-----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, BL6g5UDSaHfPMhYfbrzgdXvRrB9and1aEBYQK1uOpicipijLWfdO8/Xk1alOHoWE fk5tjtU3BnpO0eWTt2Vxmw== 0001047469-98-040432.txt : 19981116 0001047469-98-040432.hdr.sgml : 19981116 ACCESSION NUMBER: 0001047469-98-040432 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-24516 FILM NUMBER: 98746130 BUSINESS ADDRESS: STREET 1: 3102 OAK LAWN AVENUE STREET 2: STE 215 CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2145257700 MAIL ADDRESS: STREET 1: 3102 OAK LAWN AVENUE STREET 2: SUITE 215 CITY: DALLAS STATE: TX ZIP: 75219 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [x] Quarterly report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1998 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from _____________ to _____________ Commission file number 0-24516 HEFTEL BROADCASTING CORPORATION (Exact name of registrant as specified in its charter) Delaware 99-0113417 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3102 Oak Lawn Avenue, Suite 215 75219 Dallas, Texas (Zip Code) (Address of principal executive offices) (214) 525-7700 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at November 12, 1998 - ----- -------------------------------- Class A Common Stock, $.001 Par Value 35,171,980 Class B Non-Voting Common Stock, $.001 Par Value 14,156,470
HEFTEL BROADCASTING CORPORATION September 30, 1998 INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997. . . . . . . . . . . . . . . . . . . . . . 2 Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 1998 and 1997 and the Nine Months Ended September 30, 1998 and 1997. . . . . . . . . . 3 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997. . . . . . . . . . 4 Notes to Condensed Consolidated Financial Statements . . . . . . 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 12
1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1998 1997 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 13,097,961 $ 6,553,271 Accounts receivable, net 35,562,455 29,324,324 Prepaid expenses and other current assets 953,660 817,456 ------------- ------------- Total current assets 49,614,076 36,695,051 Property and equipment, at cost, net 32,701,988 33,299,917 Intangible assets, net 648,493,441 423,529,926 Deferred charges and other assets, net 19,621,895 18,723,785 ------------- ------------- Total assets $ 750,431,400 $ 512,248,679 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $32,475,051 $25,285,382 Current portion of long-term debt 307,245 440,097 ------------- ------------- Total current liabilities 32,782,296 25,725,479 ------------- ------------- Long-term obligations, less current portion 14,778,526 14,122,019 ------------- ------------- Deferred income taxes 87,841,601 82,441,601 ------------- ------------- Stockholders' equity: Preferred Stock, cumulative, $.001 par value Authorized 5,000,000 shares; no shares issued or outstanding - - Class A Common Stock, $.001 par value Authorized 100,000,000 and 50,000,000 shares at September 30, 1998 and December 31, 1997, respectively; issued and outstanding 35,171,980 at September 30, 1998 and 29,978,748 at December 31, 1997 35,172 29,979 Class B Common Stock, $.001 par value Authorized 50,000,000 shares at September 30, 1998 and December 31, 1997; issued and outstanding 14,156,470 14,156 14,156 Additional paid-in capital 665,379,452 459,567,282 Accumulated deficit (50,399,803) (69,651,837) ------------- ------------- Total stockholders' equity 615,028,977 389,959,580 ------------- ------------- Total liabilities and stockholders' equity $ 750,431,400 $ 512,248,679 ------------- ------------- ------------- -------------
See notes to condensed consolidated financial statements. 2 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- --------------------------- 1998 1997 1998 1997 ----------- ----------- ------------ ------------ Net revenues $44,205,828 $37,196,813 $119,945,444 $ 98,207,075 Operating expenses 25,204,547 21,409,976 70,716,726 60,795,450 ----------- ----------- ------------ ------------ Operating income before depreciation, amortization and corporate expenses 19,001,281 15,786,837 49,228,718 37,411,625 Depreciation and amortization 5,580,111 3,795,283 15,070,764 10,675,377 Corporate expenses 1,374,888 1,185,296 4,137,527 3,505,169 ----------- ----------- ------------ ------------ Operating income 12,046,282 10,806,258 30,020,427 23,231,079 ----------- ----------- ------------ ------------ Other income (expense): Interest income (expense), net 97,557 (706,478) 2,889,032 (3,099,012) Other, net - (185,022) - (318,929) ----------- ----------- ------------ ------------ 97,557 (891,500) 2,889,032 (3,417,941) ----------- ----------- ------------ ------------ Income before income tax 12,143,839 9,914,758 32,909,459 19,813,138 Income tax 5,039,693 3,965,905 13,657,425 7,925,255 ----------- ----------- ------------ ------------ Net income $ 7,104,146 $ 5,948,853 $ 19,252,034 $ 11,887,883 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ Net income per common share - basic and diluted $ 0.14 $ 0.13 $ 0.39 $ 0.29 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ Weighted average common shares outstanding: Basic 49,328,450 44,135,218 48,918,195 40,849,628 Diluted 49,611,164 44,326,674 49,230,444 40,919,089
