<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
HEFTEL BROADCASTING CORPORATION
(Exact name of Registrant as specified in its charter)
6767 WEST TROPICANA AVENUE, SUITE 102
LAS VEGAS, NEVADA 89103
(702) 367-3322
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 4832 99-0113417
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
------------------------
L. LOWRY MAYS
HEFTEL BROADCASTING CORPORATION
200 CONCORD PLAZA, SUITE 600
SAN ANTONIO, TEXAS 78216
(210) 822-2828
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
<TABLE>
<S> <C>
Copies to:
RICHARD C. TILGHMAN, JR., ESQ.
STEPHEN C. MOUNT, ESQ. STEPHEN A. RIDDICK, ESQ.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. PIPER & MARBURY L.L.P.
1500 NATIONSBANK PLAZA CHARLES CENTER SOUTH
300 CONVENT STREET 36 SOUTH CHARLES STREET
SAN ANTONIO, TEXAS 78205 BALTIMORE, MARYLAND 21202
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
- --------------------------------------------------------------------------------------------------
Common Stock...................... 4,025,000 $41.50 $167,037,500 $50,617
- --------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 525,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Pursuant to Rule 457(h), the offering price and registration fee are
computed on the basis of the average of the high and low prices of the Class
A Common Stock, as reported by the Nasdaq National Market on October 15,
1996.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION
NOVEMBER , 1996
3,500,000 SHARES
HEFTEL BROADCASTING CORPORATION
[LOGO]
CLASS A COMMON STOCK
------------------
All of the shares of Class A Common Stock offered hereby are being sold by
Heftel Broadcasting Corporation (the "Company"). The Class A Common Stock of the
Company is traded on the Nasdaq National Market under the symbol "HBCCA." On
October 9, 1996, the last reported sale price of the Class A Common Stock was
$44.25 per share. See "Price Range of Class A Common Stock."
The Company's authorized capital stock currently includes Class A Common
Stock, Class B Common Stock and Preferred Stock. The rights of holders of Class
A Common Stock and Class B Common Stock are identical, except currently each
share of Class B Common Stock generally entitles its holder to ten votes and
each share of Class A Common Stock entitles its holder to one vote. There are no
shares of Class B Common Stock outstanding. Upon consummation of the merger of
the Company and Tichenor Media System, Inc., the rights of the Class B Common
Stock will be amended to provide, among other things, that such shares will have
no voting rights except in certain circumstances when such shares will be
entitled to a class vote. See "Description of Capital Stock."
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------
Total(2).......................... $ $ $
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $ .
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to 525,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. To the extent such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ and $ , respectively.
See "Underwriting."
------------------
The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by them, and
subject to the right of the Underwriters to reject any order in whole or in
part. It is expected that delivery of the Class A Common Stock will be made at
the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1996.
ALEX. BROWN & SONS
INCORPORATED
CS FIRST BOSTON
LEHMAN BROTHERS
MONTGOMERY SECURITIES
SMITH BARNEY INC.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 3
[ARTWORK]
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS), IF ANY, OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE CLASS A COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE CLASS A COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES
10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by (i) the more detailed
information appearing elsewhere in this Prospectus and in documents incorporated
by reference in this Prospectus and (ii) the financial statements, including
notes thereto, appearing in this Prospectus or the documents incorporated by
reference into this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes the Underwriters' over-allotment option is not
exercised. References herein to the "Company" are to Heftel Broadcasting
Corporation, a Delaware corporation, and its consolidated subsidiaries unless
the context otherwise requires. References to "Clear Channel" are to Clear
Channel Communications, Inc., a Texas corporation, and its consolidated
subsidiaries and references to "Tichenor" are to Tichenor Media System, Inc., a
Texas corporation, and its consolidated subsidiaries.
THE COMPANY
The Company is the largest Spanish language radio broadcasting company in
the United States and currently owns and programs 17 radio stations, 16 of which
serve five of the ten largest Hispanic markets in the United States, including
Los Angeles, New York, Miami, Chicago and Dallas/Fort Worth. The Company has
agreed to acquire Tichenor, the third largest Spanish language radio
broadcasting company in the United States (the "Tichenor Merger"). Tichenor owns
or programs 20 radio stations which serve six of the ten largest Hispanic
markets in the United States, including San Francisco/San Jose, Chicago,
Houston, San Antonio, McAllen/Brownsville/Harlingen and El Paso. Following the
Tichenor Merger, the Company will own or program 37 radio stations in 11
markets, including stations in each of the top ten Hispanic markets in the
United States.
The Company's strategy is to own and program top performing radio stations,
principally in the largest Spanish language radio markets in the United States.
The top ten Hispanic markets account for approximately 17.2 million Hispanics,
representing approximately 63% of the total Hispanic population in the United
States. Upon completion of the Tichenor Merger, the Company will have the
largest Spanish language radio station combination, as measured by audience and
revenue share, in eight of the top ten Hispanic markets. Additionally, the
Company will have the highest rated radio station in any format in four of the
top ten Hispanic markets. The Company intends to acquire or develop additional
Spanish language stations in the leading Hispanic markets.
The following table sets forth certain information regarding the Company's
radio stations owned or programmed, assuming completion of the Tichenor Merger:
<TABLE>
<CAPTION>
RANKING OF NO. OF
MARKET BY STATIONS
HISPANIC -----------
POPULATION(1) MARKET AM FM
- ------------- ------------------------------------------------------- --- ---
<C> <S> <C> <C>
1 Los Angeles............................................ 1 1
2 New York(2)............................................ 3 0
3 Miami.................................................. 2 2
4 San Francisco/San Jose................................. 0 2
5 Chicago................................................ 2 1
6 Houston(3)............................................. 2 4
7 San Antonio............................................ 2 2
8 McAllen/Brownsville/Harlingen.......................... 1 2
9 Dallas/Fort Worth...................................... 3 3
10 El Paso................................................ 2 1
33 Las Vegas.............................................. 1 0
--- ---
Total.................................................. 19 18
</TABLE>
--------------------
(1) Ranking of the principal radio market served by the Company's
station(s) among all U.S. radio markets by Hispanic population as
reported by Strategy Research Corporation -- 1996 U.S. Hispanic
Market Study.
(2) Includes WGLI-AM serving New York which is currently not
broadcasting.
3
<PAGE> 5
The Company believes Spanish language radio broadcasting has significant
growth potential for the following reasons:
- The Hispanic population is the fastest growing population segment in the
United States and is expected to grow from an estimated 27.2 million
(approximately 10.3% of the total United States population) at the end of
1995 to an estimated 30.7 million (approximately 11.3% of the total
United States population) by the year 2000. These estimates imply a
growth rate of approximately three times the expected growth rate for the
total U.S. population during the same period.
- Advertisers have substantially increased their use of Spanish language
media in recent years. Total advertising revenues from advertising in
Spanish language media rose from $166 million in 1983 to $1.06 billion in
1995. This represents a compound annual growth rate of 16.7%, which is
more than double the growth rate of total advertising over the same
period. Although Hispanic consumers will spend an estimated $340 billion
in 1997, or 6.5% of the total consumer spending in the United States,
Spanish language advertising currently represents less than 0.7% of the
total advertising expenditures.
- Advertisers have begun to target Hispanic households because they are
younger and spend a greater percentage of their household income on
consumer products than non-Hispanic households.
- Hispanics have maintained strong social and cultural ties to their
countries of origin, particularly in their continued use of the Spanish
language. An estimated 78% of Hispanics speak at least some Spanish and
approximately 40% speak it exclusively. Spanish is expected to continue
to be the language of preference for Hispanics.
- The number of Spanish language media outlets is disproportionately lower
than the number of similar English language outlets. In the radio
segment, there are currently 401 Spanish language commercial stations,
which constitute only 4% of all commercial radio stations in the United
States, although the Hispanic population comprises approximately 10.3% of
the United States population.
The Company's principal executive offices are located at 6767 West
Tropicana Avenue, Suite 102, Las Vegas, Nevada 89103 and the telephone number is
(702) 367-3322.
RECENT DEVELOPMENTS
Clear Channel Tender Offer. Clear Channel is a diversified broadcasting
company that currently owns or programs 97 radio stations and 18 television
stations in 33 markets. On August 5, 1996, Clear Channel completed a tender
offer and a related private purchase of stock from existing stockholders of the
Company (collectively, the "Tender Offer"). As a result of the Tender Offer,
Clear Channel currently owns approximately 63% of the Class A Common Stock of
the Company. See "Risk Factors -- Relationship Between the Company and Clear
Channel."
The Tichenor Merger. On July 9, 1996, Clear Channel and Tichenor entered
into an Agreement and Plan of Merger (the "Tichenor Merger Agreement") which,
subject to the terms and conditions thereof, provides for the acquisition of
Tichenor by the Company. Tichenor is a national radio broadcasting company
engaged in the business of acquiring, developing and programming Spanish
language radio stations in major Hispanic markets located in the United States.
Currently, Tichenor owns or programs 20 radio stations serving six of the top
ten Hispanic markets in the United States, including San Francisco/San Jose,
Chicago, Houston, San Antonio, McAllen/Brownsville/Harlingen and El Paso.
Pursuant to the Tichenor Merger Agreement, a newly-formed wholly-owned
subsidiary of the Company will merge with and into Tichenor, and Tichenor shall
continue as the surviving corporation as a wholly-owned subsidiary of the
Company. At the time the Tichenor Merger
4
<PAGE> 6
Agreement was executed, Clear Channel had commenced but not completed the Tender
Offer. The then existing management and the Board of Directors of the Company
were not involved in the negotiations concerning the acquisition of Tichenor. On
August 14, 1996, after the consummation of the Tender Offer, Clear Channel
offered to assign the Tichenor Merger Agreement to the Company in accordance
with the Tichenor Merger Agreement, and on October 10, 1996, the current Board
of Directors of the Company approved the Tichenor Merger and the assignment to
the Company of the Tichenor Merger Agreement. In approving the Tichenor Merger,
the Company considered, among other things, the strength of the combined
management of the Company and Tichenor; the marketing and operating benefits of
the expansion of the Company's presence into each of the top ten Hispanic
markets; and the benefits of diversifying the Company's operations thereby
reducing its reliance on any individual market.
Pursuant to the Tichenor Merger Agreement, the shareholders and warrant
holders of Tichenor, including Clear Channel, will receive an aggregate of
5,689,878 shares of Common Stock and approximately $3.4 million in cash. Upon
consummation of the Tichenor Merger, the former shareholders and warrant holders
of Tichenor, other than Clear Channel, will own 5,559,464 shares of the Class A
Common Stock of the Company, representing approximately 42% of the total
outstanding Class A Common Stock of the Company on a fully diluted basis,
assuming completion of this offering. The Company will also assume Tichenor's
outstanding debt, which was approximately $71.3 million on September 30, 1996.
In addition, pursuant to the Tichenor Merger Agreement, Clear Channel will
convert all of its shares of Class A Common Stock and shares of common stock of
Tichenor into 7,428,235 shares of a redesignated Class B Common Stock
("Nonvoting Common Stock") that will not have any voting rights except as
specifically provided for in the charter or as otherwise required by law. As
used herein, the term "Common Stock" prior to the consummation of the Tichenor
Merger shall mean the Company's Class A Common Stock and the existing Class B
Common Stock (none of which is currently outstanding) and, upon consummation of
the Tichenor Merger, shall mean the Company's Class A Common Stock and the
Nonvoting Common Stock.
The Tichenor Merger requires the approval of the Federal Communications
Commission ("FCC"). The FCC's cross-interest policy bars a party which holds an
attributable interest in one or more radio stations in a market from having a
"meaningful relationship" with another radio station in that market. A
"meaningful relationship" is construed by the FCC to include a non-voting equity
position in excess of 33 1/3% of the total outstanding Common Stock. See "The
Company -- Federal Regulation of Radio Broadcasting." After consummation of the
Tichenor Merger and this offering, Clear Channel will own approximately 36% of
the Common Stock. Clear Channel has informed the Company that it is considering
a number of alternatives to comply with FCC regulations upon consummation of the
Tichenor Merger. In the event that no other alternative is approved by the FCC,
Clear Channel may place any remaining shares of Nonvoting Common Stock above the
33 1/3% maximum in a disposition trust for the purpose of sale, through
negotiated block transactions or other types of sales. The use of a disposition
trust, and the terms thereof, would be subject to the prior consent of the FCC.
Upon consummation of the Tichenor Merger, McHenry T. Tichenor, Jr. will
enter into an employment agreement to serve as Chairman, President and Chief
Executive Officer of the Company for a five year term. Mr. Tichenor is currently
the President and Chief Executive Officer of Tichenor. The Tichenor Merger
Agreement also provides that following the consummation of the Tichenor Merger,
five designees of Tichenor shall constitute the entire Board of Directors of the
Company and each member of the Company's current Board of Directors may be
replaced. Subsequent to the Tichenor Merger, Clear Channel will have no
overlapping officers or directors with the Company.
The Tichenor Merger shall be accounted for as a purchase.
The Tichenor Merger is subject to a number of conditions, including
regulatory approvals, and will not be consummated prior to the closing of this
offering (the "Offering"). See "The Tichenor Merger."
5
<PAGE> 7
Financial Matters. As a result of and in connection with the completion of
the Tender Offer and certain other events and transactions, the Company
estimates it will have certain one-time charges during the quarter ended
September 30, 1996 of approximately $45.0 million, before tax benefits including
$17 million of non-cash charges. Such charges, each of which was effective as of
August 5, 1996, consist of approximately $24.6 million relating to the Tender
Offer (including $18.8 million incurred in connection with employment contract
settlements with former senior executives of the Company), $7.5 million relating
to the Company refinancing its credit agreement and $8.1 million relating to the
discontinued operations of the radio network owned by Spanish Coast-to-Coast,
Ltd., a wholly-owned subsidiary of the Company doing business as Cadena Radio
Centro ("CRC"). The remainder of the charges relate to the cost to close and
dispose of duplicate facilities and anticipated severance payments.
THE OFFERING
Class A Common Stock offered
hereby.............................. 3,500,000 shares
Common Stock to be outstanding after
the Offering........................ 15,047,731 shares of Class A Common
Stock
0 shares of Class B Common
Stock
Common Stock to be outstanding after
the Offering and after the
consummation of the Tichenor
Merger............................ 13,309,374 shares of Class A Common
Stock
7,428,235 shares of Nonvoting Common
Stock(1)
20,737,609 shares of Common Stock
Use of proceeds..................... To reduce borrowing under the Credit
Agreement (as defined herein). Such
funds may be subsequently re-borrowed
for general corporate purposes,
including working capital and possible
acquisitions of radio stations. See
"Use of Proceeds."
Nasdaq National Market symbol....... HBCCA
- ---------------
(1) The Class B Common Stock authorized at the time of the Offering will be
amended to become Nonvoting Common Stock upon completion of the Tichenor
Merger. See "Description of Capital Stock."
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION(1)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
COMPANY PRO FORMA
AS ADJUSTED(2)
NINE MONTHS ---------------------------
YEARS ENDED SEPTEMBER 30, ENDED JUNE 30, YEAR ENDED NINE MONTHS
------------------------------------ ------------------------ SEPTEMBER 30, ENDED JUNE
1993 1994(3) 1995 1995 1996 1995 30, 1996
--------- --------- ---------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcasting revenues....... $ 20,932 $ 27,433 $ 64,160 $ 46,644 $ 53,053 $ 109,571 $ 88,661
Revenues relating to Mi CASA.... 399 -- -- -- -- -- --
--------- --------- ---------- ---------- ---------- ---------- ----------
Total net revenues............ 21,331 27,433 64,160 46,644 53,053 109,571 88,661
Station operating expenses...... 10,479 15,345 43,643 30,998 35,835 77,831 63,001
Expenses relating to Mi CASA.... 1,470 -- -- -- -- -- --
Corporate expenses.............. 2,530 3,454 4,720 3,321 3,693 5,004 4,123
Depreciation and amortization... 1,760 1,906 3,344 2,953 3,568 14,040 11,638
--------- --------- ---------- ---------- ---------- ---------- ----------
Total operating expenses...... 16,239 20,705 51,707 37,272 43,096 96,875 78,762
--------- --------- ---------- ---------- ---------- ---------- ----------
Operating income................ 5,092 6,728 12,453 9,372 9,957 12,696 9,899
Other income (expense):
Interest expense, net......... (2,427) (3,180) (6,389) (3,711) (7,935) (7,050) (5,281 )
Income in equity of joint
venture(4).................. 746 616 -- -- -- -- --
Loss on retirement of debt.... -- (1,738) -- -- -- -- --
Other expenses, net........... (418) (1,224) (428) (363) (1,325) (389) (1,684 )
--------- --------- ---------- ---------- ---------- ---------- ----------
Total other income (expense).. (2,099) (5,526) (6,817) (4,074) (9,260) (7,439) (6,965 )
--------- --------- ---------- ---------- ---------- ---------- ----------
Income before minority interest
and provision for income
taxes......................... 2,993 1,202 5,636 5,298 697 5,257 3,143
Minority interest in Viva
Media(4)...................... -- (351) (1,167) (1,428) -- (1,167) --
Provision for income taxes...... (272) (100) (150) (53) (65) (1,660) (1,115 )
--------- --------- ---------- ---------- ---------- ---------- ----------
Income from continuing
operations.................... 2,721 751 4,319 3,817 632 2,536 1,819
Loss from discontinued
operations.................... -- (285) (626) (135) (1,608) (626) (1,608 )
--------- --------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............... $ 2,721 $ 466 $ 3,693 $ 3,682 $ (976) $ 1,910 $ 211
========= ========= ========== ========== ========== ========== ==========
Income from continuing
operations per common and
common equivalent share....... $ .55 $ .10 $ .40 $ .34 $ .06 $ .12 $ .09
========= ========= ========== ========== ========== ========== ==========
Net income (loss) per common and
common equivalent
share......................... $ .55 $ .05 $ .34 $ .33 $ (.10) $ .09 $ .01
========= ========= ========== ========== ========== ========== ==========
Weighted average common shares
and common share equivalents
outstanding................... 4,638,019 5,384,678 10,805,346 10,898,156 10,326,354 20,606,037 20,725,109
========= ========= ========== ========== ========== ========== ==========
OTHER OPERATING DATA:
Broadcast cash flow(5).......... $ 10,453 $ 12,088 $ 20,517 $ 15,646 $ 17,218 $ 31,740 $ 25,660
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------
SEPTEMBER 30, PRO
------------------------------------ FORMA
AS AS
1993 1994 1995 ACTUAL ADJUSTED(6) ADJUSTED(7)
--------- --------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 1,247 $ 10,219 $ 5,404 $ 3,900 $ 30,200 $ 13,224
Working capital................. 715 18,366 14,967 16,988 43,288 24,451
Total assets.................... 25,770 113,353 151,637 180,483 206,783 484,206
Long-term debt, less current
portion....................... 27,046 59,898 96,732 126,861 5,361 74,413
Stockholders' equity
(deficiency).................. (10,164) 44,436 43,581 43,777 191,577 346,351
</TABLE>
7
<PAGE> 9
- ---------------
(1) On September 9, 1996, the Company's Board of Directors approved the
discontinuance of the radio network operations of CRC effective as of August
5, 1996. Statement of operations data have been restated for all applicable
periods to exclude CRC from continuing operations.
(2) The unaudited pro forma condensed consolidated statements of operations for
the year ended September 30, 1995 and the nine months ended June 30, 1996
assume the Transactions (as defined herein) occurred on October 1, 1994 and
October 1, 1995, respectively. The unaudited pro forma condensed
consolidated statements of operations do not reflect the effects of certain
of the Heftel Reorganization (as defined herein) one-time charges. Such
charges, which have been omitted from the pro forma adjustments, include the
following: (i) employment contract settlement payments plus certain other
estimated severance costs, both of which are related to the Tender Offer, in
the aggregate amount of approximately $21,000,000; (ii) the write-off of
approximately $7,461,000 in unamortized deferred financing costs related to
the former credit agreement; (iii) approximately $8,100,000 relating to the
discontinued radio network operations of CRC, of which $6,500,000 reflects
non-cash charges resulting from the write-off of goodwill; and (iv)
approximately $3,723,000 in transaction costs relating to the Tender Offer
and estimated costs of $2,900,000 to dispose of certain duplicate
facilities. The pro forma information does not purport to present the actual
financial position or results of operations of the Company had the
Transactions actually occurred on the date specified, nor is it necessarily
indicative of the results of operations that may be achieved in the future.
See "The Tichenor Merger," "Notes to Unaudited Pro Forma Condensed
Consolidated Financial Information" and the Financial Statements and the
Notes thereto for each of the Company, Tichenor and the Tichenor
Acquisitions included elsewhere in this Prospectus or incorporated herein by
reference.
(3) During August 1994, the Company completed three separate business
acquisitions and began consolidating its previously unconsolidated
investment in Viva America Media Group, a Florida general partnership ("Viva
Media"). Total net revenues and net income (loss), adjusted for interest
expense on retired debt, relating to these acquisitions and transactions
from the respective dates of these transactions to September 30, 1994 were
approximately $5,488,000 and $(80,000), respectively.
(4) Effective August 20, 1994, the Company began accounting for its 49% interest
in Viva Media on a consolidated basis. Accordingly, Viva Media's results of
operations are included in the consolidated financial statements for the
period from August 20, 1994 through September 30, 1994, for the fiscal year
ended September 30, 1995 and for the nine months ended June 30, 1995 and
June 30, 1996. Prior to August 20, 1994, the accounts and results of
operations of Viva Media were accounted for using the equity method of
accounting.
(5) Data on station operating income excluding corporate expenses, depreciation
and amortization (commonly referred to as "broadcast cash flow"), although
not calculated in accordance with generally accepted accounting principles,
is widely used in the broadcast industry as a measure of a broadcasting
company's operating performance. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, cash flows
from operating activities or any other measures for determining the
Company's operating performance or liquidity, which are calculated in
accordance with generally accepted accounting principles.
(6) As adjusted to give effect to the Offering (at an assumed offering price of
$44.25 per share) and the application of the estimated net proceeds
therefrom as if the Offering had been consummated on June 30, 1996.
(7) Pro forma as adjusted to give effect to the Transactions, including the
Offering (at an assumed offering price of $44.25 per share) and the
application of the estimated net proceeds therefrom, as if they had been
consummated on June 30, 1996. The effect of the Tichenor Merger is based on
preliminary purchase price allocations. The pro forma information does not
purport to present the actual financial position of the Company had the
Transactions actually occurred on the date specified. See "The Tichenor
Merger," "Use of Proceeds," "Capitalization" and the Financial Statements
and Notes thereto for each of the Company, Tichenor and the Tichenor
Acquisitions included elsewhere in this Prospectus or incorporated herein by
reference.
8
<PAGE> 10
RISK FACTORS
In addition to the other information contained or incorporated herein by
reference in this Prospectus, the following risk factors should be considered
carefully in evaluating an investment in the Class A Common Stock offered by
this Prospectus.
Recent Change of Control. On August 5, 1996, Clear Channel acquired a
controlling interest in the Company and replaced the previous Board of Directors
with its own slate of Directors. The new management team of the Company has some
different operating and strategic philosophies than its predecessor which may
take time to integrate into the existing business. There can be no assurance
that such integration will not adversely affect the operations of the Company.
Tichenor Merger. The consummation of the Tichenor Merger requires FCC
approval with respect to the transfer of the broadcast licenses of Tichenor to
the Company. The Company and Tichenor filed an application seeking FCC approval
for the transfer. However, a formal petition to deny the application was filed
with the FCC which the Company plans to vigorously oppose. There can be no
assurance that the FCC will grant the transfer application, nor any assurance
that post-grant objections will not be made. See "The Company -- Federal
Regulation of Radio Broadcasting."
The consummation of the Tichenor Merger also is subject to the expiration
or termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Pursuant to the
requirements of the HSR Act, Clear Channel, as the ultimate parent (as defined
under the rules) of the Company, filed a Notification and Report Form with
respect to the Tichenor Merger with the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission ("FTC") on
October 4, 1996. Tichenor also filed a Notification and Report Form with respect
to the Tichenor Merger on such date. As a result, it is expected that the
waiting period applicable to the Tichenor Merger will expire on November 3,
1996. However, prior to such time, the Antitrust Division or the FTC may extend
the waiting period by requesting additional information or documentary material
relevant to the merger from Clear Channel, Tichenor or others. A request has
been made on behalf of the Company and Tichenor pursuant to the HSR Act for
early termination of the waiting period applicable to the Tichenor Merger. There
can be no assurance, however, that the 30-day HSR Act waiting period applicable
to the Tichenor Merger will be terminated early. Furthermore, there can be no
assurance that a challenge to the Tichenor Merger on antitrust grounds will not
be made, or if such a challenge is made, what the result will be.
Consummation of the Tichenor Merger is subject to numerous other
conditions. See "The Tichenor Merger." Therefore, there can be no assurance that
the Tichenor Merger will be consummated in a timely manner or on the terms
described herein, if at all.
Concentration of Cash Flow from Los Angeles Stations. Broadcast cash flow
generated by the Company's Los Angeles stations accounted for approximately 66%
of the Company's broadcast cash flow for the nine months ended June 30, 1996. On
a pro forma basis, assuming the Tichenor Merger had occurred on October 1, 1995,
the Company's Los Angeles stations would have accounted for 45% of the Company's
broadcast cash flow for the nine months ended June 30, 1996. A significant
decline in the revenue of the Los Angeles stations could have a material adverse
effect on the Company's overall results of operations and broadcast cash flow.
