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