See notes to condensed consolidated financial statements. 3 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, --------------------------- 1998 1997 ------------ ------------ Cash flows from operating activities: Net income $ 19,252,034 $ 11,887,883 Adjustments to reconcile net income to net cash provided by operating activities: Provision for bad debts 831,794 2,345,446 Depreciation and amortization 15,070,764 10,675,377 Deferred income taxes 5,400,000 4,807,008 Other (62,004) (200,098) Changes in operating assets and liabilities 806,442 1,611,421 ------------ ------------ Net cash provided by operating activities 41,299,030 31,127,037 ------------ ------------ Cash flows from investing activities: Acquisitions of radio stations (236,563,901) (5,469,558) Property and equipment acquisitions (2,780,110) (3,443,858) Decrease in intangible assets - 636,443 Increase in deferred charges and other assets, net (1,909,352) (9,591,015) ------------ ------------ Net cash used in investing activities (241,253,363) (17,867,988) ------------ ------------ Cash flows from financing activities: Borrowings on long-term obligations 18,000,000 56,000,000 Payments on long-term obligations (17,476,345) (242,981,420) Payment of deferred financing costs - (1,200,000) Proceeds from stock issuances 205,975,368 177,085,075 Other - 66,333 ------------ ------------ Net cash provided by (used in) financing activities 206,499,023 (11,030,012) ------------ ------------ Net increase in cash and cash equivalents 6,544,690 2,229,037 Cash and cash equivalents at beginning of period 6,553,271 4,787,652 ------------ ------------ Cash and cash equivalents at end of period $ 13,097,961 $ 7,016,689 ------------ ------------ ------------ ------------
See notes to condensed consolidated financial statements. 4 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1998 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Heftel Broadcasting Corporation and subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. On November 6, 1997, the Board of Directors of the Company authorized a two-for-one stock split payable in the form of a stock dividend of one share of common stock for each issued and outstanding share of common stock. The dividend was paid on December 1, 1997, to all holders of common stock at the close of business on November 18, 1997. The net income per common share and other per share information for all periods presented has been restated to reflect this two-for-one stock split. In 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic earnings per common share is based on net earnings after preferred stock dividend requirements, if any, and the weighted-average number of Class A and Class B common shares outstanding during the period. Diluted earnings per common share assumes the exercise or conversion of securities (such as stock options) into common stock at the later of the beginning of the period or date of issuance and includes the add-back of related interest expense and/or dividends, as required. The adoption of this new accounting standard, which required the restatement of all presented periods' earnings per share data, did not have a material impact on previously reported earnings per share. Effective with fiscal years beginning after December 15, 1997, companies are required to adopt Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income." The Statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income includes net income and other comprehensive income, which comprises certain specific items previously reported directly in stockholders' equity. Other comprehensive income comprises items such as unrealized gains and losses on debt and equity securities classified as available-for-sale securities, minimum pension liability adjustments, and foreign currency translation adjustments. Since the Company does not currently have any of these other comprehensive income items, the Company's comprehensive income equals its net income. Therefore, SFAS No. 130 has no impact on the way the Company reports or has reported its financial statements. 2. ACQUISITIONS AND DISPOSITIONS On January 2, 1997, the Company acquired an option to purchase all of the assets used in connection with the operation of KSCA(FM), Glendale, California (the "KSCA Option"). In connection with the acquisition of the KSCA Option, the Company began providing programming to KSCA(FM) under a time brokerage agreement on February 5, 1997. The KSCA Option, which is exercisable only upon the death of Gene Autry, the indirect principal stockholder of the seller, had an initial term which expired on December 31, 1997. The KSCA Option was renewable for additional one-year terms during the lifetime of Mr. Autry upon payment by the Company of $3.0 million on or before the then scheduled expiration date of the KSCA Option. On February 4, 1997, the Company