<PAGE>
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported):
July 31, 1998
(May 22, 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.)
3102 Oak Lawn Avenue, Suite 215
Dallas, Texas 75219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (214) 525-7700
100 Crescent Court, Suite 1777
Dallas, Texas 75201
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 22, 1998, Heftel Broadcasting Corporation (the "Company")
exchanged the assets of WPAT(AM) and $115.5 million in cash for the
assets of WCAA (FM) (formerly WNWK(FM)), from MultiCultural Radio
Broadcasting, Inc. Both radio stations serve the New York City market.
On May 29, 1998, the Company acquired the assets of KLTN(FM) (formerly
KKPN(FM)) serving the Houston market for $54.0 million from SBI Holding
Corporation.
The Company used a portion of the proceeds from its January 22, 1998
secondary stock offering to fund both acquisitions.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
EXHIBIT 10.1 Asset Exchange Agreement, dated December 1, 1997, by
and between MultiCultural Radio Broadcasting, Inc.
and Heftel Broadcasting Corporation (incorporated by
reference to Exhibit 10.27 to the Registrant's Form
10-K filed on March 31, 1998)
EXHIBIT 10.2 Asset Purchase Agreement, dated March 25, 1998, by
and between HBC Houston, Inc., HBC Houston License
Corporation and SBI Holding Corporation (incorporated
by reference to Exhibit 10.1 to the Registrant's Form
10-Q filed on May 13, 1998)
EXHIBIT 99.1 Balance sheets of MultiCultural Radio Broadcasting,
Inc. as of December 31, 1997 and March 31, 1998 and
the related statements of income, stockholder's
equity and cash flows for the year ended December 31,
1997 and the three months ended March 31, 1998 and
1997, with Independent Auditors' Report dated
February 26, 1998
EXHIBIT 99.2 Unaudited pro forma condensed consolidated balance
sheet of Heftel Broadcasting Corporation and
subsidiaries as of March 31, 1998, and unaudited pro
forma condensed consolidated statements of operations
for the year ended December 31, 1997 and the three
months ended March 31, 1998
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: July 31, 1998
1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
10.1 Asset Exchange Agreement, dated December 1, 1997, by and between
MultiCultural Radio Broadcasting, Inc. and Heftel Broadcasting
Corporation (incorporated by reference to Exhibit 10.27 to the
Registrant's Form 10-K filed on March 31, 1998)
10.2 Asset Purchase Agreement, dated March 25, 1998, by and between HBC
Houston, Inc., HBC Houston License Corporation and SBI Holding
Corporation (incorporated by reference to Exhibit 10.1 to the
Registrant's Form 10-Q filed on May 13, 1998)
99.1 Balance sheets of MultiCultural Radio Broadcasting, Inc. as of
December 31, 1997 and March 31, 1998 and the related statements of
income, stockholder's equity and cash flows for the year ended
December 31, 1997 and the three months ended March 31, 1998 and
1997, with Independent Auditors' Report dated February 26, 1998
99.2 Unaudited pro forma condensed consolidated balance sheet of Heftel
Broadcasting Corporation and subsidiaries as of March 31, 1998, and
unaudited pro forma condensed consolidated statements of operations
for the year ended December 31, 1997 and the three months ended
March 31, 1998
</TABLE>
2
<PAGE>
Exhibit 99.1
INDEPENDENT AUDITORS' REPORT
Board of Directors
MultiCultural Radio Broadcasting, Inc.
