benchmarks or thresholds for attributing ownership interest in broadcast media; proposals to change rules or policies relating to political broadcasting; changes to technical and frequency allocation matters, including those relative to the implementation of digital audio broadcasting on both a satellite and terrestrial basis; proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on radio; changes in the FCC's cross-interest, multiple ownership, alien ownership and cross-ownership policies; proposals to allow greater telephone company participation in the delivery of audio and video programming; proposals to limit the tax deductibility of advertising expenses by advertisers; potential auctions for DTV or non-DTV television spectrum; the implementation of "V-chip" technology; and changes to children's television programming requirements, signal carriage rights on cable systems and network affiliate relations. Although Jacor believes the foregoing discussion is sufficient to provide the reader with a general understanding of all material aspects of FCC regulations that affect Jacor, it does not purport to be a complete summary of all provisions of the Communications Act or FCC rules and policies. Reference is made to the Communications Act, FCC rules and the public notices and rulings of the FCC for further information. Antitrust Considerations. Certain acquisitions by Jacor of broadcasting companies, radio station groups or individual radio stations will be subject to review by the Antitrust Division and the FTC pursuant to the provisions of the HSR Act. Generally, acquisitions involving assets valued at $15.0 million or more, and certain acquisitions of voting securities, come within the purview of the HSR Act. Although it is likely that many proposed acquisitions will not require the parties to the transaction to comply with the HSR Act, or if such compliance is required, will result in rapid clearance by the antitrust agencies, in certain instances, the antitrust agencies may choose to investigate the proposed acquisition, particularly if it appears that such acquisition will result in substantial concentration within a specific market. Any decision by an antitrust agency to challenge a proposed acquisition could affect the ability of Jacor to consummate the proposed acquisition, or to consummate the acquisition on the proposed terms. The Antitrust Division and the FTC determine between themselves which agency is to take a closer look at a proposed transaction. The Antitrust Division or the FTC, as the case may be, may then issue a formal request for additional information ("the Second Request"). Under the HSR Act, if a Second Request is issued, the waiting period then would be extended and would expire at 11:59 p.m., on the twentieth calendar day after the date of substantial compliance by both parties with such Second Request. Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act. Thereafter, such waiting period may be extended only by court order or with the consent of the parties. In practice, complying with a request for additional information or material can take a significant amount of time. In addition, if the Antitrust Division or the FTC raises substantive issues in connection with a proposed transaction, the parties frequently engage in negotiations with the relevant governmental agency concerning possible means of addressing those issues and may agree to delay consummation of the transaction while such negotiations continue. Subsequent to the passage of the Telecom Act, the radio broadcast industry has been subject to an increased amount of scrutiny by the Antitrust Division. Such scrutiny caused Jacor to experience delays in closing both its merger with Citicasters Inc. (now known as JCC) (the "Citicasters Merger") and its acquisition of Noble Broadcast Group, Inc. (the "Noble Acquisition") and to incur increased transaction costs. Jacor could experience similar delays and increased costs in connection with future transactions. The Antitrust Division or the FTC could also compel changes in the proposed terms of acquisitions. This is evidenced by Jacor's agreement with the Antitrust Division in connection with the Citicasters Merger pursuant to which Jacor agreed to divest WKRQ- FM in Cincinnati by February 1997 and to inform the Antitrust Division of certain transactions in Cincinnati that would not otherwise be reportable under the HSR Act. Antitrust Division scrutiny also resulted in Jacor terminating its agreement to finance the acquisition of WGRR-FM in Cincinnati by Tsunami Communications, Inc., the entity with whom Jacor has a joint sales agreement ("JSA") for a Denver radio station. Subsequent to such termination, Jacor received from the Antitrust Division a civil investigative demand relating to the proposed transaction. In November 1996, the Antitrust Division suspended Jacor's obligation to respond to this civil investigative demand. In addition, Jacor has received an industry-wide civil investigative demand relating to JSAs pursuant to which the Antitrust Division is examining the antitrust implications of such arrangements. Jacor antiticpates that the Antitrust Division's determinations of the permissibility of JSAs will depend on the specific characteristics of the markets, stations and relationships being reviewed. Jacor believes that its existing JSAs are appropriate under applicable antitrust laws and that its JSAs are not material to its business as such arrangements only account for approximately 1.0% of Jacor's net revenues. Although Jacor does not believe that antitrust considerations will adversely affect Jacor's ability to successfully implement its business strategy, the effects of the Antitrust Division's heightened level of scrutiny on the radio broadcast industry and on Jacor are uncertain. There can be no assurance that these concerns will not negatively impact Jacor. 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. Employees As of December 31, 1996, Jacor employed approximately 3,500 persons, 2,500 on a full-time and 1,000 on a part-time basis. Each Jacor station 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. Property Holdings Jacor leases approximately 16,244 square feet for its corporate offices in Covington, Kentucky under a lease expiring in 2008 with a five-year renewal option. Jacor also owns and leases space for the office and studio facilities at its radio station locations throughout the United States. The same is true for Jacor's tower sites and antennae. Expansion of Jacor's operations generally comes from the acquisition of stations and their facilities and ordinarily does not create a need for additional space at existing locations, although the emergence of LMAs and JSAs with other stations in Jacor's existing markets could create such a need. 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 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. Although Jacor believes its properties are generally adequate for its operations, opportunities to upgrade facilities are continuously reviewed. 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's common stock trades 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 1995 and 1996 as reported on The Nasdaq National Market. Price Range of Common Stock High Low 1995 1st Quarter........................... $14.50 $12.00 2nd Quarter........................... 17.00 13.00 3rd Quarter........................... 19.25 15.00 4th Quarter........................... 17.50 15.00 1996 High Low 1st Quarter........................... $22.25 $16.00 2nd Quarter........................... 31.25 19.50 3rd Quarter........................... 35.00 24.75 4th Quarter........................... 36.38 23.75 At February 28, 1997, there were 1,529 record holders of common stock including shares held in nominee name and the last reported sale price on the Nasdaq National Market was $29.44 per share. The Company has neither declared nor paid any dividends on its common stock to date. The Company's existing agreements with its lenders restrict the payment of dividends. It is the Company's present policy to retain all earnings for the requirements of the business. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES Item 6. Selected Financial Data The following table (in thousands except for per share data) sets forth certain data for the periods indicated and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations":
1996 1995 1994 1993 1992 Statement of Operations Data (a): Net broadcast revenue $223,761 $118,891 $107,010 $ 89,932 $ 70,506 Operating income (loss) 39,360 18,617 13,483 6,625 (3,201) Income (loss) before extraordinary loss 8,071 10,965 7,852 1,438 (23,701) Net income (loss) (b) 5,105 10,965 7,852 1,438 (23,701) Per share data: Before extraordinary loss $ .30 $ .52 $ .37 $ .10 $ (61.50) Extraordinary loss (0.11) - - - - Other Financial Data (c): Broadcast cash flow $ 72,696 $ 31,601 $ 26,542 $ 20,412 $ 14,724 Balance Sheet Data (d): Total assets $1,704,942 $208,839 $173,579 $159,909 $122,000 Long-term debt 670,000 45,500 - - 140,542 5 1/2% Liquid Yield Option Notes 118,682 - - - - Shareholders' equity (deficit) 486,936 139,073 148,794 140,413 (50,840)
[FN] (a) The comparability of the information reflected in this selected financial data is affected by the acquisition and disposition of certain properties. For information related to acquisitions and dispositions in 1995 and 1996 see Note 2 of Notes to Consolidated Financial Statements. Additionally, on January 11, 1993, the Company completed a recapitalization plan which substantially modified the Company's debt and capital structure (such recapitalization was accounted for as if it had been completed January 1, 1993), and completed a refinancing in March 1993. (b) Net income for the year ended December 31, 1996 includes, as an extraordinary item, a $3.0 million loss, net of income tax benefit, for the early retirement of debt. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES Item 6. Selected Financial Data, Continued (c) "Broadcast cash flow" means operating income before reduction in carrying value of assets, depreciation and amortization and corporate general and administrative expenses. The Company's management believes that broadcast cash flow is helpful in understanding cash flow generated from its broadcasting in comparing operating performance of the Company's broadcast stations to other broadcast stations. Broadcast cash flow is also a key factor in the Company's assessment of station performance. Broadcast cash flow should not be considered an alternative to net income as an indicator of the Company's overall performance. (d) Pro forma amounts as of December 31, 1992, to give effect to the January 11, 1993 recapitalization plan that substantially modified the Company's debt and capital structure: Total assets $142,085 Long-term debt 64,178 Shareholders' equity 50,890 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. GENERAL The following discussion should be read in conjunction with the financial statements beginning on page 46. In the following analysis, management discusses station operating income excluding depreciation and amortization. Station operating income excluding depreciation and amortization 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 because it assists in comparing station 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) or non-operating factors such as historical cost bases. Station operating income excluding depreciation and amortization also excludes the effect of corporate general and administrative expenses, which generally do not relate directly to station performance. General economic conditions have an impact on the Company's business and financial results. From time to time the markets 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. The performance of a broadcasting station 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'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 works closely with local station management to implement cost control measures. The Company's 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 1996, approximately 80% of the Company's gross revenues 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 radio 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. 