Financial Leverage; Pledge of Assets. After giving effect to the Offering
(at an assumed offering price of $44.25 per share) and application of the net
proceeds therefrom as set forth in "Use of Proceeds" and the consummation of the
Tichenor Merger, the Company's total debt would have been approximately $75.2
million at September 30, 1996. There can be no assurance that the Company will
have sufficient cash flow to satisfy its future debt service requirements,
particularly if there is a downturn in the operating performance of its radio
stations or in economic conditions.
9
<PAGE> 11
Substantially all of the Company's assets are pledged to secure the
Company's obligations under the Credit Agreement dated August 5, 1996, among the
Company, the lenders signatory thereto and NationsBank of Texas, N.A., as agent
(the "Credit Agreement"). The Credit Agreement contains various financial and
operational covenants and other restrictions with which the Company must comply,
including limitations on capital expenditures and the incurrence of additional
indebtedness, prohibitions on the payment of cash dividends and the redemption
or repurchase of capital stock of the Company and restrictions on the use of
borrowings. The Credit Agreement may adversely affect the Company's ability to
pursue its strategy of further growth through acquisitions. After giving effect
to the application of the proceeds from the Offering and the consummation of the
Tichenor Merger, the Company will have approximately $79.8 million available
under the Credit Agreement for future borrowings.
Integration of the Business of the Company and Tichenor. The Tichenor
Merger involves the integration of two companies that have previously operated
independently. As soon as practicable following the Tichenor Merger, the Company
intends to integrate certain aspects of the operations of Tichenor. However,
there can be no assurance that the Company will successfully integrate the
operations of Tichenor with those of the Company or that all of the benefits
expected from such integration will be realized. Any delays or unexpected costs
incurred in connection with such integration could have an adverse effect on the
Company's business, operating results or financial position. Additionally, there
can be no assurance that the operations, management and personnel of the two
companies will be compatible or that the Company or Tichenor will not experience
the loss of key personnel. Furthermore, upon consummation of the Tichenor
Merger, a new management team will be formed. The new management team of the
Company may have different operating and strategic philosophies which may take
time to integrate into the existing business. There can be no assurance that
such integration will not adversely affect the operations of the Company. See
"Management -- Management of the Company following the Tichenor Merger."
Control by the Tichenor Family. Following the completion of the Offering
and the consummation of the Tichenor Merger, the Tichenor Family (as hereinafter
defined) will have voting control over approximately 34% of the shares of Class
A Common Stock. See "The Tichenor Merger." This will enable the Tichenor Family
to exert significant influence in electing the Board of Directors and over other
management decisions. See "The Tichenor Merger -- Tichenor Family Ownership."
Growth Through Future Acquisitions; Capital Requirements. One of the
Company's growth strategies is to acquire additional radio stations. There can
be no assurance that the Company will be able to complete any further
acquisitions or, if completed, that such acquired radio stations can be operated
profitably or assimilated into the Company's business structure in the manner
desired by the Company's management. Entities acquired by the Company may have
liabilities for which the Company may become responsible. Additional debt or
equity financing may be required in order to complete future acquisitions, and
there can be no assurance that the Company will be able to obtain such
financing. The Company may acquire stations which have not previously broadcast
Spanish language programming. In converting these stations to a Spanish language
format, revenue and cash flow from station operations generated prior to the
conversion may not be indicative of future financial performance. Furthermore,
such conversions may result in significant operating losses for an undetermined
period of time.
Government Regulation of Broadcasting Industry. The domestic broadcasting
industry is subject to extensive federal regulation which, among other things,
requires approval by the FCC for the issuance, renewal, transfer and assignment
of broadcasting station operating licenses and limits the number of broadcasting
properties the Company may acquire. The Telecommunications Act of 1996 (the
"1996 Act"), which became law on February 8, 1996, creates significant new
opportunities for broadcasting companies but also creates uncertainties as to
how the FCC and the courts will enforce and interpret the 1996 Act. See "The
Company -- Federal Regulation of Radio Broadcasting."
10
<PAGE> 12
The Company's business will continue to be dependent upon acquiring and
maintaining broadcasting licenses issued by the FCC, which are currently issued
for a term of seven years (the 1996 Act authorizes the FCC to extend the license
term to eight years, but this provision has not yet been implemented). There can
be no assurance that pending or future renewal applications will be approved, or
that renewals will not include conditions or qualifications that could adversely
affect the Company's operations. Moreover, governmental regulations and policies
may change over time and there can be no assurance that such changes would not
have a material adverse impact upon the Company's business, financial position
and results of operations. See "The Company -- Federal Regulation of Radio
Broadcasting."
Competition. Broadcasting is a highly competitive business. The Company's
radio stations compete for audiences and advertising revenues with other radio
stations of all formats, as well as with other media, such as newspapers,
magazines, television, cable television, outdoor advertising and direct mail,
within their respective markets. Audience ratings and market shares are subject
to change and any adverse change in a particular market could have a material
adverse effect on the revenue of stations located in that market. Future
operations are further subject to many variables which could have an adverse
effect upon the Company's financial performance. These variables include
economic conditions, both general and relative to the broadcasting industry;
shifts in population and other demographics; the level of competition for
advertising dollars with other radio stations and other entertainment and
communications media; fluctuations in operating costs; technological changes and
innovations; changes in labor conditions; and changes in governmental
regulations and policies and actions of federal regulatory bodies, including the
FCC. Although the Company believes that each of its stations is able to compete
effectively in its respective market, there can be no assurance that any such
station will be able to maintain or increase its current audience ratings and
advertising revenues. Radio stations can quickly change formats. Any radio
station currently broadcasting in either English or Spanish could shift its
format to duplicate the format of any of the Company's stations. If a station
converted its programming to a format similar to that of a station owned by the
Company, the ratings and broadcast cash flow of the Company's station could be
adversely affected.
New Technologies. The FCC is considering ways to introduce new technologies
to the radio broadcast industry, including satellite and terrestrial delivery of
digital audio broadcasting and the standardization of available technologies
which significantly enhance the sound quality of AM broadcasts. The Company is
unable to predict the effect any such new technology will have on the Company's
financial condition or results of operations. In addition, cable television
operators are introducing a new service commonly referred to as "cable radio"
which provides cable television subscribers with several high-quality channels
of music, news and other information, and direct satellite broadcast television
companies are supplying subscribers with several high quality music channels.
Uncertainty as to Market Price of the Class A Common Stock. Because the
market price of the Class A Common Stock is subject to fluctuation, the market
value of the shares of the Class A Common Stock may increase or decrease prior
to and following the consummation of the Offering. There can be no assurance
that at or after the consummation of the Offering the shares of the Class A
Common Stock will trade at the prices at which such shares have traded in the
past. The prices at which the Class A Common Stock trades after the consummation
of the Offering may be influenced by many factors, including the liquidity of
the Class A Common Stock, investor perceptions of the Company and the radio
broadcasting industry, the operating results of the Company, the Company's
dividend policy, possible future changes in regulation of the radio broadcasting
industry and general economic and market conditions.
Relationship Between the Company and Clear Channel.
Control by Clear Channel. Following the completion of the Offering,
Clear Channel will have voting control over approximately 48.5% of the
shares of Class A Common Stock. This will
11
<PAGE> 13
enable Clear Channel to exert significant influence in electing the Board
of Directors and over other management decisions.
Future Sales of Common Stock. Upon consummation of the Tichenor Merger
and the Offering, Clear Channel will own approximately 36% of the
outstanding Common Stock of the Company on a fully diluted basis (less any
shares which may be transferred in order to obtain FCC approval to
consummate the Tichenor Merger). Any sale of shares of Common Stock owned
by Clear Channel could adversely affect the market price for the Common
Stock and could impair the ability of the Company to raise money in the
equity markets. Clear Channel has indicated to the Company that it does not
currently intend to sell any of its shares of the Company's Common Stock
(except as may be necessary to consummate the Tichenor Merger, see "The
Tichenor Merger"). In addition, pursuant to a Stockholders Agreement to be
entered into in connection with the consummation of the Tichenor Merger and
an agreement with the Underwriters in connection with the Offering, Clear
Channel has agreed not to sell any shares of the Company's Common Stock for
180 days from the effective date of the Tichenor Merger and for 90 days
from the closing of the Offering, respectively (except as may be necessary
to obtain the FCC's approval of, or to consummate, the Tichenor Merger).
However, there can be no assurances that Clear Channel will not sell any of
such shares in the future or that any such contractual restrictions will
not be waived.
Ownership of Nonvoting Common Stock. Following the consummation of the
Tichenor Merger, Clear Channel will own no shares of Class A Common Stock
and thus will not be entitled to vote in the election of the Company's
directors, although Clear Channel will own all of the outstanding shares of
the Company's Nonvoting Common Stock, which will have a class vote on
certain matters, including a merger or the sale of all or substantially all
of the assets of the Company, the issuance of any shares of Preferred Stock
by the Company, the amendment of the Company's certificate of incorporation
in a manner that adversely affects the rights of the holders of Nonvoting
Common Stock, the declaration or payment of any non-cash dividends on the
Company's Common Stock or any amendment to the Company's certificate of
incorporation concerning the Company's Common Stock. Furthermore, the
shares of Nonvoting Common Stock will be readily convertible into Class A
Common Stock, subject to any necessary FCC consents. See "Description of
Capital Stock."
Potential Conflicts of Interest. The nature of the respective
businesses of the Company and Clear Channel gives rise to potential
conflicts of interest between the two companies. The Company and Clear
Channel are each engaged in the radio broadcasting business in Miami, and
as a result, they are competing with each other for advertising revenues.
Upon consummation of the Tichenor Merger, the Company and Clear Channel
will begin competing with each other in additional markets. In addition,
conflicts could arise with respect to transactions involving the purchase
or sale of radio broadcasting companies, particularly Spanish language
radio broadcasting companies, the issuance of additional shares of Common
Stock, or the payment of dividends by the Company.
Clear Channel has advised the Company that it does not currently
intend to engage in the Spanish language radio broadcasting business, other
than through its ownership of shares in the Company. However, circumstances
could arise that would cause Clear Channel to engage in the Spanish
language broadcasting business. For example, opportunities could arise
which would require greater financial resources than those available to the
Company or which are located in areas in which the Company does not intend
to operate. Thus, although Clear Channel has no current intention to do so,
there can be no assurance that it will not engage in the Spanish language
broadcasting business. In addition, as part of Clear Channel's overall
acquisition strategy, Clear Channel may from time to time acquire Spanish
language radio broadcasting companies individually or as part of a larger
group and thereafter engage in the Spanish language radio broadcasting
business. Such activities could directly or indirectly compete with the
Company's business.
12
<PAGE> 14
Shares Eligible for Future Sale. The 3,500,000 shares of Class A Common
Stock sold in the Offering will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless acquired by "affiliates" (as defined in Rule 144
promulgated by the Securities and Exchange Commission under the Securities Act
("Rule 144")). 3,679,952 of the currently outstanding shares of Class A Common
Stock are freely tradeable without restriction or further registration under the
Securities Act, unless acquired by "affiliates." Beginning 90 days after the
date of this Prospectus, approximately 2,426,108 of the currently outstanding
shares of Class A Common Stock owned by Clear Channel will be eligible for sale
in the public market, subject to the volume and other limitations of Rule 144;
provided, however, as long as the Registration Statement on Form S-3 declared
effective on February 26, 1996 remains in effect, Clear Channel may sell
2,156,799 of such shares without regard to any limitations contained in Rule
144. Clear Channel has indicated to the Company that it does not currently
intend to sell any shares of the Company's Common Stock except as may be
necessary to obtain the FCC's approval of, or to consummate, the Tichenor
Merger. See "The Tichenor Merger."
Dilution. Persons purchasing shares of Class A Common Stock at the offering
price will incur immediate dilution in net tangible book value per share of the
common stock. As of June 30, 1996, the deficit in net tangible book value of the
common stock was approximately $80.1 million, or $7.87 per share. The deficit in
net tangible book value per share represents the amount of total tangible assets
of the Company less total liabilities and the liquidation preference of the
Series A Preferred Stock, divided by the number of shares of common stock
outstanding. After giving effect to the sale of the 3,500,000 shares of Class A
Common Stock offered hereby by the Company (at an assumed offering price of
$44.25 per share) and the application of the estimated net proceeds thereof as
described in "Use of Proceeds" (after deducting underwriting discounts and
commissions and estimated offering expenses), the as adjusted net tangible book
value of the common stock at June 30, 1996 would have been approximately $4.98
per share. This represents an immediate increase in net tangible book value per
share of $12.85 to existing stockholders and an immediate net tangible book
value dilution per share of $39.27 to investors purchasing shares in the
Offering. Net tangible book value dilution per share represents the difference
between the amount per share paid by new investors in the Offering and the as
adjusted net tangible book value per share after the Offering.
Forward-Looking Statements. This Prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act. Discussions
containing such forward-looking statements may be found in the material set
forth under "Summary," "The Tichenor Merger" and "The Company," as well as
within the Prospectus generally. In addition, when used in this Prospectus, the
words "believes," "anticipates," "expects" and similar expressions are intended
to identify forward-looking statements. Such statements are subject to a number
of risks and uncertainties. Actual results in the future could differ materially
from those described in the forward-looking statements as a result of the risk
factors set forth herein and the matters set forth in the Prospectus generally.
The Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances. The Company cautions the reader, however, that
this list of risk factors may not be exhaustive.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,500,000 shares of Class
A Common Stock offered hereby by the Company at an assumed public offering price
of $44.25 per share (after deducting underwriting discounts and commissions and
estimated offering expenses) are estimated to be approximately $147.8 million
($170.0 million if the Underwriters' over-allotment option is exercised in
full). The Company will use all of the net proceeds to repay borrowings
outstanding under the Credit Agreement. Upon repayment of such borrowings, the
amount repaid will become available to the Company for reborrowing under the
Credit Agreement for general corporate purposes, including working capital and
possible acquisitions of additional broadcast properties, including the Tichenor
Merger. Borrowings under the Credit Agreement bear interest at a floating
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<PAGE> 15
rate based on either (i) the London Interbank Offered Rate ("LIBOR") for
deposits in United States dollars, or (ii) the higher of the agent bank's prime
rate plus an incremental rate or the federal funds rate plus an incremental
rate. The average interest rate for borrowings under the Credit Agreement as of
September 30, 1996, was 7.315%. Principal outstanding under the Credit Agreement
is due in January 1998. The Company regularly reviews potential acquisitions of
radio stations.
PRICE RANGE OF CLASS A COMMON STOCK
The Class A Common Stock is traded on the Nasdaq National Market under the
symbol "HBCCA." The following table sets forth for each of the quarters in the
fiscal years ended September 30, 1995 and 1996 and the first quarter of fiscal
1997 the high and low closing sale prices per share as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1995
First Quarter............................................................. $16.37 $ 9.50
Second Quarter............................................................ 13.88 9.88
Third Quarter............................................................. 16.25 9.88
Fourth Quarter............................................................ 21.75 15.25
FISCAL YEAR 1996
First Quarter............................................................. $20.00 $14.00
Second Quarter............................................................ 21.00 15.25
Third Quarter............................................................. 30.25 19.25
Fourth Quarter............................................................ 43.75 27.25
FISCAL YEAR 1997
First Quarter (through October 9, 1996)................................... $48.50 $43.00
</TABLE>
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company intends
to retain any earnings for use in the growth of its business. The Company
currently is prohibited from paying any cash dividends on its capital stock
under the Credit Agreement.
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<PAGE> 16
CAPITALIZATION
The following table sets forth, as of June 30, 1996, (a) the actual
capitalization of the Company, (b) the capitalization of the Company as adjusted
to reflect the sale of the 3,500,000 shares of Class A Common Stock offered
hereby by the Company at an assumed offering price of $44.25 per share (after
deducting the underwriting discounts and commissions and estimated offering
expenses) and the application of the estimated net proceeds therefrom as set
forth in "Use of Proceeds" and (c) the pro forma capitalization of the Company
to reflect the Transactions (as defined herein), as if they had occurred on June
30, 1996.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------
AS PRO FORMA
ACTUAL ADJUSTED(1) AS ADJUSTED
-------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.............................. $ 3,900 $ 30,200 $ 13,224
======== ======== ========
Current portion of long-term debt...................... $ 727 $ 727 $ 773
Long-term debt:
Credit Agreement..................................... 121,500 -- 70,248
Other long-term debt................................. 5,361 5,361 4,165
-------- -------- --------
Total long-term debt......................... 126,861 5,361 74,413
Stockholders' equity:
Preferred Stock, $0.001 par value, 5,000,000 shares
authorized; 335,634 shares of Series A issued and
outstanding actual and as adjusted; zero shares
issued and outstanding pro forma as adjusted...... 1 1 --
Class A Common Stock, $0.001 par value; 30,000,000
shares authorized actual and as adjusted;
6,823,518 shares issued and outstanding actual;
10,323,518 shares issued and outstanding as
adjusted; 50,000,000 shares authorized pro forma
as adjusted and 13,309,374 shares issued and
outstanding pro forma as adjusted................. 6 10 13
Class B Common Stock, $0.001 par value; 7,000,000
shares authorized actual; 4,167,116 shares issued
and outstanding actual and as adjusted; 50,000,000
shares authorized pro forma as adjusted and
7,428,235 shares issued and outstanding pro forma
as adjusted(2).................................... 4 4 8
Additional paid-in capital........................... 96,898 244,694 435,948
Notes receivable from stockholders................... (4,264) (4,264) --
Accumulated deficit.................................. (44,849) (44,849) (89,618)
Less treasury stock.................................. (4,019) (4,019) --
-------- -------- --------
Total stockholders' equity................... 43,777 191,577 346,351
-------- -------- --------
Total capitalization.................... $171,365 $197,655 $ 421,537
======== ======== ========
</TABLE>
- ---------------
(1) Excludes any adjustments relating to the Heftel Reorganization which
occurred on August 5, 1996. See "Notes to Unaudited Pro Forma Condensed
Consolidated Financial Information."
(2) Upon consummation of the Tichenor Merger, the authorized Class B Common
Stock will be amended to become Nonvoting Common Stock.
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<PAGE> 17
THE TICHENOR MERGER
Tichenor is a national radio broadcasting company engaged in the business
of acquiring, developing and programming Spanish language radio stations in
major Hispanic markets located in the United States. Currently, Tichenor owns or
programs 20 radio stations serving six of the top ten Hispanic markets in the
United States, including San Francisco/San Jose, Chicago, Houston, San Antonio,
McAllen/Brownsville/Harlingen and El Paso. Individually or through AM-FM station
combinations, Tichenor operates the top-rated radio station in any format in
three of the top ten Hispanic markets (San Antonio,
McAllen/Brownsville/Harlingen, and El Paso), as measured by the Arbitron four
book average adults 25-54 demographic. Tichenor operates the top-rated Spanish
language radio station in five of its six markets as measured by the same
audience share statistics. Tichenor recently entered the San Francisco/San Jose
market, the fourth largest Hispanic market, by purchasing KSOL-FM and KZOL-FM
(formerly KYLZ-FM) for approximately $40 million. These two stations, previously
programmed in English, were converted to a Spanish format in August 1996. These
two stations will be simulcast under one Spanish format, representing the first
full-signal Spanish FM stations to cover the San Francisco/San Jose market.
The Tichenor Merger Agreement. On July 9, 1996, Clear Channel and Tichenor
entered into the Tichenor Merger Agreement which, subject to the terms and
conditions thereof, provides for the acquisition of Tichenor by the Company. The
then existing management and Board of Directors of the Company were not involved
in the negotiations concerning the acquisition of Tichenor. On August 14, 1996,
after the consummation of the Tender Offer, Clear Channel offered to assign the
Tichenor Merger Agreement to the Company in accordance with the Tichenor Merger
Agreement, and on October 10, 1996, the Board of Directors of the Company
approved the Tichenor Merger and the assignment to the Company of the Tichenor
Merger Agreement. In approving the Tichenor Merger, the Company considered,
among other things, the strength of the combined management of the Company and
Tichenor; the marketing and operating benefits of the expansion of the Company's
presence into each of the top ten Hispanic markets; and the benefits of
diversifying the Company's operations thereby reducing its reliance on any
individual market.
Pursuant to the Tichenor Merger Agreement, a newly-formed wholly-owned
subsidiary of the Company will be merged with and into Tichenor and the shares
of Tichenor capital stock (other than certain preferred stock) will be converted
into shares of the Company's Class A Common Stock. Pursuant to the Tichenor
Merger Agreement, (i) 684,168.93 shares of outstanding Tichenor common stock
will be converted into an aggregate of approximately 5,354,350 shares of the
Company's Class A Common Stock, (ii) 35,772.48 shares of Tichenor's outstanding
Junior Preferred Stock will be converted into an aggregate of approximately
155,528 shares of the Company's Class A Common Stock, (iii) 3,000 shares of
Tichenor's outstanding 14% Senior Redeemable Cumulative Preferred Stock will be
converted into the right to receive an aggregate of $3,000,000, plus
approximately $379,000 of accrued and unpaid dividends, and (iv) an existing
warrant for Tichenor capital stock, or the shares received upon exercise thereof
if the warrant is exercised prior to the effective time of the Tichenor Merger,
shall be converted into 180,000 shares of the Company's Class A Common Stock. As
a result of the Tichenor Merger, Tichenor will become a wholly-owned subsidiary
of the Company. The Company will also assume Tichenor's outstanding debt which
was $71.3 million at September 30, 1996.
Prior to consummation of the Tichenor Merger, Clear Channel will purchase
16,664 shares of Tichenor common stock from certain shareholders of Tichenor for
approximately $3,000,000. At the effective time of the Tichenor Merger, each
share of Tichenor common stock owned by Clear Channel will be converted into
7.8261 shares of Nonvoting Common Stock and each share of the Company's Class A
Common Stock owned by Clear Channel will be converted into one share of
Nonvoting Common Stock.
Future Management Team. The Tichenor Merger Agreement provides that the
Company will take such actions necessary so that immediately after the effective
time of the Tichenor Merger five
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<PAGE> 18
designees of Tichenor shall constitute the entire Board of Directors of the
Company. The Tichenor Merger Agreement also provides that at or prior to the
effective time of the Tichenor Merger, the Company will enter into an employment
agreement with McHenry T. Tichenor, Jr. pursuant to which Mr. Tichenor will
serve as Chairman, President and Chief Executive Officer of the Company for a
five year term.
Registration Rights. The Tichenor Merger Agreement also provides that the
Company will grant certain demand and "piggyback" registration rights to certain
former Tichenor shareholders (including Mr. Tichenor) who will own an aggregate
of 5,180,827 shares of Class A Common Stock following the Tichenor Merger
(collectively, the "Major Tichenor Shareholders"), and will grant certain demand
and piggyback registration rights to Clear Channel with respect to any shares of
Class A Common Stock that may be held from time to time by Clear Channel
following the Tichenor Merger. It is also contemplated that Clear Channel and
the Major Tichenor Shareholders will enter into a Stockholders Agreement with
the Company whereby such stockholders will agree to certain restrictions on the
transfer of their shares of Common Stock of the Company and will grant certain
rights of first refusal and "tag-along" rights with respect to certain sales of
such shares.
Conditions to the Tichenor Merger. Consummation of the Tichenor Merger is
subject to a number of conditions, including approval of the Tichenor Merger
Agreement by the stockholders of the Company and Tichenor; the receipt by the
Company of an opinion from a nationally recognized investment banking firm or
financial advisor that the consideration to be paid by the Company in the
Tichenor Merger is fair to the stockholders of the Company from a financial
point of view; expiration or termination of the applicable waiting period under
the HSR Act; effectiveness under the Securities Act of a registration statement
relating to the securities of the Company to be issued in the Tichenor Merger;
no material adverse effect occurring with respect to Tichenor or the Company;
and the receipt of all required FCC approvals. In addition, the consummation of
the Tichenor Merger may not occur prior to February 6, 1997. There can be no
assurance that all of these conditions will be satisfied or waived or that the
Tichenor Merger will be consummated. Clear Channel, which will own a majority of
the outstanding shares of the Company's Class A Common Stock on the record date
for the vote for the Tichenor Merger, intends to vote all such shares in favor
of the Tichenor Merger Agreement.
Consummation of the Tichenor Merger requires the approval of the FCC. The
FCC's cross-interest policy bars a party that holds an attributable interest in
one or more radio stations in a market from having a "meaningful relationship"
with another radio station in that market. A "meaningful relationship" is
construed by the FCC to include a non-voting equity position in excess of
33 1/3% of the total outstanding Common Stock. See "The Company -- Federal
Regulation of Radio Broadcasting." After consummation of the Tichenor Merger and
the Offering, Clear Channel could own approximately 36% of the Common Stock.
Clear Channel has informed the Company that it is considering a number of
alternatives to comply with FCC regulations upon consummation of the Tichenor
Merger. In the event that no other alternative is approved by the FCC, Clear
Channel may place any remaining shares of Nonvoting Common Stock above the
33 1/3% maximum in a disposition trust for the purpose of sale through
negotiated block transactions or other types of sales. The use of a disposition
trust, and the terms thereof, would be subject to the prior consent of the FCC.
