ITEM 1. BUSINESS
General
Hispanic Broadcasting Corporation (the "Company") is the largest Spanish-language radio broadcasting company in the United States and currently owns and programs 47 radio stations in 13 markets. Our stations are located in 12 of the 15 largest Hispanic markets in the United States, including Los Angeles, New York, Miami, San Francisco/San Jose, Chicago, Houston, San Antonio, Dallas/Fort Worth, McAllen/Brownsville/Harlingen, San Diego, Phoenix and El Paso. In addition, we also operate the HBC Radio Network, which is one of the largest Spanish-language radio broadcast networks in the United States in terms of audience delivery and HBCi which operates the Company's radio station Internet websites.
Our strategy is to own and program top performing Spanish-language radio stations, principally in the 15 largest Spanish-language radio markets in the United States. Based on the results of the Fall 2000 Arbitron Ratings Book, we operated the leading Spanish-language radio station in the adult 25-54 age group, as measured by audience share, in 10 of the 13 markets where we operated during the fall rating period. Our current strategy is to acquire or develop additional Spanish-language radio stations in the leading Hispanic markets.
We frequently evaluate strategic opportunities, both within and outside our existing line of business, that closely relate to serving the Hispanic market, including opportunities outside of the United States. We expect to pursue additional acquisitions from time to time and may decide to dispose of certain businesses. Such acquisitions or dispositions could be material.
The following table sets forth certain information regarding the radio stations that we owned and programmed as of December 31, 2000:
No. of Stations Ranking of Market by ----------------- Hispanic Population (a) Market AM FM - ----------------------- --------------------------------------------------------
1 Los Angeles 1 4 2 New York 1 1 3 Miami 2 2 4 San Francisco/San Jose 0 2 5 Chicago 2 1 6 Houston 2 5 7 San Antonio 2 4 8 Dallas/Fort Worth 2 5 9 McAllen/Brownsville/Harlingen 1 2 10 San Diego 0 2 11 Phoenix 0 1 13 El Paso 2 1 26 Las Vegas 1 1 ----------------- Total 16 31 =================
(a) Ranking of the principal radio market served by the Company's station(s) among all U.S. radio markets by Hispanic population as reported by Strategy Research Corporation - 2000 U.S. Hispanic Market Study.
The Company believes Spanish-language radio broadcasting has significant growth potential for the following reasons:
>> The U.S. Hispanic population is growing rapidly. The U.S. Hispanic population grew from an estimated 27.3 million (approximately 10.4% of the total United States population) at the end of 1995 to an estimated 35.3 million (approximately 12.5% of the total United States population) by the end of year 2000. The growth rate is approximately four times the growth rate for the total United States population during the same period.
>> The U.S. Hispanic population is concentrated in 15 markets. Approximately 67.0%, or approximately 23.7 million, of all U.S. Hispanics live in these markets. The U.S. Hispanic population in the top fifteen markets, as a percentage of the total population in such markets, has increased from approximately 17.0% in 1980 to approximately 27.3% in 2000. The percentage concentration of Hispanics in the top fifteen markets is more than twice the percentage of Hispanics in the U.S. as a whole. Since 1980, the Hispanic population growth has represented approximately 52.2% of the total population growth in the top fifteen Hispanic markets.
>> U.S. Hispanics represent an attractive consumer market. Advertisers target Hispanics because, on average, they are younger, their households are larger in size and they routinely spend a greater percentage of their income on many different kinds of goods and services than do non-Hispanic households. The Company believes that, as a result, advertisers have substantially increased their use of Spanish media. Total Spanish-language advertising revenues have increased from approximately $1.1 billion in 1995 to an estimated $2.4 billion in 2000. This represents a compound annual growth rate of approximately 17.5%, which is substantially greater than the estimated growth rate for total advertising for the comparable period.
The Company was incorporated under the laws of the State of Delaware in 1992. The Company's principal executive offices are located at 3102 Oak Lawn Avenue, Suite 215, Dallas, Texas 75219 and the telephone number is (214) 525-7700.
On May 25, 2000, the Company began trading its stock on the New York Stock Exchange (the "NYSE"). The Company's shares were previously traded on the Nasdaq National Market under the ticker symbol "HBCCA". Upon listing with the NYSE, the ticker symbol for the Company's Class A Common Stock changed to "HSP". The change in the exchange on which the Company's shares are traded did not affect the validity or transferability of its outstanding securities or affect its capital or corporate structure and its stockholders were not required to exchange any certificates representing any of its securities held by them.
Spanish-Language Radio Industry
Due to differences in origin, Hispanics are not a homogeneous group. The music, culture, customs and Spanish dialects vary from one radio market to another. Consequently, the Company programs its stations in a manner responsive to the local preferences of the target demographic audience in each of the markets it serves. A well-researched mix of Spanish-language music and on-air programming at an individual station can attract a wide audience targeted by advertisers. Programming is continuously monitored to maintain its quality and relevance to the target audience. Most music formats are primarily variations of Regional Mexican, Tropical, Tejano and Contemporary music styles. The local program director selects music from the various music styles that best reflect the music preferences of the local
Hispanic audiences. A brief description of the Company's programming follows:
Regional Mexican. Regional Mexican consists of various types of music played in different regions of Mexico. Ranchera music, originating in Jalisco, Mexico, is a traditional folkloric music commonly referred to as Mariachi music. Mariachi music features acoustical instruments and is considered the music indigenous to Mexicans who have lived in the country towns. Nortena means northern, and is representative of Northern Mexico. Featuring an accordion, Nortena has a Polka sound with a distinct Mexican flavor. Banda is a regional music from the state of Sinaloa, Mexico and is popular in California. Banda resembles up-tempo marching band music with synthesizers. Regional Mexican also includes Cumbia music, which originates in Colombia.
Tropical. The Tropical format primarily consists of Salsa, Merengue, and Cumbia music. Salsa is dance music combining Latin Caribbean rhythms with jazz. Salsa symbolizes music from Puerto Rico, Cuba, and the Dominican Republic and is popular with Hispanics living in New York, Miami and Chicago. Merengue music is up-tempo dance music originating in the Dominican Republic.
Tejano. Tejano music originated in Texas and is based on Mexican themes but is indigenous to Texas. It is a combination of contemporary rock, Ranchera, and country music. The lyrics are primarily sung in Spanish. The on-air talent speak in Spanish and English.
Contemporary. The Contemporary format includes pop, Latin rock, and ballads. This format is similar to English adult contemporary and contemporary hit radio stations.
Full Service. The Full Service format includes all the traditional radio services: music, news, sports, traffic reports, special information programs and weather.
News/Talk. News includes local, national, international reports and weather, business, traffic and sports. Talk includes commentary, analysis, discussion, interviews, call-ins and information shows.
Spanish Oldies. The Spanish Oldies format includes songs of all styles which were hits in Mexico in the 1960s and 1970s.
Company's Stations
The following table sets forth information regarding the radio stations owned or programmed by the Company as of December 31, 2000:
(1) Actual city of license may differ from the metropolitan market served. (2) See "--Spanish-Language Radio Industry."
The following table sets forth selected information with regard to Company owned radio stations:
(1) An application for license renewal was granted by the Federal Communications Commission ("FCC") on October 20, 2000; however, the FCC's action is currently the subject of litigation before a Federal appellate court. Regulations permit continuing operation of the station during the litigation (2) KDOS(FM) has been constructed and a license application (currently pending) was timely filed with the FCC on April 19, 1999. (3) A renewal has been timely filed with the FCC and the station has authority for continuing operation.
Statistical information contained herein regarding the radio industry, population, consumer spending and advertising expenditures are taken from the 2000 U.S. Census, Strategy Research Corporation--2000 U.S. Hispanic Market Study, and Hispanic Business Magazine (December 1995 and 2001). The Company's station rankings were based upon the Arbitron Adults 18-34 and 25-54 category 2000 Fall Book.
Competition
Radio broadcasting is a highly competitive business. The Company's radio stations compete for audiences and advertising revenues with other radio stations of all formats, as well as with other media, such as newspapers, magazines, television, cable television, outdoor advertising and direct mail, within their respective markets. Audience ratings and market shares are subject to change and any adverse change in a particular market would have a material adverse effect on the revenues of stations located in that market. Future operations are further subject to many variables which could have an adverse effect upon the Company's financial performance. These variables include economic conditions, both general and relative to the broadcasting industry; shifts in population and other demographics; the level of competition for advertising dollars with other radio stations and other entertainment and communications media; fluctuations in operating costs; technological changes and innovations; changes in labor conditions; and changes in governmental regulations and policies and actions of federal regulatory bodies, including the FCC, the Federal Trade Commission ("FTC"), and the Antitrust Division of the Department of Justice (the "Antitrust Division"). Although the Company believes that each of its stations does or will be able to compete effectively in its respective market, there can be no assurance that any such station will be able to maintain or increase its current audience ratings and advertising revenues. Radio stations can quickly change formats. Any radio station could shift its format to duplicate the format of any of the Company's stations. If a station converted its programming to a format similar to that of a station owned by the Company, the ratings and broadcast cash flow of the Company's station could be adversely affected.
