Back to GetFilings.com




1


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)

[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]

For the Transition period from to

Commission file number 0-24516

HEFTEL BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 99-0113417
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

6767 West Tropicana Avenue, Suite 102 89103
Las Vegas, Nevada (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (702) 367-3322

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.001 Par Value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.

Yes [x] No [ ]

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The number of shares outstanding of registrant's classes of common stock as of
December 18, 1996:

Class A Common Stock, $.001 Par Value - 11,547,731 shares
Class B Common Stock, $.001 Par Value - None

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 18, 1996:

Class A Common Stock, $.001 Par Value - $130,684,733
Class B Common Stock, $.001 Par Value - None

2
HEFTEL BROADCASTING CORPORATION

September 30, 1996

INDEX


PART I PAGE


Item 1. Business 3

Item 2. Properties 14

Item 3. Legal Proceedings 15

Item 4. Submission of Matters to a Vote of Security Holders 16


PART II

Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 17

Item 6. Selected Financial Data 18

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20

Item 8. Financial Statements and Supplementary Data 23

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 45


PART III

Item 10. Directors and Executive Officers of the Registrant 45

Item 11. Executive Compensation 46

Item 12. Security Ownership of Certain Beneficial Owners
and Management 49

Item 13. Certain Relationships and Related Transactions 50


PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 52



2

3


HEFTEL BROADCASTING CORPORATION

PART I

ITEM 1. BUSINESS

GENERAL

Heftel Broadcasting Corporation (the "Company") was incorporated in
1992 and is the successor by merger to Heftel Broadcasting Corporation, a Hawaii
corporation, which was formed in 1974. The Company is the largest Spanish
language radio broadcasting company in the United States and currently owns and
programs 17 radio stations, 16 of which are located in five of the ten largest
Hispanic markets in the United States, including Los Angeles, New York, Miami,
Chicago, and Dallas/Ft. Worth. The Company has agreed to acquire Tichenor Media
System, Inc. ("Tichenor"), the third largest Spanish language radio broadcasting
company in the United States. Tichenor owns or programs 20 radio stations which
serve six of the ten largest Hispanic markets in the United States, including
San Francisco/San Jose, Chicago, Houston, San Antonio,
McAllen/Brownsville/Harlingen and El Paso. Following the Tichenor acquisition,
the Company will own or program 37 radio stations in 11 markets, including
stations in each of the top ten Hispanic markets in the United States. See
"Recent Developments -- Tichenor Merger."

The Company's strategy is to own and program top performing radio
stations, principally in the largest Spanish language radio markets in the
United States. The top ten Hispanic markets account for approximately 17.2
million Hispanics, representing approximately 63% of the total Hispanic
population in the United States. Upon completion of the Tichenor acquisition,
the Company will have the largest Spanish language radio station combination, as
measured by audience and revenue share, in eight of the top ten Hispanic
markets. Additionally, the Company will have the highest rated radio station in
any format in four of the top ten Hispanic markets.

The Company intends to acquire or develop additional Spanish language
radio stations in the leading Hispanic markets. When evaluating a potential
acquisition, the Company considers the following factors: (i) the ability to
generate satisfactory rates of return on its investment, (ii) the ability to
increase operating cash flow at the station, (iii) the strategic importance of
the station to the Company's overall business objectives, (iv) the size and
projected rates of growth of the market's broadcasting revenues, Hispanic
population and consumer spending and (v) the number of competitive stations in
the market.

The Company believes Spanish language broadcasting has significant
growth potential for the following reasons:

- The Hispanic population is the fastest growing population segment
in the United States and is expected to grow from an estimated
27.2 million (approximately 10.3% of the total United States
population) at the end of 1995 to an estimated 30.7 million
(approximately 11.3% of the total United States population) by the
year 2000. These estimates imply a growth rate of approximately
three times the expected growth rate for the total United States
population during the same period.

- Advertisers have substantially increased their use of Spanish
language media in recent years. Total advertising revenues from
advertising in Spanish language media rose from $166 million in
1983 to $1.06 billion in 1995. This represents a compound annual
growth rate of 16.7%, which is more than double the growth rate of
total advertising over the same period. Although Hispanic
consumers will spend an estimated $340 billion in 1997, or 6.5% of
the total consumer spending



3
4


in the United States, Spanish language advertising currently
represents less than 0.7% of the total advertising expenditures.

- Advertisers have begun to target Hispanic households because they
are younger and spend a greater percentage of their household
income on consumer products than non-Hispanic households. Hispanic
households in the United States average 3.5 persons, compared to
an average of 2.5 persons for non-Hispanic households. In
addition, 82% of Hispanic households in the United States are
family units, compared to 71% of all households in the United
States. During the 1990's, one in four new households in the
United States is expected to be headed by a person of Hispanic
origin.

- Hispanics have maintained strong social and cultural ties to their
countries of origin, particularly in their continued use of the
Spanish language. An estimated 78% of Hispanics speak at least
some Spanish and approximately 40% speak it exclusively. Spanish
is expected to continue to be the language of preference for
Hispanics.

- The number of Spanish language media outlets is disproportionately
lower than the number of similar English language outlets. In the
radio segment, there are currently approximately 400 Spanish
language commercial stations, which constitute only approximately
4% of all commercial radio stations in the United States, although
the Hispanic population comprises approximately 10.3% of the
United States population.

RECENT DEVELOPMENTS

Secondary Public Stock Offering

On October 18, 1996, the Company filed a Registration Statement on Form
S-3 with the Securities and Exchange Commission to register the sale of up to
4,025,000 shares of its Class A Common Stock in a secondary public offering. The
net proceeds from this stock offering will be used to repay outstanding debt
under the Company's existing credit agreement. The registration statement has
not yet been declared effective by the Securities and Exchange Commission.

Clear Channel Tender Offer

Clear Channel Communications, Inc. (together with its wholly owned
subsidiaries "Clear Channel") is a diversified publicly held broadcasting
company that currently owns or programs 99 radio stations and 18 television
stations in 33 markets. On August 5, 1996, Clear Channel completed a tender
offer and a related private purchase of stock from existing stockholders of the
Company (collectively, the "Tender Offer"). As a result of the Tender Offer,
Clear Channel currently owns approximately 63% of the outstanding Class A Common
Stock of the Company.

Concurrent with completion of the Tender Offer, Mr. Cecil Heftel,
former Chairman and Co-Chief Executive Officer, and Mr. Carl Parmer, former
Co-Chief Executive Officer and President, each entered into agreements not to
compete and employment settlement agreements (each, a "Settlement Agreement")
with the Company. Pursuant to their respective Settlement Agreement, the
employment by the Company of Mr. Heftel and Mr. Parmer terminated immediately
following the purchase of their respective shares pursuant to the Tender Offer.
An aggregate of approximately $25.8 million was paid to Messrs. Heftel and
Parmer upon closing of the Tender Offer in exchange for releases from any claims
resulting from termination of their respective employment agreements with the
Company and as compensation for their respective agreements not to compete with
the Company in certain specified markets for a period of five years from the
date of closing of the Tender


4
5

Offer. In connection with the Tender Offer, the Company's Board of Directors was
replaced with the current directors, all of whom were designated by Clear
Channel.

Tichenor Merger

On July 9, 1996, Clear Channel and Tichenor entered into an Agreement
and Plan of Merger, which was amended and restated on October 10, 1996 ("Merger
Agreement"), which, subject to the terms and conditions thereof, provides for
the acquisition of Tichenor by the Company (the "Tichenor Merger"). Pursuant to
the Merger Agreement, a wholly owned subsidiary of the Company will merge with
and into Tichenor, and Tichenor shall continue as the surviving corporation as a
wholly owned subsidiary of the Company. At the time the Merger Agreement was
executed, Clear Channel had commenced but not completed the Tender Offer. The
then existing management and Board of Directors of the Company were not involved
in the negotiations concerning the acquisition of Tichenor. On August 14, 1996,
after the consummation of the Tender Offer, Clear Channel offered to assign the
Merger Agreement to the Company in accordance with the Merger Agreement, and on
October 10, 1996, the current Board of Directors of the Company approved the
Tichenor Merger and the assignment to the Company of the Merger Agreement. In
approving the Tichenor Merger, the Company considered, among other things, the
strength of the combined management of the Company and Tichenor; the marketing
and operating benefits of the expansion of the Company's presence into each of
the top ten Hispanic markets; and the benefits of diversifying the Company's
operations thereby reducing its reliance on any individual market.

Under the terms of the Merger Agreement, the shareholders and warrant
holders of Tichenor will receive an aggregate of 5,689,878 shares of the
Company's Class A Common Stock and approximately $3.4 million in cash. The
Company will also assume Tichenor's outstanding debt which was approximately
$71.3 million on September 30, 1996. In addition, Clear Channel will convert all
of its shares of the Company's Class A Common Stock and its shares of common
stock of Tichenor into 7,428,235 shares of a redesignated Class B Common Stock
("Nonvoting Common Stock") that will not have any voting rights except as
specifically provided for in the charter or as otherwise required by law.

The Tichenor Merger requires the approval of the Federal Communications
Commission ("FCC"). The FCC's cross-interest policy bars a party which holds an
attributable interest in one or more radio stations in a market from having a
"meaningful relationship" with another radio station in that market. A
"meaningful relationship" is construed by the FCC to include a non-voting equity
position in excess of 33 1/3% of the total outstanding common stock. Clear
Channel has informed the Company that it is considering a number of alternatives
to comply with FCC regulations upon consummation of the Tichenor Merger. In the
event that no other alternative is approved by the FCC, Clear Channel has
informed the Company it may place any remaining shares of Nonvoting Common Stock
above the 33 1/3% maximum in a disposition trust for the purpose of sale,
through negotiated block transactions or other type of sales. The use of a
disposition trust, and the terms thereof, would be subject to the prior consent
of the FCC.

Upon consummation of the Tichenor Merger, the Company will enter into
an employment agreement with McHenry T. Tichenor, Jr., pursuant to which Mr.
Tichenor will serve as Chairman, President and Chief Executive Officer of the
Company for a five year term. Mr. Tichenor is currently the President and Chief
Executive Officer of Tichenor. The Tichenor Merger Agreement also provides that
following the consummation of the Tichenor Merger, five designees of Tichenor
shall constitute the entire Board of Directors of the Company. Tichenor has
informed the Company its designees are McHenry T. Tichenor Jr., McHenry T.
Tichenor Sr., Robert Hughes, James M. Raines, and Ernesto Cruz.



5

6
Business and Radio Station Asset Acquisitions

In March 1996, the Company acquired the FCC license and certain
broadcast and other equipment of WPAT-AM in the New York City market for
approximately $19.5 million in cash. The acquisition was financed through
additional borrowings under the Company's credit agreement.

Viva Media Transaction

On September 7, 1995, the Company, through a subsidiary, acquired from
Mambisa Broadcasting Corporation (Mambisa) the remaining 51% interest in Viva
America Media Group (Viva Media), a Florida partnership that owns WAQI-AM and
WRTO-FM which serve the Miami market, for $19.8 million in cash. In addition, on
September 7, 1995 the Company agreed to purchase from Mambisa real property in
Miami, Florida on which the transmission tower for WAQI-AM is located for $1.5
million in cash and a $1.5 million non-interest bearing promissory note. The
acquisition of the real property was completed in January 1996. The Company
secured the $1.5 million promissory note with a mortgage on the purchased
premises.