We have audited the accompanying balance sheet of MultiCultural Radio
Broadcasting, Inc. as of December 31, 1997 and the related statements of
income, stockholder's equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MultiCultural Radio
Broadcasting, Inc. at December 31, 1997 and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
WISS & COMPANY, LLP
Livingston, New Jersey
February 26, 1998, except as to Notes 3 and 7
for which the date is May 22, 1998
3
<PAGE>
MULTICULTURAL RADIO BROADCASTING, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------------------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 1,347,318 $ 906,669
Certificates of deposit 102,476 603,232
Cash held in escrow - 500,000
Accounts receivable (net of allowance of $10,000 in 1998 and 1997) 211,872 198,023
Prepaid expenses and other current assets 18,530 103,812
------------ ------------
Total current assets 1,680,196 2,311,736
------------ ------------
Property and equipment 329,866 347,844
------------ ------------
FCC license 6,149,628 6,105,659
------------ ------------
Other assets:
Deferred charges 955,646 1,043,006
Due from stockholder 696,611 693,034
Due from affiliates 1,387,546 518,595
Other 11,936 11,936
------------ ------------
3,051,739 2,266,571
------------ ------------
Total assets $11,211,429 $11,031,810
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 896,000 $ 912,000
Current maturities of capital leases 114,531 118,077
Accrued expenses and other current liabilities 636,172 653,122
Customer deposits 216,777 274,656
------------ ------------
Total current liabilities 1,863,480 1,957,855
------------ ------------
Other liabilities:
Long-term debt, less current maturities 6,019,023 5,779,023
Capital leases, less current maturities 59,376 28,493
Deferred income taxes 152,000 163,000
Due to affiliate 180,871 -
------------ ------------
6,411,270 5,970,516
------------ ------------
Commitments and contingency
Stockholder's equity:
Common stock $1 par value:
Authorized 1,000 shares, issued and outstanding 100 shares 100 100
Retained earnings 2,936,579 3,103,339
------------ ------------
Total stockholder's equity 2,936,679 3,103,439
------------ ------------
Total liabilities and stockholder's equity $11,211,429 $11,031,810
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
MULTICULTURAL RADIO BROADCASTING, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31,
December 31, -------------------------------
1997 1998 1997
------------ -------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Operating revenues $ 4,836,144 $ 1,036,184 $ 1,144,670
------------ ----------- -----------
Costs and expenses:
Operating 704,676 162,044 140,605
Selling, general and administrative 2,981,940 555,766 722,666
------------ ----------- -----------
3,686,616 717,810 863,271
------------ ----------- -----------
Income before other expenses 1,149,528 318,374 281,399
------------ ----------- -----------
Other expenses (income):
Interest expense 658,610 140,485 155,651
Interest income (80,080) (17,651) (618)
Other income (11,085) (2,220) (3,300)
------------ ----------- -----------
567,445 120,614 151,733
------------ ----------- -----------
Income before income taxes and extraordinary item 582,083 197,760 129,666
------------ ----------- -----------
Income taxes:
Current 67,333 20,000 14,000
Deferred 24,000 11,000 7,000
------------ ----------- -----------
91,333 31,000 21,000
------------ ----------- -----------
Income before extraordinary item 490,750 166,760 108,666
Extraordinary item - extinguishment of debt, net of
income taxes of $18,800 100,934 - -
------------ ----------- -----------
Net income $ 389,816 $ 166,760 $ 108,666
------------ ----------- -----------
------------ ----------- -----------
Net income per common share - basic and diluted $ 3,898.16 $ 1,667.60 $ 1,086.66
------------ ----------- -----------
------------ ----------- -----------
Weighted average common shares outstanding -
basic and diluted 100 100 100
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
MULTICULTURAL RADIO BROADCASTING, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------------- Retained
Shares Amount Earnings
---------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1997 100 $ 100 $2,546,763
Net income - - 389,816
---------- ---------- ----------
Balance at December 31, 1997 100 100 2,936,579
Net income (unaudited) - - 166,760
---------- ---------- ----------
Balance at March 31, 1998 (unaudited) 100 $ 100 $3,103,339
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
MULTICULTURAL RADIO BROADCASTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
December 31, -------------------------
1997 1998 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 389,816 $ 166,760 $ 108,666
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization of property and
equipment 113,855 25,244 27,803
Amortization of FCC license and deferred charges 267,839 74,798 51,295
Write-off of deferred charges 119,734 - -
Provision for bad debts 20,710 - 21,040
Deferred income taxes 24,000 11,000 7,000
Changes in operating assets and liabilities:
Accounts receivable (11,541) 13,849 59,392
Prepaid expenses and other assets (126,946) (73,471) (172,347)
Accrued expenses and other current liabilities 445,537 16,950 198,530
Customer deposits 53,851 57,879 28,500
---------- ---------- ----------
