-----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, QdL1dyve/MMDGuB5Sc5IFXOcKuYGi6+DZSu9kT34/0ZxWfJFvDSWAPIw/LmnhEHW MFOFd2ixf9vZt450uErF5A== 0001047469-97-007556.txt : 19971216 0001047469-97-007556.hdr.sgml : 19971216 ACCESSION NUMBER: 0001047469-97-007556 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971205 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971212 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 SEC ACT: SEC FILE NUMBER: 000-24516 FILM NUMBER: 97737013 BUSINESS ADDRESS: STREET 1: 100 CRESCENT COURT STREET 2: SUITE 1777 CITY: DALLAS STATE: TX ZIP: 75201- BUSINESS PHONE: 7023673322 8-K 1 FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): December 5, 1997 HEFTEL BROADCASTING CORPORATION (Exact name of registrant as specified in its charter) Delaware 0-24516 99-0113417 (State or other jurisdiction (Commission File Number) (IRS Employer incorporation) Identification No.) 100 Crescent Court, Suite 1777 Dallas, Texas 75201 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (214) 855-8882 ---------------------------------------------------------------------- (former name or former address, if changed since last report) ITEM 5. OTHER EVENTS On February 14, 1997, Heftel Broadcasting Corporation (the "Company") completed its acquisition of Tichenor Media System, Inc. ("Tichenor"). Tichenor is a national radio broadcasting company engaged in the business of acquiring, developing and programming Spanish language radio stations. The audit of the Tichenor financial statements as of and for the year ended December 31, 1996, was completed on October 17, 1997, by KPMG Peat Marwick LLP. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS EXHIBIT 99.1 Consolidated balance sheets of Tichenor Media System, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, with Independent Auditors' Report dated October 17, 1997. EXHIBIT 99.2 Unaudited pro forma condensed consolidated statements of operations of Heftel Broadcasting Corporation and subsidiaries for the year ended December 31, 1996 and the nine months ended September 30, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Heftel Broadcasting Corporation ---------------------------------------- (Registrant) By: /s/ Jeffrey T. Hinson --------------------------------- Name: Jeffrey T. Hinson Title: Chief Financial Officer Dated: December 12, 1997 1 INDEX TO EXHIBITS Exhibit No. Page - ----------- ---- 99.1 Consolidated balance sheets of Tichenor Media System, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, with Independent Auditors' Report dated October 17, 1997. 3 99.2 Unaudited pro forma condensed consolidated statements of operations of Heftel Broadcasting Corporation and subsidiaries for the year ended December 31, 1996 and the nine months ended September 30, 1997. 22 2 EX-99.1 2 CONSOLIDATED FINANCIAL STMTS. OF TICHENOR MEDIA INDEPENDENT AUDITORS' REPORT The Board of Directors Tichenor Media System, Inc.: We have audited the accompanying consolidated balance sheets of Tichenor Media System, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tichenor Media System, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Dallas, Texas October 17, 1997 3 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS December 31, -------------------------- 1996 1995 ----------- ----------- Current assets: Cash and cash equivalents $ 3,990,399 $ 3,593,955 Accounts receivable, net of allowance of $579,294 in 1996 and $756,808 in 1995 9,072,416 8,275,427 Prepaid expenses and other current assets 489,879 358,640 Income taxes receivable 1,249,833 -- Amounts receivable from officers and stockholders 44,744 99,168 ----------- ----------- Total current assets 14,847,271 12,327,190 ----------- ----------- Investments, at equity 204,462 221,458 ----------- ----------- Property and equipment, at cost: Land 2,093,190 2,095,690 Buildings and improvements 2,814,272 2,553,595 Broadcast and other equipment 14,609,778 12,075,807 Furniture and fixtures 2,539,248 2,253,794 ----------- ----------- 22,056,488 18,978,886 Less accumulated depreciation 12,553,477 11,449,267 ----------- ----------- 9,503,011 7,529,619 ----------- ----------- Intangible assets: Broadcast licenses 76,331,125 31,981,514 Cost in excess of fair value of net assets acquired 363,100 363,100 Other intangible assets 5,438,382 4,187,807 ----------- ----------- 82,132,607 36,532,421 Less accumulated amortization 9,349,284 6,975,960 ----------- ----------- 72,783,323 29,556,461 ----------- ----------- Other noncurrent assets: Deferred charges and other assets, net 2,222,046 2,764,719 Notes receivable from related parties 335,400 571,439 ----------- ----------- 2,557,446 3,336,158 ----------- ----------- Total assets $99,895,513 $52,970,886 ----------- ----------- ----------- ----------- 4 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,333,304 $ 1,213,979 Accrued expenses 4,622,981 2,743,274 Income taxes payable -- 565,574 Amounts payable to officers and stockholders 536,236 270,184 Current portion of long-term obligations 33,495 47,611 ----------- ----------- Total current liabilities 7,526,016 4,840,622 ----------- ----------- Long-term obligations, less current portion 70,498,216 25,381,706 ----------- ----------- Deferred income taxes 4,038,399 3,582,421 ----------- ----------- 14% senior redeemable cumulative preferred stock and accrued dividends, $1,000 par value; authorized, issued and outstanding 3,000 shares 3,378,749 3,378,749 ----------- ----------- Common stock purchase warrant subject to mandatory redemption, at accreted value 4,140,000 3,828,520 ----------- ----------- Commitments and contingencies Stockholders' equity: 10.5% junior noncumulative preferred stock, $10 par value; authorized 100,000 shares; issued 36,829 shares; outstanding 35,772 shares in 1996 and 1995 (liquidation preference of $3,682,950) 368,295 368,295 Common stock, $1 par value; authorized 9,897,000 shares; issued 743,704 shares; outstanding 684,169 shares in 1996 and 684,420 shares in 1995 743,704 743,704 Additional paid-in capital 4,357,038 4,357,038 Retained earnings 6,378,955 8,081,638 Less treasury stock at cost (1,395,535) (1,379,263) Receivables for stock purchases (138,324) (212,544) ----------- ----------- Stockholders' equity 10,314,133 11,958,868 ----------- ----------- Total liabilities and stockholders' equity $99,895,513 $52,970,886 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements 5 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year ended December 31 ----------------------------------------- 1996 1995 1994 ------------ ------------- ------------- Revenues $ 52,785,497 $ 46,377,676 $ 41,099,785 Agency commissions (5,698,259) (4,776,415) (4,238,805) ------------ ------------ ------------ Net revenues 47,087,238 41,601,261 36,860,980 ------------ ------------ ------------ Operating expenses: Selling 15,847,393 13,864,947 13,203,789 Programming 6,897,515 5,452,060 4,866,974 Promotion and market research 2,898,035 1,730,225 1,701,147 Engineering 1,359,281 1,038,024 983,014 General and administrative 8,562,756 7,659,303 7,087,274 Corporate expenses 5,423,602 2,685,541 2,484,121 Depreciation and amortization 3,539,491 2,467,056 2,368,113 ------------ ------------ ------------ Total operating expenses 44,528,073 34,897,156 32,694,432 ------------ ------------ ------------ Operating income 2,559,165 6,704,105 4,166,548 ------------ ------------ ------------ Other income (expense): Interest