Refinanced Credit Agreement

New Credit Agreement

On August 5, 1996, concurrent with the completion of the Tender Offer
described under "Clear Channel Tender Offer", the Company borrowed $135 million
under a new revolving credit agreement ("New Credit Agreement") with new lenders
which provides a total credit facility of $155 million. The proceeds were used
to retire all of the outstanding debt under the Company's old credit agreement
and to pay certain noncompete and employment contract settlements plus certain
transaction and other costs relating to the Tender Offer. The lenders have a
security interest in the assets of the Company and the stock and partnership
interests of the Company's subsidiaries. The New Credit Agreement restricts the
payment of dividends and establishes limitations on, among other things, capital
expenditures and additional borrowings. The Company is also required to maintain
certain financial ratios, such as leverage and interest coverage ratios.
Interest on borrowings under the New Credit Agreement is due monthly and the
unpaid principal balance plus accrued interest is due in January 1998.

Old Credit Agreement

On March 13, 1996, the Company completed an Amended and Restated Credit
Agreement ("Old Credit Agreement") under which the credit facilities were
increased from $100 million to $175 million and the commencement of principal
payments was deferred until December 1996. Other terms of the Old Credit
Agreement remained substantially the same. On March 25, 1996, the Company
borrowed an additional $20 million under the Old Credit Agreement to fund the
acquisition of the assets of radio station WPAT-AM in New York.

Discontinued Operations

Effective August 5, 1996, the Company's Board of Directors approved a
plan to discontinue the operations of the radio network owned by the Company's
wholly owned subsidiary Spanish Coast-to-Coast, Ltd., dba Cadena Radio Centro
(CRC). The loss relating to the discontinued operations of CRC for fiscal 1996
approximates $10 million, $8.1 million of which was recognized during the
quarter ended September 30, 1996. CRC intends to fulfill its contractual program
obligations and is expected to cease operating by December 31, 1996.



6

7

SPANISH LANGUAGE RADIO INDUSTRY

Statistical information contained herein regarding the radio industry,
population, consumer spending and advertising expenditures are taken from the
Arbitron Company 1995-1996 radio metro ratings; 1990 U.S. Census; the Hispanic
Consumer Market Report (DRI/McGraw Hill, June 1992); SRDS -- Standard Rate &
Data Services (August 1996); Advertising Age (September 30, 1996); Sales and
Marketing Management's Survey of Buying Power; Strategy Research Corporation --
1996 U.S. Hispanic Market Study; Duncan's Radio Market Guide (1996 Edition);
Hispanic Business (December 1995); Market Segment Research, Inc., and Paul Kagan
Associates, Inc.

PROGRAMMING

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 a target demographic audience in each of the markets
it serves. A well researched mix of music and on-air programming at an
individual station can attract a wide audience targeted by Spanish language
advertisers. Programming is consistently 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 reflects
the music preferences of the local Hispanic audiences. A brief description of
each music style 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 sound 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
format 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 from Colombia.

Contemporary. The Contemporary format includes pop, Latin rock, and
ballads. This format is similar to English adult contemporary and contemporary
hit radio stations.

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
also up-tempo dance music originating from 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 sung in both Spanish and English. The on-air
talent speak in Spanish and English.

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.





7


8

STATIONS

The following table sets forth selected information regarding Company
owned radio stations:



GEOGRAPHIC RANKING BY PRIMARY
STATION MARKET HISPANIC STATION DEMOGRAPHIC
CALL LETTERS SERVED(1) POPULATION(2) FORMAT TARGET
------------ --------- --------------- ------- ---------

KTNQ-AM Los Angeles 1 News/Talk Adults
25-54
KLVE-FM Los Angeles 1 Contemporary Adults
25-54
WADO-AM New York(3) 2 News/Talk Adults
25+
WPAT-AM New York 2 Brokered n/a

WAMR-FM (4) Miami 3 Adult Contemporary Adults
25-54
WAQI-AM Miami 3 News/Talk Adults
35+
WRTO-FM Miami 3 Tropical Adults
18-34
WQBA-AM Miami 3 News/Talk/Sports Adults
35+
WLXX-AM Chicago 5 Tropical Adults
18-49
KESS-AM Dallas/Ft. Worth 9 Full Service Adults
18+
KINF-AM (5) Dallas/Ft. Worth 9 Talk Adults
18-49
KMRT-AM Dallas/Ft. Worth 9 Contemporary Adults
18-49
KMRT-FM Dallas/Ft. Worth 9 Contemporary Adults
18-49
KICI-FM Dallas/Ft. Worth 9 Tejano Adults
18-49
KHCK-FM Dallas/Ft. Worth 9 Tejano Adults
18-49
KLSQ-AM Las Vegas 33 Regional Mexican Adults
18-49


- -------------------------------------------------

(1) Actual city of license may differ from the metropolitan market served.

(2) 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 -- 1996 U.S. Hispanic Market
Study.

(3) The Company also owns WGLI-AM which currently is not broadcasting.

(4) Formerly WQBA-FM

(5) Formerly KICI-AM







8

9
The following table sets forth selected information with regard to Company owned
radio stations:



Date License FCC
Station/Location Acquired Expiration Date Frequency
- ---------------- -------- --------------- ---------

KTNQ-AM, Los Angeles, CA 10/85 12/1/97 1020 kHz
KLVE-FM, Los Angeles, CA 10/85 12/1/97 107.5 MHZ
WADO-AM, New York, NY 8/94 6/1/98 1280 kHz
WPAT-AM, New York, NY 3/96 6/1/98 930 kHz
WAQI-AM, Miami, FL 10/89 2/1/03 710 kHz
WRTO-FM, Miami, FL 10/89 2/1/03 98.3 MHZ
WQBA-AM, Miami, FL 8/94 2/1/03 1140 kHz
WAMR-FM, Miami, FL 8/94 2/1/03 107.5 MHZ
KESS-AM, Dallas/Ft. Worth, TX 8/94 8/1/97 1270 kHz
KINF-AM, Dallas/Ft. Worth, TX 8/94 8/1/97 1440 kHz
KMRT-AM, Dallas/Ft. Worth, TX 12/94 8/1/97 1480 kHz
KICI-FM, Corsicana, TX 4/95 8/1/97 107.9 MHZ
KMRT-FM, Dallas/Ft. Worth, TX 6/95 8/1/97 106.7 MHZ
KHCK-FM, Dallas/Ft. Worth, TX 7/95 8/1/97 99.1 MHZ
WLXX-AM, Chicago, IL 7/95 12/1/96 1200 kHz
KLSQ-AM, Las Vegas, NV 8/95 10/1/97 870 kHz


The Company also owns WGLI-AM in Babylon, New York which currently is
not broadcasting.

COMPETITION

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 could have a material
adverse effect on the revenue of stations located in that market.

The radio broadcasting industry is also subject to competition from new
media technologies being developed, such as the delivery of audio programming by
cable and direct satellite television systems, which are already available in
many markets, and satellite and terrestrial delivery of digital audio
broadcasting and satellite radio. See "--Federal Regulation of Radio
Broadcasting." There can be no assurance the development or introduction of any
new media technology will not have an adverse effect on the radio broadcasting
industry.

Companies operating radio stations must always be alert to the
possibility of another station changing its programming format to compete
directly for listeners and advertisers. There are typically several other
well-capitalized station operators competing in the same geographic markets as
the Company. If one or more of these operators decide to convert one of their
stations to a format similar to one of the Company's radio stations in the same
geographic area, the result could be lower ratings and advertising revenue,
increased


9

10
promotion and other expenses and consequently lower broadcast cash
flow for the Company.

FEDERAL REGULATION OF RADIO BROADCASTING

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") represents the most
comprehensive overhaul of the country's telecommunications laws in more than 60
years. The 1996 Act significantly changes both the broadcast ownership rules and
the process for renewal of broadcast station licenses. The 1996 Act also relaxes
local radio ownership restrictions. The FCC has already implemented some of
these changes through Commission Orders. The 1996 Act establishes a "two-step"
renewal process that limits the FCC's discretion to consider applications filed
in competition with an incumbent's renewal application. Additionally, the 1996
Act substantially liberalizes the national broadcast ownership rules,
eliminating the national radio limits.

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. Prior to the passage of the 1996
Act, these rules included limits on the number of radio stations that could be
owned on both a national and local basis. On a national basis, the rules
generally precluded any individual or entity from having an attributable
interest in more than 20 AM radio stations and 20 FM radio stations.

The 1996 Act substantially relaxed the radio ownership limitations. The
FCC began its implementation of the 1996 Act with several orders issued on March
8, 1996. The 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 Act and the FCC's new rules also
greatly eased local radio ownership restrictions. As with the old rules, the
maximum allowable varies depending on the number of radio stations within a
market. In markets with more than 45 stations, one company may own, operate or
control eight stations, with no more than five in any one service (AM or FM). In
markets of 30-44 stations, one company may own seven stations, with no more than
four in any one service; in markets with 15- 29 stations, one entity may own six
stations, with no more than four in any one 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 any one
service. It should be noted, however, that the Department of Justice recently
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.



10

11

In 1992, 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 in the same
market 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 an 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. FCC rules, the Communications Act or both generally prohibit
an individual or entity from having an attributable interest in both a
television station and a radio station, daily newspaper or cable television
system that is located in the same local market area served by the television
station. The FCC has employed a liberal waiver policy with respect to the
TV/radio cross-ownership restriction (the so-called "one-to-a-market" rule),
generally permitting common ownership of one AM, one FM, and one TV station in
any of the 25 largest markets, provided there are at least 30 separately owned
stations in the market. The 1996 Act directed the Commission to extend its
one-to-a-market waiver policy to the top 50 markets, consistent with the public
interest, convenience and necessity. On November 7, 1996, the FCC released a
Second Further Notice of Proposed Rulemaking seeking comment on a number if
issues relating to the local television ownership rules, including its tentative
conclusion that it should extend the presumptive waiver of the one-to-a-market
rule to the top 50 markets. The Commission also requested further comment on
whether there is a continued need for the rule and, if there is, whether the
rule should be further modified. In addition, on September 27, 1996, the FCC
released a Notice of Inquiry seeking 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 Commission to review its remaining ownership rules biennially -- as
part of its regulatory reform obligations -- to determine whether its various
rules are still necessary. The Company cannot predict the impact of the biennial
review process or any other agency or legislative initiatives upon the FCC's
broadcast rules. Further, the 1996 Act's relaxation of the FCC's ownership rules
may increase the level of competition in one or more of the markets in which the
Company's stations are located, particularly to the extent that any of the
Company's competitors may have greater resources and thereby be in a better
position to capitalize on such changes.

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), generally will be 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 ten percent of such outstanding voting stock without
being considered "attributable". Under current FCC regulations, debt
instruments, non-voting stock, properly 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 in cases in which there
is a single majority stockholder generally are not attributable. The FCC's
"cross-interest" policy, which precludes an individual or entity from having a
"meaningful" (even though not attributable) interest in one media property and
an attributable interest in a broadcast, cable or newspaper property in the same
area, may be invoked in certain circumstances to reach interests not expressly
covered by the multiple ownership rules.



