<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from to
--------------- ---------------
Commission file number 0-24516
HEFTEL BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 99-0113417
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Crescent Court, Suite 1777
Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 855-8882
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at November 13, 1997
- ----- --------------------------------
Class A Common Stock, $.001 Par Value 14,989,374
Class B Non-Voting Common Stock, $.001 Par Value 7,078,235
<PAGE>
HEFTEL BROADCASTING CORPORATION
September 30, 1997
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited) as of September 30, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of
Operations (Unaudited) for the Three Months
Ended September 30, 1997 and 1996 and the
Nine Months Ended September 30, 1997 and 1996 . . . . . . . . 3
Condensed Consolidated Statements of
Cash Flows (Unaudited) for the Nine Months
Ended September 30, 1997 and 1996 . . . . . . . . . . . . . . 4
Notes to Condensed Consolidated Financial
Statements (Unaudited). . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 11
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEFTEL BROADCASTING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,016,689 $ 4,787,652
Accounts receivable, net 29,134,865 16,995,571
Other current assets 2,842,429 631,791
------------ ------------
Total current assets 38,993,983 22,415,014
Property and equipment, at cost, net 30,068,895 19,666,285
Intangible assets, net 391,916,926 120,592,334
Other non-current assets 14,158,370 1,051,462
------------ ------------
Total assets $475,138,174 $163,725,095
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 360,051 $ 1,860,237
Accounts payable and accrued expenses 25,492,039 12,125,922
------------ ------------
Total current liabilities 25,852,090 13,986,159
------------ ------------
Long-term debt and other obligations, less current portion 22,268,238 135,504,232
------------ ------------
Deferred income taxes 43,823,747 69,000
------------ ------------
Stockholders' equity:
Series A Preferred Stock, cumulative, $.001 par value
Authorized 5,000,000 shares; no shares issued and outstanding - -
Class A Common Stock, $.001 par value
Authorized 50,000,000 and 30,000,000 shares at September 30,
1997 and December 31, 1996, respectively; issued and
outstanding 14,989,374 and 11,547,731 14,990 11,548
Class B Common Stock, $.001 par value
Authorized 50,000,000 and 70,000,000 shares at September 30,
1997 and December 31, 1996, respectively; issued and
outstanding 7,078,235 in 1997 7,078 -
Additional paid-in capital 459,708,141 102,578,149
Accumulated deficit (76,536,110) (88,423,993)
------------ ------------
Total stockholders' equity 383,194,099 14,165,704
------------ ------------
Total liabilities and stockholders' equity $475,138,174 $163,725,095
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
HEFTEL BROADCASTING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net revenues $37,196,813 $ 18,678,535 $98,207,075 $ 54,274,346
Station operating expenses 21,409,976 13,061,062 60,795,450 37,078,149
----------- ------------ ----------- ------------
Station operating income before depreciation,
amortization and corporate expenses 15,786,837 5,617,473 37,411,625 17,196,197
Depreciation and amortization 3,795,283 1,571,682 10,675,377 4,253,933
Corporate expenses 1,185,296 1,379,033 3,505,169 4,159,721
----------- ------------ ----------- ------------
Operating income 10,806,258 2,666,758 23,231,079 8,782,543
----------- ------------ ----------- ------------
Other expense:
Interest expense, net 706,478 3,098,718 3,099,012 8,692,290
Restructuring charges - 29,011,237 - 29,011,237
Other expense, net 185,022 345,748 318,929 1,538,262
----------- ------------ ----------- ------------
891,500 32,455,703 3,417,941 39,241,789
----------- ------------ ----------- ------------
Income (loss) from continuing operations
before provision for income taxes 9,914,758 (29,788,945) 19,813,138 (30,459,246)
Provision for income taxes 3,965,905 - 7,925,255 -
----------- ------------ ----------- ------------
Income (loss) from continuing operations 5,948,853 (29,788,945) 11,887,883 (30,459,246)
Loss on discontinued operations - CRC - 8,379,370 - 9,543,494
----------- ------------ ----------- ------------
Income (loss) before extraordinary item 5,948,853 (38,168,315) 11,887,883 (40,002,740)
