<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): January 6, 1998
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
The audit of the Heftel Broadcasting Corporation financial statements
as of and for the three month period ended December 31, 1996, was
completed on July 2, 1997, by Ernst & Young LLP.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
EXHIBIT 23.1 Consent of Ernst & Young LLP
EXHIBIT 23.2 Consent of Ernst & Young LLP
EXHIBIT 99.1 Consolidated balance sheets of Heftel Broadcasting
Corporation as of December 31, 1996 and September 30,
1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for the
three month period ended December 31, 1996 and each of
the two years in the period ended September 30, 1996,
with Independent Auditors' Report dated July 2, 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: January 6, 1998
1
<PAGE>
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. Page
----------- ----
EXHIBIT 23.1 Consent of Ernst & Young LLP 3
EXHIBIT 23.2 Consent of Ernst & Young LLP 4
EXHIBIT 99.1 Consolidated balance sheets of Heftel Broadcasting 5
Corporation as of December 31, 1996 and September
30, 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for
the three month period ended December 31, 1996 and
each of the two years in the period ended September
30, 1996, with Independent Auditors' Report dated
July 2, 1997.
2
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-43483) pertaining to the Amended and Restated 1997 Employee Stock
Purchase Plan of Heftel Broadcasting Corporation and the Registration Statement
(Form S-8 No. 333-43495) pertaining to the Heftel Broadcasting Corporation
Long-Term Incentive Plan, of our report dated July 2, 1997, with respect to the
consolidated financial statements of Heftel Broadcasting Corporation included in
Heftel Broadcasting Corporation's Current Report on Form 8-K dated January 6,
1998.
Ernst & Young LLP
Los Angeles, California
January 5, 1998
3
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Prospectuses, including the Prospectus Supplement dated January 6, 1998,
contained in the Registration Statement (Form S-3 No. 333-42171) of Heftel
Broadcasting Corporation, Heftel Capital Trust I and Heftel Capital Trust II,
and to the incorporation by reference therein of our report dated November 7,
1996, with respect to the consolidated financial statements of Heftel
Broadcasting Corporation included in its Annual Report (Form 10-K) for the
year ended September 30, 1996, filed with the Securities and Exchange
Commission.
Ernst & Young LLP
Los Angeles, California
January 5, 1998
4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Heftel Broadcasting Corporation
We have audited the accompanying consolidated balance sheets of Heftel
Broadcasting Corporation as of December 31, 1996 and September 30, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the three month period ended December 31, 1996 and each of the two
years in the period ended September 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial position of
Heftel Broadcasting Corporation at December 31, 1996 and September 30, 1996, and
the consolidated results of its operations and its cash flows for the three
month period ended December 31, 1996 and each of the two years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Los Angeles, California
July 2, 1997
5
<PAGE>
HEFTEL BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,787,652 $ 5,131,960
Accounts receivable, net of allowance of $1,128,158 at
December 31, 1996 and $1,657,860 at September 30, 1996 16,995,571 17,015,323
Prepaid expenses and other current assets 631,791 1,012,232
------------ ------------
Total current assets 22,415,014 23,159,515
Property and equipment, at cost:
Land 6,662,690 6,662,690
Buildings and improvements 4,856,071 4,601,932
Broadcast and other equipment 12,740,683 12,620,463
Furniture and fixtures 2,996,850 2,970,813
------------ ------------
27,256,294 26,855,898
Less accumulated depreciation (7,590,009) (7,019,970)
------------ ------------
19,666,285 19,835,928
Intangible assets:
Broadcast licenses 98,725,706 98,725,706
Cost in excess of fair value of net assets acquired 24,135,219 24,135,219
Covenants not-to-compete 7,000,000 7,000,000
Other intangible assets 505,000 505,000
------------ ------------
130,365,925 130,365,925
Less accumulated amortization (9,773,591) (8,624,020)
------------ ------------
120,592,334 121,741,905
Other non-current assets 1,051,462 1,013,778
------------ ------------
Total assets $163,725,095 $165,751,126
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
HEFTEL BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
other non-current obligations $ 1,860,237 $ 1,859,301
Accounts payable 366,269 707,967
Accrued expenses 11,828,653 13,423,891
------------ ------------
Total current liabilities 14,055,159 15,991,159
Long-term debt, less current portion 134,045,479 136,126,364
Other non-current obligations, less current portion 1,458,753 1,532,214
Commitments and contingencies
Stockholders' equity:
Series A Preferred Stock, cumulative, $.001 par value,
2,600,000 shares authorized, none issued or outstanding -- --
Undesignated series preferred stock, $.001 par value,
2,400,000 shares authorized, none issued or outstanding -- --
Class A Common Stock, $.001 par value, 30,000,000 shares
authorized, 11,547,731 issued and outstanding 11,548 11,548
Class B Common Stock, $.001 par value, 7,000,000 shares
authorized, none issued or outstanding -- --
Additional paid-in capital 102,578,149 102,578,149
Accumulated deficit (88,423,993) (90,488,308)
------------ ------------
Total stockholders' equity 14,165,704 12,101,389
------------ ------------
Total liabilities and stockholders' equity $163,725,095 $165,751,126
