-----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, CFsnprw9QB21r7ymRHX0MuvPOvNgBHssWf/5EP5OByc2bs9ld12q5eGesGGUK4en jjXVX/nFpofklIQxlXq2uw== 0001047469-98-017407.txt : 19980504 0001047469-98-017407.hdr.sgml : 19980504 ACCESSION NUMBER: 0001047469-98-017407 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971023 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980430 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-12404 FILM NUMBER: 98606899 BUSINESS ADDRESS: STREET 1: 50 E RIVERCENTER BLVD STREET 2: 12TH FLOOR CITY: COVINGTON STATE: KY ZIP: 41011 BUSINESS PHONE: 6066552267 MAIL ADDRESS: STREET 1: 50 EAST RIVERCENTER BLVD 12TH FLOOR CITY: COVINGTON STATE: KY ZIP: 41011 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K(A) CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Date of Report: October 23, 1997 JACOR COMMUNICATIONS, INC. DELAWARE (State or Other Jurisdiction of Incorporation) 0-12404 31-0978313 (Commission File No.) (IRS Employer Identification No.) 50 East RiverCenter Boulevard 12th Floor Covington, KY 41011 (606) 655-2267 Item 2. ACQUISITION OR DISPOSITION OF ASSETS In December 1997, Citicasters Co., an indirect wholly-owned subsidiary of Jacor Communications, Inc. (the "Company"), signed an Agreement of Sale to acquire the assets of 17 radio stations from Nationwide Communications, Inc. ("NCI") and its affiliated entities for a purchase price of approximately $620 million in cash. Jacor has previously reported on this transaction in its Form 8-Ks filed by the Company on November 4, 1997 and January 5, 1998, as amended on January 20, 1998. The Company had previously filed audited financial information and unaudited pro forma financial information regarding this transaction for the nine-month period ending September 30, 1997. This amendment is being filed to include NCI's year end audited financial information and unaudited pro forma financial information for the year ended December 31, 1997. Item 5. OTHER EVENTS As of March 17, 1998, in connection with the acquisition of the rights to the Art Bell national network radio programs, the Company acquired two new, indirect wholly-owned subsidiaries: Talk Radio Network, Inc., an Oregon corporation ("Talk Radio"), and Chancellor Broadcasting Co., Inc., an Oregon corporation ("Chancellor"). The financial statements of these two new subsidiaries were not required to be filed pursuant to Item 2 or Item 7 of Form 8-K because neither of these acquisitions were significant to the Company. However, as required by the terms of the Company's various indentures relating to its outstanding senior subordinated notes, Talk Radio and Chancellor now have become guarantors of such debt. Because audited financial statements for these subsidiary guarantors have not been previously included in the Company's consolidated financial statements, the Company is filing the financial statements included in Item 7 of this Form 8-K so that such financial statements may be incorporated by reference into any registration statements filed by the Company and its subsidiaries pursuant to the Securities Act of 1933, as amended, pertaining to debt securities and the guarantees thereof. It is currently anticipated that Talk Radio and Chancellor will be co-registrants on any such registration statements. Item 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired (i) Nationwide Communications, Inc. Independent Auditors' Report Combined Balance Sheets as of December 31, 1997 and December 31, 1996. 2 Combined Statements of Earnings for the years ended December 31, 1997 and December 31, 1996. Combined Statements of Stockholders' Equity for the years ended December 31, 1997 and December 31, 1996. Combined Statements of Cash Flows for the years ended December 31, 1997 and December 31, 1996. Notes to Combined Financial Statements (ii) Talk Radio Network, Inc., Chancellor Broadcasting Co. Inc. and Broadcast Communications, Inc. Report of Independent Accountants Combined Balance Sheets as of September 30, 1997 and December 31, 1996 and 1995. Combined Statements of Income for the nine months ended September 30, 1997 and for the years ended December 31, 1996 and 1995. Combined Statements of Shareholders' Equity for the nine months ended September 30, 1997 and for the years ended December 31, 1996 and 1995. Combined Statements of Cash Flows for the nine months ended September 30, 1997 and for the years ended December 31, 1996 and 1995. Notes to Combined Financial Statements (b) Pro Forma Financial Information Unaudited Pro Forma Condensed Consolidated Statements of Operations for the years ended December 31, 1997 and 1996. Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1997. 3 Notes to Unaudited Pro Forma Financial Information. (c) Exhibits 2.1 Agreement of Sale dated December 19, 1997 by and between Nationwide Mutual Insurance Company, Employers Insurance of Wausau, Nationwide Communications, Inc., San Diego Lotus Corp., The Beak and Wire Corporation, Citicasters Co. and Jacor Communications Company (omitting schedules and exhibits not deemed material).* 23.1 Consent of Coopers & Lybrand L.L.P. 99.1 Press Release dated October 13, 1997.* 99.2 Press Release dated October 23, 1997.* 99.3 Press Release dated October 27, 1997.* * Previously filed. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. JACOR COMMUNICATIONS, INC. April 30, 1998 By: /s/ R. Christopher Weber ----------------------------------- R. Christopher Weber, Senior Vice President and Chief Financial Officer 4 Item 7(a)(i) NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) ------------------------------------- Combined Financial Statements December 31, 1997, 1996 and 1995 (With Independent Auditors' Report Thereon) INDEPENDENT AUDITORS' REPORT The Board of Directors Nationwide Mutual Insurance Company: We have audited the accompanying combined balance sheets of Nationwide Communications as of December 31, 1997 and 1996, and the related combined statements of earnings, division equity, and cash flows for each of the years in the three-year period ended December 31, 1997. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined 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 combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Communications as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Columbus, Ohio February 13, 1998 NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Combined Balance Sheets December 31, 1997 and 1996
Assets 1997 1996 ------ ---- ---- Current assets: Cash and cash equivalents $ 8,668,615 47,223,751 Short-term investments, at amortized cost - 74,990,903 Accounts receivable, net of allowance for doubtful accounts of $816,225 and $716,940 at December 31, 1997 and 1996 22,968,263 17,573,992 Notes receivable, current portion 933,759 931,278 Deferred income taxes 954,498 1,179,967 Assets held for sale 44,667,939 8,868,376 Prepaid expenses 1,394,414 1,471,765 -------------- ------------- Total current assets 79,587,488 152,240,032 Property and equipment, net 17,989,092 8,254,028 Broadcast licenses and other intangibles, net 251,416,085 90,107,979 Notes receivable, excluding current portion 5,299,035 5,765,856 Other assets 2,312,384 3,025,813 -------------- ------------- Total assets $ 356,604,084 259,393,708 -------------- ------------- -------------- ------------- Liabilities and Division Equity ------------------------------- Current liabilities: Advances from Parent 92,000,000 - Accounts payable 2,379,691 1,166,614 Accrued compensation and benefits 2,904,529 2,506,395 Accrued expenses and other current liabilities 1,379,641 1,403,751 Accrued interest - 200,278 Accrued professional fees 1,487,186 641,882 Accrued property and sales tax 211,493 359,005 Income taxes payable 3,676,000 1,968,891 -------------- ------------- Total current liabilities 104,038,540 8,246,816 -------------- ------------- Long-term debt 500,000 40,500,000 Deferred compensation 2,526,921 2,098,705 Accrued retirement benefits 2,881,540 2,892,414 Deferred income taxes 15,282,171 1,172,512 -------------- ------------- Total liabilities 125,229,172 54,910,447 -------------- ------------- Division equity: 4% noncumulative preferred stock of $50 par value per share; redeem- able at par. Authorized, issued, and outstanding 20,000 shares in 1996 - 1,000,000 Common stock, without par value. Authorized 15,000 shares in 1996; issued and outstanding 14,750 shares at stated value in 1996 - 14,750 Paid-in capital 12,510,000 11,495,250 Contributed capital for combined radio station 22,500,000 22,500,000 Retained earnings 196,364,912 169,473,261 -------------- ------------- Total division equity 231,374,912 204,483,261 -------------- ------------- Total liabilities and division equity $ 356,604,084 259,393,708 -------------- ------------- -------------- -------------
See accompanying notes to combined financial statements. NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Combined Statements of Earnings For the years ended December 31, 1997, 1996 and 1995