Extraordinary item - loss on retirement of debt - 7,461,267 - 7,461,267
----------- ------------ ----------- ------------
Net income (loss) $ 5,948,853 $(45,629,582) $11,887,883 $(47,464,007)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
Income (loss) per common and common
equivalent share:
Continuing operations $ 0.13 $ (1.46) $ 0.29 $ (1.50)
Discontinued operations - (0.41) - (0.47)
Extraordinary loss - (0.37) - (0.37)
----------- ------------ ----------- ------------
Net income (loss) $ 0.13 $ (2.24) $ 0.29 $ (2.34)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
Weighted average common shares outstanding 44,135,218 20,401,610 40,870,386 20,298,350
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
HEFTEL BROADCASTING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
Nine Months Ended
September 30,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 11,887,883 $ (47,464,007)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Provision for bad debts 2,345,446 2,622,272
Depreciation and amortization 10,675,377 4,253,933
Deferred income taxes 4,807,008 -
Extraordinary charge for early extinguishment
of debt - 7,461,267
Other (200,098) 2,050,458
Changes in operating assets and liabilities 1,611,421 1,890,992
Discontinued operations:
Non-cash charges and working capital changes - 8,328,860
------------- -------------
Net cash provided by (used in) operating
activities 31,127,037 (20,856,225)
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (3,912,237) (2,761,242)
Dispositions of property and equipment 468,379 -
Decrease (increase) in intangible assets 636,443 (7,000,000)
Decrease (increase) in non-current assets (9,591,015) 2,357,932
Payments related to business acquisitions (5,469,558) (18,233,999)
------------- -------------
Net cash used in investing activities (17,867,988) (25,637,309)
------------- -------------
Cash flows from financing activities:
Borrowings on long-term obligations 56,038,990 163,459,267
Payment of debt issue cost (1,200,000) (5,799,878)
Payment on notes receivable from stockholders - 3,737,629
Repayment of long-term debt (243,020,410) (123,357,584)
Net proceeds from issuance of common stock 177,085,075 10,548,259
Other 66,333 (378,595)
------------- -------------
Net cash provided by (used in) financing
activities (11,030,012) 48,209,098
------------- -------------
Net increase in cash and cash equivalents 2,229,037 1,715,564
Cash and cash equivalents at beginning of period 4,787,652 3,416,396
------------- -------------
Cash and cash equivalents at end of period $ 7,016,689 $ 5,131,960
------------- -------------
------------- -------------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Heftel Broadcasting Corporation and subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
disclosures required by generally accepted accounting principles. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-and nine-month periods ended September 30,
1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. For further information, refer to the
consolidated financial statements and notes thereto included in Heftel
Broadcasting Corporation's Annual Report on Form 10-K/A for the fiscal year
ended September 30, 1996.
On February 19, 1997, the Board of Directors of the Company voted to
change the Company's fiscal year from September 30 to December 31. The Form
10-Q for the quarterly period ended December 31, 1996 covers the three-month
transition period.
On November 6, 1997, the Board of Directors of the Company authorized a
two-for-one stock split payable in the form of a stock dividend of one share
of common stock for each issued and outstanding share of common stock. The
dividend will be paid on December 1, 1997, to all holders of common stock at
the close of business on November 18, 1997. Immediately prior to the
distribution there will be approximately 15.0 million shares of Class A
Common Stock, par value $.001 per share ("Class A Common Stock"), and 7.1
million shares of non-voting Class B Common Stock, par value $.001 per share
("Class B Common Stock"), outstanding and immediately after the distribution
there will be approximately 30.0 million shares of Class A Common Stock and
14.2 million shares of Class B Common Stock outstanding. The income (loss)
per common and common equivalent share and other per share information for
all periods presented has been restated to reflect this two-for-one stock
split.