made an initial payment of $10.0 million, as required under the option agreement. On December 29, 1997, the Company renewed the KSCA Option through December 31, 1998. All such payments will be credited against the purchase price for the KSCA(FM) assets if the KSCA Option is exercised. If the KSCA Option is not exercised or renewed, all amounts paid will be charged to expense. The 5 purchase price for the KSCA(FM) assets is the greater of (a) $112.5 million, or (b) the sum of (i) $105.0 million, plus (ii) an amount equal to $13,699 per day during the term of the time brokerage agreement. On October 2, 1998, Gene Autry died. Under the terms of the KSCA Option, the Company has 30 days to exercise the KSCA Option after notice is received from the seller. The Company received notice from the seller on October 30, 1998, and expects to exercise the KSCA Option within 30 days of that date. The closing is expected to occur during the first quarter of 1999. If the acquisition of KSCA(FM) closes in February 1999, the purchase price for the KSCA(FM) assets will be approximately $115.0 million, and approximately $102.0 million ($115.0 million less $13.0 million in option payments credited against the purchase price) will be paid at closing. Consummation of the purchase will be subject to a number of conditions, including approval by the FCC of the transfer of the FCC license. 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 "Tichenor Merger"). At the time of the Tichenor Merger, Tichenor owned or programmed 20 radio stations in six of the ten largest Hispanic markets in the United States. The merger was effected through the merger of a wholly-owned subsidiary of the Company with and into Tichenor. In connection with the merger, management of Tichenor assumed management responsibilities of the Company. Pursuant to the Tichenor Merger, the former Tichenor shareholders and warrant holders received an aggregate of 11,379,756 shares of Common Stock. At the time of the Tichenor Merger, Tichenor had outstanding approximately $72.0 million of long-term debt, which was subsequently refinanced by the Company. In addition, all of Tichenor's outstanding shares of 14% Senior Redeemable Cumulative Preferred Stock ("Tichenor Senior Preferred") were redeemed for approximately $3.4 million. The total purchase price, including closing costs, allocated to net assets acquired, was approximately $181.2 million. On December 1, 1997, the Company entered into an asset exchange agreement to exchange WPAT(AM), serving the New York City market, and $115.5 million in cash for the assets of WCAA(FM) (formerly WNWK(FM)), serving the New York City market (the "WCAA(FM) Acquisition"). The WCAA(FM) Acquisition closed on May 22, 1998. Immediately after closing, the station's programming was converted to a Spanish language format. On March 25, 1998, the Company entered into an asset purchase agreement to acquire the assets of KLTN(FM) (formerly KKPN(FM)), serving the Houston market, for $54.0 million (the "KLTN(FM) Acquisition"). The KLTN(FM) Acquisition closed on May 29, 1998. Immediately after closing, the station's programming was converted to a Spanish language format. The Company entered into an asset purchase agreement on May 26, 1998, to acquire the assets of KLQV(FM) and KLNV(FM) (formerly KJQY(FM) and KKLQ(FM)) serving the San Diego market (the "San Diego Acquisition") for $65.2 million. The San Diego Acquisition closed on August 10, 1998. Immediately after closing, the programming of the stations was converted to two Spanish language formats. 6 Pro forma results of operations for the three and nine months ended September 30, 1998, and 1997, calculated as though the Tichenor Merger and the radio station acquisitions had occurred at the beginning of 1997, is as follows (dollars in thousands, except per share data):
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------- 1998 1997 1998 1997 -------- ------- -------- -------- Net revenues $44,206 $37,942 $121,226 $105,188 Operating income 11,872 9,339 27,544 17,385 Net income (loss) 6,773 2,677 13,735 (387) Net income (loss) per common share - basic and diluted 0.14 0.06 0.28 (0.01)
The pro forma results of operations do not purport to represent what the Company's results of operations actually would have been had the Tichenor Merger and completed radio station acquisitions occurred at the date specified, or to project the Company's results of operations for any future period. 