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, football and hockey, as well as the costs related to the full-service programming features of its AM radio stations, the Company's broadcast cash flow margins are typically lower than its competitors'. LIQUIDITY AND CAPITAL RESOURCES Acquisitions and Dispositions completed during 1996 In February 1996, Jacor sold the business and certain operating assets of radio stations WMYU-FM and WWST-FM in Knoxville. Jacor received approximately $6.5 million in cash for this sale, generating a gain of approximately $2.5 million. In March 1996, Jacor entered into an agreement for the sale of the assets of WBRD-AM in Tampa for approximately $0.5 million in cash. The sale of WBRD-AM was completed in June 1996. In March 1996, the Company entered into an agreement to acquire the FCC licenses of WCTQ-FM and WAMR-AM in Venice, Florida and to purchase certain real estate and transmission facilities necessary to operate the stations. In June 1996, the Company consummated this acquisition for a purchase price of approximately $4.4 million in cash. In June 1996, the Company entered into an agreement to acquire the FCC licenses of WLAP-AM, WMXL-FM and WWYC-FM in Lexington, Kentucky and to purchase real estate and transmission facilities necessary to operate the stations. In August 1996, the Company consummated this acquisition for a purchase price of approximately $14 million in cash. In July 1996, the Company completed the acquisition of Noble, which owned ten radio stations serving Denver, St. Louis and Toledo. Previously, the Company purchased Noble's operating assets in San Diego which included an exclusive sales agency agreement under which Noble, and now the Company, provides programming to and sells air time for two radio stations serving San Diego (XTRA-AM and XTRA-FM). The aggregate value of the completed Noble acquisition is approximately $160 million, including related fees and expenses. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES, Continued In September 1996, the Company completed the acquisition of Citicasters through a merger of a wholly owned Jacor subsidiary with and into Citicasters. Citicasters owned and/or operated 19 radio stations, located in the United States in Atlanta, Phoenix, Tampa, Portland, Kansas City, Cincinnati, Sacramento, Columbus and two television stations, one located in Tampa and one in Cincinnati. The Company consummated the Citicasters merger for an approximate aggregate value of $801.2 million, which included (i) the purchase of all outstanding shares of Citicasters common stock at $29.50 per share for approximately $624.5 million in cash, (ii) the assumption of Citicasters 9 3/4% notes ($125 million), (iii) the payoff of Citicasters outstanding bank loan ($20 million), and (iv) the issuance of warrants to purchase an aggregate of 4.4 million shares of common stock (valued at $26.5 million). Citicasters' outstanding 9 3/4% notes became obligations of the surviving corporation in the merger. As a result of a change in control covenant in the indenture pursuant to which such notes were issued, the holders of the 9 3/4% notes were permitted to cause the Company to purchase the notes at 101% of the principal amount thereof. Approximately $107 million of the 9 3/4% notes were put to the Company pursuant to the change in control covenant. The remaining $10 million of the 9 3/4% notes have since been retired. Also in September 1996, Jacor entered into a binding agreement with a subsidiary of Gannett to effect an exchange of the Company's Tampa television station, WTSP-TV, acquired by Jacor in the Citicasters merger, for six of Gannett's radio stations. In December 1996, Jacor and Gannett consummated the Gannett exchange. The stations Jacor acquired are KIIS-FM and KIIS-AM in Los Angeles, KSDO-AM and KKBH-FM in San Diego and WUSA-FM (now WAKS-FM) and WDAE-AM in Tampa-St. Petersburg. Jacor believes that this transaction constituted a tax-free like-kind exchange. In October 1996, Jacor entered into a binding agreement with Clear Channel Radio, Inc. ("Clear Channel") to purchase KTWO-AM, KMGW-FM and the Wyoming Radio Network in Casper, Wyoming for a purchase price of $1.9 million. In December 1996, Jacor and Clear Channel consummated the transaction. The acquisitions completed during 1996 were funded as follows: (i) $303.6 million proceeds from the public offering of 11.25 million shares of Common Stock, (ii) $115.2 million in proceeds from the Liquid Yield Option Notes public offering, (iii) $100 million from the 10 1/8% Senior Subordinated Notes public offering, (iv) $170 million from the 9 3/4% Senior Subordinated Notes public offering and (v) $400 million in borrowings under the New Credit Facility. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES, Continued Acquisitions pending as of December 31, 1996 In May 1996, Jacor entered into an agreement with Enterprise Media of Toledo, L.P. to acquire the FCC licenses of WIOT-FM and WCWA-AM in Toledo, Ohio and to purchase real estate and transmission facilities necessary to operate the stations. The purchase price for the assets is $13.0 million which amount has been placed in escrow pending the closing of the transaction. In October 1996, the Company entered into a definitive merger agreement with Regent whereby Regent will merge with and into the Company. Regent owned, operated or represented 19 radio stations located in Kansas City, Salt Lake City, Las Vegas, Louisville and Charleston. During February 1997, the Company consummated the Regent merger for the approximate aggregate value of $185 million, which included (i) the issuance of 3.55 million shares of Jacor common stock valued at $105.9 million, (ii) the issuance of warrants to acquire 500,000 shares of the Company's common stock at $40 per share valued at $5 million and (iii) the assumption of approximately $6 million of debt and other liabilities and $68 million in cash. Also in October 1996, Jacor entered into a binding agreement with Colfax Communications, Inc. ("Colfax") to acquire KIDO-AM and KLTB-FM in Boise, Idaho and KARO-FM in Caldwell, Idaho for a purchase price of $11.0 million in cash. Jacor and Colfax consummated the transaction in January 1997. Additionally in October 1996, Jacor entered into a binding agreement with Palmer Broadcasting Limited Partnership whereby Jacor would acquire the FCC licenses and assets of WHO-AM and KLYF-FM in Des Moines and WMT-AM and WMT-FM in Cedar Rapids for a purchase price of $52.5 million in cash. The Company consummated this transaction in March 1997. The Company also has acquisitions pending in the following broadcast areas: (i) Sarasota, Florida, (ii) San Diego, California, (iii) Circleville, Marysville and Lima, Ohio, (iv) Lexington and Louisville, Kentucky, (v) Ft. Collins and Greely, Colorado, (vi) Rochester, New York, (vii) Santa Barbara, California, and (viii) Portland, Oregon. The net cash to be paid for the acquisitions pending as of December 31, 1996 after giving effect to escrow deposits of $33.3 million, totals approximately $230 million. Credit Facilities and Other In June 1996, the Company entered into a new credit facility (the "Credit Facility") which provided availability of $600 million. During February 1997, the Credit Facility was amended resulting in expanded availability of up to $750 million. The Credit Facility provides loans to Jacor in three components: (i) a reducing revolving credit facility of up to $450 million under which the aggregate commitments would reduce on a semi-annual basis commencing in June 1999; (ii) a $200 million amortizing term loan that would reduce on a semi-annual basis commencing in December 1997; and (iii) a $100 million amortizing term loan that would reduce on a semi-annual basis commencing in December 1998. The Credit Facility also provides the Company with additional credit for future acquisitions as well as working capital and other general corporate purposes. As of February 28, 1997 the Company had $380 million of outstanding indebtedness under the Credit Facility. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES, Continued The pending acquisitions will be primarily funded by the Credit Facility and excess cash on hand which includes: (i) Hanna Barbera escrow proceeds of $13.2 million received in December 1996, (ii) the proceeds related to the sale of the Company's investment in a News Corp. Warrant of $44.5 million received in February 1997 and (iii) the proceeds related to the sale of the Company's investment in Australia's Wonderland of $9.0 million received in March 1997. The Company believes that various additional sources are also available to fund the pending and future acquisitions. Such sources include the issuance of additional equity and/or debt securities of the Company. During the first quarter of 1997, the Company filed an omnibus shelf registration statement for the subsequent issuance of up to $250 million of additional equity and/or debt securities. The issuance of additional debt would negatively impact the Company's debt-to-equity ratio and its results of operations and cash flows due to higher amounts of interest expense. Any issuance of additional equity would soften this impact to some extent. RESULTS OF OPERATIONS The Year Ended 1996 Compared to the Year Ended 1995 Broadcast revenue for 1996 was $250.5 million, an increase of $117.4 million or 88.2% from $133.1 million during 1995. This increase resulted from the revenue generated at those properties owned or operated during 1996 but not during the comparable 1995 period. On a "same station" basis - reflecting results from stations operated for the entire twelve months of both 1996 and 1995 - broadcast revenue for 1996 was $135.5 million, an increase of $13.8 million or 11.3% from $121.7 million for 1995. This increase resulted from an increase in advertising rates in both local and national advertising. Agency commissions for 1996 were $26.7 million, an increase of $12.5 million or 87.9% from $14.2 million during 1995 due to the increase in broadcast revenue. Broadcast operating expenses for 1996 were $151.1 million, an increase of $63.8 million or 73.1% from $87.3 million during 1995. These expenses increased as a result of expenses incurred at those properties owned or operated during 1996 but not during the comparable 1995 period. On a "same station" basis, broadcast operating expenses for 1996 were $82.9 million, an increase of $4.9 million or 6.3% from $78.0 million for 1995. This increase resulted from increased selling, payroll and programming costs. Depreciation and amortization for 1996 and 1995 was $23.4 million and $9.5 million, respectively. This increase was due to the acquisitions in 1996. Operating income for 1996 was $39.4 million, an increase of $20.8 million or 111.4% from an operating income of $18.6 million for 1995. In 1996 the Company recognized an extraordinary loss of approximately $3.0 million related to the write off of debt financing costs. Also, in the first quarter of 1997, the Company recognized an extraordinary loss of approximately $5.8 million related to the write off of debt financing costs. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES RESULTS OF OPERATIONS, Continued The Year Ended 1996 Compared to the Year Ended 1995, Continued Interest expense in 1996 was $32.2 million, an increase of $30.8 million from $1.4 million in 1995. Interest expense increased due to an increase in outstanding debt that was incurred in connection with acquisitions. Net income for 1996 was $5.1 million, compared to net income of $11.0 million reported by the Company for 1995. Income tax was $7.3 million for 1996 and 1995. The effective tax rate increased in 1996 due to an increase in non-deductible goodwill resulting from the 1996 acquisitions. The Year Ended 1995 Compared to The Year Ended 1994 Broadcast revenue for 1995 was $133.1 million, an increase of $13.5 million or 11.3% from $119.6 million during 1994. 