Tichenor Family Ownership. Upon consummation of the Tichenor Merger and
after giving effect to the Offering, Mr. Tichenor and certain members of his
family (collectively, the "Tichenor Family") will own an aggregate of
approximately 4,556,486 shares of Class A Common Stock (representing
approximately 34% of the then outstanding Class A Common Stock) and may have the
ability, if they act together as a group, to control the Company. The members of
the Tichenor Family have entered into a Voting Agreement pursuant to which the
majority of the shares of Tichenor common stock and Junior Preferred Stock
currently held by them, as well as the approximately 4,345,718 shares of the
Company's Class A Common Stock to be received in exchange therefor in the
Tichenor Merger, shall be voted in accordance with the instructions of McHenry
T. Tichenor, Jr. and McHenry T. Tichenor, Sr. until such time as the FCC shall
have approved an amendment to such
17
<PAGE> 19
agreement, whereupon the shares subject to the voting agreement shall be voted
in accordance with the instructions of the holders of a majority of such shares.
Clear Channel Ownership. Upon consummation of the Tichenor Merger, Clear
Channel will own only Nonvoting Common Stock and thus will not have the right to
vote for the election of directors of the Company, although Clear Channel will
have certain class voting rights discussed in more detail below.
The Nonvoting Common Stock that Clear Channel will receive in the Tichenor
Merger will convert into Class A Common Stock automatically upon sale or
transfer to a person or entity other than Clear Channel. Each share of the
Nonvoting Common Stock will also be convertible into Class A Common Stock at the
option of its holder, subject to any necessary FCC consent. In addition, Clear
Channel may convert shares of Class A Common Stock held by it into shares of
Nonvoting Common Stock at its option.
Holders of the Nonvoting Common Stock will in certain circumstances have
certain voting rights. Specifically, so long as Clear Channel owns at least 20%
of the Company's Common Stock then outstanding, the Company will not be able to,
and will not be able to permit any subsidiary to, without the vote or consent by
the holders of a majority of the Nonvoting Common Stock voting as a single
class, take any of the following actions: (i) effect the sale, lease or other
transfer of all or substantially all of the assets of the Company, or any merger
or consolidation involving the Company where the stockholders of the Company
immediately prior to such transaction would not own at least 50% of the capital
stock of the surviving entity, or any reclassification, recapitalization,
dissolution, liquidation or winding up of the Company; (ii) authorize, issue or
obligate itself to issue any shares of Preferred Stock; (iii) make or permit any
amendment to the Company's certificate of incorporation that adversely affects
the rights of the holders of Nonvoting Common Stock; (iv) declare or pay any
non-cash dividends on or make any other non-cash distribution on its common
stock; or (v) make or permit any amendment or modification to the Company's
certificate of incorporation concerning the Company's Common Stock. See
"Description of Capital Stock."
Loan to Tichenor. Concurrent with the execution of the Tichenor Merger
Agreement, Clear Channel and a subsidiary of Tichenor entered into a Loan
Agreement (the "Tichenor Loan Agreement"), pursuant to which Clear Channel
loaned $40 million to a Tichenor subsidiary to finance the subsidiary's
acquisition of two FM radio stations and related assets serving the San
Francisco/San Jose market. The loan becomes due on September 30, 1997, and must
be repaid in full at that time. The loan has no penalty for early repayment and
carries a market rate of interest.
18
<PAGE> 20
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information presents the Company's balance sheet at June 30, 1996 as if at such
date, the following transactions (collectively, the "Transactions") had been
completed: (i) the Heftel Reorganization (as defined herein); (ii) the Offering
(at an assumed offering price of $44.25 per share) and application of the
estimated net proceeds therefrom as set forth in "Use of Proceeds;" (iii) the
Tichenor Acquisitions (as defined herein); and (iv) the Tichenor Merger. The
following unaudited pro forma condensed consolidated statements of operations
present the Company's results of operations for the year ended September 30,
1995 and the nine months ended June 30, 1996 and Tichenor's results of
operations for the year ended December 31, 1995 and the nine months ended June
30, 1996, as if the Transactions had been completed at October 1, 1994 and
October 1, 1995, respectively, excluding certain costs incurred as a result of
the Heftel Reorganization, as further described below. The pro forma condensed
consolidated financial statements also give effect to various acquisitions
completed by Tichenor (the "Tichenor Acquisitions") during the periods
presented, as more fully described in the Notes hereto. For purposes hereof
"Heftel Reorganization" shall mean the consummation of the following: (i) the
Tender Offer, (ii) the Company's borrowing of $135,000,000 under the Credit
Agreement and the use of the proceeds to repay amounts owed under the former
credit agreement and to pay amounts payable under non-compete and employment
contract settlement agreements relating to the termination of senior management
plus certain transaction costs related to the Tender Offer, (iii) the
discontinuance of the radio network operations of CRC, and (iv) the disposition
of duplicate facilities.
The unaudited pro forma condensed consolidated statements of operations do
not reflect certain costs incurred as a result of the Heftel Reorganization,
specifically one-time charges for (i) employment contract settlement payments
plus certain other severance costs related to the Tender Offer; (ii) the
write-off of deferred financing charges related to the former credit agreement;
(iii) the loss relating to the discontinued radio network operations of CRC; and
(iv) transaction costs related to the Tender Offer and costs relating to the
disposition of duplicate facilities.
The purchase price of the Tichenor Merger approximates $253.2 million,
assuming the issuance of 5,689,878 shares of the Company's Common Stock (with a
per share value equal to $31.75, which was the closing price for the Class A
Common Stock on July 9, 1996, the day the Tichenor Merger was announced), the
Company's assumption of Tichenor's outstanding debt, which was approximately
$70.3 million at June 30, 1996 (on a pro forma basis), plus the redemption of
3,000 shares of Tichenor's outstanding 14% Senior Redeemable Cumulative
Preferred Stock for $3,000,000, plus approximately $379,000 of accrued and
unpaid dividends, less cash of Tichenor on a pro forma basis. Such purchase
price will change based on the actual debt and cash of Tichenor on the closing
date for the Tichenor Merger. The Tichenor Merger will be accounted for using
the purchase method of accounting. The purchase price will be allocated
primarily to FCC licenses and other intangible assets and amortized over 40
years. Certain reclassifications have been made to the historical condensed
consolidated statements of operations of the Company for the year ended
September 30, 1995 and for the nine months ended June 30, 1996 to reflect the
effect on those periods of the discontinued radio network operations of CRC. The
pro forma condensed consolidated financial information does not purport to
present the actual financial position or results of operations of the Company
had the Transactions actually occurred on the dates specified, nor is it
necessarily indicative of the results of operations that may be achieved in the
future. See "The Tichenor Merger," "Use of Proceeds," "Capitalization" and the
Financial Statements included elsewhere in this Prospectus or incorporated
herein by reference.
19
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
COMPANY HEFTEL THE COMPANY TICHENOR TICHENOR
AS REPORTED(1) REORGANIZATION(2) OFFERING(3) AS ADJUSTED AS REPORTED ACQUISITIONS(4)
-------------- ------------------ ------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net broadcasting revenues... $ 64,160 $ -- $ -- $ 64,160 $41,601 $ 3,810
Station operating
expenses................... 43,643 -- -- 43,643 29,745 4,598
Corporate expenses.......... 4,720 (2,500)(5) -- 2,220 2,685 767
Depreciation and
amortization............... 3,344 1,400(6) -- 4,744 2,467 452
---------- -------- -------- ---------- ------- -------
Total operating expenses... 51,707 (1,100) -- 50,607 34,897 5,817
---------- -------- -------- ---------- ------- -------
Operating income (loss)..... 12,453 1,100 -- 13,553 6,704 (2,007)
Other income (expense),
net........................ (428) -- (428) 39 --
Interest expense, net....... (6,389) -- 6,389 -- (2,040) (2,105)
---------- -------- -------- ---------- ------- -------
Income (loss) before
minority interest and
provision for income
taxes...................... 5,636 1,100 6,389 13,125 4,703 (4,112)
Minority interest........... (1,167) -- -- (1,167) -- --
Income tax (expense)
benefit.................... (150) -- -- (150) (2,780) --
---------- -------- -------- ---------- ------- -------
Income (loss) from
continuing operations...... 4,319 1,100 6,389 11,808 1,923 (4,112)
---------- -------- -------- ---------- ------- -------
Loss from discontinued
operations of CRC.......... (626) -- -- (626) -- --
---------- -------- -------- ---------- ------- -------
Net income (loss)........... $ 3,693 $ 1,100 $ 6,389 $ 11,182 $ 1,923 $(4,112)
========== ======== ======== ========== ======= =======
Income from continuing
operations per common and
common equivalent share.... $0.40 $.79
========== ==========
Net income (loss) per common
and common equivalent
share...................... $0.34 $.75 $.07(7)
========== ========== =======
Weighted average shares
outstanding................ 10,805,346 14,916,159 683,396
========== ========== =======
OTHER OPERATING DATA:
Broadcast cash flow......... $20,517 $20,517 $11,856
<CAPTION>
TICHENOR COMPANY
TICHENOR MERGER PRO FORMA
PRO FORMA TICHENOR PRO FORMA CONDENSED
ADJUSTMENTS PRO FORMA ADJUSTMENTS CONSOLIDATED
----------- --------- ----------- ------------
<S> <C<C> <C> <C> <C>
Net broadcasting revenues... $ -- $45,411 $ -- $ 109,571
Station operating
expenses................... (155)(8) 34,188 -- 77,831
Corporate expenses.......... (668)(8) 2,784 -- 5,004
Depreciation and
amortization............... 1,173(9) 4,092 5,204(12) 14,040
------- ------- ------- ----------
Total operating expenses... 350 41,064 5,204 96,875
------- ------- ------- ----------
Operating income (loss)..... (350) 4,347 (5,204) 12,696
Other income (expense),
net........................ -- 39 -- (389)
Interest expense, net....... (2,905)(10) (7,050) -- (7,050)
------- ------- ------- ----------
Income (loss) before
minority interest and
provision for income
taxes...................... (3,255) (2,664) (5,204) 5,257
Minority interest........... -- -- -- (1,167)
Income tax (expense)
benefit.................... 2,858(11) 78 (1,428)(13) (1,554)
------- ------- ------- ----------
Income (loss) from
continuing operations...... (397) (2,586) (6,686) 2,536
------- ------- ------- ----------
Loss from discontinued
operations of CRC.......... -- -- -- (626)
------- ------- ------- ----------
Net income (loss)........... $ (397) $(2,586) $(6,686) $ 1,910
======= ======= ======= ==========
Income from continuing
operations per common and
common equivalent share.... $ 0.12
==========
Net income (loss) per common
and common equivalent
share...................... $ (6.53)(7) $ 0.09
======= ==========
Weighted average shares
outstanding................ 683,396 20,606,037
======= ==========
OTHER OPERATING DATA:
Broadcast cash flow......... $11,223 $31,740
</TABLE>
20
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
COMPANY HEFTEL THE COMPANY AS TICHENOR AS TICHENOR
AS REPORTED(1) REORGANIZATION(2) OFFERING(3) ADJUSTED REPORTED(14) ACQUISITIONS(4)
-------------- ----------------- ----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net broadcasting revenues.... $ 53,053 $ -- $ -- $ 53,053 $32,548 $ 3,060
Station operating expenses... 35,835 -- -- 35,835 23,699 3,589
Corporate expenses........... 3,693 (1,875)(5) -- 1,818 2,229 296
Depreciation and
amortization............... 3,568 940(6) -- 4,508 2,120 426
---------- ------- ------- ---------- ------- -------
Total operating
expenses............... 43,096 (935) -- 42,161 28,048 4,311
---------- ------- ------- ---------- ------- -------
Operating income (loss)...... 9,957 935 -- 10,892 4,500 (1,251)
Other income (expense), net.. (1,325) -- -- (1,325) (353) (6)
Interest expense, net........ (7,935) -- 7,935 -- (1,747) (1,998)
---------- ------- ------- ---------- ------- -------
Income (loss) before minority
interest and provision for
income taxes............... 697 935 7,935 9,567 2,400 (3,255)
Minority interest............ -- -- -- -- -- --
Income tax (expense)
benefit.................... (65) -- -- (65) (695) --
---------- ------- ------- ---------- ------- -------
Income from continuing
operations................. 632 935 7,935 9,502 1,705 (3,255)
Loss from discontinued
operations of CRC.......... (1,608) -- -- (1,608) -- --
---------- ------- ------- ---------- ------- -------
Net income (loss)............ $ (976) $ 935 $ 7,935 $ 7,894 $ 1,705 $ (3,255)
========== ======= ======= ========== ======= =======
Income from continuing
operations per common and
common equivalent share.... $.06 $.63
========== ==========
Net income (loss) per common
and common equivalent
share...................... $(.10) $.53 $1.42(7)
========== ========== =======
Weighted average shares
outstanding................ 10,326,354 15,035,231 683,743
========== ========== =======
OTHER OPERATING DATA:
Broadcast cash flow.......... $17,218 $17,218 $8,849
<CAPTION>
TICHENOR COMPANY
TICHENOR MERGER PRO FORMA
PRO FORMA TICHENOR PRO FORMA CONDENSED
ADJUSTMENTS PRO FORMA ADJUSTMENTS CONSOLIDATED
----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Net broadcasting revenues.... $ -- $35,608 $ -- $ 88,661
Station operating expenses... (122)(8) 27,166 -- 63,001
Corporate expenses........... (220)(8) 2,305 -- 4,123
Depreciation and
amortization............... 681(9) 3,227 3,903(12) 11,638
------- ------- ------- ----------
Total operating
expenses............... 339 32,698 3,903 78,762
------- ------- ------- ----------
Operating income (loss)...... (339) 2,910 (3,903) 9,899
Other income (expense), net.. -- (359) -- (1,684)
Interest expense, net........ (1,536)(10) (5,281) -- (5,281)
------- ------- ------- ----------
Income (loss) before minority
interest and provision for
income taxes............... (1,875) (2,730) (3,903) 2,934
Minority interest............ -- -- -- --
Income tax (expense)
benefit.................... 1,949(11) 1,254 (2,304)(13) (1,115)
------- ------- ------- ----------
Income from continuing
operations................. 74 (1,476) (6,207) 1,819
Loss from discontinued
operations of CRC.......... -- -- -- (1,608)
------- ------- ------- ----------
Net income (loss)............ $ 74 $(1,476) $(6,207) $ 211
======= ======= ======= ==========
Income from continuing
operations per common and
common equivalent share.... $0.09
==========
Net income (loss) per common
and common equivalent
share...................... $ (3.23)(7) $0.01
======= ==========
Weighted average shares
outstanding................ 683,743 20,725,109
======= ==========
OTHER OPERATING DATA:
Broadcast cash flow.......... $ 8,442 $25,660
</TABLE>
21
<PAGE> 23
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
COMPANY HEFTEL THE COMPANY AS TICHENOR TICHENOR
AS REPORTED REORGANIZATION OFFERING(3) ADJUSTED AS REPORTED ACQUISITIONS(15)
------------ -------------- ------------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents.......... $ 3,900 $ (1,959)(16) $ 12,800 $ 14,741 $ 2,962 $ 1
Accounts receivable, net........... 19,090 -- -- 19,090 10,263 763
Other current assets............... 3,843 (2,214)(17) -- 1,629 709 36
-------- -------- --------- -------- ------- -------
Total current assets............. 26,833 (4,173) 12,800 35,460 13,934 800
Property and equipment, net........ 19,859 (1,400)(18) -- 18,459 7,595 550
Intangible assets, net............. 123,501 810(19) -- 124,311 34,202 15,210
Other assets....................... 10,290 (8,283)(20) -- 2,007 1,563 407
-------- -------- --------- -------- ------- -------
Total assets..................... $180,483 $(13,046) $ 12,800 $180,237 $57,294 $16,967
======== ======== ========= ======== ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities................ $ 9,118 $ 5,644(21) $ -- $ 14,762 $ 4,929 $ 683
Current portion of long-term debt.. 727 -- -- 727 46 12
Long-term debt, net of current
portion:
Credit Agreement................. 121,500 13,500(22) (135,000) -- 28,348 24,448
Other long-term debt............. 5,361 (1,207) -- 4,154 11 --
-------- -------- --------- -------- ------- -------
Total long-term debt, net of
current portion................ 126,861 12,293 (135,000) 4,154 28,359 24,448
Deferred income taxes.............. -- -- -- -- 3,528 --
Senior preferred stock............. -- -- -- -- 3,379 --
Common stock purchase warrant...... -- -- -- -- 4,140 --
-------- -------- --------- -------- ------- -------
Total liabilities................ 136,706 17,937 (135,000) 19,643 44,381 25,143
Preferred stock.................... 1 (1)(23) -- -- -- --
Junior preferred stock............. -- -- -- -- 368 --
Class A common stock............... 6 5(23) 4 15 -- --
Class B common stock*.............. 4 (4)(23) -- -- -- --
Common stock (Tichenor)............ -- -- -- -- 744 --
Additional paid-in capital......... 96,898 5,503(23) 147,796 250,197 4,357 --
Notes receivable from
stockholders..................... (4,264) 4,264(23) -- -- (175) --
(Accumulated deficit) Retained
earnings......................... (44,849).. (44,769)(24) -- (89,618) 9,008 (8,176)
Less treasury stock, at cost....... (4,019) 4,019(23) -- -- (1,389) --
-------- -------- --------- -------- ------- -------
Total stockholders' equity....... 43,777 (30,983) 147,800 160,594 12,913 (8,176)
-------- -------- --------- -------- ------- -------
Total liabilities and
stockholders' equity........... $180,483 $(13,046) $ 12,800 $180,237 $57,294 $16,967
======== ======== ========= ======== ======= =======
<CAPTION>
TICHENOR COMPANY
TICHENOR MERGER PRO FORMA
PRO FORMA TICHENOR PRO FORMA CONDENSED
ADJUSTMENTS PRO FORMA ADJUSTMENTS CONSOLIDATED
----------- --------- ----------- -------------
<S> <C<C> <C> <C> <C>
ASSETS:
Cash and cash equivalents.......... $(1,101)(25) $ 1,862 $ (3,379)(28) $ 13,224
Accounts receivable, net........... (763)(26) 10,263 -- 29,353
Other current assets............... (36)(26) 709 -- 2,338
------- ------- -------- --------
Total current assets............. (1,900) 12,834 (3,379) 44,915
Property and equipment, net........ 1,100(27) 9,245 -- 27,704
Intangible assets, net............. 26,140(27) 75,552 208,154(29) 408,017
Other assets....................... (407)(26) 1,563 -- 3,570
------- ------- -------- --------
Total assets..................... $24,933 $99,194 $204,775 $484,206
======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities................ $ (683)(26) $ 4,929 $ -- $ 19,691
Current portion of long-term debt.. (12)(26) 46 -- 773
Long-term debt, net of current
portion:
Credit Agreement................. 17,452(25) 70,248 -- 70,248
Other long-term debt............. -- 11 -- 4,165
------- ------- -------- --------
Total long-term debt, net of
current portion................ 17,452 70,259 -- 74,413
Deferred income taxes.............. -- 3,528 39,450(30) 42,978
Senior preferred stock............. -- 3,379 (3,379)(28) --
Common stock purchase warrant...... -- 4,140 (4,140)(31) --
------- ------- -------- --------
Total liabilities................ 16,757 86,281 31,931 137,855
Preferred stock.................... -- -- -- --
Junior preferred stock............. -- 368 (368)(31) --
Class A common stock............... -- -- (2)(31) 13
Class B common stock*.............. -- -- 8 8
Common stock (Tichenor)............ -- 744 (744)(31) --
Additional paid-in capital......... -- 4,357 181,394(31) 435,948
Notes receivable from
stockholders..................... -- (175) 175(31) --
(Accumulated deficit) Retained
earnings......................... 8,176(26) 9,008 (9,008)(32) (89,618)
Less treasury stock, at cost....... -- (1,389) 1,389(31) --
------- ------- -------- --------
Total stockholders' equity....... 8,176 12,913 172,844 346,351
------- ------- -------- --------
Total liabilities and
stockholders' equity........... $24,933 $99,194 $204,775 $484,206
======= ======= ======== ========
</TABLE>
* Includes Class B referred to in this Prospectus as Nonvoting Common Stock.
22
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) The Company's historical condensed consolidated statements of
operations for the year ended September 30, 1995 and the nine months ended June
30, 1996 have been restated to reflect the effects of the discontinued
operations of CRC (see Note 24).
(2) The unaudited pro forma condensed consolidated statements of operations
do not reflect the effects of certain of the Heftel Reorganization one-time
charges. Such charges, which have been omitted from the pro forma adjustments,
include the following: (i) employment contract settlement payments plus certain
other estimated severance costs, both of which are related to the Tender Offer,
in the aggregate amount of approximately $21,000,000; (ii) the non-cash
write-off of approximately $7,461,000 in unamortized deferred financing costs
related to the former credit agreement; (iii) approximately $8,100,000 relating
to the discontinued operations of CRC, of which $6,500,000 reflects non-cash
charges resulting from the write-off of goodwill; and (iv) approximately
$3,723,000 in transaction costs relating to the Tender Offer and estimated costs
of $2,900,000 to dispose of certain duplicate facilities (see Note 24).
(3) Reflects the application of the estimated net proceeds from the
Offering toward the paydown of debt outstanding under the Credit Agreement and
the related effects on interest expense and the effect of the Offering on the
Company's Common Stock and additional paid-in capital.
(4) Represents the historical operating results of the Tichenor
Acquisitions for the period of January 1, 1995 to the respective dates on which
Tichenor began operating the acquired stations as a result of the purchase of
station assets or entering into local marketing agreements as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, 1995 JUNE 30, 1996
------------------------------------------------ ------------------------------------
KSOL-FM/ KSOL-FM/
KQXX-FM KRTX-FM KYLZ-FM TOTAL KQXX-FM KYLZ-FM TOTAL
-------- --------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $ 246,319 $ 135,651 $ 3,427,826 $ 3,809,796 $133,804 $ 2,926,098 $ 3,059,902
Station operating expenses
excluding depreciation
and amortization......... 189,842 234,745 4,172,968 4,597,555 129,100 3,460,245 3,589,345
Corporate expense.......... 12,000 -- 755,573 767,573 -- 295,483 295,483
Depreciation and
amortization............. 12,100 9,283 430,609 451,992 5,600 420,415 426,015
Interest expense........... -- -- 2,104,583 2,104,583 -- 1,998,030 1,998,030
Other expense.............. -- -- -- -- -- 5,843 5,843
-------- --------- ----------- ----------- -------- ----------- -----------
Total expenses..... 292,904 244,028 7,643,733 7,921,703 134,700 6,180,016 6,314,716
-------- --------- ----------- ----------- -------- ----------- -----------
Net loss........... $(46,585) $(108,377) $(4,035,907) $(4,111,907) $ (896) $(3,253,918) $(3,254,814)
======== ========= =========== =========== ======== =========== ===========
</TABLE>
(5) Reflects the elimination of executive compensation and related benefits
of approximately $2,500,000 and $1,875,000 for the year ended September 30, 1995
and for the nine months ended June 30, 1996, respectively, relating to two
former officers of the Company terminated in connection with the consummation of
the Tender Offer.
(6) Reflects the amortization of the payments of $7,000,000 under five-year
non-compete agreements entered into with former senior management in connection
with the termination of their employment.
(7) Net income per common and common equivalent share for Tichenor is
calculated by deducting senior preferred stock dividends and accretion of stock
warrant aggregating $1,873,069 and $732,324 for the year ended December 31, 1995
and nine months ended June 30, 1996, respectively, from net income and dividing
such result by the weighted average shares outstanding for the respective
period. As a result of the Tichenor Merger, the senior preferred stock and stock
warrant will be retired and the related dividend and accretion requirements will
be eliminated.
23
<PAGE> 25
(8) Represents the elimination of local marketing agreement fees relating
to KPMQ-AM, KLTN-FM, KQXX-FM and KRTX-FM of $155,468 and $122,000 and
duplicative corporate expenses of $667,573 and $220,483, for the year ended
December 31, 1995 and the nine months ended June 30, 1996, respectively.
(9) Represents incremental depreciation and amortization resulting from the
Tichenor Acquisitions for the period of January 1, 1995 through the respective
dates of purchase as follows:
<TABLE>
<CAPTION>
KSOL-FM/
KMPQ-AM KLTN-FM KRTX-FM KQXX-FM KLTP-FM KYLZ-FM TOTAL
------- ------- ------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA ADJUSTMENTS FOR THE YEAR ENDED DECEMBER 31, 1995:
Depreciation...................... $39,046 $13,834 $ -- $ 21,429 $14,286 $200,000 $ 288,595
Amortization...................... 24,765 42,109 87,500 188,750 20,000 973,333 1,336,457
Less historical................... -- -- -- (12,100) (9,283) (430,609) (451,992)
------- ------- ------- -------- ------- --------- ----------
Total..................... $63,811 $55,943 $87,500 $198,079 $25,003 $742,724 $1,173,060
======= ======= ======= ======== ======= ========= ==========
PRO FORMA ADJUSTMENTS FOR THE NINE MONTHS ENDED JUNE 30, 1996:
Depreciation...................... $ -- $ -- $ -- $ 16,072 $10,714 $150,000 $ 176,786
Amortization...................... -- -- 43,750 141,562 15,000 730,000 930,312
Less historical................... -- -- -- (5,600) -- (420,415) (426,015)
------- ------- ------- -------- ------- --------- ----------
Total..................... $ -- $ -- $43,750 $152,034 $25,714 $459,585 $ 681,083
======= ======= ======= ======== ======= ========= ==========
</TABLE>
The estimated weighted average useful lives of fixed assets, FCC licenses,
going concern and other intangibles are assumed to be seven, forty, fifteen and
five years, respectively. The purchase prices of KQXX-FM, KLTP-FM and
KSOL-FM/KYLZ-FM have been allocated to the assets acquired on a preliminary
basis based on management estimates. Such allocations are subject to change upon
receipt of an independent appraisal.