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common and common equivalent shares
(if dilutive) outstanding during each period, adjusted for the stock split
discussed in the preceding paragraph. For purposes of this computation,
cumulative preferred stock dividends, if any, are deducted from net income
during each period in which preferred stock is outstanding, whether or not
preferred stock dividends have been declared or paid during these periods.
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share," which supersedes APB Opinion No. 15, "Earnings per
Share," was issued in February 1997. SFAS 128 requires dual presentation of
basic and diluted earnings per share ("EPS") for complex capital structures.
Basic EPS is computed by dividing income (loss) by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution from the exercise or conversion of securities (such as
stock options) into common stock. SFAS 128 is required to be adopted for
year-end 1997; earlier application is not permitted. After adoption, all
prior period EPS data presented shall be restated to conform with SFAS 128.
The Company does not expect that the basic and diluted EPS measured under
SFAS 128 will be materially different from the current presentation of
primary and fully-diluted EPS measured under APB No. 15.
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was issued in June 1996. The Company does not expect the
statement to result in any substantive change in its financial statements.
5
<PAGE>
2. ACQUISITIONS AND DISPOSITIONS
In exchange for an initial payment of $10 million made on February 4,
1997, the Company has acquired from Golden West Broadcasters, a California
corporation ("Golden West"), an option to purchase all of the assets used or
held for use in connection with the operation of radio station KSCA-FM, which
serves the Los Angeles market. The option is exercisable upon the death of
Gene Autry. The option has an initial term which expires on December 30,
1997, however the term may be renewed for additional one-year terms provided
the Company pays Golden West an additional $3 million on or before the
expiration date for the one-year option period then in effect. If the
purchase of the assets is completed, the option payments will be credited
against the purchase price. If the option is exercised, the purchase price
for the KSCA-FM assets will be the greater of (a) $112.5 million, or (b) the
sum of (i) $105 million, plus (ii) an amount equal to $13,699 per day during
the term of the time brokerage agreement for KSCA-FM to which the Company is
a party. The Company commenced programming KSCA-FM under a time brokerage
agreement on February 5, 1997.
On February 14, 1997, the Company completed its acquisition of Tichenor
Media System, Inc. ("Tichenor"), a national radio broadcasting company
engaged in the business of acquiring, developing and programming Spanish
language radio stations. The acquisition was effected through the merger of
a wholly-owned subsidiary of the Company with and into Tichenor (the
"Merger"). Under the terms of the Amended and Restated Agreement and Plan of
Merger by and among Clear Channel Communications, Inc. ("Clear Channel") and
Tichenor dated October 10, 1996 (which agreement was assigned to the Company
by Clear Channel), Tichenor shareholders received (a) 7.8261 shares of Class
A Common Stock in exchange for each share of Tichenor Common Stock and (b)
4.3478 shares of Class A Common Stock in exchange for each share of Tichenor
Junior Preferred Stock. In addition, the holders of Tichenor 14% Senior
Redeemable Cumulative Preferred Stock ("Tichenor Senior Preferred") received
$1,000 per share plus accrued and unpaid dividends through December 31, 1995
for each share of Tichenor Senior Preferred. In addition, in the Merger, all
shares of Class A Common Stock owned by Clear Channel were converted into
shares of convertible nonvoting Class B Common Stock in order for Clear
Channel to comply with the cross-interest policy of the Federal
Communications Commission (the "FCC"). Clear Channel currently owns 100% of
the Company's outstanding Class B Common Stock.
The transaction value of the Merger of approximately $256.5 million is
calculated as the sum of (a) the fair value of the Tichenor stock ($181.1
million), (b) the outstanding Tichenor Senior Preferred ($3.4 million), and
(c) Tichenor's long-term debt ($72.0 million). The fair value of the
Tichenor stock is calculated as the sum of (a) 5,689,878 shares of Heftel
Common Stock issued in the Merger with an aggregate value of $180.6 million
based on a closing price of $31.75 per share on July 9, 1996 (the day the
Merger was announced), and (b) the direct costs related to the Merger. The
direct costs related to the Merger were funded from the working capital of
the Company. The Tichenor Senior Preferred and long-term debt were retired
at the date of the Merger using a portion of the proceeds from the Company's
recently completed secondary public stock offering (the "Offering") plus
borrowings under a new credit agreement.