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 1995 but not during the comparable 1994 period. On a "same station" basis - reflecting results from stations operated for the entire twelve months of both 1995 and 1994 - broadcast revenue for 1995 was $125.3 million, an increase of $8.4 million or 7.2% from $116.9 million for 1994. Agency commissions for 1995 were $14.2 million, an increase of $1.6 million or 12.6% from $12.6 million during 1994 due to the increase in broadcast revenue. Agency commissions increased at a greater rate than broadcast revenue due to a greater proportion of agency sales. Broadcast operating expenses for 1995 were $87.3 million, an increase of $6.8 million or 8.5% from $80.5 million during 1994. These expenses increased as a result of increased selling and other payroll costs, programming costs and expenses incurred at those properties owned or operated during 1995 but not during the comparable 1994 period. On a "same station" basis, broadcast operating expenses for 1995 were $81.3 million, an increase of $4.2 million or 5.5% from $77.1 million for 1994. Depreciation and amortization for 1995 and 1994 was $9.5 million and $9.7 million, respectively. Operating income for 1995 was $18.6 million, an increase of $5.1 million or 38.1% from an operating income of $13.5 million for 1994. Interest expense for 1995 was $1.4 million, an increase of $0.9 million or 170.1% from $0.5 million for 1994. Interest expense increased due to an increase in outstanding debt that was incurred in connection with acquisitions and stock repurchases. Net income for 1995 was $11.0 million, compared to net income of $7.9 million reported by the Company for 1994. The 1994 period includes income tax expense of $6.3 million, while the 1995 period includes $7.3 million of income tax expense. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CASH FLOWS Cash flows provided by operating activities, inclusive of working capital, were $24.9 million, $20.6 million and $11.3 million for 1996, 1995 and 1994, respectively. Cash flows provided by operating activities in 1996 resulted primarily from $28.7 million in non-cash expenses, a $3.0 million add-back of the write-off of debt related financing costs, partially offset by the ($2.5) million gain on the sale of radio stations and the net change in working capital of ($10.5) million. Cash flows provided by operating activities in 1995 resulted primarily from the add-back of $9.5 million of depreciation and amortization expense to net income of $11.0 million for the period. Cash flows provided by operating activities in 1994 resulted primarily from net income of $7.9 million generated during the year. The additional $3.4 million resulted principally from the excess of the sum of the depreciation and amortization add-back of $9.7 million, together with the add-back of $1.4 million for provision for losses on accounts and notes receivable over the net change in working capital of ($7.6) million. Cash flows used by investing activities were $859.3 million, $64.3 million and $13.7 million for 1996, 1995 and 1994, respectively. Investing activities include capital expenditures of $11.9 million, $5.0 million and $2.2 million in 1996, 1995 and 1994, respectively. Investing activities in 1996 and 1995 included expenditures of $854.0 million and $59.8 million, respectively, for acquisitions, the purchase of intangible assets and loans made in connection with the Company's JSAs. In addition, 1996 investing activities were net of $6.6 million of proceeds from the sale of radio stations and 1994 investing activities were net of $3.2 million of payments received on notes and from the sale of assets. Cash flows provided by financing activities were $905.1 million, $24.2 million and $0.7 million for 1996, 1995 and 1994, respectively. Cash flows provided by financing activities in 1996 resulted primarily from: (i) the $115.2 million issuance of Liquid Yield Option Notes; (ii) the $100.0 million issuance of 10 1/8% Senior Subordinated Notes; (iii) the $170.0 million issuance of 9 3/4% Senior Subordinated Notes; (iv) net proceeds of $316.7 million from the issuance of common stock; and (v) borrowings, net of repayments, of $354.5 million under the Bank Credit Facilities. These proceeds were partially offset by the payment of $27.4 million in financing costs and the $123.1 million payoff of the Citicasters 9 3/4% Senior Subordinated Notes. Cash flows provided by financing activities in 1995 resulted primarily from the $45.5 million in borrowings under the 1993 Credit Agreement, together with $0.8 million in proceeds received from the issuance of common stock to the Company's employee stock purchase plan and upon the exercise of outstanding stock options net of the $21.7 million used to repurchase common stock. Cash flows from financing activities in 1994 resulted primarily from the proceeds received from the issuance of common stock upon the exercise of outstanding stock options. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CASH FLOWS, Continued The foregoing discussion sets forth forward looking statements within the meaning of Section 27A of the Securities Act of 1933. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially from those described in the forward looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the ability to consummate the pending acquisitions, interest rates, competition and the economy and industry conditions in general. Item 8. Financial Statements and Supplementary Data Page Report of Independent Accountants 47 Consolidated Balance Sheets: December 31, 1996 and 1995 48 Consolidated Statements of Operations: Years ended December 31, 1996, 1995 and 1994 49 Consolidated Statements of Shareholders' Equity: Years ended December 31, 1996, 1995 and 1994 50 Consolidated Statements of Cash Flows: Years ended December 31, 1996, 1995 and 1994 51 Notes to Consolidated Financial Statements 53 Quarterly Financial Data 70 PART III The information required by the following items will be included in Jacor Communications, Inc.'s definitive Proxy Statement which will be provided within 120 days after the end of the Registrant's fiscal year: Item 10 Directors and Executive Officers of the Registrant Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management Item 13 Certain Relationships and Related Transactions REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Jacor Communications, Inc. We have audited the accompanying consolidated balance sheets of Jacor Communications, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jacor Communications, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Cincinnati, Ohio February 27, 1997 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (In thousands, except share data)
1996 1995 ASSETS Current assets: Cash and cash equivalents $ 78,137 $ 7,437 Accounts receivable, less allowance for doubtful accounts of $3,950 in 1996 and $1,606 in 1995 79,502 25,262 Prepaid expenses and other current assets 8,963 3,916 Total current assets 166,602 36,615 Property and equipment, net 131,488 30,801 Intangible assets, net 1,290,172 127,158 Other assets 116,680 14,265 Total assets $ 1,704,942 $ 208,839 LIABILITIES Current liabilities: Accounts payable $ 12,600 $ 2,313 Accrued expenses and other current liabilities 30,774 3,463 Accrued payroll 7,562 3,178 Accrued federal, state and local income tax 4,596 3,226 Total current liabilities 55,532 12,180 Long-term debt 670,000 45,500 5 1/2% Liquid Yield Option Notes 118,682 - Other liabilities 108,914 3,469 Deferred tax liability 264,878 8,617 Commitments and contingencies SHAREHOLDERS' EQUITY Preferred Stock, authorized and unissued 4,000,000 shares - - Common Stock, no par value, $0.01 per share stated value; authorized 100,000,000 shares, issued and outstanding shares: 31,287,221 in 1996 and 18,157,209 in 1995 313 182 Additional paid-in capital 432,721 118,248 Common stock warrants 26,500 388 Unrealized gain on investments 2,042 - Retained earnings 25,360 20,255 Total shareholders' equity 486,936 139,073 Total liabilities and shareholders' equity $ 1,704,942 $ 208,839 The accompanying notes are an integral part of the consolidated financial statements.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 1996, 1995 and 1994 (In thousands, except per share amounts)
1996 1995 1994 Broadcast revenue $ 250,461 $ 133,103 $ 119,635 Less agency commissions 26,700 14,212 12,625 Net revenue 223,761 118,891 107,010 Broadcast operating expenses 151,065 87,290 80,468 Depreciation and amortization 23,404 9,483 9,698 Corporate general and administrative expenses 7,629 3,501 3,361 Special bonuses 2,303 - - Operating income 39,360 18,617 13,483 Interest expense (32,244) (1,444) (534) Gain on sale of radio stations 2,539 - - Other income, net 5,716 1,092 1,216 Income before income taxes and extraordinary loss 15,371 18,265 14,165 Income tax expense (7,300) (7,300) (6,313) Income before extraordinary loss 8,071 10,965 7,852 Extraordinary loss, net of income tax benefit (2,966) - - Net income $ 5,105 $ 10,965 $ 7,852 Net Income Per Common Share: Before extraordinary loss $ 0.30 $ 0.52 $ 0.37 Extraordinary loss (0.11) - - Net income per common share $ 0.19 $ 0.52 $ 0.37 Number of common shares used in per share calculation 26,830 20,913 21,409 The accompanying notes are an integral part of the consolidated financial statements.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the years ended December 31, 1996, 1995 and 1994 (in thousands)
Common Stock Additional Common Unrealized Shares Stated Paid-In Stock Gain on Retained Value Capital Warrants Investments Earnings Total - -------------------------------------------------------------------------------------------- Balances, January 1, 1994 19,500 $ 195 $138,390 $ 390 $ - $ 1,438 $140,413 Exercise of stock options 89 1 768 - - - 769 Other 1 - 10 - - - 10 Net income - - - - - 7,852 7,852 - -------------------------------------------------------------------------------------------- Balances, December 31, 1994 19,590 196 139,168 390 - 9,290 149,044 Purchase and retirement of stock (1,515) (15) (21,679) - - - (21,694) Purchase of stock by employee stock purchase plan 44 1 474 - - - 475 Exercise of stock options 28 - 195 - - - 195 Other 10 - 90 (2) - - 88 Net income - - - - - 10,965 10,965 - -------------------------------------------------------------------------------------------- Balances, December 31, 1995 18,157 182 118,248 388 - 20,255 139,073 Common stock offering 11,250 113 301,636 - - - 301,749 Purchase of stock by employee stock purchase plan 48 - 672 - - - 672 Exercise of stock options 106 1 650 - - - 651 Conversion of warrants 1,726 17 14,704 (374) - - 14,347 Purchase of warrants - - (5,080) (14) - - (5,094) Issuance of warrants - - - 26,500 - - 26,500 Unrealized gain on investments - - - - 2,042 - 2,042 Stock related compensation - - 1,891 - - - 1,891 Net income - - - - - 5,105 5,105 - -------------------------------------------------------------------------------------------- Balances, December 31, 1996 31,287 $313 $432,721 $26,500 $ 2,042 $25,360 $486,936 ============================================================================================ The accompanying notes are an integral part of the consolidated financial statements.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1996, 1995 and 1994 (In thousands)
1996 1995 1994 Cash flows from operating activities: Net income $ 5,105 $ 10,965 $ 7,852 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,661 3,251 2,507 Amortization of intangible assets 15,743 6,232 7,191 Extraordinary loss 2,966 - - Non-cash interest expense 4,327 - - Provision for losses on accounts and notes receivable 978 1,137 1,442 Deferred income tax benefit (233) (560) (355) Gain on sale of radio stations (2,539) - - Other 892 237 (478) Changes in operating assets and liabilities, net of effects of acquisitions and disposals: Accounts receivable (18,626) (2,344) (5,766) Other current assets (4,076) 1,029 (2,008) Accounts payable 10,054 (424) 372 Accrued expenses and other liabilities 2,655 1,102 591 Net cash provided by operating activities 24,907 20,625 11,348 (Continued) The accompanying notes are an integral part of the consolidated financial statements.