income 79,446 190,390 2,852,011 Interest expense (4,214,837) (2,230,009) (2,594,590) Costs relating to unconsummated acquisitions (358) (123,300) -- Other, net (59,150) 161,814 (429,492) ------------ ------------ ------------ (4,194,899) (2,001,105) (172,071) ------------ ------------ ------------ Income (loss) before income taxes and extraordinary loss (1,635,734) 4,703,000 3,994,477 Income tax (benefit) (244,531) 2,779,684 1,292,647 ------------ ------------ ------------ Income (loss) before extraordinary loss (1,391,203) 1,923,316 2,701,830 Extraordinary loss on retirement of debt, net of income tax benefit of $224,030 -- -- (381,456) ------------ ------------ ------------ Net income (loss) (1,391,203) 1,923,316 2,320,374 Preferred stock dividends -- (439,069) (431,013) Accretion of stock warrant to redemption value (311,480) (1,434,000) (715,000) ------------ ------------ ------------ Net income (loss) applicable to common shareholders $ (1,702,683) $ 50,247 $ 1,174,361 ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) per share: Income (loss) before extraordinary loss $ (2.49) $ 0.07 $ 2.00 ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) $ (2.49) $ 0.07 $ 1.51 ------------ ------------ ------------ ------------ ------------ ------------ Weighted average common and common equivalent shares outstanding 684,238 740,150 778,211 ------------ ------------ ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 6 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Junior preferred stock Common Stock Receivables ------------------- ------------------- Additional for Number Number paid-in Treasury stock Retained of shares Amount of shares Amount capital stock purchases Earnings --------- ------ --------- -------- ---------- ------------ --------- ---------- Balance at December 31, 1993 42,829 $428,295 726,523 $726,523 $4,125,929 $(1,500,051) $(62,788) $ 6,857,030 Conversion of junior preferred stock to common stock (6,000) (60,000) 17,181 17,181 42,819 -- -- -- Accretion of stock warrant to redemption value -- -- -- -- -- -- -- (715,000) Senior redeemable preferred stock dividends -- -- -- -- -- -- -- (431,013) Purchase of treasury stock -- -- -- -- -- (36,957) -- -- Sale of treasury stock -- -- -- -- 44,066 66,935 (81,000) -- Collection of stock purchase receivables -- -- -- -- -- -- 46,690 -- Net income -- -- -- -- -- -- -- 2,320,374 ------- -------- -------- -------- ---------- ----------- --------- ------------ Balance at December 31, 1994 36,829 368,295 743,704 743,704 4,212,814 (1,470,073) (97,098) 8,031,391 Accretion of stock warrant to redemption value -- -- -- -- -- -- -- (1,434,000) Senior redeemable preferred stock dividends -- -- -- -- -- -- -- (439,069) Purchase of treasury stock -- -- -- -- -- (41,467) -- -- Sale of treasury stock -- -- -- -- 144,224 132,277 (219,000) -- Collection of stock purchase receivables -- -- -- -- -- -- 103,554 -- Net income -- -- -- -- -- -- -- 1,923,316 ------- -------- -------- -------- ---------- ----------- --------- ------------ Balance at December 31, 1995 36,829 368,295 743,704 743,704 4,357,038 (1,379,263) (212,544) 8,081,638 Accretion of stock warrant to redemption value -- -- -- -- -- -- -- (311,480) Purchase of treasury stock -- -- -- -- -- (16,272) 2,376 -- Collection of stock purchase receivables -- -- -- -- -- -- 71,844 -- Net loss -- -- -- -- -- -- -- (1,391,203) ------- -------- -------- -------- ---------- ----------- --------- ------------ Balance at December 31, 1996 36,829 $368,295 743,704 $743,704 $4,357,038 $(1,395,535) $(138,324) $ 6,378,955 ------- -------- -------- -------- ---------- ----------- --------- ------------ ------- -------- -------- -------- ---------- ----------- --------- ------------
See accompanying notes to consolidated financial statements. 7 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, ---------------------------------------- 1996 1995 1994 ------------ ----------- ----------- Cash flows from operating activities: Net income (loss) $ (1,391,203) $ 1,923,316 $ 2,320,374 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for bad debts 603,437 767,614 491,750 Depreciation and amortization 3,539,491 2,467,056 2,368,113 Barter transactions, net 428,309 (34,450) (312,926) Amortization of debt facility fee included in interest expense 134,608 134,608 112,565 Loss (gain) from unconsolidated partnership interests 16,996 19,834 (109,624) Gain from sale of investments -- (6,081) -- Valuation adjustments on notes receivable, investments and other noncurrent assets -- -- 12,600 Loss (gain) on disposition of assets (9,026) (260,619) 325,676 Deferred income taxes 455,978 (109,059) 3,691,480 Loss on retirement of debt -- -- 605,486 Changes in operating assets and liabilities: Accounts receivable, net (1,828,735) (1,543,211) (1,459,841) Prepaid expenses and other current assets (131,239) (117,093) 263,534 Income taxes receivable (1,249,833) 5,156,081 (5,156,081) Amounts receivable from officers and stockholders 54,424 (44,238) 105,120 Accounts payable 1,119,325 (658,946) (438,554) Accrued expenses 1,879,707 1,087,027 (259,329) Income taxes payable (565,574) (19,357) 459,931 Amounts payable to officers and stockholders 266,052 59,032 138,898 ------------ ----------- ----------- Net cash provided by operating activities 3,322,717 8,821,514 3,159,172 ------------ ----------- ----------- Cash flows from investing activities: Investment sales and distributions -- 14,681 25,000 Acquisitions of radio stations (46,500,000) (6,740,000) -- Property and equipment acquisitions (1,584,749) (1,279,915) (899,762) Dispositions of property and equipment 17,917 644,737 652,080 Increase in intangible assets (663,887) (1,042,929) (303,223) Decrease (increase) in other noncurrent assets 644,104 (134,174) (150,362) ------------ ----------- ----------- Net cash used in investing activities (48,086,615) (8,537,600) (676,267) ------------ ----------- ----------- Cash flows from financing activities: Borrowings on long-term obligations 45,900,000 7,150,000 -- Payments on long-term obligations (797,606) (5,870,561) (3,014,894) Dividends on senior preferred stock -- (420,000) (300,000) Payment of deferred financing costs -- -- (897,389) Sales of treasury stock -- 57,501 30,001 Note payments from stockholders 74,220 103,554 46,690 Purchases of treasury stock (16,272) (41,467) (36,957) ------------ ----------- ----------- Net cash provided by (used in) financing activities 45,160,342 979,027 (4,172,549) ------------ ----------- ----------- Net increase (decrease) in cash and cash equivalents 396,444 1,262,941 (1,689,644) Cash and cash equivalents at beginning of period 3,593,955 2,331,014 4,020,658 ------------ ----------- ----------- Cash and cash equivalents at end of period $ 3,990,399 $ 3,593,955 $ 2,331,014 ------------ ----------- ----------- ------------ ----------- -----------