Net cash flows provided by operating activities 1,296,855 293,009 329,879
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (30,957) (43,222) (18,849)
Due from affiliates 606,845 688,080 487,285
Certificates of deposit 237,524 (500,756) (57,446)
Other - (500,000) 22,600
---------- ---------- ----------
Net cash flows provided by (used in) investing
activities 813,412 (355,898) 433,590
---------- ---------- ----------
Cash flows from financing activities:
Net borrowings from note payable to bank - - (150,000)
Proceeds from long-term debt 7,443,023 - -
Payments on long-term debt (6,719,747) (224,000) (234,621)
Payments on capital leases (101,380) (27,337) (24,198)
Deferred charges (616,577) (130,000) (25,000)
Due to/from stockholder (888,340) 3,577 (206,145)
---------- ---------- ----------
Net cash flows used in financing activities (883,021) (377,760) (639,964)
---------- ---------- ----------
Net change in cash 1,227,246 (440,649) 123,505
Cash, beginning of period 120,072 1,347,318 120,072
---------- ---------- ----------
Cash, end of period $1,347,318 $ 906,669 $ 243,577
---------- ---------- ----------
---------- ---------- ----------
Supplemental cash flow information:
Interest paid $ 671,948 $ 140,485 $ 142,313
---------- ---------- ----------
---------- ---------- ----------
Income taxes paid $ 54,956 $ 25,275 $ 19,523
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
MULTICULTURAL RADIO BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
MultiCultural Radio Broadcasting, Inc. ("the Company") owns and
operates a radio station, WNWK(FM), presently WCAA(FM) operated by Heftel
Broadcasting Corporation (see Note 8), under an FM broadcast station license
granted in 1992 by the Federal Communications Commission ("FCC"). The
Company markets the station's broadcast time to producers of programs that
focus on specific ethnic cultures and advertisers attempting to reach such
groups, in the New York metropolitan area.
ESTIMATES AND UNCERTAINTIES
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, as determined at a later date, could
differ from those estimates.
REVENUES
Broadcasting revenues from the sale of program time and commercial
announcements to local, regional and national advertisers are recognized when
the programs and commercial announcements are broadcast.
BARTER TRANSACTIONS
Receivables and payables arise from barter transactions in which
advertising time is provided in exchange for goods or services. These
exchanges are recorded at the fair market value of the goods or services
received or the value of the advertising time provided, whichever is more
clearly determinable. Revenue from barter transactions is recognized as
income when advertisements are broadcast, and goods or services are charged
to expense when received or used.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for
depreciation using the straight-line method over the estimated useful life of
the assets. Leasehold improvements are amortized using the straight-line
method over the lesser of the term of the related lease or the estimated
useful life of the improvement.
FCC LICENSE
The Company's FCC license is being amortized on a straight-line
basis over 40 years. The Company evaluates the FCC license's potential
impairment by analyzing the operating results and trends of the Company as
well as by comparing them to its competitors. The Company also takes into
consideration recent acquisition patterns within the broadcast industry, the
impact of recently
8
<PAGE>
MULTICULTURAL RADIO BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
enacted or potential FCC rules and regulations and any other event or
circumstances which might indicate potential impairment.
DEFERRED CHARGES
Deferred charges consist of costs incurred in obtaining the FCC
license prior to commencement of operations, deferred loan costs and deferred
rent charges. These costs are being amortized over a 24 month period from
commencement of operations and over the life of the related notes and leases.
INCOME TAXES
The Company elected under Section 1361 of the Internal Revenue Code
and the respective tax law sections of New York State to be taxed as a small
business corporation. Under these provisions, all earnings and losses of the
Company are reported on the federal and New York State tax returns of its
shareholder. Accordingly, no provision for federal income taxes has been
made. The provision for income taxes represents only New York City income
taxes plus the applicable reduced rate for New York State.
Deferred income taxes are provided for temporary differences between
the financial reporting and income tax reporting bases of assets and
liabilities. These differences are use of the cash method for income tax
reporting, the use of different lives for amortization of intangible assets
and certain deferred charges, and different methods for depreciation of
property and equipment.
DEFINED CONTRIBUTION PROFIT SHARING 401(k) PLAN
The Company has a defined contribution profit sharing 401(k) plan
covering substantially all eligible employees. Contributions are based on a
specified match of an employee's contribution which is limited to 15% of the
employees annual compensation. Contributions totaled approximately $5,000
for the three months ended March 31, 1998 and 1997, respectively, and
approximately $20,000 for the year ended December 31, 1997.