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1996, 1995 and 1994 (In thousands) (Continued)
1996 1995 1994 Cash flows from investing activities: Capital expenditures $ (11,852) $ (4,969) $ (2,221) Cash paid for acquisitions (826,302) (34,008) (4,904) Deposits on broadcast stations (23,608) - - Purchase of intangible assets - (15,536) (6,262) Proceeds from sale of assets 6,595 - 1,919 Loans originated and other (4,097) (9,827) (2,182) Net cash used by investing activities (859,264) (64,340) (13,650) Cash flows from financing activities: Proceeds from issuance of long-term debt 973,000 45,500 - Proceeds from the issuance of LYONs 115,172 - - Purchase of common stock - (21,694) - Proceeds from issuance of common stock 316,726 758 779 Repayment of long-term debt (471,600) - - Payment of financing costs (27,435) - - Other (806) (387) (120) Net cash provided by financing activities 905,057 24,177 659 Net increase (decrease) in cash and cash equivalents 70,700 (19,538) (1,643) Cash and cash equivalents at beginning of year 7,437 26,975 28,618 Cash and cash equivalents at end of year $ 78,137 $ 7,437 $ 26,975 Supplemental disclosures of cash flow information: Cash paid for: Interest $ 5,300 $ 1,400 $ - Income taxes $ 4,992 $ 6,662 $ 5,545 Supplemental schedule of non-cash investing and financing activities: Fair value of assets exchanged $ 170,000 - - Liabilities assumed in acquisitions $ 296,187 - - 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 As of December 31, 1996 the Company owned and/or operated 85 radio stations and one television station in 21 broadcast areas throughout the United States. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Jacor Communications, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Revenues Revenues for commercial broadcasting advertisements are recognized when the commercial is broadcast. Barter Transactions Revenue from barter transactions (advertising provided in exchange for goods and services) is recognized as income when advertisements are broadcast, and merchandise or services received are charged to expense when received or used. If merchandise or services are received prior to the broadcast of the advertising, a liability (deferred barter revenue) is recorded. If the advertising is broadcast before the receipt of the goods or services, a receivable is recorded. Consolidated Statements of Cash Flows For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. The effect of barter transactions has been eliminated. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and accounts receivable. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising the Company's customer base and their dispersion across many different geographic areas of the country. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS, Continued Property and Equipment Property and equipment are stated at cost less accumulated depreciation; depreciation is provided on the straight-line basis over the estimated useful lives of the assets as follows: Land improvements 20 Years Buildings 25 Years Equipment 3 to 20 Years Furniture and fixtures 5 to 12 Years Leasehold improvements Life of lease Intangible Assets Intangible assets are stated at cost less accumulated amortization; amortization is provided principally on the straight-line basis over the following lives: Broadcasting licenses and goodwill 40 Years Other intangibles 5 to 25 Years Other intangible assets consist primarily of various contracts and purchased intellectual property. The carrying value of intangible assets is reviewed by the Company when events or circumstances suggest that the recoverability of an asset may be impaired. If this review indicates that goodwill and licenses will not be recoverable, as determined based on the undiscounted cash flows of the entity over the remaining amortization period, the carrying value of the goodwill and licenses will be reduced accordingly. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Fair Value of Financial Instruments The fair value of the Company's publicly traded debt is based on quoted market prices. It was not practicable to estimate the fair value of borrowings under the Company's Credit Facility since there is no liquid market for this debt. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS, Continued Marketable Equity Securities Marketable equity securities are classified as available for sale and included in other assets. Per Share Data Income per share for the three years ended December 31, 1996 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 year. Fully diluted income per share is not presented since it approximates income per share. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. ACQUISITIONS Completed Acquisitions In August 1995, the Company acquired certain operating assets of radio stations WDUV-FM and WBRD-AM in Tampa, Florida for approximately $14 million in cash. In 1995, the Company acquired the call letters, programming and certain contracts of radio station WOFX- FM in Cincinnati, Ohio and then changed the call letters of its FM broadcast station WPPT to WOFX. The Company also acquired radio stations WSOL-FM (formerly WHJX), WJBT-FM and WZAZ-AM in Jacksonville, Florida. The aggregate cash purchase price for these acquisitions was approximately $9.75 million. During 1996, the Company acquired Noble Broadcast Group, Inc. ("Noble"), for approximately $152 million in cash plus related costs and expenses. Noble's San Diego operations, which provided programming to and sold the air time for two radio stations serving San Diego (one AM, one FM) were acquired in February 1996. Ten radio stations owned by Noble, serving Denver (two AM and two FM), St. Louis (one AM, two FM) and Toledo (one AM, two FM) were acquired on July 15, 1996. In September 1996, the Company acquired Citicasters Inc. ("Citicasters") for an approximate aggregate value of $801.2 million, which included the purchase of all outstanding shares of Citicasters common stock, the assumption of Citicasters outstanding indebtedness and the issuance of warrants to purchase an aggregate of 4,400,000 shares of common stock. Each Citicasters Warrant is exercisable for .2035247 of a share of the Company's common stock at an exercise price of $28.00 per full share. Citicasters owned and/or operated 19 radio stations, located in Atlanta, Phoenix, Tampa, Portland, Kansas City, Cincinnati, Sacramento, Columbus and two television stations, one located in Tampa and one in Cincinnati. In June 1996, the Company acquired the FCC licenses of WCTQ-FM and WAMR-AM in Venice, Florida and certain real estate and transmission facilities necessary to operate the stations for a purchase price of approximately $4.4 million in cash. In August 1996, the Company acquired the FCC licenses of WLAP-AM, WMXL-FM and WWYC-FM in Lexington, Kentucky and certain real estate and transmission facilities necessary to operate the stations for a purchase price of approximately $14 million in cash. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. ACQUISITIONS, Continued Completed Acquisitions, Continued In June 1996, the Company financed the purchase by Critical Mass Media, Inc. ("CMM") of a 40% interest in a newly formed limited liability company which purchased for $540,000 the assets of Duncan American Radio, Inc. CMM is a marketing research and radio consulting business which is owned by a limited partnership of which the Company is the 5% general partner and a corporation wholly owned by the Chief Executive Officer of the Company, is the 95% limited partner. In December 1996, the Company exchanged Tampa television station, WTSP-TV, acquired by the Company in the Citicasters Merger, for six radio stations owned by Gannett. The stations the Company acquired are KIIS-FM and KIIS-AM in Los Angeles, KSDO-AM and KKBH-FM in San Diego and WAKS-FM and WDAE-AM in Tampa-St. Petersburg. In December 1996, the Company purchased from Clear Channel Radio, Inc. radio stations KTWO-AM, KMGW-FM and the Wyoming Radio Network in Casper, Wyoming for a purchase price of $1.9 million. All of the above acquisitions have been accounted for as purchases. The excess cost over the fair value of net assets acquired is being amortized over 40 years. The results of operations of the acquired businesses are included in the Company's financial statements since the respective dates of acquisition. Assuming each of the 1995 and 1996 acquisitions had taken place at the beginning of 1995, unaudited pro forma consolidated results of operations would have been as follows: Pro Forma (Unaudited) Year Ended December 31, 1996 1995 Net revenue $ 342,649 $ 314,830 Net loss (8,131) (7,944) Net loss per common share ($0.26) ($0.25) JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. ACQUISITIONS, Continued Acquisitions pending as of December 31, 1996 In May 1996, Jacor entered into an agreement with Enterprise Media of Toledo, L.P. to acquire the FCC licenses of WIOT-FM and WCWA-AM in Toledo, Ohio and to purchase real estate and transmission facilities necessary to operate the stations. The purchase price for the assets is $13.0 million which amount has been placed in escrow pending the closing of the transaction. In October 1996, the Company entered into a definitive merger agreement with Regent whereby Regent will merge with and into the Company. Regent owned, operated or represented 19 radio stations located in Kansas City, Salt Lake City, Las Vegas, Louisville and Charleston. During February 1997, the Company consummated the Regent merger for the approximate aggregate value of $185 million, which included (i) the issuance of 3.55 million shares of Jacor common stock valued at $105.9 million, (ii) the issuance of warrants to acquire 500,000 shares of the Company's common stock at $40 per share valued at $5 million and (iii) the assumption of approximately $6 million of debt and other liabilities and $68 million in cash. Also in October 1996, Jacor entered into a binding agreement with Colfax Communications, Inc. ("Colfax") to acquire KIDO-AM and KLTB-FM in Boise, Idaho and KARO- FM in Caldwell, Idaho for a purchase price of $11.0 million in cash. Jacor and Colfax consummated the transaction in January 1997. Additionally in October 1996, Jacor entered into a binding agreement with Palmer Broadcasting Limited Partnership whereby Jacor would acquire the FCC licenses and assets of WHO-AM and KLYF-FM in Des Moines and WMT-AM and WMT-FM in Cedar Rapids for a purchase price of $52.5 million in cash. The Company consummated this transaction in March 1997. The Company also has acquisitions pending in the following broadcast areas: (i) Sarasota, Florida, (ii) San Diego, California, (iii) Circleville, Marysville and Lima, Ohio, (iv) Lexington and Louisville, Kentucky, (v) Ft. Collins and Greely, Colorado, (vi) Rochester, New York, (vii) Santa Barbara, California, and (viii) Portland, Oregon. The net cash to be paid for the acquisitions pending as of December 31, 1996 after giving effect to escrow deposits of $33.3 million, totals approximately $230 million. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1996 and 1995 consist of the following (in thousands): 1996 1995 Land and land improvements $ 14,269 $ 2,575 Buildings 20,249 2,585 Equipment 97,491 26,674 Furniture and fixtures 7,524 3,505 Leasehold improvements 5,872 3,185 145,405 38,524 Less accumulated depreciation (13,917) (7,723) $131,488 $30,801 4. INTANGIBLE ASSETS Intangible assets at December 31, 1996 and 1995 consist of the following (in thousands): 1996 1995 Broadcasting licenses and goodwill $1,277,364 $120,948 Other intangible assets 47,962 27,489 1,325,326 148,437 Less accumulated amortization (35,154) (21,279) $1,290,172 $127,158 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. OTHER ASSETS The Company's other assets at December 31, 1996 and December 31, 1995 consist of the following (in thousands): December 31, December 31, 1996 1995 News Corp Warrants $ 39,800 $ - Acquisition escrows 30,804 - Marketable securities 13,965 - Other 32,111 14,265 $116,680 $ 14,265 The News Corp Warrants were included in the Citicasters acquisition. The Company sold the News Corp Warrants in February 1997 for $44.5 million in cash and will record a pretax gain of $4.7 million in the first quarter of 1997. JACOR COMMUNICATIONS,INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. LONG-TERM DEBT The Company's debt obligations at December 31, 1996 and 1995 consist of the following (in thousands): 1996 1995 Credit facility borrowings........ $400,000 $ 45,500 10 1/8% Senior Subordinated Notes, due 2006....................... 100,000 - 9 3/4% Notes, due 2006............ 