1997 1996 1995 Broadcast revenues $ 112,989,674 85,276,016 73,217,793 Less agency commissions 14,992,344 11,516,477 10,181,081 ------------- ------------- ------------- Net revenues 97,997,330 73,759,539 63,036,712 Broadcast operating expenses 81,958,359 57,517,065 44,996,017 Depreciation and amortization 10,129,833 7,356,348 5,603,704 Corporate general and administrative expenses 3,622,630 4,361,458 3,934,394 ------------- ------------- ------------- Operating income 2,286,508 4,524,668 8,502,597 ------------- ------------- ------------- Interest income 1,727,143 7,256,973 9,562,334 Interest expense (6,344,815) (2,883,337) (3,134,887) Gain on sale of radio stations and other properties 44,131,625 5,947,951 5,126,403 Other expense, net (36,541) (484,901) (128,874) ------------- ------------- ------------- Nonoperating income, net 39,477,412 9,836,686 11,424,976 ------------- ------------- ------------- Income before taxes and extraordinary item 41,763,920 14,361,354 19,927,573 Income tax expense 14,308,834 5,309,885 7,072,231 ------------- ------------- ------------- Income before extraordinary item 27,455,086 9,051,469 12,855,342 Extraordinary item, net of applicable income taxes of $303,388 (563,435) - - ------------- ------------- ------------- Net income $ 26,891,651 9,051,469 12,855,342 ------------- ------------- ------------- ------------- ------------- -------------
See accompanying notes to combined financial statements. NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Combined Statements of Division Equity
4% noncumulative Contributed preferred stock Common stock capital for Total ------------------ ---------------- Paid-in combined Retained division Shares Amount Shares Amount capital radio station earnings equity ------ ------ ------ ------ ------- ------------- -------- ------ Balances at December 31, 1994 20,000 $1,000,000 14,750 $14,750 11,495,250 $ - $147,646,450 $160,156,450 Dividends paid-- preferred stock - - - - - - (40,000) (40,000) Net income - - - - - - 12,855,342 12,855,342 ------- ---------- ------- ------- ---------- ---------- ----------- ----------- Balances at December 31, 1995 20,000 1,000,000 14,750 14,750 11,495,250 - 160,461,792 172,971,792 Dividends paid-- preferred stock - - - - - - (40,000) (40,000) Contributed capital for combined radio station - - - - - 22,500,000 - 22,500,000 Net income - - - - - - 9,051,469 9,051,469 ------- ---------- ------- ------- ---------- ---------- ----------- ----------- Balances at December 31, 1996 20,000 1,000,000 14,750 14,750 11,495,250 22,500,000 169,473,261 204,483,261 Reclassification of preferred and common stock to paid-in capital as a result of change from subsidiary to a division (20,000) (1,000,000) (14,750) (14,750) 1,014,750 - - - Net income - - - - - - 26,891,651 26,891,651 ------- ---------- ------- ------- ---------- ---------- ----------- ----------- Balances at December 31, 1997 - $ - - $ - $12,510,000 $22,500,000 $196,364,912 $231,374,912 ------- ---------- ------- ------- ---------- ---------- ----------- ----------- ------- ---------- ------- ------- ---------- ---------- ----------- -----------
See accompanying notes to combined financial statements. NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Combined Statements of Cash Flows Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net income $ 26,891,651 9,051,469 12,855,342 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 10,129,833 7,356,348 5,603,704 Loss on sale of property and equipment 35,540 100,995 28,310 Net gain on sale of radio stations and other properties (44,131,625) (5,947,951) (5,126,403) Provision for doubtful accounts receivable 99,285 273,526 106,579 Deferred income taxes 14,335,128 (1,936,915) (403,088) Changes in assets and liabilities, net of effects of acquisitions and disposals: Accounts receivable (5,493,556) (2,181,725) (2,345,109) Prepaid expenses and other assets (337,191) (2,524,774) (1,403,917) Accounts payable (126,924) 383,037 (660,744) Accrued expenses and other liabilities 1,095,148 1,536,048 (316,643) Income taxes payable 1,707,109 912,525 (44,877,594) ------------ ------------ ----------- Net cash provided (used) by operating activities 4,204,398 7,022,583 (36,539,563) ------------ ------------ ----------- Cash flows from investing activities: Acquisition of radio stations (166,294,524) (23,349,989) - Proceeds from sale of radio stations and other properties 2,600,000 10,558,450 15,500,000 Proceeds from collection of notes receivable 1,000,000 4,000,000 4,012,942 Additions to property and equipment (6,644,908) (2,965,878) (2,977,258) Proceeds from sale of property and equipment 54,898 177,717 15,363 Proceeds from maturity of investments 75,000,000 5,085,480 19,917,096 ------------ ------------ ----------- Net cash (used) provided by investing activities (94,284,534) (6,494,220) 36,468,143 ------------ ------------ ----------- Cash flows from financing activities: Debt issuance costs paid (475,000) - (281,877) Advances from Parent 92,000,000 - - Borrowings under long-term debt 98,000,000 - 1,702,940 Repayments of long-term debt (138,000,000) - - Dividends paid - (40,000) (40,000) ------------ ------------ ----------- Net cash provided (used) by financing activities 51,525,000 (40,000) 1,381,063 ------------ ------------ ----------- Net (decrease) increase in cash and cash equivalents (38,555,136) 488,363 1,309,643 Cash and cash equivalents at beginning of period 47,223,751 46,735,388 45,425,745 ------------ ------------ ----------- Cash and cash equivalents at end of period $ 8,668,615 47,223,751 46,735,388 ------------ ------------ ----------- ------------ ------------ ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Net cash paid (refunds received) for income taxes $ (1,733,401) 6,334,674 52,352,913 ------------ ------------ ----------- ------------ ------------ ----------- Cash paid for interest $ 5,783,227 2,831,913 2,727,060 ------------ ------------ ----------- ------------ ------------ ----------- SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Fair value of assets exchanged $ 53,000,000 - - ------------ ------------ ----------- ------------ ------------ ----------- Assets acquired from capital contribution from affiliated company $ - 22,500,000 - ------------ ------------ ----------- ------------ ------------ -----------
See accompanying notes to combined financial statements. NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Notes to Combined Financial Statements December 31, 1997, 1996 and 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) DESCRIPTION OF BUSINESS Nationwide Communications (the Company) reflects the broadcast operations of Nationwide Mutual Insurance Company (the Parent). These operations include commercial radio stations in various geographic regions across the United States, primarily in the top twenty-five radio revenue markets. (b) BASIS OF PRESENTATION The combined financial statements include the accounts related to the operation of the Parent's commercial radio stations. The majority of these operations were in Nationwide Communications, Inc. (NCI), a wholly owned subsidiary of the Parent. In December 1997, all employees, assets and liabilities of NCI were transferred to the Parent and NCI became a division of the Parent. The Company's financial statements also include the results of operations of KXGL-FM, a station owned by an affiliated company (San Diego Lotus Corporation) controlled by the Parent, as the station is operated and controlled by the Company under a time brokerage agreement. Due to related ownership and control of the station, all significant accounts related to the station have been combined with NCI's financial statements for financial reporting purposes. (c) CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash with the Parent, money market funds and cash in banks. Cash with the Parent is invested in various financial instruments and is available upon demand to the Company. (d) REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized when the commercial announcements are broadcast. Fees received or paid pursuant to various time brokerage agreements are recognized as revenue or expense, respectively, in accordance with the terms of the agreements. (Continued) 2 NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Notes to Combined Financial Statements, Continued (e) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation of equipment is computed using an accelerated method. The Company uses the straight-line method for all buildings and leasehold improvements. The useful lives of property and equipment are as follows: Building and improvements. . . . . . . .31.5 years Leasehold improvements . . . . . . . . .31.5 years Equipment. . . . . . . . . . . . . . 3 to 20 years