Regulation of the Company's Business
Existing Regulation and Legislation.
Radio broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act prohibits the operation of a radio broadcasting station except under a license issued by the FCC and empowers the FCC, among other things, to issue, renew, revoke and modify broadcasting licenses; assign frequency bands; determine stations' frequencies, locations and power; regulate the equipment used by stations; adopt other regulations to carry out the provisions of the Communications Act; impose penalties for violation of such regulations; and impose fees for processing applications and other administrative functions. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC.
The Telecommunications Act of 1996 (the "1996 Act") significantly changed both the broadcast ownership rules and the process for renewal of broadcast station licenses. The 1996 Act relaxed local radio ownership restrictions. The 1996 Act also established a "two-step" renewal process that limits the FCC's discretion to consider applications filed in competition with an incumbent's renewal application. This new regulatory flexibility has engendered aggressive local, regional, and/or national acquisition campaigns. Removal of previous station ownership limitations on leading incumbents (i.e., existing networks and major station groups) has increased sharply the competition for, and the prices of, attractive stations.
Multiple Ownership Restrictions.
The FCC has promulgated rules that, among other things, limit the ability of individuals and entities to own or have an official position or ownership interest above a certain level (an "attributable" interest, as defined more fully below) in broadcast stations, as well as other specified mass media entities.
The 1996 Act and the FCC's subsequently issued rule changes eliminated the national ownership restriction, allowing a single entity to own nationally any number of AM or FM broadcast stations. The 1996 Act and the FCC's rules also greatly eased local radio ownership restrictions. The maximum number of
radio stations in which a person or entity is allowed to have an attributable interest varies depending on the number of radio stations within a defined market. In markets with more than 45 stations, one company may own, operate or control eight stations, with no more than five in either service (AM or FM). In markets of 30 - 44 stations, one company may own seven stations, with no more than four in either service; in markets with 15 - 29 stations, one entity may own six stations, with no more than four in either service. In markets with 14 commercial stations or less, one company may own up to five stations or 50% of all of the stations, whichever is less, with no more than three in either service. It should be noted, however, that the Department of Justice has precluded certain entities from acquiring the maximum number of radio stations allowed in a market under the 1996 Act because of concerns that antitrust laws would be violated. Thus, it is possible that the Company would, in certain instances, be unable to acquire the maximum number of stations allowed in a market under the 1996 Act. The FCC placed limitations on time brokerage (local marketing) agreements ("LMA") through which the licensee of one radio station provides the programming for another licensee's station in the same market. Stations operating in the same service (e.g., where both stations are AM) and with substantial contour overlap are prohibited from simulcasting more than 25% of their programming. Moreover, in determining the number of stations that a single entity may control, an entity programming a station pursuant to a LMA is required, under certain circumstances, to count that station toward its maximum even though it does not own the station.
A number of cross-ownership rules pertain to licensees of television and radio stations. The federal communications laws limit the number of radio stations a company may own or control in markets where the company also owns or controls one or more television stations. The FCC currently permits a company to own or control more than one radio station in a market in which the company also owns or controls one or more television stations, depending on the number of independent voices existing in the market. The FCC has initiated a proceeding and sought public comment on whether it should relax its policy of granting waivers of the radio/newspaper cross-ownership restriction.
Expansion of the Company's broadcast operations in particular areas and nationwide will continue to be subject to the FCC's ownership rules and any further changes the FCC or Congress may adopt. Significantly, the 1996 Act requires the FCC to review its remaining ownership rules biennially -- as part of its regulatory reform obligations -- to determine whether its various rules are still necessary. In August 1999, the FCC announced the results of its first biennial review of its broadcast ownership rules (see discussion below). The Company cannot predict the impact of future announcements in the biennial review process or any other agency or legislative initiatives upon the FCC's broadcast rules.
Under the FCC's ownership rules, a direct or indirect purchaser of certain types of securities of the Company could violate FCC regulations if that purchaser owned or acquired an "attributable" or "meaningful" interest in other media properties in the same areas as stations owned by the Company or in a manner otherwise prohibited by the FCC. All officers and directors of a licensee, as well as general partners, limited partners who are not properly "insulated" from management activities, and stockholders who own five percent or more of the outstanding voting stock of a licensee (either directly or indirectly), are generally deemed to have an attributable interest in the license. Certain institutional investors who exert no control or influence over a licensee may own up to twenty percent of such outstanding voting stock without the interest being considered "attributable". In addition to the foregoing limitations, under the FCC's new "equity/debt plus" standard, if an investor's interest in a licensee corporation exceeds thirty-three percent of the aggregated debt and equity of the company (i.e., the "total asset value" of the company), the investor's interest is considered attributable if the investor is also either a major program supplier to the licensee or a same-market media entity. Insulated limited partnership interests (as to which the licensee certifies that the limited partners are not "materially involved" in the management and operation of the subject media property), and voting stock held by minority stockholders where there is a single majority stockholder, are (currently) generally not considered attributable interests. The FCC has eliminated its "cross-interest" policy which formerly precluded an individual or entity from having a "meaningful" (even though not attributable) interest in one media property and an attributable interest in certain other media properties in the same area.
License Grant and Renewal.
Under the 1996 Act, the statutory restriction on the length of broadcast licenses was amended, and the FCC has implemented an eight year license term provision for radio stations. The 1996 Act also requires renewal of a broadcast license if the FCC finds that (1) the station has served the public interest, convenience, and necessity; (2) there have been no serious violations of either the Communications Act or the FCC's rules and regulations by the licensee; and (3) there have been no other serious violations which taken together constitute a pattern of abuse. In making its determination, the FCC may still consider petitions to deny but cannot consider whether the public interest would be better served by a person other than the renewal applicant. Instead, competing applications for the same frequency may be accepted only after the FCC has denied an incumbent's application for renewal of license.
Although in the vast majority of cases broadcast licenses are granted by the FCC when petitions to deny are filed against them, there can be no assurance that any of the Company's stations' licenses will be renewed.
Alien Ownership Restrictions.
The Communications Act restricts the ability of foreign entities or individuals to own or hold certain interests in broadcast licenses. Foreign governments, representatives of foreign governments, non-U.S. citizens, representatives of non-U.S. citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-U.S. citizens, collectively, may directly or indirectly own or vote up to twenty percent of the capital stock of a licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by non-U.S. citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before a broadcast license may be granted to or held by any such corporation, and the FCC has made such an affirmative finding only in limited circumstances. The Company, which serves as a holding company for subsidiaries that serve as licensees for the stations, therefore may be restricted from having more than one-fourth of its stock owned or voted directly or indirectly by non-U.S. citizens, foreign governments, representatives of non-U.S. citizens or foreign governments, or foreign corporations.
Other Regulations Affecting Radio Broadcasting Stations.
The FCC has significantly reduced its past regulation of broadcast stations. There are, however, FCC rules and policies, and rules and policies of other federal agencies, that currently regulate matters such as political advertising practices, equal employment opportunities, application procedures and other areas affecting the business or operations of broadcast stations.
Antitrust Matters.
An important element of the Company's growth strategy involves the acquisition of additional radio stations, many of which are likely to require preacquisition antitrust review by the FTC and the Antitrust Division. Following passage of the 1996 Act, the Antitrust Division has become more aggressive in reviewing proposed acquisitions of radio stations and radio station networks, particularly in instances where the proposed acquiror already owns one or more radio station properties in a particular market and seeks to acquire another radio station in the same market. The Antitrust Division has, in some cases, obtained consent decrees requiring radio station divestitures in specific markets based on allegations that proposed acquisitions would lead to unacceptable concentration levels. There can be no assurance that the Antitrust Division or the FTC will not seek to bar the Company from acquiring additional radio stations in a market where the Company already owns stations.
The FCC has been increasingly aggressive in independently examining issues of market concentration when considering radio station acquisitions. The FCC has delayed its approval of several radio station purchases by various parties because of market concentration concerns. Moreover, the FCC has followed an informal policy of giving specific public notice of its intention to conduct additional ownership concentration analysis and soliciting public comment on the issue of concentration and its effect on competition and diversity with respect to certain applications for consent to radio station acquisitions.
Environmental Matters.
As the owner, lessee or operator of various real properties and facilities, the Company is subject to various federal, state and local environmental laws and regulations. Historically, compliance with such laws and regulations has not had a material adverse effect on the Company's business. There can be no assurance, however, that compliance with existing or new environmental laws or regulations will not require the Company to make significant expenditures in the future.
Recent Developments, Proposed Legislation and Regulation.
