<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File No. 1-8283
CITICASTERS INC.
Incorporated under the laws of Florida
IRS Employer Identification No. 59-2054850
One East Fourth Street, Cincinnati, Ohio 45202
Phone: (513) 562-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
As of July 15, 1996, there were 20,007,552 shares of Common Stock
outstanding.
EXHIBIT INDEX Page 12
Page 1 of 14
<PAGE> 2
CITICASTERS INC. - 10-Q
PART I
FINANCIAL INFORMATION
CITICASTERS INC. AND SUBSIDIARIES
BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- --------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 2,027 $ 3,572
Trade receivables, less allowance for
doubtful accounts of $1,564 and $1,244 35,108 32,495
Broadcast program rights 3,903 5,162
Prepaid and other current assets 2,070 3,059
-------- --------
Total current assets 43,108 44,288
Broadcast program rights, less current portion 1,410 3,296
Property and equipment, net 36,632 33,878
Contracts, broadcasting licenses and other
intangibles, less accumulated amortization
of $23,054 and $8,932 331,192 312,791
Deferred charges and other assets 14,479 22,093
-------- --------
$426,821 $416,346
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, accrued expenses and
other current liabilities $ 16,144 $ 17,061
Broadcast program rights fees payable 3,467 5,298
-------- --------
Total current liabilities 19,611 22,359
Broadcast program rights fees payable,
less current portion 1,824 2,829
Long-term debt 142,584 132,481
Deferred income taxes 44,822 44,822
Other liabilities 53,377 54,163
-------- --------
Total liabilities 262,218 256,654
Shareholders' equity:
Class A Common Stock, $.01 par value, including
additional paid-in capital; 500,000,000 shares
authorized; 20,007,552 and 19,976,927
shares outstanding 83,148 82,936
Retained earnings from January 1, 1994 81,455 76,856
-------- --------
Total shareholders' equity 164,603 159,692
-------- --------
$426,821 $416,346
======== ========
</TABLE>
See notes to financial statements.
Page 2
<PAGE> 3
CITICASTERS INC. - 10-Q
CITICASTERS INC. AND SUBSIDIARIES
STATEMENT OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues:
Television broadcasting $ 16,852 $ 16,429 $ 30,529 $ 30,515
Radio broadcasting 23,338 20,457 40,838 35,416
-------- -------- -------- --------
40,190 36,886 71,367 65,931
-------- -------- -------- --------
Costs and expenses:
Operating expenses 10,191 9,229 20,225 18,373
Selling, general and administrative 12,108 11,587 23,802 22,322
Corporate general and administrative 1,035 1,038 2,088 2,161
Depreciation and amortization 4,108 3,444 8,173 6,763
-------- -------- -------- --------
27,442 25,298 54,288 49,619
-------- -------- -------- --------
Operating income 12,748 11,588 17,079 16,312
Other income (expense):
Interest expense (3,711) (3,372) (7,445) (6,885)
Investment income 95 387 150 1,067
Miscellaneous, net (563) (61) (2,085) 126
-------- -------- -------- --------
(4,179) (3,046) (9,380) (5,692)
-------- -------- -------- --------
Earnings before income taxes 8,569 8,542 7,699 10,620
Income taxes 3,300 3,300 3,000 4,100
-------- -------- -------- --------
NET EARNINGS $ 5,269 $ 5,242 $ 4,699 $ 6,520
======== ======== ======== ========
SHARE DATA:
Primary and Fully Diluted:
Net earnings $ .25 $ .25 $ .22 $ .31
Average common shares 21,144 21,030 21,175 20,936
</TABLE>
See notes to financial statements.
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CITICASTERS INC. - 10-Q
CITICASTERS INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
Common Stock, including additional
paid-in capital:
Beginning balance $ 82,936 $ 87,831
Common Stock repurchased
and retired - (341)
Common Stock issued upon
exercise of stock options 212 178
-------- --------
Balance at end of period 83,148 87,668
-------- --------
Retained earnings:
Beginning balance 76,756 63,106
Net earnings 4,699 6,520
-------- --------
$ 81,455 $ 69,626
======== ========
TOTAL SHAREHOLDERS' EQUITY $164,603 $157,294
======== ========
</TABLE>
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CITICASTERS INC. - 10-Q
CITICASTERS INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 4,699 $ 6,520
Adjustments:
Depreciation and amortization 8,173 6,763
Non-cash interest expense 103 93
Decrease (increase) in trade receivables (2,613) 923
Decrease in broadcast program rights,
net of fees payable 309 247
Decrease in accounts payable, accrued
expenses and other liabilities (1,683) (6,133)
Other 599 (91)
-------- --------
9,587 8,322
-------- --------
INVESTING ACTIVITIES:
Deposits on broadcast stations to be acquired -- (3,400)
Purchases of:
Broadcast stations (19,000) (45,000)
Real estate, property and equipment (2,947) (5,783)
Sales of broadcast stations -- --
Other 603 18
-------- --------
(21,344) (54,165)
FINANCING ACTIVITIES:
Retirements of long-term debt (6,000) --
Additional long-term borrowings 16,000 6,000
Company's Common shares repurchased -- (341)
Other 212 178
-------- --------
10,212 5,837
-------- --------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (1,545) (40,006)
Cash and short-term investments at beginning of period 3,572 46,258
-------- --------
Cash and short-term investments at end of period $ 2,027 $ 6,252
======== ========
</TABLE>
See notes to financial statements.