11

12

In January 1995, the FCC initiated a rulemaking proceeding designed to
permit a "thorough review of [its] broadcast media attribution rules." Among the
issues on which comment was sought were (i) whether to change the voting stock
attribution benchmarks from five percent to ten percent and, for passive
investors, from ten percent to twenty percent; (ii) whether there are any
circumstances in which non-voting stock interests, which are currently
considered non-attributable, should be considered attributable; (iii) whether
the FCC should eliminate its single majority shareholder exception (pursuant to
which voting interests in excess of five percent are not considered cognizable
if a single shareholder owns more than fifty percent of the voting power); (iv)
whether to relax insulation standards for business development companies and
other widely-held limited partnerships; (v) how to treat limited liability
companies and other new business forms for attribution purposes; (vi) whether to
eliminate or codify the cross-interest policy; and (vii) whether to adopt a new
policy which would consider whether multiple cross interests or other
significant business relationships (such as time brokerage agreements, debt
relationships or holdings of nonattributable interests), which individually do
not raise concerns, raise issues with respect to diversity and competition. On
November 7, 1996, the FCC released a Further Notice of Proposed Rulemaking in
order to elicit further comment on several issues concerning its review of the
broadcast attribution rules. In general, the FCC seeks comment as to whether the
recent relaxation of the multiple ownership rules resulting from passage of the
1996 Act should affect the Commission's review of the rules, including whether a
combination of debt and equity exceeding a certain threshold should be
considered to be an attributable interest. The Company cannot predict with
certainty when this proceeding will be concluded or whether any of these
standards will be changed. Should the attribution rules be changed, the Company
is unable to predict what effect, if any, such changes would have on the Company
or its activities.

License Grant and Renewal. Prior to the passage of the 1996 Act, radio
broadcasting licenses generally were granted or renewed for a period of seven
years upon a finding by the FCC that the "public interest, convenience, and
necessity" would be served thereby. At the time an application is made for
renewal of a radio license, parties in interest may file petitions to deny the
application, and such parties, including members of the public, may comment upon
the service the station has provided during the preceding license term. In
addition, prior to passage of the 1996 Act, any person was permitted to file a
competing application for authority to operate on the station's channel and
replace the incumbent licensee. Renewal applications were granted without a
hearing if there were no competing applications or if issues raised by
petitioners to deny such applications were not serious enough to cause the FCC
to order a hearing. If competing applications were filed, a full comparative
hearing was required.

Under the 1996 Act, the statutory restriction on the length of
broadcast licenses has been amended to allow the FCC to grant broadcast licenses
for terms of up to eight years, although the FCC has not yet implemented this
provision. 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, under the
1996 Act, competing applications for the same frequency may be accepted only
after the Commission has denied an incumbent's application for renewal of
license.

By order dated April 12, 1996, the FCC modified its rules to implement
the new two-step renewal procedure and to eliminate the right to file an
application that is mutually exclusive with a renewal. This modification became
effective prior to the filing of the license renewal application for WLXX-AM in
Chicago which is currently pending. Also on April 12, 1996, the FCC issued a
notice of Proposed Rulemaking to consider how to implement the new (longer)
license term provision of the 1996 Act.



12

13

Although in the vast majority of cases broadcast licenses are granted
by the FCC even 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. The Communications Act previously prohibited granting of a
broadcast station license (i) to any corporation with an alien officer or
director, or (ii) to any corporation controlled by another corporation with any
alien officers or more than one-fourth alien directors. The restrictions on
non-U.S. citizens serving as officers or directors of licensees and their parent
corporations have been eliminated, however, by the 1996 Act.

Other Regulations Affecting Radio Broadcasting Stations. The FCC has
significantly reduced its past regulation of broadcast stations, including
elimination of formal ascertainment requirements and guidelines concerning
amounts of certain types of programming and commercial matter that may be
broadcast. In 1990, the U.S. Supreme Court refused to review a lower court
decision that upheld the FCC's 1987 action invalidating most aspects of the
Fairness Doctrine, which had required broadcasters to present contrasting views
on controversial issues of public importance. The FCC has, however, continued to
regulate other aspects of fairness obligations in connection with certain types
of broadcasts. In addition, there are FCC rules and policies, and rules and
policies of other federal agencies, that regulate matters such as political
advertising practices, equal employment opportunity, application procedures and
other areas affecting the business or operations of broadcast stations.

Recent Developments, Proposed Legislation and Regulation. The FCC
presently is seeking comment on its policies designed to increase minority
ownership of mass media facilities. Congress, however, has enacted legislation
that eliminated the minority tax certificate program of the FCC, which gave
favorable tax treatment to entities selling broadcast stations to entities
controlled by an ethnic minority. In addition, a recent Supreme Court decision
has cast into doubt the continued validity of other FCC programs designed to
increase minority ownership of mass media facilities.

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. 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



13

14



innovations and developments generally affecting competition in the mass
communications industry.

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. The 1996 Act also covers satellite and
terrestrial delivery of digital audio radio service, and direct broadcast
satellite systems. 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.

INDUSTRY SEGMENTS

The Company considers radio broadcasting to be its only business
segment.

EMPLOYEES

As of November 1, 1996, the Company employed 314 persons on a full-time
basis, including 10 corporate employees and 13 employees (at WADO-AM, New York)
who are subject to two collective bargaining agreements. The Company considers
its employee relations to be good.

ITEM 2. PROPERTIES

The Company's corporate offices are located in a 3,560 square foot
leased facility in Las Vegas, Nevada. The initial term of the lease expires in
1999 and the Company has two options to extend the lease for additional
five-year terms. Subsequent to the consummation of the Tichenor Merger, the
Company plans to relocate and combine its corporate office with Tichenor's
corporate office in Dallas.

The studios for both KTNQ-AM and KLVE-FM are located in a 27,638 square
foot leased facility in Hollywood, California. The initial term of the lease
expires in April 2003 and the Company has two options to extend the lease for
additional five-year terms.

The Company has a special permit from the United States Department of
Forestry for the lease of its FM tower on top of Mt. Wilson in Los Angeles. This
permit has been subject to renewal on an annual basis since it was granted in
1986 and has been renewed each year. Many other radio stations in Los Angeles
have similar permits which are subject to the same or similar renewal
requirements.

The Company leases a tower site and an equipment room in City of
Industry, California for broadcast of the KTNQ-AM signal. The lease expires in
April 2080. The Company also leases another equipment room at the tower site
under a lease which expires in December 2089. The Company owns the towers at the
leased tower site.

The Company owns a tower located in Miramar, Florida which broadcasts
the signal for WAQI-AM. In January 1996, the Company acquired this land for $3.0
million. The Company leases a tower located in Miami, Florida for the broadcast
of the signal for WRTO-FM under a lease which expires on August 31, 1997. The
Company owns a tower located in Dade County, Florida which broadcasts the signal
for WQBA-AM and leases a tower located in Dade County, Florida for the broadcast
of the WAMR-FM signal. The initial term of this lease expires in April 2000, and
the Company has two options to extend the lease for periods of five years each.


14

15

The broadcast studios for WQBA-AM , WAMR-FM, WAQI-AM, and WRTO-FM are
located in a 15,563 square foot facility in Miami leased by the Company. This
lease expires in April 2000.

The administrative offices for WADO-AM are currently located in a 5,600
square foot facility in New York leased by the Company. The broadcast studios
for WADO-AM are located in a 2,600 square foot facility owned by the Company.
The Company owns a tower in Carlstadt, New Jersey which broadcasts the signal
for WADO-AM. The ground radial system and guy wires for the tower are located on
adjacent property leased from the State of New Jersey until March 2016.

Studio, transmitter and office facilities of WPAT-AM are located in a
7,600 square foot building in Clifton, New Jersey. Adjacent to the building is
the tower site. The related building, tower site and the towers are owned by the
Company. The Company plans to relocate and combine the administrative offices
and studios of WADO-AM with the facilities of WPAT-AM in early 1997.

The Texas stations' offices are located in a 22,000 square foot
facility in Dallas owned by the Company. The Company owns a tower in Ft. Worth
for the broadcast of the signal for KESS-AM and leases the land on which such
tower is located under a lease which expires in September 2001. The Company owns
a tower located in Denton, Texas which broadcasts the signal for KICI-AM and a
tower located in Dallas which broadcasts the signal for KMRT-AM. The Company
also owns a tower located in Dallas which broadcasts the signal for KICI-FM. The
Company leases land in Tarrant County and Wise County on which the towers that
broadcast the signals for KMRT-FM and KHCK-FM, respectively, are located. These
leases expire in September 2001 and July 2000, respectively, and provide for
options to renew the leases through September 2006 and July 2005, respectively.
The Company owns the towers and equipment buildings located on the leased land.

The studio and administrative office for WLXX-AM relocated to a new
facility in Chicago in September 1996. The Company subleases approximately 2,400
square feet for which the lease expires in 2006. The Company also leases land in
Chicago on which a tower which broadcasts the signal for WLXX-AM is located.
This lease expires in March 1998 and provides for four options to renew the
lease for a term of ten years each.

The studio and administrative office for KLSQ-AM occupy 1,500 square
feet at the same facility as the Company's corporate office in Las Vegas,
Nevada. The initial term of the lease expires in 1999 and the lease provides for
two options to renew the lease for a term of five years each. The Company also
leases land in Laughlin, Nevada and Henderson, Nevada, on which the towers that
broadcast the signal for KLSQ-AM are located. These leases expire in 2019 and
2004, respectively. Each of the leases provides for renewal options which extend
the expiration date of the respective leases.

ITEM 3. LEGAL PROCEEDINGS

On June 14, 1996, Levine v. Cecil Heftel, H. Carl Parmer, Madison
Graves, Richard Heftel, John Mason, Heftel Broadcasting Corporation and Clear
Channel Communications, Inc. (Case No. 15066) was filed in the Court of Chancery
of the State of Delaware in the County of New Castle. This complaint is a
purported class action complaint on behalf of Jeffrey Levine and all other
stockholders of the Company to enjoin the defendants from effectuating the
Tender Offer. The plaintiff also alleges that Cecil Heftel and Carl Parmer,
former directors and executive officers of the Company, breached their fiduciary
duties to the stockholders of the Company by negotiating a settlement of amounts
which would be owed to them under their employment agreements upon a termination
thereof by the Company at the closing of the Tender Offer. The suit seeks the
rescission of the Tender Offer and/or the grant of rescissory damages. In
addition, plaintiff seeks unspecified compensatory damages and an award of
attorneys' fees and costs. The Company has tendered the claims



15

16

subject to this suit to its director and officer insurance carriers. The Tender
Offer closed without any action by plaintiffs. The Company has filed a motion to
dismiss the suit and has requested plaintiffs to dismiss the suit voluntary. No
action has been taken on such motion or such request. The Company's management
believes the disposition of this litigation will not have a materially adverse
effect on the Company's consolidated financial position or results of
operations.

In the ordinary course of business, the Company becomes involved in
certain other 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company did not submit any matters to a vote of holders of Common
Stock during the fourth quarter of fiscal 1996.



16
17

PART II


ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Class A Common Stock is traded in the over-the-counter
market, and prices for the shares are quoted on the Nasdaq National Market under
the symbol "HBCCA." The following table sets forth the high and low closing sale
prices per share as reported on the Nasdaq National Market for each of the
quarters in the fiscal years ended September 30, 1995 and 1996:



High Low
---- ---

Fiscal Year Ended September 30, 1995:
First Quarter $16 $ 9 1/2
Second Quarter 13 7/8 10
Third Quarter 15 3/4 10 1/8
Fourth Quarter 21 3/4 15 1/4

Fiscal Year Ended September 30, 1996:
First Quarter 19 1/2 14 3/4
Second Quarter 21 15 1/4
Third Quarter 29 7/8 19 1/2
Fourth Quarter 43 5/8 28 1/4


As of December 18, 1996, the number of stockholders of record of the
Company's Class A Common Stock was 14. 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. There are no outstanding shares
of the Company's Class B Common Stock.