See accompanying notes to consolidated financial statements. 8 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Tichenor Media System, Inc. was formed on August 17, 1982 for the purpose of owning and operating a group of Spanish language broadcast radio stations. The Company's radio stations are located in San Antonio, McAllen-Brownsville, Houston and El Paso, Texas, San Francisco/San Jose, California and Chicago, Illinois. BASIS OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Tichenor Media System, Inc. and its wholly-owned subsidiaries, Tichenor License Corporation ("TLC"), WADO Radio, Inc. ("WRI"), TC Television, Inc. ("TCTV") and TMS Assets California, Inc. ("TACI") (collectively, the "Company"). TMS License California, Inc. ("TLCI") is a wholly-owned subsidiary of TACI. The Company consolidates the accounts of subsidiaries when it has a controlling financial interest (over 50%) in the outstanding voting shares of the subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related footnotes to financial statements. Actual results could differ from those estimates. CASH EQUIVALENTS Debt instruments with original maturities of three months or less are considered to be cash equivalents. Cash equivalents at December 31, 1996 are comprised of treasury bills, other government securities and money market funds and totalled $474,051. INVESTMENTS The Company uses the equity method to account for investments when it does not have a controlling interest but has the ability to exercise significant influence over the operating and/or financial decisions of the investee. Investments where the Company does not exert significant influence are accounted for using the cost method. Investments at December 31, 1996 are comprised primarily of a 50% interest in a general partnership which owns a transmission tower that is leased to the Company. 9 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Expenditures for significant renewals and betterments are capitalized. Repairs and maintenance are charged to expense as incurred. Depreciation is provided in amounts sufficient to relate the asset cost to operations over the estimated useful lives (three to forty years) on a straight-line basis. Leasehold improvements are depreciated over the life of the lease or the estimated service life of the asset, whichever is shorter. Gains or losses from disposition of property and equipment is recognized in the statement of operations. INTANGIBLE ASSETS Intangible assets are recorded at cost. Amortization of intangible assets is provided in amounts sufficient to relate the asset cost to operations over the estimated useful lives (two to forty years) on a straight-line basis. Intangible assets consist primarily of broadcast licenses and other identifiable intangible assets. The Company continually evaluates the propriety of the carrying amount of intangible assets as well as the amortization period to determine whether current events or circumstances warrant adjustments to the carrying value and/or revised estimates of useful lives. This evaluation consists of the projection of undiscounted operating income before depreciation, amortization, nonrecurring charges and interest for each of the Company's radio stations over the remaining amortization periods of the related intangible assets. The projections are based on a historical trend line of actual results since the acquisitions of the respective stations adjusted for expected changes in operating results. To the extent such projections indicate that undiscounted operating income is not expected to be adequate to recover the carrying amounts of the related intangible assets, such carrying amounts are written down by charges to expense. At this time, the Company believes that no significant impairment of intangible assets has occurred and that no reduction of the estimated useful lives is warranted. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. ADVERTISING COSTS Advertising costs are charged to operations in the year incurred and totaled $4,628,116 for the year ended December 31, 1996. 10 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) BARTER TRANSACTIONS Barter transactions are recorded at the estimated fair value of the goods or services received. Revenues from barter transactions are recognized as income when advertisements are broadcast. Expenses are recognized when goods or services are received or used. Barter amounts are not significant to the Company's consolidated financial statements. INCOME TAXES The Company follows Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. EARNINGS PER SHARE Net income or loss per common share is computed by dividing net income or loss applicable to common shareholders by the weighted-average number of common and dilutive common equivalent shares (junior preferred stock) outstanding during each year. The stock warrant has been excluded from the computation as its effect would be antidilutive. Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," which supersedes APB Opinion No. 15 ("APB 15"), "Earnings per Share," was issued in February 1997. SFAS 128 requires dual presentation of basic and diluted earnings per share ("EPS") for complex capital structures. Basic EPS is computed by dividing income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from the exercise or conversion of securities (such as stock options) into common stock. SFAS 128 is required to be adopted for year-end 1997; earlier application is not permitted. After adoption, all prior period EPS data presented shall be restated to conform with SFAS 128. The Company does not expect that the basic and diluted EPS measured under SFAS 128 will be materially different from the current presentation of primary and fully-diluted EPS measured under APB 15. DERIVATIVE FINANCIAL INSTRUMENTS The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined interest rate risks related to interest on the Company's outstanding debt. 11 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) As interest rates change under interest rate swap and cap agreements, the differential to be paid or received is recognized as an adjustment to interest expense. The Company is not exposed to credit loss as its interest rate swap agreements are with the participating banks under the Company's senior credit facility. FINANCIAL INSTRUMENTS The carrying amounts of financial instruments including cash and cash equivalents, trade receivables and accounts payable approximated fair value as of December 31, 1996, because of the relatively short maturity of these instruments. The carrying value of long-term obligations, including the current portion, approximated fair value as of December 31, 1996, based upon quoted interest rates for the same or similar debt issues. CREDIT RISK In the opinion of management, credit risk with respect to trade receivables is limited due to the large number of diversified customers and the geographic diversification of the Company's customer base. The Company performs ongoing credit evaluations of its customers and believes that adequate allowances for any uncollectible trade receivables are maintained. At December 31, 1996, no receivable from any customer exceeded 5% of stockholders' equity and no customer accounted for more than 10% of net revenues in 1996. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The adoption of this Statement did not have a material impact on the Company's financial position, results of operations, or liquidity. RECLASSIFICATION Certain prior year amounts have been reclassified to confirm with the current year presentation. 