(f) INTANGIBLE ASSETS Intangible assets consist primarily of broadcast licenses. The Company amortizes intangible assets using the straight-line method over the estimated useful lives ranging from 5 to 40 years. The carrying value of intangible assets is reviewed by the Company when events or circumstances suggest that the recoverability of an asset may be impaired. If this review indicates that the intangible assets will not be recoverable, as determined based on the undiscounted cash flows of the station over the remaining amortization period, the carrying value will be reduced accordingly. (g) MARKETABLE SECURITIES All marketable debt securities are classified as held to maturity as the Company has the ability and it is management's intent to hold them until maturity. In accordance with SFAS No. 115, marketable securities held to maturity are stated at amortized cost. All marketable securities matured during 1997. (h) INCOME TAXES The Company files a consolidated federal income tax return with the Parent. The Company calculates income taxes on a separate company basis in accordance with a tax sharing agreement with the Parent. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the change occurred. (i) PENSION AND OTHER POSTRETIREMENT PLANS The Company participates in a multiemployer defined benefit pension plan and a multiemployer life and health care plan covering substantially all employees achieving certain levels of service. The cost of these programs is being funded currently. The Company also participates in two multiemployer supplemental nonqualified defined benefit plans. The net periodic costs are recognized as employees render the services necessary to earn the retirement benefits. (Continued) 3 NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Notes to Combined Financial Statements, Continued (j) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reporting of revenues and expenses during the reporting period to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) ACQUISITIONS AND DISPOSITIONS (a) COMPLETED TRANSACTIONS In January 1995, the Company sold the assets of its cable system in Houston for cash of $15 million and an unsecured note for $6 million due January 2001. This note was discounted to $3,474,341 using an effective interest rate of 8.5%. A pretax gain of $4.9 million was recorded on this sale. In April 1996, the Company entered into an agreement to exchange the assets of WOMX-FM in Orlando and $43.5 million for the assets of WMJI-FM and WMMS-FM in Cleveland. Pending the completion of the exchange, the Company entered into a time brokerage agreement which allowed the Company to operate WMJI-FM and WMMS-FM (and relinquish day-to-day operations of WOMX-FM) from July 1996 to the February 1997 closing. The assets of WOMX-FM totaling $2,742,696 are classified as "Assets held for sale" on the December 31, 1996 balance sheet. The transaction was completed in February 1997. The Company recorded a pre-tax gain on the exchange of approximately $23 million. In May 1996, the Company acquired the common stock of San Diego Lotus Corporation for $23 million with the purpose of simultaneously transferring the stock to an affiliated company for $23 million. Governmental restrictions delayed the actual transfer of the stock to the affiliated company until September 1996. Simultaneously with the transfer, the Company entered into a time brokerage agreement for $1.125 million per year which allows the Company to operate KFSD-FM, owned by San Diego Lotus Corporation. KFSD-FM call letters were changed to KXGL-FM in 1997. All significant accounts related to KXGL-FM have been combined in the accompanying financial statements. In June 1996, the Company purchased the assets of KMJZ-FM and KSGS-AM in Minneapolis for $22 million. (Continued) 4 NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Notes to Combined Financial Statements, Continued In June 1996, the Company entered into an agreement to exchange the assets of KISW-FM in Seattle and $12.5 million for the assets of KTBZ-FM in Houston. Pending the completion of the exchange, the Company entered into a time brokerage agreement which allowed the Company to operate KTBZ-FM (and relinquish day to day operations of KISW-FM) from June 1996 to the May 1997 closing. The assets of KISW-FM totaling $6,125,680 are classified as "Assets held for sale" on the December 31, 1996 balance sheet. The transaction was completed in May 1997. The Company recorded a pre-tax gain on the exchange of approximately $21 million. In July 1996, the Company sold the assets of KLUC-FM and KXNO-AM in Las Vegas for $10.6 million. A pretax gain of approximately $5.9 million was recorded on the sale. In September 1996, the Company entered into an agreement to purchase the assets of KUPR-FM and KCEO-AM San Diego for $32 million. The transaction was completed in April 1997. Pending the completion of this acquisition, the Company entered into a time brokerage agreement which allowed the Company to operate KUPR-FM and KCEO-AM. The Company sold KCEO-AM in June 1997 for $2.6 million. No gain or loss was realized on the sale. KUPR-FM's call letters were changed to KMCG-FM in 1997. In February 1997, the Company entered into an agreement to purchase the assets of KHTC-FM in Phoenix for $34 million. The transaction was completed in June 1997. Pending the completion of this acquisition, the Company entered into a time brokerage agreement which allowed the Company to operate KHTC-FM from March 1, 1997 through the completion of the transaction. KHTC-FM's call letters were changed in 1997 to KGLQ-FM. The acquisitions completed in 1997 and 1996 have been accounted for by the purchase method of accounting. The purchase price has been allocated to the assets acquired based on their fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the net tangible assets acquired has been recorded as broadcast licenses. The results of operations of the acquired businesses are included in the Company's financial statements since the respective dates of acquisitions. Assuming each of the above acquisitions and dispositions had taken place at the beginning of 1996 and removing the effects of all gains and losses from these transactions, unaudited pro forma combined results of operations would have been as follows:
Pro forma (unaudited) -------------------------- December 31, 1997 1996 ---- ---- Net revenue $ 98,562,362 86,818,631 Net loss (3,007,167) (2,981,098)
(Continued) 5 NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Notes to Combined Financial Statements, Continued (b) PENDING AS OF DECEMBER 31, 1997 In August 1996, the Company entered into an agreement to purchase the assets of KGB-FM and KPOP-AM in San Diego for $44.2 million. The Company then signed agreements to exchange KGB-FM and KPOP-AM in San Diego for KSLX-FM and KSLX-AM in Phoenix and, following that closing, exchange the Phoenix stations for KEGL-FM in Dallas. The acquisition of the San Diego stations was completed in January 1997. The Company operated KGB-FM and KPOP-AM under a time brokerage agreement from August 1996 to the January 1997 closing. In April 1997, the exchange of the San Diego and Phoenix stations was completed. The Phoenix-Dallas exchange is pending FCC approval of the renewal of the KEGL-FM license. In the meantime, the Company has entered into a time brokerage agreement which allows the Company to operate KEGL-FM (and relinquish day to day operations of the Phoenix stations). The assets of the Phoenix stations totaling $44,667,939 are classified as "Assets held for sale" on the December 31, 1997 balance sheet. The Company does not anticipate recognizing a gain on this transaction. After the completion of these transactions, the Company will own and/or operate the following stations:
Station Location ------- -------- KDMX-FM Dallas, Texas KEGL-FM KHMX-FM Houston, Texas KTBZ-FM KMJZ-FM Minneapolis, Minnesota KSGS-AM KXGL-FM San Diego, California KMCG-FM KZZP-FM Phoenix, Arizona KGLQ-FM WPOC-FM Baltimore, Maryland WMJI-FM Cleveland, Ohio WMMS-FM WGAR-FM WNCI-FM Columbus, Ohio WCOL-FM WFII-AM
(Continued) 6 NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Notes to Combined Financial Statements, Continued (c) TIME BROKERAGE AGREEMENT FEES The Company has included $2,244,000 and $634,000 of time brokerage agreement revenue in gross broadcast revenues for the years ended December 31, 1997 and 1996, respectively. Broadcast operating expenses include $5,099,000 and $4,942,000 of time brokerage agreement expense for the years ended December 31, 1997 and 1996, respectively. There were no time brokerage agreements in 1995. (3) NOTES RECEIVABLE A summary of notes receivable at December 31 follows:
1997 1996 ---- ---- $6 million note receivable net of discounts of $1,576,561 and $1,936,407 at December 31, 1997 and 1996, respectively; due January 2001 discounted at 8.5% $ 4,423,439 4,063,593 $5 million note receivable net of discounts of $190,645 and $366,459 at December 31, 1997 and 1996, respectively; $1 million installments due November 1995 to 1999; discounted at 8% 1,809,355 2,633,541 ----------- ----------- 6,232,794 6,697,134 Less current portion (933,759) (931,278) ----------- ----------- $ 5,299,035 5,765,856 ----------- ----------- ----------- -----------