During the quarter ended September 30, 1996, the Company issued 5,000
shares of the Company's Class A Common Stock to a former director pursuant to
the exercise and sale of an in-the-money stock option granted in December 1995.
This issuance was not registered with the Securities and Exchange Commission.

DIVIDEND POLICY

The Series A Preferred Stock ("Preferred Stock") dividends have a
cumulative annual rate of $0.08 per share. In January 1995, the Company redeemed
1,960,290 shares of Preferred Stock using proceeds of the Company's 1994 initial
public offering. The Company declared and paid cash dividends on the Preferred
Stock equal to the cumulative unpaid dividends through the date of redemption,
which approximated $2.9 million. In 1992, the Company redeemed 2,115,468 shares
of Preferred Stock owned by Cecil Heftel and agreed with Mr. Heftel to defer
payment of cumulative unpaid dividends until dividends on the remaining shares
of Preferred Stock were declared and paid. Such dividends relating to the 1992
Preferred Stock redemption, which totaled $1.1 million, are included in the $2.9
million of unpaid cumulative dividends described above. On August 5, 1996, in
connection with the Tender Offer, the remaining 335,634 shares of Preferred
Stock were redeemed and retired. Total dividends paid during fiscal 1996
relating to these retired shares were $42,961. Any future determination as to
declaration of dividends on the common stock will be at the discretion of the
Company's Board of Directors and will depend on the Company's results of
operations, financial condition, capital requirements, lending agreements and
other factors deemed relevant by the Board of Directors.




17

18



ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected consolidated financial data for Heftel
Broadcasting Corporation and its subsidiaries for each of the five years ended
September 30, 1996 (in thousands, except per share data):




Year ended September 30,
1992 1993 1994(1) 1995 1996
------------ ------------ ------------ ------------ ------------

STATEMENT OF OPERATIONS DATA:
Net broadcasting revenues $ 19,134 $ 20,932 $ 27,433 $ 64,160 $ 71,732
Revenues relating to Mi CASA 581 399 -- -- --
------------ ------------ ------------ ------------ ------------
Total net revenues 19,715 21,331 27,433 64,160 71,732

Station operating expenses 10,520 10,479 15,345 43,643 48,896
Expenses relating to Mi CASA 768 1,470 -- -- --
Corporate expenses 3,671 2,530 3,454 4,720 5,072
Depreciation and amortization 2,050 1,760 1,906 3,344 5,140
------------ ------------ ------------ ------------ ------------
Total operating expenses 17,009 16,239 20,705 51,707 59,108
------------ ------------ ------------ ------------ ------------
Operating income 2,706 5,092 6,728 12,453 12,624

Other income (expense):
Interest expense, net (2,192) (2,312) (2,997) (6,389) (11,034)
Income (loss) in equity of joint
venture(2) (991) 746 616 -- --
Loss on retirement of debt (1,936) -- (1,738) -- (7,461)
Restructuring charges -- -- -- -- (29,011)
Other expenses, net (921) (533) (1,407) (428) (1,671)
------------ ------------ ------------ ------------ ------------
Total other income (expense) (6,040) (2,099) (5,526) (6,817) (49,177)
------------ ------------ ------------ ------------ ------------
Income (loss) before
minority interest
and income taxes (3,334) 2,993 1,202 5,636 (36,553)
Minority interest -- -- -- (351) (1,167) --
Provision for income tax -- (272) (100) (150) (65)
------------ ------------ ------------ ------------ ------------
Income (loss) from
continuing operations (3,334) 2,721 751 4,319 (36,618)
Discontinued operations:
Loss on discontinued
operations of CRC(3) -- -- (285) (626) (9,988)
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (3,334) $ 2,721 $ 466 $ 3,693 $ (46,606)
============ ============ ============ ============ ============

Income (loss) from continuing
operations per common and
common equivalent share $ (.90) $ .65 $ .14 $ .40 $ (3.56)
============ ============ ============ ============ ============

Net income (loss) per common and
common equivalent share $ (.90) $ .55 $ .05 $ .34 $ (4.53)
============ ============ ============ ============ ============

Weighted average shares
outstanding 4,046,360 4,638,019 5,384,678 10,805,346 10,294,967
============ ============ ============ ============ ============

OTHER OPERATING DATA:
Broadcast cash flow(4) $ 8,614 $ 10,453 $ 12,088 $ 20,517 $ 22,836

BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital $ (716) $ 715 $ 18,366 $ 14,967 $ 7,168
Net intangible assets 10,387 8,727 70,528 109,253 121,742
Total assets 23,347 25,770 113,353 151,637 165,751
Long-term debt,
less current portion 24,995 25,779 58,472 95,937 136,126
Stockholders'
equity (deficiency) $ (11,018) $ (10,164) $ 44,436 $ 43,581 $ 12,101



See accompanying notes

18

19



NOTES TO SELECTED FINANCIAL DATA

(1) During August 1994, the Company completed three separate business
acquisitions and began consolidating a previously unconsolidated
investment in a joint venture. Total net revenues and net income
(loss), adjusted for interest expense on retired debt, relating to
these acquisitions and transaction from the respective dates of these
transactions to September 30, 1994 was approximately $5,488,000 and
$(80,000), respectively.

(2) See Note 1 of Notes to Consolidated Financial Statements of the
Company.

(3) The Company's Board of Directors approved a plan to discontinue the
operations of the radio network owned by CRC, effective August 5, 1996.
The total loss relating to the discontinued operations of CRC for
fiscal 1996 was approximately $10 million, $8.1 million of which was
recognized during the quarter ended September 30, 1996. The loss on
disposal of CRC includes approximately $1.9 million of operating losses
from the measurement date, August 5, 1996, through the planned disposal
date, December 31, 1996. CRC intends to fulfill its contractual program
obligations and is expected to cease operating by December 31, 1996.

(4) Data on station operating income excluding depreciation and
amortization (commonly referred to as "broadcast cash flow"), although
not calculated in accordance with generally accepted accounting
principles, is widely used in the broadcast industry as a measure of a
broadcast company's operating performance. Nevertheless, this measure
should not be considered in isolation or as a substitute for operating
income, cash flows from operating activities or any other measure for
determining the Company's operating performance or liquidity which is
calculated in accordance with generally accepted accounting principles.




19

20

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO THE YEAR
ENDED SEPTEMBER 30, 1995

During fiscal 1995, the Company completed several radio station
acquisitions. Due to the financial effects of these transactions, the results of
operations for 1996 reflect a full fiscal year of operations for these radio
stations compared to a partial year in 1995. Consequently, the results of
operations for the two years ended September 30, 1996 are not entirely
comparable.

Net revenues increased by $7.6 million, or 11.8%, to $71.7 million in
the year ended September 30, 1996 from $64.2 million in the same period of 1995.
Operating expenses increased by $7.4 million, or 14.3%, to $59.1 million in the
year ended September 30, 1996 from $51.7 million in the same period of 1995.
These increases were due primarily to the results of operations for the full
fiscal year of additional radio stations acquired during fiscal 1995.

Interest expense, net of interest income, increased by $4.6 million, or
72.7%, to $11.0 million in the year ended September 30, 1996 from $6.4 million
in the same period of 1995 primarily due to increased borrowings totaling
approximately $42.0 million resulting from radio station asset acquisitions and
certain transaction costs related to the Tender Offer.

Other expenses increased by $37.7 million to $38.1 million during the
year ended September 30, 1996 as compared to $428,000 for the same period in
1995. For the year ended September 30, 1996, the Company incurred a non-cash
loss of $7.5 million as a result of refinanced debt. In addition, in 1996 the
Company incurred a loss of $29.0 million relating to certain one-time
restructuring charges described further in the following paragraphs. During
fiscal 1996, the Company incurred $1.4 million in cost related to unconsummated
acquisitions as compared to $142,000 for fiscal 1995. In fiscal 1995, the
Company recorded $1.2 million in minority interest relating to Viva Media. In
1996, the Company owned 100% of Viva Media; therefore no minority interest was
recorded.

Effective August 5, 1996, the Company's Board of Directors approved a
plan to discontinue the operations of the radio network owned by CRC. The total
loss relating to the discontinued operations of CRC for fiscal 1996 was
approximately $10 million. The charge to operations during the quarter ended
September 30, 1996 was approximately $8.1 million, of which $6.2 million relates
to non-cash charges resulting from the write-off of goodwill. No income tax
benefit was realized due to the Company's availability of net operating loss
carryforwards. The loss on disposal of CRC includes approximately $1.9 million
of operating losses from the measurement date, August 5, 1996, through the
planned disposal date, December 31, 1996. CRC intends to fulfill its contractual
program obligations and is expected to cease operating by December 31, 1996.

In connection with the Tender Offer, the Company incurred certain
one-time restructuring charges totaling approximately $29.0 million during the
quarter ended September 30, 1996. The material components of the restructuring
charges are $18.8 million in payments to former senior executives relating to
employment contract settlements, $4.7 million in broker commissions and
transaction costs, $2.5 million in costs relating to the planned closing of
duplicate facilities, plus $1.9 million in severance relating to employee
terminations resulting from the restructuring.

During fiscal 1996, the Company incurred a net loss of $46.6 million
compared to net income of $3.7 million in the same period of 1995. The change
from net income in 1995 to the net loss in 1996 of $50.3 million consist
primarily of the increase in interest expense, loss on retirement of debt,
discontinued operations of CRC, and the restructuring charges related to the
Tender Offer, all as described above.



20

21


RESULTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO THE YEAR
ENDED SEPTEMBER 30, 1994

During fiscal 1995, the Company completed several radio station
acquisitions. Additional stations were acquired in August 1994. Due to the
financial effects of these transactions, the results of operations for 1995
reflect the operations of more radio stations than the results of operations for
1994. Consequently, the financial condition and results of operations for the
two years ended September 30, 1995 are not entirely comparable.

Net revenues increased by $36.7 million, or 133.9%, to $64.2 million in
the year ended September 30, 1995 from $27.4 million in the same period of 1994.
Operating expenses increased by $31.0 million, or 149.7%, to $51.7 million in
the year ended September 30, 1995 from $20.7 million in the same period of 1994.
These increases were due primarily to the results of operations of additional
radio stations acquired in August 1994 and during fiscal 1995.

Interest expense, net of interest income, increased by $3.4 million, or
113.2%, to $6.4 million for the year ended September 30, 1995 from $3.0 million
in the same period of 1994 primarily due to increased borrowings resulting from
new business acquisitions.

Other expenses decreased by $2.7 million, or 86%, to $428,000 during
the year ended September 30, 1995 as compared to $3.1 million for the same
period in 1994. For the year ended September 30, 1994, the Company incurred a
loss of $1.7 million as a result of refinanced debt. In addition, in 1995, the
Company incurred $142,000 in costs relating to unconsummated acquisitions
compared to $1.1 million in the prior year.

Effective August 20, 1994, the Company began accounting for its 49%
investment in Viva Media on a consolidated basis. Accordingly, the results of
operations include the accounts of Viva Media from August 20, 1994 through
September 30, 1994, and for the entire fiscal year ended September 30, 1995.