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
HEFTEL BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------------
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Broadcasting revenues $ 20,850,616 $ 81,242,695 $ 72,577,882
Less agency commissions (2,541,648) (9,510,663) (8,418,340)
------------ ------------ ------------
Net revenues 18,308,968 71,732,032 64,159,542
Operating expenses:
Selling 3,028,019 12,363,883 10,393,242
Programming 3,094,028 12,185,339 10,174,717
Promotion and market research 1,422,962 8,608,195 10,099,402
Engineering 692,410 2,666,454 1,842,711
General and administrative 2,969,890 13,072,385 11,132,437
Corporate expenses 368,074 5,071,859 4,720,380
Depreciation and amortization 1,746,732 5,140,131 3,344,419
------------ ------------ ------------
Total operating expenses 13,322,115 59,108,246 51,707,308
------------ ------------ ------------
Operating income 4,986,853 12,623,786 12,452,234
Other income (expense):
Interest income 26,290 206,605 217,830
Interest expense (2,866,872) (11,240,835) (6,607,180)
Costs relating to unconsummated acquisitions -- (1,383,187) (141,988)
Restructuring charges -- (29,011,237) --
Miscellaneous, net 18,044 (287,140) (285,568)
------------ ------------ ------------
(2,822,538) (41,715,794) (6,816,906)
------------ ------------ ------------
Income (loss) before minority interest and
provision for income taxes 2,164,315 (29,092,008) 5,635,328
Minority interest -- -- (1,166,780)
Provision for income taxes (100,000) (65,000) (150,000)
------------ ------------ ------------
Income (loss) from continuing operations 2,064,315 (29,157,008) 4,318,548
------------ ------------ ------------
Discontinued operations:
Loss on operations of CRC -- (1,844,939) (625,970)
Loss on disposal of CRC -- (8,142,598) --
------------ ------------ ------------
Total loss on discontinued operations -- (9,987,537) (625,970)
------------ ------------ ------------
Income (loss) before extraordinary item 2,064,315 (39,144,545) 3,692,578
Extraordinary item - loss on retirement of debt -- (7,461,267) --
------------ ------------ ------------
Net income (loss) $ 2,064,315 $(46,605,812) $ 3,692,578
------------ ------------ ------------
------------ ------------ ------------
Income (loss) per common
and common equivalent share:
Continuing operations $ 0.09 $ (1.41) $ 0.20
Discontinued operations -- (0.49) (0.03)
Extraordinary item -- (0.37) --
------------ ------------ ------------
Net income (loss) $ 0.09 $ (2.27) $ 0.17
------------ ------------ ------------
------------ ------------ ------------
Weighted average common shares outstanding 23,095,462 20,589,934 21,610,692
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
HEFTEL BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PREFERRED PAID-IN ACCUMULATED
CLASS A CLASS B STOCK CAPITAL DEFICIT
---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 $ 6,032 $ 4,680 $ 2,296 $ 95,698,105 $ (44,670,835)
Repurchase of preferred stock -- -- (1,960) (1,958,330) --
Preferred stock dividends -- -- -- -- (2,861,278)
Common stock issued in
connection with exercise of warrants 160 -- -- 1,679,840 --
Issuance of stock options -- -- -- 273,654 --
Net income -- -- -- -- 3,692,578
---------- ---------- ---------- ------------- -------------
Balance at September 30, 1995 6,192 4,680 336 95,693,269 (43,839,535)
Repurchase of preferred stock -- -- (336) (335,298) --
Preferred stock dividends -- -- -- -- (42,961)
Retirement of treasury stock -- (811) -- (4,018,924) --
Payment on stockholder notes -- -- -- -- --
Common stock issued in
connection with:
Conversion of Class B to
Class A Common Stock 3,869 (3,869) -- -- --
Exercise of warrants and options 1,442 -- -- 10,546,817 --
Business Acquisition 45 -- -- 692,285 --
Net loss -- -- -- -- (46,605,812)
---------- ---------- ---------- ------------- -------------
Balance at September 30, 1996 11,548 -- -- 102,578,149 (90,488,308)
Net income -- -- -- -- 2,064,315
---------- ---------- ---------- ------------- -------------
Balance at December 31, 1996 $ 11,548 $ -- $ -- $ 102,578,149 $ (88,423,993)
---------- ---------- ---------- ------------- -------------
---------- ---------- ---------- ------------- -------------
NOTES NET
RECEIVABLE STOCKHOLDERS'
TREASURY FROM EQUITY
STOCK STOCKHOLDERS (DEFICIENCY)
----------- ----------- ------------
<S> <C> <C> <C>
Balance at September 30, 1994 $(4,019,735) $(2,584,052) $44,436,491
Repurchase of preferred stock -- -- (1,960,290)
Preferred stock dividends -- -- (2,861,278)
Common stock issued in
connection with exercise of warrants -- (1,680,000) --
Issuance of stock options -- -- 273,654
Net income -- -- 3,692,578
----------- ----------- ------------
Balance at September 30, 1995 (4,019,735) (4,264,052) 43,581,155
Repurchase of preferred stock -- -- (335,634)
Preferred stock dividends -- -- (42,961)
Retirement of treasury stock 4,019,735 -- --
Payment on stockholder notes -- 4,264,052 4,264,052
Common stock issued in
connection with:
Conversion of Class B to
Class A Common Stock -- -- --
Exercise of warrants and options -- -- 10,548,259
Business Acquisition -- -- 692,330
Net loss -- -- (46,605,812)
----------- ----------- ------------
Balance at September 30, 1996 -- -- 12,101,389
Net income -- -- 2,064,315
----------- ----------- ------------
Balance at December 31, 1996 $ -- $ -- $ 14,165,704
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
HEFTEL BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------
1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,064,315 $(46,605,812) $ 3,692,578
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,746,732 5,140,131 3,587,341
Provision for losses on accounts receivable 722,691 2,871,700 1,522,235