(10) Represents incremental interest expense associated with borrowings in
connection with the Tichenor Acquisitions as if such borrowings were outstanding
for the entire periods presented. The purchases of KPMQ-AM, KLTN-FM, KRTX-FM,
KQXX-FM and KLTP-FM were funded with cash from operations and borrowings under
Tichenor's credit facility. The purchase of KSOL-FM/ KYLZ-FM was funded with a
note payable issued to Clear Channel with a weighted average interest rate of
11%. The weighted average interest rate under Tichenor's credit facility during
the respective periods is 8% based on historical borrowing costs.
<TABLE>
<CAPTION>
LESS
KSOL-FM/ HISTORICAL
KMPQ-AM KLTN-FM KRTX-FM KQXX-FM KLTP-FM KYLZ-FM BALANCES TOTAL
------- -------- -------- -------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA ADJUSTMENTS FOR THE YEAR ENDED DECEMBER 31, 1995:
Interest expense... $83,333 $133,833 $240,000 $104,000 $48,000 $4,400,000 $(2,104,583) $2,904,583
======= ======== ======== ======== ======= ========== =========== ==========
PRO FORMA ADJUSTMENTS FOR THE NINE MONTHS ENDED JUNE 30, 1996:
Interest expense... $ -- $ -- $120,000 $78,000 $36,000 $3,300,000 $(1,998,030) $1,535,970
======= ======== ======== ======== ======= ========== =========== ==========
</TABLE>
(11) Represents the income tax effect of the Tichenor Acquisitions at an
estimated effective income tax rate of 38%.
(12) Reflects incremental amortization expense of approximately $5,204,000
and $3,903,000 for the year ended September 30, 1995 and the nine months ended
June 30, 1996, respectively, resulting from the amortization over forty years of
additional intangible assets allocated and recorded as a result of the Tichenor
Merger.
(13) Reflects the incremental income tax effects of the pro forma
adjustments based on net income from continuing operations at an assumed tax
rate of 38%.
24
<PAGE> 26
(14) Represents the historical operating results of Tichenor for the nine
months ended June 30, 1996 obtained by adding Tichenor operating results for the
three months ended December 31, 1995 to operating results for the six months
ended June 30, 1996. Net revenues and net loss for the three months ended
December 31, 1995 were $11,189,911 and ($119,267), respectively.
(15) Represents the historical balance sheets of KQXX-FM, KLTP-FM and
KSOL-FM/KYLZ-FM at June 30, 1996 as follows:
<TABLE>
<CAPTION>
KSOL-FM/
KQXX-FM KLTP-FM KYLZ-FM TOTAL
-------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $ -- $ 75 $ 500 $ 575
Accounts receivable..................... 15,125 -- 748,639 763,764
Prepaid expense and other............... -- -- 35,903 35,903
-------- ------- ----------- -----------
Total current assets.......... 15,125 75 785,042 800,242
Property and equipment, net............. 42,690 10,824 496,604 550,118
Intangible assets, net.................. -- -- 15,210,071 15,210,071
Other noncurrent assets................. 392,359 14,678 -- 407,037
-------- ------- ----------- -----------
Total assets.................. $450,174 $25,577 $16,491,717 $16,967,468
======== ======= =========== ===========
Accounts payable........................ $ 26,016 $ -- $ 121,416 $ 147,432
Accrued expenses and other.............. 168,625 -- 366,702 535,327
Current portion of long-term
obligations........................... 12,000 -- -- 12,000
-------- ------- ----------- -----------
Total current liabilities..... 206,641 -- 488,118 694,759
Long-term obligations................... 40,424 -- 24,407,502 24,447,926
Equity.................................. 203,109 25,577 (8,403,903) (8,175,217)
-------- ------- ----------- -----------
Total liabilities and
equity...................... $450,174 $25,577 $16,491,717 $16,967,468
======== ======= =========== ===========
</TABLE>
(16) Reflects net cash paid by the Company in connection with the Tender
Offer and the refinancing of the previous credit agreement in August 1996, as
follows:
<TABLE>
<S> <C>
Cash received by Company relating to:
Exercise of stock options and warrants............................... $ 9,860,477
Net proceeds from borrowings under new credit agreement.............. 12,949,225
Amounts receivable from former stockholders.......................... 2,213,738
Notes/interest receivable from former shareholders................... 5,444,584
------------
Total received............................................. 30,468,024
Less payments relating to:
Employment contract settlement payments.............................. (18,803,029)
Payments under non-compete agreements................................ (7,000,000)
Investment banking fees.............................................. (3,723,000)
Payment of note payable to former stockholder........................ (1,207,309)
Retirement of the Company's Series A Preferred Stock................. (335,637)
Interest on retired debt and other................................... (1,358,232)
------------
Total paid................................................. (32,427,207)
------------
Net cash paid.............................................. $ (1,959,183)
============
</TABLE>
(17) Reflects amounts received from former officers and stockholders upon
consummation of the Tender Offer.
(18) Represents adjustments to reflect the net realizable value of the Las
Vegas corporate office to be disposed of following the Tender Offer.
25
<PAGE> 27
(19) Reflects a net increase in intangible assets relating to the
following:
<TABLE>
<S> <C>
Non-compete agreements with former officers........................... $ 7,000,000
Write-off of goodwill relating to CRC................................. (6,530,000)
Less accumulated amortization of CRC goodwill......................... 340,000
-----------
Net increase................................................ $ 810,000
==========
</TABLE>
(20) Reflects a net decrease in other assets relating to the following:
<TABLE>
<S> <C>
Write-off of deferred financing charges -- former credit agreement.... $(9,073,000)
Less accumulated amortization, deferred financing costs............... 1,612,000
-----------
Net write-off............................................... (7,461,000)
Deferred financing charges -- new credit agreement.................... 512,000
Payment received on outstanding notes receivable...................... (803,000)
Payment received on outstanding interest receivable................... (531,000)
-----------
Net decrease................................................ $(8,283,000)
===========
</TABLE>
(21) Reflects a net increase in liabilities accrued for estimated losses on
discontinued operations of CRC, adjustments to the net realizable value of New
York facilities to be disposed of and estimated severance payments following the
Tender Offer.
(22) Reflects an increase in the long-term debt attributable to the net
proceeds borrowed under the Credit Agreement completed in connection with the
Tender Offer.
(23) Reflects (i) the repurchase and redemption of 335,634 shares of Series
A Preferred Stock; (ii) the automatic conversion of 3,356,529 shares of Class B
Common Stock to Class A Common Stock upon the sale thereof in connection with
the Tender Offer; (iii) the exercise of options and warrants, and tender of
shares resulting therefrom, in connection with the Tender Offer; (iv) the
retirement of treasury stock; and (v) the payment of notes receivable related to
the previous purchase of shares of the Company's Class A and B Common Stock.
(24) Reflects total charges relating to the Heftel Reorganization as
follows:
<TABLE>
<S> <C>
Loss on discontinued operations of CRC:
Write-off of goodwill............................................... $ 6,530,000
Less accumulated amortization....................................... (340,104)
-----------
Sub-total................................................... 6,189,896
Estimated losses through closing date............................... 1,953,500
-----------
Total....................................................... $ 8,143,396
===========
Loss on retirement of debt:
Deferred financing costs............................................ $ 9,073,167
Accumulated amortization............................................ (1,611,900)
-----------
Total....................................................... $ 7,461,267
===========
Reorganization charges:
Severance and employment contract settlements....................... $18,803,029
Other corporate severance and relocation costs...................... 1,800,000
Write-down of corporate leasehold improvements...................... 1,400,000
Estimated costs to dispose of New York facility lease............... 1,500,000
Tender Offer transaction fees....................................... 3,723,000
Other reorganization charges........................................ 1,938,152
-----------
Total....................................................... $29,164,181
===========
Grand total................................................. $44,768,844
===========
</TABLE>
26
<PAGE> 28
(25) Represents the purchase of KQXX-FM, KLTP-FM AND KSOL-FM/KYLZ-FM with
cash from operations of $1,101,000 and bank borrowings of $41,900,000 and the
elimination of historical debt of the acquired entities of $24,448,000 which is
not being assumed by Tichenor.
(26) Represents the elimination of historical assets, other liabilities and
equity of KQXX-FM, KLTP-FM and KSOL-FM/KYLZ-FM which were not acquired by
Tichenor.
(27) Represents the preliminary allocation of the purchase prices of
KQXX-FM, KLTP-FM and KSOL-FM/KYLZ-FM to the estimated fair value of assets
acquired as follows:
<TABLE>
<CAPTION>
LESS
KSOL-FM/ HISTORICAL
KQXX-FM KLTP-FM KYLZ-FM BALANCES TOTAL
---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Property and equipment......................... $ 150,000 $100,000 $ 1,400,000 $ (550,118) $ 1,099,882
Intangible assets.............................. $1,950,000 $800,000 $38,600,000 $(15,210,071) $26,139,929
</TABLE>
(28) Represents the retirement of Tichenor's senior preferred stock at its
carrying value with cash of $3,378,749.
(29) Represents the allocation to intangible assets of the excess purchase
price over the fair value of net working capital, tangible assets and long-term
liabilities acquired in connection with the Tichenor Merger. For purposes of the
preliminary allocation of the purchase price, the carrying amounts of net
working capital, tangible assets and long-term liabilities (excluding deferred
tax liabilities) are assumed to approximate their fair value.
(30) Represents the deferred tax liability resulting from the Tichenor
Merger. The deferred tax liability is calculated by applying an assumed
effective tax rate of 38% to the difference between the pro forma book and tax
basis of the combined entities. Deferred tax assets are recognized to the extent
that such assets are expected to be utilized in the carryforward period.
(31) Represents the conversion of the Tichenor stock warrant and junior
preferred stock to Tichenor common stock, the retirement of Tichenor's notes
receivable from stockholders and the exchange of each outstanding share of
Tichenor common stock into 7.8261 shares of the Class A Common Stock with a per
share value of $31.75 in connection with the Tichenor Merger. Also reflects the
conversion of 7,428,235 shares of Class A Common Stock ($.001 par value) held by
Clear Channel into an equal number of shares of Nonvoting Common Stock.
(32) Represents the elimination of the historical retained earnings of
Tichenor.
27
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA(1)
(Dollars in thousands, except per share data)
The selected consolidated balance sheet data as of September 30, 1993, 1994
and 1995, and the consolidated statement of operations data for each of the
fiscal years then ended are derived from the Company's consolidated financial
statements incorporated by reference into this Prospectus. The selected
consolidated balance sheet data as of June 30, 1996 and the consolidated
statement of operations data for the nine months ended June 30, 1995 and 1996
have been derived from the Company's unaudited consolidated financial statements
incorporated by reference into this Prospectus, which, in the opinion of
management, include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of financial condition and results
of operations. Operating results for the nine months ended June 30, 1996, are
not necessarily indicative of the results that may be expected for the year
ended September 30, 1996.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------------ ----------------------------
1993 1994(2) 1995 1995 1996
--------- --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcasting revenues..................... $ 20,932 $ 27,433 $ 64,160 $ 46,644 $ 53,053
Revenues relating to Mi CASA.................. 399 -- -- -- --
--------- --------- ---------- ---------- ----------
Total net revenues.......................... 21,331 27,433 64,160 46,644 53,053
Station operating expenses.................... 10,479 15,345 43,643 30,998 35,835
Expenses relating to Mi CASA.................. 1,470 -- -- -- --
Corporate expenses............................ 2,530 3,454 4,720 3,321 3,693
Depreciation and amortization................. 1,760 1,906 3,344 2,953 3,568
--------- --------- ---------- ---------- ----------
Total operating expenses.................... 16,239 20,705 51,707 37,272 43,096
--------- --------- ---------- ---------- ----------
Operating income.............................. 5,092 6,728 12,453 9,372 9,957
Other income (expense):
Interest expense, net....................... (2,427) (3,180) (6,389) (3,711) (7,935)
Income in equity of joint venture(3)........ 746 616 -- -- --
Loss on retirement of debt.................. -- (1,738) -- -- --
Other expenses, net........................... (418) (1,224) (428) (363) (1,325)
--------- --------- ---------- ---------- ----------
Total other income (expense)................ (2,099) (5,526) (6,817) (4,074) (9,260)
--------- --------- ---------- ---------- ----------
Income before minority interest and provision
for income taxes............................ 2,993 1,202 5,636 5,298 697
Minority interest in Viva Media(3)............ -- (351) (1,167) (1,428) --
Provision for income taxes.................... (272) (100) (150) (53) (65)
--------- --------- ---------- ---------- ----------
Income from continuing operations............. 2,721 751 4,319 3,817 632
Loss from discontinued operations............. -- (285) (626) (135) (1,608)
--------- --------- ---------- ---------- ----------
Net income (loss)............................. $ 2,721 $ 466 $ 3,693 $ 3,682 $ (976)
========= ========= ========== ========== ==========
Income from continuing operations per common
and common equivalent share................. $ .55 $ .10 $ .40 $ .34 $ .06
========= ========= ========== ========== ==========
Net income (loss) per common and common
equivalent share............................ $ .55 $ .05 $ .34 $ .33 $ (.10)
========= ========= ========== ========== ==========
Weighted average common shares and common
shares equivalents outstanding.............. 4,638,019 5,384,678 10,805,346 10,898,156 10,326,354
========= ========= ========== ========== ==========
OTHER OPERATING DATA:
Broadcast cash flow(4)........................ $ 10,453 $ 12,088 $ 20,517 $ 15,646 $ 17,218
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
SEPTEMBER 30, -------------------------------------------
------------------------------------ AS PRO FORMA,
1993 1994 1995 ACTUAL ADJUSTED(5) AS ADJUSTED(6)
--------- --------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 1,247 $ 10,219 $ 5,404 $ 3,900 $ 30,200 $ 13,224
Working capital................ 715 18,366 14,967 16,988 43,288 24,451
Total assets................... 25,770 113,353 151,637 180,483 206,783 484,206
Long-term debt, less current
portion...................... 27,046 59,898 96,732 126,861 5,361 74,413
Stockholders' equity
(deficiency)................. (10,164) 44,436 43,581 43,777 191,577 346,351
</TABLE>
- ---------------
(1) On September 9, 1996, the Company's Board of Directors approved the
discontinuance of the radio network operations of CRC effective August 5,
1996. Statement of operations data has been restated for all applicable
periods to exclude CRC from continuing operations.
(2) During August 1994, the Company completed three separate business
acquisitions and began consolidating its previously unconsolidated
investment in Viva Media. Total net revenues and net income (loss), adjusted
for interest expense on retired debt, relating to these acquisitions and
transaction from the respective dates of these transactions to September 30,
1994 were approximately $5,488,000 and $(80,000), respectively.
28
<PAGE> 30
(3) Effective August 20, 1994, the Company began accounting for its 49% interest
in Viva Media on a consolidated basis. Accordingly Viva Media's results of
operations are included in the consolidated financial statements for the
period from August 20, 1994 through September 30, 1994 and for the nine
months ended June 30, 1995. Prior to August 20, 1994, the accounts and
results of operations of Viva Media were accounted for using the equity
method of accounting.
(4) Data on station operating income excluding corporate expenses, depreciation
and amortization (commonly referred to as "broadcast cash flow"), although
not calculated in accordance with generally accepted accounting principles,
is widely used in the broadcast industry as a measure of a broadcast
company's operating performance. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, cash flows
from operating activities or any other measures for determining the
Company's operating performance or liquidity which are calculated in
accordance with generally accepted accounting principles.
(5) As adjusted to give effect to the Offering (at an assumed offering price of
$44.25 per share) and the application of the estimated net proceeds
therefrom as if the Offering had been consummated on June 30, 1996.
(6) Pro forma as adjusted to give effect to the Transactions, including the
Offering (at an assumed price of $44.25 per share) and the application of
the estimated net proceeds therefrom, as if they had been consummated on
June 30, 1996. The effect of the Tichenor Merger is based on preliminary
purchase price allocations. The pro forma information does not purport to
present the actual financial position of the Company had the Transactions
actually occurred on the date specified. See "The Tichenor Merger," "Use of
Proceeds," "Capitalization" and the Financial Statements and Notes thereto
for each of the Company, Tichenor and the Tichenor Acquisitions included
elsewhere in this Prospectus or incorporated herein by reference.
29
<PAGE> 31
THE COMPANY
GENERAL
The Company was incorporated under the laws of the State of Delaware in
1992, as the successor to a radio broadcasting company which began operations in
1974. The Company is the largest Spanish language radio broadcasting company in
the United States and currently owns and programs 17 radio stations, 16 of which
are in five of the ten largest Hispanic markets in the United States, including
Los Angeles, New York, Miami, Chicago and Dallas/Fort Worth. The Board of
Directors of the Company has approved the Tichenor Merger Agreement to acquire
Tichenor, the third largest Spanish language radio broadcasting company in the
United States. Tichenor owns or programs 20 stations, which serve six of the ten
largest Hispanic markets in the United States, including San Francisco/San Jose,
Chicago, Houston, San Antonio, McAllen/Brownsville/Harlingen and El Paso.
Following the Tichenor Merger, the Company will own or program 37 radio stations
in 11 markets, including stations in each of the top ten Hispanic markets in the
United States.
The Company's strategy is to own and program top performing radio stations,
principally in the largest Spanish language radio markets in the United States.
The top ten Hispanic markets account for approximately 17.2 million Hispanics,
representing approximately 63% of the total Hispanic population in the United
States. Upon completion of the Tichenor Merger, the Company will have the
largest Spanish language radio station combination, as measured by audience and
revenue share, in eight of the top ten Hispanic markets. Additionally, the
Company will have the highest rated radio station in any format in four of the
top ten Hispanic markets.
The Company intends to acquire or develop additional Spanish language
stations in the leading Hispanic markets. When evaluating a potential
acquisition, the Company considers the following factors: (i) the ability to
generate satisfactory rates of return on its investment, (ii) the ability to
increase operating cash flow at the station, (iii) the strategic importance of
the station to the Company's overall business objectives, (iv) the size and
projected rates of growth of the market's broadcasting revenues, Hispanic
population and consumer spending and (v) the number of competitive stations in
the market.
SPANISH LANGUAGE RADIO
The Company believes Spanish language radio broadcasting has significant
growth potential for the following reasons:
- The Hispanic population is the fastest growing population segment in the
United States and is expected to grow from an estimated 27.2 million
(approximately 10.3% of the total United States population) at the end of
1995 to an estimated 30.7 million (approximately 11.3% of the total
United States population) by the year 2000. These estimates imply a
growth rate of approximately three times the expected growth rate for the
total U.S. population during the same period. The Company estimates that
by the end of 1996 approximately 26% of the overall population of the ten
largest Hispanic markets will be of Hispanic origin.
- Advertisers have substantially increased their use of Spanish language
media in recent years. Total advertising revenues from advertising in
Spanish language media rose from $166 million in 1983 to $1.06 billion in
1995. This represents a compound annual growth rate of 16.7%, which is
more than double the growth rate of total advertising over the same
period. Although Hispanic consumers will spend an estimated $340 billion
in 1997, or 6.5% of the total consumer spending in the United States,
Spanish language advertising currently represents less than 0.7% of total
advertising expenditures.
- Advertisers have begun to target Hispanic households because they are
younger and spend a greater percentage of their household income on
consumer products than non-Hispanic households. Hispanic households in
the United States average 3.5 persons, compared to an
30
<PAGE> 32
average of 2.5 persons for non-Hispanic households. In addition, 82% of
Hispanic households in the United States are family units, compared to
71% of all households in the United States. During the 1990's, one in
four new households in the United States is expected to be headed by a
person of Hispanic origin.
- Hispanics have maintained strong social and cultural ties to their
countries of origin, particularly the continued use of the Spanish
language. An estimated 78% of Hispanics speak at least some Spanish and
approximately 40% speak it exclusively. Spanish is expected to continue
to be the language of preference for Hispanics.
- The number of Spanish language media outlets is disproportionately lower
than the number of similar English language outlets. In the radio
segment, there are currently approximately 400 Spanish language
commercial stations, which constitute only approximately 4% of all
commercial radio stations in the United States, although the Hispanic
population comprises approximately 10.3% of the United States population.
PROGRAMMING
Due to differences in origin, Hispanics are not a homogeneous group. The
music, culture, customs and Spanish dialects vary from one radio market to
another. Consequently, the Company programs its stations in a manner responsive
to the local preferences of a target demographic audience in each of the markets
it serves. A well researched mix of music and on-air programming at an
individual station can attract a wide audience targeted by Spanish language
advertisers. Programming is consistently monitored to maintain its quality and
relevance to the target audience. Most music formats are primarily variations of
Regional Mexican, Tropical, Tejano and Contemporary music styles. The local
program director will select music from the various music styles that best
reflect the music preferences of the local Hispanic audiences. A brief
description of each follows:
Regional Mexican. Regional Mexican consists of various types of music
played in different regions of Mexico. Ranchera music, originating in Jalisco,
Mexico, is a traditional folkloric sound commonly referred to as Mariachi music.
Mariachi music features acoustical instruments and is considered the music
indigenous to Mexicans who have lived in the country towns. Nortena means
northern, and is representative of Northern Mexico. Featuring an accordion,
Nortena has a Polka
sound with a distinct Mexican flavor. Banda is a regional format from the state
of Sinaloa, Mexico and is popular in California. Banda resembles up-tempo
marching band music with synthesizers. Regional Mexican also includes Cumbia
music, which originates in Colombia.
Contemporary. The Contemporary format includes pop, Latin rock, and
ballads. This format is similar to English adult contemporary and contemporary
hit radio stations.
Tropical. The Tropical format primarily consists of Salsa, Merengue, and
Cumbia music. Salsa is dance music combining Latin Caribbean rhythms with jazz.
Salsa symbolizes music from Puerto Rico, Cuba, and the Dominican Republic and is
popular with Hispanics living in New York, Miami and Chicago. Merengue music is
up-tempo dance music originating in the Dominican Republic.
Tejano. Tejano music originated in Texas and is based on Mexican themes but
is indigenous to Texas. It is a combination of contemporary rock, Ranchera, and
country music. The lyrics are sung in both Spanish and English. The on-air
talent speak in Spanish and English.
Full Service. The Full Service format includes all the traditional radio
services: music, news, sports, traffic reports, special information programs and
weather.
News/Talk. News includes local, national, international reports and
weather, business, traffic and sports. Talk includes commentary, analysis,
discussion, interviews, call-ins and information shows.
31
<PAGE> 33
COMPANY'S STATIONS
The following table sets forth information regarding the Company's radio
stations, assuming completion of the Tichenor Merger:
<TABLE>
<CAPTION>
PRIMARY
MARKET (HISPANIC HEFTEL/ DEMOGRAPHIC FCC
MARKET RANK) STATION(1) TICHENOR STATION FORMAT(2) TARGET FREQUENCY
- ------------------- ------------ -------- ----------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Los Angeles(1) KLVE-FM Heftel Contemporary A 18-49 107.5 MHZ
KTNQ-AM Heftel News/Talk A 18-49 1020 kHz
New York(2) WADO-AM Heftel News/Talk A 25+ 1280 kHz
WPAT-AM(3) Heftel Brokered n/a 930 kHz
WGLI-AM Heftel n/a n/a n/a
Miami(3) WAMR-FM Heftel Contemporary A 25-54 107.5 MHZ
WRTO-FM Heftel Tropical A 25-54 98.3 MHZ
WAQI-AM Heftel News/Talk A 35+ 710 kHz
WQBA-AM Heftel News/Talk A 35+ 1140 kHz
San Francisco/
San Jose(4) KSOL-FM Tichenor Regional Mexican A 25-54 98.9 MHZ
KZOL-FM Tichenor Regional Mexican A 25-54 99.1 MHZ
Chicago(5) WOJO-FM(4) Tichenor Regional Mexican A 25-54 105.1 MHZ
WIND-AM(4) Tichenor Full Service A 35+ 560 kHz
WLXX-AM(4) Heftel Tropical A 18-49 1200 kHz
Houston(6) KLTN-FM Tichenor Regional Mexican A 18-49 93.3 MHZ
KLTO-FM(5) Tichenor Regional Mexican A 25-54 104.9 MHZ
KLTP-FM Tichenor Regional Mexican A 25-54 104.9 MHZ
KRTX-FM Tichenor Tejano A 25-54 100.7 MHZ
KLAT-AM Tichenor Full Service A 25-54 1010 kHz
KMPQ-AM(6) Tichenor n/a n/a 980 kHz
San Antonio(7) KXTN-FM Tichenor Tejano A 25-54 107.5 MHZ
KXTN-AM Tichenor Tejano A 25-54 1310 kHz
KROM-FM Tichenor Regional Mexican A 25-54 92.9 MHZ
KCOR-AM Tichenor Regional Mexican A 35+ 1350 kHz
McAllen/Brownsville/
Harlingen(8) KQXX-FM Tichenor Regional Mexican A 25-54 98.5 MHZ
KGBT-AM Tichenor Regional Mexican A 25-54 1530 kHz
KIWW-FM Tichenor Tejano A 25-54 96.1 MHZ
Dallas/Fort
Worth(9) KESS-AM Heftel Full Service A 18+ 1270 kHz
KHCK-FM Heftel Tejano A 18-49 99.1 MHZ
KCKK-FM Heftel Tejano A 18-49 106.7 MHZ
KINF-AM Heftel Tejano A 18-49 1440 kHz
KICI-FM Heftel Tejano A 18-49 107.9 MHZ
KMRT-AM Heftel Regional Mexican A 18-49 1480 kHz
El Paso(10) KBNA-FM Tichenor Regional Mexican A 25-54 97.5 MHZ
KBNA-AM Tichenor Regional Mexican A 25-54 920 kHz
KAMA-AM Tichenor Tejano A 25-54 750 kHz
Las Vegas(33) KLSQ-AM Heftel Regional Mexican A 18-49 870 kHz
</TABLE>
- ---------------
(1) Actual city of License may differ from the metropolitan market served.