FINANCIAL INSTRUMENTS
Financial instruments include cash, certificates of deposit,
accounts receivable, accrued expenses, capital lease obligations and
long-term debt. The amounts reported for financial instruments are
considered to be reasonable approximations of their fair values. The fair
value estimates presented herein were based on market information available
to management. The use of different market assumptions and/or estimation
methodologies could have a material effect on the estimated fair value
amounts.
9
<PAGE>
MULTICULTURAL RADIO BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances in several financial
institutions. These balances are insured by the Federal Deposit Insurance
Corporation up to $100,000 per bank. At December 31, 1997, uninsured cash
balances totaled approximately $1,227,000.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 128, EARNINGS PER SHARE ("SFAS
128") which is effective for financial statements for periods ending after
December 15, 1997. The Company adopted SFAS 128 in 1997. SFAS 128 replaces
the presentation of primary and fully diluted earnings per share with basic
and diluted earnings per share. Basic earnings per share is calculated based
on the weighted average number of common shares outstanding during the period
and excludes all dilution. Diluted earnings per share is calculated by using
the weighted average number of common shares outstanding, while also giving
effect to all dilutive potential common shares that were outstanding during
the period. No dilutive potential common shares were outstanding during the
periods presented. Prior period amounts have been restated to conform to the
requirements of SFAS 128.
INTERIM REPORTING
The interim financial statements included herein reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. Such
adjustments consist solely of normal recurring accruals. Results for interim
periods are not necessarily indicative of results for a full year.
2. CASH HELD IN ESCROW
Cash held in escrow represents a deposit on the Company's pending
acquisition of other FCC licenses and property and equipment.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Broadcast and operating equipment $ 646,996
Office equipment 90,000
Leasehold improvements 7,317
---------
744,313
Less: Accumulated depreciation and amortization 414,447
---------
$ 329,866
---------
---------
</TABLE>
4. LONG-TERM DEBT
The Company and certain affiliates (the "Companies") are
collectively the debtor on a note payable to a bank totaling $21,850,000.
The note is collateralized by all of the assets of the Companies and is
personally guaranteed by the Companies' stockholder. The note bears interest
at the bank's adjusted base rate or, at the Companies' election, a rate based
on LIBOR. The note is payable in quarterly principal installments of
$550,000 with principal increases of $200,000 each year through September 30,
2002, when the remaining balance of approximately $6,650,000 will be due.
For financial reporting purposes, $6,915,023 of this debt is reflected as
payable by the Company.
10
<PAGE>
MULTICULTURAL RADIO BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
Long-term debt at December 31, 1997 matures as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1998 $ 896,000
1999 960,000
2000 1,024,000
2001 1,088,000
2002 2,947,023
----------
$6,915,023
----------
----------
</TABLE>
COVENANTS
At December 31, 1997, the Company was not in compliance with certain
loan covenants, and therefore in technical default of their loan agreement,
pertaining to the exchange of their FCC license. On April 16, 1998, the
Company's financial institution consented to the exchange transaction and
waived any violations resulting from that transaction.
5. COMMITMENTS
LEASES
The Company's equipment under capital leases, which is included in
property and equipment at December 31, 1997, totaled $323,245 less
accumulated amortization of $84,349.
The Company leases its office space from the Company's stockholder,
under an operating lease expiring in 2002. The Company also leases
transmitter sites and certain office equipment under operating leases, which
expire through 2006.
Future minimum lease payments required under the leases having
remaining lease terms in excess of one year at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Capital Lease
Included In
Property
and Equipment, Operating
Year Ending December 31, Net Of Interest Leases
------------------------ --------------- -----------
<S> <C> <C>
1998 $114,531 $ 282,000
1999 59,376 288,000
2000 - 290,000
2001 - 304,000
2002 - 222,000
2003 and thereafter - 792,000
------------- ----------
Minimum lease payments 173,907 $2,178,000
----------
----------
Less: current maturities 114,531
-------------
Non-current $ 59,376
-------------
-------------
</TABLE>
11
<PAGE>
MULTICULTURAL RADIO BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
Rent expense under all operating leases was approximately $40,000
for the three months ended March 31, 1998 and 1997, respectively, including
$27,000 paid to an affiliate and approximately $306,000 for the year ended
December 31, 1997, including $108,000 paid to an affiliate.