The FCC is considering ways to introduce new technologies to the radio broadcasting industry, including terrestrial delivery of digital audio broadcasting on both the AM and FM bands. In 1997, the FCC granted two licenses for national, satellite-delivered digital audio broadcasting services. These services will be capable of delivering multiple, high-quality channels of audio. The Company is unable to predict the effect any such new technology will have on the Company's financial condition or results of operations. In addition, cable television operators and direct satellite broadcast television companies market service commonly referred to as "cable radio" which provides their subscribers with several high-quality channels of music, news and other information. Technical considerations currently limit this technology to fixed locations.
Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation and ownership of the Company's broadcast properties. For example, the FCC has adopted new rules which, with limited exceptions, require the holder of an FCC construction permit to complete construction of new or modified facilities within three (3) years of grant. In addition to the changes and proposed changes noted above, such matters include, for example, the license renewal process, spectrum use fees, political advertising rates, potential restrictions on the advertising of certain products (liquor, beer and wine, for example) and the rules and policies to be applied in enforcing the FCC's equal employment opportunity regulations. Other matters that could affect the Company's broadcast properties include technological innovations and developments generally affecting competition in the mass communications industry. The 1996 Act also covers satellite and terrestrial delivery of digital audio radio service, and direct broadcast satellite systems. The foregoing does not purport to be a complete summary of all the provisions of the Communications Act, or the 1996 Act, nor of the regulations and policies of the FCC thereunder. Proposals for additional or revised regulations and requirements are pending before and are being considered by Congress and federal regulatory agencies from time to time. Also, various of the foregoing matters are now, or may become, the subject of court litigation, and the Company cannot predict the outcome of any such litigation or the impact on its broadcast business.
Risk Factors
Potential Risks to Investors Due to Our Concentration of Cash Flow from Los Angeles Stations.
Broadcast cash flow generated by the Company's Los Angeles stations accounted for approximately 44.0% of the Company's broadcast cash flow for the year ended December 31, 2000. Increased competition for advertising dollars with other radio stations and communications media in the Los Angeles metropolitan
area, both generally and relative to the broadcasting industry, increased competition from a new format competitor and other competitive and economic factors could cause a decline in revenue generated by the Company's Los Angeles stations. A significant decline in the revenue of the Los Angeles stations could have a material adverse effect on the Company's overall results of operations and broadcast cash flow.
Significant Control by the Tichenor Family May Offset Our Future Actions.
As of March 12, 2001, McHenry T. Tichenor, Jr., the Company's Chairman, President and Chief Executive Officer, and certain members of his family held voting control over approximately 16.5% of the shares of the Company's Class A Common Stock. Since these shares are subject to a voting agreement, the Tichenor family can exert significant influence over the election of the Company's board of directors and other management decisions. Such ownership and control by the Tichenor family could have the effect of delaying or preventing a change in control of the Company, thereby possibly having the effect of depriving stockholders of the opportunity to receive a premium for their shares. Such ownership and control could also have the effect of making the Company less attractive to a potential acquirer and could result in holders of Class A Common Stock receiving less consideration upon a sale of their shares than might otherwise be available in the event of a takeover attempt.
Potential Risks to Investors Due to Our Relationship with Clear Channel.
As of March 15, 2001, Clear Channel Communications, Inc. ("Clear Channel") owned no shares of Class A Common Stock and thus is not entitled to vote in the election of the Company's directors. However, Clear Channel does own all of the outstanding shares of the Company's Class B Common Stock, which accounts for approximately a 26.0% interest in the Common Stock of the Company. As long as Clear Channel owns at least 20.0% of the Company's Common Stock, Clear Channel will have a class vote on certain matters, including the sale of all or substantially all of the assets of the Company, any merger or consolidation involving the Company where the stockholders of the Company immediately prior to the transaction would not own at least 50.0% of the capital stock of the surviving entity, any reclassification, capitalization, dissolution, liquidation or winding up of the Company, the issuance of any shares of Preferred Stock by the Company, the amendment of the Company's Restated Certificate of Incorporation in a manner that adversely affects the rights of the holders of Class B Common Stock, the declaration or payment of any non-cash dividends on the Company's Common Stock, or any amendment to the Company's Certificate of Incorporation concerning the Company's capital stock. Furthermore, shares of Class B Common Stock are convertible into shares of Class A Common Stock, at the holder's option, subject to any necessary governmental consents, including the consent of the FCC. Because of the FCC's multiple ownership rules, which limit the number of radio stations that a company may own or have an attributable interest in, in a single market, Clear Channel may not presently convert its shares of Class B Common Stock into shares of Class A Common Stock if such conversion would create an attributable interest without first obtaining the consent of the FCC. The provisions of the Class B Common Stock could have the effect of delaying or preventing a change in control of the Company, thereby possibly having the effect of depriving stockholders of the opportunity to receive a premium for their shares. Such provisions could also have the effect of making the Company less attractive to a potential acquirer and could result in holders of Class A Common Stock receiving less consideration upon a sale of their shares than might otherwise be available in the event of a takeover attempt.
Clear Channel owns a significant percentage of the Company's Common Stock. Any direct or indirect sales of the Company's stock by Clear Channel could have a material adverse effect on the Company's stock price and could impair the Company's ability to raise money in the equity markets.
The nature of the respective businesses of the Company and Clear Channel gives rise to potential conflicts of interest between the two companies. The Company and Clear Channel are each engaged in the radio broadcasting business in certain markets, and as a result, they are competing with each other for advertising revenues. As of December 31, 2000, Clear Channel owned, programmed or sold airtime for
1,170 radio stations in the United States, as well as radio stations in a number of foreign countries. Clear Channel also owned or programmed 18 television stations and was one of the world's largest outdoor advertising companies based on its total inventory of advertising display faces. Clear Channel's television and outdoor advertising operations may also be deemed to compete with the Company's business. In addition, conflicts could arise with respect to transactions involving the purchase or sale of radio broadcasting companies, particularly Spanish-language radio broadcasting companies, the issuance of additional equity securities, or the payment of dividends by the Company. For instance, Clear Channel currently owns a 40% equity interest in Grupo ACIR Comunicaciones, one of the largest radio broadcasters in Mexico.
Clear Channel is engaged in the Spanish-language radio broadcasting business in the United States, other than through its ownership of shares in the Company. Acquisition opportunities could arise which require greater financial resources than those available to the Company or which are located in areas in which the Company does not intend to operate. In addition, Clear Channel may from time to time acquire domestic Spanish-language radio broadcasting companies or an interest in such companies, individually or as part of a larger group. In addition, Clear Channel may from time to time make international acquisitions of or investments in companies engaged in the Spanish-language radio broadcasting business outside the United States and the Company and Clear Channel may compete for such acquisition or investment opportunities. To the extent the Company enters new lines of business, it may be deemed to compete directly or indirectly with Clear Channel, and the Company and Clear Channel may compete in the future with respect to acquisitions and investment opportunities in these areas.
Our Acquisition Strategy Could Pose Risks.
The Company intends to grow through the acquisition of radio stations and other assets it believes will complement its existing portfolio. The Company's acquisition strategy involves numerous risks, including the risk that certain acquisitions may prove unprofitable and fail to generate anticipated cash flows; the risk that successful management of a portfolio of radio broadcasting properties may require the Company to recruit additional senior management and expand corporate infrastructure; the risk that the Company may encounter difficulties in the integration of operations and systems; the risk that management's attention may be diverted from other business concerns; and the risk that the Company may lose key employees of acquired companies or stations.
The Company continues to explore international opportunities. If the Company makes one or more international acquisitions, it will face new risks that it does not face in the United States, such as foreign currency risks, foreign ownership restrictions, foreign taxation, restrictions on withdrawal of foreign investments and earnings, possible expropriation and other risks.
The Company will face stiff competition from other companies for acquisition opportunities. If the prices sought by sellers of existing radio stations continue to rise, the Company may find fewer acceptable acquisition opportunities. In addition, the purchase price of possible acquisitions could require additional debt or equity financing. The Company can give no assurance that either it will obtain the needed financing or that it will obtain such financing on attractive terms. Additional indebtedness could increase the Company's leverage and make it more vulnerable to economic downturns and may limit the Company's ability to withstand competitive pressures. Additional equity financing or the issuance of the Company's shares in connection with an acquisition would dilute the ownership interest of the Company's stockholders. The Company may not have sufficient capital resources to complete acquisitions.
Part of the Company's strategy is to acquire radio stations with an English-language format and convert these stations to a Spanish-language format. This conversion strategy requires a heavy initial investment of both financial and management resources. Start-up stations typically incur losses for a period of time after a format change because of the time required to build up ratings and station loyalty. The
Company can give no assurance that this strategy will be successful in any given market, notwithstanding that the Company may incur substantial costs and losses in implementing this part of its strategy.
Forward-Looking Statements
Certain statements contained herein are not based upon historical facts, but are forward-looking statements based upon numerous assumptions made as of the date hereof. When used in the preceding and following discussions, the words "believes," "intends," "expects," "anticipates" and similar expressions are intended to identify such forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Such risks and uncertainties include, but are not limited to, industrywide market factors and regulatory developments affecting the Company's operations, acquisitions and dispositions of broadcast properties, the financial performance of start-up stations, and efforts by the Company's management to integrate its operating philosophies and practices at the station level. The Company disclaims any obligation to update the forward-looking statements contained herein.
