<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 5, 1997
HEFTEL BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-24516 99-0113417
(State or other jurisdiction (Commission File Number) (IRS Employer
incorporation) Identification No.)
100 Crescent Court, Suite 1777
Dallas, Texas 75201
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (214) 855-8882
----------------------------------------------------------------------
(former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
On February 14, 1997, Heftel Broadcasting Corporation (the "Company")
completed its acquisition of Tichenor Media System, Inc. ("Tichenor").
Tichenor is a national radio broadcasting company engaged in the
business of acquiring, developing and programming Spanish language
radio stations.
The audit of the Tichenor financial statements as of and for the year
ended December 31, 1996, was completed on October 17, 1997, by KPMG
Peat Marwick LLP.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
EXHIBIT 99.1 Consolidated balance sheets of Tichenor Media System,
Inc. and subsidiaries as of December 31, 1996 and 1995
and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each
of the years in the three-year period ended December 31,
1996, with Independent Auditors' Report dated October 17,
1997.
EXHIBIT 99.2 Unaudited pro forma condensed consolidated statements of
operations of Heftel Broadcasting Corporation and
subsidiaries for the year ended December 31, 1996 and
the nine months ended September 30, 1997.
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)
By: /s/ Jeffrey T. Hinson
---------------------------------
Name: Jeffrey T. Hinson
Title: Chief Financial Officer
Dated: December 12, 1997
1
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Page
- ----------- ----
99.1 Consolidated balance sheets of Tichenor Media System, Inc.
and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1996, with
Independent Auditors' Report dated October 17, 1997. 3
99.2 Unaudited pro forma condensed consolidated statements of
operations of Heftel Broadcasting Corporation and
subsidiaries for the year ended December 31, 1996 and the
nine months ended September 30, 1997. 22
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tichenor Media System, Inc.:
We have audited the accompanying consolidated balance sheets of Tichenor
Media System, Inc. and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1996. 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 audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 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, 1996 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, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
October 17, 1997
3
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,990,399 $ 3,593,955
Accounts receivable, net of allowance of
$579,294 in 1996 and $756,808 in 1995 9,072,416 8,275,427
Prepaid expenses and other current assets 489,879 358,640
Income taxes receivable 1,249,833 --
Amounts receivable from officers and stockholders 44,744 99,168
----------- -----------
Total current assets 14,847,271 12,327,190
----------- -----------
Investments, at equity 204,462 221,458
----------- -----------
Property and equipment, at cost:
Land 2,093,190 2,095,690
Buildings and improvements 2,814,272 2,553,595
Broadcast and other equipment 14,609,778 12,075,807
Furniture and fixtures 2,539,248 2,253,794
----------- -----------
22,056,488 18,978,886
Less accumulated depreciation 12,553,477 11,449,267
----------- -----------
9,503,011 7,529,619
----------- -----------
Intangible assets:
Broadcast licenses 76,331,125 31,981,514
Cost in excess of fair value of net assets acquired 363,100 363,100
Other intangible assets 5,438,382 4,187,807
----------- -----------
82,132,607 36,532,421
Less accumulated amortization 9,349,284 6,975,960
----------- -----------
72,783,323 29,556,461
----------- -----------
Other noncurrent assets:
Deferred charges and other assets, net 2,222,046 2,764,719
Notes receivable from related parties 335,400 571,439
----------- -----------
2,557,446 3,336,158
----------- -----------
Total assets $99,895,513 $52,970,886
----------- -----------
----------- -----------
4
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,333,304 $ 1,213,979
Accrued expenses 4,622,981 2,743,274
Income taxes payable -- 565,574
Amounts payable to officers and stockholders 536,236 270,184
Current portion of long-term obligations 33,495 47,611
----------- -----------
Total current liabilities 7,526,016 4,840,622
----------- -----------
Long-term obligations, less current portion 70,498,216 25,381,706
----------- -----------
Deferred income taxes 4,038,399 3,582,421
----------- -----------
14% senior redeemable cumulative preferred stock
and accrued dividends, $1,000 par value;
authorized, issued and outstanding 3,000 shares 3,378,749 3,378,749
----------- -----------
Common stock purchase warrant subject to mandatory
redemption, at accreted value 4,140,000 3,828,520
----------- -----------
Commitments and contingencies
Stockholders' equity:
10.5% junior noncumulative preferred stock, $10 par
value; authorized 100,000 shares; issued 36,829
shares; outstanding 35,772 shares in 1996 and 1995
(liquidation preference of $3,682,950) 368,295 368,295
Common stock, $1 par value; authorized 9,897,000
shares; issued 743,704 shares; outstanding 684,169
shares in 1996 and 684,420 shares in 1995 743,704 743,704
Additional paid-in capital 4,357,038 4,357,038
Retained earnings 6,378,955 8,081,638
Less treasury stock at cost (1,395,535) (1,379,263)
Receivables for stock purchases (138,324) (212,544)
----------- -----------
Stockholders' equity 10,314,133 11,958,868
----------- -----------
Total liabilities and stockholders' equity $99,895,513 $52,970,886
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Year ended December 31
-----------------------------------------
1996 1995 1994
------------ ------------- -------------
<S> <C> <C> <C>
Revenues $ 52,785,497 $ 46,377,676 $ 41,099,785