12 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2. AGREEMENT AND PLAN OF MERGER On July 9, 1996, Tichenor Media System, Inc. ("Tichenor") entered into an Agreement and Plan of Merger ("Merger Agreement"). The merger was effected on February 14, 1997 through the merger of a wholly-owned subsidiary of Heftel Broadcasting Corporation ("Heftel") with and into Tichenor. In connection with the merger, management of Tichenor assumed management responsibilities of Heftel. Under the terms of the Merger Agreement, Tichenor shareholders received (a) 7.8261 shares of Heftel Class A common stock, par value $.001 per share, in exchange for each share of Tichenor common stock and (b) 4.3478 shares of Heftel Class A common stock in exchange for each share of Tichenor junior preferred stock. Heftel received 1,000 shares of Tichenor common stock and all other Tichenor junior preferred and common stock issued was cancelled. 3. ACQUISITIONS OF RADIO STATIONS The FCC license of KRTX-FM (formerly KMIA-FM) in Jasper (Houston), Texas was acquired on March 25, 1996 for $3,500,000. The FCC license is amortized using the straight line method over 40 years. A $3,000,000 bank loan was used to finance this asset acquisition. The Company purchased the assets of KLTP-FM (formerly KRTX-FM) in Galveston (Houston), Texas on July 31, 1996. The purchase price was $900,000. The intangible assets acquired are amortized using the straight line method over 40 years. A $600,000 bank loan was used to finance this acquisition. On August 1, 1996, the Company purchased the assets of KGBT-FM (formerly KQXX-FM) in McAllen, Texas for $1,300,000. Also, a five-year non-competition agreement from the seller was purchased for $800,000. The intangible assets acquired are amortized using the straight line method over 2 to 40 years. A $1,300,000 bank loan was used to finance this acquisition. TACI purchased the assets of KSOL-FM and KZOL-FM (formerly KYLZ-FM) in San Francisco and Santa Cruz (San Jose), California on August 16, 1996. The purchase price was $40,000,000. The intangible assets acquired are amortized using the straight line method over 15 to 40 years. The acquisition was financed with a $40,000,000 loan from Clear Channel Communications, Inc. ("CCC"). CCC is a shareholder in Heftel. Tichenor Media System, Inc. is a guarantor of this loan in favor of CCC. The guaranty is subordinate to the rights of the senior creditors. A $1,000,000 bank loan was used to provide working capital for these stations. On June 1, 1995, certain tangible and intangible assets of radio station KRTX-AM (formerly KMPQ-AM) in Rosenberg-Richmond (Houston), Texas were acquired for $2,500,000. The intangible assets acquired are amortized using the straight line method over 15 to 40 years. This acquisition, along with a deposit for $500,000 related to the KRTX-FM (formerly KMIA-FM) acquisition, was funded with bank financing. 13 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) On June 16, 1995, the Company purchased certain tangible and intangible assets of KLTN-FM in Port Arthur (Houston), Texas for $3,650,000. The intangible assets acquired are amortized using the straight line method over 15 to 40 years. Bank financing was used to fund this acquisition. On June 23, 1995, TCTV purchased certain tangible and intangible assets associated with the television program known as "Tejano Country". The purchase price was $100,000 and was funded from operations. The Company acquired certain tangible and intangible assets of radio station KAMA-AM in El Paso, Texas on October 11, 1995. The purchase price was $300,000. In addition, a two-year non-competition agreement was acquired for $190,000. The intangible assets acquired are amortized using the straight line method over 2 to 40 years. These assets together with $10,000 in working capital were funded with bank financing. Prior to the acquisition of KLTP-FM, KGBT-FM, KRTX-AM, KLTN-FM and KAMA-AM, the Company operated the stations under time brokerage agreements. The time brokerage agreements provided that the Company retain all revenues associated with advertising time and pay certain operating expenses. These agreements were effective December 15, 1995, March 31, 1996, December 1, 1994, April 27, 1992, and June 23, 1995, for KLTP-FM, KGBT-FM, KRTX-AM, KLTN-FM and KAMA-AM, respectively. Time brokerage agreement fees related to these stations for the years ended December 31, 1996 and 1995, are $141,000 and $91,463, respectively. Unaudited consolidated condensed pro forma results of operations as if all acquisitions occurred as of the beginning of the periods presented are as follows: 1996 1995 ----------- ----------- Net revenues $49,588,509 $45,694,494 Operating loss (1,988,250) (1,816,942) Net loss (7,596,682) (8,686,112) Net loss per common share (11.10) (12.78) 4. ACCRUED EXPENSES The following is a summary of accrued expenses: DECEMBER 31, --------------------------- 1996 1995 ----------- ----------- Commissions payable $ 2,042,254 $ 1,431,253 Accrued interest 1,851,673 796,933 Other accrued expenses 729,054 515,088 ----------- ----------- Total accrued expenses $ 4,622,981 $ 2,743,274 ----------- ----------- ----------- ----------- 14 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 5. LONG-TERM OBLIGATIONS The following is a summary of long-term obligations outstanding as of December 31, 1996 and 1995: 1996 1995 ----------- ----------- Bank loans, aggregate commitment of $50 million, interest rate based on LIBOR and prime plus an applicable margin as determined by the Company's total leverage ratio; interest rates ranging from 7.07% to 7.17% at December 31, 1996; interest rates ranged from 6.82% to 7.74% during 1996; payable through 2001; collateralized by all of the Company's assets (including the stock of TLC, WRI, and TCTV) excluding FCC licenses; the Company is required to comply with certain financial and nonfinancial covenants $30,498,216 $25,348,217 Clear Channel Communications, Inc. loan; interest ranging from 9% to 13%; interest rate of 10% at December 31, 1996; interest rates ranged from 9% to 10% during 1996; principal and accrued interest is payable on January 1, 1998; collateralized by all the issued and outstanding common stock of TLCI; TACI is required to comply with certain financial and nonfinancial covenants 40,000,000 -- Various loans, interest ranging from 11.75% to 12.38%, payable through 1997 16,249 38,456 Obligations under capital leases, implicit interest rate of 12.2%, payable through 1997 17,246 42,644 ----------- ----------- 70,531,711 25,429,317 Less current portion 33,495 47,611 ----------- ----------- $70,498,216 $25,381,706 ----------- ----------- ----------- ----------- 15 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Maturities of long-term obligations for the five years subsequent to December 31, 1996 and thereafter are as follows: Year AMOUNT ---- ------ 1997 $ 33,495 1998 40,000,000 1999 9,248,216 2000 13,750,000 2001 7,500,000 As of December 31, 1996, the Company was not in compliance with certain financial covenants of its bank loans. The bank loans were retired on February 14, 1997 with the proceeds of long-term financing from the Heftel merger. On August 9, 1994, the Company refinanced its bank loan. An extraordinary loss of $605,486 has been recognized due to the write-off of the unamortized deferred financing costs of the loan. To reduce the impact of changes in interest rates on its floating rate long-term bank loan, the Company entered into an interest rate swap agreement. As of December 31, 1994, $10,370,000 of the notional amount of the agreement was outstanding. The outstanding swap agreement matured in December 1995 and effectively fixed the interest rate on the corresponding amount of the loan at 7.31%, which was based on the 90 day LIBOR plus an incremental rate. Amounts receivable or payable under the agreement were recognized currently in interest expense. Interest expense (income) recognized under the agreement totaled $0, ($57,241) and $140,767 for the years ended December 31, 1996, 1995 and 1994, respectively. Interest paid for the years ended December 31, 1996, 1995 and 1994 amounted to $3,027,293, $2,091,919 and $2,221,643, respectively. 