Net income increased by $3.2 million to $3.7 million in the year ended
September 30, 1995 from $466,000 in the same period of 1994.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities for the year ended September 30,
1996 was $20.1 million, compared to net cash provided by operations of $6.3
million for the same period in 1995. Excluding the effects of the loss on
discontinued operations of CRC and the cash portion of certain restructuring
charges related to the Tender Offer incurred during fiscal 1996, net cash
provided by operating activities would have been $5.3 million as compared to net
cash used of $20.1 million. Generally, capital expenditures are financed with
cash provided by operations and long-term borrowings. On August 5, 1996,
concurrent with the completion of the Tender Offer, the Company borrowed $135
million under the New Credit Agreement, which provides a total credit facility
of $155 million. The proceeds were used to retire all of the outstanding debt
under the Company's Old Credit Agreement (as hereafter defined) and to pay
certain non-compete and employment contract settlements plus certain transaction
and other costs relating to the Tender Offer. The lender has a security interest
in substantially all the assets of the Company and its subsidiaries, including
the stock and partnership interests of the Company's subsidiaries. The New
Credit Agreement restricts the payment of dividends and establishes limitations
on, among other things, capital expenditures and additional borrowings. The
Company is also required to maintain certain financial ratios, such as leverage
and interest coverage ratios. The entire principal balance outstanding plus
unpaid interest is due in January 1998.


21

22

On March 13, 1996, the Company completed an Amended and Restated Credit
Agreement ("Old Credit Agreement") resulting in an increase to the total credit
facilities from $100 million to $175 million and the commencement of principal
payments was deferred until December 31, 1996. Other terms of the Old Credit
Agreement remained substantially the same. On March 25, 1996, the Company
borrowed an additional $20 million under the Old Credit Agreement. The proceeds
were used to fund the acquisition of the FCC license and certain broadcast and
other equipment of WPAT-AM in New York.

On January 10, 1996, the Company borrowed $1.5 million under its Old
Credit Agreement and issued a $1.5 million non-interest promissory note in
connection with the acquisition of real property in Miami on which an AM
transmitting tower is located. During fiscal 1995, the Company borrowed
$36,475,000 under the Old Credit Agreement. Proceeds of these borrowings were
used primarily for business acquisitions, capital expenditures and working
capital.

On October 18, 1996, the Company filed a Registration Statement on Form
S-3 with the Securities and Exchange Commission to register the sale of up to
4,025,000 shares of its Class A Common Stock in a secondary public offering. The
net proceeds from this stock offering will be used to repay outstanding debt
under the New Credit Agreement. The registration statement has not yet been
declared effective by the Securities and Exchange Commission.

Available cash on hand plus cash provided by operations were sufficient
to pay interest due under the credit agreements and fund certain capital
expenditures during the year ended September 30, 1996. The Company's management
believes it will have sufficient cash flow to finance its operations and satisfy
its debt service requirements. The Company regularly reviews potential
acquisitions of additional radio stations. Future acquisitions are expected to
be financed through additional borrowings under the New Credit Agreement and/or
cash provided by operations.

Following the Tichenor Merger, the Company may refinance all or a
portion of the consolidated indebtedness. There can be no assurance, however,
that any such refinancing will be consummated, or if consummated, what the terms
of the new financing will be.

NET OPERATING LOSS CARRYFORWARDS

As of September 30, 1996, the Company had tax net operating loss
carryforwards for federal and state tax purposes of approximately $21.9 million
and $3.4 million, respectively. The loss carryforwards expire through the year
2011 if not used.

NEW ACCOUNTING STANDARDS

Beginning fiscal 1997, the Company will adopt Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. Statement No. 121
also addresses the accounting for long-lived assets that are expected to be
disposed of. The adoption of this new accounting standard is not expected to
have a material effect on the Company's financial statements.


22

23



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS



Page

Report of Independent Auditors........................................... 24

Consolidated Balance Sheets as of September 30, 1996 and 1995............ 25

Consolidated Statements of Operations for each of the three years
in the period ended September 30, 1996................................ 27

Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended September 30, 1996............. 28

Consolidated Statements of Cash Flows for each of the three years
in the period ended September 30, 1996................................ 29

Notes to Consolidated Financial Statements............................... 30




23

24
REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Heftel Broadcasting Corporation

We have audited the accompanying consolidated balance sheets of Heftel
Broadcasting Corporation as of September 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Heftel Broadcasting Corporation at September 30, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles.


ERNST & YOUNG LLP


Los Angeles, California
November 7, 1996





24

25



HEFTEL BROADCASTING CORPORATION

CONSOLIDATED BALANCE SHEETS



SEPTEMBER 30
1996 1995
---- ----

ASSETS
Current assets:
Cash and cash equivalents $ 5,131,960 $ 5,404,310
Accounts receivable, net of allowance of $1,657,860
in 1996 and $1,491,877 in 1995 17,015,323 15,501,811
Amounts receivable from officers and stockholders -- 2,357,932
Prepaid expenses and other current assets 1,012,232 2,243,445
------------- --------------
Total current assets 23,159,515 25,507,498


Property and equipment, at cost:
Land 6,662,690 648,690
Buildings and improvements 4,601,932 4,024,013
Broadcast and other equipment 12,620,463 10,238,010
Furniture and fixtures 2,970,813 2,669,401
------------- -------------
26,855,898 17,580,114
Less accumulated depreciation and amortization (7,019,970) (5,335,151)
------------- -------------
19,835,928 12,244,963

Intangible assets:
Broadcast licenses 98,725,706 83,725,706
Cost in excess of fair value of net assets acquired 24,135,219 30,665,219
Covenants not-to-compete 7,000,000 --
Other intangible assets 505,000 505,000
------------- -------------
130,365,925 114,895,925
Less accumulated amortization (8,624,020) (5,643,246)
------------- -------------
121,741,905 109,252,679
Other non-current assets:
Deferred charges, net 360,000 3,104,679
Notes receivable from related parties -- 803,303
Other 653,778 724,162
-------------- -------------
1,013,778 4,632,144
------------- -------------

Total assets $ 165,751,126 $ 151,637,284
============= =============


See accompanying notes.


25

26



HEFTEL BROADCASTING CORPORATION

CONSOLIDATED BALANCE SHEETS



SEPTEMBER 30
1996 1995
---- ----

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
other non-current obligations (Note 5) $ 1,859,301 $ 795,758
Accounts payable 707,967 1,191,625
Accrued expenses (Note 10) 13,423,891 7,714,844
Amounts payable to officers and stockholders -- 838,241
------------- -------------
Total current liabilities 15,991,159 10,540,468

Long-term debt, less current portion (Note 5) 136,126,364 95,936,528
Other non-current obligations, less current portion (Note 5) 1,532,214 1,579,133

Commitments and contingencies (Note 6)

Stockholders' equity (Note 8):
Series A Preferred Stock, cumulative, $.001 par value, 2,600,000 shares
authorized, none issued or outstanding in 1996, 335,634 shares issued
and outstanding in 1995. Liquidation preference of $355,772 in 1995 -- 336
Undesignated series preferred stock, $.001 par value, 2,400,000
shares authorized, none issued or outstanding -- --
Class A Common Stock, $.001 par value, 30,000,000 shares authorized,
11,547,731 issued and outstanding in 1996 and
6,191,799 shares in 1995 11,548 6,192
Class B Common Stock, $.001 par value, 7,000,000 shares authorized,
none issued and outstanding in 1996 and 4,679,763 shares in 1995 -- 4,680
Additional paid-in capital 102,578,149 95,693,269
Accumulated deficit (90,488,308) (43,839,535)
Less treasury stock at cost, 810,587 shares in 1995 -- (4,019,735)
Notes receivable from stockholders related to
purchase of stock -- (4,264,052)
------------- -------------
Net stockholders' equity 12,101,389 43,581,155
------------- -------------

Total liabilities and stockholders' equity $ 165,751,126 $ 151,637,284
============= =============


See accompanying notes.


26

27

HEFTEL BROADCASTING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS



YEAR ENDED SEPTEMBER 30
------------------------
1996 1995 1994
------------ ------------ -----------

Revenues:
Broadcasting revenues $81,242,695 $72,577,882 $31,344,144
Less agency commissions (9,510,663) (8,418,340) (3,911,414)
------------ ------------ -----------
Net revenues 71,732,032 64,159,542 27,432,730

Operating expenses:
Selling 12,363,883 10,393,242 3,857,446
Programming 12,185,339 10,174,717 3,080,245
Promotion and market research 8,608,195 10,099,402 3,619,097
Engineering 2,666,454 1,842,711 535,609
General and administrative 13,072,385 11,132,437 4,252,718
Corporate expenses 5,071,859 4,720,380 3,453,839
Depreciation and amortization 5,140,131 3,344,419 1,905,864
------------ ------------ -----------
Total operating expenses 59,108,246 51,707,308 20,704,818
------------ ------------ -----------

Operating income 12,623,786 12,452,234 6,727,912

Other income (expense):
Interest income 206,605 217,830 183,060
Interest expense (11,240,835) (6,607,180) (3,180,272)
Net income in equity of joint venture (Note 1) -- -- 616,390
Costs relating to unconsummated acquisitions (1,383,187) (141,988) (1,099,701)
Loss on retirement of debt (Note 5) (7,461,267) -- (1,737,707)
Restructuring charges (Note 3) (29,011,237) -- --
Miscellaneous, net (287,140) (285,568) (307,577)
------------ ------------ -----------
(49,177,061) (6,816,906) (5,525,807)
------------ ------------ -----------
Income (loss) before minority interest and
provision for income taxes (36,553,275) 5,635,328 1,202,105
Minority interest (Note 1) -- (1,166,780) (351,502)
Provision for income taxes (Note 7) (65,000) (150,000) (100,000)
------------ ------------ -----------
Income (loss) from continuing operations (36,618,275) 4,318,548 750,603

Discontinued operations (Note 3):
Loss on operations of CRC (1,844,939) (625,970) (284,709)
Loss on disposal of CRC (8,142,598) -- --
------------ ------------ -----------
Total loss on discontinued operations (9,987,537) (625,970) (284,709)
------------ ------------ -----------
Net income (loss) $(46,605,812) $ 3,692,578 $ 465,894
============ ============ ===========

Income (loss) from continuing operations
per common and common equivalent share $(3.56) $0.40 $0.14
============ ============ ===========

Net income (loss) per common
and common equivalent share $(4.53) $0.34 $0.05
============ ============ ===========

Weighted average common shares outstanding 10,294,967 10,805,346 5,384,678
============ ============ ===========




See accompanying notes.