Agency commissions (5,698,259) (4,776,415) (4,238,805)
------------ ------------ ------------
Net revenues 47,087,238 41,601,261 36,860,980
------------ ------------ ------------
Operating expenses:
Selling 15,847,393 13,864,947 13,203,789
Programming 6,897,515 5,452,060 4,866,974
Promotion and market research 2,898,035 1,730,225 1,701,147
Engineering 1,359,281 1,038,024 983,014
General and administrative 8,562,756 7,659,303 7,087,274
Corporate expenses 5,423,602 2,685,541 2,484,121
Depreciation and amortization 3,539,491 2,467,056 2,368,113
------------ ------------ ------------
Total operating expenses 44,528,073 34,897,156 32,694,432
------------ ------------ ------------
Operating income 2,559,165 6,704,105 4,166,548
------------ ------------ ------------
Other income (expense):
Interest income 79,446 190,390 2,852,011
Interest expense (4,214,837) (2,230,009) (2,594,590)
Costs relating to unconsummated
acquisitions (358) (123,300) --
Other, net (59,150) 161,814 (429,492)
------------ ------------ ------------
(4,194,899) (2,001,105) (172,071)
------------ ------------ ------------
Income (loss) before income taxes and
extraordinary loss (1,635,734) 4,703,000 3,994,477
Income tax (benefit) (244,531) 2,779,684 1,292,647
------------ ------------ ------------
Income (loss) before extraordinary
loss (1,391,203) 1,923,316 2,701,830
Extraordinary loss on retirement of debt, net
of income tax benefit of $224,030 -- -- (381,456)
------------ ------------ ------------
Net income (loss) (1,391,203) 1,923,316 2,320,374
Preferred stock dividends -- (439,069) (431,013)
Accretion of stock warrant to redemption
value (311,480) (1,434,000) (715,000)
------------ ------------ ------------
Net income (loss) applicable to
common shareholders $ (1,702,683) $ 50,247 $ 1,174,361
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per share:
Income (loss) before extraordinary loss $ (2.49) $ 0.07 $ 2.00
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) $ (2.49) $ 0.07 $ 1.51
------------ ------------ ------------
------------ ------------ ------------
Weighted average common and common
equivalent shares outstanding 684,238 740,150 778,211
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
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, 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 stock purchase
receivables -- -- -- -- -- -- 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 -- -- -- -- -- -- -- (311,480)
Purchase of treasury stock -- -- -- -- -- (16,272) 2,376 --
Collection of stock purchase
receivables -- -- -- -- -- -- 71,844 --
Net loss -- -- -- -- -- -- -- (1,391,203)
------- -------- -------- -------- ---------- ----------- --------- ------------
Balance at December 31, 1996 36,829 $368,295 743,704 $743,704 $4,357,038 $(1,395,535) $(138,324) $ 6,378,955
------- -------- -------- -------- ---------- ----------- --------- ------------
------- -------- -------- -------- ---------- ----------- --------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended December 31,
----------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,391,203) $ 1,923,316 $ 2,320,374
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for bad debts 603,437 767,614 491,750
Depreciation and amortization 3,539,491 2,467,056 2,368,113
Barter transactions, net 428,309 (34,450) (312,926)
Amortization of debt facility fee included in interest expense 134,608 134,608 112,565
Loss (gain) from unconsolidated partnership interests 16,996 19,834 (109,624)
Gain from sale of investments -- (6,081) --
Valuation adjustments on notes receivable, investments and
other noncurrent assets -- -- 12,600
Loss (gain) on disposition of assets (9,026) (260,619) 325,676
Deferred income taxes 455,978 (109,059) 3,691,480
Loss on retirement of debt -- -- 605,486
Changes in operating assets and liabilities:
Accounts receivable, net (1,828,735) (1,543,211) (1,459,841)
Prepaid expenses and other current assets (131,239) (117,093) 263,534
Income taxes receivable (1,249,833) 5,156,081 (5,156,081)
Amounts receivable from officers and stockholders 54,424 (44,238) 105,120
Accounts payable 1,119,325 (658,946) (438,554)
Accrued expenses 1,879,707 1,087,027 (259,329)
Income taxes payable (565,574) (19,357) 459,931
Amounts payable to officers and stockholders 266,052 59,032 138,898
------------ ----------- -----------
Net cash provided by operating activities 3,322,717 8,821,514 3,159,172
------------ ----------- -----------
Cash flows from investing activities:
Investment sales and distributions -- 14,681 25,000
Acquisitions of radio stations (46,500,000) (6,740,000) --
Property and equipment acquisitions (1,584,749) (1,279,915) (899,762)
Dispositions of property and equipment 17,917 644,737 652,080
Increase in intangible assets (663,887) (1,042,929) (303,223)
Decrease (increase) in other noncurrent assets 644,104 (134,174) (150,362)
------------ ----------- -----------
Net cash used in investing activities (48,086,615) (8,537,600) (676,267)
------------ ----------- -----------
Cash flows from financing activities:
Borrowings on long-term obligations 45,900,000 7,150,000 --
Payments on long-term obligations (797,606) (5,870,561) (3,014,894)
Dividends on senior preferred stock -- (420,000) (300,000)
Payment of deferred financing costs -- -- (897,389)
Sales of treasury stock -- 57,501 30,001
Note payments from stockholders 74,220 103,554 46,690
Purchases of treasury stock (16,272) (41,467) (36,957)
------------ ----------- -----------
Net cash provided by (used in) financing activities 45,160,342 979,027 (4,172,549)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 396,444 1,262,941 (1,689,644)
Cash and cash equivalents at beginning of period 3,593,955 2,331,014 4,020,658
------------ ----------- -----------
Cash and cash equivalents at end of period $ 3,990,399 $ 3,593,955 $ 2,331,014
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, San Francisco/San Jose,
California 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"), TC Television, Inc.