(2) See "Programming."
(3) The Company sells airtime on this station to third parties for broadcast of
specialty programming.
(4) Application for renewal of license pending with the FCC.
(5) Tichenor programs this station under a local marketing agreement.
(6) Tichenor has entered into a local marketing agreement with Kidstar
Interactive Media, Inc., which provides children's programming.
Statistical information contained herein regarding the radio industry,
population, consumer spending and advertising expenditures are taken from the
Arbitron Company 1995-1996; radio metro ratings; 1990 U.S. Census; the Hispanic
Consumer Market Report (DRI/McGraw Hill, June 1992);
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<PAGE> 34
SRDS -- Standard Rate & Data Services (August 1996); Advertising Age (September
30, 1996); Sales and Marketing Management's Survey of Buying Power; Strategy
Research Corporation -- 1996 U.S. Hispanic Market Study; Duncan's Radio Market
Guide (1996 Edition); Hispanic Business (December 1995); Market Segment
Research, Inc., and Paul Kagan Associates, Inc.
FEDERAL REGULATION OF RADIO BROADCASTING
Existing Regulation and Legislation. Radio broadcasting is subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended (the
"Communications Act"). The Communications Act prohibits the operation of a radio
broadcasting station except under a license issued by the FCC and empowers the
FCC, among other things, to issue, renew, revoke and modify broadcasting
licenses; assign frequency bands; determine stations' frequencies, locations,
and power; regulate the equipment used by stations; adopt other regulations to
carry out the provisions of the Communications Act; impose penalties for
violation of such regulations; and impose fees for processing applications and
other administrative functions. The Communications Act prohibits the assignment
of a license or the transfer of control of a licensee without prior approval of
the FCC.
The Telecommunications Act of 1996 ("the 1996 Act") represents the most
comprehensive overhaul of the country's telecommunications laws in more than 60
years. The 1996 Act significantly changes both the broadcast ownership rules and
the process for renewal of broadcast station licenses. The 1996 Act also relaxes
local radio ownership restrictions. The FCC has already implemented some of
these changes through Commission Orders. The 1996 Act establishes a "two-step"
renewal process that limits the FCC's discretion to consider applications filed
in competition with an incumbent's renewal application. Additionally, the 1996
Act substantially liberalizes the national broadcast ownership rules,
eliminating the national radio limits.
This new regulatory flexibility has engendered aggressive local, regional,
and/or national acquisition campaigns. Removal of previous station ownership
limitations on leading incumbents (i.e., existing networks and major station
groups) has increased sharply the competition for, and the prices of, attractive
stations.
Multiple Ownership Restrictions. The FCC has promulgated rules that, among
other things, limit the ability of individuals and entities to own or have an
official position or ownership interest above a certain level (an "attributable"
interest, as defined more fully below) in broadcast stations, as well as other
specified mass media entities. Prior to the passage of the 1996 Act, these rules
included limits on the number of radio stations that could be owned on both a
national and local basis. On a national basis, the rules generally precluded any
individual or entity from having an attributable interest in more than 20 AM
radio stations and 20 FM radio stations.
The 1996 Act substantially relaxed the radio ownership limitations. The FCC
began its implementation of the 1996 Act with several orders issued on March 8,
1996. The Act and the FCC's subsequently issued rule changes eliminated the
national ownership restriction, allowing a single entity to own nationally any
number of AM or FM broadcast stations. The Act and the FCC's new rules also
greatly eased local radio ownership restrictions. As with the old rules, the
maximum allowable varies depending on the number of radio stations within a
market. In markets with more than 45 stations, one company may own, operate or
control eight stations, with no more than five in any one service (AM or FM). In
markets of 30-44 stations, one company may own seven stations, with no more than
four in any one service; in markets with 15-29 stations, one entity may own six
stations, with no more than four in any one service. In markets with 14
commercial stations or less, one company may own up to five stations or 50% of
all of the stations, whichever is less, with no more than three in any one
service.
In 1992, the FCC placed limitations on time brokerage (local marketing)
agreements through which the licensee of one radio station provides programming
for another licensee's station in the same market. Stations operating in the
same service (e.g., where both stations are AM) and in the same market are
prohibited from simulcasting more than 25% of their programming. Moreover, in
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<PAGE> 35
determining the number of stations that a single entity may control, an entity
programming a station pursuant to an LMA is required, under certain
circumstances, to count that station toward its maximum even though it does not
own the station.
A number of cross-ownership rules pertain to licensees of television and
radio stations. FCC rules, the Communications Act or both generally prohibit an
individual or entity from having an attributable interest in both a television
station and a radio station, daily newspaper or cable television system that is
located in the same local market area served by the television station. The FCC
has employed a liberal waiver policy with respect to the TV/radio
cross-ownership restriction (the so-called "one-to-a-market" rule), generally
permitting common ownership of one AM, one FM, and one TV station in any of the
25 largest markets, provided there are at least 30 separately owned stations in
the market. The 1996 Act directed the Commission to extend its one-to-a-market
waiver policy to the top 50 markets, consistent with the public interest,
convenience and necessity; however, the FCC has not yet implemented this
provision. Moreover, in a pending 1995 rulemaking the FCC has proposed
eliminating the one-to-a-market rule entirely.
Expansion of the Company's broadcast operations in particular areas and
nationwide will continue to be subject to the FCC's ownership rules and any
further changes the FCC or Congress may adopt. Significantly, the 1996 Act
requires the Commission to review its remaining ownership rules biennially -- as
part of its regulatory reform obligations -- to determine whether its various
rules are still necessary. The Company cannot predict the impact of the biennial
review process or any other agency or legislative initiatives upon the FCC's
broadcast rules. Further, the 1996 Act's relaxation of the FCC's ownership rules
may increase the level of competition in one or more of the markets in which the
Company's stations are located, particularly to the extent that any of the
Company's competitors may have greater resources and thereby be in a better
position to capitalize on such changes.
Under the FCC's ownership rules, a direct or indirect purchaser of certain
types of securities of the Company could violate FCC regulations if that
purchaser owned or acquired an "attributable" or "meaningful" interest in other
media properties in the same areas as stations owned by the Company or in a
manner otherwise prohibited by the FCC. All officers and directors of a
licensee, as well as general partners, limited partners who are not properly
"insulated" from management activities, and stockholders who own five percent or
more of the outstanding voting stock of a licensee (either directly or
indirectly), generally will be deemed to have an attributable interest in the
license. Certain institutional investors who exert no control or influence over
a licensee may own up to ten percent of such outstanding voting stock without
being considered "attributable." Under current FCC regulations, debt
instruments, non-voting stock, properly insulated limited partnership interests
(as to which the licensee certifies that the limited partners are not
"materially involved" in the management and operation of the subject media
property) and voting stock held by minority stockholders in cases in which there
is a single majority stockholder generally are not attributable. The FCC's
"cross-interest" policy, which precludes an individual or entity from having a
"meaningful" (even though not attributable) interest in one media property and
an attributable interest in a broadcast, cable or newspaper property in the same
area, may be invoked in certain circumstances to reach interests not expressly
covered by the multiple ownership rules. See "The Tichenor Merger."
In January 1995, the FCC initiated a rulemaking proceeding designed to
permit a "thorough review of [its] broadcast media attribution rules." Among the
issues on which comment was sought were (i) whether to change the voting stock
attribution benchmarks from five percent to ten percent and, for passive
investors, from ten percent to twenty percent; (ii) whether there are any
circumstances in which non-voting stock interests, which are currently
considered non-attributable, should be considered attributable; (iii) whether
the FCC should eliminate its single majority shareholder exception (pursuant to
which voting interests in excess of five percent are not considered cognizable
if a single shareholder owns more than fifty percent of the voting power); (iv)
whether to relax insulation standards for business development companies and
other widely-held limited partnerships; (v) how to treat limited liability
companies and other new business forms for
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<PAGE> 36
attribution purposes; (vi) whether to eliminate or codify the cross-interest
policy; and (vii) whether to adopt a new policy which would consider whether
multiple cross interests or other significant business relationships (such as
time brokerage agreements, debt relationships or holdings of nonattributable
interests), which individually do not raise concerns, raise issues with respect
to diversity and competition. The Company cannot predict with certainty when
this proceeding will be concluded or whether any of these standards will be
changed. Should the attribution rules be changed, the Company is unable to
predict what effect, if any, such changes would have on the Company or its
activities.
License Grant and Renewal. Prior to the passage of the 1996 Act, radio
broadcasting licenses generally were granted or renewed for a period of seven
years upon a finding by the FCC that the "public interest, convenience, and
necessity" would be served thereby. At the time an application is made for
renewal of a radio license, parties in interest may file petitions to deny the
application, and such parties, including members of the public, may comment upon
the service the station has provided during the preceding license term. In
addition, prior to passage of the 1996 Act, any person was permitted to file a
competing application for authority to operate on the station's channel and
replace the incumbent licensee. Renewal applications were granted without a
hearing if there were no competing applications or if issues raised by
petitioners to deny such applications were not serious enough to cause the FCC
to order a hearing. If competing applications were filed, a full comparative
hearing was required.
Under the 1996 Act, the statutory restriction on the length of broadcast
licenses has been amended to allow the FCC to grant broadcast licenses for terms
of up to eight years, although the FCC has not yet implemented this provision.
The 1996 Act also requires renewal of a broadcast license if the FCC finds that
(1) the station has served the public interest, convenience, and necessity; (2)
there have been no serious violations of either the Communications Act or the
FCC's rules and regulations by the licensee; and (3) there have been no other
serious violations which taken together constitute a pattern of abuse. In making
its determination, the FCC may still consider
petitions to deny but cannot consider whether the public interest would be
better served by a person other than the renewal applicant. Instead, under the
1996 Act, competing applications for the same frequency may be accepted only
after the Commission has denied an incumbent's application for renewal of
license.
By order dated April 12, 1996, the FCC modified its rules to implement the
new two-step renewal procedure and to eliminate the right to file an application
that is mutually exclusive with a renewal. This modification became effective
prior to the filing of the license renewal applications for the Chicago,
Illinois market stations held by the Company and Tichenor. These applications
are currently pending. Also on April 12, 1996, the FCC issued a notice of
Proposed Rulemaking to consider how to implement the new (longer) license term
provision of the 1996 Act.
Although in the vast majority of cases broadcast licenses are granted by
the FCC even when petitions to deny are filed against them, there can be no
assurance that any of the Company's stations' licenses will be renewed.
Alien Ownership Restrictions. The Communications Act restricts the ability
of foreign entities or individuals to own or hold certain interests in broadcast
licenses. Foreign governments, representatives of foreign governments, non-U.S.
citizens, representatives of non-U.S. citizens, and corporations or partnerships
organized under the laws of a foreign nation are barred from holding broadcast
licenses. Non-U.S. citizens, collectively, may directly or indirectly own or
vote up to twenty percent of the capital stock of a licensee. In addition, a
broadcast license may not be granted to or held by any corporation that is
controlled, directly or indirectly, by any other corporation more than one-
fourth of whose capital stock is owned or voted by non-U.S. citizens or their
representatives, by foreign governments or their representatives, or by non-U.S.
corporations, if the FCC finds that the public interest will be served by the
refusal or revocation of such license. The FCC has interpreted this provision of
the Communications Act to require an affirmative public interest finding before
a
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<PAGE> 37
broadcast license may be granted to or held by any such corporation, and the FCC
has made such an affirmative finding only in limited circumstances. The Company,
which serves as a holding company for subsidiaries that serve as licensees for
the stations, therefore may be restricted from having more than one-fourth of
its stock owned or voted directly or indirectly by non-U.S. citizens, foreign
governments, representatives of non-U.S. citizens or foreign governments, or
foreign corporations. The Communications Act previously also prohibited grant of
a broadcast station license (i) to any corporation with an alien officer or
director, or (ii) to any corporation controlled by another corporation with any
alien officers or more than one-fourth alien directors. The restrictions on non-
U.S. citizens serving as officers or directors of licensees and their parent
corporations have been eliminated, however, by the 1996 Act.
Other Regulations Affecting Radio Broadcasting Stations. The FCC has
significantly reduced its past regulation of broadcast stations, including
elimination of formal ascertainment requirements and guidelines concerning
amounts of certain types of programming and commercial matter that may be
broadcast. In 1990, the U.S. Supreme Court refused to review a lower court
decision that upheld the FCC's 1987 action invalidating most aspects of the
Fairness Doctrine, which had required broadcasters to present contrasting views
on controversial issues of public importance. The FCC has, however, continued to
regulate other aspects of fairness obligations in connection with certain types
of broadcasts. In addition, there are FCC rules and policies, and rules and
policies of other federal agencies, that regulate matters such as political
advertising practices, equal employment opportunity, application procedures and
other areas affecting the business or operations of broadcast stations.
Recent Developments, Proposed Legislation and Regulation. The FCC presently
is seeking comment on its policies designed to increase minority ownership of
mass media facilities. Congress, however, has enacted legislation that
eliminated the minority tax certificate program of the FCC, which gave favorable
tax treatment to entities selling broadcast stations to entities controlled by
an ethnic minority. In addition, a recent Supreme Court decision has cast into
doubt the continued validity of other FCC programs designed to increase minority
ownership of mass media facilities.
Congress and the FCC currently have under consideration, and may in the
future adopt, new laws, regulations and policies regarding a wide variety of
matters that could affect, directly or indirectly, the operation and ownership
of the Company's broadcast properties. In addition to the changes and proposed
changes noted above, such matters include, for example, the license renewal
process, spectrum use fees, political advertising rates, potential restrictions
on the advertising of certain products (liquor, beer and wine, for example) and
the rules and policies to be applied in enforcing the FCC's equal employment
opportunity regulations. Other matters that could affect the Company's broadcast
properties include technological innovations and developments generally
affecting competition in the mass communications industry.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act, or the 1996 Act, nor of the regulations
and policies of the FCC thereunder. The 1996 Act also covers satellite and
terrestrial delivery of digital audio radio service, and direct broadcast
satellite systems. Proposals for additional or revised regulations and
requirements are pending before and are being considered by Congress and federal
regulatory agencies from time to time. Also, various of the foregoing matters
are now, or may become, the subject of court litigation, and the Company cannot
predict the outcome of any such litigation or the impact on its broadcast
business.
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MANAGEMENT
MANAGEMENT OF COMPANY FOLLOWING THE TICHENOR MERGER
Upon consummation of the Tichenor Merger, the Company will enter into a
five year employment contract with McHenry Tichenor, Jr. to serve as the
Company's President and Chief Executive Officer (the "Employment Agreement").
Mr. Tichenor, 41, has been the President and Chief Executive Officer and a
director of Tichenor since 1981. The Employment Agreement provides for an annual
salary of $260,000 plus incentive compensation as determined by the Compensation
Committee of the Company's Board of Directors. Upon termination by the Company
without cause or by Mr. Tichenor for good reason, the Company shall be obligated
to pay to Mr. Tichenor a lump sum amount equal to the estimated payments of
salary and bonus remaining through the end of the term of the agreement.
Furthermore, the Employment Agreement provides that Mr. Tichenor agrees not to
compete with the Company for a period of one year following the date the
Employment Agreement is terminated.
Tichenor has indicated to the Company that, in addition to McHenry
Tichenor, Jr., the following individuals will serve as executive officers of the
Company following the consummation of the Tichenor Merger:
David L. Lykes. Mr. Lykes, 61, is Senior Vice President and a Director of
Tichenor. Mr. Lykes began his career at Tichenor in 1958. Mr. Lykes is
responsible for the day-to-day operation of Tichenor's stations.
Jeffrey T. Hinson. Mr. Hinson, 41, joined Tichenor as Chief Financial
Officer, Treasurer, and a Director in October 1995. From October 1991 to October
1995, Mr. Hinson was President of Alliance Investors Holdings, Ltd., a
privately-held merchant bank located in Houston, Texas. For two years prior to
joining Tichenor, Mr. Hinson acted as a consultant for Tichenor.
Ricardo del Castillo. Mr. Castillo, 50, has been Vice President of
Operations of Tichenor since 1988 and became a director of Tichenor in February
1989.
The Tichenor Merger Agreement also provides that following the consummation
of the Tichenor Merger, five designees of Tichenor shall constitute the entire
Board of Directors of the Company.
CURRENT EXECUTIVE OFFICERS AND DIRECTORS
The current directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ------------------------------------------------
<S> <C> <C>
L. Lowry Mays(1)..................... 61 President, Chief Executive Officer and Director
John T. Kendrick..................... 44 Senior Vice President and Chief Financial
Officer
Ernesto Cruz(1)...................... 42 Director
B. J. McCombs........................ 68 Director
James M. Raines(1)(2)................ 56 Director
John H. Williams(2).................. 62 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
All directors hold office until the annual meeting of stockholders next
following their election, or until their successors are elected and qualified.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
The Board has two committees, the Compensation Committee and the Audit
Committee. The basic function of the Compensation Committee is to determine
stock option grants to executive officers and other key employees, as well as to
review salaries, bonuses, and other elements of compensation of executive
officers and other key employees and make recommendations on such matters to the
full Board of Directors. The basic function of the Audit Committee is to review
the
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<PAGE> 39
financial statements of the Company, to consult with the Company's independent
auditors and to consider such other matters with respect to the internal and
external audit of the financial affairs of the Company as may be necessary or
appropriate in order to facilitate accurate financial reporting.
Information with respect to the business experience and affiliations of the
current directors and executive officers of the Company is set forth below.
Mr. Mays became President, Chief Executive Officer and director of the
Company on August 5, 1996. Mr. Mays is also President, Chief Executive Officer
and director of Clear Channel and has served as such since 1972.
Mr. Kendrick joined the Company as Vice President, Finance in September
1993. In December 1993, he was promoted to Senior Vice President and Chief
Financial Officer. From October 1992 through September 1993, Mr. Kendrick
provided financial consulting to the entertainment and computer software
industries. From June 1988 through October 1992, Mr. Kendrick served as Senior
Vice President and Chief Financial Officer of Skouras Pictures, Inc.
Mr. Cruz became a director of the Company on August 5, 1996. Mr. Cruz is a
Managing Director of CS First Boston Corporation, and has served in this
position for more than five years.
Mr. McCombs became a director of the Company on August 5, 1996. Mr. McCombs
also serves as a director of Clear Channel. Mr. McCombs is and has been a
private investor for more than five years.
Mr. Raines became a director of the Company on August 5, 1996. Mr. Raines
also serves as a director of 50-OFF Stores, Inc. Mr. Raines is the President of
James M. Raines & Company and has served in such a position for more than five
years.
Mr. Williams became a director of the Company on August 5, 1996. Mr.
Williams also serves as a director of Clear Channel and of GAINSCO, Inc. Mr.
Williams is Senior Vice President of Everon Securities, Inc., and has served in
such a position for more than five years.
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon completion of the Offering, the Company will have 15,047,731 shares of
Class A Common Stock outstanding (assuming no exercise of the Underwriters'
overallotment option). All of the 3,500,000 shares offered hereby (plus up to
525,000 additional shares in the event the Underwriters exercise their
over-allotment option) will be freely transferable without restriction or
further registration under the Securities Act, unless purchased by an
"affiliate" of the Company (as that term is defined under the Securities Act).
The 7,297,821 shares of Class A Common Stock owned by Clear Channel will be
"control securities" within the meaning of Rule 144, and are subject to
agreements with the Underwriters pursuant to which they may not be offered for
sale, sold or otherwise disposed of for 90 days after the date of this
Prospectus without the consent of Alex. Brown & Sons Incorporated or as may be
required to obtain the FCC's approval to consummate the Tichenor Merger. See
"The Tichenor Merger." Following this 90 day period, 2,426,108 shares of the
Class A Common Stock owned by Clear Channel will become eligible for sale,
although they will remain subject to the volume and other limitations (other
than the two year holding period) of Rule 144; provided, however, as long as the
Registration Statement on Form S-3 (declared effective on February 26, 1996)
remains in effect, subject to any contractual limitations, Clear Channel may
sell 2,156,799 of such shares without regard to any limitations contained in
Rule 144. Clear Channel has indicated to the Company that it does not currently
intend to sell any shares of the Company's Common Stock except as may be
necessary to consummate the Tichenor Merger.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned shares of Class A Common
Stock for at least two years is entitled to sell, within any three-month period,
a number of such shares which does not exceed the
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<PAGE> 40
greater of 1% of the then-outstanding shares of Class A Common Stock (15,047,731
shares immediately after the Offering) or the average weekly public trading
volume of the Class A Common Stock during the four calendar weeks preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who has not been an affiliate of the Company at any time during the
three months preceding a sale and who has owned shares of Class A Common Stock
for at least three years is entitled to sell such shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information or notice requirements of Rule 144.
The Company cannot make any predictions as to the effect, if any, sales of
shares of Class A Common Stock, or the availability of shares for future sale,
will have on the market price of the Class A Common Stock prevailing from time
to time.
REGISTRATION RIGHTS
Upon consummation of the Tichenor Merger, the Company will enter into a
registration rights agreement with each of Clear Channel and certain
shareholders of Tichenor who receive Class A Common Stock in the Merger pursuant
to which Clear Channel and such Tichenor shareholders will have certain demand
and piggyback registration rights with respect to shares of Class A Common Stock
owned by them.
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<PAGE> 41
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Class A Common Stock, $.001 par value, 7,000,000 shares of Class B Common Stock,
$.001 par value, and 5,000,000 shares of Preferred Stock, $.001 par value. As of
September 30, 1996, 11,547,731 shares of Class A Common Stock were outstanding
and no shares of Class B Common Stock or Preferred Stock were outstanding. Upon
consummation of the Tichenor Merger, the authorized shares of each of Class A
Common Stock and Class B Common Stock will increase to 50,000,000.
COMMON STOCK
General. All of the outstanding shares of Common Stock are, and the shares
of Class A Common Stock offered hereby will be, validly issued, fully paid and
nonassessable. The rights of holders of shares of Class A Common Stock and Class
B Common Stock are identical except for voting rights. Currently, there are no
outstanding shares of Class B Common Stock.
Voting Rights. Holders of shares of Common Stock vote as a single class on
all matters submitted to a vote of the stockholders, with each share of Class A
Common Stock entitled to one vote and each share of Class B Common Stock
generally entitled to ten votes. However, each share of Class A Common Stock and
Class B Common Stock is entitled to one vote when required by law. Holders of
Common Stock are not entitled to cumulate votes in the election of directors.
There are no shares of Class B Common Stock currently outstanding. Upon
consummation of the Tichenor Merger, the Certificate of Incorporation of the
Company will be amended to provide that the rights of the Class B Common Stock
will be modified as described herein under "Nonvoting Common Stock."
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of any class of Common Stock which is entitled to vote is
required to approve any amendment to the Certificate of Incorporation of the
Company which would increase or decrease the aggregate number of authorized
shares of any class, increase or decrease the par value of the shares of any
class, or modify or change the powers, preferences or special rights of the
shares of any class so as to affect such class adversely.
Nonvoting Common Stock. If approved by the Board of Directors and
stockholders of the Company, the Company will amend its certificate of
incorporation to authorize 50,000,000 shares of the Class B Common Stock and
amend the rights of the holders thereof, as further described herein. For
purposes of this Prospectus, the Class B Common Stock, after giving effect to
the amendment to the rights thereof, has been referred to herein as the
"Nonvoting Common Stock." The Nonvoting Common Stock will be issued in exchange
for shares of Class A Common Stock held by Clear Channel in the Tichenor Merger.
Holders of the Nonvoting Common Stock will, in certain circumstances, have
certain voting rights, with each share of Nonvoting Common Stock being entitled
to one vote. Specifically, so long as Clear Channel and its affiliates own at
least 20% of the Common Stock then outstanding, the Company will not be able to,
and will not be able to permit any subsidiary to, without the vote or consent by
the holders of a majority of the Nonvoting Common Stock voting as a single
class, take any of the following actions: (i) effect the sale, lease or other
transfer of all or substantially all of the assets of the Company, or any merger
or consolidation involving the Company where the stockholders of the Company
immediately prior to such transaction would not own at least 50% of the capital
stock of the surviving entity, or any reclassification, recapitalization,
dissolution, liquidation or winding up of the Company; (ii) authorize, issue or
obligate itself to issue any shares of Preferred Stock; (iii) make or permit any
amendment to the Company's certificate of incorporation that adversely affects
the rights of the holders of Nonvoting Common Stock; (iv) declare or pay any
non-cash dividends on or make any other non-cash distribution on its common
stock; or (v) make or permit any amendment or modification to the Company's
certificate of incorporation concerning the Common Stock.