The Merger was accounted for using the purchase method of accounting.
The purchase price allocation is preliminary and is subject to change upon
final determination of the value of the assets acquired and liabilities
assumed. The preliminary purchase price allocation is as follows:
Current assets $ 15,718,094
Property and equipment 9,082,066
Intangible assets 276,591,189
Other non-current assets 2,428,975
Current liabilities (83,772,585)
Deferred income taxes (38,947,739)
-------------
$181,100,000
-------------
-------------
Intangible assets are comprised primarily of broadcast licenses and
goodwill, which are being amortized over 40 years.
6
<PAGE>
Pro forma financial information for the three and nine months ended
September 30, 1997 and 1996, calculated as though the Merger had occurred at
the beginning of 1996, is as follows (dollars in thousands, except per share
data):
<TABLE>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues $ 37,197 $ 30,430 $ 102,789 $ 87,362
Operating income $ 10,806 $ 3,015 $ 18,857 $ 9,543
Net income (loss) $ 5,949 $ (47,053) $ 5,791 $ (50,408)
Net income (loss) per
common share $ 0.13 $ (1.48) $ 0.14 $ (1.59)
</TABLE>
The pro forma financial information does not purport to represent what
the Company's results of operations actually would have been had the Merger
occurred at the dates specified, or to project the Company's results of
operations for any future period.
On August 13, 1997, the Company sold the assets of KINF-AM (the
"Station") which is licensed to Denton, Texas. The sales price net of
selling expenses was $636,443, which approximated the book value of the
assets. The Station operated under a Time Brokerage Agreement until the
closing date.
The Company closed on the purchase of the assets of KLTO-FM in
Rosenberg-Richmond (Houston), Texas on September 22, 1997. The Company paid
$3,585,000 to acquire these assets. The final purchase price is contingent
on an upgrade of the station's broadcast authorization from the Federal
Communications Commission ("FCC") prior to April 1, 2004. Depending on
whether the signal is fully or partially upgraded, the purchase price could
increase to $14 million.
3. RECLASSIFICATIONS / DISCONTINUED OPERATIONS
The Company's Board of Directors approved a plan to discontinue the
operations of the radio network owned by the Company's wholly owned
subsidiary Spanish Coast-to-Coast Ltd., dba Cadena Radio Centro ("CRC")
effective August 5, 1996. Consequently, the accompanying condensed
consolidated statements of operations for the three and nine-month periods
ended September 30, 1996 reflect the results of CRC as a discontinued
operation.
4. LONG-TERM DEBT
On February 12, 1997, the Company repaid borrowings of $142.5 million
outstanding under an existing $155 million credit facility with a portion of
the proceeds from the Offering.
On February 14, 1997, the Company entered into a new $300 million credit
facility (the "Credit Facility"), replacing the existing credit facility.
The Company used advances under the Credit Facility and a portion of the
proceeds from the Offering to retire the outstanding debt and senior
preferred stock of Tichenor assumed on the date of the Merger. At September
30, 1997, the Company had outstanding borrowings of $20 million under the
Credit Facility. The Company's ability to make additional borrowings under
the Credit Facility is subject to compliance with certain financial ratios
and other conditions set forth in the Credit Facility. The Credit Facility
is secured by the stock of the Company's material subsidiaries.
Borrowings under the Credit Facility bear interest at a rate based, at
the option of the Company, on the prime rate or Eurodollar rate, plus an
incremental rate. The interest rate on the borrowings outstanding under the
Credit Facility at September 30, 1997 was approximately 6.06%. Availability
under the Credit Facility reduces quarterly commencing September 30, 1999 and
ending December 31, 2004.