6. STOCKHOLDERS' EQUITY The senior preferred stock has a preference as to dividends and assets in the event of a partial or complete liquidation. Dividends are cumulative and accrue at 14% per annum, compounded annually, on the sum of the par value of the stock and all accrued and unpaid dividends. The senior preferred stockholder has consented to the cessation of dividends accruing after December 31, 1995. As of December 31, 1995, accrued and unpaid dividends were $378,749. In the event of a partial or complete liquidation, the senior preferred stock is entitled to receive the sum of the par value of the stock and all accrued and unpaid dividends ("Redemption Price") before payment of the preferential amount owed with respect to the junior preferred stock. 16 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The senior preferred stock has no voting rights; however, the holder of the senior preferred stock is entitled to elect one director of the Company. Each director is entitled to one vote, but if certain covenants to the investment agreement with the preferred shareholders are not met, the senior preferred stock director is entitled to 100 votes, whereas other directors will have one vote. The preferred stock director in this situation will have the power to cause the Company to sell certain assets to satisfy first the bank obligation in full and then redeem the senior preferred stock and repurchase the stock warrant discussed in the following paragraph. The senior preferred stockholder was issued a warrant to purchase common stock for $38,000 on or before June 15, 2003. The stock warrant is for the purchase of common stock in an amount up to 4% of the Company's total common stock outstanding at the time of exercise of the warrant, computed on a fully diluted basis. The difference between the carrying value of the warrant and its estimated fair value, as determined by management on an annual basis, is being accreted over the term of the warrant through charges to retained earnings. The Company also had the option to redeem all the senior preferred stock at the Redemption Price and repurchase the stock warrant after December 31, 1996. The senior preferred stockholder has consented to redeem the senior preferred stock and exercise the stock warrant at the date of the merger (February 14, 1997). At the date of the merger, the senior preferred stock was redeemed for $3,378,749 ($1,000 per share in cash plus accrued and unpaid dividends through December 31, 1995) and the stock warrant was converted into 180,000 shares of Heftel Class A common stock. The junior preferred stock has a preference as to dividends and assets in the event of a partial or complete liquidation. The payment of dividends on this class of stock is restricted by the bank credit agreement. In the event of a partial or complete liquidation, holders of the junior preferred stock are entitled to receive $100 per share after full payment of amounts owed to holders of the senior preferred stock and before any distribution on the common stock. The holders of the junior preferred stock have the right to convert their shares into common stock. The conversion rate for each share of junior preferred stock is the quotient of $100 divided by the fair market value of one share of common stock on the date of conversion. The number of shares to be converted is multiplied by such quotient. The holders of the junior preferred stock have voting rights equal in the aggregate to 45% of the voting rights of all outstanding voting shares. The holders of the common stock have voting rights equal to the remaining 55%. 17 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) As of December 31, 1996, treasury stock is comprised of 59,535 shares of common stock at an aggregate cost of $1,289,835 and 1,057 shares of junior preferred stock at an aggregate cost of $105,700. Except for the purchase of 147 shares of junior preferred stock at a cost of $14,700 in 1995, all other treasury stock transactions during the three years ended December 31, 1996 represent purchases and sales of common stock. 7. INCOME TAXES The provision (benefit) for income taxes on income (loss) before extraordinary item for the years ended December 31, 1996, 1995 and 1994 consists of the following: 1996 1995 1994 ---------- ---------- ------------ Current: Federal $(835,319) $2,532,002 $(2,481,971) State 134,810 356,741 83,138 --------- ---------- ----------- Total current tax expense (benefit) (700,509) 2,888,743 (2,398,833) --------- ---------- ----------- Deferred: Federal 437,739 (219,425) 3,392,171 State 18,239 110,366 299,309 --------- ---------- ----------- Total deferred tax expense (benefit) 455,978 (109,059) 3,691,480 --------- ---------- ----------- Total income tax expense (benefit) $(244,531) $2,779,684 $ 1,292,647 --------- ---------- ----------- --------- ---------- ----------- In 1994, an income tax benefit of $224,030 was allocated to the extraordinary charge. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1996 and 1995 are as follows: 1996 1995 ----------- ----------- Deferred tax assets: Intangible assets $ 520,280 $ 444,800 Allowance for doubtful accounts receivable 258,131 290,540 Other 78,565 68,000 ----------- ----------- Total deferred tax assets 856,976 803,340 ----------- ----------- Deferred tax liabilities: Broadcast licenses (4,745,344) (4,356,131) Other (150,031) (29,630) ----------- ----------- Total deferred tax liabilities (4,895,375) (4,385,761) ----------- ----------- Net deferred tax liabilities $(4,038,399) $(3,582,421) ----------- ----------- ----------- ----------- 18 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The reconciliation of income tax expense computed at the federal statutory tax rate to the Company's actual income tax expense (benefit) for the years ended December 31, 1996, 1995 and 1994 is as follows: 1996 1995 1994 --------- ---------- ---------- Federal income tax at statutory rate $(556,150) $1,599,020 $1,358,122 State income taxes, net of federal benefit 88,975 308,291 252,415 Nondeductible intangible asset amortization 58,415 140,927 33,150 Use of net operating loss carryforwards -- -- (288,600) Other 164,229 731,446 (62,440) --------- ---------- ---------- $(244,531) $2,779,684 $1,292,647 --------- ---------- ---------- --------- ---------- ---------- Income taxes paid for the years ended December 31, 1996, 1995 and 1994 amounted to $1,114,898, $2,908,100 and $21,958, respectively. 