170,000 - $670,000 $ 45,500 New Credit Facility In June 1996, the Company entered into a new credit facility (the "Credit Facility"). The Credit Facility is with a syndicate of banks and other financial institutions. In February 1997, the Credit Facility was amended and restated to expand the availability to $750 million of loans in three components: (i) a revolving credit facility of up to $450 million with a mandatory commitment reduction of $27.5 million on June 12, 1999 continuing semi-annually through June 2002, and a final maturity date of June 12, 2003; (ii) a term loan of up to $200 million with a scheduled reduction of $8.5 million on December 12, 1997 with increasing semi-annual reductions thereafter and a final maturity date of June 12, 2003; and (iii) a term loan of up to $100 million with a scheduled reduction of $.5 million on December 12, 1998 with increasing semi-annual reductions thereafter and a final maturity date of June 12, 2004. Borrowings under the Credit Facility bear interest at rates that fluctuate with a bank base rate and/or the Eurodollar rate. The weighted average interest rate at December 31, 1996 was 7.83%. Loans under the Credit Facility are guaranteed by the Company and each of the Company's direct and indirect subsidiaries. The Company's obligations with respect to the Credit Facility and each guarantor's obligations with respect to the related guaranty is collateralized by substantially all of their respective assets, and, in the case of the Company's subsidiaries, capital stock. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. LONG-TERM DEBT, Continued The Credit Facility contains covenants and provisions that restrict, among other things, the Company's ability to: (i) incur additional indebtedness; (ii) incur liens on its property; (iii) make investments and advances; (iv) enter into guarantees and other contingent obligations; (v) merge or consolidate with or acquire another person or engage in other fundamental changes; (vi) engage in certain sales of assets; (vii) make capital expenditures; (viii) enter into leases; (ix) engage in certain transactions with affiliates; and (x) make restricted junior payments. The Credit Facility also requires satisfaction of certain financial performance criteria (including a consolidated interest coverage ratio, a leverage-to- operating cash flow ratio and a consolidated operating cash flow available for fixed charges ratio) and the repayment of loans under the Credit Facility with proceeds of certain sales of assets and debt issuances, and with 50% of the Company's Consolidated Excess Cash Flow (as defined in the Credit Facility). During 1996 the Company recognized an extraordinary loss of approximately $3 million related to the write off of debt financing costs. Also, in the first quarter of 1997, the Company recognized an extraordinary loss of approximately $5.8 million related to the write off of debt financing costs. 10 1/8% Senior Subordinated Notes Due 2006 In June 1996, the Company completed an offering of $100 million of its 10 1/8% Senior Subordinated Notes (the "Notes"). The Notes will mature on June 15, 2006. Interest on the Notes is payable semi-annually on June 15 and December 15 of each year, commencing December 15, 1996. The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after June 15, 2001. The redemption prices commence at 105.063% and are reduced by 1.688% annually until June 15, 2004 when the redemption price is 100%. At December 31, 1996 the market value of the Notes exceeded carrying value by approximately $3 million. 9 3/4% Notes Due 2006 In December 1996, the Company completed an offering of $170 million of its 9 3/4% Notes (the "9 3/4% Notes"). The 9 3/4% Notes will mature on December 15, 2006. Interest on the 9 3/4% Notes is payable semi-annually on June 15 and December 15 of each year, commencing on June 15, 1997. The 9 3/4% Notes will be redeemable at the option of the Company, in whole or part, at any time on or after December 15, 2001. The redemption prices commence at 104.875% and are reduced by 1.625% annually until December 15, 2004 when the redemption price is 100%. At December 31, 1996, the market value of the 9 3/4% Notes exceeded carrying value by approximately $3.4 million. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. LONG-TERM DEBT, Continued The Notes and the 9 3/4% Notes were issued by JCAC, Inc., a wholly owned subsidiary formed for the purpose of completing the merger of Citicasters Inc., the predecessor to Jacor Communications Company ("JCC"), and are jointly and severally, fully and unconditionally guaranteed on a senior subordinated basis by Jacor and substantially all subsidiaries of Jacor (the "Subsidiary Guarantors"). JCC (the successor to JCAC, Inc.) and each of the Subsidiary Guarantors are wholly owned direct or indirect subsidiaries of Jacor. Separate financial statements of JCC and each of the Subsidiary Guarantors are not presented because Jacor believes that such information would not be material to investors. The direct and indirect non-guarantor subsidiaries of Jacor are inconsequential, both individually and in the aggregate. In addition, Jacor and JCC have a pending registration statement on Form S-3 (File No. 333-19291) for up to $250 million of debt securities that would be jointly and severally, fully and unconditionally guaranteed on a senior subordinated basis by Jacor and each of the Subsidiary Guarantors if such debt securities are issued by JCC and by JCC and each of the Subsidiary Guarantors if such debt securities are issued by Jacor. Summarized financial information with respect to Jacor and with respect to the Subsidiary Guarantors on a combined basis as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996; and with respect to JCC as of December 31, 1996 and for the period from June 6, 1996 to December 31, 1996 is as follows:
Combined Jacor JCC Subsidiary Guarantors 1996 1995 1994 1996 1996 1995 1994 Operating Statement Data (in thousands): Net revenue - - - - $ 223,761 $118,891 $107,010 Equity in earnings of subsidiaries $10,237 $10,965 $ 7,852 $11,864 - - - Operating income 305 10,965 7,852 11,864 49,292 18,617 13,483 Income before extraordinary items 5,105 10,965 7,852 13,203 11,864 18,617 13,483 Net income 5,105 10,965 7,852 10,237 11,864 10,965 7,852 Balance Sheet Data (in thousands): Current assets $ 1,538 $ 6,802 $ 75,626 $ 166,602 $ 36,615 Non-current assets 722,918 186,589 1,264,081 1,538,340 172,224 Current liabilities 16,253 160 9,975 55,532 12,180 Non-current liabilities 221,267 54,158 1,056,348 1,162,474 57,586 Shareholders equity 486,936 139,073 273,384 486,936 139,073
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LIQUID YIELD OPTION NOTES In June 1996, the Company issued 5 1/2% Liquid Yield Option Notes ("LYONs") due 2011 in the aggregate principal amount at maturity of $259.9 million. Each LYON had an issue price of $443.14 and a principal amount at maturity of $1,000. At December 31, 1996 the accreted value of the LYONs was $118.7 million which included $3.5 million of interest accreted during 1996. Each LYON is convertible, at the option of the holder, at any time on or prior to maturity, into Common Stock at a conversion rate of 13.412 shares per LYON. The LYONs are not redeemable by the Company prior to June 12, 2001. Thereafter, the LYONs are redeemable for cash at any time at the option of the Company, in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption. The LYONs will be purchased by the Company, at the option of the holder, on June 12, 2001 and June 12, 2006, for a Purchase Price of $581.25 and $762.39 (representing issue price plus accrued original issue discount to each date), respectively, representing a 5 1/2% yield per annum to the holder on such date. The Company, at its option, may elect to pay the purchase price on any such purchase date in cash or common stock, or any combination thereof. At December 31, 1996 the market value of the LYONs was less than the carrying value by approximately $3 million. 8. CAPITAL STOCK Warrants In connection with a Stock Offering during 1996, the Company determined that it would convert the 1,983,605 outstanding 1993 Warrants into the right to receive the Fair Market Value (as defined) calculated to be $19.70 per Warrant. Prior to the conversion, the Company issued 1,726,004 shares of Common Stock with proceeds aggregating approximately $14.3 million upon exercise of such warrants by the holders. The Company used approximately $5.1 million of these proceeds to fund the conversion of the remaining 1993 Warrants presented for redemption. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCK BASED COMPENSATION PLANS In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). The Company has elected not to adopt the cost recognition provisions of SFAS 123 as permitted by the statement. The Company continues to apply APB Opinion No. 25 in accounting for its stock based compensation plans. 1993 Stock Option Plan Under the Company's 1993 stock option 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 plan permits the granting of non-qualified stock options as well as incentive stock options. 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. Information pertaining to the plan for the years ended December 31, 1994, 1995 and 1996 is as follows: Number of Weighted Average Shares Exercise Price 1994: Outstanding at beginning of year.. 1,405,620 $ 6.06 Granted........................... 35,000 $14.22 Exercised......................... (89,310) $ 5.81 Outstanding at end of year........ 1,351,310 $ 6.16 Exercisable at end of year........ 766,170 $ 5.90 Available for grant at end of year 87,618 1995: Outstanding at beginning of year.. 1,351,310 $ 6.16 Granted........................... 245,000 $14.61 Exercised......................... (27,790) $ 5.81 Outstanding at end of year........ 1,568,520 $ 7.52 Exercisable at end of year........ 1,093,340 $ 6.57 Available for grant at end of year 1,092,618 1996: Outstanding at beginning of year.. 1,568,520 $ 7.52 Granted........................... 594,500 $23.63 Exercised......................... (106,410) $ 6.10 Outstanding at end of year........ 2,056,610 $12.26 Exercisable at end of year........ 1,507,000 $ 8.68 Available for grant at end of year 523,118 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. 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 1995 and 1996, respectively: risk-free interest rates are different for each grant and range from 5.24% to 6.45%; the expected lives of options are 5 years; and volatility of 35.1% for all grants. A summary of the fair value of options granted in 1996 and 1995 follows: 1996 1995 Weighted-average fair value of options granted at-the-money $ 9.42 $ 5.70 Weighted-average fair value of options granted at a premium $ 8.46 $ 5.33 Weighted-average fair value of all options granted during the year $ 9.07 $ 5.44 The following table summarizes information about stock options outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE Weighted Weighted Weighted Range of Number Average Average Number Average Exercise Outstanding Remaining Exercise Exercisable Exercise Prices at 12/31/96 Life Price at 12/31/96 Price $5.74 to $6.46 1,182,110 6.16 $ 6.08 1,182,110 $ 6.08 $12.75 to $19.40 305,000 8.34 $14.60 182,500 $13.96 $21.25 to $28.74 569,500 9.76 $23.63 142,390 $23.63 $ 5.74 to $28.74 2,056,610 9.03 $12.27 1,507,000 $ 8.66