6. RELATED PARTY TRANSACTIONS
The Company has advances to affiliates totaling $1,387,546 at
December 31, 1997. The advances are non-interest bearing and have no payment
terms. The Company expects this amount to be collected after January 1, 1999.
The Company charges 33% of certain expenses to an affiliate which
shares its premises. The Company's expenses may have been materially
different if it operated as a separate independent entity.
7. CONTINGENCY
The Company has been named as a defendant in a $5 million lawsuit
arising from an accident in which a pedestrian was struck by a vehicle that
was allegedly owned, leased or operated by the Company. An investigation by
the Company of the allegations of the complaint reveals that those
allegations regarding the ownership, leasing and operation of the vehicle
involved in the accident are untrue. The Company believes, and its attorneys
concur, that there does not appear to exist any cognizable basis for
liability against the Company in the circumstances. The Company intends to
vigorously defend this action.
8. OTHER INFORMATION
On December 1, 1997, the Company entered into an Asset Exchange
Agreement whereby the Company will exchange its FCC license and certain
property and equipment for the FCC license of WPAT(AM) and certain property
and equipment and approximately $115.5 million in cash. This transaction
closed on May 22, 1998.
12
<PAGE>
Exhibit 99.2
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information of Heftel Broadcasting Corporation (the "Company") presents the
Company's unaudited pro forma condensed consolidated balance sheet at March
31, 1998 as if at such date, the acquisition of radio station WCAA(FM)
(formerly WNWK(FM)) had been completed. The following unaudited pro forma
condensed consolidated statements of operations present the Company's results
of operations for the year ended December 31, 1997 and the three months ended
March 31, 1998 as if the Tichenor Merger and the acquisitions of KLTO(FM) and
WCAA(FM) (formerly WNWK(FM)) (collectively, the "Acquisitions") had been
completed on January 1, 1997. The pro forma condensed consolidated
statements of operations give effect to the Acquisitions during the periods
presented using the purchase method of accounting and reflect the
consolidated historical financial data of the Company, Tichenor and the
Acquisitions, 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 $256.6
million which is the sum of (a) the fair value of the Tichenor Common and
Junior Preferred Stock (the "Tichenor Stock," $181.2 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 (pre-split) 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 financial information does not
purport to present the actual financial position or results of operations of
the Company had the Transactions actually occurred on the date specified, nor
is it necessarily indicative of the results of operations that may be
achieved in the future.
13
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997(1)
<TABLE>
<CAPTION>
Company
pro forma
Company Tichenor Pro forma condensed
as reported(2) as reported(4) Acquisition(5) adjustments consolidated
-------------- -------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Net revenues $136,583,855 $ 4,711,877 $4,836,144 $ - $ 146,131,876
-------------- -------------- -------------- ----------- -------------
Operating expenses:
Operating expenses 82,064,446 3,850,923 3,304,922 (93,750)(6) 89,126,541
Corporate expenses 4,579,270 741,335 - - 5,320,605
Depreciation and amortization 14,928,326 622,117 381,694 3,664,633 (7) 19,596,770
-------------- -------------- -------------- ----------- -------------
Total operating expenses 101,572,042 5,214,375 3,686,616 3,570,883 114,043,916
-------------- -------------- -------------- ----------- -------------
Operating income (loss) 35,011,813 (502,498) 1,149,528 (3,570,883) 32,087,960
-------------- -------------- -------------- ----------- -------------
Other expense (income):
Interest expense, net 3,540,851 822,019 578,530 6,518,323 (8) 11,459,723
Other expense (income), net 81,973 2,310,640 (11,085) (1,100,000)(9) 1,281,528
-------------- -------------- -------------- ----------- -------------
Total other expense 3,622,824 3,132,659 567,445 5,418,323 12,741,251
-------------- -------------- -------------- ----------- -------------
Income (loss) before income tax 31,388,989 (3,635,157) 582,083 (8,989,206) 19,346,709