("TCTV") and TMS Assets California, Inc. ("TACI") (collectively, the
"Company"). TMS License California, Inc. ("TLCI") is a wholly-owned
subsidiary of TACI. 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 ("GAAP") requires management to make estimates
and assumptions that affect the amounts reported in the consolidated
financial statements and related footnotes to financial statements. 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, 1996 are
comprised of treasury bills, other government securities and money market
funds and totalled $474,051.
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, 1996
are comprised primarily of a 50% interest in a general partnership which owns
a transmission tower that is leased to the Company.
9
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
PROPERTY AND EQUIPMENT
Property and equipment 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 (three to forty years) on a
straight-line basis. Leasehold improvements are depreciated 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.
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.
Intangible assets consist primarily of broadcast licenses and other
identifiable intangible assets. The Company continually evaluates the
propriety of the carrying amount of intangible assets as well as the
amortization period to determine whether current events or circumstances
warrant adjustments to the carrying value and/or revised estimates of useful
lives. This evaluation consists of the projection of undiscounted operating
income before depreciation, amortization, nonrecurring charges and interest
for each of the Company's radio stations over the remaining amortization
periods of the related intangible assets. The projections are based on a
historical trend line of actual results since the acquisitions of the
respective stations adjusted for expected changes in operating results. To
the extent such projections indicate that undiscounted operating income is
not expected to be adequate to recover the carrying amounts of the related
intangible assets, such carrying amounts are written down by charges to
expense. At this time, the Company believes that no significant impairment
of intangible assets has occurred and that no reduction of the estimated
useful lives is warranted.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
ADVERTISING COSTS
Advertising costs are charged to operations in the year incurred and
totaled $4,628,116 for the year ended December 31, 1996.
10
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 consolidated 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.
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share," which supersedes APB Opinion No. 15 ("APB 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 15.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to
manage well-defined interest rate risks related to interest on the Company's
outstanding debt.
11
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As interest rates change under interest rate swap and cap agreements, the
differential to be paid or received is recognized as an adjustment to
interest expense. The Company is not exposed to credit loss as its interest
rate swap agreements are with the participating banks under the Company's
senior credit facility.
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, 1996, 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, 1996, based upon
quoted interest rates for the same or similar debt issues.
CREDIT RISK
In the opinion of management, credit risk with respect to trade
receivables is limited due to the large number of diversified customers and
the geographic diversification of the Company's customer base. The Company
performs ongoing credit evaluations of its customers and believes that
adequate allowances for any uncollectible trade receivables are maintained.
At December 31, 1996, no receivable from any customer exceeded 5% of
stockholders' equity and no customer accounted for more than 10% of net
revenues in 1996.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
on January 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amounts of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. The adoption of this Statement did not have a
material impact on the Company's financial position, results of operations,
or liquidity.
RECLASSIFICATION
Certain prior year amounts have been reclassified to confirm with the
current year presentation.
12
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. AGREEMENT AND PLAN OF MERGER
On July 9, 1996, Tichenor Media System, Inc. ("Tichenor") entered into an
Agreement and Plan of Merger ("Merger Agreement"). The merger was effected
on February 14, 1997 through the merger of a wholly-owned subsidiary of
Heftel Broadcasting Corporation ("Heftel") with and into Tichenor. In
connection with the merger, management of Tichenor assumed management
responsibilities of Heftel. Under the terms of the Merger Agreement,
Tichenor shareholders received (a) 7.8261 shares of Heftel Class A common
stock, par value $.001 per share, in exchange for each share of Tichenor
common stock and (b) 4.3478 shares of Heftel Class A common stock in exchange
for each share of Tichenor junior preferred stock. Heftel received 1,000
shares of Tichenor common stock and all other Tichenor junior preferred and
common stock issued was cancelled.
3. ACQUISITIONS OF RADIO STATIONS
The FCC license of KRTX-FM (formerly KMIA-FM) in Jasper (Houston), Texas
was acquired on March 25, 1996 for $3,500,000. The FCC license is amortized
using the straight line method over 40 years. A $3,000,000 bank loan was
used to finance this asset acquisition.