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CITICASTERS INC. - 10-Q
NOTES TO FINANCIAL STATEMENTS
A. ACCOUNTING POLICIES
ORGANIZATION Citicasters is engaged in the ownership and operation of radio
and television stations and derives substantially all of its revenue from
the sale of advertising time. The amount of broadcast advertising time
available for sale by Citicasters' stations is relatively fixed, and by its
nature cannot be stockpiled for later sale. Therefore, the primary
variables affecting revenue levels are the demand for advertising time, the
viewing or listening audience of the station and the entry of new stations
in the marketplace. The major variable costs of operation are programming
(news, sports and entertainment), sales costs related to revenues and
promotional costs. The success of the programming determines the audience
levels and therefore affects revenue.
BASIS OF PRESENTATION The accompanying financial statements for Citicasters
Inc. are unaudited, but Citicasters believes that all adjustments
(consisting only of normal recurring accruals, unless otherwise disclosed
herein) necessary for fair presentation have been made. The results of
operations for interim periods are not necessarily indicative of results to
be expected for the year. The financial statements have been prepared in
accordance with the instructions to Form 10-Q and therefore do not include
all information and footnotes necessary to be in conformity with generally
accepted accounting principles. Significant intercompany balances and
transactions have been eliminated. Certain reclassifications have been made
to conform to the current year's presentation.
All acquisitions have been treated as purchases. The accounts and results
of operations of companies since their formation or acquisition are
included in the consolidated financial statements.
American Financial Group, Inc. and its Subsidiaries ("American Financial")
owned 7,566,889 shares or 37.8% of Citicasters' outstanding Common Stock at
July 15, 1996. At that date, American Financial's Chairman, Carl H.
Lindner, owned an additional 3,237,486 shares or 16.2% of Citicasters'
outstanding Common Stock.
USE OF ESTIMATES The preparation of the financial statements requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Changes in
circumstances could cause actual results to differ materially from those
estimates.
BROADCAST PROGRAM RIGHTS The rights to broadcast non-network programs on
Citicasters' television stations are stated at cost, less accumulated
amortization. These costs are charged to operations on a straight-line
basis over the contract period or on a per showing basis, whichever results
in the greater aggregate amortization.
PROPERTY AND EQUIPMENT Property and equipment are based on cost and
depreciation is calculated primarily using the straight-line method.
Depreciable lives are: land improvements, 8-20 years; buildings and
improvements, 8-20 years; operating and other equipment, 3-20 years; and
leasehold improvements, over the life of the lease.
CONTRACTS, BROADCASTING LICENSES AND OTHER INTANGIBLES Contracts,
broadcasting licenses and other intangibles represent the excess of the
value of the broadcast stations over the values of their net tangible
assets, and is attributable to FCC licenses, network affiliation agreements
and other contractual or market related factors. Reorganization value in
excess of amounts allocable to identifiable assets represents the excess of
the estimated fair value of the Company at the time of the reorganization
over the estimated fair value allocated to its net identifiable assets.
Intangible assets are being amortized on a straight-line basis over an
average of 35 years. On an ongoing basis, Citicasters reviews the carrying
value of its intangible assets. If this review indicates that intangible
assets will not be recoverable, as determined based on undiscounted cash
flows of the Company's broadcast stations over
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<PAGE> 7
the remaining amortization period, Citicasters' carrying values of
intangible assets are reduced by the amount of the estimated shortfall of
cash flows.
DEBT DISCOUNT Debt discount is being amortized over the life of the related
debt obligations by the interest method.
INCOME TAXES Citicasters files a consolidated Federal income tax return
which includes all 80% or more owned subsidiaries. Deferred income tax
assets and liabilities are determined based on differences between
financial reporting and tax bases and are measured using enacted tax rates.
Deferred tax assets are recognized if it is more likely than not that a
benefit will be realized.