Income tax (benefit) 12,616,833 (946,495) 91,333 (2,745,933)(10) 8,924,405
-------------- -------------- -------------- ----------- -------------
Income (loss) from continuing operations $ 18,772,156 $(2,688,662) $ 490,750 $(6,243,273) $ 10,422,304
-------------- -------------- -------------- ----------- -------------
-------------- -------------- -------------- ----------- -------------
Income (loss) from continuing operations
per common share - basic and diluted $ 0.45 $ 0.24
-------------- -------------
-------------- -------------
Weighted average common shares outstanding:
Basic 41,671,026 43,061,885
Diluted 41,792,191 43,063,219
Other operating data:
Broadcast cash flow $ 54,519,409 $ 57,005,335
-------------- -------------
-------------- -------------
</TABLE>
14
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Company
pro forma
Company Pro forma condensed
as reported(3) Acquisition(5) adjustments consolidated
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenues $31,347,088 $1,036,184 $ - $32,383,272
-------------- -------------- ------------- ------------
Operating expenses:
Operating expenses 20,136,524 617,768 - 20,754,292
Corporate expenses 1,186,734 - - 1,186,734
Depreciation and amortization 4,338,556 100,042 861,684 (7) 5,300,282
-------------- -------------- ------------- ------------
Total operating expenses 25,661,814 717,810 861,684 27,241,308
-------------- -------------- ------------- ------------
Operating income (loss) 5,685,274 318,374 (861,684) 5,141,964
-------------- -------------- ------------- ------------
Other expense (income):
Interest expense (income), net (1,678,162) 122,834 1,759,331 (8) 204,003
Other income, net - (2,220) - (2,220)
-------------- -------------- ------------- ------------
Total other expense (income) (1,678,162) 120,614 1,759,331 201,783
-------------- -------------- ------------- ------------
Income (loss) before income tax 7,363,436 197,760 (2,621,015) 4,940,181
Income tax (benefit) 3,019,018 31,000 (856,779)(10) 2,193,239
-------------- -------------- ------------- ------------
Income (loss) from continuing operations $4,344,418 $166,760 $(1,764,236) $2,746,942
-------------- -------------- ------------- ------------
-------------- -------------- ------------- ------------
Income (loss) from continuing operations
per common share - basic and diluted $ 0.09 $ 0.06
-------------- ------------
-------------- ------------
Weighted average common shares outstanding:
Basic 48,109,168 48,109,168
Diluted 48,462,844 48,462,844
Other operating data:
Broadcast cash flow $11,210,564 $11,628,980
-------------- ------------
-------------- ------------
</TABLE>
15
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
Company
pro forma
Company Pro forma condensed
as reported adjustments consolidated
------------- -------------- -------------
<S> <C> <C> <C>
Assets:
Cash and cash equivalents $ 211,476,121 $(117,206,011)(11) $ 94,270,110
Accounts receivable, net 24,939,199 - 24,939,199
Other current assets 1,392,952 - 1,392,952
------------- -------------- -------------
Total current assets 237,808,272 (117,206,011) 120,602,261
Property and equipment, net 32,601,864 (4,179,712)(11) 28,422,152
Intangible assets, net 420,456,190 121,385,723 (11) 541,841,913
Other assets 19,528,039 - 19,528,039
------------- -------------- -------------
Total assets $ 710,394,365 $ - $ 710,394,365
------------- -------------- -------------
------------- -------------- -------------
Liabilities and Stockholders' Equity:
Current liabilities $ 25,593,046 $ 25,593,046
Long-term obligations, less current portion 2,051,490 2,051,490
Deferred income taxes 82,941,601 82,941,601
------------- -------------
Total liabilities 110,586,137 110,586,137
------------- -------------
Class A common stock 35,160 35,160
Class B common stock 14,156 14,156
Additional paid-in capital 656,066,331 665,066,331
Accumulated deficit (65,307,419) (65,307,419)
------------- -------------
Total stockholders' equity 599,808,228 599,808,228
------------- -------------
Total liabilities and stockholders' equity $ 710,394,365 $ 710,394,365
------------- -------------
------------- -------------
</TABLE>
16
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
(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 Class B 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
year ended December 31, 1997. The operating results of the Company include
the operating results of Tichenor from the merger date of February 14, 1997.