(4) PROPERTY AND EQUIPMENT A summary of property and equipment at December 31 follows:
1997 1996 ---- ---- Land $ 597,111 471,462 Building and improvements 1,029,072 806,475 Leasehold improvements 3,465,956 1,264,883 Equipment 23,455,659 13,728,965 Construction in process 87,584 669,684 ---------- ---------- 28,635,382 16,941,469 Accumulated depreciation (10,646,290) (8,687,441) ---------- ---------- Property and equipment, net $ 17,989,092 8,254,028 ---------- ---------- ---------- ----------
Depreciation expense was $3,067,834, $2,184,554 and $1,673,843 for the years ended December 31, 1997, 1996 and 1995, respectively. (Continued) 7 NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Notes to Combined Financial Statements, Continued (5) BROADCAST LICENSES AND OTHER INTANGIBLES A summary of broadcast licenses and other intangibles at December 31 follows:
Useful life 1997 1996 ----------- ---- ---- Broadcast licenses 40 Years $ 217,348,705 48,978,599 Broadcast licenses 15-25 Years 56,035,276 56,035,276 Other intangibles 5-20 Years 5,993,898 5,993,898 ------------- ------------- 279,377,879 111,007,773 Accumulated amortization (27,961,794) (20,899,794) ------------- ------------- Net intangible assets $ 251,416,085 90,107,979 ------------- ------------- ------------- -------------
Amortization expense was $7,061,999, $5,171,794, and $3,929,861 for the years ended December 31, 1997, 1996 and 1995, respectively. (6) LONG-TERM DEBT A summary of long-term debt at December 31 follows:
1997 1996 ---- ---- Notes payable to banks under Credit Agreement (6.625% at December 31, 1996); notes mature March 31, 2004 $ - 40,000,000 Note payable to bank, variable interest rate based on prime (8.5% at December 31, 1997 and 1996); principal due December 31, 2001 500,000 500,000 --------- ------------ Total debt $ 500,000 40,500,000 --------- ------------ --------- ------------
In April 1997, the Company entered into a new facility (Credit Agreement). The Credit Agreement was with a syndicate of banks and had a capacity of $105 million. NCI was required under terms of its Credit Agreement to obtain interest rate protection of 50% of the commitment amount ($52.5 million). During 1997, the Company entered into five-year interest rate swap agreements in order to obtain the required protection. The swaps effectively change a portion of the Company's interest rate exposure from a variable rate to a fixed rate. As part of the liquidation of NCI, the Company paid off its existing long- term debt and canceled its related swap agreements with the proceeds from advances from the Parent in December 1997. In connection with the extinguishment, the Company recognized an extraordinary loss of approximately $866,000 which includes loss on the extinguishment of debt and early termination fees related to the interest rate swaps. (Continued) 8 NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Notes to Combined Financial Statements, Continued (7) INCOME TAXES A summary of income tax expense at December 31 follows:
Federal State Total ------- ----- ----- December 31, 1997: Current $ 109,000 (135,294) (26,294) Deferred 14,486,000 (150,872) 14,335,128 ----------- ----------- ----------- $ 14,595,000 (286,166) 14,308,834 ----------- ----------- ----------- ----------- ----------- ----------- December 31, 1996: Current $ 6,191,800 1,055,000 7,246,800 Deferred (1,623,915) (313,000) (1,936,915) ----------- ----------- ----------- $ 4,567,885 742,000 5,309,885 ----------- ----------- ----------- ----------- ----------- ----------- December 31, 1995: Current $ 6,900,000 575,319 7,475,319 Deferred (216,788) (186,300) (403,088) ----------- ----------- ----------- $ 6,683,212 389,019 7,072,231 ----------- ----------- ----------- ----------- ----------- -----------
The actual expense differs from the expected expense as follows:
1997 1996 1995 ---- ---- ---- Expected tax expense computed at 35% $ 14,617,372 5,026,474 6,974,651 State income tax expense (benefit), net of federal tax benefit (185,689) 482,300 252,863 Amortization of intangibles 238,876 70,741 106,329 Gain on sale of nonamortizable intangibles (901,626) (411,584) (172,581) Other, net 539,901 141,954 (89,031) ------------ ------------ ------------ $ 14,308,834 5,309,885 7,072,231 ------------ ------------ ------------ ------------ ------------ ------------
(Continued) 9 NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Notes to Combined Financial Statements, Continued The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997 and 1996 are as follows:
1997 1996 ---- ---- Deferred tax assets: Accounts receivable $ 285,679 301,115 Accrued expenses 128,982 145,186 Accrued income taxes 701,250 790,117 Deferred compensation 884,072 881,456 Accrued retirement benefits 1,008,889 1,214,814 ------------ ------------ Total gross deferred tax asset 3,008,872 3,332,688 ------------ ------------ Deferred tax liabilities: Investments and other assets (153,474) (168,216) Property and equipment (121,093) (382,383) Intangibles (16,900,565) (2,718,183) Prepaid expenses and other assets (161,413) (56,451) ------------ ------------ Total gross deferred tax liabilities (17,336,545) (3,325,233) ------------ ------------ Net deferred tax assets (liabilities) $ (14,327,673) 7,455 ------------ ------------ ------------ ------------
The Company believes the existing deductible temporary differences will reverse during periods in which the Company generates net taxable earnings. The Company has considered the above factors in concluding that it is more likely than not that the Company will realize the benefits of existing deferred tax assets. The IRS has begun an examination of the Parent's consolidated 1993, 1994 and 1995 federal income tax returns. The outcome of this examination is not presently determinable; however, in the opinion of management, the effects, if any, of this examination are not expected to be material to the Company's combined financial statements. (8) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value for cash, short-term investments, accounts receivable, the current portion of notes receivable and current liabilities approximates their respective fair values because of the short maturity of these instruments. The fair value of notes receivable ($5,299,035 at December 31, 1997 excluding the current portion) is calculated by discounting scheduled cash flows through maturity using the current rates. The carrying value for these notes at December 31, 1997 approximated fair value at that date. (Continued) 10 NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Notes to Combined Financial Statements, Continued (9) PENSION PLANS The Company is a participant, together with other affiliated companies, in a pension plan covering all employees who have completed at least 1,000 hours of service within a twelve month period and who have met certain age requirements. Benefits are based upon the highest average annual salary of a specified number of consecutive years of the last ten years of service. The Company funds pension costs accrued for all employees as directed by the Parent. Effective January 1, 1995, the plan was amended to provide enhanced benefits for participants who met certain eligibility requirements and elected early retirement no later than March 15, 1995. The entire cost of the enhanced benefit was borne by the Parent and certain of its property and casualty insurance company affiliates. Pension cost (benefits) charged to operations by the Company during the years ended December 31, 1997, 1996 and 1995 were $(478,000), $(519,000), and $151,000, respectively. The Company's net prepaid (accrued) pension expense as of December 31, 1997 and 1996 was $254,000 and $(213,000), respectively. Accrued pension expense at December 31, 1996 is included in accrued expenses and other current liabilities. The Company also participates, together with certain affiliated companies, in two nonqualified unfunded defined-benefit pension plans covering directors and certain key executives. The Company's pension expense for these plans was $375,000, $413,000 and $542,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Accrued post retirement expense for these plans is $2,881,540 and $2,892,414 at December 31, 1997 and 1996, respectively. (10) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS In addition to the defined benefit pension plans, the Company, together with other affiliated companies, participates in life and health care defined benefit plans for qualifying retirees. Postretirement life and health care benefits generally available to full time employees who have attained age 55 and have accumulated 15 years of service with the Company after reaching age 40. Postretirement health care benefit contributions are adjusted annually and contain