27



28

HEFTEL BROADCASTING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(NOTES 8 AND 9)




NOTES NET
COMMON STOCK ADDITIONAL RECEIVABLE STOCKHOLDERS'
--------------- PREFERRED PAID-IN ACCUMULATED TREASURY FROM EQUITY
CLASS A CLASS B STOCK CAPITAL DEFICIT STOCK STOCKHOLDERS (DEFICIENCY)
------- ------ ------- ------------ ----------- ---------- ----------- -----------

Balance at September 30, 1993 $-- $ 4,194 $ 2,296 $ 36,697,744 $(45,136,729) $(1,000,000) $ (732,000) $(10,164,495)
Reissuance of treasury stock -- -- -- -- -- 1,000,000 (1,000,000) --
Purchase of treasury
stock, at cost -- -- -- -- -- (4,019,735) -- (4,019,735)
Common stock issued in
connection with:
Public offering 3,875 -- -- 33,933,625 -- -- -- 33,937,500
Private sale of stock 1,240 -- -- 11,498,760 -- -- -- 11,500,000
Conversion of Class B to
Class A Common Stock 216 (216) -- -- -- -- -- --
Acquisitions 701 513 -- 12,281,305 -- -- -- 12,282,519
Exercise of warrants -- 189 -- 851,863 -- -- (852,052) --
Issuance of stock options -- -- -- 434,808 -- -- -- 434,808
1994 net income -- -- -- -- 465,894 -- -- 465,894
------- ------ ------- ------------ ----------- ---------- ----------- ------------
Balance at September 30, 1994 6,032 4,680 2,296 95,698,105 (44,670,835) (4,019,735) (2,584,052) 44,436,491
Repurchase of preferred stock -- -- (1,960) (1,958,330) -- -- -- (1,960,290)
Preferred stock dividends -- -- -- -- (2,861,278) -- -- (2,861,278)
Common stock issued in
connection with
exercise of warrants 160 -- -- 1,679,840 -- -- (1,680,000) --
Issuance of stock options -- -- -- 273,654 -- -- -- 273,654
1995 net income -- -- -- -- 3,692,578 -- -- 3,692,578
------- ------ ------- ------------ ----------- ---------- ----------- ------------
Balance at September 30, 1995 6,192 4,680 336 95,693,269 (43,839,535) (4,019,735) (4,264,052) 43,581,155
Repurchase of preferred stock -- -- (336) (335,298) -- -- -- (335,634)
Preferred stock dividends -- -- -- -- (42,961) -- -- (42,961)
Retirement of treasury stock -- (811) -- (4,018,924) -- 4,019,735 -- --
Payment on stockholder notes -- -- -- -- -- -- 4,264,052 4,264,052
Common stock issued in
connection with:
Conversion of Class B to
Class A Common Stock 3,869 (3,869) -- -- -- -- -- --
Exercise of warrants
and options 1,442 -- -- 10,546,817 -- -- -- 10,548,259
Business Acquisition 45 -- -- 692,285 -- -- -- 692,330
1996 net loss -- -- -- -- (46,605,812) -- -- (46,605,812)
------- ------ ------- ------------ ----------- ---------- ----------- ------------
Balance at September 30, 1996 $11,548 $-- $-- $ 102,578,149 $(90,488,308) $ -- $ -- $ 12,101,389
======= ====== ======= ============ =========== ========== =========== ============




See accompanying notes.



28


29


HEFTEL BROADCASTING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS



YEAR ENDED SEPTEMBER 30
-----------------------
1996 1995 1994
---- ---- ----

OPERATING ACTIVITIES:
Net income (loss) $ (46,605,812) $ 3,692,578 $ 465,894
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 5,140,131 3,587,341 1,947,646
Provision for losses on accounts receivable 2,871,700 1,522,235 855,220
Income in equity of joint venture -- -- (616,390)
Loss on retirement of debt, net of cash paid 7,461,267 -- 1,061,207
Non-cash loss on restructuring charges 1,219,048 -- --
Non-cash interest and stock compensation expense 993,674 925,740 434,808
Changes in operating assets and liabilities,
net of effect from acquisitions
and discontinued operations:
Accounts receivable (4,711,197) (3,545,065) (2,505,996)
Prepaid expenses and other current assets 1,175,118 (327,714) (555,749)
Accounts payable (421,251) (1,331,888) (537,997)
Accrued expenses 4,087,219 2,433,390 199,874
Other, net 297,960 (393,245) (225,420)
Discontinued operations:
Non-cash charges and working capital changes 8,393,531 (283,385) 242,927
------------- ------------ ------------
Net cash (used in) provided by operating activities (20,098,612) 6,279,987 766,024

INVESTING ACTIVITIES:
Purchases of property and equipment (3,687,780) (4,011,331) (402,730)
Purchase of businesses and radio station assets (20,150,000) (37,600,000) (6,980,000)
Payment of noncompete agreements (7,000,000) -- --
Advances/loans to related parties 2,357,932 (623,838) (1,915,230)
Payments received on notes receivable -- 222,586 199,035
------------- ------------ ------------
Net cash used in investing activities (28,479,848) (42,012,583) (9,098,925)

FINANCING ACTIVITIES:
Proceeds from public and private stock issuances 10,548,259 -- 45,437,500
Repurchase of Preferred and Common Stock (335,634) (1,960,290) (2,687,735)
Payment of Series A Preferred Stock dividends (42,961) (2,861,278) --
Proceeds from borrowings under credit agreements 163,459,267 36,475,000 59,565,733
Payment of costs related to new financing (5,799,878) (82,411) (4,301,039)
Repayment of long-term debt and
other non-current obligations (123,752,057) (653,026) (80,709,589)
Payment on notes receivable from stockholders 4,229,114 -- --
------------ ------------
Net cash provided by financing activities 48,306,110 30,917,995 17,304,870
------------- ------------ ------------
Net (decrease) increase in cash and cash equivalents (272,350) (4,814,601) 8,971,969
Cash and cash equivalents at beginning of year 5,404,310 10,218,911 1,246,942
------------- ------------ ------------
Cash and cash equivalents at end of year $ 5,131,960 $ 5,404,310 $ 10,218,911
============= ============ ============

Supplemental disclosure of cash flow information:
Interest paid $ 10,124,821 $ 5,117,883 $ 3,627,863
============= ============ ============
Taxes paid $ 65,000 $ 78,800 $ 339,282
============= ============ ============



See accompanying notes

29
30



HEFTEL BROADCASTING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1996 AND 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Heftel Broadcasting Corporation (HBC or the Company), through its
subsidiaries, owns and operates seventeen Spanish language radio stations
serving the Los Angeles, Miami, New York City, Dallas/Ft. Worth, Chicago and Las
Vegas markets.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts
of Heftel Broadcasting Corporation and subsidiaries (collectively, the Company).
All significant intercompany accounts and transactions have been eliminated in
consolidation. The Company's fiscal year end is September 30.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturity of
three months or less when purchased to be cash equivalents.

Accounts Receivable

The Company sells broadcast time to a diverse customer base including
advertising agencies and other direct customers. The Company performs credit
evaluations of its customers and generally does not require collateral. The
Company maintains allowances for potential losses and such losses have been
within management's expectations.

Investment in Joint Venture/Minority Interest

Until August 19, 1994, the Company's investment in its joint venture
was accounted for using the equity method of accounting. In connection with
certain agreements entered into between the Company and its joint venture
partner, management considered it appropriate to consolidate the accounts of the
joint venture and therefore such accounts and results of operations have been
consolidated and are included in the accompanying consolidated financial
statements effective August 20, 1994. On September 7, 1995, the Company, through
a subsidiary, acquired the remaining 51% interest in this joint venture (Note
4).

Depreciation and Amortization

Depreciation of property and equipment is computed using the
straight-line method over the estimated useful lives of the related assets,
which range from 3 to 40 years. Leasehold improvements are amortized using the
straight-line method over the shorter of the lease terms or the useful lives of
the improvements. Expenditures for repairs and maintenance are charged to
expense as incurred.


30

31



Intangible Assets

Intangible assets are stated at cost. Broadcast licenses are amortized
over 40 years using the straight-line method. Other intangible assets, including
cost in excess of fair value of net assets acquired, are amortized over the
expected period of benefit, ranging from 5 to 40 years, using the straight-line
method. The carrying value of intangible assets is reviewed if the facts and
circumstances suggest that such value may have been impaired. If this review
indicates that the carrying value of an intangible asset will not be
recoverable, as determined based on the undiscounted cash flows of the Company
over the remaining amortization period, the carrying value of the intangible
asset is reduced by the estimated shortfall of cash flows.

Beginning fiscal 1997, the Company will adopt Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." The adoption of this new
accounting standard is not expected to have a material effect on the Company's
financial position or results of operations.

Income Taxes

The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS
109, income taxes for financial reporting purposes are determined using the
liability method. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates expected to
apply to taxable income in the periods in which the deferred tax asset or
liability is expected to be realized or settled.

Revenue Recognition

Revenue is recognized as commercials are broadcast. The Company also
enters into barter transactions in which advertising time is traded for
merchandise or services used principally for promotional and other business
purposes. Barter revenue is recorded as commercials are broadcast at the
estimated fair value of the merchandise or services received. If merchandise or
services are received prior to the broadcast of commercials, recognition of the
related revenue is deferred and recognized as the commercials are broadcast.
Barter revenues accounted for approximately 6%, 7% and 7% of broadcasting
revenues in 1996, 1995 and 1994, respectively.

Earnings Per Share

Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common and common equivalent shares (if
dilutive) outstanding during each year. For purpose of this computation,
cumulative preferred stock dividends are deducted from net income (loss) whether
or not preferred stock dividends have been declared or paid.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.


31

32
Stock-Based Compensation

The Company accounts for its stock compensation arrangements under
the provisions of APB 25, "Accounting for Stock Issued to Employees," and
intends to continue to do so.

In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), SFAS 123 established a fair value-based
method of accounting for compensation cost related to stock options and other
forms of stock-based compensation plans. However, SFAS 123 allows an entity to
continue to measure compensation costs using the principles of APB 25 if
certain pro forma disclosures are made. SFAS 123 is effective for fiscal years
beginning after December 15, 1995. The Company intends to adopt the provisions
for pro forma disclosure requirements of SFAS 123 in fiscal 1997.

Reclassifications

Certain reclassifications have been made to the prior years' balances
to conform to the current year presentation.

2. RECENT DEVELOPMENTS

Change in Control of Company

On August 5, 1996, Clear Channel Radio, Inc., a wholly owned subsidiary
of Clear Channel Communications, Inc. (Clear Channel), completed a stock
purchase and tender offer of the Company's Class A and B Common Stock for $23
per share. The consummation of these transactions, as more fully described
below, increased Clear Channel's investment in the Company from a previously
owned 21% interest to 63%. Clear Channel is a diversified radio and television
broadcasting company.

Pursuant to a Stockholder Purchase Agreement dated June 1, 1996 between
Clear Channel and Mr. Cecil Heftel, former Chairman and Co-Chief Executive
Officer, Mr. Carl Parmer, former President and Co-Chief Executive officer and
members of the Heftel family, Clear Channel acquired 160,000 shares of the
Company's Class A Common Stock and 3,356,529 shares of the Company's Class B
Common Stock on August 5, 1996 (each share of Class B Common Stock converts
automatically into one share of Class A Common Stock upon sale). An additional
1,156,017 shares of Class A Common Stock were acquired by Clear Channel upon the
exercise of stock options and warrants held by the selling stockholders.

Under a separate Tender Offer Agreement dated June 1, 1996 between the
Company and Clear Channel, Clear Channel also acquired 231,776 shares of the
Company's Class A Common Stock, of which an aggregate of 199,167 shares were
tendered by employees of the Company upon the exercise of their stock options on
August 5, 1996. An additional 236,700 shares of Class A Common Stock were
tendered to Clear Channel by public shareholders.

In connection with the change in control of the Company, the employment
of Mr. Cecil Heftel and Mr. Carl Parmer was terminated pursuant to employment
contract settlement agreements with each which provided for a lump sum payment
upon termination (Note 3). In addition, Mr. Heftel and Mr. Parmer entered into
five-year noncompete agreements with the Company in exchange for the payment of
$2.5 million and $4.5 million, respectively. Further, the entire Board of
Directors was replaced with five new members effective August 5, 1996.

Proposed Merger Plan

On July 10, 1996, Clear Channel issued a press release announcing its
plans to submit to the Company's Board of Directors a proposal and plan to have
the Company acquire Tichenor Media System, Inc. (Tichenor). Tichenor is a
Dallas-based Spanish language broadcaster with twenty radio stations in six
markets. Under the terms of the merger plan, Tichenor shareholders would
exchange their capital stock for approximately 5.68 million shares of the
Company's Class A Common Stock plus approximately $3.4 million in cash. The
completion of this acquisition, which is scheduled to close during the first
quarter of calendar 1997, is subject to approval by the Federal Trade Commission
and Federal Communications Commission.