The Company purchased the assets of KLTP-FM (formerly KRTX-FM) in
Galveston (Houston), Texas on July 31, 1996. The purchase price was
$900,000. The intangible assets acquired are amortized using the straight
line method over 40 years. A $600,000 bank loan was used to finance this
acquisition.
On August 1, 1996, the Company purchased the assets of KGBT-FM (formerly
KQXX-FM) in McAllen, Texas for $1,300,000. Also, a five-year non-competition
agreement from the seller was purchased for $800,000. The intangible assets
acquired are amortized using the straight line method over 2 to 40 years. A
$1,300,000 bank loan was used to finance this acquisition.
TACI purchased the assets of KSOL-FM and KZOL-FM (formerly KYLZ-FM) in
San Francisco and Santa Cruz (San Jose), California on August 16, 1996. The
purchase price was $40,000,000. The intangible assets acquired are amortized
using the straight line method over 15 to 40 years. The acquisition was
financed with a $40,000,000 loan from Clear Channel Communications, Inc.
("CCC"). CCC is a shareholder in Heftel. Tichenor Media System, Inc. is a
guarantor of this loan in favor of CCC. The guaranty is subordinate to the
rights of the senior creditors. A $1,000,000 bank loan was used to provide
working capital for these stations.
On June 1, 1995, certain tangible and intangible assets of radio station
KRTX-AM (formerly 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 KRTX-FM (formerly KMIA-FM) acquisition,
was funded with bank financing.
13
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 acquisition of KLTP-FM, KGBT-FM, KRTX-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 15, 1995, March 31, 1996, December 1,
1994, April 27, 1992, and June 23, 1995, for KLTP-FM, KGBT-FM, KRTX-AM,
KLTN-FM and KAMA-AM, respectively. Time brokerage agreement fees related to
these stations for the years ended December 31, 1996 and 1995, are $141,000
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:
1996 1995
----------- -----------
Net revenues $49,588,509 $45,694,494
Operating loss (1,988,250) (1,816,942)
Net loss (7,596,682) (8,686,112)
Net loss per common share (11.10) (12.78)
4. ACCRUED EXPENSES
The following is a summary of accrued expenses:
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
Commissions payable $ 2,042,254 $ 1,431,253
Accrued interest 1,851,673 796,933
Other accrued expenses 729,054 515,088
----------- -----------
Total accrued expenses $ 4,622,981 $ 2,743,274
----------- -----------
----------- -----------
14
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. LONG-TERM OBLIGATIONS
The following is a summary of long-term obligations outstanding as of
December 31, 1996 and 1995:
1996 1995
----------- -----------
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 7.07%
to 7.17% at December 31, 1996; interest
rates ranged from 6.82% to 7.74% during
1996; 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 $30,498,216 $25,348,217
Clear Channel Communications, Inc. loan;
interest ranging from 9% to 13%; interest
rate of 10% at December 31, 1996; interest
rates ranged from 9% to 10% during 1996;
principal and accrued interest is payable
on January 1, 1998; collateralized by all
the issued and outstanding common stock of
TLCI; TACI is required to comply with
certain financial and nonfinancial covenants 40,000,000 --
Various loans, interest ranging from
11.75% to 12.38%, payable through 1997 16,249 38,456
Obligations under capital leases,
implicit interest rate of 12.2%, payable
through 1997 17,246 42,644
----------- -----------
70,531,711 25,429,317
Less current portion 33,495 47,611
----------- -----------
$70,498,216 $25,381,706
----------- -----------
----------- -----------
15
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Maturities of long-term obligations for the five years subsequent to
December 31, 1996 and thereafter are as follows:
Year AMOUNT
---- ------
1997 $ 33,495
1998 40,000,000
1999 9,248,216
2000 13,750,000
2001 7,500,000
As of December 31, 1996, the Company was not in compliance with certain
financial covenants of its bank loans. The bank loans were retired on
February 14, 1997 with the proceeds of long-term financing from the Heftel
merger.
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 payable under the agreement were
recognized currently in interest expense. Interest expense (income)
recognized under the agreement totaled $0, ($57,241) and $140,767 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Interest paid for the years ended December 31, 1996, 1995 and 1994
amounted to $3,027,293, $2,091,919 and $2,221,643, respectively.
6. 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. The senior preferred
stockholder has consented to the cessation of dividends accruing after
December 31, 1995. As of December 31, 1995, accrued and unpaid dividends
were $378,749. 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.
16
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The senior preferred stock has no voting rights; however, the holder of
the senior preferred stock is 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 stockholder was 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 also had the option to redeem all the senior preferred stock
at the Redemption Price and repurchase the stock warrant after December 31,
1996. The senior preferred stockholder has consented to redeem the senior
preferred stock and exercise the stock warrant at the date of the merger
(February 14, 1997). At the date of the merger, the senior preferred stock
was redeemed for $3,378,749 ($1,000 per share in cash plus accrued and unpaid
dividends through December 31, 1995) and the stock warrant was converted into
180,000 shares of Heftel Class A common stock.