Loss on retirement of debt, net of cash paid -- 7,461,267 --
Non-cash loss on restructuring charges -- 1,219,048 --
Non-cash interest 360,000 993,674 925,740
Changes in operating assets and liabilities, net of
effect from acquisitions and discontinued operations:
Accounts receivable (702,939) (4,711,197) (3,545,065)
Prepaid expenses and other current assets 380,441 1,175,118 (327,714)
Accounts payable (341,698) (421,251) (1,331,888)
Accrued expenses (1,595,238) 4,087,219 2,433,390
Other, net (27,122) 297,960 (393,245)
Discontinued operations:
Non-cash charges and working capital change -- 8,393,531 (283,385)
----------- ----------- -----------
Net cash provided by (used in) operating activities 2,607,182 (20,098,612) 6,279,987
Cash flows from investing activities:
Purchases of property and equipment (400,396) (3,687,780) (4,011,331)
Purchase of businesses and radio station assets -- (20,150,000) (37,600,000)
Payment of noncompete agreements -- (7,000,000) --
Collections (funding) of advances/loans to
related parties -- 2,357,932 (623,838)
Decrease in other non-current assets (397,684) -- --
Payments received on notes receivable -- -- 222,586
----------- ----------- -----------
Net cash used in investing activities (798,080) (28,479,848) (42,012,583)
Cash flows from financing activities:
Proceeds from stock issuances -- 10,548,259 --
Repurchase of Preferred and Common Stock -- (335,634) (1,960,290)
Payment of Series A Preferred Stock dividend -- (42,961) (2,861,278)
Proceeds from borrowings under credit agreements -- 163,459,267 36,475,000
Payment of costs related to new financing -- (5,799,878) (82,411)
Repayment of long-term debt (2,153,410) (123,752,057) (653,026)
Note payments from stockholders -- 4,229,114 --
----------- ----------- -----------
Net cash (used in) provided by financing activities (2,153,410) 48,306,110 30,917,995
----------- ----------- -----------
Net decrease in cash and cash equivalents (344,308) (272,350) (4,814,601)
Cash and cash equivalents at beginning of period 5,131,960 5,404,310 10,218,911
----------- ----------- -----------
Cash and cash equivalents at end of period $ 4,787,652 $ 5,131,960 $ 5,404,310
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Heftel Broadcasting Corporation, through its subsidiaries, owns and
operates seventeen Spanish language radio stations serving the Los Angeles,
Miami, New York City, Dallas/Ft. Worth, Chicago and Las Vegas markets.
BASIS OF PRESENTATION
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 accompanying
financial statements for the three month period ended December 31, 1996 cover
the transition period.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Heftel Broadcasting Corporation and its wholly-owned subsidiaries (collectively,
the "Company"). The Company consolidates the accounts of subsidiaries when it
has a controlling financial interest (over 50%) in the outstanding voting shares
of the subsidiary. All significant intercompany accounts and transactions have
been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
ACCOUNTS RECEIVABLE
The Company sells broadcast time to a diverse customer base including
advertising agencies and other direct customers The Company performs credit
evaluations of its customers and generally does not require collateral. The
Company maintains allowances for potential losses and such losses have been
within management's expectations.
MINORITY INTEREST
On September 7, 1995, the Company, through a subsidiary, acquired the
previously unowned 51% interest in a joint venture partnership. Prior to this
acquisition, the unowned 51% interest was accounted for as a minority interest.
PROPERTY AND EQUIPMENT
Land, buildings and improvements, broadcast and other equipment, and
furniture and fixtures are recorded at cost. Expenditures for significant
renewals and betterments are capitalized. Repairs and maintenance are charged
to expense as incurred.
11
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 on a straight-line
basis 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 (five to forty years) on a straight-line basis. The
carrying value of intangible assets is reviewed if the facts and circumstances
suggest that such value may have been impaired. If this review indicates that
the carrying value of an intangible asset will not be recoverable, as determined
based on the undiscounted cash flows of the Company over the remaining
amortization period, the carrying value of the intangible asset is reduced by
the estimated shortfall of cash flows.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Beginning fiscal 1997, the Company will adopt Statement of Financial
Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF." The adoption of this new
accounting standard is not expected to have a material effect on the Company's
financial position or results of operations.
INCOME TAXES
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Under
SFAS 109, income taxes for financial reporting purposes are determined using the
liability method. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates expected to
apply to taxable income in the periods in which the deferred tax asset or
liability is expected to be realized or settled.
REVENUE RECOGNITION
Revenue is recognized as commercials are broadcast. The Company also
enters into barter transactions in which advertising time is traded for
merchandise or services used principally for promotional and other business
purposes. 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 revenues accounted for approximately 4%,
6% and 7% of broadcasting revenues for the three-month period ended December 31,
1996 and the fiscal years ended September 30, 1996 and 1995, respectively.