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<PAGE> 42
Conversion of Nonvoting Common Stock. The Company's Restated Certificate of
Incorporation will provide that only Clear Channel and its affiliates may own
shares of Nonvoting Common Stock. The Nonvoting Common Stock that Clear Channel
and its affiliates will receive in the Tichenor Merger will convert into Class A
Common Stock automatically upon sale or transfer to a person or entity other
than Clear Channel or an affiliate of Clear Channel. Each share of the Nonvoting
Common Stock will also be convertible into Class A Common Stock at the option of
its holder subject to necessary FCC consents. In addition, Clear Channel may
convert shares of Class A Common Stock held by it into shares of Nonvoting
Common Stock at its option.
Other Provisions. Subject to the rights of any Preferred Stock, the holders
of Common Stock are entitled to receive such dividends, if any, as may be
declared from time to time by the Board of Directors in it discretion from funds
legally available therefor, and upon liquidation or dissolution are entitled to
receive all assets available for distribution to the stockholders. The holders
of the Common Stock have no preemptive or other subscription rights, and there
are no redemption or sinking fund provisions with respect to such shares.
PREFERRED STOCK
The shares of Preferred Stock may be issued in series with such
designations, preferences, limitations and relative rights as the Company's
Board of Directors may determine.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law prohibits a Delaware
corporation from engaging in a "Business Combination" (defined to include a
variety of transactions, including mergers) with an "Interested Stockholder"
(generally defined as a person with 15% or more of a corporation's outstanding
voting stock) for three years following the date such person became an
Interested Stockholder unless, with certain exceptions, the "Business
Combination" or the transactions in which the person became an Interested
Stockholder is approved in a prescribed manner.
ALIEN OWNERSHIP
The Company's Restated Certificate of Incorporation restricts the ownership
and voting of the Company's capital stock, including its Class A Common Stock,
in accordance with the Communications Act and the rules of the FCC to prohibit
ownership of more than 25% of the Company's outstanding capital stock (or
control of more than 25% of the voting power it represents) by or for the
account of aliens, foreign governments, or non-U.S. corporations or corporations
otherwise subject to control by such persons or entities. The Restated
Certificate of Incorporation also prohibits any transfer of the Company's
capital stock which would cause the Company to violate this prohibition. In
addition, the Restated Certificate of Incorporation authorizes the Company's
Board of Directors to adopt such provisions as it deems necessary to enforce
these prohibitions.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Class A Common Stock is Harris
Trust Company of California.
41
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, CS First Boston Corporation, Lehman Brothers
Inc., Montgomery Securities and Smith Barney Inc. (the "Representatives"), have
severally agreed to purchase from the Company the following respective number of
shares of Class A Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- -------------------------------------------------------------------------------- ---------
<S> <C>
Alex. Brown & Sons Incorporated.................................................
CS First Boston Corporation.....................................................
Lehman Brothers Inc.............................................................
Montgomery Securities...........................................................
Smith Barney Inc................................................................
---------
Total........................................................................... 3,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of Class A Common Stock offered hereby if
any of such shares are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the shares of Class A Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 525,000
additional shares of Class A Common Stock at the public offering price less the
underwriting discounts and commission set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Class A Common Stock to be
purchased by it shown in the above table bears to 3,500,000, and the Company
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of Class A Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on the
same terms as those in which the 3,500,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Company and the Underwriters with respect to certain liabilities,
including liabilities under the Securities Act.
The Company, its directors and executive officers and its stockholders have
agreed that they will not, directly or indirectly, offer, sell or otherwise
dispose of any equity securities of the Company or any securities convertible
into, or exchangeable for, or any rights to purchase or acquire, equity
securities of the Company (other than employee stock options granted by the
Company in the ordinary course of business) for a period of 90 days after the
date of this Prospectus, without the prior written consent of Alex. Brown & Sons
Incorporated. This restriction shall not apply to any sale of shares of Common
Stock made by Clear Channel in order to comply with FCC regulations upon
consummation of the Tichenor Merger.
One or more of the Underwriters currently act as market makers for the
Class A Common Stock and may engage in "passive market making" in such
securities on the Nasdaq National Market in accordance with Rule 10b-6A under
the Exchange Act. Rule 10b-6A permits, upon the satisfaction of
42
<PAGE> 44
certain condition, underwriters participating in a distribution that are also
Nasdaq market makers in the security being distributed to engage in limited
market making transactions during the period when Rule 10b-6 under the Exchange
Act would otherwise prohibit such activity. Rule 10b-6 prohibits underwriters
engaged in passive market making generally from entering a bid or effecting a
purchase at a price that exceeds the highest bid for those securities displayed
on the Nasdaq National Market by a market maker that is not participating in the
distribution. Under Rule 10b-6A, each underwriter engaged in passive market
making is subject to a daily net purchase limitation equal to 30% of such
entity's average daily trading volume during the two full consecutive calendar
months immediately preceding the date of the filing of the registration
statement under the Securities Act pertaining to the security to be distributed.
LEGAL OPINIONS
Certain legal matters in connection with the shares of Class A Common Stock
offered hereby will be passed upon for the Company by its special counsel, Akin,
Gump, Strauss, Hauer & Feld, L.L.P. (a partnership including professional
corporations), San Antonio, Texas. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by their counsel, Piper &
Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The consolidated financial statements of the Company as of September 30,
1995 and 1994 and for each of the three years in the period ended September 30,
1995 appearing in the Company's Current Report on Form 8-K/A dated October 11,
1996, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Tichenor Media System, Inc. as of
December 31, 1994 and 1995 and for each of the years in the three-year period
ended December 31, 1995, are included herein in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants included herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of Viva America Media Group as of December 31,
1993 and 1992 and for each of the three years in the period ended December 31,
1993 incorporated in this Prospectus by reference have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Spanish Radio Network as of December 31, 1993
and for the year then ended appearing in the Company's Registration Statement
(Form S-1 No. 33-78370) and related Prospectus dated July 27, 1994, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given upon authority of such firm as experts in accounting and auditing.
The combined financial statements of Mark A. Rodriguez, Jr. Broadcasting,
Inc. and Rodriguez Broadcasting, Inc. as of December 31, 1992 and 1993 and for
each of the years ended December 31, 1991, 1992 and 1993 incorporated by
reference in this Prospectus have been audited by Belew Averitt LLP, independent
auditors, as stated in their reports incorporated by reference herein, and have
been so incorporated by reference in reliance upon the reports of said firm
given upon their authority as experts in accounting and auditing.
43
<PAGE> 45
The combined financial statements of KSOL-FM and KYLZ-FM (Divisions of
Crescent Communications, L.P.) as of December 31, 1994 and 1995 and for the
period April 1, 1994 to December 31, 1994 and for the year ended December 31,
1995 are incorporated herein, in reliance upon the report of Miller, Kaplan,
Arase & Co., independent certified public accountants incorporated herein, and
upon the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy and
information statements filed by the Company with the Commission pursuant to the
information requirements of the Exchange Act may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: New York Regional Office, Seven World Trade Center, 14th Floor, New
York, New York, 10048, Los Angeles Regional Office, Suite 500 East, Tishman
Building, 5757 Wilshire Boulevard, Los Angeles, California, 90036, and Chicago
Regional Office, 500 W. Madison Street, 14th Floor, Chicago, Illinois 60661.
Copies of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates or through the Internet from the SEC's home page on the World Wide Web at
http://www.sec.gov. In addition, reports, proxy statements and other information
concerning the Company can be inspected and copied at the offices of the Nasdaq
National Market, Report Section, 1735 K Street, N.W., Washington, D.C. 20006.
This Prospectus, which constitutes a part of a Registration Statement filed
by the Company with the Commission under the Securities Act, omits certain
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and to the exhibits thereto for further
information with respect to the Company and the Class A Common Stock offered
hereby. Statements contained herein concerning provisions of any document are
not necessarily complete, and each statement is qualified in its entirety by
reference to the copy of such document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Company pursuant to
the Exchange Act are incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995;
2. The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended December 31, 1995, March 31, 1996 and June 30, 1996;
3. The description of the Company's Common Stock contained in the
section entitled "Description of Capital Stock" contained in the
Registration Statement on Form S-1 of the Company, as amended, filed with
the Securities and Exchange Commission on April 29, 1994 (No. 33-78370) and
incorporated by reference into the Registration Statement on Form 8-A under
the Securities Exchange Act of 1934, as amended, of the Company filed with
the Commission on July 8, 1994, and the Registration Statement on Form S-3,
of the Company, as amended, filed with the Commission on February 26, 1996
(No. 333-1060);
4. The Company's Reports on Form 8-K dated March 27, 1996, June 18,
1996, June 20, 1996, and August 20, 1996;
5. The Company's report on Form 8-K dated September 24, 1996, as
amended October 15, 1996; and
44
<PAGE> 46
6. The financial statements, reports thereon and notes thereto for
each of Viva America Media Group, Spanish Radio Network, Mark Rodriguez,
Jr. Broadcasting, Inc. and Rodriguez Broadcasting, Inc. contained on pages
F-23 through F-33 and F-44 through F-67 of the Prospectus, dated July 27,
1994, filed with the Securities and Exchange Commission pursuant to Rule
424(b) on July 29, 1994.
Any documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. To the extent that any
proxy statement is incorporated by reference herein, such incorporation shall
not include any information contained in such proxy statement which is not,
pursuant to the Commission's rules, deemed to be "filed" with the Commission or
subject to the liabilities of Section 18 of the Exchange Act.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any document described
above (other than exhibits, unless such exhibits are specifically incorporated
by reference). Requests for such copies should be directed to John T. Kendrick,
Senior Vice President, Chief Financial Officer and Assistant Secretary, Heftel
Broadcasting Corporation, 6767 West Tropicana Avenue, Suite 102, Las Vegas,
Nevada 89103 (telephone: (702) 367-3322).
45
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited)...................................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1993, 1994 and
1995 and the Six Months Ended June 30, 1995 and 1996 (unaudited)................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1993, 1994 and 1995 and for the Six Months Ended June 30, 1996
(unaudited)...................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994
and 1995 and for the Six Months Ended June 30, 1995 and 1996 (unaudited)......... F-6
Notes to Consolidated Financial Statements.......................................... F-7
KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.)
Independent Auditor's Report........................................................ F-16
Accountant's Compilation Report..................................................... F-17
Combined Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996.......... F-18
Combined Statements of Operations and Partners' Deficiency for the Nine Months Ended
December 31, 1994, the Year Ended December 31, 1995 and for the Six Months Ended
June 30, 1995 and 1996........................................................... F-19
Combined Statements of Cash Flows for the Nine Months Ended December 31, 1994, the
Year Ended December 31, 1995 and for the Six Months Ended June 30, 1995 and
1996............................................................................. F-20
Notes to Combined Financial Statements.............................................. F-21
</TABLE>
F-1
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tichenor Media System, Inc.:
We have audited the accompanying consolidated financial statements of
Tichenor Media System, Inc. and subsidiaries as listed in the accompanying
index. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tichenor
Media System, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
May 6, 1996
F-2
<PAGE> 49
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 2,331,014 $ 3,593,955 $ 2,961,920
Accounts receivable, net of allowance of $228,282 in 1994,
$756,808 in 1995 and $449,261 in 1996....................... 7,465,380 8,275,427 10,262,721
Income tax receivable, including accrued interest............. 5,156,081 -- --
Amounts receivable from officers and stockholders............. 54,930 99,168 119,436
Prepaid expenses and other current assets..................... 241,547 358,640 590,296
----------- ----------- -----------
Total current assets................................... 15,248,952 12,327,190 13,934,373
----------- ----------- -----------
Investments, at equity.......................................... 249,892 221,458 221,458
----------- ----------- -----------
Property and equipment, at cost:
Land.......................................................... 1,541,152 2,095,690 2,093,190
Buildings and improvements.................................... 2,823,251 2,553,595 2,727,527
Broadcast and other equipment................................. 10,985,817 12,075,807 12,455,434
Furniture and fixtures........................................ 2,136,571 2,253,794 2,309,601
----------- ----------- -----------
17,486,791 18,978,886 19,585,752
Less accumulated depreciation................................. 11,107,206 11,449,267 11,990,800
----------- ----------- -----------
6,379,585 7,529,619 7,594,952
----------- ----------- -----------
Intangible assets:
Broadcast licenses............................................ 26,792,702 31,981,514 35,481,514
Cost in excess of fair value of net assets acquired........... 924,050 1,073,940 1,073,940
Other intangible assets....................................... 4,106,257 5,387,956 5,506,242
----------- ----------- -----------
31,823,009 38,443,410 42,061,696
Less accumulated amortization................................. 5,417,195 6,975,960 7,859,770
----------- ----------- -----------
26,405,814 31,467,450 34,201,926
----------- ----------- -----------
Other noncurrent assets:
Deferred charges, net......................................... 847,164 853,730 772,536
Notes receivable from related parties......................... 578,439 571,439 569,439
----------- ----------- -----------
1,425,603 1,425,169 1,341,975
----------- ----------- -----------
Total assets........................................... $49,709,846 $52,970,886 $57,294,684
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 1,872,925 $ 1,213,979 $ 1,019,677
Accrued expenses.............................................. 1,656,247 2,743,274 3,461,355
Income taxes payable.......................................... 584,931 565,574 173,769
Amounts payable to officers and stockholders.................. 211,152 270,184 274,756
Current portion of long-term obligations...................... 5,608,823 47,611 45,762
----------- ----------- -----------
Total current liabilities.............................. 9,934,078 4,840,622 4,975,319
----------- ----------- -----------
Long-term obligations, less current portion..................... 18,541,055 25,381,706 28,359,513
----------- ----------- -----------
Deferred income taxes........................................... 3,691,480 3,582,421 3,527,892
----------- ----------- -----------
14% senior redeemable cumulative preferred stock and accrued
dividends, $1,000 par value; authorized, issued and
outstanding 3,000 shares...................................... 3,359,680 3,378,749 3,378,749
----------- ----------- -----------
Common stock purchase warrant subject to mandatory redemption,
at accreted value............................................. 2,394,520 3,828,520 4,139,520
----------- ----------- -----------
Commitments and contingencies
Stockholders' equity:
10.5% junior noncumulative preferred stock, $10 par value;
authorized 100,000 shares; issued 42,829 shares; outstanding
35,919 shares in 1994 and 35,772 shares in 1995 and 1996
(liquidation preference of $3,682,950)...................... 368,295 368,295 368,295
Common stock, $1 par value; authorized 9,897,000 shares;
issued 743,704 shares; outstanding 678,897 shares in 1994,
684,420 shares in 1995 and 684,277 shares in 1996........... 743,704 743,704 743,704
Additional paid-in capital.................................... 4,212,814 4,357,038 4,357,038
Retained earnings............................................. 8,031,391 8,081,638 9,007,950
Less treasury stock at cost................................... (1,470,073) (1,379,263) (1,388,567)
Receivables for stock purchases............................... (97,098) (212,544) (174,729)
----------- ----------- -----------
Stockholders' equity................................... 11,789,033 11,958,868 12,913,691
----------- ----------- -----------
Total liabilities and stockholders' equity............. $49,709,846 $52,970,886 $57,294,684
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 50
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................. $35,349,367 $41,099,785 $46,377,676 $21,153,502 $23,954,847
Agency commissions........................ (3,550,029) (4,238,805) (4,776,415) (2,143,221) (2,596,963)
----------- ----------- ----------- ----------- -----------
Net revenues..................... 31,799,338 36,860,980 41,601,261 19,010,281 21,357,884
----------- ----------- ----------- ----------- -----------
Operating expenses:
Selling................................. 10,968,783 13,203,789 13,864,947 5,925,066 6,713,112
Programming............................. 3,998,801 4,866,974 5,452,060 2,588,410 3,079,471
Promotion and market research........... 1,143,868 1,701,147 1,730,225 944,274 1,141,271
Engineering............................. 906,199 983,014 1,038,024 487,869 564,365
General and administrative.............. 6,765,544 7,087,274 7,659,303 3,603,395 3,909,300
Corporate expenses...................... 2,238,115 2,484,121 2,685,541 1,186,416 1,427,712
Depreciation and amortization........... 1,930,783 2,368,113 2,467,056 1,146,929 1,434,705
----------- ----------- ----------- ----------- -----------
Total operating expenses......... 27,952,093 32,694,432 34,897,156 15,882,359 18,269,936
----------- ----------- ----------- ----------- -----------
Operating income.......................... 3,847,245 4,166,548 6,704,105 3,127,922 3,087,948
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income......................... 113,358 2,852,011 190,390 188,295 37,524
Interest expense........................ (2,145,519) (2,594,590) (2,230,009) (1,075,247) (1,282,294)
Costs relating to unconsummated
acquisitions.......................... -- -- (123,300) (10,569) (358)
Other, net.............................. (199,920) (429,492) 161,814 174,668 (55,642)
----------- ----------- ----------- ----------- -----------
(2,232,081) (172,071) (2,001,105) (722,853) (1,300,770)
----------- ----------- ----------- ----------- -----------
Income before income taxes and
extraordinary loss...................... 1,615,164 3,994,477 4,703,000 2,405,069 1,787,178
Income taxes.............................. 125,000 1,292,647 2,779,684 817,023 549,866
----------- ----------- ----------- ----------- -----------
Income before extraordinary
loss........................... 1,490,164 2,701,830 1,923,316 1,588,046 1,237,312
Extraordinary loss on retirement of debt,
net of income tax benefit of $224,030... -- (381,456) -- -- --
----------- ----------- ----------- ----------- -----------
Net income....................... 1,490,164 2,320,374 1,923,316 1,588,046 1,237,312
Preferred stock dividends................. (228,667) (431,013) (439,069) (219,421) --
Accretion of stock warrant to redemption
value................................... (1,516,000) (715,000) (1,434,000) (812,000) (311,000)
----------- ----------- ----------- ----------- -----------
Net income (loss) applicable to
common shareholders............ $ (254,503) $ 1,174,361 $ 50,247 $ 556,625 $ 926,312
=========== =========== =========== =========== ===========
Net income (loss) per share:
Income before extraordinary loss........ $ (.39) $ 2.31 $ .07 $ .82 $ 1.25
=========== =========== =========== =========== ===========
Net income.............................. $ (.39) $ 1.74 $ .07 $ .82 $ 1.25
=========== =========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding......... 654,651 674,728 683,396 678,774 738,397
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 51
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNIOR PREFERRED
STOCK COMMON STOCK RECEIVABLES
-------------------- -------------------- ADDITIONAL FOR
NUMBER NUMBER PAID-IN TREASURY STOCK RETAINED
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STOCK PURCHASES EARNINGS
--------- -------- --------- -------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992....................... 42,829 $428,295 726,523 $726,523 $4,447,765 $(1,681,180) $ (2,052) $ 7,170,163
Accretion of stock warrant to
redemption value........... -- -- -- -- -- -- -- (1,516,000)
Senior redeemable preferred
stock dividends............ -- -- -- -- -- -- -- (228,667)
Issuance costs of senior
redeemable preferred
stock...................... -- -- -- -- (321,836 ) -- -- --
Sale of treasury stock....... -- -- -- -- -- 181,129 (91,250) (58,630)
Collection of stock purchase
receivables................ -- -- -- -- -- -- 30,514 --
Net income................... -- -- -- -- -- -- -- 1,490,164
------ -------- ------- -------- ---------- ----------- --------- -----------
Balance at December 31,
1993....................... 42,829 428,295 726,523 726,523 4,125,929 (1,500,051) (62,788) 6,857,030
Conversion of junior
preferred stock to common
stock...................... (6,000) (60,000) 17,181 17,181 42,819 -- -- --
Accretion of stock warrant to
redemption value........... -- -- -- -- -- -- -- (715,000)
Senior redeemable preferred
stock dividends............ -- -- -- -- -- -- -- (431,013)
Purchase of treasury stock... -- -- -- -- -- (36,957) -- --
Sale of treasury stock....... -- -- -- -- 44,066 66,935 (81,000) --
Collection of stock purchase
receivables................ -- -- -- -- -- -- 46,690 --
Net income................... -- -- -- -- -- -- -- 2,320,374
------ -------- ------- -------- ---------- ----------- --------- -----------
Balance at December 31,
1994....................... 36,829 368,295 743,704 743,704 4,212,814 (1,470,073) (97,098) 8,031,391
Accretion of stock warrant to
redemption value........... -- -- -- -- -- -- -- (1,434,000)
Senior redeemable preferred
stock dividends............ -- -- -- -- -- -- -- (439,069)
Purchase of treasury stock... -- -- -- -- -- (41,467) -- --
Sale of treasury stock....... -- -- -- -- 144,224 132,277 (219,000) --
Collection of receivables for
stock...................... -- -- -- -- -- -- 103,554 --
Net income................... -- -- -- -- -- -- -- 1,923,316
------ -------- ------- -------- ---------- ----------- --------- -----------
Balance at December 31,
1995....................... 36,829 368,295 743,704 743,704 4,357,038 (1,379,263) (212,544) 8,081,638
Accretion of stock warrant to
redemption value
(unaudited)................ -- -- -- -- -- -- -- (311,000)
Purchase of treasury stock
(unaudited)................ -- -- -- -- -- (9,304) 2,375 --
Collection of stock purchase
receivables (unaudited).... -- -- -- -- -- -- 35,440 --
Net income (unaudited)....... -- -- -- -- -- -- -- 1,237,312
------ -------- ------- -------- ---------- ----------- --------- -----------
Balance at June 30, 1996
(unaudited)................ 36,829 $368,295 743,704 $743,704 $4,357,038 $(1,388,567) $(174,729) $ 9,007,950
====== ======== ======= ======== ========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 52
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
---------------------------------------- -------------------------
1993 1994 1995 1995 1996
------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income................................ $ 1,490,164 $ 2,320,374 $ 1,923,316 $ 1,588,046 $ 1,237,312
Provision for bad debts................... 330,727 491,750 767,614 224,158 166,439
Depreciation and amortization............. 1,930,783 2,368,113 2,467,056 1,146,929 1,434,705
Barter transactions, net.................. (214,222) (312,926) (34,450) (361,817) (503,716)
Amortization of debt facility fee included
in interest expense..................... 201,158 112,565 134,608 67,299 67,304
Loss (gain) from unconsolidated
partnership interests................... 55,291 (109,624) 19,834 -- --
Loss (gain) from sale of investments...... -- -- (6,081) 9,916 --
Valuation adjustments on notes receivable,
investments and other noncurrent
assets.................................. 691,978 12,600 -- -- --
Loss (gain) on disposition of assets...... (223,348) 325,676 (260,619) (258,468) 6,909
Deferred income taxes..................... -- 3,691,480 (109,059) (54,529) (54,529)
Loss on retirement of debt................ -- 605,486 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable, net................ (1,919,735) (1,459,841) (1,543,211) (1,039,449) (1,650,016)
Income tax receivable................... -- (5,156,081) 5,156,081 5,156,081 --
Amounts receivable from officers and
stockholders......................... 6,261 105,120 (44,238) (30,524) (20,268)
Prepaid expenses and other current
assets............................... (68,199) 263,534 (117,093) (51,002) (231,656)
Accounts payable........................ 1,298,235 (438,554) (658,946) (1,050,567) (194,302)
Accrued expenses........................ 714,089 (259,329) 1,087,027 1,110,880 718,081
Income taxes payable.................... 125,000 459,931 (19,357) 133,452 (391,805)
Amounts payable to officers and
stockholders......................... 43,390 138,898 59,032 (63,372) 4,572
------------ ----------- ----------- ----------- -----------
Net cash provided by operating
activities......................... 4,461,572 3,159,172 8,821,514 6,527,033 589,030
------------ ----------- ----------- ----------- -----------
Cash flows from investing activities:
Investment sales, distributions and
additions................................. (31,277) 25,000 14,681 8,526 --
Acquisitions of radio stations.............. (14,800,000) -- (6,740,000) (6,250,000) (3,500,000)
Property and equipment acquisitions......... (600,350) (899,762) (1,279,915) (730,666) (625,886)
Dispositions of property and equipment...... 339,529 652,080 644,737 637,391 2,750
Increase in intangible assets............... (437,706) (303,223) (1,042,929) (806,547) (118,288)
Decrease (increase) in other noncurrent
assets.................................... (65,789) (150,362) (134,174) (22,662) 15,890
------------ ----------- ----------- ----------- -----------
Net cash used in investing
activities......................... (15,595,593) (676,267) (8,537,600) (7,163,958) (4,225,534)
------------ ----------- ----------- ----------- -----------
Cash flows from financing activities:
Borrowings on long-term obligations......... 26,803,922 -- 7,150,000 6,650,000 3,000,000
Payments on long-term obligations........... (16,119,907) (3,014,894) (5,870,561) (5,180,268) (24,042)
Dividends on senior preferred stock......... -- (300,000) (420,000) (420,000) --
Net proceeds from issuance of senior
preferred stock........................... 2,678,164 -- -- -- --
Payment of deferred financing costs......... (717,742) (897,389) -- -- --
Proceeds from issuance of common stock
purchase warrant.......................... 163,520 -- -- -- --
Sales of treasury stock..................... 31,249 30,001 57,501 -- --
Note payments from stockholders............. 28,462 46,690 103,554 17,964 37,815
Purchases of treasury stock................. -- (36,957) (41,467) (34,791) (9,304)
------------ ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities............... 12,867,668 (4,172,549) 979,027 1,032,905 3,004,469
------------ ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................. 1,733,647 (1,689,644) 1,262,941 395,980 (632,035)
Cash and cash equivalents at beginning of
period...................................... 2,287,011 4,020,658 2,331,014 2,331,014 3,593,955
------------ ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period.... $ 4,020,658 $ 2,331,014 $ 3,593,955 $ 2,726,994 $ 2,961,920
============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 53
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Tichenor Media System, Inc. was formed on August 17, 1982 for the purpose
of owning and operating a group of Spanish language broadcast radio stations.