Industry Segments
The Company considers radio broadcasting to be its only operating segment.
Employees
As of February 28, 2001, the Company employed 903 persons on a full-time basis, including corporate employees and 16 employees (at WCAA(FM) and WADO(AM), New York) who are subject to two collective bargaining agreements. The Company considers its employee relations to be good.
ITEM 2.
ITEM 2. PROPERTIES
The Company's corporate headquarters is in Dallas, Texas. The Company has leased approximately 11,000 square feet at 3102 Oak Lawn Avenue in Dallas, Texas. The initial term of this lease expires in 2013, and the Company has one option to extend the lease for one additional five-year term.
The types of properties required to support each of the Company's radio stations listed in Item 1 above includes offices and transmitter sites. A radio station's studios are generally housed with its offices in downtown or business districts. A radio station's transmitter sites generally are located in a manner that provides maximum market coverage subject to the station's FCC license and FCC rules and regulations.
The offices and studios of the Company's radio stations are located in leased or owned facilities. These leases generally have expiration dates that range from three to fifteen years. The Company either owns or leases its transmitter and antenna sites. These leases generally have expiration dates that range from one to seventeen years. The Company does not anticipate any difficulties in renewing those leases that expire within the next several years or in leasing other space, if required.
A substantial amount of the Company's broadcast cash flow was generated by the Company's Los Angeles stations during 2000. Accordingly, the offices, studios, transmitter sites and antenna sites used in the operation of the Company's Los Angeles stations may be material to the Company's overall operations.
As noted in Item 1 above, as of December 31, 2000, the Company owns or programs 47 radio stations in 13 markets throughout the United States. Therefore, except as set forth above, no one property is material to the Company's overall operations. The Company believes that its properties are in good condition and suitable for its operations. The Company owns substantially all of the equipment used in its radio broadcasting business.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company becomes involved in certain legal claims and litigation. In the opinion of management, based upon consultations with legal counsel, the disposition of such litigation pending against the Company will not have a materially adverse effect on its consolidated financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Price Range of Class A Common Stock
The Class A Common Stock is traded on the New York Stock Exchange under the symbol "HSP." The following table sets forth for each of the periods presented below, the high and low closing sale prices per share:
High Low ------------------------ Year Ended December 31, 1999 First Quarter...................................... $ 24.44 $ 20.63 Second Quarter..................................... 37.94 21.63 Third Quarter...................................... 43.74 33.25 Fourth Quarter..................................... 48.75 38.47
Year Ended December 31, 2000 First Quarter...................................... $ 64.19 $ 43.13 Second Quarter..................................... 52.78 30.94 Third Quarter...................................... 41.50 20.63 Fourth Quarter..................................... 37.06 19.13
As of December 31, 2000, there were approximately 96 holders of the Class A Common Stock. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies.
Dividend Policy
The Company has never paid a cash dividend on its Common Stock and does not anticipate paying cash dividends in the foreseeable future. The Company intends to retain any earnings for use in the growth of its business. The Company currently is restricted from paying any cash dividends on its capital stock under its credit agreement.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data for Hispanic Broadcasting Corporation and its subsidiaries for the years ended December 31, 2000, 1999, 1998 and 1997, the three months ended December 31, 1996, and the year ended September 30, 1996 (in thousands, except per share data):
(a) On August 5, 1996, Clear Channel Communications, Inc. acquired control of the Company. In connection with the change in control, the Company incurred certain restructuring charges. Also, effective August 5, 1996, the Company's Board of Directors approved a plan to discontinue the operations of the radio network Cadena Radio Centro ("CRC"). (b) All common share and per-common-share amounts have been adjusted retroactively for two-for-one common stock splits effective June 15, 2000 and December 1, 1997. (c) Operating income excluding corporate expenses, depreciation and amortization, commonly referred to as "broadcast cash flow," is widely used in the broadcast industry as a measure of a broadcasting company's operating performance. Another measure of operating performance is EBITDA. EBITDA consists of operating income excluding depreciation and amortization. Broadcast cash flow and EBITDA are not calculated in accordance with generally accepted accounting principles. These measures should not be considered in isolation or as substitutes for operating income, cash flows from operating activities or any other measure for determining our operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. Further, such amounts may not be consistent with similarly titled measures presented by other companies.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the consolidated results of operations and cash flows of the Company for the years ended December 31, 2000, 1999 and 1998 and consolidated financial condition as of December 31, 2000 and 1999 should be read in conjunction with the consolidated financial statements of the Company and the related notes included elsewhere in this report.
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 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. Management of 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 first calendar quarter generally produces the lowest revenues. The second and third quarters generally produce the highest revenues.
Another measure of operating performance is EBITDA. EBITDA consists of operating income or loss excluding depreciation and amortization.
Broadcast cash flow and EBITDA are not calculated in accordance with generally accepted accounting principles. These measures should not be considered in isolation or as substitutes for operating income, cash flows from operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. Broadcast cash flow and EBITDA do not take into account the Company's debt service requirements and other commitments and, accordingly, broadcast cash flow and EBITDA are not necessarily indicative of amounts that may be available for dividends, reinvestment in the Company's business or other discretionary uses.
Results of Operations for the Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
The results of operations for the year ended December 31, 2000 are not comparable to the results of operations for the same period in 1999 primarily due to the start-up of radio stations KHOT(FM) in Phoenix on April 5, 1999, the radio station broadcasting at 94.1 MHz (KLNO(FM)) in Dallas on September 24, 1999, KRCD(FM) and KRCV(FM) in Los Angeles on January 31, 2000, KCOR(FM) and KBBT(FM) in San Antonio on September 15, 2000 and September 29, 2000, respectively, and the start-up of HBCi, LLC, the Company's Internet subsidiary on January 1, 2000.
Net revenues increased by $39.7 million or 20.1% to $237.6 million for the year ended December 31, 2000 from $197.9 million for the same period in 1999. Net revenues increased for the year ended December 31, 2000, compared to the same periods in 1999 primarily because of (a) revenue growth of same stations, and (b) revenues from start-up stations acquired or reformatted in 1999 and 2000. Same station revenues benefited from improved performance of the Company's news/talk stations, which collectively had posted revenue declines a year earlier.
Operating expenses increased by $28.7 million or 27.0% to $135.0 million for the year ended December 31, 2000 from $106.3 million for the same period in 1999. Operating expenses increased primarily due to (a) an increase in operating expenses of same stations, (b) increases in operating expenses of start-up stations, and (c) costs associated with the development, launch and operation of the Company's radio station Internet websites and local portals. We increased the promotion of our radio stations to improve the ratings and invested in on-air talent, programming research, additional sales and marketing personnel and staffing and other costs associated with our non-traditional revenue initiative. Non-traditional revenues are revenues from the implementation of new business development techniques. The provision for bad debts for the year ended December 31, 2000 increased by $1.9 million over the same period of 1999 primarily due to our estimate that a certain agency account is uncollectable. As a percentage of net revenues, operating expenses increased to 56.8% from 53.7% for the years ended December 31, 2000 and 1999, respectively.
Operating income before corporate expenses, depreciation and amortization ("broadcast cash flow") increased by $11.0 million or 12.0% to $102.6 million for the year ended December 31, 2000 from $91.6 million for the same period in 1999. As a percentage of net revenues, broadcast cash flow decreased to 43.2% from 46.3% for the years ended December 31, 2000 and 1999, respectively.
Corporate expenses increased by $1.5 million or 21.7% to $8.4 million for the year ended December 31, 2000 from $6.9 million for the same period in 1999. The increase was primarily due to (a) higher staffing costs, and (b) one-time costs of approximately $0.6 million associated with the move from the Nasdaq National Market to the New York Stock Exchange and the costs associated with the Company's unsuccessful efforts to acquire three radio stations from Clear Channel. As a percentage of net revenues, corporate expenses were 3.5% for the years ended December 31, 2000 and 1999.
EBITDA for the year ended December 31, 2000 increased 11.2%, to $94.2 million compared to $84.7 million for the same period in 1999. As a percentage of net revenues, EBITDA decreased to 39.6% from 42.8% for the years ended December 31, 2000 and 1999, respectively.
Depreciation and amortization for the year ended December 31, 2000 increased 20.4% to $34.3 million compared to $28.5 million for the same period in 1999. The increase is due to radio station acquisitions and capital expenditures.
Interest income, net increased to $7.1 million from $1.8 million for the years ended December 31, 2000 and 1999, respectively. The increase for the year ended December 31, 2000 compared to the same period in 1999 was due to cash and cash equivalents being much higher in 2000 than in 1999 due to the
unspent proceeds of the November 1999 secondary public stock offering ("November 1999 Offering") being invested for the entire year.