EARNINGS PER SHARE
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. For purpose of this computation,
cumulative preferred stock dividends are deducted from net income (loss) whether
or not preferred stock dividends have been declared or paid.
12
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," and intends
to continue to do so.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION" (SFAS 123). SFAS 123 established a fair value-based method of
accounting for compensation cost related to stock options and other forms of
stock-based compensation plans. However, SFAS 123 allows an entity to continue
to measure compensation costs using the principles of APB 25 if certain pro
forma disclosures are made. SFAS 123 is effective for fiscal years beginning
after December 15, 1996. The Company intends to adopt the provisions for pro
forma disclosure requirements of SFAS 123 in fiscal 1997.
2. RECENT DEVELOPMENTS
CHANGE IN CONTROL OF COMPANY
On August 5, 1996, Clear Channel Radio, Inc., a wholly owned subsidiary of
Clear Channel Communications, Inc. (Clear Channel), completed a stock purchase
and tender offer of the Company's Class A and B Common Stock for $23 per share.
The consummation of these transactions, as more fully described below, increased
Clear Channel's investment in the Company from a previously owned 21% interest
to 63%. Clear Channel is a diversified radio and television broadcasting
company.
Pursuant to a Stockholder Purchase Agreement dated June 1, 1996 between
Clear Channel and Mr. Cecil Heftel, former Chairman and Co-Chief Executive
Officer, Mr. Carl Parmer, former President and Co-Chief Executive Officer and
members of the Heftel family, Clear Channel acquired 160,000 shares of the
Company's Class A Common Stock and 3,356,529 shares of the Company's Class B
Common Stock on August 5, 1996 (each share of Class B Common Stock converted
automatically into one share of Class A Common Stock upon sale). An additional
1,156,017 shares of Class A Common Stock were acquired by Clear Channel upon the
exercise of stock options and warrants held by the selling stockholders.
13
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Under a separate Tender Offer Agreement dated June 1, 1996 between the Company
and Clear Channel, Clear Channel also acquired 231,776 shares of the Company's
Class A Common Stock, of which an aggregate of 199,167 shares were tendered by
employees of the Company upon the exercise of their stock options on August 5,
1996. An additional 236,700 shares of Class A Common Stock were tendered to
Clear Channel by public shareholders.
In connection with the change in control of the Company, the employment of
Mr. Heftel and Mr. Parmer was terminated pursuant to employment contract
settlement agreements with each which provided for a lump sum payment upon
termination. In addition, Mr. Heftel and Mr. Parmer entered into five-year
noncompete agreements with the Company in exchange for the payment of $2.5
million and $4.5 million, respectively. Further, the entire Board of Directors
was replaced with five new members effective August 5, 1996.
TICHENOR MERGER
On October 10, 1996, the Company's Board of Directors approved a plan to
have the Company acquire Tichenor Media System, Inc. (Tichenor). Tichenor is a
Dallas-based Spanish language broadcaster with twenty radio stations in six
markets. Under the terms of the merger agreement, Tichenor shareholders would
exchange their capital stock for approximately 5.68 million shares of the
Company's Class A Common Stock plus approximately $3.4 million in cash. This
acquisition was completed on February 14, 1997.
3. DISCONTINUED OPERATIONS / RESTRUCTURING CHARGES
DISCONTINUED OPERATIONS - CRC
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. The charge to operations during the quarter ended September 30, 1996 was
approximately $8.1 million, of which $6.2 million relates to non-cash charges
resulting from the write-off of goodwill. No income tax benefit was realized
due to the Company's availability of net operating loss carryforwards. The loss
on disposal of CRC includes approximately $1.9 million of operating losses from
the measurement date, August 5, 1996, through the disposal date, December 31,
1996. CRC intends to fulfill its contractual program obligations through the
disposal date, December 31, 1996. CRC's net assets will be used to satisfy
outstanding obligations and remaining property and equipment, which is not
material, will be transferred to other subsidiaries after the disposal date.
RESTRUCTURING CHARGES
In connection with the change in control of ownership, the Company
incurred certain one-time restructuring charges totaling approximately $29.0
million during the quarter ended September 30, 1996. The material components of
the restructuring charges are $18.8 million in payments to former senior
executives relating to employment contract settlements, $4.7 million in broker
commissions and transaction costs, $2.5 million in costs relating to the planned
closing of duplicate facilities, plus $1.9 million in severance relating to
employee terminations resulting from the restructuring.
14
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. BUSINESS AND ASSET ACQUISITIONS
1996 ASSET ACQUISITION
NEW YORK
On March 25, 1996, the Company acquired the assets of radio station WPAT-AM
which serves the New York City market for approximately $19.5 million. The
asset acquisition was financed through additional borrowings under the Company's
credit agreement.
1995 ACQUISITIONS
During fiscal year 1995, the Company acquired several businesses as
described further in the following paragraphs. The aggregate purchase price of
these acquisitions, including acquisition costs, was approximately $42 million
and consisted of the following:
Cash paid $37,600,000
Long-term debt and liabilities assumed 3,521,000
Cancellation of note receivable 900,000
-----------
Total fair value of acquisitions $42,021,000
-----------
-----------
All of the business acquisitions made by the Company during fiscal year
1995 were accounted for using the purchase method of accounting. Accordingly,
the accompanying financial statements include the accounts of the acquired
businesses as of the respective dates of acquisition. Such acquisitions are
described below.