cost-sharing features such as deductibles and coinsurance. In addition, there are caps on the Company's portion of the per-participant cost of the postretirement health care benefits. These caps can increase annually, but not more than three percent. The Company's policy is to fund the cost of health care benefits in amounts determined at the discretion of management. Plan assets are invested primarily in group annuity contracts of Nationwide Life Insurance Company. (Continued) 11 NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Notes to Combined Financial Statements, Continued The Company had prepaid accrued postretirement benefits as of December 31, 1997 and 1996 of $207,000 and $134,000, respectively. The net periodic postretirement cost (benefit) for the years ended December 31, 1997, 1996 and 1995 was $(71,000), $13,000 and $(128,000), respectively. (11) SAVINGS PLAN The Company is a participant in the Nationwide Insurance Enterprise 401(k) savings plan which covers substantially all employees. Employee contributions to the plan are matched by the Company at the rate of 70% of the first 2% of pay and 40% of the next 4% of pay contributed to the plan. The Company's contribution expense for the years ended December 31, 1997, 1996 and 1995 was approximately $385,447, $284,000 and $328,000, respectively. (12) COMMITMENTS AND CONTINGENCIES (a) LEASES The Company has operating leases for certain land and facilities used in their operations with initial or remaining lease terms in excess of one year. Future minimum lease payments under these leases as of December 31, 1997 are:
Years ended: 1998 3,367,298 1999 3,207,915 2000 3,139,186 2001 2,739,192 2002 2,157,040 2003 and years thereafter 6,457,139 ------------ Total minimum lease payments $ 21,067,770 ------------ ------------
Total rent expense was $3,418,000, $1,770,000 and $1,630,000 for the years ended December 31, 1997, 1996 and 1995, respectively. (b) LEGAL PROCEEDINGS The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity. (Continued) 12 NATIONWIDE COMMUNICATIONS (Broadcast Operations of Nationwide Mutual Insurance Company) Notes to Combined Financial Statements, Continued (13) OTHER MATTERS On December 19, 1997, the Company signed an agreement with Citicasters Co., a wholly owned subsidiary of Jacor Communications, Inc., to sell substantially all of the radio station assets (exclusive of cash, cash equivalents, accounts receivable and notes receivable) for $591 million. In the same agreement, Jacor also agreed to purchase the radio station assets of San Diego Lotus Corporation, an affiliate of the Company, for $29 million. These transactions are expected to be finalized in 1998. Item 7(a)(ii) TALK RADIO NETWORK, INC., CHANCELLOR BROADCASTING CO., INC. AND BROADCAST COMMUNICATIONS, INC. C O N T E N T S PAGE(S) REPORT OF INDEPENDENT ACCOUNTANTS 1 COMBINED FINANCIAL STATEMENTS Balance Sheets as of September 30, 1997 and December 31, 1996 and 1995 2 Statements of Income for the nine months ended September 30, 1997 and for the years ended December 31, 1996 and 1995 3 Statements of Shareholders' Equity for the nine months ended September 30, 1997 and for the years ended December 31, 1996 and 1995 4 Statements of Cash Flows for the nine months ended September 30, 1997 and for the years ended December 31, 1996 and 1995 5 Notes to Combined Financial Statements 6-12 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Talk Radio Network, Inc., Chancellor Broadcasting Co., Inc. and Broadcast Communications, Inc.: We have audited the accompanying combined balance sheets of Talk Radio Network, Inc. and Chancellor Broadcasting Co., Inc. as of September 30, 1997, the combined balance sheets of Talk Radio Network, Inc., Chancellor Broadcasting Co., Inc. and Broadcast Communications, Inc. as of December 31, 1996 and 1995, and the related combined statements of income, shareholders' equity and cash flows for the nine months ended September 30, 1997 and for the years ended December 31, 1996 and 1995. These financial statements are the responsibility of the Companies' 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 combined financial position of Talk Radio Network, Inc. and Chancellor Broadcasting Co., Inc. as of September 30, 1997, of Talk Radio Network, Inc., Chancellor Broadcasting Co., Inc. and Broadcast Communications, Inc. as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the nine months ended September 30, 1997 and for the years ended December 31, 1996 and 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Eugene, Oregon December 19, 1997 TALK RADIO NETWORK, INC, CHANCELLOR BROADCASTING CO., INC. AND BROADCAST COMMUNICATIONS, INC. COMBINED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------- ------------ ------------ ASSETS Current assets: Cash $998,379 $1,103,659 $426,732 Accounts receivable 146,758 74,714 132,946 Pro form income taxes receivable 9,964 ------------- ------------ ------------ Total current assets 1,145,137 1,178,373 569,642 Fixed assets, net 568,419 586,171 327,882 Intangible assets, net 103,549 111,048 121,069 ------------- ------------ ------------ Total assets $1,817,105 $1,875,592 $1,018,593 ------------- ------------ ------------ ------------- ------------ ------------ LIABILITIES Current liabilities: Accounts payable and accrued expenses $299,364 $252,710 $335,014 Deferred subscription revenue 175,705 163,779 175,961 Customer deposits 29,313 61,006 31,854 Pro forma income taxes 230,548 239,585 Current portion of notes payable 38,471 53,506 40,406 Current portion of capitalized lease obligations 12,257 11,461 15,740 ------------- ------------ ------------ Total current liabilities 785,658 782,047 598,975 Notes payable, less current portion 366,686 637,242 513,337 Capitalized lease obligations, less current portion 7,857 18,328 29,789 ------------- ------------ ------------ Total liabilities 1,160,201 1,437,617 1,142,101 ------------- ------------ ------------ Commitments and contingencies (Note 5) SHAREHOLDERS' EQUITY Talk Radio Network, Inc. common stock, no par value; 100,000 shares authorized, 10,000 shares issued and outstanding 10,000 10,000 10,000 Chancellor Broadcasting Co., Inc. common stock, no par value; 10,000 shares authorized, issued and outstanding 1,241 1,241 1,241 Broadcast Communications, Inc. common stock, no par value; 10,000 shares authorized, 8,000 shares issued and outstanding in 1996 and 1995 700 700 Additional paid-in capital 37,825 37,825 37,825 Retained earnings (deficit) 607,838 388,209 (173,274) ------------- ------------ ------------ Total shareholders' equity 656,904 437,975 (123,508) ------------- ------------ ------------ Total liabilities and shareholders' equity $1,817,105 $1,875,592 $1,018,593 ------------- ------------ ------------ ------------- ------------ ------------
The accompanying notes are an integral part of these financial statements. 2 TALK RADIO NETWORK, INC, CHANCELLOR BROADCASTING CO., INC. AND BROADCAST COMMUNICATIONS, INC. COMBINED STATEMENTS OF INCOME
FOR THE NINE FOR THE YEARS ENDED MONTHS ENDED ------------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------- ------------ ------------ Operating revenues: Advertising $2,847,612 $2,662,652 $1,783,844 Subscription and merchandising 762,204 789,704 515,740 ------------- ------------ ------------ 3,609,816 3,452,356 2,299,584 ------------- ------------ ------------ Operating expenses: Production and programming 1,149,868 627,621 577,313 Newsletter and merchandise 123,383 193,682 125,168 General and administrative 1,282,388 1,561,907 1,135,327 Depreciation and amortization 69,723 87,800 54,292 ------------- ------------ ------------ 2,625,362 2,471,010 1,892,100 ------------- ------------ ------------ Net operating income 984,454 981,346 407,484 Other income (expenses): Interest income 16,863 10,249 3,407 Interest expense (30,814) (56,590) (51,414) Other 3,029 800 6,883 ------------- ------------ ------------ Income before provision for pro forma income taxes 973,532 935,805 366,360 Provision for pro forma income taxes 389,413 374,322 146,544 ------------- ------------ ------------ Net income $584,119 $561,483 $219,816 ------------- ------------ ------------ ------------- ------------ ------------
The accompanying notes are an integral part of these financial statements. 3 TALK RADIO NETWORK, INC, CHANCELLOR BROADCASTING CO., INC. AND BROADCAST COMMUNICATIONS, INC. COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY for the nine months ended September 30, 1997 and for the years ended December 31, 1996 and 1995
