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