In December 1994, the Company acquired station KMRT-AM, which serves the
Dallas/Ft. Worth market, for approximately $1.5 million. From August 1994
through the date of acquisition, the Company programmed KMRT-AM under a Local
Marketing Agreement (LMA).
In April 1995, the Company acquired station KICI-FM, which serves the
Dallas/Ft. Worth market, in exchange for cancellation of a note for $900,000
payable by the seller to a subsidiary of the Company. From August 1994 through
the date of acquisition, the Company programmed KICI-FM under an LMA.
In June 1995, the Company acquired the assets of the radio station KCYT-FM
(serving the Dallas/Ft. Worth market) for approximately $2.0 million. The
acquisition was financed through additional borrowings under the Company's
credit agreement and the issuance of notes payable to the sellers. From
February 1995 through the date of acquisition, the Company programmed KCYT-FM
under an LMA. Subsequent to the acquisition, the station call letters were
changed to KMRT-FM.
In July 1995, the Company acquired the assets of radio station KDZR-FM,
which serves the Dallas/Ft. Worth market, for approximately $4.7 million. This
acquisition was financed through additional borrowings under the Company's
credit agreement. From February 1995 through the date of acquisition, the
Company programmed KDZR-FM under an LMA. Subsequent to the acquisition, the
station call letters were changed to KHCK-FM.
In July 1995, the Company acquired the assets of radio station WOPA-AM,
which serves the Chicago market, for approximately $4.5 million plus 44,811
shares of Class A Common Stock with a fair value of approximately $692,000.
This acquisition was financed through additional borrowings under the Company's
credit agreement. Subsequent to the acquisition, the station call letters were
changed to WLXX-AM.
15
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In August 1995, the Company acquired the assets of radio station KOWA-AM,
which serves the Las Vegas market, for approximately $900,000. The acquisition
was financed through additional borrowings under the Company's credit agreement.
Subsequent to the acquisition, the station call letters were changed to KLSQ-AM.
On September 7, 1995, the Company acquired the previously unowned 51%
interest in Viva America Media Group (Viva Media), a partnership that owns
WAQI-AM and WRTO-FM, which serve the Miami market, for $19.8 million in cash.
The acquisition was financed through additional borrowings under the Company's
credit agreement. Under the terms of an Amended and Restated Agreement and Plan
of Reorganization, and in connection with this transaction, the following
contractual arrangements were terminated for no additional consideration: (i) a
warrant to purchase up to 237,600 shares of Class B Common Stock held by a
former officer of the Company and the employment relationship between the
Company and that officer and (ii) certain agreements regarding the management
of the Miami stations.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information presents the
consolidated results of operations as if the above acquisitions had occurred at
the beginning of the period presented, after giving effect to certain
adjustments including depreciation and amortization of assets acquired and
interest expense on acquisition debt. This pro forma information is presented
for comparative purposes only and does not purport to be indicative of what
would have occurred had the acquisitions been made as of those dates or results
which may occur in the future (in thousands, except per share data).
Year ended September 30, 1995 (Unaudited)
Net broadcasting revenue $68,218
Net income $ 3,251
Net income per common share $ 0.29
5. LONG-TERM DEBT AND OTHER NON-CURRENT OBLIGATIONS
Long-term debt consists of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
New Credit Agreement, variable interest rate
(7.45% at December 31, 1996), interest payable
monthly, principal payable in January 1998 $133,000,000 $135,000,000
Non-interest bearing note payable to former
Viva Media partners due April 1997 1,499,250 1,499,250
Various notes payable, interest at 10%, payable in
varying installments, due 1998 through 2015 1,359,565 1,439,514
------------ -------------
135,858,815 137,938,764
Less current portion (1,813,336) (1,812,400)
------------ -------------
$134,045,479 $136,126,364
------------ -------------
------------ -------------
16
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NEW CREDIT AGREEMENT
On August 5, 1996, concurrent with the change in control of ownership, the
Company borrowed $135 million under a new credit agreement (New Credit
Agreement) with new lenders which provides a total credit facility of $155
million. The proceeds were used to retire all of the outstanding debt under the
Company's old credit agreement and to pay certain noncompete and employment
contract settlements plus certain transaction and other costs relating to the
Stockholder Purchase Agreement and Tender Offer. In connection with the
retirement of debt outstanding under the Old Credit Agreement, the Company
expensed $7,461,267 relating to unamortized financing costs. The lenders have a
security interest in the assets of the Company and the stock and partnership
interests of the Company's subsidiaries. The New Credit Agreement restricts the
payment of dividends and establishes limitations on, among other things, capital
expenditures and additional borrowings. The Company is also required to
maintain certain financial ratios, such as leverage and interest coverage
ratios. The interest rate on the Company's New Credit Agreement varies and is
based on quoted market prices. Consequently, the carrying value of the debt
approximates fair value. The principal balance outstanding plus unpaid interest
is due in January 1998. On February 14, 1997, the New Credit Agreement was
terminated and the Company entered into a new credit facility.
OLD CREDIT AGREEMENT
On March 13, 1996, the Company completed an Amended and Restated Credit
Agreement (Old Credit Agreement) resulting in an increase to the total credit
facilities from $100 million to $175 million and the commencement of principal
payments was deferred until December 31, 1996. Other terms of the Old Credit
Agreement remained substantially the same. On March 25, 1996, the Company
borrowed an additional $20 million under the Old Credit Agreement. The proceeds
were used to fund the acquisition of the assets of WPAT-AM in New York.