32

33

3. DISCONTINUED OPERATIONS / RESTRUCTURING CHARGES

Discontinued Operations - CRC

The Company's Board of Directors approved a plan to discontinue the
operations of the radio network owned by the Company's wholly owned subsidiary
Spanish Coast-to-Coast, Ltd., dba, Cadena Radio Centro (CRC) effective August 5,
1996. The charge to operations during the quarter ended September 30, 1996 was
approximately $8.1 million, of which $6.2 million relates to non-cash charges
resulting from the write-off of goodwill. No income tax benefit was realized due
to the Company's availability of net operating loss carryforwards. The loss on
disposal of CRC includes approximately $1.9 million of operating losses from the
measurement date, August 5, 1996, through the disposal date, December 31, 1996.
CRC intends to fulfill its contractual program obligations through the disposal
date, December 31, 1996. CRC's net assets will be used to satisfy outstanding
obligations and remaining property and equipment, which is not material, will be
transferred to other subsidiaries after the disposal date.

Restructuring Charges

In connection with the change in control of ownership described in
Note 2, the Company incurred certain one-time restructuring charges totaling
approximately $29.0 million during the quarter ended September 30, 1996. The
material components of the restructuring charges are $18.8 million in payments
to former senior executives relating to employment contract settlements, $4.7
million in broker commissions and transaction costs, $2.5 million in costs
relating to the planned closing of duplicate facilities, plus $1.9 million in
severance relating to employee terminations resulting from the restructuring.

4. BUSINESS AND ASSET ACQUISITIONS

1996 ASSET ACQUISITION
New York

On March 25, 1996, the Company acquired the assets of radio station
WPAT-AM which serves the New York City market for approximately $19.5 million.
The asset acquisition was financed through additional borrowings under the
Company's credit agreement.

1995 AND 1994 ACQUISITIONS

During fiscal years 1995 and 1994, the Company acquired several
businesses as described further in the following paragraphs. The aggregate
purchase price of these acquisitions, including acquisition costs, was
approximately $42 million in 1995 and $52.7 million in 1994 and consisted of the
following:



FISCAL YEAR ENDED
----------------------------
1995 1994
----------- -----------

Cash paid $37,600,000 $ 6,980,000
Common stock, issued at
fair value -- 12,283,000
Long-term debt and
liabilities assumed 3,521,000 33,437,000
Cancellation of note receivable 900,000 --
----------- -----------
Total fair value of acquisitions $42,021,000 $52,700,000
=========== ===========


All of the business acquisitions made by the Company during fiscal
year 1995 and 1994 were accounted for using the purchase method of accounting.
Accordingly, the accompanying financial statements



33

34



include the accounts of the acquired businesses since the respective dates of
acquisition.

1995 ACQUISITIONS

In December 1994, the Company acquired station KMRT-AM, which serves
the Dallas/Ft. Worth market, for approximately $1.5 million. From August 1994
through the date of acquisition, the Company programmed KMRT-AM under a Local
Marketing Agreement (LMA).

In April 1995, the Company acquired station KICI-FM, which serves the
Dallas/Ft. Worth market, in exchange for cancellation of a note for $900,000
payable by the seller to a subsidiary of the Company. From August 1994 through
the date of acquisition, the Company programmed KICI-FM under an LMA.

In June 1995, the Company acquired the assets of the radio station
KCYT-FM (serving the Dallas/Ft. Worth market) for approximately $2.0 million.
The acquisition was financed through additional borrowings under the Company's
credit agreement and the issuance of notes payable to the sellers. From February
1995 through the date of acquisition, the Company programmed KCYT-FM under an
LMA. Subsequent to the acquisition, the station call letters were changed to
KMRT-FM.

In July 1995, the Company acquired the assets of radio station KDZR-FM,
which serves the Dallas/Ft. Worth market, for approximately $4.7 million. This
acquisition was financed through additional borrowings under the Company's
credit agreement. From February 1995 through the date of acquisition, the
Company programmed KDZR-FM under an LMA. Subsequent to the acquisition, the
station call letters were changed to KHCK-FM.

In July 1995, the Company acquired the assets of radio station WOPA-AM,
which serves the Chicago market, for approximately $4.5 million plus 44,811
shares of Class A Common Stock with a fair value of approximately $692,000. This
acquisition was financed through additional borrowings under the Company's
credit agreement. Subsequent to the acquisition, the station call letters were
changed to WLXX-AM.

In August 1995, the Company acquired the assets of radio station
KOWA-AM, which serves the Las Vegas market, for approximately $900,000. The
acquisition was financed through additional borrowings under the Company's
credit agreement. Subsequent to the acquisition, the station call letters were
changed to KLSQ- AM.

On September 7, 1995, the Company acquired the previously unowned 51%
interest in Viva America Media Group (Viva Media), a partnership that owns
WAQI-AM and WRTO-FM, which serve the Miami market, for $19.8 million in cash.
The acquisition was financed through additional borrowings under the Company's
credit agreement. Under the terms of an Amended and Restated Agreement and Plan
of Reorganization, and in connection with this transaction, the following
contractual arrangements were terminated for no additional consideration: (i) a
warrant to purchase up to 237,600 shares of Class B Common Stock held by a
former officer of the Company and the employment relationship between the
Company and that officer and (ii) certain agreements regarding the management of
the Miami stations.

1994 ACQUISITIONS
Cadena Radio Centro

In August 1994, the Company acquired Spanish Coast-to-Coast, Ltd., dba
Cadena Radio Centro (CRC) in exchange for 700,938 shares of HBC Class A Common
Stock valued at $6.5 million. In connection with this transaction, CRC's parent
company purchased 1,240,181 shares of HBC Class A Common Stock for $11.5

34


35

million in cash. CRC is a Los Angeles based Spanish language news broadcasting
service which provides news services to Spanish language radio broadcasting
companies including HBC subsidiaries. On September 9, 1996, the Company's Board
of Directors elected to discontinue the operations of CRC (Note 3).

New York/Miami Radio Stations

In August 1994, the Company acquired Radio WADO, Inc. (WADO), Broadcast
Investment, Inc. (BII) and SRN Texas, Inc. (STI) for approximately $31.7
million. WADO, BII and STI collectively owned 100% of Spanish Radio Network
(SRN), a Florida general partnership, which owned and operated two Spanish
language radio stations in Miami (WQBA-AM/FM), and one Spanish language radio
station in New York City (WADO- AM). The call letters for WQBA-FM have since
changed to WAMR-FM. SRN also owned WGLI-AM in Babylon, New York which is
currently not operating. The purchase price included the assumption of
approximately $25.8 million in long-term debt, $850,000 in current liabilities,
a payment of approximately $3.5 million in cash and 137,762 shares of HBC Class
B Common Stock valued at approximately $1.4 million. The acquisitions of these
companies are hereafter referred to as the "New York/Miami Radio Stations."

Dallas/Ft. Worth Radio Stations

In August 1994, the Company acquired Rodriguez Broadcasting, Inc. (RBI)
for $1.5 million in cash. RBI owned two Spanish language radio stations (KICI-AM
and KICI-FM) which serves the Dallas/Ft. Worth market. Immediately prior to the
closing of this transaction, RBI transferred the license for KICI-FM to
Corsicana Communications, Inc. (Corsicana), an entity owned by the former
shareholder of RBI, for a $900,000 note receivable and therefore the Company did
not purchase this station. However, on August 19, 1994, the Company and
Corsicana entered into an LMA to program KICI-FM and obtained an option,
exercisable after November 17, 1994, to purchase KICI-FM in exchange for
cancellation of the note receivable. The acquisition of KICI-FM was completed in
April 1995.

Prior to August 19, 1994, RBI had entered into an Asset Purchase
Agreement to acquire a license for KMRT-AM, which serves the Dallas/Ft. Worth
market, and also entered into an LMA regarding KMRT which permitted RBI to
program the station pending its acquisition. On August 19, 1994, RBI assigned
its rights under this LMA to a subsidiary of the Company. The acquisition of
KMRT-AM was completed in December 1994.

On August 19, 1994, HBC also acquired Mark Rodriguez, Jr. Broadcasting,
Inc. (MRB) in exchange for 374,885 shares of HBC Class B Common Stock valued at
approximately $4.4 million plus the assumption of approximately $6.5 million in
long-term debt. MRB owned and operated a Spanish language radio station
(KESS-AM) in Ft. Worth, Texas.

Pro Forma Financial Information

The following unaudited pro forma financial information presents the
consolidated results of operations as if the above acquisitions had occurred at
the beginning of the periods presented, after giving effect to certain
adjustments including depreciation and amortization of assets acquired and
interest expense on acquisition debt. This pro forma information is presented
for comparative purposes only and does not purport to be indicative of what
would have occurred had the acquisitions been made as of those dates or results
which may occur in the future (in thousands, except per share data).



35
36



YEAR ENDED SEPTEMBER 30
1995 1994
---- ----
(UNAUDITED)

Net broadcasting revenue $68,218 $63,535
Net income $ 3,251 $ 722
Net income per common share $ 0.29 $ 0.08


5. LONG-TERM DEBT AND OTHER NON-CURRENT OBLIGATIONS

Long-term debt at September 30 consists of the following:



1996 1995
------------- -------------

NewCredit Agreement, variable interest
rate (7.32% at September 30, 1996),
interest payable monthly,
principal payable in January 1998 $ 135,000,000 $ --
Old Credit Agreement, variable interest
rate (ranging from 8.13% to 9.75%),
interest payable quarterly,
principal repaid in August 1996 -- 93,040,733
Note payable to stockholder, interest
at 4.5%, payable in monthly
installments of $10,000,
balance repaid in August 1996 -- 1,257,835
Noncompete agreements, interest at 12%,
payable to former officers and
stockholders in variable monthly
installments, repaid in May 1996 -- 215,359
Non-interest bearing note payable
to former Viva Media partners
due February 1997 1,499,250 --
Various notes payable, interest at
10%, payable in varying installments,
due 1996 through 2015 1,439,514 2,154,229
------------- -------------
137,938,764 96,668,156
Less current portion (1,812,400) (731,628)
------------- -------------
$ 136,126,364 $ 95,936,528
============= =============


New Credit Agreement

On August 5, 1996, concurrent with the completion of the transactions
described in Note 2, the Company borrowed $135 million under a new credit
agreement (New Credit Agreement) with new lenders which provides a total credit
facility of $155 million. The proceeds were used to retire all of the
outstanding debt under the Company's old credit agreement and to pay certain
noncompete and employment contract settlements plus certain transaction and
other costs relating to the Stockholder Purchase Agreement and Tender Offer. In
connection with the retirement of debt outstanding under the Old Credit
Agreement, the Company expensed $7,461,267 relating to unamortized financing
costs. The lenders have a security interest in assets of the Company and the
stock and partnership interests of the Company's subsidiaries. The New Credit
Agreement restricts the payment of dividends and establishes limitations on,
among other things, capital expenditures and additional borrowings. The Company
is also required to maintain certain financial ratios, such as leverage and
interest coverage ratios. The entire principal balance outstanding plus unpaid
interest is due in January 1998. The interest rate on the Company's New Credit
Agreement varies and is based on quoted market prices. Consequently, the
carrying value of the debt



36

37

approximates fair value.