CHANCELLOR BROADCAST TALK RADIO NETWORK, BROADCASTING, INC. COMMUNICATIONS, INC. COMMON STOCK COMMON STOCK INC. COMMON STOCK --------------------- --------------------- -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ -------- ------ ------- ------ ------- Balances, January 1, 1995 10,000 $ 10,000 10,000 $ 1,241 8,000 $ 700 Net income ------ -------- ------ ------- ------ ------- Balances, December 31, 1995 10,000 10,000 10,000 1,241 8,000 700 Net income ------ -------- ------ ------- ------ ------- Balances, December 31, 1996 10,000 10,000 10,000 1,241 8,000 700 Cancellation of outstanding capital and deficit of BCC (Note 2) (8,000) (700) Dividend paid to related-party shareholders (Note 2) Net income ------ -------- ------ ------- ------ ------- Balances, September 30, 1997 10,000 $ 10,000 10,000 $ 1,241 0 $ 0 ------ -------- ------ ------- ------ ------- ------ -------- ------ ------- ------ -------
The accompanying notes are an integral part of these financial statements. 4
COMBINED -------------------------- ADDITIONAL RETAINED TOTAL PAID-IN EARNINGS SHAREHOLDERS' CAPITAL (DEFICIT) EQUITY ---------- --------- ------------- $37,825 $(393,090) $(343,324) 219,816 219,816 ---------- --------- ------------- 37,825 (173,274) (123,508) 561,483 561,483 ---------- --------- ------------- 37,825 388,209 437,975 122,765 122,065 (487,255) (487,255) 584,119 584,119 ---------- --------- ------------- $37,825 $607,838 $656,904 ---------- --------- ------------- ---------- --------- -------------
5 TALK RADIO NETWORK, INC, CHANCELLOR BROADCASTING CO., INC. AND BROADCAST COMMUNICATIONS, INC. COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE FOR THE YEARS ENDED MONTHS ENDED -------------------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------- ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: Cash flows from operating activities: Net income $584,119 $561,483 $219,816 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 69,723 87,800 54,292 Gain on sale of assets (800) Pro forma income taxes (9,037) 249,549 (9,964) Changes in operating assets and liabilities: Accounts receivable (72,044) 58,232 (72,808) Accounts payable and accrued liabilities 46,654 (82,304) 202,013 Deferred subscription revenue 11,926 (12,182) (7,656) Customer deposits (31,693) 29,152 31,854 Other (11,336) ------------- ------------ ------------ Net cash provided by operating activities 599,648 890,930 406,211 ------------- ------------ ------------ Cash flows used in investing activities: Acquisition of furniture and equipment (44,472) (345,331) (206,035) Proceeds from sale of assets 10,063 Cancellation of BCC equity (Note 2) 122,065 ------------- ------------ ------------ Net cash provided by (used in) investing activities 77,593 (335,268) (206,035) ------------- ------------ ------------ Cash flows from financing activities: Payments on notes due to shareholder (215,596) (23,129) (26,429) Borrowings on notes payable 25,903 185,772 65,000 Payments on notes payable (95,898) (25,638) (28,476) Payments on capitalized lease obligations (9,675) (15,740) (13,707) Related-party dividend (Note 2) (487,255) ------------- ------------ ------------ Net cash provided by (used in) financing activities (782,521) 121,265 (3,612) ------------- ------------ ------------ Increase (decrease) in cash and cash equivalents (105,280) 676,927 196,564 Cash and cash equivalents, beginning of period 1,103,659 426,732 230,168 ------------- ------------ ------------ Cash and cash equivalents, end of period $ 998,379 $ 1,103,659 $ 426,732 ------------- ------------ ------------ ------------- ------------ ------------ SUPPLEMENTAL CASH FLOW DISCLOSURE: Cash paid for: Interest $30,814 $56,590 $51,414 Income taxes 353,096 267,100 14,275 SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY: Assets acquired through capital leases $28,500
The accompanying notes are an integral part of these financial statements. 6 TALK RADIO NETWORK, INC, CHANCELLOR BROADCASTING CO., INC. AND BROADCAST COMMUNICATIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS September 30, 1997 and December 31, 1996 and 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION: Talk Radio Network, Inc. ("TRN") and Chancellor Broadcasting Co., Inc. ("CBC") were formed in 1993 as Subchapter C corporations. TRN and CBC are independent creators, producers and distributors of syndicated network radio programs and distributors of related merchandising rights. CBC is 66% owned by TRN. Broadcast Communications, Inc. ("BCC") was formed in 1986 as a Subchapter C corporation. BCC owns and operates an independent radio station in Central Point, Oregon. BCC was acquired by CBC in 1997, and its then outstanding shares were cancelled. In 1995, BCC changed its name from Medford Judeo Christian Outreach, Inc. TRN, CBC and BCC derive a substantial portion of their revenues from the sale of commercial radio broadcast time to national and local advertisers. Each of TRN, CBC and BCC are owned or controlled either directly or indirectly by a nonprofit corporation. Collectively, TRN, CBC and BCC are referred to as the "Companies". The combined financial statements include the accounts of TRN and CBC for the nine months ended September 30, 1997. For the years ended December 31, 1996 and 1995, the combined financial statements include the accounts of TRN, CBC and BCC. All material intercompany transactions and accounts have been eliminated in the combined financial statements. REVENUE RECOGNITION: Revenue from the sale of commercial broadcast time to advertisers is recognized when the commercials are broadcast. Newsletter subscription revenues are recorded as deferred revenue and recognized on a straight-line basis over the term of the underlying subscriptions. Merchandising revenues are recognized when the merchandise is shipped. CONCENTRATION OF RISK: The Companies' revenues and accounts receivable primarily relate to advertising of products and services both on a national basis with respect to syndicated network radio programming and on a local basis with respect to the Central Point, Oregon radio station. Credit is extended to customers based upon an evaluation of the customer's financial condition and generally collateral is not required. Credit losses are provided for in the financial statements and consistently have been within management's expectations. PRODUCTION AND PROGRAMMING COSTS: Production and programming costs are expensed in the period in which they occur. The Companies do not capitalize costs associated with production and distribution of internally developed programs, as the estimated future revenues from the programs are considered immaterial. Costs related to programs not broadcast as of the balance sheet dates are insignificant. Continued 7 TALK RADIO NETWORK, INC, CHANCELLOR BROADCASTING CO., INC. AND BROADCAST COMMUNICATIONS, INC. NOTE TO COMBINED FINANCIAL STATEMENTS, Continued September 30, 1997 and December 31, 1996 and 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued: ADVERTISING COSTS: Advertising costs are expensed in the period in which they occur. General and administrative expenses include advertising costs of $10,414, $3,538 and $2,853 in 1997, 1996 and 1995, respectively. CASH: Cash consists of demand deposits and money market accounts with regional banks. At times, balances may exceed amounts insured by the Federal Deposit Insurance Corporation. FIXED ASSETS: Land, buildings, furniture and equipment are stated at cost. Depreciation and amortization are computed by the double-declining balance and straight-line methods over the estimated useful lives of the related assets, which are five to seven years. Maintenance and repairs are expensed as incurred. The cost and related accumulated depreciation of assets sold or retired are removed from the accounts and the resulting gain or loss is included in current income. PRO FORMA INCOME TAXES: The combined financial statements consist of corporate entities which file separate income tax returns on the cash basis and on differing year ends. Therefore, pro forma income taxes have been calculated at the estimated effective rate of 40% on the pre-tax profits for the periods. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INTANGIBLE ASSETS: Intangible assets are stated at cost and primarily consist of a network radio program purchased by CBC in 1993. The network radio program is being amortized using the straight-line method over the duration of the related program's rights, including an extension of 7 additional years. Accumulated amortization is $42,342, $34,843 and $25,052 as of September 30, 1997, December 31, 1996 and December 31, 1995, respectively. 8 TALK RADIO NETWORK, INC, CHANCELLOR BROADCASTING CO., INC. AND BROADCAST COMMUNICATIONS, INC. NOTE TO COMBINED FINANCIAL STATEMENTS, Continued September 30, 1997 and December 31, 1996 and 1995 2. PURCHASE OF BCC: In April 1997, CBC purchased BCC for $500,000 from related-party shareholders. The assets acquired and liabilities assumed by CBC were recorded at BCC's historical cost. The amounts paid to the related-party shareholders for BCC, in excess of historical cost, have been reflected in the combined financial statements as a related-party dividend. 3. FIXED ASSETS:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------- ------------ ------------ Land $191,596 $191,596 $62,569 Buildings and improvements 141,285 140,165 43,359 Furniture and equipment 464,498 450,725 340,491 ------------- ------------ ------------ 797,379 782,486 446,419 Less accumulated depreciation 228,960 196,315 118,537 ------------- ------------ ------------ $568,419 $586,171 $327,882 ------------- ------------ ------------ ------------- ------------ ------------