On January 10, 1996, the Company borrowed $1.5 million under its Old Credit
Agreement and issued a $1.5 million non-interest bearing promissory note in
connection with the acquisition of real property in Miami on which an AM
transmitting tower is located. During fiscal 1995, the Company borrowed $36.5
million under the Old Credit Agreement. Proceeds of these borrowings were used
primarily for business acquisitions, capital expenditures and working capital.
OTHER NON-CURRENT OBLIGATIONS
In connection with radio program promotions, the Company has, from time to
time, awarded several $1,000,000 prizes. Such prizes are payable to program
prize winners in annual non-interest bearing installments generally ranging from
40 to 50 years. As of December 31, 1996 and September 30, 1996, the long-term
portion of the remaining unpaid balance totaled $1,458,753 and $1,532,214,
respectively, net of discount of $4,776,846 and $4,815,867, respectively, and is
included in other non-current obligations in the accompanying consolidated
balance sheets. The imputed interest rates used range from 10% to 12%.
17
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Principal maturities of long-term debt and other non-current obligations,
net of imputed interest, during the next five years and thereafter reflect the
maturity schedule of a new credit facility entered into on February 14, 1997 and
are as follows
OTHER
LONG-TERM NON-CURRENT
DEBT OBLIGATIONS TOTAL
------------ ----------- ------------
Year ending December 31:
1997 $ 1,813,336 $ 46,901 $ 1,860,237
1998 304,239 42,498 346,737
1999 7,778,233 27,566 7,805,799
2000 10,260,471 30,837 10,291,308
2001 10,057,639 34,496 10,092,135
Thereafter 105,644,897 1,323,356 106,968,253
------------ ---------- ------------
$135,858,815 $1,505,654 $137,364,469
------------ ---------- ------------
------------ ---------- ------------
Interest paid for the three months ended December, 1996 and the years ended
September 30, 1996 and 1995 amounted to $2,552,984, $10,124,821 and $5,117,883,
respectively.
6. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases real properties and equipment under operating leases
expiring on various dates through 2089. Future minimum payments due under
noncancelable operating leases that have initial or remaining terms in excess of
one year are as follows:
Year ending December 31:
1997 $1,209,442
1998 1,213,158
1999 1,163,450
2000 763,185
2001 558,681
Thereafter 957,033
----------
$5,864,949
----------
----------
Management expects that, in the normal course of business, leases that
expire will be renewed or replaced by leases on other properties. All real
property leases require the payment of property taxes, maintenance, insurance
and other incidental expenses. Rent expense for the three-month period ended
December 31, 1996 and the fiscal years ended September 30, 1996 and 1995 was
$294,549, $1,655,506 and $1,345,376, respectively.
LITIGATION
On June 14, 1996, LEVINE V. CECIL HEFTEL, H. CARL PARMER, MADISON GRAVES,
RICHARD HEFTEL, JOHN MASON, HEFTEL BROADCASTING CORPORATION AND CLEAR CHANNEL
COMMUNICATIONS, INC. (Case No. 15066) was filed in the Court of Chancery of the
State of Delaware in the County of New Castle. This complaint is a purported
class action complaint on behalf of Jeffrey Levine and all other stockholders of
the Company to enjoin the defendants from effectuating the Tender Offer. The
plaintiff also alleges that Cecil Heftel and Carl Parmer, former directors and
executive officers of the Company, breached their fiduciary duties to the
stockholders of the Company by negotiating a settlement of amounts which would
be owed to them under their employment agreements upon a termination thereof by
the
18
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Company at the closing of the Tender Offer. The suit seeks the rescission of
the Tender Offer and/or the grant of rescissory damages. In addition, plaintiff
seeks unspecified compensatory damages and an award of attorneys' fees and
costs. The Company has tendered the claims subject to this suit to its director
and officer insurance carriers. The Tender Offer closed without any action by
plaintiffs. The Company has filed a motion to dismiss the suit and has
requested plaintiffs to dismiss the suit voluntary. No action has been taken on
such motion or such request. The Company's management believes the disposition
of this litigation will not have a materially adverse effect on the Company's
consolidated financial position or results of operations.
In the ordinary course of business, the Company becomes involved in certain
other legal claims and litigation. In the opinion of management, based upon
consultations with legal counsel, the disposition of such litigation pending
against the Company will not have a materially adverse effect on its
consolidated financial position or results of operations.