EARNINGS PER SHARE Primary and fully diluted earnings per share are based
upon the weighted average number of common shares and gives effect to
common equivalent shares (dilutive options) outstanding during the
respective periods. The effect of the options was to increase average
shares outstanding by 1,168,000 and 1,139,000 shares for the three and six
months ended June 30, 1996.
STOCK BASED COMPENSATION The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair
value of the shares at the date of grant. The Company accounts for stock
option grants in accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees, and, accordingly, recognizes no compensation expense
for the stock option grants.
STATEMENT OF CASH FLOWS For cash flow purposes, "investing activities" are
defined as making and collecting loans and acquiring and disposing of debt
or equity instruments and property and equipment. "Financing activities"
include obtaining resources from owners and providing them with a return on
their investments, borrowing money and repaying amounts borrowed. All other
activities are considered "operating." Short-term investments for purposes
of the Financial Statements are those which had a maturity of three months
or less when acquired.
B. ACQUISITIONS AND DISPOSITIONS On February 12, 1996, Citicasters and Jacor
Communications, Inc. entered into a merger agreement, by which Jacor will
acquire Citicasters. Under the agreement, for each share of Citicasters'
stock Jacor will pay cash of $29.50 plus a five-year warrant to purchase
approximately .2 shares of Jacor common stock at $28 per full share. If the
closing occurs after September 1996, the exercise price of the warrant
would be reduced to $26 per share and the per share cash price would
increase at the rate of $.2215 per month. American Financial and certain of
its affiliates executed irrevocable consents in favor of the Jacor
transaction on March 13, 1996. The closing of the transaction is
conditioned on, among other things, receipt of FCC and other regulatory
approvals. Upon consummation of the merger, holders of the 9-3/4% Notes
have the right to put their notes to the Company at 101% of principal.
During January 1996, Citicasters acquired two additional FM radio stations
(WHOK and WLLD) and an additional AM radio station (WLOH) in Columbus for
$24 million. Citicasters borrowed from its acquisition facility to fund the
purchases.
During June 1995, Citicasters acquired its second FM station in Portland
(KKCW) for $30 million. During August 1995, Citicasters acquired a second
FM radio station in Tampa (WTBT). The total purchase price for WTBT-FM was
$8 milliion ($5.5 million was paid during August 1995 and $2.5 million was
paid during June 1996). Citicasters began operating WTBT-FM during March
1995.
The acquisition of radio stations in Portland, Tampa and Columbus will
result in increased revenues, operating expenses and operating income
before depreciation and amortization. Increases in depreciation and
amortization and interest expense is expected to offset a significant
portion of the aforementioned increases and, therefore, these acquisitions
are not expected to have a material affect on the Company's operating
income, earnings before income taxes, net earnings and net earnings per
share for 1996.
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C. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Citicasters:
9-3/4% Senior Subordinated Notes
due February 2004, less unamortized
discount of $2,416 and $2,519
(imputed interest rate 10.13%) $122,584 $122,481
Subsidiaries:
Bank credit facility 20,000 10,000
-------- --------
$142,584 $132,481
======== ========
</TABLE>
As of June 30, 1996, Citicasters had $105 million of bank credit available
under a $125 million acquisition facility and all $25 million of bank
credit available under a working capital facility.
D. SHAREHOLDERS' EQUITY Citicasters is authorized to issue 500 million shares
of Class A Common Stock, $.01 par value, 125 million shares of Class B
Common Stock, $.01 par value and 9.5 million shares of Serial Preferred
Stock, $.01 par value. The preferred stock may have such preferences and
other rights and limitations as the Board of Directors may designate with
respect to each series.
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CITICASTERS INC. 10-Q
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is a discussion of Citicasters' liquidity and capital resources
and certain factors affecting Citicasters' results of operations for the three
and six month periods ended June 30, 1996. This discussion should be read in
conjunction with Citicasters' Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Citicasters is a holding company and depends on advances, dividends and tax
allocation payments from its operating subsidiary, Citicasters Co., to meet its
expenditures for administrative expenses and debt service obligations. Based
upon current levels of Citicasters Co.'s operations and anticipated growth, it
is expected that operating cash flow will be sufficient to meet expenditures for
operations (including capital expenditures), administrative expenses and debt
service. Citicasters Co. is permitted to advance funds or pay dividends to
Citicasters Inc. for administrative expenses, borrowing costs and payment of
dividends. Citicasters' credit agreement provides two credit facilities: an
acquisition facility of $125 million and a working capital facility of $25
million. At July 15, 1996, $20 million had been drawn under the acquisition
facility.
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CITICASTERS INC. 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
------------------------------------------------------------
RESULTS OF OPERATIONS
The financial results of Citicasters' business are seasonal. Broadcast revenues
are generally higher in the second and fourth calendar quarters than in the
first and third quarters.