9 TALK RADIO NETWORK, INC, CHANCELLOR BROADCASTING CO., INC. AND BROADCAST COMMUNICATIONS, INC. NOTE TO COMBINED FINANCIAL STATEMENTS, Continued September 30, 1997 and December 31, 1996 and 1995 4. LONG-TERM DEBT: Notes payable with third parties consist of the following:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------- ------------ ------------ Notes payable to a controlling shareholder, interest at 6% to 8%, due at various dates through 2008 $ 204,067 $ 419,663 $ 442,792 Mortgage loan payable to a trust, collateralized by real property, monthly payments of $1,631 including interest at 10.25%, due December 2006 117,055 122,521 Mortgage loan payable to a trust, collateralized by real property, monthly payments of $223 including interest at 7% per annum, due October 2042 37,240 37,325 Equipment loan, collateralized by radio equipment, monthly payments of $1,166 including interest at 8.5%, due June 1999 22,297 31,054 41,898 Equipment loan, collateralized by satellite up-link equipment, interest at 8.5% per annum 63,330 64,585 Other 24,498 16,855 4,468 ------------- ------------ ------------ 405,157 690,748 553,743 Less current portion 38,471 53,506 40,406 ------------- ------------ ------------ $ 366,686 $ 637,242 $ 513,337 ------------- ------------ ------------ ------------- ------------ ------------
The principal payments on long-term debt for the years ending after September 30, 1997 are summarized as follows:
1998 $ 38,471 1999 36,971 2000 29,933 2001 32,489 2002 32,887 Thereafter 234,406 -------- $405,157 -------- --------
Continued 10 TALK RADIO NETWORK, INC, CHANCELLOR BROADCASTING CO., INC. AND BROADCAST COMMUNICATIONS, INC. NOTE TO COMBINED FINANCIAL STATEMENTS, Continued September 30, 1997 and December 31, 1996 and 1995 4. LONG-TERM DEBT, Continued: The Companies lease certain equipment under agreements which are classified as capital leases. At September 30, 1997, the agreements require monthly aggregate payments of $1,515, including interest. The lease agreements expire between May 1998 and June 2000. Most of these equipment leases have purchase options at the end of the original lease term. Leased capital assets included in fixed assets are as follows:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------- ------------ ------------ Total minimum lease payments $30,934 $44,573 $65,639 Less amount representing interest 10,820 14,784 20,110 ------------- ------------ ------------ Capital lease obligations 20,114 29,789 45,529 Less current maturities 12,257 11,461 15,740 ------------- ------------ ------------ Long-term portion $7,857 $18,328 $29,789 ------------- ------------ ------------ ------------- ------------ ------------
5. COMMITMENTS AND CONTINGENCIES: The Companies lease their office, radio station, and radio towers under operating leases expiring at various dates through June 2006. Renewal options are available on certain of these leases. Rental expense under operating leases was $14,880, $17,040 and $25,440 during the nine months ended September 30, 1997 and during the years ended December 31, 1996 and 1995, respectively. The Companies have talent and programming agreements with various individuals and organizations. Some of these agreements are month-to-month, while others are for extended periods, expiring from February 1998 to May 2004. The most significant agreement is with an individual who receives a percentage of net sales of radio programs and program related merchandise, as defined, and additional compensation of $100,000 per year through April 2004. Approximate future minimum commitment and lease payments under noncancelable operating leases and contracts at September 30, 1997 are as follows:
Year ending: 1998 $ 552,000 1999 420,000 2000 334,000 2001 295,000 2002 178,000 Thereafter 436,000 ---------- $2,215,000 ---------- ----------
11 TALK RADIO NETWORK, INC, CHANCELLOR BROADCASTING CO., INC. AND BROADCAST COMMUNICATIONS, INC. NOTE TO COMBINED FINANCIAL STATEMENTS, Continued September 30, 1997 and December 31, 1996 and 1995 6. RELATED PARTIES: Transactions with related parties of common ownership and control are as follows: a. Lease agreements with a controlling shareholder of TRN with respect to the Companies' office, radio station and the main radio tower (see Note 5). b. Loans payable to a controlling shareholder of the Companies (see Note 4). c. Purchase of BCC from related-party shareholders (see Note 2). d. CBC donated $50,000, $30,000 and $10,000 in 1997, 1996 and 1995, respectively, to the controlling nonprofit organization. 7. SUBSEQUENT EVENT (Unaudited): Effective January 1998, the shareholders of the Companies entered into definitive agreements pursuant to which they shall sell 100% of the Companies to Premiere Radio Networks, Inc. for approximately $9 million in cash. 12 ITEM 7(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma financial information, which is based on the historical financial statements of Jacor and Nationwide, has been prepared to illustrate the effects of the acquisitions and related financings described below. The unaudited pro forma condensed consolidated statement of operations for year ended December 31, 1997 gives effect to the following transactions and related financings as if such transactions and financings had been completed January 1, 1997: (i) the Nationwide Acquisition and (ii) other acquisitions completed during 1997 or pending as of December 31, 1997. The pro forma condensed consolidated balance sheet as of December 31, 1997 has been prepared as if the following transactions and related financings had been completed on December 31, 1997: (i) the Nationwide Acquisition and (ii) the other acquisitions pending as of December 31, 1997. The Nationwide acquisition and all other pending acquisitions will be accounted for using the purchase method of accounting. The total purchase costs of the Nationwide acquisition and all other pending acquisitions will be allocated to the tangible and intangible assets and liabilities acquired based upon their respective fair values. The allocation of the aggregate purchase price reflected in the Unaudited Pro Forma Financial Information is preliminary. The final allocation of the purchase price will be contingent upon the receipt of final appraisals of the acquired assets. The Unaudited Pro Forma Financial Information is not necessarily indicative of either future results of operations or the results that might have occurred if the foregoing transactions had been consummated on the indicated dates. The Unaudited Pro Forma Financial Information should be read in conjunction with Jacor's Consolidated Financial Statements and notes thereto included in Jacor's Annual Report on Form 10-K and Nationwide's Combined Financial Statements and notes thereto included in this Current Report on Form 8-K(A). JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1997
Other Jacor Acquisition Other Nationwide Acquisition Total Historical Pro Forma Acquisitions Historical Pro Forma Pro Forma Combined Jacor Adjustments Pro Forma Nationwide Adjustments Adjustments Pro Forma ---------- ------------ ------------ ---------- ----------- ----------- --------- Net revenue $530,574 $74,452 (a) $605,026 $ 97,997 $ 565 (e) (3,613) (h) $699,975 Broadcast operating expenses 356,783 49,559 (a) 406,342 81,958 (2,132) (e) (20,923) (h) 465,245 Depreciation and amortization 76,485 24,947 (a) 103,432 10,130 2,084 (e) 4,007 (i) 119,653 Corporate general and administrative expenses 14,093 - 14,093 3,623 (3,623) (h) 14,093 - 0 --------- -------- --------- --------- ---------- --------- --------- Operating income 81,213 (54) 81,159 2,286 613 16,926 100,984 Interest expense, net (80,008) (9,303) (b) (89,311) (4,617) (3,197) (e) (20,586) (j) (117,710) Gain on sale of radio stations 11,135 - 11,135 44,132 (44,132) (f) 11,135 Other income (expense), net 664 298 (c) 962 (37) 925 --------- -------- --------- --------- ---------- --------- --------- Income (loss) before Income taxes and extraordinary items 13,004 (9,059) 3,945 41,764 (46,716) (3,659) (4,667) --------- -------- --------- --------- ---------- --------- --------- Income tax (expense) credit (9,600) 4,531 (d) (5,069) (14,309) 15,992 (g) 1,464 (k) (1,922) --------- -------- --------- --------- ---------- --------- --------- Income (loss) before extraordinary items $ 3,404 ($4,528) ($1,124) $27,455 ($30,724) ($2,196) ($6,589) --------- -------- --------- --------- ---------- --------- --------- --------- -------- --------- --------- ---------- --------- --------- Diluted income (loss) per common share $ 0.08 ($0.13) Number of common shares used in per share computations 42,163 50,763