7
<PAGE>
5. STOCKHOLDERS' EQUITY
On February 10, 1997, the Company completed the Offering selling
4,830,000 shares of its Class A Common Stock for $36.80 per share (on a pre
stock split basis), after underwriters' discount. The net proceeds of the
Offering were approximately $177.1 million.
6. LONG-TERM INCENTIVE PLAN
On May 21, 1997, the stockholders of the Company approved the Heftel
Broadcasting Corporation Long-Term Incentive Plan (the "Incentive Plan").
The types of awards that may be granted under the Incentive Plan include (a)
incentive stock options, (b) non-qualified stock options, (c) stock
appreciation rights, (d) rights to receive a specified amount of cash or
shares of Class A Common Stock and (e) restricted stock. In addition, the
Incentive Plan provides that directors of the Company may elect to receive
some or all of their annual director compensation in the form of shares of
Class A Common Stock. Subject to certain exceptions set forth in the
Incentive Plan, the aggregate number of shares of Class A Common Stock that
may be the subject of awards under the Incentive Plan at one time shall be an
amount equal to (a) five percent of the total number of shares of Class A
Common Stock outstanding from time to time minus (b) the total number of
shares of Class A Common Stock subject to outstanding awards on the date of
calculation under the Incentive Plan and any other stock-based plan for
employees or directors of the Company (other than the Company's Employee
Stock Purchase Plan). The Company has granted incentive and non-qualified
stock options for 747,084 shares of Class A Common Stock to directors and key
employees. The exercise prices range from $16.44 to $24.69 per share (as
adjusted to account for the Company's recently announced two-for-one stock
split) and were equal to the fair market value of the Class A Common Stock on
the dates such options were granted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The performance of a radio station group is customarily measured by its
ability to generate broadcast cash flow. The two components of broadcast
cash flow are gross revenues (net of agency commissions) and operating
expenses (excluding depreciation, amortization and corporate general and
administrative expense). The primary source of revenues is the sale of
broadcasting time for advertising. The Company's most significant operating
expenses for purposes of the computation of broadcast cash flow are employee
salaries and commissions, programming expenses, engineering, and advertising
and promotion expenses.
Data on 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 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 measure
for determining the Company's operating performance or liquidity that is
calculated in accordance with generally accepted accounting principles.
Broadcast cash flow does not take into account the Company's debt service
requirements and other commitments and, accordingly, broadcast cash flow is
not necessarily indicative of amounts that may be available for dividends,
reinvestment in the Company's business or other discretionary uses.
COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 1996
The results of operations for the three and nine months ended
September 30, 1997 are not comparable to results of operations for the same
periods in 1996 primarily due to (a) the Merger with Tichenor which closed
February 14, 1997, (b) the start-up of new Spanish language radio stations in
Los Angeles on February 5, 1997, San Francisco on August 16, 1996, and
Houston on June 21, 1996, and (c) the discontinuation of the radio network,
CRC, effective August 5, 1996. Management's discussion and analysis of the
8
<PAGE>
results of operations for the three and nine months ended September 30, 1997,
as compared to the comparable periods in 1996, has been presented on a pro
forma basis as though the Merger had occurred on January 1, 1996. The pro
forma results of operations are not necessarily indicative of what would have
occurred had the Merger taken place on January 1, 1996. A start-up station
involves converting an English formatted station to a Spanish language
format, resulting in a substantial turnover in audience listening and
advertisers. As a result, the pro forma operating performance of start-up
stations acquired or operated by the Company does not include the results of
operations prior to the acquisition.