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCK BASED COMPENSATION PLANS, Continued Employee Stock Purchase Plan Under the 1995 Employee Stock Purchase Plan, the Company is authorized to issue up to 200,000 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 percent of the lower of its beginning-of-year or end-of-year market price. Under the Plan, the Company sold 47,232 shares for $14.24 per share in 1996 and 43,785 shares for $10.84 per share in 1995. The fair market value of the right to acquire common stock under the Stock Purchase Plan was $4.81 per share in 1996 and $3.71 per share in 1995. Had the compensation cost for the Company's stock-based compensation plans been determined consistent with SFAS 123, the Company's net income and net income per common share for 1996 and 1995 would approximate amounts below (in thousands, except per share amounts): 1996 1995 Net income: As reported $ 5,105 $10,965 Pro forma 3,826 10,398 Net income per common share: As reported $ 0.19 $ 0.52 Pro forma $ 0.14 $ 0.50 In 1996, the Company recorded compensation expense of approximately $1.9 million related to stock units issued to directors and stock options issued to non- employees of the Company. The expense related to the stock units was equal to the fair value of the stock for which the units can be converted into on the date of grant. The fair value of the options was determined using the following assumptions: risk-free interest rate of 5.79%; expected life of 5 years; and volatility of 35.1%. The options were 100% vested on the date of grant. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. INCOME TAXES Income tax expense for the years ended December 31, 1996, 1995 and 1994 is summarized as follows (in thousands): Federal State Total 1996: Current $ 6,185 $1,348 $7,533 Deferred (185) (48) (233) 6,000 1,300 7,300 Tax benefit from extraordinary loss (1,631) (346) (1,977) $ 4,369 $ 954 $5,323 1995: Current $ 6,600 $1,260 $7,860 Deferred (500) (60) (560) $ 6,100 $1,200 $7,300 1994: Current $ 5,594 $1,075 $6,669 Deferred (300) (56) (356) $ 5,294 $1,019 $6,313 The provisions for income tax differ from the amount computed by applying the statutory federal income tax rate due to the following: 1996 1995 1994 Federal income tax at the statutory rate $ 3,650 $ 6,393 $ 4,958 Amortization not deductible 1,262 606 606 State income taxes, net of any current federal income tax benefit 620 780 662 Other (209) (479) 87 $ 5,323 $ 7,300 $ 6,313 The tax effects of the significant temporary differences which comprise the deferred tax liability at December 31, 1996, 1995 and 1994 are as follows: 1996 1995 1994 Deferred tax assets: Accrued expenses $ (9,290) $(1,992) $(2,184) Reserve for pending sale of assets (1,814) Net operating loss carryforwards (12,000) Other (2,098) (142) 1,160 (25,202) (2,134) (1,024) Deferred tax liabilities: Property and equipment 32,427 12,208 11,062 Intangibles 257,653 (1,457) (861) 290,080 10,751 10,201 Net Liability $264,878 $ 8,617 $ 9,177 JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. COMMITMENTS AND CONTINGENCIES Lease and Contractual Obligations The Company and its subsidiaries lease certain land and facilities used in their operations. The Company also has various employment agreements with broadcast personalities that provide base compensation. Future minimum payments under leases and employment agreements as of December 31, 1996 are payable as follows (in thousands): 1997 $ 9,367 1998 8,830 1999 8,965 2000 3,912 2001 3,238 Thereafter 9,912 $44,224 Rental expense was approximately $3,996, $3,471 and $3,336 for the years ended December 31, 1996, 1995 and 1994, respectively. Legal Proceedings From time to time, the Company becomes involved in various claims and lawsuits that are incidental to its business. In the opinion of the Company's management, there are no material legal proceedings pending against the Company. 12. RETIREMENT PLAN The Company maintains a defined contribution retirement plan covering substantially all employees who have met eligibility requirements. The Company matches participating employee contributions, subject to a maximum contribution by the Company of between 1 1/2% to 3% of such employee's annual compensation up to $150,000 of such compensation. Total expense related to this plan was $756,618, $334,253 and $289,487 in 1996, 1995 and 1994, respectively. 13. RECENTLY ISSUED ACCOUNTING STANDARDS In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share". The Company will implement the Statement in the fourth quarter 1997, the effect of which has not yet been determined. Supplementary Data Quarterly Financial Data for the years ended December 31, 1996 and 1995 (Unaudited)
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year 1996 Net revenue $ 30,074 $ 43,120 $ 54,326 $ 96,241 $ 223,761 Operating income 2,544 9,372 9,229 18,215 39,360 Net income before extraordinary loss 1,842 3,761 2,100 368 8,071 Net income 891 3,761 85 368 5,105 Net income per common share: (1) Before extraordinary loss 0.09 0.17 0.06 0.01 0.30 Extraordinary loss (0.05) 0.00 (0.06) 0.00 (0.11) Net income per common share 0.04 0.17 0.00 0.01 0.19 1995 Net revenue $ 24,016 $ 30,866 $ 32,294 $ 31,715 $ 118,891 Operating income 1,061 5,628 5,899 6,029 18,617 Net income 751 3,529 3,488 3,197 10,965 Net income per common share (1) 0.04 0.17 0.17 0.16 0.52
[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. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) List of Documents filed as part of this Report: (1) Financial Statements The financial statements of Registrant as set forth under Item 8 of this Report on Form 10-K (2) Exhibits See Exhibit Index (b) Reports on Form 8-K: During the fourth quarter of 1996 to date, the Company has also filed additional Form 8- Ks on the following dates: October 3, 1996 (relating to the consummation of the Citicasters Merger), October 11, 1996 (relating to the execution of the definitive agreement for the Gannett Exchange), October 23, 1996, as amended on December 20, 1996 and March 7, 1997 (relating to the execution and completion of the definitive agreement for the Regent Merger), November 6, 1996 (relating to various other pending acquisitions announced by the Company during October 1996), December 12, 1996 (relating to the completion of the Gannett Exchange), January 9, 1997 (relating to the execution of the definitive agreements to dispose of WKRQ-FM in Cincinnati), January 24, 1997 (relating to various other pending acquisitions announced by the Company in January, 1997), and March 21, 1997, as amended on March 26, 1997 (relating to the execution of a definitive agreement to acquire EFM Media Management, Inc., EFM Publishing, Inc. and Pam Media, Inc.) 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 24, 1997 By R. Christopher Weber R. Christopher Weber, Senior 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 24, 1997 Randy Michaels Randy Michaels, Chief Executive Officer, Director (Principal Executive Officer) Date March 24, 1997 Robert L. Lawrence Robert L. Lawrence, President and Director Date March 24, 1997 Sheli Z. Rosenberg Sheli Z. Rosenberg, Board Chair and Director JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES SIGNATURES, Continued Date March 24, 1997 John W. Alexander John W. Alexander, Director Date March 24, 1997 Rod F. Dammeyer Rod F. Dammeyer, Director Date March 24, 1997 F. Philip Handy F. Philip Handy, Director Date March 24, 1997 Marc Lasry Marc Lasry, Director Date March 24, 1997 R. Christopher Weber R. Christopher Weber Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) INDEX TO EXHIBITS Exhibit Description of Exhibit Sequen- Number tially Numbered Page 2.1 Agreement and Plan of Merger dated as of October 8, 1996 ("Regent Merger Agreement") between Jacor * Communications, Inc. ("Jacor") and Regent Communications, Inc. (omitting schedules and exhibits not deemed material). Incorporated by reference to Exhibit 2.1 to Jacor's Current Report on Form 8-K dated October 23, 1996, as amended. 2.2 Form of Warrant Agreement between Jacor and KeyCorp * Shareholder Services, Inc., as warrant agent (included as Exhibit B to Regent Merger Agreement). Incorporated by reference to Exhibit 2.2 to Jacor's Current Report on Form 8-K dated October 23, 1996, 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 Agreement and Plan of Merger dated February 12, 1996 * among Citicasters Inc. ("Citicasters"), Jacor and JCAC, Inc. Incorporated by reference to Exhibit 2.1 to Jacor's Current Report on Form 8-K dated February 27, 1996, as amended. 2.5 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. 2.6 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. 2.7 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). 2.8 Stock Purchase and Stock Warrant Redemption Agreement * dated as of February 20, 1996 among Jacor, Prudential Venture Partners II, L.P., Northeast Ventures, II, John T. Lynch, Frank A. DeFrancesco, Thomas R. Jiminez, William R. Arbenz, CIHC, Incorporated, Bankers Life Holding Corporation and Noble Broadcast Group, Inc. ("Noble") (omitting exhibits not deemed material or filed separately in executed form). Incorporated by reference to Exhibit 2.1 to Jacor's Current Report on Form 8-K dated March 6, 1996, as amended. 2.9 Investment Agreement dated as of February 20, 1996, * among Jacor, Noble and the Class B Stockholders (omitting exhibits not deemed material). Incorporated by reference to Exhibit 2.2 to Jacor's Current Report on Form 8-K dated March 6, 1996, as amended. 2.10 Asset Exchange Agreement dated as of September 26, * 1996 between Citicasters Co. and Pacific and Southern Company, Inc. (omitting schedules and exhibits not deemed material). Incorporated by reference to Exhibit 2.1 to Jacor's Current Report on Form 8-K dated October 11, 1996. 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") and The Bank of New York for JCC's 9 3 4% Senior Subordinated Notes due 2006 and Jacor's 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 Credit Agreement dated as of June 12, 1996 ("Credit * Agreement") by and among JCAC, Inc., the Lenders named therein (the "Lenders"), Chemical Bank, as Administrative Agent, Banque Paribas, as Documentation Agent, and Bank of America Illinois, as Syndication Agent. Incorporated by reference to Exhibit 4.27 to Jacor's Form S-4 Registration Statement (File No. 333-6639). 4.5 Security Agreement dated as of June 12, 1996 by and * between JCAC, Inc. and Chemical Bank as Administrative Agent. Incorporated by reference to Exhibit 4.28 to Jacor's Form S-4 Registration Statement (File No. 333-6639). 4.6 Parent Guaranty dated as of June 12, 1996 by Jacor in * favor of Chemical Bank, as Administrative Agent, for the Lenders and any Interest Rate Hedge Providers (as defined in the Credit Agreement). Incorporated by reference to Exhibit 4.29 to Jacor's Form S-4 Registration Statement (File No. 333-6639). 4.7 Pledge Agreement dated as of June 12, 1996 by and * between Jacor and Chemical Bank, as Administrative Agent for the Agents (as defined in the Credit Agreement), the Lenders and any Interest Rate Hedge Providers. Incorporated by reference to Exhibit 4.30 to Jacor's Form S-4 Registration Statement (File No. 333-6639). 4.8 First Amendment dated as of June 18, 1996 to Credit * Agreement dated as of June 12, 1996 by and among JCAC, Inc., the Lenders named therein, Chemical Bank, as Administrative Agent, Banque Paribas, as Documentation Agent, and Bank of America Illinois, as Syndication Agent. Incorporated by reference to Exhibit 4 to Jacor's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, as amended. 4.9 Second Amendment dated as of September 18, 1996 to * Credit Agreement dated as of June 12, 1996 by and among Citicasters (as successor by merger to JCAC, Inc.), the Lenders named therein, The Chase Manhattan Bank (as successor by merger to Chemical Bank), as Administrative Agent, Banque Paribas, as Documentation Agent, and Bank of America Illinois, as Syndication Agent (omitting exhibits not deemed material). Incorporated by reference to Exhibit 4.1 to Jacor's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, as amended. 4.10 Third Amendment dated as of October 8, 1996 to Credit * Agreement dated as of June 12, 1996 by and among Citicasters (as successor by merger to JCAC, Inc.), the Lenders named therein, The Chase Manhattan Bank (as successor by merger to Chemical Bank), as Administrative Agent, Banque Paribas, as Documentation Agent, and Bank of America Illinois, as Syndication Agent (omitting exhibits not deemed material). Incorporated by reference to Exhibit 4.2 to Jacor's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, as amended. 4.11(#) Stock Option Agreement dated as of June 23, 1993 * between Jacor and Rod F. Dammeyer covering 10,000 shares of Jacor's common stock. (1) Incorporated by reference to Exhibit 4.3 to Jacor's Quarterly Report on Form 10-Q dated August 13, 1993. 4.12(#) Stock Option Agreement dated as of December 15, 1994 * between Jacor and Rod F. Dammeyer covering 5,000 shares of Jacor's common stock. (2) Incorporated by reference to Exhibit 4.23 to Jacor's Quarterly Report on Form 10-Q dated August 13,1993. 10.1(+) Employment Agreement dated February 20, 1996 by and * between Noble Broadcast Group, Inc. and John T. Lynch, as assumed by the Registrant effective July 15, 1996. Incorporated by reference to Exhibit 10.1 to Jacor's Quarterly Report on Form 10-Q dated November 14, 1996,as amended.* 10.2(+) Employment Agreement dated February 20, 1996 by and * between Noble Broadcast Group, Inc. and Frank A. DeFrancesco, assumed by the Registrant effective July 15, 1996. Incorporated by reference to Exhibit 10.2 to Jacor's Quarterly Report on Form 10-Q dated November 14, 1996, as amended.* 10.3(+) Jacor Communications, Inc. 1993 Stock Option Plan. * Incorporated by reference to Exhibit 99 to Jacor's Quarterly Report on Form 10-Q dated August 13, 1993.* 10.4(+) Jacor Communications, Inc. 1995 Employee Stock * Purchase Plan. Incorporated by reference to Exhibit 4.01 to Jacor's Registration Statement on Form S-8, filed on November 9, 1994.* 10.5(+) Jacor Communications, Inc. Executive Stock Unit Plan effective as of November 7, 1996. 78 10.6(+) Jacor Communications, Inc. 1996 Non-Employee Directors Stock Units. 87 11 Statement re: computation of per share earnings. 88 21 Subsidiaries of Registrant. 89 23.1 Consent of Independent Accountants. 