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS) AS OF DECEMBER 31, 1997
Other Jacor Acquisition Other Nationwide Disposal Historical Pro Forma Acquisitions Station of Pro Forma Jacor Adjustments Pro Forma Acquisition San Diego Combined ---------- ------------ ------------ ---------- ----------- ----------- Current Assets: Cash $ 28,724 $ 28,724 $ 28,724 Accounts Receivable 135,073 135,073 135,073 Prepaid Expenses and Other Current Assets 33,790 33,790 33,790 ---------- ---------- ---------- ---------- ---------- ---------- Total Current Assets 197,587 197,587 197,587 Property and Equipment 206,809 $ 9,100 (m) 215,909 $ 28,000 (p) $ (2,000) (r) 241,909 Intangible Assets 2,128,718 59,375 (m) 2,188,093 604,000 (p) (63,000) (r) 2,729,093 Other Assets 68,764 (10,410) (n) 58,354 58,354 ---------- ---------- ---------- ---------- ---------- ---------- Total Assets $2,601,878 $58,065 $2,659,943 $632,000 ($65,000) $3,226,943 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Current Liabilities: Accounts Payable, Accrued Liabilities and Other Current Liabilities 118,249 118,249 118,249 ---------- ---------- ---------- ---------- ---------- ---------- Total Current Liabilities 118,249 118,249 118,249 Long-term debt 987,500 58,065 (o) 1,045,565 224,150 (q) (65,000) (q) 1,204,725 Liquid Yield Option Notes 125,300 125,300 166,950 (q) 292,250 Other Liabilities 115,611 115,611 115,611 Deferred tax liability 338,867 338,867 338,867 Shareholders' Equity: Common Stock 457 457 51 (q) 508 Additional Paid-In Capital 863,086 863,086 240,839 (q) 1,103,925 Common Stock Warrants 31,500 31,500 31,500 Retained Earnings 21,308 21,308 21,308 ---------- ---------- ---------- ---------- ---------- ---------- Total Shareholders' Equity 916,351 916,351 240,890 1,157,241 Total Liabilities and ---------- ---------- ---------- ---------- ---------- ---------- Shareholders' Equity $2,601,878 $58,065 $2,659,943 $632,000 ($65,000) $3,226,943 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (a) These adjustments reflect additional revenues and expenses related to the following acquisitions and other individually immaterial acquisitions completed during 1997 or pending as of December 31, 1997 (collectively, the "Other Acquisitions").
Year Ended December 31, 1997 ------------------------------------------ Broadcast Depreciation Net Operating and Revenue Expenses Amortization ------- ---------- ------------ Regent (completed February 1997)................. $ --- $ 233 $ 1,061 Premiere (completed June 1997) .................. 14,130 9,276 4,347 EFM Companies (completed April 1997)............. 11,191 7,484 3,834 Synergy Broadcasting (completed October 1997).... 12,714 4,643 7,321 Other (various).................................. 36,417 27,473 8,384 ------- -------- ---------- Total....................................... $74,452 $49,559 $24,947 ------- -------- ---------- ------- -------- ----------
(b) The adjustment represents additional interest expense associated with Jacor's borrowings under the Credit Facility and the issuance of various debt securities in 1997. The assumed weighted average interest rate associated with the borrowings is 7.9%. (c) The adjustment represents miscellaneous income generated primarily by Premiere for periods prior to the acquisition. (d) To provide for the tax effect of pro forma adjustments. The acquisition adjustments described in Note (a) include non-deductible goodwill amortization estimated to be approximately $1,350 for the year ended December 31, 1997. (e) The adjustments represent additional revenues and expenses, net of the elimination of time brokerage agreement fees, related primarily to Nationwide's acquisitions of radio stations in the Dallas, Phoenix and San Diego broadcast areas. Nationwide has operated a majority of the stations acquired in 1997 under local marketing agreements since January 1, 1997, therefore a significant amount of the revenues and operating expenses related to these stations are included in Nationwide's historical financial statements for the year ended December 31, 1997. JACOR COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (f) The adjustment represents elimination of Nationwide's gain on the sale and exchange of certain radio stations in 1997. (g) To provide for the tax effect of Nationwide's pro forma adjustments relating to its 1997 acquisitions and divestitures at statutory rates. (h) The adjustments represent revenue and expense eliminations from the assumed divestitures of two San Diego stations (see Note(r)) and projected expense savings of 14,048 for the year ended December 31, 1997, respectively. Expense savings will result from the elimination of redundant broadcast operating expenses arising from the operation of multiple stations in broadcast areas, changes in benefit plan and compensation structures to conform with Jacor's and the elimination of Nationwide's corporate office function. Estimated savings are as follows:
Year ended December 31, 1997 ----------------- Corporate general and administrative................... $ 3,623 Benefit Plan expenses.................................. 2,850 Commissions............................................ 675 Promotion and programing............................... 2,500 Personnel reductions................................... 3,200 Other.................................................. 1,200 -------- $ 14,048 -------- --------
(i) The adjustment reflects the additional depreciation and amortization expense resulting from the allocation of Jacor's purchase price to the assets acquired including an increase in property and equipment and identifiable intangible assets to their estimated fair market values. (j) The adjustment reflects additional interest expense related to additional borrowings under the Credit Facility, the 8% Notes and the 4 3/4% LYONs Offering completed during February 1998 to finance, in part, the acquisition of Nationwide. (k) To provide for the tax effect of pro forma adjustments. (l) The pro forma weighted average shares outstanding includes all shares outstanding as of December 31, 1997 and the 5.073 million shares issued in the February 1998 Common Stock Offering. The pro forma weighted average shares outstanding of Jacor do not reflect any outstanding options and warrants as they are antidilutive. The LYONs are not common stock equivalents and are, therefore, excluded from the computation. (m) The adjustments represent the allocation of Jacor's purchase price for the Other Acquisitions to the estimated fair value of the assets acquired and certain liabilities assumed. (n) The adjustment represents the application of funded escrow deposits to the purchase price of the Other Acquisitions. (o) The adjustment represents incremental Credit Facility borrowings to finance the Other Acquisitions. (p) The adjustment represents the allocation of Jacor's purchase price for Nationwide, including estimated expenses of $12,000, to the estimated fair value of the assets acquired and the recording of goodwill associated with the acquisition. (q) The adjustment represents the assumed proceeds from the February 1998 Common Stock offering, 4 3/4% LYONs offering, 8% Notes offering and incremental borrowings under the Credit Facility to finance the acquisition of Nationwide's radio stations. The estimated sale price for two San Diego stations is $65,000 (see Note (r)).
Common Stock Offering (net proceeds).................. $240,890 Notes Offering ....................................... 119,539 LYONs Offering ....................................... 166,950 Credit Facility borrowings ........................... 104,621 Credit Facility repayments ........................... (65,000) -------- $567,000 -------- --------
(r) Upon completion of the Nationwide Acquisition, Jacor's station ownership in the San Diego broadcast area would exceed FCC ownership limits. The adjustment assumes Jacor will divest two radio stations currently operating in the San Diego broadcast area. The sale price is management's estimate based on currently available information. EX-23.1 2 EXHIBIT 23-1 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.'s 33-65126, 33-10329, 33-56385, 33-61719, 333-28587, 333-28371, 333-28399, 333-28401, and 333-28363) and on Forms S-3 (File No.'s 333-21419 and 333-06639) of our report dated December 19, 1997 on our audits of the combined financial statements of Talk Radio Network, Inc. and Chancellor Broadcasting Co., Inc. as of September 30, 1997 and for the nine months ended September 30, 1997, and the combined financial statements of Talk Radio Network, Inc., Chancellor Broadcasting Co.,Inc. and Broadcast Communications, Inc. as of December 31, 1996 and 1995 and for each of the years in the period ended December 31, 1996, which report is included in this Current Report on Form 8-K(A). COOPERS & LYBRAND L.L.P. Cincinnati, Ohio April 30, 1998 -----END PRIVACY-ENHANCED MESSAGE-----