8. COMMITMENTS AND CONTINGENCIES The Company is the lessor of office space, transmitter towers, and parcels of land. Included in buildings and improvements as of December 31, 1996 and 1995 is $2,005,433 of assets leased to others under operating leases and the related accumulated depreciation of $720,767 and $623,711, respectively. Included in land as of December 31, 1996 and 1995 is $52,396 representing a parcel of land which is leased to another party under an operating lease. The Company leases office space and other property. Terms of the leases vary from three to twenty years. Certain leases have contingent rent clauses whereby rent is increased based on a change in the Consumer Price Index. Various leases have renewal options of five to ten years. Future minimum rental payments under noncancellable operating leases in effect at December 31, 1996 are summarized as follows: Year Amount ---- ---------- 1997 $1,477,604 1998 1,443,054 1999 1,327,886 2000 1,180,772 2001 1,065,077 Thereafter 3,169,027 Rent expense for the years ended December 31, 1996, 1995, and 1994 was $1,208,674, $1,075,400 and $936,128, respectively. 19 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In December 1994, the Company entered into a time brokerage agreement to provide programming to, and sell advertising time on radio station KLTO-FM (formerly KMPQ-FM) in Rosenberg-Richmond (Houston), Texas, and acquired an option to purchase the station. The time brokerage agreement provides that the Company will retain all revenues associated with advertising time and pay certain operating expenses effective December 1, 1994. The KLTO-FM time brokerage agreement provides for payments of $12,500 a month to the licensee until the earlier of November 30, 1997 or the Company exercises its option to purchase the station. Time brokerage agreement fees for the years ended December 31, 1996, 1995 and 1994 were $144,308, $155,000 and $12,500. If the grantor obtains an upgrade of the station's broadcast authorization status and relocates the transmitter site, the purchase price of the station's assets would be $14,000,000. If this upgrade is not accomplished the purchase price is the fair market value as defined in the agreement. Spanish Radio Network ("SRN"), a partnership in which the Company was previously a partner, was examined by the Internal Revenue Service ("IRS") for the tax years ended December 31, 1992 and 1993. SRN owned and operated radio stations. The IRS disagrees with SRN's radio station purchase price allocations and has allocated a portion of the purchase price of certain amortizable intangible assets to nonamortizable going concern value. The tax effect of these adjustments to the Company, before interest, is approximately $326,000. The Company intends to protest the adjustments through the appeals process of the IRS. The IRS audited the Company's federal income tax returns for the tax years ended February 29, 1984, and February 28, 1985, 1986 and 1987 and the Company petitioned the United States Tax Court related to certain proposed adjustments. The Company reached an agreement with the IRS on June 16, 1994, and all issues were settled. At December 31, 1994, the Company accrued a tax refund receivable of approximately $5,794,000 for the aforementioned tax years which includes net interest income of approximately $2,671,000. The refund was received on April 24, 1995. The Company is subject to other legal proceedings and claims which have arisen in the ordinary course of its business and have not been fully adjudicated. These actions, when ultimately concluded, will not, in the opinion of management, have a material adverse effect upon the financial position or results of operations of the Company. 9. SUBSEQUENT EVENTS On January 1, 1997, TCTV bought 100,000 shares of 10% Redeemable Convertible Preferred Stock, $0.01 par value per share, of TC Network, Inc. ("TCNI") and sold TCNI the tangible and intangible assets ("Program Assets") associated with the television program known as Tejano Country. The TCNI preferred stock is cumulative and nonvoting and was purchased for $275,000. The sales price for the Program Assets is the right to receive 1% of the annual gross revenues of TCNI for each year beginning with the year ending December 31, 1998. 20 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company closed on the purchase of the assets of KLTO-FM in Rosenberg- Richmond (Houston), Texas on September 22, 1997. The Company paid $3,585,000 to acquire these assets. Working capital was used to fund this acquisition. The final purchase price is contingent on an upgrade of the station's broadcast authorization from the Federal Communications Commission ("FCC") prior to April 1, 2004. Depending on whether the signal is fully or partially upgraded, the purchase price could increase to $14 million. 21 EX-99.2 3 UNAUDITED PF CONDENSED CONSOLIDATED STMTS. OF OPS. HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS The following unaudited pro forma condensed consolidated statements of operations of Heftel Broadcasting Corporation (the "Company") present the results of operations for the year ended December 31, 1996 and the nine months ended September 30, 1997 as if the following transactions (collectively, the "Transactions"), as defined herein, had been completed on January 1, 1996: (i) the Tender Offer; (ii) the Tichenor Acquisitions; and (iii) the Tichenor Merger. The pro forma condensed consolidated statements of operations give effect to various acquisitions completed by Tichenor (the "Tichenor Acquisitions") during the periods presented, as more fully described in the notes hereto. On February 14, 1997, the Company completed its acquisition of Tichenor Media System, Inc. ("Tichenor"), a national radio broadcasting company engaged in the business of acquiring, developing and programming Spanish language radio stations. The acquisition was effected through the merger of a wholly-owned subsidiary of the Company with and into Tichenor (the "Tichenor Merger"). Under the terms of the Amended and Restated Agreement and Plan of Merger by and among Clear Channel Communications, Inc. ("Clear Channel") and Tichenor dated October 10, 1996 (which agreement was assigned to the Company by Clear Channel), Tichenor shareholders received (a) 7.8261 shares of Heftel Class A Common Stock, par value $.001 per share ("Heftel Common Stock"), in exchange for each share of Tichenor Common Stock and (b) 4.3478 shares of Heftel Common Stock in exchange for each share of Tichenor Junior Preferred Stock. In addition, the holders of Tichenor 14% Senior Redeemable Cumulative Preferred Stock ("Tichenor Senior Preferred") received $1,000 per share plus accrued and unpaid dividends through December 31, 1995 for each share of Tichenor Senior Preferred. The transaction value of the Tichenor Merger was approximately $256.5 million which is the sum of (a) the fair value of the Tichenor Common and Junior Preferred Stock (the "Tichenor Stock," $181.1 million), (b) the outstanding Tichenor Senior Preferred ($3.4 million), and (c) Tichenor's long-term debt ($72.0 million). The fair value of the Tichenor Stock is the sum of (a) the issuance of 5,689,878 shares of Heftel Common Stock with an aggregate value of $180.6 million based on a closing price of $31.75 per share on July 9, 1996 (the day the Tichenor Merger was announced), and (b) the direct costs related to the Tichenor Merger. The Tichenor Merger is accounted for using the purchase method of accounting. The purchase price is allocated primarily to FCC licenses and goodwill and amortized over 40 years. The pro forma condensed consolidated statements of operations do not purport to present the actual results of operations of the Company had the Transactions actually occurred on the date specified, nor is it necessarily indicative of the results of operations that may be achieved in the future. 