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.
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%.
17
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31, 1996, treasury stock is comprised of 59,535 shares of
common stock at an aggregate cost of $1,289,835 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, 1996
represent purchases and sales of common stock.
7. INCOME TAXES
The provision (benefit) for income taxes on income (loss) before
extraordinary item for the years ended December 31, 1996, 1995 and 1994
consists of the following:
1996 1995 1994
---------- ---------- ------------
Current:
Federal $(835,319) $2,532,002 $(2,481,971)
State 134,810 356,741 83,138
--------- ---------- -----------
Total current tax expense (benefit) (700,509) 2,888,743 (2,398,833)
--------- ---------- -----------
Deferred:
Federal 437,739 (219,425) 3,392,171
State 18,239 110,366 299,309
--------- ---------- -----------
Total deferred tax expense (benefit) 455,978 (109,059) 3,691,480
--------- ---------- -----------
Total income tax expense (benefit) $(244,531) $2,779,684 $ 1,292,647
--------- ---------- -----------
--------- ---------- -----------
In 1994, an income tax benefit of $224,030 was allocated to the
extraordinary charge.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are as follows:
1996 1995
----------- -----------
Deferred tax assets:
Intangible assets $ 520,280 $ 444,800
Allowance for doubtful accounts receivable 258,131 290,540
Other 78,565 68,000
----------- -----------
Total deferred tax assets 856,976 803,340
----------- -----------
Deferred tax liabilities:
Broadcast licenses (4,745,344) (4,356,131)
Other (150,031) (29,630)
----------- -----------
Total deferred tax liabilities (4,895,375) (4,385,761)
----------- -----------
Net deferred tax liabilities $(4,038,399) $(3,582,421)
----------- -----------
----------- -----------
18
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The reconciliation of income tax expense computed at the federal
statutory tax rate to the Company's actual income tax expense (benefit) for
the years ended December 31, 1996, 1995 and 1994 is as follows:
1996 1995 1994
--------- ---------- ----------
Federal income tax at statutory rate $(556,150) $1,599,020 $1,358,122
State income taxes, net of federal benefit 88,975 308,291 252,415
Nondeductible intangible asset amortization 58,415 140,927 33,150
Use of net operating loss carryforwards -- -- (288,600)
Other 164,229 731,446 (62,440)
--------- ---------- ----------
$(244,531) $2,779,684 $1,292,647
--------- ---------- ----------
--------- ---------- ----------
Income taxes paid for the years ended December 31, 1996, 1995 and 1994
amounted to $1,114,898, $2,908,100 and $21,958, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company is the lessor of office space, transmitter towers, and
parcels of land. Included in buildings and improvements as of December 31,
1996 and 1995 is $2,005,433 of assets leased to others under operating leases
and the related accumulated depreciation of $720,767 and $623,711,
respectively. Included in land as of December 31, 1996 and 1995 is $52,396
representing a parcel of land which is leased to another party under an
operating lease.
The Company leases office space and other property. Terms of the leases
vary from three to twenty years. Certain leases have contingent rent clauses
whereby rent is increased based on a change in the Consumer Price Index.
Various leases have renewal options of five to ten years.
Future minimum rental payments under noncancellable operating leases in
effect at December 31, 1996 are summarized as follows:
Year Amount
---- ----------
1997 $1,477,604
1998 1,443,054
1999 1,327,886
2000 1,180,772
2001 1,065,077
Thereafter 3,169,027
Rent expense for the years ended December 31, 1996, 1995, and 1994 was
$1,208,674, $1,075,400 and $936,128, respectively.
19
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In December 1994, the Company entered into a time brokerage agreement to
provide programming to, and sell advertising time on radio station KLTO-FM
(formerly 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 KLTO-FM time
brokerage agreement provides for 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. Time brokerage agreement fees for the years ended
December 31, 1996, 1995 and 1994 were $144,308, $155,000 and $12,500. 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.
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.
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.
9. SUBSEQUENT EVENTS
On January 1, 1997, TCTV bought 100,000 shares of 10% Redeemable
Convertible Preferred Stock, $0.01 par value per share, of TC Network, Inc.
("TCNI") and sold TCNI the tangible and intangible assets ("Program Assets")
associated with the television program known as Tejano Country. The TCNI
preferred stock is cumulative and nonvoting and was purchased for $275,000.
The sales price for the Program Assets is the right to receive 1% of the
annual gross revenues of TCNI for each year beginning with the year ending
December 31, 1998.
20
<PAGE>
TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. Working capital was used to fund this acquisition.
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.
21
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma condensed consolidated statements of
operations of Heftel Broadcasting Corporation (the "Company") present the
results of operations for the year ended December 31, 1996 and the nine
months ended September 30, 1997 as if the following transactions
(collectively, the "Transactions"), as defined herein, had been completed on
January 1, 1996: (i) the Tender Offer; (ii) the Tichenor Acquisitions; and
(iii) the Tichenor Merger. The pro forma condensed consolidated statements
of operations give effect to various acquisitions completed by Tichenor (the
"Tichenor Acquisitions") during the periods presented, as more fully
described in the notes hereto.