7. INCOME TAXES
The provision for income taxes for the three-month period ended December
31, 1996 and the fiscal years ended September 30, 1996 and 1995 consists of the
following:
THREE MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------
1996 1996 1995
------------- ------------ ------------
Current:
Federal $ -- $ -- $ 100,000
State 100,000 65,000 50,000
--------- --------- ---------
100,000 65,000 150,000
Deferred:
Federal and State -- -- --
--------- --------- ---------
$100,000 $ 65,000 $150,000
--------- --------- ---------
--------- --------- ---------
Deferred income taxes reflect the net tax effects of temporary differences
between the financial reporting and tax bases of assets and liabilities and
available tax net operating loss carryforwards. Temporary differences and
carryforwards at December 31 and September 30 which give rise to a significant
portion of deferred tax assets and liabilities are as follows:
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
Deferred tax assets:
Net operating loss carryforward $ 16,797,000 $ 15,219,000
Deferred prizes payable 602,000 640,000
Allowance for doubtful accounts receivable 545,000 663,000
Depreciation 201,000 145,000
Other accrued liabilities 3,183,000 5,401,000
------------ ------------
Total deferred tax assets 21,327,000 22,068,000
Valuation allowance (13,693,000) (14,343,000)
------------ ------------
Net deferred tax assets 7,634,000 (7,725,000)
Deferred tax liabilities:
Restructuring charges 7,521,000 7,521,000
Other 182,000 273,000
------------ ------------
Total deferred tax liabilities 7,703,0000 7,794,000
------------ ------------
Net deferred tax asset (liability) $ (69,000) $ (69,000)
------------ ------------
------------ ------------
19
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The decrease in the valuation allowance of $650,000 from prior year is
primarily due to the decrease in other accrued liabilities partially offset by
an increase in net operating loss carryforwards.
The reconciliation of income tax computed at the federal statutory tax rate
to the Company's effective tax rate for the three-month period ended December
31, 1996 and for the fiscal years ended September 30, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------------
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Federal income tax at statutory rate $ 758,000 $(15,918,000) $ 1,345,000
Benefit of net operating loss carryforwards (675,000) -- (1,494,000)
Net operating loss carryforward not benefited -- 7,201,000 --
State and local income tax, net of federal tax benefit 65,000 42,000 33,000
Non-deductible and non-taxable items, net (48,000) 8,740,000 266,000
------------ ------------ ------------
$ 100,000 $ 65,000 $ 150,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
As of December 31, 1996, the Company had tax net operating loss
carryforwards for federal and state tax purposes of approximately $42,000,000
and $4,000,000, respectively. The loss carryforwards expire through the year
2011 if not used.
Income taxes paid for the three months ended December 31, 1996 and the
years ended September 30, 1996 and 1995 amounted to $0, $65,000 and $78,800
respectively.
8. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company is authorized to issue 30,000,000 and 7,000,000 shares of Class
A and Class B Common Stock, respectively, each with a par value of $.001 per
share. The rights of these classes of common stock are identical except that
the Class A stock is entitled to one vote per share and the Class B stock is
entitled to ten votes per share on certain matters. As of September 30, 1996,
there were no Class B shares outstanding.
On January 2, 1996 the Company issued 44,811 shares of common stock to one
of the parties to the acquisition of WLXX-AM in Chicago in accordance with the
terms of the purchase agreement.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of $.001 par value
Preferred Stock, 2,600,000 of which is designated as Series A Preferred Stock
and the remaining 2,400,000 shares are undesignated.
Series A Preferred Stock dividends are payable quarterly and have a
cumulative annual rate of $.08 per share. As of December 31, 1996 and
September 30, 1996, there were no issued or outstanding shares of Series A
Preferred Stock. As of September 30, 1995, cumulative unpaid dividends totaled
$20,138. The Series A Preferred Stock is superior to common stock in
liquidation in the amount of $1 per share plus cumulative unpaid dividends and
is redeemable at the option of the Company at $1 per share plus cumulative
unpaid dividends.
20
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During fiscal 1996, the Company's Board of Directors periodically approved
the payment of cumulative unpaid dividends on the then outstanding Series A
Preferred Stock. The aggregate of such dividend payments totaled $40,276. In
August 1996, the Company redeemed all of the outstanding Series A Preferred
Stock and paid cumulative unpaid dividends through the redemption date of
$2,685.
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
In September 1996, the Company's Board of Directors approved a Second
Amended and Restated Certificate of Incorporation (Second Amended
Certificate), which upon filing will increase the total number of authorized
shares of the Company to 105,000,000 shares consisting of three classes of
capital stock as follows; (i) 50,000,000 shares of Class A Common Stock, par
value $.001 per share; (ii) 50,000,000 shares of Class B Common Stock, par
value $.001 per share; and (iii) 5,000,000 shares of Preferred Stock, par
value $.001 per share. The rights of the Class A and Class B Common Stock
will be identical except that the Class B Common Stock shall have no voting
rights, except in certain matters. The Second Amended Certificate was filed
immediately prior to the consummation of the Tichenor Merger, which was
completed on February 14, 1997.
9. MANAGEMENT INCENTIVE STOCK OPTIONS
STOCK OPTION PLAN
In July 1994, the Company adopted a stock option plan (Stock Option Plan)
under which a maximum of 750,000 shares of Class A Common Stock may be issued
upon exercise of options granted to directors, officers or other key employees
of the Company or its subsidiaries. The Stock Option Plan is administered by
the Board of Directors or, at the discretion of the Board of Directors, a
committee of not less than two directors. The Board of Directors or this
committee determines employees to whom options will be granted, the timing and
manner of grant, the exercise price, the number of shares and all other terms of
options granted. Generally, options granted under the Stock Option Plan vest
over a two or three year period.
In December 1995, the Company issued an aggregate of 519,339 stock options
to various employees of the Company under its Stock Option Plan. The exercise
price ranged from $15.25 to $15.50 per share, the market price at the date of
issuance. The options vest over a period ranging from two to three years. On
August 5, 1996, all unexercised and outstanding employee stock options were
tendered in connection with the Tender Offer Agreement. Other fully vested
options and warrants were exercised during the months of June and July 1996. As
of September 30, 1996, there were no outstanding options or warrants.