22 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (1) (Dollars in thousands, except per share data) ---------------- Company Tender Company as reported (2) Offer (5) as adjusted --------------- --------- ----------- Net broadcasting revenues $ 72,583 $ - $ 72,583 -------- ------- -------- Operating expenses: Station operating expenses 48,285 - 48,285 Corporate expenses 4,528 (2,500)(6) 2,028 Depreciation and amortization 6,001 817 (7) 6,818 -------- ------- -------- Total operating expenses 58,814 (1,683) 57,131 -------- ------- -------- Operating income (loss) 13,769 1,683 15,452 -------- ------- -------- Other expense (income): Interest expense, net 11,524 - 11,524 Restructuring charges 29,011 - 29,011 Other expense (income), net 1,529 - 1,529 -------- ------- -------- Total other expense 42,064 - 42,064 -------- ------- -------- Income (loss) before provision for income taxes (28,295) 1,683 (26,612) Income tax expense (benefit) 100 - 100 -------- ------- -------- Income (loss) from continuing operations $(28,395) $ 1,683 $(26,712) -------- ------- -------- -------- ------- -------- Income (loss) from continuing operations per common and common equivalent share $ (1.35) $ (1.27) -------- -------- -------- -------- Weighted average shares outstanding 20,998(4) 20,998 -------- -------- -------- -------- Other Operating Data: Broadcast cash flow $ 24,298 $ 24,298 -------- -------- -------- --------
23 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (1) (Dollars in thousands, except per share data) ---------------- Tichenor Tichenor Tichenor pro forma Tichenor as reported acquisitions (10) adjustments as adjusted ----------- ----------------- ----------- ----------- Net broadcasting revenues $47,087 $ 2,501 $ - $49,588 ------- ------- ------- ------- Operating expenses: Station operating expenses 35,565 3,005 (285)(11) 38,285 Corporate expenses 5,424 256 - 5,680 Depreciation and amortization 3,539 361 669 (12) 4,569 ------- ------- ------- ------- Total operating expenses 44,528 3,622 384 48,534 ------- ------- ------- ------- Operating income (loss) 2,559 (1,121) (384) 1,054 ------- ------- ------- ------- Other expense (income): Interest expense, net 4,135 1,631 1,278 (13) 7,044 Restructuring charges - - - - Other expense (income), net 60 (8) - 52 ------- ------- ------- ------- Total other expense 4,195 1,623 1,278 7,096 ------- ------- ------- ------- Income (loss) before provision for income taxes (1,636) (2,744) (1,662) (6,042) Income tax expense (benefit) (245) - (1,762)(15) (2,007) ------- ------- ------- ------- Income (loss) from continuing operations $(1,391) $(2,744) $ 100 $(4,035) ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) from continuing operations per common and common equivalent share $ (1.24)(9) $ (3.18) ------- ------- ------- ------- Weighted average shares outstanding 1,368 1,368 ------- ------- ------- ------- Other Operating Data: Broadcast cash flow $11,522 $11,303 ------- ------- ------- -------
24 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (1) (Dollars in thousands, except per share data) ---------------- Tichenor Company Merger pro forma pro forma condensed adjustments consolidated ------------- ------------ Net broadcasting revenues $ - $122,171 ------- -------- Operating expenses: Station operating expenses - 86,570 Corporate expenses - 7,708 Depreciation and amortization 5,693 (16) 17,080 ------- -------- Total operating expenses 5,693 111,358 ------- -------- Operating income (loss) (5,693) 10,813 ------- -------- Other expense (income): Interest expense, net - 18,568 Restructuring charges - 29,011 Other expense (income), net - 1,581 ------- -------- Total other expense - 49,160 ------- -------- Income (loss) before provision for income taxes (5,693) (38,347) Income tax expense (benefit) (557)(17) (2,464) ------- -------- Income (loss) from continuing operations $(5,136) $(35,883) ------- -------- ------- -------- Income (loss) from continuing operations per common and common equivalent share $ (1.11) -------- -------- Weighted average shares outstanding 32,377 -------- -------- Other Operating Data: Broadcast cash flow $ 35,601 -------- --------
25 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1997 (1) (Dollars in thousands, except per share data) ------------ Tichenor Company Tichenor Merger pro forma Company Tichenor pro forma pro forma condensed as reported(3) as reported(8) adjustments adjustments consolidated -------------- -------------- ----------- ------------ ------------ Net broadcasting revenues $ 98,207 $ 4,582 $ - $ - $ 102,789 --------- -------- -------- -------- ---------- Operating expenses: Station operating expenses 60,796 4,772 (94)(11) - 65,474 Corporate expenses 3,505 571 - - 4,076 Depreciation and amortization 10,675 550 83 (12) 712 (16) 12,020 --------- -------- -------- -------- ---------- Total operating expenses 74,976 5,893 (11) 712 81,570 --------- -------- -------- -------- ---------- Operating income (loss) 23,231 (1,311) 11 (712) 21,219 --------- -------- -------- -------- ---------- Other expense (income): Interest expense, net 3,099 822 161 (13) - 4,082 Other expense (income), net 319 831 (1,100)(14) - 50 --------- -------- -------- -------- ---------- Total other expense (income) 3,418 1,653 (939) - 4,132 --------- -------- -------- -------- ---------- Income (loss) before provision for income taxes 19,813 (2,964) 950 (712) 17,087 Income tax expense (benefit) 7,925 (1,141) 380 (15) 342 (17) 7,506 --------- -------- -------- -------- ---------- Income (loss) from continuing operations $ 11,888 $ (1,823) $ 570 $ (1,054) $ 9,581 --------- -------- -------- -------- ---------- --------- -------- -------- -------- ---------- Income (loss) from continuing operations per common and common equivalent share $ 0.29 $ (2.67) $ 0.22 --------- -------- ---------- --------- -------- ---------- Weighted average shares outstanding 40,870 (4) 684 42,723 --------- -------- ---------- --------- -------- ---------- Other Operating Data: Broadcast cash flow (used) $ 37,411 $ (190) $ 37,315 --------- -------- ---------- --------- -------- ----------
26 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations (1) The Company is the acquiring entity for accounting purposes in the Tichenor Merger because of: (i) Clear Channel's relationship with the Company and Tichenor both before and after the consummation of the Tichenor Merger, (ii) Clear Channel's ability in the future to convert its Nonvoting Common Stock into Class A Common Stock and comply with the FCC's cross-interest policy without substantial economic hardship, and (iii) the Company's relative size as compared to Tichenor. (2) Represents the historical operating results of the Company for the twelve months ended December 31, 1996 obtained by adding operating results for the three months ended December 31, 1996 to operating results for the year ended September 30, 1996 and subtracting the operating results for the three months ended December 31, 1995. (3) Represents the historical operating results of the Company for the nine months ended September 30, 1997. The operating results of the Company include the operating results of Tichenor from the merger date (February 14, 1997) through September 30, 1997. (4) Reflects the two-for-one stock split which was paid on December 1, 1997 in the form of a stock dividend of one share of common stock for each issued and outstanding share of common stock. The income (loss) per common and common equivalent share and