The amount of broadcast advertising time available for sale by Citicasters'
stations is relatively fixed, and by its nature cannot be stockpiled for later
sale. Therefore, the primary variables affecting revenue levels are the demand
for advertising time, the viewing or listening audience of the station and the
entry of new stations in the marketplace. The major variable costs of operation
are programming (news, sports and entertainment), sales costs related to
revenues and promotional costs. The success of the programming determines the
audience levels and therefore affects revenue.
Citicasters' management believes that operating income before depreciation and
amortization is helpful in understanding cash flow generated from its
broadcasting operations that is available for debt service, capital expenditures
and taxes, and in comparing operating performance of Citicasters' broadcast
stations to other broadcast stations. Operating income before depreciation and
amortization should not be considered an alternative to net income as an
indicator of Citicasters' overall performance.
Net revenues and operating income are shown below (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues:
Television broadcasting:
Local $ 7,780 $ 8,097 $ 14,663 $ 15,740
National 8,224 7,507 14,335 13,282
Other 848 825 1,531 1,493
-------- -------- -------- --------
Total 16,852 16,429 30,529 30,515
-------- -------- -------- --------
Radio broadcasting:
Local 19,630 16,714 34,312 28,684
National 3,556 3,589 6,193 6,393
Other 152 154 333 339
-------- -------- -------- --------
Total 23,338 20,457 40,838 35,416
-------- -------- -------- --------
TOTAL NET REVENUES 40,190 36,886 71,367 65,931
Operating, selling, general
and administrative expenses (22,299) (20,816) (44,027) (40,695)
Corporate general and
administrative expenses (1,035) (1,038) (2,088) (2,161)
-------- -------- -------- --------
OPERATING INCOME BEFORE
DEPRECIATION AND
AMORTIZATION 16,856 15,032 25,252 23,075
Depreciation and amortization (4,108) (3,444) (8,173) (6,763)
-------- -------- -------- --------
OPERATING INCOME $ 12,748 $ 11,588 $ 17,079 $ 16,312
======== ======== ======== ========
</TABLE>
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CITICASTERS INC. 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
------------------------------------------------------------
THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995.
- -------------------------------------------------------------------
Television net revenue increased approximately 3% for the three months ended
June 30, 1996 and are slightly higher than last year's net revenue for the six
months period. These increases are the net effect of increases at WKRC-TV in
Cincinnati and decreases in WTSP-TV in Tampa/St. Petersburg. The decrease at
WTSP is attributable to the switch in network affiliation and its effect on
ratings. Radio net revenues increased 14% for the three months and 15% for the
six months ended June 30. The acquisition of KKCW in Portland, WTBT in Tampa/St.
Petersburg and WHOK, WLLD and WLOH in Columbus account for the majority of these
increases.
Costs and expenses increased 7% for the quarter and 8% for the six months. These
increases are primarily attributable to the radio station acquisitions. The
increase in operating income before depreciation and amortization was 12% for
the quarter and 9% for the six months ended June 30. The radio acquisitions
account for approximately 40% of the increase for the quarter and approximately
70% of the increase for the six months.
Depreciation and amortization increased in both periods primarily as a result of
the radio station acquisitions.
OTHER INCOME (EXPENSE) INFORMATION
- ----------------------------------
Interest expense increased and interest income decreased in both the three and
six month periods as a result of the radio station acquisitions.
Miscellaneous, net in both periods of 1996 is primarily attributable to expenses
related to the pending merger of the Company with Jacor.
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CITICASTERS INC. 10-Q
---------------------
PART II
-------
OTHER INFORMATION
-----------------
ITEM 6
------
Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits: 27 Financial Data Schedule
b) Reports on Form 8-K: None
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CITICASTERS INC. 10-Q
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 thereunto duly authorized.
CITICASTERS INC.
August 13, 1996 BY: GREGORY C. THOMAS
----------------------------
Gregory C. Thomas
Executive Vice President and
Chief Financial Officer
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,027
<SECURITIES> 0
<RECEIVABLES> 36,672
<ALLOWANCES> 1,564
<INVENTORY> 0
<CURRENT-ASSETS> 43,108
<PP&E> 49,583
<DEPRECIATION> 12,951
<TOTAL-ASSETS> 426,821
<CURRENT-LIABILITIES> 19,611
<BONDS> 142,584
<COMMON> 83,148
0
0
<OTHER-SE> 81,455
<TOTAL-LIABILITY-AND-EQUITY> 426,821
<SALES> 0
<TOTAL-REVENUES> 71,367
<CGS> 0
<TOTAL-COSTS> 46,115
<OTHER-EXPENSES> 8,173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,445
<INCOME-PRETAX> 7,699
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 4,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,699
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