3. LONG-TERM OBLIGATIONS On January 29, 1998, the Company repaid the $12.0 million outstanding balance of its $300.0 million revolving credit facility (the "Credit Facility") from the proceeds of the January 1998 secondary public stock offering (the "January 1998 Offering"). In the quarter ended September 30, 1998, the Company borrowed $18.0 million and repaid $5.0 million. The Company's ability to borrow 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 subsidiaries. Borrowings under the Credit Facility bear interest at a rate based on the LIBOR rate plus an applicable margin as determined by the Company's leverage ratio. The Company has $287.0 million of credit available, and may elect under the terms of the Credit Facility to increase the facility by $150.0 million. Availability under the Credit Facility decreases quarterly commencing September 30, 1999, and ending December 31, 2004. On February 12, 1997, the Company repaid borrowings of $142.5 million outstanding under an existing $155 million credit facility with a portion of the proceeds from the February 1997 secondary public stock offering (the "February 1997 Offering"). On February 14, 1997, the Company entered into the new Credit Facility, replacing the existing credit facility. The Company used advances under the Credit Facility and a portion of the proceeds from the February 1997 Offering to retire the outstanding debt and senior preferred stock of Tichenor assumed on the date of the Tichenor Merger. 4. STOCKHOLDERS' EQUITY On January 22, 1998, the Company completed the January 1998 Offering, selling 5,175,000 shares of Class A Common Stock in an underwritten public offering for a total of approximately $205.5 million in proceeds. The Company completed the February 1997 Offering on February 10, 1997, selling 4,830,000 (pre-split) shares of its Class A Common Stock in an underwritten public offering for a total of approximately $176.4 million in proceeds. 5. LONG-TERM INCENTIVE PLAN On May 21, 1997, the stockholders of the Company approved the Heftel Broadcasting Corporation Long-Term Incentive Plan (the "Incentive Plan"). The types of awards that may be granted under the Incentive Plan include (a) incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d) rights to receive a specified amount of cash or shares of Class A Common Stock and (e) restricted stock. In addition, the Incentive Plan provides that directors of the Company may elect to receive some or all of their annual director compensation in the form of shares of Class A Common Stock. Subject to certain exceptions set forth in the Incentive Plan, the aggregate number of shares of Class A Common Stock that may be the subject of 7 awards under the Incentive Plan at one time shall be an amount equal to (a) five percent of the total number of shares of Class A Common Stock outstanding from time to time minus (b) the total number of shares of Class A Common Stock subject to outstanding awards on the date of calculation under the Incentive Plan and any other stock-based plan for employees or directors of the Company (other than the Company's Employee Stock Purchase Plan). The Company has granted incentive and non-qualified stock options for 1,052,234 shares of Class A Common Stock to directors and key employees. The exercise prices range from $16.44 to $43.94 per share and were equal to the fair market value of the Class A Common Stock on the dates such options were granted. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The performance of a radio station group is customarily measured by its ability to generate broadcast cash flow. The two components of broadcast cash flow are net revenues (gross revenues net of agency commissions) and operating expenses (excluding depreciation, amortization and corporate general and administrative expense). The primary source of revenues is the sale of broadcasting time for advertising. The Company's most significant operating expenses for purposes of the computation of broadcast cash flow are employee salaries and commissions, programming expenses, and advertising and promotion expenses. The Company strives to control these expenses by working closely with local station management. The Company's revenues vary throughout the year. As is typical in the radio broadcasting industry, the Company's first calendar quarter generally produces the lowest revenues. The second and third quarters generally produce the highest revenues. Broadcast cash flow is not calculated in accordance with generally accepted accounting principles. This measure should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. Broadcast cash flow does not take into account the Company's debt service requirements and other commitments and, accordingly, broadcast cash flow is not necessarily indicative of amounts that may be available for dividends, reinvestment in the Company's business or other discretionary uses. COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998, TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 The results of operations for the three and nine months ended September 30, 1998, are not comparable to results of operations for the same periods in 1997 primarily due to (a) the Tichenor Merger which closed February 14, 1997, and (b) the start-up of radio stations KSCA(FM) in Los Angeles on February 5, 1997, WCAA(FM) in New York on May 22, 1998 (WPAT(AM) was exchanged for WCAA(FM)), KRTX(AM/FM) in Houston on May 29, 1998, and KLQV(FM) and KLNV(FM) in San Diego on August 10, 1998. Net revenues increased by $7.0 million or 18.8% to $44.2 million in the three months ended September 30, 1998 from $37.2 million in the same quarter of 1997. Net