Other, net increased to $1.6 million for the year ended December 31, 2000. The increase was mainly due to the award received by the Company related to the Z-Spanish Media Corporation (owner of radio station KLNZ(FM)) arbitration proceedings.
Federal and state income taxes are being provided at an effective rate of 39.5% and 41.1% for the years ended December 31, 2000 and 1999, respectively. The decrease in the effective rate is primarily due to an increase in tax-exempt interest income.
For the year ended December 31, 2000, the Company's net income totaled $41.5 million ($0.38 per common share) compared to $34.2 million ($0.33 per common share - diluted) in the same period in 1999.
Results of Operations for the Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998.
The results of operations for the year ended December 31, 1999 are not comparable to results of operations for the same period in 1998 primarily due to the start-up of radio stations 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, KLQV(FM) and KLNV(FM) in San Diego on August 10, 1998, KHOT(FM) in Phoenix on April 5, 1999, the radio station broadcasting at 94.1 MHz (KLNO(FM)) in Dallas on September 24, 1999, and the start-up of HBC Radio Network, Inc. (a radio network sales and programming division) on January 1, 1999.
Net revenues increased by $33.8 million or 20.6% to $197.9 million for the year ended December 31, 1999 from $164.1 million for the same period in 1998. Net revenues increased for the year ended December 31, 1999, compared to the same period in 1998 primarily because of (a) revenue growth of same stations, (b) revenues from start-up stations which were not operating for all or part of the year ended December 31, 1998, and (c) time brokerage agreement fees associated with the radio station broadcasting at 94.1 MHz (KLNO(FM)) in Dallas of $1.4 million for the year ended December 31, 1999. Had the WCAA(FM) acquisition occurred on January 1, 1998, net revenues, on a pro forma basis, for the year ended December 31, 1999 would have increased 19.6% compared to the same period in 1998.
Operating expenses increased by $10.5 million or 11.0% to $106.3 million for the year ended December 31, 1999 from $95.8 million for the same period in 1998. Operating expenses increased primarily due to operating expenses of start-up stations. As a percentage of net revenues, operating expenses decreased to 53.7% from 58.4% for the years ended December 31, 1999 and 1998, respectively. Had the WCAA(FM) acquisition occurred on January 1, 1998, operating expenses, on a pro forma basis, for the year ended December 31, 1999 would have increased 10.2% compared to the same period in 1998.
Broadcast cash flow for the year ended December 31, 1999 increased 34.1% to $91.6 million, compared to $68.3 million for the year ended December 31, 1998. As a percentage of net revenues, broadcast cash flow increased to 46.3% from 41.6% for the years ended December 31, 1999 and 1998, respectively. Had the WCAA(FM) acquisition occurred on January 1, 1998, broadcast cash flow, on a pro forma basis, for the year ended December 31, 1999 would have increased 32.9% compared to the same period in 1998.
Corporate expenses increased by $1.4 million or 25.5% to $6.9 million for the year ended December 31, 1999 from $5.5 million for the same period in 1998. The increase was primarily due to higher staffing costs and the one-time expenses related to the resignation of an executive officer in the first quarter of 1999. As a percentage of net revenues, corporate expenses increased to 3.5% from 3.4% for the years ended December 31, 1999 and 1998, respectively.
EBITDA for the year ended December 31, 1999 increased 34.9% to $84.7 million compared to $62.8 million for the same period in 1998. As a percentage of net revenues, EBITDA increased to 42.8% from 38.3% for the years ended December 31, 1999 and 1998, respectively.
Depreciation and amortization for the year ended December 31, 1999 increased 35.1% to $28.5 million compared to $21.1 million for the same period in 1998. The increase is due to radio station acquisitions and capital expenditures.
Interest income, net decreased to $1.8 million from $2.6 million for the years ended December 31, 1999 and 1998, respectively. The decrease for the year ended December 31, 1999 compared to the same period in 1998 was because the proceeds from the June 1999 secondary public stock offering ("June 1999 Offering") and the November 1999 Offering were received later in the year in comparison to the proceeds of the January 1998 secondary public stock offering ("January 1998 Offering").
Income tax expense increased from $17.7 million for the year ended December 31, 1998 to $23.8 million for the same period in 1999. The increase was primarily due to income before income tax increasing from $44.6 million for the year ended December 31, 1998 to $58.0 million for the same period in 1999. The effective tax rates for the years ended December 31, 1998 and 1999 are 39.8% and 41.1%, respectively. The increase in the effective tax rate in 1999 is due to an increase in the effective state tax rate.
For the year ended December 31, 1999, net income totaled $34.2 million ($0.33 per common share - diluted) compared to $26.9 million ($0.27 per common share) in the same period in 1998.
Liquidity and Capital Resources
Net cash provided by operating activities for the year ended December 31, 2000 was $70.8 million as compared to $61.6 million for the same period in 1999. The increase from 1999 to 2000 is due to an increase in revenues in 2000 which is offset somewhat by an increase in accounts receivable in 2000. Net cash used in investing activities was $172.5 and $226.1 million for the years ended December 31, 2000 and 1999, respectively. The $53.6 million decrease from 1999 to 2000 is primarily due to the purchase price of KRCD(FM), KRCV(FM), KCOR(FM) and KBBT(FM) in 2000 being less than the purchase price of KHOT(FM), KISF(FM), KSCA(FM) and KLNO(FM) in 1999. The decrease is partially offset by an increase in deferred charges and other assets in 2000 due to signal upgrades in process for certain radio stations in Houston and Dallas and the investment in Hispanic Radio Network, LLC, a company which engages in the development of Spanish-language programming content for radio, television, Internet and other media. Net cash provided by financing activities was $2.2 and $369.3 million for the years ended December 31, 2000 and 1999, respectively. The $367.1 million decrease from 1999 to 2000 is due to there being two secondary stock offerings in 1999 (the June 1999 Offering and the November 1999 Offering) and no secondary stock offering in 2000.
Generally, capital expenditures are made with cash provided by operations. Capital expenditures totaled $11.0 and $11.6 million for the years ended December 31, 2000 and 1999, respectively. The $0.6 million decrease is mostly due to a higher amount of capital expenditure in 1999 for the radio signal upgrade of WADO(AM) in New York. Approximately $6.6 million of the capital expenditures incurred during the year ended December 31, 2000 related to radio signal upgrade projects for four different radio stations and the build-out of studios in Miami, Los Angeles, Phoenix and Dallas compared to $7.2 million incurred in the same period in 1999 for the same radio signal upgrade projects and the build-out of studios related to acquisitions made in New York, Phoenix and Los Angeles.
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. Management believes the Company will have sufficient cash on hand and cash provided by operations to finance its operations, satisfy its debt service requirements, and to fund capital expenditures. Management regularly reviews potential
acquisitions. Future acquisitions will be financed primarily through available cash on hand, proceeds from borrowings under the $270.0 million revolving credit facility (the "Credit Facility"), proceeds from securities offerings, and/or from cash provided by operations.
Stockholders' Equity
On November 24, 1999, we completed the November 1999 Offering, selling 6,102,580 shares of Class A Common Stock at $40.85 per share, net of underwriters' discounts and commissions. The net proceeds of the offering were approximately $248.7 million.
On June 7, 1999, we completed the June 1999 Offering, selling 4,000,000 shares of Class A Common Stock at $30.02 per share, net of underwriters' discounts and commissions. The net proceeds of the offering were approximately $119.9 million.
Long-Term Debt
For the year ended December 31, 2000, no amounts were borrowed on the Credit Facility. As of December 31, 1998, there was no outstanding balance on the Credit Facility. On April 30, 1999, we borrowed $20.0 million on the Credit Facility and repaid the entire amount by June 30, 1999 from the proceeds of the June 1999 Offering. In September 1999, we borrowed $51.0 million on the Credit Facility and repaid the entire amount by December 31, 1999 with cash generated from operating activities and proceeds of the November 1999 Offering.
Borrowings under the Credit Facility bear interest at a rate based on LIBOR plus an applicable margin as determined by the Company's leverage ratio. The Credit Facility is secured by the stock of the Company's subsidiaries. Availability under the Credit Facility reduces quarterly commencing September 30, 1999 and ending December 31, 2004.
Our ability to make additional borrowings under the Credit Facility is subject to compliance with certain financial ratios and other conditions set forth in the Credit Facility. We may elect under the terms of the Credit Facility to increase the facility by $142.5 million.
Inflation
Inflation has affected financial performance due to higher operating expenses. Although the exact impact of inflation is indeterminable, we have offset these higher costs by increasing the effective advertising rates of most of our radio stations.
Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends
The ratios of earnings to fixed charges for the Company are computed by dividing pretax income from continuing operations after certain adjustments, by fixed charges. Fixed charges consist of interest expense on all long and short-term borrowings and the estimated interest portion of rental expense. Set forth below are the ratios of earnings to fixed charges and earnings to combined fixed charges and preferred stock dividends (in thousands except ratios):
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on both the interest earned on cash and cash equivalents and interest paid on borrowings under the Credit Facility. A change of 10% in the interest rate earned on short-term investments and interest paid under the Credit Facility would not have had a significant impact on our historical financial statements.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Number
Independent Auditors' Report .......................................... 26
Consolidated Balance Sheets as of December 31, 2000 and 1999 .......... 27
Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998 ...................................... 28
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 ................................ 29
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 ...................................... 30
Notes to Consolidated Financial Statements ............................ 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors Hispanic Broadcasting Corporation:
We have audited the accompanying consolidated balance sheets of Hispanic Broadcasting Corporation and subsidiaries (the "Company") as of December 31, 2000 and 1999 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule included at Item 14 (a) (2). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 Hispanic Broadcasting Corporation and subsidiaries as of December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Dallas, Texas February 9, 2001
HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share information)
ASSETS
See accompanying notes to consolidated financial statements.
HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
See accompanying notes to consolidated financial statements.
HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except share information)
See accompanying notes to consolidated financial statements.
HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
See accompanying notes to consolidated financial statements.
HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization
Hispanic Broadcasting Corporation (the "Company"), through its subsidiaries, owns and operates 47 Spanish-language broadcast radio stations serving 13 markets throughout the United States (Los Angeles, New York City, Miami, San Francisco/San Jose, Chicago, Houston, San Antonio, Dallas/Fort Worth, McAllen/Brownsville/Harlingen, San Diego, Phoenix, El Paso and Las Vegas). The Company also owns and operates HBC Radio Network, which is one of the largest Spanish-language radio broadcast networks in the United States in terms of audience delivery and HBCi which operates the Company's radio station Internet websites.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Hispanic Broadcasting Corporation and its wholly-owned subsidiaries. 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.
Use of 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 notes to financial statements. Actual results could differ from those estimates.
Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.
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, 2000 and 1999 (included in deferred charges and other assets) consist of interests in entities which are involved in radio broadcasting, ownership of transmission towers and the development of Spanish-language programming.
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 (two 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 are recognized in the statement of operations.
Intangible Assets
Intangible assets are recorded at cost. Amortization of intangible assets is provided in amounts sufficient to charge the asset cost to operations over the estimated useful lives on a straight-line basis. The estimated useful lives are as follows:
Broadcast licenses 40 years Cost in excess of fair value of net assets acquired principally 40 years Other intangibles 3 - 40 years
The Company evaluates periodically the propriety of the carrying amount of intangible assets, including goodwill, 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 income before depreciation, amortization, and interest for each of the Company's radio stations over the remaining estimated useful life of the broadcast licenses. If such projections indicate that undiscounted cash flows are not expected to be adequate to recover the carrying amounts of the related intangible assets, a loss is recognized to the extent the carrying amount of the asset exceeds its fair value. At this time, the Company believes that no impairment of goodwill and other 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 advertising time to local and national advertisers. Revenue is recognized as commercials are broadcast.
Advertising Costs
The Company incurs various marketing and promotional costs to add and maintain listenership. These costs are charged to expense in the year incurred and totaled approximately $5.7, $4.2 and $6.4 million for the years ended December 31, 2000, 1999 and 1998, respectively.
Barter Transactions
Barter transactions represent advertising time exchanged for promotional items, advertising, supplies, equipment and services. Barter transactions are recorded at the estimated fair value of the goods or services received. Revenues from barter transactions are recognized as income when commercials are broadcast. Expenses are recognized when goods or services are received or used. Barter transactions are not significant to the Company's consolidated financial statements.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.
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 common shares outstanding during each year. Diluted earnings per common share reflects the incremental increase in the weighted average number of common shares due to the dilutive effect of stock options and the Employee Stock Purchase Plan.
Derivative Financial Instruments
The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used, from time to time, to manage well-defined interest rate risks related to interest on the Company's outstanding debt. There were no outstanding swap agreements or other derivative financial instruments at December 31, 2000 or 1999.
Financial Instruments
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and payable, approximate fair value due to the relatively short maturity of these instruments. The carrying amount of long-term obligations, including the current portion, approximates fair value based upon quoted interest rates for the same or similar debt issues.
Credit Risk
In the opinion of management, credit risk with respect to accounts receivable 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 uncollectible accounts receivable are maintained.
Stock Based Compensation
The Company accounts for stock options issued to employees and directors using the intrinsic-value method as outlined under Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees and related interpretations.
Under APB 25, the Company does not recognize compensation expense related to employee stock options since options are not granted at a price below the market value of the underlying common stock on the date of grant. In accordance with Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation, the Company has disclosed pro forma net income and net income per share using the fair-value method in calculating compensation expense. Also, in accordance with SFAS 123 and Emerging Issues Task Force No. 96-18 Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, the Company includes in operating expenses in the statement of operations, the cost of stock options (calculated using the fair-value method) issued to persons who are not employees or directors.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
2. Acquisitions and Dispositions
2000 Acquisitions
On October 15, 1999, the Company entered into an asset purchase agreement to acquire for $75.0 million the assets of KRCD(FM) and KRCV(FM) (formerly KACE(FM) and KRTO(FM)), serving the Los Angeles market (the "Los Angeles Acquisition"). The Los Angeles Acquisition closed on January 31, 2000. The asset acquisition was funded with a portion of the proceeds from the November 1999 secondary public stock offering (the "November 1999 Offering"). The stations' programming was converted to a single Spanish-language format in February 2000.
On May 31, 2000, the Company entered into an asset purchase agreement to acquire for $45.0 million the assets of KCOR(FM) and KBBT(FM) (formerly KBUC(FM) and KRNH(FM)), serving the San Antonio market. The KCOR(FM) and KBBT(FM) acquisitions closed on September 15, 2000 and September 29, 2000, respectively. The asset acquisitions were funded with a portion of the proceeds from the November 1999 Offering. The stations' programming was converted to separate Spanish-language formats.
1999 Acquisitions
On January 27, 1999, the Company entered into an asset purchase agreement to acquire for $18.3 million the assets of KHOT(FM), serving the Phoenix market (the "Phoenix Acquisition"). The Phoenix Acquisition closed on April 5, 1999. The asset acquisition was funded with cash generated from operations. Immediately after closing, the station's programming was converted to a Spanish-language format.
On March 1, 1999, the Company entered into an asset purchase agreement to acquire for $20.3 million the assets of KISF(FM), serving the Las Vegas market (the "Las Vegas Acquisition"). The Las Vegas Acquisition closed on April 30, 1999. The asset acquisition was funded with a $20.0 million borrowing from the Company's $270.0 million revolving credit facility (the "Credit Facility") and $0.3 million cash generated from operations. Immediately after closing, the station's programming was converted to a Spanish-language format.
On January 2, 1997, the Company acquired an option to purchase all of the assets used in connection with the operation of KSCA(FM), a radio station serving the Los Angeles market (the "KSCA Option"). In connection with the acquisition of the KSCA Option, the Company began providing Spanish-language programming to KSCA(FM) under a time brokerage agreement on February 5, 1997. The Company exercised the KSCA Option and on September 17, 1999, the Company acquired the assets of KSCA(FM) for $118.1 million. The Company had previously paid $13.0 million to acquire and renew the option to purchase the assets of KSCA(FM) and such payments were subtracted from the purchase price at closing. To fund the acquisition, the Company borrowed $38.0 million from the Credit Facility and used $67.1 million of cash. The cash was generated from operating activities and proceeds of the June 1999 secondary public stock offering (the "June 1999 Offering").
On July 6, 1999, the Company entered into an agreement to acquire from a nonaffiliated trust for $65.0 million, the FCC licenses and transmission equipment of a radio station broadcasting at 94.1 MHz (KLNO(FM)), serving the Dallas/Fort Worth market (the "Dallas Acquisition"). The Dallas Acquisition closed on September 24, 1999. To fund the acquisition, the Company borrowed $8.0 million from the Credit Facility and used $57.0 million of cash. The cash was generated from operating activities and proceeds of the June 1999 Offering.
With the Dallas Acquisition, the Company assumed a time brokerage agreement whereby an unaffiliated party provided the programming to the radio station broadcasting at 94.1 MHz until January 31, 2000. The time brokerage payments ranged from $12,947 to $15,618 per day. Immediately after the
time brokerage agreement terminated, the station's programming was converted to a Spanish-language format.
1998 Acquisitions
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 "New York Acquisition"). The New York Acquisition closed on May 22, 1998. The asset exchange was funded with a portion of the proceeds from the January 1998 secondary public stock offering (the "January 1998 Offering"). 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 "Houston Acquisition"). The Houston Acquisition closed on May 29, 1998. The asset acquisition was funded with a portion of the proceeds from the January 1998 Offering. 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. The asset acquisition was funded with a portion of the proceeds from the January 1998 Offering, an additional $18.0 million borrowing from the Company's Credit Facility and cash generated from operations. Immediately after closing, the programming of the stations was converted to two Spanish-language formats.