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
"Tichenor 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 Heftel Class A Common Stock, par value $.001 per share ("Heftel
Common Stock"), in exchange for each share of Tichenor Common Stock and (b)
4.3478 shares of Heftel 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.
The transaction value of the Tichenor Merger was approximately $256.5
million which is the sum of (a) the fair value of the Tichenor Common and
Junior Preferred Stock (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 the
sum of (a) the issuance of 5,689,878 shares of Heftel Common Stock 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 Tichenor Merger was announced), and (b)
the direct costs related to the Tichenor Merger. The Tichenor Merger is
accounted for using the purchase method of accounting. The purchase price is
allocated primarily to FCC licenses and goodwill and amortized over 40 years.
The pro forma condensed consolidated statements of operations do not purport
to present the actual 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.
22
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 (1)
(Dollars in thousands, except per share data)
----------------
<TABLE>
Company Tender Company
as reported (2) Offer (5) as adjusted
--------------- --------- -----------
<S> <C> <C> <C>
Net broadcasting revenues $ 72,583 $ - $ 72,583
-------- ------- --------
Operating expenses:
Station operating expenses 48,285 - 48,285
Corporate expenses 4,528 (2,500)(6) 2,028
Depreciation and amortization 6,001 817 (7) 6,818
-------- ------- --------
Total operating expenses 58,814 (1,683) 57,131
-------- ------- --------
Operating income (loss) 13,769 1,683 15,452
-------- ------- --------
Other expense (income):
Interest expense, net 11,524 - 11,524
Restructuring charges 29,011 - 29,011
Other expense (income), net 1,529 - 1,529
-------- ------- --------
Total other expense 42,064 - 42,064
-------- ------- --------
Income (loss) before provision for income taxes (28,295) 1,683 (26,612)
Income tax expense (benefit) 100 - 100
-------- ------- --------
Income (loss) from continuing operations $(28,395) $ 1,683 $(26,712)
-------- ------- --------
-------- ------- --------
Income (loss) from continuing operations
per common and common equivalent share $ (1.35) $ (1.27)
-------- --------
-------- --------
Weighted average shares outstanding 20,998(4) 20,998
-------- --------
-------- --------
Other Operating Data:
Broadcast cash flow $ 24,298 $ 24,298
-------- --------
-------- --------
</TABLE>
23
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 (1)
(Dollars in thousands, except per share data)
----------------
<TABLE>
Tichenor
Tichenor Tichenor pro forma Tichenor
as reported acquisitions (10) adjustments as adjusted
----------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Net broadcasting revenues $47,087 $ 2,501 $ - $49,588
------- ------- ------- -------
Operating expenses:
Station operating expenses 35,565 3,005 (285)(11) 38,285
Corporate expenses 5,424 256 - 5,680
Depreciation and amortization 3,539 361 669 (12) 4,569
------- ------- ------- -------
Total operating expenses 44,528 3,622 384 48,534
------- ------- ------- -------
Operating income (loss) 2,559 (1,121) (384) 1,054
------- ------- ------- -------
Other expense (income):
Interest expense, net 4,135 1,631 1,278 (13) 7,044
Restructuring charges - - - -
Other expense (income), net 60 (8) - 52
------- ------- ------- -------
Total other expense 4,195 1,623 1,278 7,096
------- ------- ------- -------
Income (loss) before provision for income taxes (1,636) (2,744) (1,662) (6,042)
Income tax expense (benefit) (245) - (1,762)(15) (2,007)
------- ------- ------- -------
Income (loss) from continuing operations $(1,391) $(2,744) $ 100 $(4,035)
------- ------- ------- -------
------- ------- ------- -------
Income (loss) from continuing operations
per common and common equivalent share $ (1.24)(9) $ (3.18)
------- -------
------- -------
Weighted average shares outstanding 1,368 1,368
------- -------
------- -------
Other Operating Data:
Broadcast cash flow $11,522 $11,303
------- -------
------- -------
</TABLE>
24
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 (1)
(Dollars in thousands, except per share data)
----------------
<TABLE>
Tichenor Company
Merger pro forma
pro forma condensed
adjustments consolidated
------------- ------------
<S> <C> <C>
Net broadcasting revenues $ - $122,171
------- --------
Operating expenses:
Station operating expenses - 86,570
Corporate expenses - 7,708
Depreciation and amortization 5,693 (16) 17,080
------- --------
Total operating expenses 5,693 111,358
------- --------
Operating income (loss) (5,693) 10,813
------- --------
Other expense (income):
Interest expense, net - 18,568
Restructuring charges - 29,011
Other expense (income), net - 1,581
------- --------
Total other expense - 49,160
------- --------
Income (loss) before provision for income taxes (5,693) (38,347)
Income tax expense (benefit) (557)(17) (2,464)
------- --------
Income (loss) from continuing operations $(5,136) $(35,883)
------- --------
------- --------
Income (loss) from continuing operations
per common and common equivalent share $ (1.11)
--------
--------
Weighted average shares outstanding 32,377
--------
--------
Other Operating Data:
Broadcast cash flow $ 35,601
--------
--------
</TABLE>