revenues for the nine months ended September 30, 1998 increased by $21.7 million, or 22.1% to $119.9 million, compared to $98.2 million for the same period in 1997. Net revenues increased for the three and nine months ended September 30, 1998, compared to the same periods in 1997 primarily because of the Tichenor Merger, the operation of KSCA(FM) during all of the nine months ended September 30, 1998, compared to a portion of the same period in 1997, and revenue growth of other start-up stations offset somewhat by the loss of revenues generated by WPAT(AM), which was exchanged in the WCAA(FM) transaction and a decrease in barter revenue. Had the Tichenor Merger and WCAA(FM) acquisition occurred on January 1, 1997, net revenues, on a pro forma basis, for the three and nine months ended September 30, 1998 would have increased 16.5% and 15.2%, respectively, compared to the same periods of 1997. 8 Operating expenses increased by $3.8 million, or 17.7% to $25.2 million for the three months ended September 30, 1998 from $21.4 million for the same period of 1997. Operating expenses for the nine months ended September 30, 1998 increased by $9.9 million, or 16.3%, to $70.7 million, compared to $60.8 million for the nine months ended September 30, 1997. Operating expenses increased primarily due to the Tichenor Merger, the operation of KSCA(FM) during all of the nine months ended September 30, 1998, compared to a portion of the same period in 1997, and operating expenses of other start-up stations offset somewhat by the elimination of operating expenses generated by WPAT(AM) which was exchanged in the WCAA(FM) transaction and a decrease in barter expense. Bad debt expense (included in operating expenses) decreased $1.5 million or (65.2)% to $0.8 million for the nine months ended September 30, 1998 from $2.3 million for the same period of 1997. The decrease in bad debt expense in 1998 is due to the allowance for doubtful accounts needing a smaller increase because of improved collections compared to the same period in 1997. In 1997, the new management of the Company increased the allowance for doubtful accounts to properly value accounts receivable. This resulted in an increase in bad debt expense for the nine months ended September 30, 1997. Had the Tichenor Merger and WCAA(FM) acquisition occurred on January 1, 1997, operating expenses, on a pro forma basis, for the three and nine months ended September 30, 1998 would have increased 14.7% and 7.2%, respectively, compared to the same periods of 1997. Operating income before corporate expenses, depreciation and amortization ("broadcast cash flow") for the three and nine months ended September 30, 1998, increased 20.4% and 31.6% to $19.0 million and $49.2 million, respectively, compared to $15.8 million and $37.4 million, respectively, for the three and nine months ended September 30, 1997. Had the Tichenor Merger and WCAA(FM) acquisition occurred on January 1, 1997, broadcast cash flow, on a pro forma basis, for the three and nine months ended September 30, 1998, would have increased 18.9% and 29.1%, to $19.0 million and $49.8 million, respectively, compared to the same periods of 1997. Corporate expenses increased by $0.2 million, or 16.0%, to $1.4 million for the three months ended September 30, 1998, compared to the same period of 1997. Corporate expenses for the nine months ended September 30, 1998, increased by $0.6 million, or 18.0%, to $4.1 million, compared to the same period of 1997. The increase was primarily due to higher staffing costs of the Company after the Tichenor Merger. Depreciation and amortization for the quarter ended September 30, 1998, increased 47.4% to $5.6 million compared to $3.8 million for the same period in 1997. Depreciation and amortization for the nine months ended September 30, 1998, increased 41.1% to $15.1 million compared to $10.7 million for the same period of 1997. The increase in both periods is due to radio station acquisitions, capital expenditures, and the additional depreciation and amortization associated with the Tichenor Merger included in all of the nine months ended September 30, 1998, compared to a portion of the same period in 1997. Interest expense, net decreased from $0.7 and $3.1 million for the three and nine months ended September 30, 1997, respectively, to $0.1 and $2.9 million of interest income, net for the three and nine months ended September 30, 1998. The reduction in interest expense was the result of the repayment of debt funded from the January 1998 Offering. Interest income increased due to an increase in invested cash from the January 1998 Offering. Federal and state income taxes are being provided at an effective rate of 41.5% in 1998 and 40% in 1997. The increase in the effective tax rate in 1998 is due to goodwill amortization which is not deductible for tax purposes. For the three months ended September 30, 1998, the Company's net income totaled $7.1 million ($0.14 per common share) compared to $5.9 million ($0.13 per common share) in the same period of 1997. For the nine months ended September 30, 1998, the Company's net income totaled $19.3 million compared to $11.9 million in the same period of 1997. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the nine months ended September 30, 1998, was $41.3 million as compared to $31.1 million for the same period of 1997. Capital expenditures totaled $2.8 million and 9 $3.4 million for the nine months ended September 30, 1998 and 1997, respectively. The Company repaid on January 29, 1998, the entire balance of $12.0 million outstanding under the Credit Facility as of December 31, 1997. In August 1998, the Company borrowed $18.0 million under the Credit Agreement and repaid $5.0 million in September 1998. For the nine months ended September 30, 1998, the Company repaid $0.5 million of other Company indebtedness. On February 12, 1997, the entire balance of $142.5 million outstanding under the Company's prior credit agreement was repaid with the proceeds from the February 1997 Offering. On February 14, 1997, the Company entered into the Credit Facility. Also on February 14, 1997, the Company borrowed $46.0 million under the Credit Facility and used a portion of the remaining proceeds from the February 1997 Offering to repay approximately $72.0 million of Tichenor related debt and to redeem the Tichenor Senior Preferred assumed in connection with the Tichenor Merger. Available cash on hand plus cash flow provided by operations was sufficient to fund the Company's operations, meet its debt obligations, and to fund capital expenditures. The Company believes it will have sufficient cash on hand and cash provided by operations, borrowings under the Credit Facility, and proceeds from securities offerings to finance its operations and satisfy its debt service requirements. The Company regularly reviews potential acquisitions. The Company intends to finance acquisitions primarily through proceeds from additional borrowings under the Credit Facility and/or from cash provided by operations. ACCOUNTING PRONOUNCEMENTS Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," was issued by the American Institute of Certified Public Accountants in April 1998. This SOP provides guidance on the financial reporting of start-up and organizational costs. It requires start-up activities and organization costs to be expensed as incurred. The Company presently expenses start-up and organization costs as incurred. YEAR 2000 The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations. The Company has been replacing its software and hardware as part of its long-term technological plans. The new software being implemented functions properly with respect to dates in the year 2000 and thereafter. All software used in the accounting system is in the process of being replaced. The key software components used in the accounting system are the general ledger and traffic system. The general ledger is used to record all transactional activity whereas the traffic system is used to record the airing of commercials, perform billing and maintain the accounts receivable detail. The new general ledger software has been implemented in eight of the thirteen locations in which the Company operates. The five remaining locations will implement the new general ledger software by March 31, 1999. Eight of the twelve radio station markets in which the Company operates have implemented the new traffic software. The four remaining radio station markets will implement the new traffic software at or around March 1999. The Company is in the process of reviewing the hardware used in its operations that might be affected by the Year 2000 problem. Hardware testing for Year 2000 compliance is anticipated to be completed by June 30, 1999. Inquiries of the Company's top ten customers, vendors and service providers regarding Year 2000 compliance will be made during 1999. The Company decided, after the merger with Tichenor Media System, Inc. in February 1997, to change its general ledger and traffic system software so all locations would be on the same system. The replacement of the general ledger and traffic system software was not accelerated due to Year 2000 issues. The Company does not believe the costs related to the Year 2000 compliance project will be material to its financial position or results of operations. Unanticipated failures by critical customers, vendors and service 10 providers, as well as the failure by the Company to execute its own remediation efforts, could have a material adverse effect on the cost of the Year 2000 project, its completion date, and the Company's financial position or results of operations. The Company has not yet established contingency plans in the event of the failure of its system with regard to Year 2000 compliance or those of its significant customers, vendors and service providers. Based on its assessment of the Year 2000 issue, the Company will establish contingency plans, however there is no assurance that such plans will be adequate to meet the Company's needs in the event of any disruption in the Company's operations. FORWARD LOOKING