The following table sets forth selected data from the operating results
of the Company for the three months and nine months ended September 30, 1997
and 1996 on a historical and pro forma basis (in thousands):
<TABLE>
Three Months Ended September 30,
-------------------------------------------------------------
Historical Pro Forma
----------------------------- ----------------------------
1997 1996 % Change 1997 1996 % Change
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues $37,197 $18,679 99.1% $37,197 $30,430 22.2%
Station Operating Expenses 21,410 13,062 63.9% 21,410 21,377 0.2%
Broadcast Cash Flow 15,787 5,617 181.1% 15,787 9,053 74.4%
Nine Months Ended September 30,
-------------------------------------------------------------
Historical Pro Forma
----------------------------- ----------------------------
1997(1) 1996 % Change 1997 1996 % Change
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues $98,207 $54,274 80.9% $102,789 $87,362 17.7%
Station Operating Expenses 60,795 37,078 64.0% 64,361 60,596 6.2%
Broadcast Cash Flow 37,412 17,196 117.6% 38,428 26,766 43.6%
</TABLE>
(1) The Merger closed on February 14, 1997. As a result, the historical
results exclude results of operations of Tichenor from January 1, 1997
through February 13, 1997.
Net revenues increased by $18.5 million or 99.1% to $37.2 million in the
three months ended September 30, 1997 from $18.7 million in the same quarter
of 1996. Net revenues for the nine months ended September 30, 1997 increased
by $43.9 million, or 80.9% to $98.2 million, compared to $54.3 million for
the nine months ended September 30, 1996.
Net revenues increased for the three and nine months ended September 30,
1997 compared to the same periods in 1996 primarily because of the Merger,
the operation of start-up stations during all of the three and nine months
ended September 30, 1997, compared to a portion of the same periods in 1996,
and same station revenue growth. Had the Merger occurred on January 1, 1996,
net revenues for the three and nine months ended September 30, 1997 would
have increased 22.2% and 17.7%, respectively.
9
<PAGE>
Station operating expenses increased by $8.3 million or 63.9% to $21.4
million for the three months ended September 30, 1997 from $13.1 million for
the same period of 1996. Station operating expenses for the nine months
ended September 30, 1997 increased by $23.7 million, or 64.0% to $60.8
million, compared to $37.1 million for the nine months ended September 30,
1996. Station operating expenses increased primarily due to the Merger and
the start-up stations. Had the Merger occurred on January 1, 1996, station
operating expenses would have increased 0.2% and 6.2%, to $21.4 million and
$64.4 million for the three and nine months ended September 30, 1997,
respectively, compared to the same periods of 1996. Pro forma station
operating expenses increased only slightly compared to third quarter 1996
station operating expenses primarily as a result of higher promotional and
other operating expenses incurred by two start-up stations that were launched
during June and August of 1996 and because of stricter cost controls
implemented company-wide in 1997.
Operating income before corporate expenses, depreciation and
amortization (broadcast cash flow) for the three and nine months ended
September 30, 1997 increased 181.1% and 117.6% to $15.8 million and $37.4
million, respectively, compared to $5.6 million and $17.2 million,
respectively, for the three and nine months ended September 30, 1996. Had the
Merger occurred on January 1, 1996, operating income before corporate
expenses, depreciation and amortization would have increased 74.4% and 43.6%,
to $15.8 million and $38.4 million, respectively, for the three and nine
months ended September 30, 1997, compared to the same periods of 1996.
Corporate expenses for the quarter ended September 30, 1997 declined
from $1.4 million to $1.2 million for the same quarter of the prior year.
Corporate expenses for the nine months ended September 30, 1997 decreased
15.7% to $3.5 million compared to $4.2 million for the same period in 1996.
The decrease was primarily due to overall lower staffing costs of the Company
after the Merger compared to corporate expenses for the three and nine months
ended September 30, 1996. Depreciation and amortization for the quarter
ended September 30, 1997 increased 141.5% to $3.8 million compared to $1.6
million for the same period in 1996. Depreciation and amortization for the
nine months ended September 30, 1997 increased 151.0% to $10.7 million
compared to $4.3 million for the same period of 1996. The increase in both
periods is due to station acquisitions, capital expenditures and the
additional amortization of intangible assets associated with the Merger.
Interest expense, net of interest income, for the quarter ended
September 30, 1997 decreased 77.2% to $0.7 million from $3.1 million in the
same period of 1996. Interest expense, net of interest income, for the nine
months ended September 30, 1997 decreased 64.3% to $3.1 million from $8.7
million in the same period of 1996. The reduction in interest expense was
primarily the result of lower borrowing rates and a substantial repayment of
debt, funded from the Offering and cash from operations.