91 __________________ (*) Incorporated by reference as indicated. (+) Management Contracts and Compensatory Arrangements. (1) Identical documents were entered into with John W. Alexander, F. Philip Handy and Marc Lasry. (2) Identical documents were entered into with John W. Alexander, F. Philip Handy, Marc Lasry and Sheli Z. Rosenberg. An additional grant of 5,000 stock options was made to each of these five individuals in February 1996 pursuant to substantially identical documents. EXHIBIT 10.5 JACOR COMMUNICATIONS, INC. EXECUTIVE STOCK UNIT PLAN JACOR COMMUNICATIONS, INC. EXECUTIVE STOCK UNIT PLAN ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION 1.1. Establishment of the Plan. Jacor Communications, Inc., a Delaware corporation ("Jacor"), hereby establishes, effective November 7, 1996, a stock compensation plan known as the "Executive Stock Unit Plan" (the "Plan"), which permits the grant of Stock Units to Key Employees of the Company. The Plan was approved by the Board of Directors of Jacor on November 7, 1996. 1.2. Purpose of the Plan. The purpose of the Plan is to promote the success of the Company and its Subsidiaries by providing stock-based incentives to Key Employees that will link their personal interests to the long-term financial success of the Company and its Subsidiaries and to growth in shareholder value. The Plan is designed to provide flexibility to the Company in its ability to motivate and retain the services of Key Employees upon whose judgment, interest, and special effort the successful conduct of its operations is largely dependent. 1.3. Duration of the Plan. The Plan commences on November 7, 1996, as described in Section 1.1 herein. The Plan shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Article 8 herein, until all Shares subject to it shall have been purchased or acquired according to the provisions herein. ARTICLE 2. DEFINITIONS AND CONSTRUCTION 2.1. Definitions. Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: (a) "Award" means, individually or collectively, a grant under this Plan of Stock Units. (b) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. (c) "Board" or "Board of Directors" means the Board of Directors of the Company. (d) "Change in Control" shall be deemed to have occurred at such time as (i) any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) other than Zell/Chilmark Fund L.P., Jacor, any subsidiary of Jacor, or any employee benefit plan of either Jacor or any Subsidiary of Jacor, files a Schedule 13D or 14D-1 under the Securities Exchange Act of 1934 (or any successor schedule, form or report) disclosing that such person has become the beneficial owner of 50% or more of the Common Stock or other capital stock of Jacor into which such Common Stock is reclassified or changed, with certain exceptions, or (ii) there shall be consummated any consolidation or merger of Jacor (a) into which Jacor is not the continuing or surviving corporation or (b) pursuant to which the Common Stock would be converted into cash, securities or other property, in each case, whether than a consolidation or merger of Jacor in which the holders of Common Sock immediately prior to the consolidation or merger own, directly or indirectly, at least a majority of Common Stock of the continuing or surviving corporation immediately after the consolidation or merger. (e) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (f) "Company" means Jacor, or any successor thereto as provided in Article 15 herein. (g) "Fair Market Value" means the average of the highest price and lowest price at which the Common Stock was traded on the relevant date, or on the most recent date on which the Stock was traded prior to such date, as reported on the Nasdaq National Market or any stock exchange which may then constitute the primary public trading market for the Common Stock. (h) "Key Employee" means an employee of the Company or any of its Subsidiaries, including an employee who is an officer or a director of the Company or any of its Subsidiaries, who, in the opinion of the Board, can contribute significantly to the growth and profitability of the Company and its Subsidiaries. The granting of an Award under this Plan shall be deemed a determination by the Board that such employee is a Key Employee, but shall not create a right to remain a Key Employee. (i) "Participant" means a Key Employee who has been granted an Award under the Plan. (j) "Stock Unit" means a derivative interest in Common Stock of the Company which may be converted on the date of grant into cash, or which may be credited to a bookkeeping account and then paid out on a one-for-one basis into Common Stock of the Company upon the occurrence of certain Trigger Events (as defined herein). (k) "Subsidiary" shall mean any corporation of which more than 50% (by number of votes) of the Voting Stock at the time outstanding is owned, directly or indirectly, by the Company. (l) "Common Stock" or "Shares" means the common stock, $.01 par value, of the Company. (m) "Voting Stock" shall mean securities of any class or classes of stock of a corporation, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors. 2.2. Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. 2.3. Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. ARTICLE 3. ADMINISTRATION 3.1. Authority of the Board of Directors. The Plan shall be administered by the Board of Directors of the Company or, if designated by the Board, by any committee comprised solely of two or more non-employee directors (as defined in Rule 16b-3 under the Securities Exchange Act of 1934) (the "Board"). Subject to the provisions of the Plan, the Board shall have full power to construe and interpret the Plan; to establish, amend or waive rules and regulations for its administration; to grant Awards on such terms and conditions as the Board deems appropriate, including any vesting provisions and the determination of the cash value of each Stock Unit as of the date of the grant; to accelerate the vesting of any Award; and to amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Board as provided in the Plan. Also notwithstanding the foregoing, no action of the Board (other than pursuant to Section 4.3 hereof or Section 6.5 hereof) may, without the consent of the person or persons entitled to receive payment of any other outstanding Award, adversely affect the rights of such person or persons. 3.2. Selection of Participants. The Board shall have the authority to grant Awards under the Plan, from time to time, to such Key Employees as may be selected by it. 3.3. Decisions Binding. All determinations and decisions made by the Board pursuant to the provisions of the Plan and all related orders or resolutions of the Board shall be final, conclusive and binding on all persons, including the Company and its Subsidiaries, its stockholders, employees, and Participants and their estates and beneficiaries, and such determinations and decisions shall not be reviewable. 3.4. Delegation of Certain Responsibilities. The Board may, in its sole discretion, delegate to an officer or officers of the Company the administration of the Plan under this Article 3; provided, however, that the Board may not delegate its authority to correct errors, omissions or inconsistencies in the Plan. All authority delegated by the Board under this Section 3.4 shall be exercised in accordance with the provisions of the Plan and any guidelines for the exercise of such authority that may from time to time be established by the Board. 3.5. Rule 16b-3 Requirements. Notwithstanding any other provision of the Plan, the Board may impose such conditions on any Award (including, without limitation, the right of the Board or the Board to limit the time of exercise to specified periods) as may be required to satisfy the requirements of Rule 16b-3 (or any successor rule), under the Securities and Exchange Act of 1934 ("Rule 16b-3"). ARTICLE 4. COMMON STOCK SUBJECT TO THE PLAN 4.1. Issuance of Shares. Common Stock delivered under the Plan may consist, in whole or in part, of authorized and unissued Shares or treasury Shares. The award of Stock Units shall not be deemed to constitute an issuance of Common Stock under the Plan unless payment is made in Common Stock, in which case only the number of Shares to be issued in payment of such Stock Unit Award shall constitute an issuance of Common Stock under the Plan. In the event that a Participant's elections with respect to the Stock Unit Awards, in the aggregate, would result in the issuance of such number of shares of the Company Common Stock so as to require the approval of the Plan by the Company's shareholders pursuant to the rules and regulations of the Nasdaq National Market or any stock exchange on which the Company's Common Stock is traded, the Company shall submit the Plan for approval by shareholders at its next annual meeting of shareholders. Pending such approval, the Company may not issue shares in excess of the number triggering the need for shareholder approval and the Company may pay cash in lieu of issuing such shares in an amount equal to Fair Market Value. 4.2. Lapsed Awards. If any Award granted under this Plan terminates, expires, or lapses for any reason, any Common Stock subject to such Award again shall be available for the grant of an Award under the Plan. 4.3. Adjustments in Authorized Shares. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, Common Stock dividend, split-up, share combination, or other change in the corporate structure of the Company affecting the Common Stock, such adjustment shall be made in the number and class of shares which may be delivered under the Plan, and in the number and class of and/or price of shares subject to outstanding Common Stock Units granted under the Plan, as may be determined to be appropriate and equitable by the Board, in its sole discretion, to prevent dilution or enlargement of rights; and provided that the number of shares subject to any Award shall always be a whole number. ARTICLE 5. ELIGIBILITY AND PARTICIPATION Persons eligible to participate in this Plan include all employees of the Company and its Subsidiaries who, in the opinion of the Board, are Key Employees. "Key Employees" may include employees who are members of the Board, but may not include directors who are not employees. Subject to the provisions of the Plan, the Board may from time to time select those Key Employees to whom Awards shall be granted and determine the nature and amount of each Award. No employee shall have any right to be granted an Award under this Plan even if previously granted an Award. ARTICLE 6. STOCK UNITS 6.1. Grant of Stock Units. Subject to the terms and provisions of the Plan, Stock Units may be granted to Participants at any time and from time to time on such terms as shall be determined by the Board. The Board shall have complete discretion in determining the number of Stock Units granted to each Participant. 6.2. Election Regarding Payment of Stock Units. Each Participant must elect, by completing and signing an Election Form in substantially the form attached hereto as Exhibit A, to either (i) convert all or part of his or her Stock Unit Award into cash, equivalent to the cash value of the Stock Units established by the Board on the date of grant, receive a cash award for the corresponding number of Stock Units converted to cash, and receive the remaining Stock Units in shares of Common Stock payable upon the occurrence of certain trigger events set forth on the Participant's election form in his or her complete discretion ("Trigger Events"); or (ii) receive his or her entire Stock Unit Award in shares of Common Stock, payable upon the occurrence of certain Trigger Events. The terms and conditions of the Trigger Events may vary by Stock Unit Award, by Participant, or both. The Election Form shall be filed with the Secretary of the Company prior to the date on which any Stock Unit Award is made. Such election will be irrevocable as to any Stock Unit Award made after delivery of the election form to the Company, and it shall continue in effect until revoked, increased or decreased prospectively by Participant prior to the grant of any future Stock Unit Award for which the change is effective. 6.3 Accounting for Stock Units. Any portion of a participant's Stock Unit Award which is not converted to cash as set forth in Section 6.2(i) above shall be credited by the Company to a bookkeeping account to reflect the Company's liability to that Participant (the "Stock Unit Account"). Each Stock Unit is credited as a Common Stock equivalent on the date so credited. Additional stock equivalents may be added to the Stock Unit Account equal to the amount of Common Stock that could be purchased with dividends equal to that paid on one share of Common Stock, multiplied by the number of stock equivalents then existing in the Stock Unit Account, based on the Fair Market Value of the Common Stock on the date a dividend is paid on the Common Stock. If a stock dividend or stock split occurs, a Participant's Stock Unit Account shall be credited with a number of Common Stock equivalents equal to the number of shares which were distributed with respect to each share of issued and outstanding Common Stock, multiplied by the number of stock equivalents recorded to the Participant's Stock Unit Account on the record date for such distribution. Because the Trigger Events for each Stock Unit Award may differ, the Company shall establish a separate Stock Unit Account for each separate Stock Unit Award. 