All of the acquisitions discussed above were accounted for using the purchase method of accounting. Accordingly, the accompanying financial statements include the accounts of the acquired businesses from the respective dates of acquisition.
Pending Transactions
The Company's contracts for the acquisition of stations KOVA(FM) and KLTO(FM) (both stations are currently owned by the Company) provided for an increase in the purchase price in the event that the FCC authorized certain station improvements. In November 2000, the FCC authorized the station improvements. As of December 31, 2000, the Company has paid approximately $31.5 million of upgrade costs and additional purchase price (included in deferred charges and other assets). The Company expects to incur approximately $1.5 million more of upgrade costs in 2001. The Company will use its available cash on hand to fund these upgrade costs. The station upgrade is not expected to be completed and operating until the Spring of 2001.
Uncompleted Transactions
On April 14, 1999, the Company entered into an agreement with Z-Spanish Media Corporation ("Z"), to exchange the assets of KRTX(FM), a radio station serving the Houston market, for the assets of KLNZ(FM), a radio station owned by Z serving the Phoenix market. Although the asset exchange received all necessary governmental consents, the transaction did not close. Pursuant to the terms of the asset exchange agreement, the Company instituted arbitration proceedings seeking, among other relief, specific performance to compel the closing of the transaction. In December 2000, the arbitrators awarded the Company $2.0 million which was received in January 2001. As of December 31, 2000, the Company had incurred $0.5 million of costs related to this transaction and recognized the award net of costs as $1.5 million of other income.
On March 4, 2000, the Company entered into an agreement with subsidiaries of Clear Channel Communications, Inc. ("Clear Channel") and AMFM Inc. to purchase for approximately $127.0 million
the assets of KXPK(FM), KKFR(FM) and KEYI(FM), serving the Denver, Phoenix and Austin markets, respectively. The Department of Justice ("DOJ") disallowed the Company from making this acquisition. The DOJ required these radio stations to be divested by Clear Channel or AMFM Inc. in connection with the merger of these two companies. Clear Channel owns a 26% nonvoting equity interest in the Company.
3. Long-Term Obligations
The following is a summary of long-term obligations outstanding as of December 31, 2000 and 1999 (in thousands):
2000 1999 -------- --------
Revolving credit facility payable to banks; aggregate commitment of $270.0 million; interest rate based on LIBOR plus an applicable margin as determined by the Company's leverage ratio; no balance was outstanding during 2000; payable through December 2004; secured by 100% of the common stock of the Company's wholly-owned subsidiaries; the Company is required to comply with certain financial and nonfinancial covenants $ -- $ --
Various loans net of imputed interest of 8.1%, payable in monthly installments through 2001 18 108
Prize awards net of imputed interest (10% to 12%), payable in varying annual installments through 2044 1,409 1,440 -------- -------- 1,427 1,548 Less current portion 23 100 -------- -------- $ 1,404 $ 1,448 ======== ========
The Company's ability to make additional borrowings under the Credit Facility is subject to compliance with certain financial ratios and other conditions set forth in the Credit Facility. As of December 31, 2000, the Company had $270.0 million of credit available, and may elect under the terms of the Credit Facility to increase the facility by $142.5 million. The Credit Facility commitment began reducing on September 30, 1999 and continues quarterly through December 31, 2004.
Maturities of long-term obligations for the five years subsequent to December 31, 2000 are as follows (in thousands):
Year Amount ---- ------ 2001 $ 23 2002 6 2003 7 2004 7 2005 8 Thereafter 1,376
Interest paid for the years ended December 31, 2000, 1999 and 1998 amounted to $0.7, $1.7 and $1.2 million, respectively.
4. Commitments and Contingencies
The Company leases office space and other property under noncancellable operating leases. Terms of the leases vary from three to thirty 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, 2000 are summarized as follows (in thousands):
Year Amount ---- ------ 2001 $ 7,303 2002 7,529 2003 7,160 2004 7,068 2005 6,619 Thereafter 39,214
Rent expense for the years ended December 31, 2000, 1999 and 1998 was $5.0, $4.3 and $3.4 million, respectively.
The Company is subject to legal proceedings and other 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, results of operations or liquidity of the Company.
5. Stockholders' Equity
Common Stock
On June 7, 1999, the Company completed the June 1999 Offering, selling 4,000,000 shares of Class A Common Stock at $30.02 per share, net of underwriters' discounts and commissions. The net proceeds of the offering were approximately $119.9 million.
On November 24, 1999, the Company completed the November 1999 Offering, selling 6,102,580 shares of Class A Common Stock at $40.85 per share, net of underwriters' discounts and commissions. The net proceeds of the offering were approximately $248.7 million.
On January 22, 1998, the Company completed the January 1998 Offering, selling 10,350,000 shares of Class A Common Stock at $19.88 per share, net of underwriters' discounts and commissions. The net proceeds of the offering were approximately $205.1 million.
Clear Channel owns all of the issued and outstanding Class B Common Stock. The rights of the Class A and Class B Common Stock are identical except that the Class B Common Stock has no voting rights, except in certain matters. Shares of Class B Common Stock are convertible into shares of Class A Common Stock, at Clear Channel's option, subject to any necessary governmental consents, including the consent of the FCC.
On May 25, 2000, 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 June 15, 2000 to all holders of common stock at the close of business on June 5, 2000. All financial information related to number of shares, per share amounts, stock option data and market prices of the Company's common stock have been restated to give effect to the split.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of $.001 par value Preferred Stock. The Preferred Stock may be issued in series, with the rights and preferences of each series established by the Company's Board of Directors.
6. Income Taxes
The provision for income tax consists of the following (in thousands):
Year Ended December 31, ---------------------------------------------- 2000 1999 1998 ---------------------------------------------- Current: Federal $ 15,552 $ 12,618 $ 6,103 State 3,548 3,189 1,693 ------------ ------------ ------------ Total current tax 19,100 15,807 7,796 ------------ ------------ ------------ Deferred: Federal 6,640 7,146 9,515 State 1,320 860 429 ------------ ------------ ------------ Total deferred tax 7,960 8,006 9,944 ------------ ------------ ------------ Total income tax $ 27,060 $ 23,813 $ 17,740 ============ ============ ============
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2000 and 1999 are as follows (in thousands):
2000 1999 ------------ ----------- Deferred tax assets: Net operating losses $ 922 $ 970 Other intangible assets 1,873 1,999 Long-term obligations - prize awards 547 561 Allowance for doubtful accounts receivable 1,260 724 Other 309 187 ------------ ----------- Total deferred tax assets 4,911 4,441 ------------ -----------
Deferred tax liabilities: Broadcast licenses 107,535 99,616 Property and equipment 1,977 1,477 Other 7,351 7,340 ------------ ----------- Total deferred tax liabilities 116,863 108,433 ------------ ----------- Net deferred tax liabilities $ 111,952 $ 103,992 ============ ===========
The reconciliation of income tax expense computed at the federal statutory tax rate to the Company's actual income tax expense is as follows (in thousands):
Year Ended December 31, --------------------------------- 2000 1999 1998 -------- ------- ------- Federal income tax at statutory rate $ 24,007 $20,296 $15,618 State income taxes, net of federal benefit 3,163 2,632 1,115 Nondeductible and non-taxable items, net (110) 885 1,007 -------- ------- ------- $ 27,060 $23,813 $17,740 ======== ======= =======
As of December 31, 2000, the Company had tax net operating loss carryforwards for state tax purposes of approximately $38.4 million which expire in years 2005 through 2020 if not used.
Income taxes paid for the years ended December 31, 2000, 1999 and 1998 amounted to $22.9, $13.3 and $6.0 million, respectively.
7. Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (in thousands):
Year Ended December 31, --------------------------------- 2000 1999 1998 -------- -------- ------- Numerator: Net income $ 41,531 $ 34,176 $26,884 ======== ======== ======= Denominator: Denominator for basic earnings per share 108,858 101,566 98,042 Effect of dilutive securities: Stock options 1,514 1,347 635 Employee Stock Purchase Plan 16 14 18 -------- -------- ------- Denominator for diluted earnings per share 110,388 102,927 98,695 ======== ======== =======
Stock options which were excluded from the computation of diluted earnings per share due to their antidilutive effect amounted to 0.6 million shares for the year ended December 31, 2000 and zero shares for the years ended December 31, 1999 and 1998.
8. Retirement Plan
The Company has a defined contribution retirement savings plan (the "Plan"). The Plan covers all employees who have reached the age of 18 years and have been employed by the Company for at least one year. The Company matches participants' contributions to the Plan in an amount not to exceed $1,500. The Company, at the sole discretion of the Board of Directors, may make additional supplemental contributions to the Plan. The Company's expenses related to the Plan for the years ended December 31, 2000, 1999 and 1998 amounted to $0.6, $0.3 and $0.3 million, respectively.