Federal and state income taxes are being provided at an effective rate
of 40% in 1997. No income taxes were recognized in 1996 because of the
Company's operating losses.
For the three months ended September 30, 1997, the Company's net income
totaled $5.9 million compared to a net loss of $45.6 million in the same
period of 1996. For the nine months ended September 30, 1997, the Company's
net income totaled $11.9 million compared to a net loss of $47.5 million in
the same period of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months ended
September 30, 1997 was $31.1 million as compared to a decrease of $20.9
million for the same period of 1996. Capital expenditures totaled $3.9
million and $2.8 million for the nine months ended September 30, 1997 and
1996, respectively. Capital expenditures are financed from cash generated
from operations. Acquisitions are financed primarily with long-term
borrowings. On February 12, 1997, the entire balance outstanding under the
Company's prior credit agreement of $142.5 million was repaid with the
proceeds from the Offering. On February 14, 1997, the Company entered into
the Credit Facility. Also on February 14, 1997, the Company borrowed $46.0
10
<PAGE>
million under the Credit Facility and used a substantial portion of the
remaining proceeds from the Offering to repay approximately $72.0 million of
Tichenor related debt and the Tichenor Senior Preferred assumed in connection
with the Merger. For the nine months ended September 30, 1997, the Company
repaid $26 million under the Credit Facility and $1.9 million of other
Company indebtedness.
Available cash on hand plus cash flow provided by operations was
sufficient to fund the Company's operations, meet its debt obligations, and
to fund capital expenditures. The Company believes it will have sufficient
cash on hand and cash provided by operations, borrowings under the Credit
Facility, and proceeds from securities offerings to finance its operations
and satisfy its debt service requirements. The Company regularly reviews
potential acquisitions. The Company intends to finance acquisitions primarily
through additional borrowings under the Credit Facility, proceeds from
securities offerings, and/or from cash provided by operations.
FORWARD LOOKING STATEMENTS
Certain statements contained in this report are not based on historical
facts, but are forward looking statements that are based on numerous
assumptions made as of the date of this report. When used in the preceding
and following discussions, the words "believes," "intends," "expects,"
"anticipates" and similar expressions are intended to identify forward
looking statements. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
expressed in any of the forward looking statements. Such risks and
uncertainties include, but are not limited to, industrywide market factors
and regulatory developments affecting the Company's operations, acquisitions
and dispositions of broadcast properties described elsewhere herein, the
financial performance of start-up stations, and efforts by the new management
to integrate its operating philosophies and practices at the station level.
This report should be read in conjunction with the Company's Annual Report on
Form 10-K. The Company disclaims any obligation to update the forward
looking statements in this report.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various claims and lawsuits, which are
generally incidental to its business. The Company is vigorously contesting
all such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position or results of
operations.
ITEM 5. OTHER INFORMATION
On November 6, 1997, the Board of Directors of the Company authorized a
two-for-one stock split payable in the form of a stock dividend of one share
of common stock for each issued and outstanding share of common stock. The
dividend will be paid on December 1, 1997, to all holders of common stock at
the close of business on November 18, 1997. Immediately prior to the
distribution there will be approximately 15.0 million shares of Class A
Common Stock, par value $.001 per share, and 7.1 million shares of non-voting
Class B Common Stock, par value $.001 per share, outstanding and immediately
after the distribution there will be approximately 30.0 million shares of
Class A Common Stock and 14.2 million shares of Class B Common Stock
outstanding.
11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description of Exhibit
------- ----------------------
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Heftel Broadcasting Corporation
-------------------------------
(Registrant)
/s/ Jeffrey T. Hinson
-------------------------------
Jeffrey T. Hinson
Senior Vice President/
Chief Financial Officer
Dated: November 13, 1997
12
<PAGE>
INDEX
Exhibit
No. Description of Exhibit
------- ----------------------
27 Financial Data Schedule
13
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