25
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 (1)
(Dollars in thousands, except per share data)
------------
<TABLE>
Tichenor Company
Tichenor Merger pro forma
Company Tichenor pro forma pro forma condensed
as reported(3) as reported(8) adjustments adjustments consolidated
-------------- -------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net broadcasting revenues $ 98,207 $ 4,582 $ - $ - $ 102,789
--------- -------- -------- -------- ----------
Operating expenses:
Station operating expenses 60,796 4,772 (94)(11) - 65,474
Corporate expenses 3,505 571 - - 4,076
Depreciation and amortization 10,675 550 83 (12) 712 (16) 12,020
--------- -------- -------- -------- ----------
Total operating expenses 74,976 5,893 (11) 712 81,570
--------- -------- -------- -------- ----------
Operating income (loss) 23,231 (1,311) 11 (712) 21,219
--------- -------- -------- -------- ----------
Other expense (income):
Interest expense, net 3,099 822 161 (13) - 4,082
Other expense (income), net 319 831 (1,100)(14) - 50
--------- -------- -------- -------- ----------
Total other expense (income) 3,418 1,653 (939) - 4,132
--------- -------- -------- -------- ----------
Income (loss) before provision for income taxes 19,813 (2,964) 950 (712) 17,087
Income tax expense (benefit) 7,925 (1,141) 380 (15) 342 (17) 7,506
--------- -------- -------- -------- ----------
Income (loss) from continuing operations $ 11,888 $ (1,823) $ 570 $ (1,054) $ 9,581
--------- -------- -------- -------- ----------
--------- -------- -------- -------- ----------
Income (loss) from continuing operations
per common and common equivalent share $ 0.29 $ (2.67) $ 0.22
--------- -------- ----------
--------- -------- ----------
Weighted average shares outstanding 40,870 (4) 684 42,723
--------- -------- ----------
--------- -------- ----------
Other Operating Data:
Broadcast cash flow (used) $ 37,411 $ (190) $ 37,315
--------- -------- ----------
--------- -------- ----------
</TABLE>
26
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
(1) The Company is the acquiring entity for accounting purposes in the
Tichenor Merger because of: (i) Clear Channel's relationship with the Company
and Tichenor both before and after the consummation of the Tichenor Merger,
(ii) Clear Channel's ability in the future to convert its Nonvoting Common
Stock into Class A Common Stock and comply with the FCC's cross-interest policy
without substantial economic hardship, and (iii) the Company's relative size as
compared to Tichenor.
(2) Represents the historical operating results of the Company for the twelve
months ended December 31, 1996 obtained by adding operating results for the
three months ended December 31, 1996 to operating results for the year ended
September 30, 1996 and subtracting the operating results for the three months
ended December 31, 1995.
(3) Represents the historical operating results of the Company for the nine
months ended September 30, 1997. The operating results of the Company include
the operating results of Tichenor from the merger date (February 14, 1997)
through September 30, 1997.
(4) Reflects the two-for-one stock split which was paid on December 1, 1997
in the form of a stock dividend of one share of common stock for each issued and
outstanding share of common stock. The income (loss) per common and common
equivalent share and other per share information has been restated to reflect
this two-for-one stock split.
(5) Clear Channel is a diversified broadcasting company which, including
pending acquisitions, owns and/or programs 177 radio stations and 18 television
stations in 39 markets in the United States. 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 owned approximately 63% of the Class A Common
Stock of the Company. Clear Channel had to dispose of certain shares and
convert its remaining shares to Class B Non-Voting Common Stock at the date of
the Tichenor Merger in order to comply with the cross-interest policy of the
FCC. Currently, Clear Channel owns 32% of the outstanding common stock of the
Company.
(6) Reflects the elimination of executive compensation and related benefits
of approximately $2,500,000 for the year ended December 31, 1996, relating to
the termination of contractual employment agreements with two former officers of
the Company terminated in connection with the consummation of the Tender Offer.
The two former officers were replaced by existing executive officers of
Tichenor. The historical compensation of such officers of Tichenor is included
in corporate expense in Tichenor's financial statements under the column
"Tichenor as reported."
(7) Reflects the amortization over five years of two non-compete agreements
totaling $7,000,000 paid to two former officers of the Company in connection
with the termination of their employment.
(8) Represents the historical operating results of Tichenor for the period
January 1 to February 13, 1997.
27
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
(9) Net loss per common and common equivalent share for Tichenor is
calculated by increasing the net loss by the accretion of stock warrant
totaling $311,480 for the year ended December 31, 1996 and dividing such
result by the weighted average shares outstanding for the respective period.
As a result of the Tichenor Merger, the stock warrant was retired and the
related accretion requirements were eliminated.