9. Stock Options
In May 1997, the stockholders of the Company approved a stock incentive plan ("Long-Term Incentive Plan"), to be administered by the Board of Directors or by a sub-committee of the Board of Directors. The maximum number of shares of Class A Common Stock that may be the subject of awards at any one time shall be ten percent of the total number of shares of Class A Common Stock outstanding. Options granted under the Long-Term Incentive Plan have a ten-year term and vest over various periods up to five years.
The stockholders of the Company also approved an Employee Stock Purchase Plan in May 1997. Under the plan, shares of the Company's common stock may be purchased at six-month intervals at 85% of the lower of the fair market value on the first or the last day of each six-month period. Employees may purchase shares having a value not exceeding 15% of their gross compensation during an offering period. During 2000, 1999 and 1998, employees purchased 37,768, 43,016 and 36,472 common shares at average prices of $29.64, $19.25 and $16.58, respectively.
The Company issued 2,169,400, 975,500 and 739,300 stock options in 2000, 1999 and 1998, respectively, to various employees of the Company under its Long-Term Incentive Plan. The exercise prices ranged from $8.22 to $51.38 per share, the market prices at dates of issuance.
The following is a summary of stock options outstanding and exercisable for the years ended December 31, 1998, 1999 and 2000 (in thousands, except per share data):
Weighted Average Number Exercise Price Of Shares Per Share --------- ---------------- Stock Options Outstanding: Options outstanding at December 31, 1997 1,446 $ 11.92 Granted 740 18.13 Forfeited (104) 12.86 -------- Options outstanding at December 31, 1998 2,082 14.08 Granted 974 24.21 Forfeited (104) 17.28 -------- Options outstanding at December 31, 1999 2,952 17.31 Granted 2,169 27.23 Forfeited (221) 25.26 Exercised (118) 11.75 -------- Options outstanding at December 31, 2000 4,782 21.58 ========
Exercisable Stock Options: Options exercisable at December 31, 1997 34 11.86 Vested 16 15.64 -------- Options exercisable at December 31, 1998 50 13.07 Vested 19 18.21 -------- Options exercisable at December 31, 1999 69 14.49 Vested 623 14.09 Exercised (118) 11.75 -------- Options exercisable at December 31, 2000 574 14.62 ========
Pro forma information regarding net income and net income per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The weighted average fair value at date of grant for options granted in the years ended December 31, 2000, 1999 and 1998 was $16.46, $13.32 and $9.75 per share, respectively. The fair value of these options was estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions:
2000 1999 1998 ------- ------- ------- Risk-free interest rate 5.96% 6.11% 5.22% Dividend yield 0.00% 0.00% 0.00% Volatility factor 57.82% 50.39% 50.67% Weighted average expected life 6 years 6 years 6 years
For purposes of pro forma disclosures, the estimated fair value of the options is expensed over the options' vesting period. Pro forma results of operations calculated as though the Company had adopted the provisions of SFAS 123 are as follows (in thousands, except per share data):
Year Ended December 31, ---------------------------------------- 2000 1999 1998 ---------- ---------- ----------
Net income $ 33,721 $ 31,389 $ 25,449 Net income per common share: Basic 0.31 0.31 0.26 Diluted 0.31 0.30 0.26
The following is a summary of stock options outstanding and exercisable at December 31, 2000:
10. Accrued Expenses
Accrued expenses consist of the following (in thousands):
December 31, ----------------------------------- 2000 1999 --------------- ---------------
Wages, salaries and benefits payable $ 3,453 $ 4,136 Commissions payable 5,283 5,559 Advertising payable 233 1,636 Other accrued expenses 6,361 6,697 --------------- --------------- $ 15,330 $ 18,028 =============== ===============
11. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 2000 and 1999 (in thousands, except per share data):
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 with respect to the directors, nominees and executive officers of the Company is incorporated by reference to the information set forth under the caption "Election of Directors," "Executive Compensation and Other Matters" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the information set forth under the caption "Executive Compensation and Other Matters" in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the information set forth under the caption "Certain Transactions" in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)
1. Financial Statements
The following financial statements have been filed under Item 8 of this report:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Hispanic Broadcasting Corporation and Subsidiaries Valuation and Qualifying Accounts For the years ended December 31, 2000, 1999 and 1998 (in thousands)
3. Exhibits
Exhibit Number Description - ------- -------------------------------------------------------------------- 3.1 Second Amended and Restated Certificate of Incorporation of the Company dated February 14, 1997 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed March 3, 1997).
3.2 Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Company dated June 4, 1998 (incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q filed on November 11, 1998).
3.3 Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Company dated June 8, 1999 (incorporated by reference to Exhibit 3.3 to the Company's Form 10-Q filed on August 12, 1999).
3.4 Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Company dated May 25, 2000 (incorporated by reference to Exhibit 3.4 to the Company's Form 10-Q filed on August 11, 2000).
3.5 Amended and Restated Bylaws of the Company (incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No. 33-78370) filed on April 29, 1994, as amended ("Company's S-1")).
10.1 Stock Option Plan (incorporated by reference to Exhibit 10.4 of Company's S-1).
10.2 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.22 of Company's S-1).
10.3 Registration Rights Agreement, dated February 14, 1997, by and among the Company, McHenry T. Tichenor, Sr., McHenry T. Tichenor, Jr., Warren W. Tichenor, William E. Tichenor, Jean T. Russell, McHenry T. Tichenor, Jr., as Custodian for David T. Tichenor, Alta Subordinated Debt Partners III, L.P., Prime II Management, LP, PrimeComm, LP, Ricardo A. del Castillo, Jeffrey Hinson and David D. Lykes (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed March 3, 1997).
10.4 Employment Agreement, dated February 14, 1997, by and between the Company and McHenry T. Tichenor, Jr. (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed March 3, 1997).
10.5 Stockholders Agreement, dated February 14, 1997, by and among the Company and each of the stockholders listed on the signature pages thereto (incorporated by reference to Exhibit 10.4 to Schedule 13D of McHenry T. Tichenor, Jr. filed February 14, 1997).
10.6 Registration Rights Agreement, dated February 14, 1997, by and among the Company and Clear Channel Communications, Inc. (incorporated by reference to Exhibit 10.4 to the Company's Form 8-K filed March 3, 1997).
10.7 Credit Agreement among the Company 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 Company's Form 8-K filed on May 14, 1997).
10.8 Credit Agreement Amendment No. 1 among the Company and its subsidiaries, the Chase Manhattan Bank, as administrative agent, and certain other lenders, dated May 6, 1999 without Exhibits (Schedules omitted) (incorporated by reference to Exhibit 10.12 to the Company's Form 10-K filed on March 30, 2000).
10.9 Hispanic Broadcasting Corporation Long-Term Incentive Plan (incorporated by reference to Appendix A to the Company's Definitive Proxy Statement filed on April 24, 1997 (Commission File No. 000-24516)).
10.10 Hispanic Broadcasting Corporation Amended and Restated 1997 Employee Stock Purchase Plan (incorporated by reference to the Company's Form S-8 filed on December 31, 1997).
11 Statement Regarding Computation of Per Share Earnings.
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
12.2 Statement Regarding Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
21 Subsidiaries of the Company.
23 Consent of KPMG LLP.
24 Power of Attorney (included on Signature Page).
Registrant agrees to furnish supplementally a copy of any omitted schedules to the Commission upon request.
(b)
Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 30, 2001.
HISPANIC BROADCASTING CORPORATION
By: /s/ McHenry T. Tichenor, Jr. --------------------------------------- McHenry T. Tichenor, Jr. President and Chief Executive Officer
Each person whose signature appears below authorizes McHenry T. Tichenor, Jr. and Jeffrey T. Hinson, or either of them, each of whom may act without joinder of the other, to execute in the name of each such person who is then an officer or director of the Registrant and to file any amendments to this annual report on Form 10-K necessary or advisable to enable the Registrant to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such changes in such report as such attorney-in-fact may deem appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Title Date ---- ----- ----
/s/ McHenry T. Tichenor, Jr. President, Chief Executive March 30, 2001 - ---------------------------- Officer and Chairman of the Board McHenry T. Tichenor, Jr. of Directors
/s/ Jeffrey T. Hinson Senior Vice President, Chief March 30, 2001 - ---------------------------- Financial Officer and Treasurer Jeffrey T. Hinson (Principal Financial Officer)
/s/ David P. Gerow Vice President, Controller and March 30, 2001 - ---------------------------- Secretary (Principal Accounting David P. Gerow Officer)
/s/ McHenry T. Tichenor Director March 30, 2001 - ---------------------------- McHenry T. Tichenor
/s/ Robert W. Hughes Director March 30, 2001 - ---------------------------- Robert W. Hughes
/s/ James M. Raines Director March 30, 2001 - ---------------------------- James M. Raines
/s/ Ernesto Cruz Director March 30, 2001 - ---------------------------- Ernesto Cruz