-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GGj7HQrdFM2BR+MX/cLVSlgZ512lwsSZsXlAypumFLcVKbuWL+hfMz9Hxnj3FTvc M1UDZFNK5fAI3tjLvx8qgw== 0001047469-98-028993.txt : 19980803 0001047469-98-028993.hdr.sgml : 19980803 ACCESSION NUMBER: 0001047469-98-028993 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980522 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980731 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEFTEL BROADCASTING CORP CENTRAL INDEX KEY: 0000922503 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 990113417 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-24516 FILM NUMBER: 98675779 BUSINESS ADDRESS: STREET 1: 100 CRESCENT CT STREET 2: STE 1777 CITY: DALLAS STATE: TX ZIP: 75201- BUSINESS PHONE: 2148558882 8-K/A 1 8-K/A 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) 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 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION 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
2 EX-99.1 2 EXHIBIT 99.1 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 MULTICULTURAL RADIO BROADCASTING, INC. BALANCE SHEETS ASSETS
December 31, March 31, 1997 1998 ------------------------------ (UNAUDITED) 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 ------------ ------------ ------------ ------------
See accompanying notes to financial statements. 4 MULTICULTURAL RADIO BROADCASTING, INC. STATEMENTS OF INCOME
Three Months Ended Year Ended March 31, December 31, ------------------------------- 1997 1998 1997 ------------ ------------------------------- (UNAUDITED) 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 ------------ ----------- ----------- ------------ ----------- -----------
See accompanying notes to financial statements. 5 MULTICULTURAL RADIO BROADCASTING, INC. STATEMENTS OF STOCKHOLDER'S EQUITY
Common Stock -------------------------- Retained Shares Amount Earnings --------------------------------------------- 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 ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to financial statements. 6 MULTICULTURAL RADIO BROADCASTING, INC. STATEMENTS OF CASH FLOWS
Three Months Ended March 31, December 31, ------------------------- 1997 1998 1997 ---------- ---------- ---------- (UNAUDITED) 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 ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to financial statements. 7 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 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 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: 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 --------- ---------
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 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:
Year Ending December 31, ------------------------ 1998 $ 896,000 1999 960,000 2000 1,024,000 2001 1,088,000 2002 2,947,023 ---------- $6,915,023 ---------- ----------
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:
Capital Lease Included In Property and Equipment, Operating Year Ending December 31, Net Of Interest Leases ------------------------ --------------- ----------- 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 ------------- -------------
11 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 EX-99.2 3 EXHIBIT 99.2 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 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997(1)
Company pro forma Company Tichenor Pro forma condensed as reported(2) as reported(4) Acquisition(5) adjustments consolidated -------------- -------------- -------------- ----------- ------------- 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 -------------- ------------- -------------- -------------
14 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998
Company pro forma Company Pro forma condensed as reported(3) Acquisition(5) adjustments consolidated -------------- -------------- ------------- ------------ 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 -------------- ------------ -------------- ------------
15 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1998
Company pro forma Company Pro forma condensed as reported adjustments consolidated ------------- -------------- ------------- 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 ------------- ------------- ------------- -------------
16 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:
TICHENOR KLTO(FM) WCAA(FM) TOTAL -------- ------- ---------- ---------- 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 -------- ------- ---------- ---------- -------- ------- ---------- ----------
FOR THE THREE MONTHS ENDED MARCH 31, 1998:
WCAA(FM) -------- Depreciation $ 9,863 Amortization 851,822 Less historical - -------- Total $861,684 -------- --------
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 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:
LESS KLTO(FM) WCAA(FM) HISTORICAL TOTAL -------- ---------- ---------- ---------- Interest expense, net $139,610 $7,037,322 $(658,610) $6,518,323 -------- ---------- ---------- ---------- -------- ---------- ---------- ----------
FOR THE THREE MONTHS ENDED MARCH 31, 1998:
WCAA(FM) ---------- Interest expense, net $1,759,331 ---------- ----------
(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: 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 ------------ ------------
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 -----END PRIVACY-ENHANCED MESSAGE-----