(10) Represents the historical operating results of the Tichenor Acquisitions
for the period of January 1, 1996 to the respective dates on which Tichenor
began operating the acquired stations as a result of the purchase of station
assets or entering into time brokerage agreements as follows:
<TABLE>
KSOL-FM KYLZ-FM
-----------------------------------------
KGBT-FM Six Period
Three months July 1,
months ended ended 1996 to
March 31, June 30, August 15,
1996 1996 1996 Subtotal Total
------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 66,902 $ 1,946,686 $ 487,683 $ 2,434,369 $ 2,501,271
------------ ------------ ---------- ------------ ------------
Station operating expenses
excluding depreciation and
amortization 59,710 2,368,525 576,708 2,945,233 3,004,943
Corporate expense - 206,986 49,247 256,233 256,233
Depreciation and amortization 2,800 287,805 70,069 357,874 360,674
Interest expense 2,040 1,296,502 333,005 1,629,507 1,631,547
Other expense - (8,787) 974 (7,813) (7,813)
------------ ------------ ---------- ------------ ------------
Total expense 64,550 4,151,031 1,030,003 5,181,034 5,245,584
------------ ------------ ---------- ------------ ------------
Net loss $ 2,352 $ (2,204,345) $ (542,320) $ (2,746,665) $ (2,744,313)
------------ ------------ ---------- ------------ ------------
------------ ------------ ---------- ------------ ------------
</TABLE>
The historical operating results of radio stations KRTX-FM, KLTP-FM and
KLTO-FM are not included because KRTX-FM did not operate prior to its
acquisition by Tichenor and KLTP-FM and KLTO-FM operated under time brokerage
agreements for the entire year and their results of operations are included in
the column "Tichenor as reported."
(11) Represents the reversal of time brokerage agreement fees which were
recognized from the beginning of the accounting period through the date the
assets were purchased.
(12) Represents incremental depreciation and amortization expense resulting
from the Tichenor Acquisitions from the beginning of the accounting period
through the respective dates of purchase as follows:
For the year ended December 31, 1996:
<TABLE>
KSOL-FM/
KRTX-FM KLTP-FM KGBT-FM KZOL-FM KLTO-FM TOTAL
-------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Depreciation $ - $ 12,393 $ 23,160 $ 144,814 $ 23,590 $ 203,957
Amortization 14,583 9,701 144,397 570,122 86,676 825,479
Less historical - - (2,800) (357,874) - (360,674)
-------- -------- -------- --------- -------- ---------
Total $ 14,583 $ 22,094 $ 164,757 $ 357,062 $110,266 $ 668,762
-------- -------- -------- --------- -------- ---------
-------- -------- -------- --------- -------- ---------
</TABLE>
28
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
For the nine months ended September 30, 1997:
KLTO-FM
-------
Depreciation $17,692
Amortization 65,007
Less historical -
-------
Total $82,699
-------
-------
The estimated weighted average useful lives of fixed assets, FCC
licenses, going concern and other intangibles are assumed to be five, forty,
fifteen and five years, respectively.
(13) Represents incremental interest expense for the year ended December 31,
1996 and the nine months ended September 30, 1997 associated with the Tichenor
Acquisitions as if the radio stations were acquired on January 1, 1996. The
purchases of KRTX-FM, KLTP-FM, and KGBT-FM were funded with cash from
operations and borrowings under Tichenor's credit facility. The weighted
average interest rate during the respective periods is 8% based on historical
borrowing costs. The purchase of KSOL-FM/KZOL-FM was funded with a note
payable issued to Clear Channel with a weighted average interest rate of 10%.
The interest cost associated with the portion of the purchase price paid with
cash from operations is computed with a weighted average interest rate of 6%.
This rate is based on historical yields of short-term investments.
For the year ended December 31, 1996:
<TABLE>
Less
KSOL-FM - historical
KRTX-FM KLTP-FM KGBT-FM KZOL-FM KLTO-FM balances Total
--------- -------- -------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest expense, net $ 67,500 $ 38,500 $ 88,667 $2,500,000 $ 215,100 $(1,631,547) $1,278,220
--------- -------- -------- ---------- --------- ----------- ----------
--------- -------- -------- ---------- --------- ----------- ----------
</TABLE>
For the nine months ended September 30, 1997:
KLTO-FM
---------
Interest expense, net $ 161,325
---------
---------
(14) Reflects the elimination of a media broker commission of $1,100,000 paid
by Tichenor related to the Tichenor Merger.
(15) Represents the incremental income tax effect of the pro forma adjustments
at an estimated effective income tax rate of 40%.
(16) Reflects incremental amortization expense of approximately $5,692,869 and
$711,609 for the year ended December 31, 1996 and the period January 1, 1997 to
February 14, 1997 (merger date), respectively. This incremental amortization
expense is the result of additional intangible assets recorded as a result of
the Tichenor Merger which are being amortized over forty years.
(17) Reflects the income tax expense (benefit) assuming the utilization of the
Company's net operating losses to offset Tichenor's deferred tax liability.
29