(3) Represents the historical operating results of the Company for the
three months ended March 31, 1998.
(4) Represents the historical operating results of Tichenor for the
period January 1 to February 13, 1997.
(5) Represents the historical operating results of WCAA(FM) for the
year ended December 31, 1997 and for the three months ended March 31, 1998.
The historical operating results of KLTO(FM) are not included because the
station operated under a time brokerage agreement in 1997 prior to the
acquisition date.
(6) Represents the reversal of KLTO (FM) time brokerage agreement fees
which were recognized from the beginning of the accounting period through the
date the assets were acquired.
(7) Represents incremental depreciation and amortization expense
resulting from the Acquisitions from the beginning of the accounting period
through the respective dates of purchase as follows:
FOR THE YEAR ENDED DECEMBER 31, 1997:
<TABLE>
<CAPTION>
TICHENOR KLTO(FM) WCAA(FM) TOTAL
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Depreciation $ - $15,726 $ 39,452 $ 55,178
Amortization 528,983 54,880 3,407,286 3,991,149
Less historical - - (381,694) (381,694)
-------- ------- ---------- ----------
Total $528,983 $70,606 $3,065,044 $3,664,633
-------- ------- ---------- ----------
-------- ------- ---------- ----------
</TABLE>
FOR THE THREE MONTHS ENDED MARCH 31, 1998:
<TABLE>
<CAPTION>
WCAA(FM)
--------
<S> <C>
Depreciation $ 9,863
Amortization 851,822
Less historical -
--------
Total $861,684
--------
--------
</TABLE>
The estimated weighted average useful lives of property and
equipment, FCC licenses, and going concern value is assumed to be five, forty
and fifteen years, respectively.
17
<PAGE>
HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
(8) Represents the assumed reduction in interest income for the year
ended December 31, 1997 and the three months ended March 31, 1998 associated
with the Acquisitions as if the radio stations were acquired on January 1,
1997. The purchase of KLTO(FM) was funded with cash from operations. The
purchase of WNWK(FM) was funded from proceeds obtained from the secondary
public offering that occurred on January 22, 1998. The assumed reduction in
interest income associated with the acquisition of KLTO(FM) and WCAA(FM) is
computed using a weighted average interest rate of 6%. This rate is based on
historical yields of short-term investments.
FOR THE YEAR ENDED DECEMBER 31, 1997:
<TABLE>
<CAPTION>
LESS
KLTO(FM) WCAA(FM) HISTORICAL TOTAL
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest expense, net $139,610 $7,037,322 $(658,610) $6,518,323
-------- ---------- ---------- ----------
-------- ---------- ---------- ----------
</TABLE>
FOR THE THREE MONTHS ENDED MARCH 31, 1998:
<TABLE>
<CAPTION>
WCAA(FM)
----------
<S> <C>
Interest expense, net $1,759,331
----------
----------
</TABLE>
(9) Reflects the elimination of a media broker commission of $1,100,000
paid by Tichenor related to the Tichenor Merger.
(10) Reflects the income tax benefit related to the pro forma
adjustments. The adjustment to income taxes reflects the application of the
estimated effective tax rate to income before income tax for historical and
pro forma adjustment amounts.
(11) The Company exchanged the assets of WPAT(AM) and $115.5 million in
cash for the assets of WCAA(FM). The following is a summary of purchase price
and the adjustments to allocate the purchase price:
COMPUTATION OF PURCHASE PRICE AND AMOUNT TO BE ALLOCATED:
<TABLE>
<S> <C>
Net book value of WPAT(AM) at May 22, 1998 $ 18,761,069
Cash paid and direct costs of acquisition 117,288,708
------------
Total purchase price of WCAA(FM) 136,049,777
Net book value of WPAT(AM) at March 31, 1998 18,843,766
------------
Purchase price to be allocated $117,206,011
------------
------------
ADJUSTMENTS TO ALLOCATE PURCHASE PRICE:
Property and equipment $(4,179,712)
Intangible assets 121,385,723
------------
$117,206,011
------------
------------
</TABLE>
The historical cost of property and equipment decreased because the
assets of WPAT(AM) included land and a building and such property was not
received with the assets of WCAA(FM).
18