STATEMENTS Certain statements contained in this report are not based on historical facts, but are forward looking statements that are based on numerous assumptions made as of the date of this report. When used in the preceding and following discussions, the words "believes," "intends," "expects," "anticipates" and similar expressions are intended to identify forward looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in any of the forward looking statements. Such risks and uncertainties include, but are not limited to, industry-wide market factors and regulatory developments affecting the Company's operations, acquisitions and dispositions of broadcast properties described elsewhere herein, the financial performance of start-up stations, and efforts by the new management to integrate its operating philosophies and practices at the station level. This report should be read in conjunction with the Company's Annual Report on Form 10-K. The Company disclaims any obligation to update the forward looking statements in this report. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in various claims and lawsuits, which are generally incidental to its business. The Company is vigorously contesting all such matters and believes that their ultimate resolution will not have a material adverse effect on its consolidated financial position or results of operations. 11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit No. Description of Exhibit ------- ---------------------- 3.1 Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Registrant dated June 4, 1998 3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, as amended Reg. No. 33-78370) 4.1 Credit Agreement among the Registrant and its subsidiaries, The Chase Manhattan Bank, as administrative agent, and certain other lenders, dated February 14, 1997 without Exhibits (Schedules omitted) (incorporated by reference to Exhibit 10.5 to the Registrant's Form 8-K filed on March 3, 1997) 27 Financial Data Schedule
(b) Reports on Form 8-K The Company filed a report on Form 8-K dated August 25, 1998 disclosing the acquisition of radio stations KLQV(FM) and KLNV(FM) (formerly KJQY(FM) and KKLQ(FM)). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Heftel Broadcasting Corporation --------------------------------------- (Registrant) /s/ Jeffrey T. Hinson --------------------------------------- Jeffrey T. Hinson Senior Vice President/ Chief Financial Officer Dated: November 12, 1998 12 Index To Exhibits
Exhibit No. Description ---------- ----------- 3.1 Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Registrant dated June 4, 1998 3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, as amended Reg. No. 33-78370) 4.1 Credit Agreement among the Registrant and its subsidiaries, The Chase Manhattan Bank, as administrative agent, and certain other lenders, dated February 14, 1997 without Exhibits (Schedules omitted) (incorporated by reference to Exhibit 10.5 to the Registrant's Form 8-K filed on March 3, 1997) 27 Financial Data Schedule
13 EX-3.1 2 EXHIBIT 3.1 CERTIFICATE OF AMENDMENT TO THE SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HEFTEL BROADCASTING CORPORATION Heftel Broadcasting Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of the Corporation, resolutions were duly adopted setting forth a proposed amendment to the Second Amended and Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Board of Directors hereby approves amending Section 4.1 of the Second Amended and Restated Certificate of Incorporation of this corporation to increase the authorized number of shares of Common Stock from 20,000,000 to 100,000,000 and the authorized number of shares of Preferred Stock from 2,000,000 to 5,000,000, so that, as amended, said Section shall be and read as follows: "4.1 AUTHORIZED SHARES. The total number of shares of capital stock which the Corporation shall have authority to issue is 155,000,000 shares, consisting of three classes of capital stock: (a) 100,000,000 shares of Class A Common Stock, par value $.001 per share (the "Class A Shares"); (b) 50,000,000 shares of Class B Common Stock, par value $.001 per share (the "Class B Shares" and, together with the Class A Shares, the "Common Shares"); and (c) 5,000,000 shares of Preferred Stock, par value $.001 per share (the "Preferred Stock")." SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation law of the state of Delaware at which meeting the necessary number of share as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Heftel Broadcasting Corporation has caused this certificate to be signed by Jeffrey T. Hinson, its authorized officer, this 4th day of June 1998. /s/ Jeffrey T. Hinson --------------------------------------- Jeffrey T. Hinson Senior Vice President, Chief Financial Officer and Treasurer EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 13,098 0 38,057 2,494 0 49,614 46,726 14,024 750,431 32,782 0 0 0 49 614,980 750,431 0 119,945 0 89,925 (4,603) 0 1,714 32,909 13,657 19,252 0 0 0 19,252 0.39 0.39
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