other per share information has been restated to reflect this two-for-one stock split. (5) Clear Channel is a diversified broadcasting company which, including pending acquisitions, owns and/or programs 177 radio stations and 18 television stations in 39 markets in the United States. On August 5, 1996, Clear Channel completed a tender offer and a related private purchase of stock from existing stockholders of the Company (collectively, the "Tender Offer"). As a result of the Tender Offer, Clear Channel owned approximately 63% of the Class A Common Stock of the Company. Clear Channel had to dispose of certain shares and convert its remaining shares to Class B Non-Voting Common Stock at the date of the Tichenor Merger in order to comply with the cross-interest policy of the FCC. Currently, Clear Channel owns 32% of the outstanding common stock of the Company. (6) Reflects the elimination of executive compensation and related benefits of approximately $2,500,000 for the year ended December 31, 1996, relating to the termination of contractual employment agreements with two former officers of the Company terminated in connection with the consummation of the Tender Offer. The two former officers were replaced by existing executive officers of Tichenor. The historical compensation of such officers of Tichenor is included in corporate expense in Tichenor's financial statements under the column "Tichenor as reported." (7) Reflects the amortization over five years of two non-compete agreements totaling $7,000,000 paid to two former officers of the Company in connection with the termination of their employment. (8) Represents the historical operating results of Tichenor for the period January 1 to February 13, 1997. 27 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations (9) Net loss per common and common equivalent share for Tichenor is calculated by increasing the net loss by the accretion of stock warrant totaling $311,480 for the year ended December 31, 1996 and dividing such result by the weighted average shares outstanding for the respective period. As a result of the Tichenor Merger, the stock warrant was retired and the related accretion requirements were eliminated. (10) Represents the historical operating results of the Tichenor Acquisitions for the period of January 1, 1996 to the respective dates on which Tichenor began operating the acquired stations as a result of the purchase of station assets or entering into time brokerage agreements as follows: KSOL-FM KYLZ-FM ----------------------------------------- KGBT-FM Six Period Three months July 1, months ended ended 1996 to March 31, June 30, August 15, 1996 1996 1996 Subtotal Total ------------ ------------ ---------- ------------ ------------ Revenues $ 66,902 $ 1,946,686 $ 487,683 $ 2,434,369 $ 2,501,271 ------------ ------------ ---------- ------------ ------------ Station operating expenses excluding depreciation and amortization 59,710 2,368,525 576,708 2,945,233 3,004,943 Corporate expense - 206,986 49,247 256,233 256,233 Depreciation and amortization 2,800 287,805 70,069 357,874 360,674 Interest expense 2,040 1,296,502 333,005 1,629,507 1,631,547 Other expense - (8,787) 974 (7,813) (7,813) ------------ ------------ ---------- ------------ ------------ Total expense 64,550 4,151,031 1,030,003 5,181,034 5,245,584 ------------ ------------ ---------- ------------ ------------ Net loss $ 2,352 $ (2,204,345) $ (542,320) $ (2,746,665) $ (2,744,313) ------------ ------------ ---------- ------------ ------------ ------------ ------------ ---------- ------------ ------------
The historical operating results of radio stations KRTX-FM, KLTP-FM and KLTO-FM are not included because KRTX-FM did not operate prior to its acquisition by Tichenor and KLTP-FM and KLTO-FM operated under time brokerage agreements for the entire year and their results of operations are included in the column "Tichenor as reported." (11) Represents the reversal of time brokerage agreement fees which were recognized from the beginning of the accounting period through the date the assets were purchased. (12) Represents incremental depreciation and amortization expense resulting from the Tichenor Acquisitions from the beginning of the accounting period through the respective dates of purchase as follows: For the year ended December 31, 1996: KSOL-FM/ KRTX-FM KLTP-FM KGBT-FM KZOL-FM KLTO-FM TOTAL -------- -------- -------- --------- -------- --------- Depreciation $ - $ 12,393 $ 23,160 $ 144,814 $ 23,590 $ 203,957 Amortization 14,583 9,701 144,397 570,122 86,676 825,479 Less historical - - (2,800) (357,874) - (360,674) -------- -------- -------- --------- -------- --------- Total $ 14,583 $ 22,094 $ 164,757 $ 357,062 $110,266 $ 668,762 -------- -------- -------- --------- -------- --------- -------- -------- -------- --------- -------- ---------
28 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations For the nine months ended September 30, 1997: KLTO-FM ------- Depreciation $17,692 Amortization 65,007 Less historical - ------- Total $82,699 ------- ------- The estimated weighted average useful lives of fixed assets, FCC licenses, going concern and other intangibles are assumed to be five, forty, fifteen and five years, respectively. (13) Represents incremental interest expense for the year ended December 31, 1996 and the nine months ended September 30, 1997 associated with the Tichenor Acquisitions as if the radio stations were acquired on January 1, 1996. The purchases of KRTX-FM, KLTP-FM, and KGBT-FM were funded with cash from operations and borrowings under Tichenor's credit facility. The weighted average interest rate during the respective periods is 8% based on historical borrowing costs. The purchase of KSOL-FM/KZOL-FM was funded with a note payable issued to Clear Channel with a weighted average interest rate of 10%. The interest cost associated with the portion of the purchase price paid with cash from operations is computed with a weighted average interest rate of 6%. This rate is based on historical yields of short-term investments. For the year ended December 31, 1996: Less KSOL-FM - historical KRTX-FM KLTP-FM KGBT-FM KZOL-FM KLTO-FM balances Total --------- -------- -------- ---------- --------- ----------- ---------- Interest expense, net $ 67,500 $ 38,500 $ 88,667 $2,500,000 $ 215,100 $(1,631,547) $1,278,220 --------- -------- -------- ---------- --------- ----------- ---------- --------- -------- -------- ---------- --------- ----------- ----------
For the nine months ended September 30, 1997: KLTO-FM --------- Interest expense, net $ 161,325 --------- --------- (14) Reflects the elimination of a media broker commission of $1,100,000 paid by Tichenor related to the Tichenor Merger. (15) Represents the incremental income tax effect of the pro forma adjustments at an estimated effective income tax rate of 40%. (16) Reflects incremental amortization expense of approximately $5,692,869 and $711,609 for the year ended December 31, 1996 and the period January 1, 1997 to February 14, 1997 (merger date), respectively. This incremental amortization expense is the result of additional intangible assets recorded as a result of the Tichenor Merger which are being amortized over forty years. (17) Reflects the income tax expense (benefit) assuming the utilization of the Company's net operating losses to offset Tichenor's deferred tax liability. 29 -----END PRIVACY-ENHANCED MESSAGE-----