6.4. Distribution of Stock Unit Accounts. Upon the occurrence of particular Trigger Events, the holder of a Stock Unit Award shall be entitled to receive a number of shares of Common Stock which corresponds to the number of Stock Units granted as part of the initial Stock Unit Award. 6.5. Termination of Employment. In the case of death, disability, retirement or termination of employment (each of disability and retirement as defined under the established rules of the Company or any of its Subsidiaries, as the case may be), the holder of a Stock Unit shall receive in Common Stock the number of fully vested Stock Units held by the Participant as if the Trigger Events had occurred. ARTICLE 7. BENEFICIARY DESIGNATION Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively and who may include a trustee under a will or living trust) to whom any benefit under the Plan is to be paid in case of his death before he receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Board, and will be effective only when filed by the Participant in writing with the Board during his lifetime. In the absence of any such designation or if all designated beneficiaries predecease the Participant, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. ARTICLE 8. MISCELLANEOUS 8.1. Rights of Employees. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any of its Subsidiaries to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any of its Subsidiaries. No employee shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. Neither the establishment of the Plan nor any amendment thereof shall be construed as giving any Participant, beneficiary, or any other person any legal or equitable right, unless such right shall be specifically provided for in the Plan or conferred by specific action of the Board in accordance with the terms and provisions of the Plan. Except as expressly provided in this Plan, neither the Company nor any of its Subsidiaries shall be required or be liable to make any payment under the Plan. Neither the Participant nor any other person shall acquire, by reason of the Plan, any right in or title to any assets, funds or property of the Company or any of its Subsidiaries whatsoever including, without limiting the generality of the foregoing, any specific funds, assets, or other property which the Company or any of its Subsidiaries, in its sole discretion, may set aside in anticipation of a liability hereunder. Any benefits which become payable hereunder shall be paid from the general assets of the Company or the applicable subsidiary. The Participant shall have only a contractual right to the amounts, if any, payable hereunder unsecured by any asset of the Company or any of its Subsidiaries, and the status of a Participant with respect to any liabilities of the Company hereunder shall be solely those of an unsecured creditor of the Company. Nothing contained in the Plan constitutes a guarantee by the Company or any of its Subsidiaries that the assets of the Company or the applicable subsidiary shall be sufficient to pay any benefit to any person. 8.2. Change in Control. Notwithstanding any other provisions of the Plan, in the event of a Change in Control, all Stock Unit Awards granted and outstanding under this Plan shall vest in full and be immediately paid out in Common Stock. 8.3. Amendment, Modification and Termination. At any time and from time to time, the Board may terminate, amend, or modify the Plan. No termination, amendment or modification of the Plan other than pursuant to Section 4.3 hereof shall in any manner adversely affect any Award theretofore granted under the Plan, without the written consent of the Participant. 8.4. Tax Withholding. The Company and any of its Subsidiaries shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company or any of its Subsidiaries, an amount sufficient to satisfy Federal, state and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any grant, exercise, or payment made under or as a result of this Plan. 8.5. Securities Laws and Shareholder Rights. Common Stock shall not be distributed to Participants upon distribution from their Stock Unit Accounts unless the issuance complies with all relevant provisions of law, including without limitation, (i) securities laws of any appropriate state, and (ii) the Securities Act of 1933 and the Securities Exchange Act of 1934 and rules and regulations promulgated thereunder by the Securities and Exchange Commission. Participants shall not be deemed for any purpose to be or have rights as shareholders of the Company with respect to any stock equivalents credited to a Participant's Stock Unit Account, until and unless a certificate for Common Stock is issued upon distribution hereunder. 8.6. Successors. All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or assets of the Company. 8.7. Requirements of Law. The granting of Awards and the issuance of Shares of Common Stock under this Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 8.8. Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware. EXHIBIT A EXECUTIVE STOCK UNIT PLAN ELECTION FORM Pursuant to Section 6.2 of the Plan, I hereby elect for the period commencing on the date hereof, and ending on the third business day after delivery to the Company of any written notice that I change or revoke my election, that the following percentage of any Stock Unit Award that may be granted to me be converted immediately to cash, with the remainder of any such Stock Unit Award to be deferred and credited into a Stock Unit Account, all in accordance with Section 6.2 of the Plan: _________% (0-100) of any Stock Unit Award to be converted immediately to cash I understand the amounts deferred under the Plan are not actually invested in the Common Stock of the Company, and such Stock Unit is merely an index for the calculation of a bookkeeping account related to my deferrals, and no representation has been made to me to the contrary. The Participant shall have only a contractual right to the amounts, if any, payable hereunder unsecured by any asset of the Company or any of its Subsidiaries, and the status of a Participant with respect to any liabilities of the Company hereunder shall be solely those of an unsecured creditor of the Company. I hereby elect to have the remainder of my Stock Unit Award payable in the form of Common Stock upon the occurrence of the following Trigger Events: _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ ___________ I acknowledge and agree that this election is irrevocable and may not be changed with respect to any Stock Unit Award(s) granted to me prior to the effective date of my change in election. I also acknowledge and understand that the distribution of any future Stock Unit Award granted to me under the Plan may be changed by me prior to the date of any such Award. EXECUTIVE: ____________________________________ (Signature) ____________________________________ (Date) Exhibit 10.6 In July 1996, the Registrant's Board of Directors granted to each of the Registrant's five non-employee directors (Mrs. Rosenberg and Messrs. Dammeyer, Alexander, Handy and Lasry) units to acquire 3,740 shares of the Registrant's common stock (for an aggregate of 18,700 shares). Such units were issued to the non-employee directors in lieu of cash director fees and a special bonus. Each unit entitles a director to receive a share of the Registrant's common stock upon the earlier of the director no longer serving as a director, or except for units issued to Mr. Dammeyer, when the value of a share of the Registrant's common stock equals or exceeds $53.50 for five consecutive trading days. These stock units were not issued pursuant to any written contract or compensatory plan. Accordingly, this description of the units is being filed in accordance with Item 601(10)(iii)(A) of Regulation S-K promulgated under the Securities Act of 1933, as amended. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES EXHIBIT 11 Computation of Consolidated Income (Loss) Per Common Share for the Years ended December 31, 1996, 1995 and 1994 (In thousands, except per share amounts) 1996 1995 1994 Income for primary and fully diluted computation: Income $ 5,105 $ 10,965 $ 7,852 Primary (1): Weighted average common shares and dilutive common stock equivalents: Common stock outstanding 25,433 18,908 19,573 Stock purchase warrants - 911 797 Stock options 1,097 794 739 Contingently issuable common shares 300 300 300 26,830 20,913 21,409 Primary income per common share: Before extraordinary item $ 0.30 $ 0.52 $ 0.37 Extraordinary item (0.11) - - $ 0.19 $ 0.52 $ 0.37 NOTE: 1. Fully diluted earnings per share is not presented since it approximates primary income per share. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES EXHIBIT 21 The following is a list of the subsidiaries of the Company as of December 31, 1996. All of these subsidiaries are included in the Consolidated Financial Statements which are a part of this report. Percentage State of of Equity Name of Company Relationship Incorporation Ownership Jacor Broadcasting Corporation Subsidiary Ohio 100% Broadcast Finance, Inc. Subsidiary Ohio 100% Jacor Broadcasting of Florida, Inc. Subsidiary Florida 100% Jacor Broadcasting of Atlanta, Inc. Subsidiary Georgia 100% Jacor Broadcasting of Colorado, Inc. Subsidiary Colorado 100% Jacor Broadcasting of Lexington, Inc. Subsidiary Kentucky 100% Jacor Broadcasting of Knoxville,Inc. Subsidiary Delaware 100% Jacor Broadcasting of Tampa Bay, Inc. Subsidiary Florida 100% Jacor Cable, Inc. Subsidiary Kentucky 100% Georgia Network Equipment, Inc. Subsidiary Georgia 100% Jacor Broadcasting of San Diego, Inc. Subsidiary Delaware 100% Jacor Broadcasting of St. Louis, Inc. Subsidiary Missouri 100% Jacor Broadcasting of Sarasota, Inc. Subsidiary Florida 100% Jacor Broadcasting of Idaho, Inc. Subsidiary Delaware 100% Inmobiliaria Radial, S.A. de C.V. Subsidiary Mexico 100% Jacor Broadcasting of Iowa, Inc. Subsidiary Delaware 100% Noble Broadcast Group, Inc. Subsidiary Delaware 100% Noble Broadcast of Colorado, Inc. Subsidiary California 100% Noble Broadcast of San Diego, Inc. Subsidiary California 100% Noble Broadcast of St. Louis, Inc. Subsidiary Delaware 100% Noble Broadcast of Toledo, Inc. Subsidiary California 100% Nova Marketing Group Inc. Subsidiary California 70% (1) Noble Broadcast Licenses, Inc. Subsidiary California 100% JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES EXHIBIT 21, Continued Percentage State of of Equity Name of Company Relationship Incorporation Ownership Noble Broadcast Holdings, Inc. Subsidiary Delaware 100% Sports Radio Broadcasting, Inc. Subsidiary California 100% Nobro, S.C. Subsidiary Mexico 100% Sports Radio, Inc. Subsidiary California 100% Noble Broadcast Center, Inc. Subsidiary California 100% Citicasters Co. Subsidiary Ohio 100% GACC-N26LB. Inc. Subsidiary Delaware 100% GACC-340, Inc. Subsidiary Delaware 100% Cine Guarantors, Inc. Subsidiary California 100% Great American Television Productions, Inc. Subsidiary California 100% Cine Guarantors II, Inc. Subsidiary California 100% Great American Merchandising Group, Inc. Subsidiary New York 100% Taft-TCI Satellite Services, Inc. Subsidiary Colorado 100% Cine Films, Inc. Subsidiary California 100% The Sy Fischer Company Agency, Inc. Subsidiary California 100% Location Productions, Inc. Subsidiary California 100% Location Productions II, Inc. Subsidiary California 100% Cine Mobile Systems Int'l, N.V. Subsidiary Antille 100% Cine Movil S.A. de C.V. Subsidiary Mexico 100% Cine Guarantors II, LTD. Subsidiary Canada 100% Jacor National Corp. Subsidiary Delaware 100% Marathon Communications, Inc. Subsidiary New York 100% WIBX, Inc. Subsidiary New York 100% (1) Nova Marketing Group, Inc. became a 100% owned subsidiary in February 1997. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Jacor Communications, Inc. on Forms S-8 (File No. 33-65126, File No. 33- 10329, and File No. 33-56385) and on Forms S-3 (File No. 33-53612 and File No. 333-06639) of our report dated February 27, 1997, on our audits of the consolidated financial statements of Jacor Communications, Inc. and Subsidiaries as of December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Cincinnati, Ohio March 27, 1997 EX-27 2
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 78,137 0 83,452 3,950 0 166,602 145,405 13,917 1,704,942 55,532 788,682 0 0 313 486,623 1,704,942 0 250,461 0 177,765 33,336 978 32,244 15,371 7,300 0 0 2,966 0 5,105 .19 .19
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