The Company's radio stations are located in San Antonio, McAllen-Brownsville,
Houston and El Paso, Texas and Chicago, Illinois.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
Tichenor Media System, Inc. and its wholly-owned subsidiaries, Tichenor License
Corporation ("TLC"), WADO Radio, Inc. ("WRI") and TC Television, Inc. ("TCTV")
(collectively, the "Company"). The Company consolidates the accounts of
subsidiaries when it has a controlling financial interest (over 50%) in the
outstanding voting shares of the subsidiary.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
Debt instruments with original maturities of three months or less are
considered to be cash equivalents. Cash equivalents at December 31, 1994 and
1995 are comprised of treasury bills, other government securities and money
market funds and totalled $1,813,793 and $461,029, respectively.
Investments
The Company uses the equity method to account for investments when it does
not have a controlling interest but has the ability to exercise significant
influence over the operating and/or financial decisions of the investee.
Investments where the Company does not exert significant influence are accounted
for using the cost method. Investments at December 31, 1994 and 1995 are
comprised primarily of a 50% interest in a general partnership which owns a
transmission tower that is leased to the Company.
Property, Equipment and Land
Property, equipment and land are recorded at cost. Expenditures for
significant renewals and betterments are capitalized. Repairs and maintenance
are charged to expense as incurred.
Depreciation is provided in amounts sufficient to relate the asset cost to
operations over the estimated useful lives (five to forty years) on a
straight-line basis. Leasehold improvements are amortized over the life of the
lease or the estimated service life of the asset, whichever is shorter. Gains or
losses from disposition of property and equipment is recognized in the statement
of operations.
F-7
<PAGE> 54
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
Intangible Assets
Intangible assets are recorded at cost. Amortization of intangible assets
is provided in amounts sufficient to relate the asset cost to operations over
the estimated useful lives (two to forty years) on a straight-line basis.
Advertising Costs
Advertising costs are charged to operations in the year incurred and
totaled $779,582, $894,982 and $1,232,255 for the years ended December 31, 1993,
1994 and 1995, respectively.
Barter Transactions
Barter transactions are recorded at the estimated fair value of the goods
or services received. Revenues from barter transactions are recognized as income
when advertisements are broadcast. Expenses are recognized when goods or
services are received or used. Barter amounts are not significant to the
Company's financial statements.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109
("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109 requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
Earnings Per Share
Net income or loss per common share is computed by dividing net income or
loss applicable to common shareholders by the weighted average number of common
and dilutive common equivalent shares (junior preferred stock) outstanding
during each year. The stock warrant has been excluded from the computation as
its effect would be antidilutive.
Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, trade receivables and accounts payable approximated fair value as
of December 31, 1994 and 1995, because of the relatively short maturity of these
instruments. The carrying value of long-term obligations, including the current
portion, approximated fair value as of December 31, 1994 and 1995, based upon
quoted market prices for the same or similar debt issues.
Interim Financial Statements
In the opinion of management, the accompanying unaudited consolidated
financial statements as of June 30, 1996 and for the six-month periods ended
June 30, 1995 and 1996 reflect all adjustments (none of which were other than
normal recurring accruals) necessary to a fair presentation of the Company's
financial position and results of operations for such periods. The results of
operations for the six-month period ended June 30, 1996 are not necessarily
indicative of
F-8
<PAGE> 55
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
results to be achieved for the full year. The unaudited interim financial
statements do not include all disclosures required by generally accepted
accounting principles.
2. ACQUISITIONS OF RADIO STATIONS
On June 1, 1995, certain tangible and intangible assets of radio station
KMPQ-AM in Rosenberg-Richmond (Houston), Texas were acquired for $2,500,000. The
intangible assets acquired are amortized using the straight line method over 15
to 40 years. This acquisition, along with a deposit for $500,000 related to the
KMIA-FM acquisition, was funded with bank financing.
On June 16, 1995, the Company purchased certain tangible and intangible
assets of KLTN-FM in Port Arthur (Houston), Texas for $3,650,000. The intangible
assets acquired are amortized using the straight line method over 15 to 40
years. Bank financing was used to fund this acquisition.
On June 23, 1995, TCTV purchased certain tangible and intangible assets
associated with the television program known as "Tejano Country." The purchase
price was $100,000 and was funded from operations.
The Company acquired certain tangible and intangible assets of radio
station KAMA-AM in El Paso, Texas on October 11, 1995. The purchase price was
$300,000. In addition, a two-year non-competition agreement was acquired for
$190,000. The intangible assets acquired are amortized using the straight line
method over 2 to 40 years. These assets together with $10,000 in working capital
were funded with bank financing.
Prior to the acquisitions of KMPQ-AM, KLTN-FM and KAMA-AM, the Company
operated the stations under time brokerage agreements. The time brokerage
agreements provided that the Company retain all revenues associated with
advertising time and pay certain operating expenses. These agreements were
effective December 1, 1994, April 27, 1992, and June 23, 1995, for KMPQ-AM,
KLTN-FM and KAMA-AM, respectively. Time brokerage agreement fees related to
these stations for the years ended December 31, 1994 and 1995 are $579,404 and
$91,463, respectively.
Unaudited consolidated condensed pro forma results of operations as if all
acquisitions occurred as of the beginning of the periods presented are as
follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Net revenues........................................... $34,294,803 $38,229,370
Operating income....................................... 2,988,834 6,251,306
Net income............................................. 562,712 1,204,873
Net loss per common share.............................. (.83) (.91)
</TABLE>
F-9
<PAGE> 56
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
3. LONG-TERM OBLIGATIONS
The following is a summary of long-term obligations outstanding as of
December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Bank loans, aggregate commitment of $50 million,
interest rate based on LIBOR and prime plus an
applicable margin as determined by the Company's
total leverage ratio; interest rates ranging from
7.44% to 9.25% at December 31, 1995; interest rates
ranged from 7.32% to 9.75% during 1995; payable
through 2001; collateralized by all of the Company's
assets (including the stock of TLC, WRI, and TCTV)
excluding FCC licenses; the Company is required to
comply with certain financial and nonfinancial
covenants............................................ $23,616,033 $25,348,217
Loans from related parties, interest at 10%, payable on
demand............................................... 404,263 --
Various loans, interest ranging from 11.75% to 12.38%,
payable through 1997................................. 58,203 38,456
Obligations under capital leases, implicit interest
rates of 5.8% to 12.2%, payable through 1997......... 71,379 42,644
----------- -----------
24,149,878 25,429,317
Less current portion................................... (5,608,823) (47,611)
----------- -----------
$18,541,055 $25,381,706
=========== ===========
</TABLE>
Maturities of long-term obligations for the five years subsequent to
December 31, 1995 and thereafter are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------------------------------- -----------
<S> <C>
1996........................................ $ 47,611
1997........................................ 33,490
1998........................................ --
1999........................................ 4,098,216
2000........................................ 13,750,000
Thereafter.................................. 7,500,000
</TABLE>
After April 30, 1997, the bank loan agreement requires principal reductions
in the loan equal to 50% of excess cash flow, as defined.
On August 9, 1994, the Company refinanced its bank loan. An extraordinary
loss of $605,486 has been recognized due to the write-off of the unamortized
deferred financing costs of the loan.
To reduce the impact of changes in interest rates on its floating rate
long-term bank loan, the Company entered into an interest rate swap agreement.
As of December 31, 1994, $10,370,000 of the notional amount of the agreement was
outstanding. The outstanding swap agreement matured in December 1995 and
effectively fixed the interest rate on the corresponding amount of the loan at
7.31%, which was based on the 90 day LIBOR plus an incremental rate. Amounts
receivable or
F-10
<PAGE> 57
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
payable under the agreement were recognized currently in interest expense.
Interest expense (income) recognized under the agreement totalled $279,309,
$140,767 and ($57,241) for the years ended December 31, 1993, 1994 and 1995,
respectively. The bank loan agreement requires the Company to enter into an
interest rate swap agreement covering 50% of the outstanding obligation by
December 31, 1996.
Interest paid for the years ended December 31, 1993, 1994 and 1995 amounted
to $1,478,879, $2,221,643 and $2,091,919, respectively.
4. STOCKHOLDERS' EQUITY
The senior preferred stock has a preference as to dividends and assets in
the event of a partial or complete liquidation. Dividends are cumulative and
accrue at 14% per annum, compounded annually, on the sum of the par value of the
stock and all accrued and unpaid dividends. As of December 31, 1994 and 1995,
accrued and unpaid dividends were $359,680 and $378,749, respectively. In the
event of a partial or complete liquidation, the senior preferred stock is
entitled to receive the sum of the par value of the stock and all accrued and
unpaid dividends ("Redemption Price") before payment of the preferential amount
owed with respect to the junior preferred stock.
The senior preferred stock has no voting rights; however, the holders of
the senior preferred stock are entitled to elect one director of the Company.
Each director is entitled to one vote, but if certain covenants to the
investment agreement with the preferred shareholders are not met, the senior
preferred stock director is entitled to 100 votes, whereas other directors will
have one vote. The preferred stock director in this situation will have the
power to cause the Company to sell certain assets to satisfy first the bank
obligation in full and then redeem the senior preferred stock and repurchase the
stock warrant discussed in the following paragraph.
The senior preferred shareholders were issued a warrant to purchase common
stock for $38,000 on or before June 15, 2003. The stock warrant is for the
purchase of common stock in an amount up to 4% of the Company's total common
stock outstanding at the time of exercise of the warrant, computed on a fully
diluted basis. The difference between the carrying value of the warrant and its
estimated fair value, as determined by management on an annual basis, is being
accreted over the term of the warrant through charges to retained earnings.
The Company has the option to redeem all the senior preferred stock at the
Redemption Price and repurchase the stock warrant after December 31, 1996. The
stock warrant would be repurchased at a value which approximates 4% of the sum
of the fair market value of the Company's net assets. The mandatory redemption
date for the senior preferred stock is June 30, 2001. Both the option to redeem
the senior preferred stock and the mandatory redemption provision require the
Company to simultaneously repurchase the stock warrant.
The junior preferred stock has a preference as to dividends and assets in
the event of a partial or complete liquidation. The payment of dividends on this
class of stock is restricted by the bank credit agreement. In the event of a
partial or complete liquidation, holders of the junior preferred stock are
entitled to receive $100 per share after full payment of amounts owed to holders
of the senior preferred stock and before any distribution on the common stock.
The holders of the junior preferred stock have the right to convert their
shares into common stock. The conversion rate for each share of junior preferred
stock is the quotient of $100 divided by the fair market value of one share of
common stock on the date of conversion. The number of shares to be converted is
multiplied by such quotient.
F-11
<PAGE> 58
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
The holders of the junior preferred stock have voting rights equal in the
aggregate to 45% of the voting rights of all outstanding voting shares. The
holders of the common stock have voting rights equal to the remaining 55%.
As of December 31, 1995, treasury stock is comprised of 59,284 shares of
common stock at an aggregate cost of $1,273,563 and 1,057 shares of junior
preferred stock at an aggregate cost of $105,700. Except for the purchase of 147
shares of junior preferred stock at a cost of $14,700 in 1995, all other
treasury stock transactions during the three years ended December 31, 1995 and
the six months ended June 30, 1996 represent purchases and sales of common
stock.
5. INCOME TAXES
The provision (benefit) for income taxes on earnings before extraordinary
item for the years ended December 31, 1993, 1994, and 1995 consists of the
following:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal..................................... $125,000 $(2,481,971) $2,532,002
State....................................... -- 83,138 356,741
---------- ----------- ----------
Total current tax expense
(benefit)......................... 125,000 (2,398,833) 2,888,743
---------- ----------- ----------
Deferred:
Federal..................................... -- 3,392,171 (219,425)
State....................................... -- 299,309 110,366
---------- ----------- ----------
Total deferred tax expense
(benefit)......................... -- 3,691,480 (109,059)
---------- ----------- ----------
Total income tax expense............ $125,000 $ 1,292,647 $2,779,684
========== =========== ==========
</TABLE>
In 1994, an income tax benefit of $224,030 was allocated to the
extraordinary charge discussed in note 3.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1994 and
1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Intangible assets.................................... $ 280,654 $ 444,800
Allowance for doubtful accounts receivable........... 84,464 290,540
Other................................................ 60,976 68,000
----------- -----------
Total deferred tax assets.................... 426,094 803,340
----------- -----------
Deferred tax liabilities:
Broadcast licenses................................... (4,107,838) (4,356,131)
Other................................................ (9,736) (29,630)
----------- -----------
Total deferred tax liabilities............... (4,117,574) (4,385,761)
----------- -----------
Net deferred tax liabilities................. $(3,691,480) $(3,582,421)
=========== ===========
</TABLE>
F-12
<PAGE> 59
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
The reconciliation of income tax expense computed at the federal statutory
tax rate to the Company's actual income tax expense for the years ended December
31, 1993, 1994, and 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- ---------- ----------
<S> <C> <C> <C>
Federal income tax at statutory rate........ $ 549,156 $1,358,122 $1,599,020
State income taxes, net of federal
benefit................................... -- 252,415 308,291
Nondeductible intangible asset
amortization.............................. -- 33,150 140,927
Use of net operating loss carryforwards..... (424,156) (288,600) --
Other....................................... -- (62,440) 731,446
--------- ---------- ----------
$ 125,000 $1,292,647 $2,779,684
========= ========== ==========
</TABLE>
Income taxes paid for the years ended December 31, 1993, 1994, and 1995
amounted to $0, $21,958, and $2,908,100, respectively.
6. COMMITMENTS AND CONTINGENCIES
The Company is the lessor of office space, transmitter towers, and parcels
of land. Included in buildings and equipment as of December 31, 1994 and 1995 is
$2,186,261 and $2,005,433 of assets leased to others under operating leases and
the related accumulated depreciation of $617,571 and $623,711. Included in land
as of December 31, 1994 and 1995 is $52,396 representing a parcel of land which
is leased to another party under an operating lease.
The Company operates certain radio stations and the corporate offices from
leased facilities. Terms of the office space leases vary from three to ten
years. None of the leases contain contingent rent clauses; however, certain
leases contain five year renewal options. Other leases have terms which vary
from a month-to-month term to ten years. Certain leases have contingent rent
clauses providing for increases based on the Consumer Price Index. These leases
have renewal options of one to ten years.
Future minimum rental payments under noncancellable operating leases in
effect at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------------------ ----------
<S> <C>
1996............................................ $1,103,301
1997............................................ 1,080,089
1998............................................ 998,124
1999............................................ 898,354
2000............................................ 831,457
Thereafter...................................... 3,873,064
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
$933,685, $936,128 and $1,075,400, respectively.
In December 1994, the Company entered into a time brokerage agreement to
provide programming to, and sell advertising time on, radio station KMPQ-FM in
Rosenberg-Richmond (Houston), Texas, and acquired an option to purchase the
station. The time brokerage agreement provides that the Company will retain all
revenues associated with advertising time and pay certain operating expenses
effective December 1, 1994. The KMPQ-FM time brokerage agreement provides for
F-13
<PAGE> 60
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
payments of $12,500 a month to the licensee until the earlier of November 30,
1997 or the Company exercises its option to purchase the station. If the grantor
obtains an upgrade of the station's broadcast authorization status and relocates
the transmitter site, the purchase price of the station's assets would be
$14,000,000. If this upgrade is not accomplished, the purchase price is the fair
market value as defined in the agreement. If the upgrade of KMPQ-FM is not
completed at the expiration of the initial term of the time brokerage agreement,
the agreement may be extended for two, two-year periods with payments to the
licensee of $15,000 per month. If the upgrade becomes final, as defined in the
agreement, during the initial term or any extension of the agreement, the fee
paid to the licensee can increase to $150,000 per month.
On December 15, 1995, the Company entered into a time brokerage agreement
to provide programming to, and sell advertising time on, radio station KRTX-FM
in Galveston (Houston), Texas. Also, on December 15, 1995, the Company entered
into an asset purchase agreement related to this station. The time brokerage
agreement provides that the Company will retain all revenues associated with
advertising time and pay certain operating expenses effective December 15, 1995.
The KRTX-FM time brokerage agreement provides for payments of $13,000 per month
to the licensee until the earlier of the closing of the transactions
contemplated by the asset purchase agreement or the termination of such
agreement. The asset purchase agreement for KRTX-FM provides for the purchase of
certain tangible and intangible assets. The purchase price is $900,000. As of
December 31, 1995, the Company was waiting for approval from the Federal
Communications Commission ("FCC") before it could close on the purchase.
Time brokerage agreement fees for the years ended December 31, 1994 and
1995 were $12,500 (KMPQ-FM) and $155,000 (KMPQ-FM and KRTX-FM), respectively.
Spanish Radio Network ("SRN"), a partnership in which the Company was
previously a partner, was examined by the Internal Revenue Service ("IRS") for
the tax years ended December 31, 1992 and 1993. SRN owned and operated radio
stations. The IRS disagrees with SRN's radio station purchase price allocations
and has allocated a portion of the purchase price of certain amortizable
intangible assets to nonamortizable going concern value. The tax effect of these
adjustments to the Company, before interest, is approximately $326,000. The
Company intends to protest the adjustments through the appeals process of the
IRS and believes these adjustments will be reduced.
The IRS audited the Company's federal income tax returns for the tax years
ended February 29, 1984, and February 28, 1985, 1986 and 1987 and the Company
petitioned the United States Tax Court related to certain proposed adjustments.
The Company reached an agreement with the IRS on June 16, 1994, and all issues
were settled. At December 31, 1994, the Company accrued a tax refund receivable
of approximately $5,794,000 for the aforementioned tax years which includes net
interest income of approximately $2,671,000. The refund was received on April
24, 1995.
The Company is subject to other legal proceedings and claims which have
arisen in the ordinary course of its business and have not been fully
adjudicated. These actions, when ultimately concluded, will not, in the opinion
of management, have a material adverse effect upon the financial position or
results of operations of the Company.
7. SUBSEQUENT EVENTS
The Company closed on the purchase of the assets of KMIA-FM (subsequently
renamed KRTX-FM) in Jasper (Houston), Texas on March 25, 1996. The purchase
price was $3,500,000. A $3,000,000 bank loan was used to finance this
acquisition of assets.
F-14
<PAGE> 61
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
On March 31, 1996, the Company entered into a time brokerage agreement to
provide programming to, and sell advertising time on, radio station KQXX-FM in
McAllen, Texas. The Company also entered into an asset purchase agreement
related to this radio station. The time brokerage agreement provides that the
Company will retain all revenues associated with advertising time and pay
certain operating expenses effective April 1, 1996. The Company pays $12,500
monthly to the licensee of KQXX-FM until the earlier of the closing date or
termination of the asset purchase agreement.
8. OTHER SUBSEQUENT EVENTS (UNAUDITED)
The Company closed on the purchase of the assets of KLTP-FM (formerly
KRTX-FM) in Galveston (Houston), Texas on July 31, 1996. The purchase price was
$900,000. A $600,000 bank loan was used to finance this acquisition.
The Company closed on the purchase of the assets of KQXX-FM in McAllen,
Texas on August 1, 1996. The purchase price of KQXX-FM was $1,300,000. Also, a
five year non-competition agreement from the seller was purchased for $800,000.
A $1,300,000 bank loan was used to finance this acquisition.
On August 16, 1996, the Company purchased the assets of KSOL-FM and KYLZ-FM
in San Francisco and Santa Cruz (San Jose), California. The purchase price was
$40,000,000. The acquisition was financed with a $40,000,000 loan from Clear
Channel Communications, Inc. The interest rate on the loan starts at 9% and
escalates to 13% over the loan term. The loan matures on September 30, 1997.
The Company has entered into an Agreement and Plan of Merger whereby it
will merge with a wholly owned subsidiary of Heftel Broadcasting Corporation
("Heftel"). In connection with the merger, management of the Company will assume
management responsibilities of Heftel. Upon consummation of the merger, the
Company's senior preferred stock will be redeemed and the common stock warrant
will be repurchased. The senior preferred stock will be redeemed for $3,378,749
and 23,000 shares of common stock will be issued to repurchase the warrant. The
merger is expected to become effective in early 1997.
F-15
<PAGE> 62
INDEPENDENT AUDITOR'S REPORT
KSOL-FM and KYLZ-FM (Divisions of Crescent
Communications, L.P.)
San Francisco, California
To the Partners:
We have audited the accompanying combined balance sheets of KSOL-FM and
KYLZ-FM (Divisions of Crescent Communications, L.P.) as of December 31, 1994 and
1995 and the related combined statements of operations and partners' deficiency,
and cash flows for the nine months ended December 31, 1994 and the year ended
December 31, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of KSOL-FM and KYLZ-FM
(Divisions of Crescent Communications, L.P.) as of December 31, 1994 and 1995,
and the results of their operations and their cash flows for the nine months
ended December 31, 1994 and the year ended December 31, 1995 in accordance with
generally accepted accounting principles.
MILLER, KAPLAN, ARASE & CO.
North Hollywood, California
March 1, 1996 (Except for Note 11 as to
which the date is August 16, 1996).
F-16
<PAGE> 63
ACCOUNTANT'S COMPILATION REPORT
KSOL-FM and KYLZ-FM (Divisions of Crescent
Communications, L.P.)
San Francisco, California
To the Partners:
We have compiled the accompanying combined balance sheet of KSOL-FM and
KYLZ-FM (Divisions of Crescent Communications, L.P.) as of June 30, 1996, and
the related combined statements of operations and partners' deficiency, and cash
flows for the six month periods ended June 30, 1995 and 1996, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying combined financial statements and, accordingly, do not
express an opinion or any other form of assurance on them.
MILLER, KAPLAN, ARASE & CO.
September 30, 1996
F-17
<PAGE> 64
EXHIBIT "A"
KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(COMPILED)
<S> <C> <C> <C>
ASSETS:
Cash............................................. $ 500 $ 500 $ 500
Accounts receivable (net of allowance for
doubtful accounts of $65,869, $95,537 and
$105,411)..................................... 443,840 643,752 722,446
Trade receivable................................. -- 4,156 11,391
Other receivables................................ 1,537 9,759 14,802
Other prepaid expenses........................... 154,320 410,990 35,903
----------- ----------- -----------
Total current assets..................... 600,197 1,069,157 785,042
Property and equipment, net of accumulated
depreciation (Note 2)............................ 50,840 554,502 496,604
Intangible assets, net of accumulated amortization
(Note 3)......................................... 84,805 15,428,597 15,210,071
----------- ----------- -----------
Total assets............................. $ 735,842 $17,052,256 $16,491,717
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses............ $ 109,178 $ 199,497 $ 121,416
Accrued wages and commissions.................... 108,681 52,300 76,074
Trade liability.................................. 90,931 285,356 285,356
Deferred income.................................. 16,192 6,928 5,272
----------- ----------- -----------
Total current liabilities................ 324,982 544,081 488,118
Interdivisional payable (Note 4)................... 2,811,206 22,740,589 24,440,358
----------- ----------- -----------
Total liabilities........................ 3,136,188 23,284,670 24,928,476
Commitments and contingencies (Notes 5 and 6)
Partners' deficiency............................. (2,400,346) (6,232,414) (8,436,759)
----------- ----------- -----------
Total liabilities and partners'
deficiency............................. $ 735,842 $17,052,256 $16,491,717
=========== =========== ===========
</TABLE>
(See accompanying accountant's compilation report)
(Attached notes are an integral part of this statement)
F-18
<PAGE> 65
EXHIBIT "B"
KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.)
COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIENCY
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS ENDED
ENDED YEAR ENDED JUNE 30,
DECEMBER DECEMBER (COMPILED)
31, 31, --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Revenues......................... $ 1,796,162 $ 3,411,596 $ 1,631,085 $ 1,946,686
----------- ----------- ----------- -----------
Operation Expenses:
Operating expenses excluding
Depreciation and amortization,
General and administrative, and
Corporate expenses.............. 2,249,380 2,886,877 1,342,712 1,729,652
Depreciation and amortization...... 6,942 430,609 146,035 287,805
General and administrative
expense......................... 704,309 1,082,252 474,054 638,873
Corporate expense.................. 1,235,877 755,573 543,727 206,986
----------- ----------- ----------- -----------
Total operating expenses... 4,196,508 5,155,311 2,506,528 2,863,316
----------- ----------- ----------- -----------
Loss from operations....... (2,400,346) (1,743,715) (875,443) (916,630)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense................... -- (2,104,583) (547,049) (1,296,502)
Other income....................... -- 16,230 9,140 8,787
----------- ----------- ----------- -----------
Net other (expense)........ -- (2,088,353) (537,909) (1,287,715)
----------- ----------- ----------- -----------
Net loss............................. (2,400,346) (3,832,068) (1,413,352) (2,204,345)
Partners' deficiency -- beginning of
period............................. -- (2,400,346) (2,400,346) (6,232,414)
----------- ----------- ----------- -----------
Partners' deficiency -- end of
period............................. $(2,400,346) $(6,232,414) $(3,813,698) $(8,436,759)
=========== =========== =========== ===========
</TABLE>
(See accompanying accountant's compilation report)
(Attached notes are an integral part of this statement)
F-19
<PAGE> 66
EXHIBIT "C"
KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NINE MONTHS JUNE 30,
ENDED YEAR ENDED (COMPILED)
DECEMBER 31, DECEMBER 31, --------------------------
1994 1995 1995 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Cash Flows From Operating
Activities:
Net loss.......................... $(2,400,346) $(3,832,068) $(1,413,352) $(2,204,345)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation................... 6,942 102,570 29,275 69,279
Amortization................... -- 328,039 116,760 218,526
(Increase) decrease in:
Accounts receivable.......... (443,840) (199,912) (258,457) (78,695)
Trade receivable............. -- (4,156) (103,133) (7,235)
Other receivables............ (1,537) (8,222) (18,899) (5,043)
Other prepaid expenses....... (154,320) (171,865) 206,766 375,087
Increase (decrease) in:
Accounts payable and accrued
expenses.................. 109,178 90,319 68,501 (78,081)
Accrued wages and
commissions............... 108,681 (56,381) (55,386) 23,774
Trade liability.............. 90,931 194,425 57,285 --
Deferred revenue............. 16,192 (9,264) (16,192) (1,656)
Interdivisional payable...... 2,811,206 3,929,383 1,726,966 1,699,769
----------- ----------- ----------- -----------
Net cash provided by
operating activities.... 143,087 362,868 340,134 11,380
----------- ----------- ----------- -----------
Cash Flows From Investing
Activities:
Purchase of property and
equipment...................... (57,782) (59,942) (37,208) (11,380)
Purchase of intangibles........... (84,805) (302,926) (302,926) --
----------- ----------- ----------- -----------
Net cash used by investing
activities.............. (142,587) (362,868) (340,134) (11,380)
----------- ----------- ----------- -----------
Net increase (decrease) in cash..... 500 -- -- --
Cash, beginning of period........... -- 500 500 500
----------- ----------- ----------- -----------
Cash, end of period................. $ 500 $ 500 $ 500 $ 500
=========== =========== =========== ===========
</TABLE>
Supplemental Disclosure of Non-Cash Activity:
The Partnership purchased KSOL-FM and KYLZ-FM on March 22, 1995 by
incurring approximately $16,000,000 in additional debt. This transaction was
recorded on the station's books through the interdivisional payable account.
(See accompanying accountant's compilation report)
(Attached notes are an integral part of this statement.)
F-20
<PAGE> 67
KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 1994 (AUDITED)
YEAR ENDED DECEMBER 31, 1995 (AUDITED)
SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (COMPILED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Nature of Business and Basis of Presentation
Radio stations KSOL-FM and KYLZ-FM ("the stations"), licensed to San
Francisco, California and Santa Cruz, California, respectively, are divisions of
Crescent Communications, L.P. ("the Partnership"). The Partnership was
established as a limited partnership for the purpose of acquiring and operating
radio stations and commenced operations on November 19, 1993. The Partnership
purchased radio stations KSOL-FM and KYLZ-FM on March 22, 1995 which it had been
operating on a contract basis since April 1, 1994. KYLZ-FM was simulcast with
another station owned by the Partnership since April 1, 1994. The accompanying
combined financial statements present only the accounts of KSOL-FM and KYLZ-FM,
after eliminating all significant interdivisional accounts and transactions
between the stations.
B. Unaudited Interim Information
In the opinion of management, the combined financial statements for the six
month periods ended June 30, 1995 and 1996 (unaudited) include all adjustments
necessary for a fair presentation in accordance with generally accepted
accounting principles consisting solely of normal recurring accruals and
adjustments. The results of operations and cash flows for the six months ended
June 30, 1995 and 1996 are not necessarily indicative of results which would be
expected for a full year.
C. Revenue Recognition
Revenue is recognized when commercial spot announcements are aired.
Unbilled commercial air time is accrued at year end and included in accounts
receivable. Payments received in advance are included in deferred revenue.
D. Property and Equipment
Property and equipment are stated at cost. Amounts expended for
improvements which increase the useful life or replace major units of property
and equipment are capitalized, while expenditures for repairs, maintenance and
minor renewals are charged to expense as incurred. The cost and related
accumulated depreciation of assets sold or otherwise disposed of are removed
from the accounts and any gain or loss is reflected in current year earnings.
E. Depreciation
Depreciation of property and equipment is computed using the straight-line
method over the estimated economic lives of the assets as follows:
<TABLE>
<S> <C>
Broadcasting Equipment............................................. 5 years
Furniture and Fixtures............................................. 7 years
Music Library...................................................... 5 years
Vehicles........................................................... 3 years
Computers.......................................................... 3 years
</TABLE>
(See accompanying accountant's compilation report)
F-21
<PAGE> 68
KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED DECEMBER 31, 1994 (AUDITED)
YEAR ENDED DECEMBER 31, 1995 (AUDITED)
SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (COMPILED)
F. Amortization
Amortization of intangible assets is computed using the straight-line
method over the estimated lives of the assets as follows:
<TABLE>
<S> <C>
FCC License....................................................... 40 years
Goodwill.......................................................... 40 years
Going Concern Value............................................... 40 years
Acquisition Costs................................................. 5 years
</TABLE>
G. Trades
Under trade agreements with certain advertisers, the Partnership provides
commercial spot announcements in exchange for goods and services, as is
customary in the broadcasting industry. These transactions are recorded at the
estimated fair market value of the goods and services received. Trade sales are
recognized when commercial spot announcements are broadcast and the value of
goods or services is recorded when received or utilized. The value of air time
provided and goods or services received are reflected in the balance sheet as a
trade receivable and a trade liability until they are paid for and earned,
respectively.
H. Concentration of Risk
Financial instruments that potentially subject the Partnership to credit
risk consist of accounts receivable. Concentration of credit risk with respect
to accounts receivable is limited due to the large number of diversified
customers and the geographic diversification of KSOL-FM and KYLZ-FM's national
customer base.
I. Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on management's estimate of
the collectability of accounts receivable.
J. Income Taxes
As a Limited Partnership, all income and losses of Crescent Communications,
L.P. are passed directly to the partners for federal and state income tax
purposes. Accordingly, income tax expense is not reflected on the statements of
operations and partners' deficiency.
K. Accounting Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires that management use estimates and
assumptions in preparing financial statements. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and expenses.
Actual results could differ from those estimates.
(See accompanying accountant's compilation report)
F-22
<PAGE> 69
KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED DECEMBER 31, 1994 (AUDITED)
YEAR ENDED DECEMBER 31, 1995 (AUDITED)
SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (COMPILED)
Corporate and interest expenses were allocated among the individual radio
station divisions of Crescent Communications, L.P. on a pro rata basis.
Corporate expenses were allocated based on revenues and interest expenses were
allocated based on station purchase price. The amounts allocated to KSOL-FM and
KYLZ-FM have been reflected in these financial statements.
The accounting records of KYLZ-FM were combined with those of another
station also owned by Crescent Communications, L.P. Approximately 12.7% of the
combined revenues and expenses were allocated to KYLZ-FM based on a combination
of wattage, sales price and spot rate.
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and Equipment consist of the following at December 31,:
<TABLE>
<CAPTION>
1994 1995
------- ---------
<S> <C> <C>
Broadcasting Equipment........................................ $20,671 $ 438,922
Furniture and Fixtures........................................ 618 88,768
Music Library................................................. -- 47,600
Vehicles...................................................... 22,181 38,881
Computers..................................................... 14,312 49,842
------- ---------
57,782 664,013
Accumulated Depreciation...................................... (6,942) (109,511)
------- ---------
$50,840 $ 554,502
======= =========
</TABLE>
NOTE 3 -- INTANGIBLE ASSETS
Intangible assets consist of the following at December 31,:
<TABLE>
<CAPTION>
1994 1995
------- -----------
<S> <C> <C>
FCC Licenses................................................ $ -- $15,000,000
Goodwill.................................................... -- 409,004
Going Concern Value......................................... -- 100,000
Acquisition Costs........................................... 84,805 247,632
------- -----------
84,805 15,756,636
Accumulated Amortization.................................... -- (328,039)
------- -----------
$84,805 $15,428,597
======= ===========
</TABLE>
The majority of the intangibles were acquired in the March 22, 1995
purchase of KSOL-FM and KYLZ-FM.
NOTE 4 -- INTERDIVISIONAL PAYABLE
As discussed in Note 1A, these combined financial statements present only
the accounts of KSOL-FM and KYLZ-FM. The interdivisional transactions which
would have been eliminated had the
(See accompanying accountant's compilation report)
F-23
<PAGE> 70
KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED DECEMBER 31, 1994 (AUDITED)
YEAR ENDED DECEMBER 31, 1995 (AUDITED)
SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (COMPILED)
financial statements been prepared on a consolidated basis have resulted in an
interdivisional payable to those entities which have not been included herein.
This payable consists primarily of KSOL-FM and KYLZ-FM station acquisition
debt recorded on the books of the Partnership, and interdivisional allocations
of Corporate and interest expenses. Since KSOL-FM and KYLZ-FM do not maintain
significant cash balances, all of the receipts and disbursements of the stations
are also recorded through this account.
NOTE 5 -- COMMITMENTS
A. Long-Term Debt
The secured long-term debt of the Partnership is not reflected in these
financial statements although interest expense has been allocated to the
stations as discussed in Note 1K. This long-term debt is secured by a lien on
all tangible and intangible assets of the Partnership, including KSOL-FM and
KYLZ-FM. This secured long-term debt outstanding of the Partnership totaled
$8,800,000 and $40,755,000 at December 31, 1994 and 1995, respectively. On
August 16, 1996, immediately subsequent to the sale of KSOL-FM and KYLZ-FM to
Tichenor Media System, Inc. (see Note 11) the debt mentioned above was retired
and all liens on the Stations were released. At December 31, 1995, loan covenant
violations had been waived by certain Partnership lenders concerning outstanding
debt totaling $40,755,000.
B. Lease Commitments
The Partnership is committed to four KSOL-FM and KYLZ-FM operating lease
agreements for office space, transmitter facilities and equipment, which expire
in various years through February, 2000. Payments on these leases range from
$600 to $10,200 per month. One of the leases includes a renewal option and calls
for an annual rental increase ranging from $270 to $2,290 per year as provided
in the lease agreement. KSOL-FM and KYLZ-FM rental expense for the nine months
ended December 31, 1994 and the year ended December 31, 1995 was $159,103 and
$206,359, respectively.
Future KSOL-FM and KYLZ-FM minimum rental payments under these lease
agreements for each of the years ending December 31 are as follows:
<TABLE>
<S> <C>
1996............................................. $204,746
1997............................................. 116,026
1998............................................. 108,533
1999............................................. 104,157
2000............................................. 14,400
</TABLE>
NOTE 6 -- COMMITMENTS -- RELATED PARTY
A. Management Agreements
The Partnership entered into a two year management agreement with a series
of one year automatic renewals with Crescent Communications Corporation. Two key
management members of this corporation are also related party stockholders of
S&W LP Corporation (Note 7). During the year
(See accompanying accountant's compilation report)
F-24
<PAGE> 71
KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED DECEMBER 31, 1994 (AUDITED)
YEAR ENDED DECEMBER 31, 1995 (AUDITED)
SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (COMPILED)
ended December 31, 1995, the Partnership paid $520,000 to Crescent
Communications Corporation for 1995 management fees which included a bonus of
$89,874 based on 1994's operating cash flow. During the nine months ended
December 31, 1994 and the year ended December 31, 1995, $386,714 and $476,207
was charged to corporate expenses of which $90,491 and $136,195 has been
allocated to KSOL-FM and KYLZ-FM on a pro rata basis.
Crescent Communications Corporation incurs certain costs on behalf of the
Partnership, which are periodically reimbursed. These reimbursable expenses
totalled $113,626 and $132,581 during the nine months ended December 31, 1994
and the year ended December 31, 1995 of which $26,588 and $32,918 have been
allocated to KSOL-FM and KYLZ-FM on a pro rata basis, respectively.
B. Capital Bonus Plan
During the nine months ended December 31, 1994 and the year ended December
31, 1995, the Partnership implemented a Capital Bonus Plan as an incentive for
certain key employees of the Partnership whereby the Board of Directors may
award "units" representing the right to receive a percentage of the net equity
growth of the stations owned by the Partnership including KSOL-FM and KYLZ-FM.
No bonuses were awarded under the plan for the year ended December 31, 1995.
NOTE 7 -- OTHER RELATED PARTY ACTIVITY
During the nine months ended December 31, 1994 and the year ended December
31, 1995, the Partnership incurred reimbursable expenses to a related party
stockholder of S&W LP Corporation (a partner of Crescent Communications, L.P.)
for expenses paid on behalf of the Partnership totalling $7,013 and $22,887, of
which $1,642 and $6,546 has been allocated to KSOL-FM and KYLZ-FM on a pro rata
basis, respectively.
NOTE 8 -- EMPLOYEE BENEFIT PLAN
The Partnership has adopted a Savings Retirement Program (the "Program")
under Section 401(k) of the Internal Revenue Code. The Program allows all
employees who are at least 21 years of age and have been employed with the
Company for a minimum of three months with a full time status to defer up to 15%
of their income on a pretax basis through contributions to the Program, limited
to an annual maximum ($9,240 in 1994 and 1995). The Program does not provide for
any matching of contributions, but the Partnership pays the annual
administration fee which was $1,700 and $2,226 for the nine months ended
December 31, 1994 and the year ended December 31, 1995, respectively.
NOTE 9 -- RADIO STATION PURCHASE
On March 22, 1995, Crescent Communications L.P. purchased substantially all
the assets of radio stations KSRY-FM (operating as KSOL-FM under a Program
Service and Time Brokerage Agreement since April 1, 1994) licensed to San
Francisco, California and KSRI-FM (operating as KYLZ-FM under LMA since April 1,
1994) licensed to Santa Cruz, California for an aggregate price of $16,000,000.
(See accompanying accountant's compilation report)
F-25
<PAGE> 72
KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED DECEMBER 31, 1994 (AUDITED)
YEAR ENDED DECEMBER 31, 1995 (AUDITED)
SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (COMPILED)
NOTE 10 -- LOCAL MARKETING AGREEMENTS
As mentioned in Note 9, the Partnership entered into a Program Service and
Time Brokerage Agreement (the "LMA") with the sellers of KSRY-FM and KSRI-FM
under which the Partnership operated the Stations until the purchase closed
(March 22, 1995). During this time, the Partnership retained all the revenues
and paid virtually all the expenses related to the Stations' operations. In
addition, the Partnership paid the sellers the following monthly fees while the
LMA was in effect:
<TABLE>
<S> <C>
April - July, 1994....................................................... $100,000
August - November, 1994.................................................. 125,000
December, 1994 - March, 1995............................................. 150,000
</TABLE>
During the nine months ended December 31, 1994 and the year ended December
31, 1995, an aggregate amount of $1,050,000 and $401,613 was paid under the
above agreement and is included in corporate expenses.
NOTE 11 -- SUBSEQUENT EVENTS
Sale of Stations
On May 3, 1996, the Partnership entered into an Asset Purchase Agreement to
sell substantially all the assets of radio stations KSOL-FM and KYLZ-FM for
$40,000,000 in cash pending FCC approval. On August 15, 1996, subsequent to the
FCC approval the sale closed transferring ownership of KSOL-FM and KYLZ-FM to
Tichenor Media System, Inc.
(See accompanying accountant's compilation report)
F-26
<PAGE> 73
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 9
Use of Proceeds........................ 13
Price Range of Class A Common Stock.... 14
Dividend Policy........................ 14
Capitalization......................... 15
The Tichenor Merger.................... 16
Unaudited Pro Forma Financial
Information.......................... 19
Selected Consolidated Financial Data... 28
The Company............................ 30
Management............................. 37
Shares Eligible For Future Sale........ 38
Description of Capital Stock........... 40
Underwriting........................... 42
Legal Opinions......................... 43
Experts................................ 43
Available Information.................. 44
Incorporation of Certain Documents by
Reference............................ 44
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,500,000 SHARES
HEFTEL BROADCASTING CORPORATION
CLASS A COMMON STOCK
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
CS FIRST BOSTON
LEHMAN BROTHERS
MONTGOMERY SECURITIES
SMITH BARNEY INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses (other than underwriting discounts and commissions)
in connection with the issuance and distribution of the Class A Common Stock
registered hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee....................................................... $50,617
NASD filing fee............................................................ 17,405
NASDAQ National Market listing fee......................................... *
Legal fees and expenses.................................................... *
Accounting fees and expenses............................................... *
Blue Sky fees and expenses................................................. *
Printing and engraving expenses............................................ *
Miscellaneous.............................................................. *
-------
Total............................................................ *
=======
</TABLE>
- ---------------
* Estimated.
The foregoing expenses will be paid by the Registrant.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to provisions of the Delaware General Corporation Law, the
Restated Certificate of Incorporation of Registrant (the "Company") includes a
provision which eliminates the personal liability of its directors to the
Company and its stockholders for monetary damage to the fullest extent
permissible under Delaware law. This provision does not eliminate liability (a)
for any breach of a director's duty of loyalty to the Company or its
stockholders; (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (c) in connection with
payment of any illegal dividend or an illegal stock repurchase; or (d) for any
transaction from which the director derives an improper personal benefit.
Further, this provision has no effect on claims arising under federal or state
securities laws and does not affect the availability of injunctions and other
equitable remedies available to the Company's stockholders for any violation of
a director's fiduciary duty to the Company or its stockholders.
The Company's Restated Certificate of Incorporation authorizes the Company
to indemnify its officers, directors and other agents to the fullest extent
permitted by Delaware law, exclusive of rights provided through bylaw
provisions, agreements, vote of stockholders or disinterested directors or
otherwise. The Company's Restated Certificate of Incorporation also authorizes
the Company to indemnify its officers, directors and agents for breach of duty
to the corporation and its stockholders through bylaw provisions, agreements or
both, in excess of the indemnification otherwise permitted under Delaware law,
subject to certain limitations. The Company has entered into indemnification
agreements with all of its directors and executive officers whereby the Company
will indemnify each such person (an "indemnitee") against certain claims arising
out of certain past, present or future acts, omissions or breaches of duty
committed by an indemnitee while serving in his employment capacity. Such
indemnification does not apply to acts or omissions which are knowingly
fraudulent, deliberately dishonest or arise from willful misconduct.
Indemnification will only be provided to the extent the indemnitee has not
already received payments in respect of such claim from the Company or from an
insurance company. Under certain circumstances, such indemnification (including
reimbursement of expenses incurred) will be allowed for liability arising under
the Securities Act of 1933.
II-1
<PAGE> 75
The Bylaws of the Company require the Company to provide indemnification
for directors and officers to the fullest extent permitted under Delaware law
and the Company's Restated Certificate of Incorporation.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant, its directors and officers, and by the Registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
Securities Act.
An insurance policy obtained by the registrant provides for indemnification
of officers and directors of the Registrant and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS. DESCRIPTION
-----------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement*
2.1.1 Agreement and Plan of Merger, dated July 9, 1996, between Clear Channel
Communications, Inc. and Tichenor Media System, Inc., with Exhibits
(Schedules omitted) (a)
2.1.2 Assignment Agreement, dated October , 1996, among the Company, Heftel
Merger Sub, Inc. and Clear Channel Communications, Inc.*
4.1 Specimen certificate for the Class A Common Stock (b)
4.2 Article 4 of the Restated Certificate of Incorporation (c)
5 Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.*
23.1.1 Consent of Ernst & Young LLP
23.1.2 Consent of Ernst & Young LLP
23.1.3 Consent of Deloitte & Touche LLP
23.1.4 Consent of Belew Averitt LLP
23.1.5 Consent of KPMG Peat Marwick LLP
23.1.6 Consent of Miller, Kaplan, Arase & Co.
23.2.1 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in Exhibit 5)*
24 Power of Attorney (included on signature pages)
</TABLE>
- ---------------
* To be filed by amendment.
(a) Incorporated by reference to Exhibit 99(c)(16) to Amendment No. 2 to
Schedule 14D.1 of Clear Channel Communications, Inc.
(b) Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-1, as amended (Reg. No.
33-78370).
(c) Incorporated by reference to Exhibit No. 4.3 to the Company's Registration
Statement on Form S-1, as amended (Reg. No. 33-78370).
The Company agrees to furnish supplementally a copy of any omitted
schedules to the Commission upon request.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Company's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 76
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions set forth or described in Item 15 of
the Registration Statement, or otherwise, the registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Exchange Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Exchange
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Antonio, State of Texas, on October 16, 1996.
HEFTEL BROADCASTING CORPORATION
By: /s/ L. LOWRY MAYS
------------------------------------
L. Lowry Mays
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
L. Lowry Mays and John T. Kendrick, and each of them, each with full power to
act without the other, his true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments to
this Registration Statement (including post-effective amendments), and to file
the same with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto each of said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person hereby
ratifying and confirming that each of said attorneys-in-fact and agents or his
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ------------------------------------------------
<C> <S> <C>
/s/ L. LOWRY MAYS President, Chief Executive October 16, 1996
- --------------------------------------------- Officer and Director
L. Lowry Mays
/s/ JOHN T. KENDRICK Senior Vice President, Chief October 16, 1996
- --------------------------------------------- Financial Officer and
John T. Kendrick Assistant Secretary
(Principal Financial and
Accounting Officer)
Director October , 1996
- ---------------------------------------------
Ernesto Cruz
Director October , 1996
- ---------------------------------------------
B.J. McCombs
/s/ JAMES M. RAINES Director October 16, 1996
- ---------------------------------------------
James M. Raines
/s/ JOHN H. WILLIAMS Director October 16, 1996
- ---------------------------------------------
John H. Williams
</TABLE>
II-4
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- -------------------- --------------------------------------------------------------------------
<C> <S> <C>
1 Form of Underwriting Agreement*
2.1.1 Agreement and Plan of Merger, dated July 9, 1996, between Clear
Channel Communications, Inc. and Tichenor Media System, Inc.,
with Exhibits (Schedules omitted) (a)
2.1.2 Assignment Agreement, dated October , 1996, among the
Company, Heftel Merger Sub, Inc. and Clear Channel
Communications, Inc.*
4.1 Specimen certificate for the Class A Common Stock (b)
4.2 Article 4 of the Restated Certificate of Incorporation (c)
5 Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.*
23.1.1 Consent of Ernst & Young LLP
23.1.2 Consent of Ernst & Young LLP
23.1.3 Consent of Deloitte & Touche LLP
23.1.4 Consent of Belew Averitt LLP
23.1.5 Consent of KPMG Peat Marwick LLP
23.1.6 Consent of Miller, Kaplan, Arase & Co.
23.2.1 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included
in Exhibit 5)*
24 Power of Attorney (included on signature pages)
</TABLE>
- ---------------
* To be filed by amendment
(a) Incorporated by reference to Exhibit 99(c)(16) to Amendment No. 2 to
Schedule 14D.1 of Clear Channel Communications, Inc.
(b) Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-1, as amended (Reg. No.
33-78370).
(c) Incorporated by reference to Exhibit No. 4.3 to the Company's Registration
Statement on Form S-1, as amended (Reg. No. 33-78370).
<PAGE> 1
EXHIBIT 23.1.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Heftel Broadcasting
Corporation for the registration of 3,500,000 shares of its Class A Common Stock
and to the incorporation by reference therein of our report dated December 14,
1995, except for Note 12, as to which the date is September 9, 1996, with
respect to the consolidated financial statements of Heftel Broadcasting
Corporation included in its Current Report on Form 8-K/A dated October 11, 1996,
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Los Angeles, California
October 11, 1996
<PAGE> 1
EXHIBIT 23.1.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) of Heftel Broadcasting Corporation and to the
incorporation by reference therein of our report dated March 25, 1994, with
respect to the financial statements of Spanish Radio Network included in Heftel
Broadcasting Corporation's Registration Statement (Form S-1 No. 33-78370) and
related Prospectus dated July 27, 1994, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Miami, Florida
October 11, 1996
<PAGE> 1
EXHIBIT 23.1.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Heftel Broadcasting Corporation on Form S-3 of our report dated March 1,
1994, on the financial statements of Viva America Media Group incorporated by
reference in the Prospectus, which is a part of such Registration Statement, and
to the reference under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Miami, Florida
October 11, 1996
<PAGE> 1
EXHIBIT 23.1.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference of our report dated March 15, 1995, with respect
to the combined financial statements of Mark Rodriquez, Jr. Broadcasting, Inc.
and Rodriquez Broadcasting, Inc., in the Registration Statement and related
prospectus of Heftel Broadcasting Corporation for the registration of 3,500,000
shares of its Class A Common Stock.
/s/ BELEW AVERITT LLP
Belew Averitt LLP
Dallas, Texas
October 11, 1996
<PAGE> 1
EXHIBIT 23.1.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Tichenor Media System, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Dallas, Texas
October 11, 1996
<PAGE> 1
EXHIBIT 23.1.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation of our report dated March 1, 1996 (except for Notes 5A and 11)
as to which the date is August 16, 1996.), with respect to the financial
statements of KSOL-FM and KYLZ-FM (Divisions of Crescent Communications, L.P.)
for the nine months ended December 31, 1994 and year ended December 31, 1995
included in the Registration Statement on Form S-3 and the related Prospectus of
Heftel Broadcasting Corporation for the registration of 3,500,000 shares of its
Class A Common Stock.
/s/ MILLER, KAPLAN, ARASE & CO.
------------------------------------
Miller, Kaplan, Arase & Co.
North Hollywood, California
October 11, 1996