21
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Following is a summary of employee stock options and warrants granted,
exercised and outstanding for the three-months ended December 31, 1996 and the
fiscal years ended September 30, 1996 and 1995:
NUMBER OPTION PRICE
OF SHARES PER SHARE
--------- ------------
Options outstanding at September 30, 1994 1,043,506 $1.05-$10.00
Granted 237,100 $4.51-$14.00
Exercised (160,000) $10.50
Cancelled (198,000) $4.51
-------------- --------------
Options outstanding at September 30, 1995 922,606 $1.05-$14.00
Granted 524,339 $15.25-$18.625
Exercised (1,441,945) $1.05-$18.625
Cancelled (5,000) $10.00
-------------- --------------
Options outstanding at September 30, 1996 -- --
Granted 3,042 $32.875
Exercised -- --
Cancelled -- --
-------------- --------------
Options outstanding at December 31, 1996 3,042 $32.875
-------------- --------------
-------------- --------------
10. OTHER FINANCIAL INFORMATION
ACCRUED EXPENSES
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
Wages, salaries and benefits $1,780,200 $1,861,745
Commissions payable 2,813,223 3,057,275
Interest payable 742,222 756,348
Restructuring charges 4,968,420 5,747,843
Other accrued operating expenses 1,524,588 2,000,680
-------------- --------------
$11,828,653 $13,423,891
-------------- --------------
-------------- --------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
Balance at September 30, 1994 $ 942,286
Provision charged to expense 1,522,235
Amounts charged to reserve (972,644)
--------------
Balance at September 30, 1995 1,491,877
Provision charged to expense 2,871,700
Amounts charged to reserve (2,705,717)
--------------
Balance at September 30, 1996 1,657,860
Provision charged to expense 722,691
Amounts charged to reserve (1,252,393)
--------------
Balance at December 31, 1996 $ 1,128,158
--------------
--------------
22
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS
During the three-month period ended December 31, 1996, there were no
noncash transactions. Noncash transactions for the fiscal years ended September
30, 1996 and 1995 included the following:
1996 1995
------------ ------------
Issuance of common stock in connection
with business acquisition $ 692,330 $ --
Issuance of promissory note in connection
with the acquisition of real property 1,499,250 --
Issuance of common stock upon exercise of
stock options in exchange for note receivable -- 1,680,000
------------ ------------
$ 2,191,580 $ 1,680,000
------------ ------------
------------ ------------
In fiscal 1995, the Company cancelled a $900,000 note receivable and
assumed long-term debt and other liabilities totaling $3,521,000 in connection
with certain business acquisitions.
11. SUBSEQUENT EVENTS
SECONDARY PUBLIC STOCK OFFERING
On February 10, 1997, the Company completed a secondary public offering
selling an additional 4,830,000 shares of its Class A Common Stock for $36.80
per share, after underwriters discount. The net proceeds of the offering were
approximately $177.2 million, $142.5 million of which were used to repay the
entire outstanding principal balance under the Company's credit agreement. The
balance of the proceeds were used to repay a portion of the long-term debt and
senior preferred stock of Tichenor, upon consummation of the Tichenor merger
which was completed on February 14, 1997
LONG-TERM DEBT
On February 10, 1997, the Company repaid $142.5 million outstanding under
the existing $155 million credit facility with a portion of the proceeds from
the secondary public stock offering described above.
On February 14, 1997, the Company entered into a new $300 million credit
facility (the Credit Facility), replacing the existing credit facility. The
Company borrowed an initial $46 million under the Credit Facility. A portion of
the proceeds from borrowing was used to repay the long-term debt and senior
preferred stock of Tichenor which was assumed on the date of the merger. 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. Availability under the Credit Facility reduces quarterly commencing
September 30, 1999 and ending December 31, 2004 (maturity date).
23
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
ACQUISITIONS
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 Mr. Gene Autry.
The option has an initial term which expires on December 31, 1997, however, the
option 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 sale of the KSCA-FM assets is not
consummated, Golden West is only obligated to refund to the Company a portion of
the option payments under certain circumstances. 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, which daily amount is
subject to reduction if the Company is unable to broadcast its programming on
KSCA-FM under the agreement. 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.
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 (the
Merger Agreement) (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 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)
Non-current liabilities (38,947,739)
--------------
$ 181,100,000
--------------
--------------
Intangible assets are comprised primarily of broadcast licenses and
goodwill, which are being amortized over 40 years.
On March 28, 1997, the Company exercised its option to purchase the assets
of KLTO-FM (formerly KMPQ-FM) in Rosenberg - Richmond (Houston), Texas. The
Company has operated KLTO-FM under a time brokerage agreement since 1994. The
transaction closed on September 22, 1997 and the purchase price was $3,585,000.
Working capital was used to fund this acquisition.
24
<PAGE>
HEFTEL BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. EVENT SUBSEQUENT TO DATE OF AUDITOR'S REPORT
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
Class A Common Stock for each issued and outstanding share of Class A Common
Stock and one share of Class B Common Stock for each issued and outstanding
share of Class B Common Stock. The income (loss) per common and common
equivalent share in the accompanying consolidated statements of operations have
been restated to reflect this two-for-one stock split.
25