Old Credit Agreement

On March 13, 1996, the Company completed an Amended and Restated Credit
Agreement (Old Credit Agreement) resulting in an increase to the total credit
facilities from $100 million to $175 million and the commencement of principal
payments was deferred until December 31, 1996. Other terms of the Old Credit
Agreement remained substantially the same. On March 25, 1996, the Company
borrowed an additional $20 million under the Old Credit Agreement. The proceeds
were used to fund the acquisition of the assets of WPAT-AM in New York.

On January 10, 1996, the Company borrowed $1.5 million under its Old
Credit Agreement and issued a $1.5 million non-interest bearing promissory note
in connection with the acquisition of real property in Miami on which an AM
transmitting tower is located. During fiscal 1995, the Company borrowed
$36.5 million under the Old Credit Agreement. Proceeds of these borrowings were
used primarily for business acquisitions, capital expenditures and working
capital.

Other Non-current Obligations

In connection with radio program promotions, the Company has, from time
to time, awarded several $1,000,000 prizes. Such prizes are payable to program
prize winners in annual non-interest bearing installments generally ranging from
40 to 50 years. As of September 30, 1996 and 1995, the long-term portion of the
remaining unpaid balance totaled $1,532,214 and $1,579,133, respectively, net of
discount of $4,815,867 and $4,991,737, respectively, and is included in other
non-current obligations in the accompanying consolidated balance sheets. The
imputed interest rates used range from 10% to 12%.

Principal maturities of long-term debt and other non-current
obligations, net of imputed interest, during the next five years and thereafter
are as follows:



OTHER
LONG-TERM NON-CURRENT
DEBT OBLIGATIONS TOTAL
------------ ------------ ------------

Year ending
September 30:
1997 $ 1,812,400 $ 46,901 $ 1,859,301
1998 135,316,892 42,498 135,359,390
1999 284,411 27,566 311,977
2000 278,536 30,837 309,373
2001 176,275 34,496 210,771
Thereafter 70,250 1,396,817 1,467,067
------------ ------------ ------------
$137,938,764 $ 1,579,115 $139,517,879
============ ============ ============


6. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases real properties and equipment under operating leases
expiring on various dates through 2089. Future minimum payments due under
noncancelable operating leases that have initial or remaining terms in excess of
one year are as follows:



37

38



Year ending September 30:
1997 $1,186,552
1998 1,183,537
1999 1,158,644
2000 849,549
2001 556,494
Thereafter 989,081
------------
$5,923,857
============


Management expects that, in the normal course of business, leases that
expire will be renewed or replaced by leases on other properties. All real
property leases require the payment of property taxes, maintenance, insurance
and other incidental expenses. Rent expense for the years ended September 30,
1996, 1995 and 1994 was $1,655,506, $1,345,376 and $590,210, respectively.

Litigation

On June 14, 1996, Levine v. Cecil Heftel, H. Carl Parmer, Madison
Graves, Richard Heftel, John Mason, Heftel Broadcasting Corporation and Clear
Channel Communications, Inc. (Case No. 15066) was filed in the Court of Chancery
of the State of Delaware in the County of New Castle. This complaint is a
purported class action complaint on behalf of Jeffrey Levine and all other
stockholders of the Company to enjoin the defendants from effectuating the
Tender Offer. The plaintiff also alleges that Cecil Heftel and Carl Parmer,
former directors and executive officers of the Company, breached their fiduciary
duties to the stockholders of the Company by negotiating a settlement of amounts
which would be owed to them under their employment agreements upon a termination
thereof by the Company at the closing of the Tender Offer. The suit seeks the
rescission of the Tender Offer and/or the grant of rescissory damages. In
addition, plaintiff seeks unspecified compensatory damages and an award of
attorneys' fees and costs. The Company has tendered the claims subject to this
suit to its director and officer insurance carriers. The Tender Offer closed
without any action by plaintiffs. The Company has filed a motion to dismiss the
suit and has requested plaintiffs to dismiss the suit voluntary. No action has
been taken on such motion or such request. The Company's management believes the
disposition of this litigation will not have a materially adverse effect on the
Company's consolidated financial position or results of operations.

In the ordinary course of business, the Company becomes involved in
certain other 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.

7. INCOME TAXES

The provision for income taxes for the years ended September 30, 1996,
1995 and 1994 consists of the following:




1996 1995 1994
-------- -------- --------

Current:
Federal $ -- $100,000 $ 19,000
State 65,000 50,000 12,000
-------- -------- --------
65,000 150,000 31,000
Deferred:
Federal -- -- 69,000
-------- -------- --------
$ 65,000 $150,000 $100,000
======== ======== ========




38

39


Deferred income taxes reflect the net tax effects of temporary
differences between the financial reporting and tax bases of assets and
liabilities and available tax net operating loss carryforwards. Temporary
differences and carryforwards at September 30 which give rise to a significant
portion of deferred tax assets and liabilities are as follows:



1996 1995
------------ ------------

Deferred tax assets:
Net operating loss carryforward $ 7,934,000 $ 4,685,000
Deferred prizes payable 640,000 657,000
Allowance for doubtful accounts receivable 663,000 597,000
Depreciation 145,000 469,000
Other accrued liabilities 5,401,000 132,000
------------ ------------
Total deferred tax assets 14,783,000 6,540,000
Valuation allowance (14,579,000) (5,700,000)
------------ ------------
Net deferred tax assets 204,000 840,000

Deferred tax liabilities:
Equity in earnings of Joint Venture -- 810,000
Other 273,000 99,000
------------ ------------
Total deferred tax liabilities 273,000 909,000
------------ ------------
Net deferred tax asset (liability) $ (69,000) $ (69,000)
============ ============


The increase in the valuation allowance of $8,879,000 from prior year
is primarily due to the increase in net operating loss carryforwards and
restructuring charges not currently deductible for tax purposes.

The reconciliation of income tax computed at the federal statutory tax
rate to the Company's effective tax rate for the years ended September 30, 1996,
1995 and 1994 is as follows:



1996 1995 1994
------------ ----------- ---------

Federal income tax at
statutory rate $(15,918,000) $ 1,345,000 $ 192,000
Benefit of net operating
loss carryforwards -- (1,494,000) (281,000)
Net operating loss carryforward
not benefitted 7,201,000 -- --
State and local income
tax, net of federal tax benefit 42,000 33,000 8,000
Non-deductible and non-taxable
items, net 8,740,000 266,000 181,000
------------ ----------- ---------
$ 65,000 $ 150,000 $ 100,000
============ =========== =========


As of September 30, 1996, the Company had tax net operating loss
carryforwards for federal and state tax purposes of approximately $21,949,000
and $3,389,000, respectively. The loss carryforwards expire through the year
2011 if not used.

8. STOCKHOLDERS' EQUITY

Common Stock

The Company is authorized to issue 30,000,000 and 7,000,000 shares of
Class A and Class B Common Stock, respectively, each with a par value of $.001
per share. The rights of these classes of common stock are identical except that
the Class A stock is entitled to one vote per share and the Class B stock is
entitled to ten votes per share on certain matters. As of September 30, 1996,
there were no Class B shares outstanding.



39

40

On January 2, 1996 the Company issued 44,811 shares of common stock to
one of the parties to the acquisition of WLXX-AM in Chicago in accordance with
the terms of the purchase agreement.

Treasury Stock

In December 1993, the Company repurchased 810,587 shares of its Class B
Common Stock from certain stockholders for $4,019,735. In September 1996, the
810,587 shares held as treasury stock were retired.

Preferred Stock

The Company is authorized to issue 5,000,000 shares of $.001 par value
Preferred Stock, 2,600,000 of which is designated as Series A Preferred Stock
and the remaining 2,400,000 shares are undesignated.

Series A Preferred Stock dividends are payable quarterly and have a
cumulative annual rate of $.08 per share. As of September 30, 1996, there were
no issued or outstanding shares of Series A Preferred Stock. As of September 30,
1995, cumulative unpaid dividends totaled $20,138. The Series A Preferred Stock
is superior to common stock in liquidation in the amount of $1 per share plus
cumulative unpaid dividends and is redeemable at the option of the Company at $1
per share plus cumulative unpaid dividends.

During fiscal 1996, the Company's Board of Directors periodically
approved the payment of cumulative unpaid dividends on the outstanding Series A
Preferred Stock. The aggregate of such dividend payments totaled $40,276.

In August 1996, the Company redeemed all of the outstanding Series A
Preferred Stock and paid cumulative unpaid dividends through the redemption date
of $2,685.

In January 1995, the Company redeemed and retired 1,960,290 shares of
its outstanding Series A Preferred Stock owned by the Company's then current
Chairman and Co-Chief Executive Officer and certain of his children. The
redemption price was equal to $1 per share plus cumulative unpaid dividends
through the date of redemption of $2,861,278. The dividends paid included
$1,142,495 of cumulative dividends relating to Preferred Stock retired in June
1992 for which the payment of related cumulative dividends had been deferred
pursuant to an agreement between the Company and the holder of the retired
Preferred Stock.

In April 1995, the Company paid approximately $251,000 in cumulative
unpaid dividends on its outstanding Series A Preferred Stock held by the
daughter of the Company's then current Chairman and Co-Chief Executive Officer.

Second Amended and Restated Certificate of Incorporation

In September 1996, the Company's Board of Directors approved a Second
Amended and Restated Certificate of Incorporation (Second Amended Certificate),
which upon filing will increase the total number of authorized shares of the
Company to 105,000,000 shares consisting of three classes of capital stock as
follows; (i) 50,000,000 shares of Class A Common Stock, par value $.001 per
share; (ii) 50,000,000 shares of Class B Common Stock, par value $.001 per
share; and (iii) 5,000,000 shares of Preferred Stock, par value $.001 per share.
The rights of the Class A and Class B Common Stock will be identical except that
the Class B Common Stock shall have no voting rights, except in certain matters.
The Second Amended Certificate is expected to be filed immediately prior to the
consummation of the Tichenor Merger, which is expected to close during the first
quarter of calendar 1997.


40

41

9. MANAGEMENT INCENTIVE STOCK OPTIONS

In January 1995, the Company granted options to purchase 160,000 shares
of common stock to an officer of the Company at an exercise price of $10.50 per
share. The officer subsequently exercised his option to purchase the 160,000
shares and delivered to the Company an 8.75% interest bearing promissory note
due June 2005 as payment for the stock. This note and related accrued interest
were paid in full on August 5, 1996.

Stock Option Plan

In July 1994, the Company adopted a stock option plan (Stock Option
Plan) under which a maximum of 750,000 shares of Class A Common Stock may be
issued upon exercise of options granted to directors, officers or other key
employees of the Company or its subsidiaries. The Stock Option Plan is
administered by the Board of Directors or, at the discretion of the Board of
Directors, a committee of not less than two directors. The Board of Directors or
this committee determines employees to whom options will be granted, the timing
and manner of grant, the exercise price, the number of shares and all other
terms of options granted. Generally, options granted under the Stock Option Plan
vest over a two or three year period. In August 1994 the Company granted options
to purchase 5,000 shares each of Class A Common Stock to two directors of the
Company and options to purchase 25,000 shares of Class A Common Stock to an
officer, all at an exercise price of $10.00 per share.

In December 1995, the Company issued an aggregate of 519,339 stock
options to various employees of the Company under its Stock Option Plan. The
exercise price ranged from $15.25 to $15.50 per share, the market price at the
date of issuance. The options vest over a period ranging from two to three
years.

On August 5, 1996, all unexercised and outstanding employee stock
options were tendered in connection with the Tender Offer Agreement described in
Note 2. Other fully vested options and warrants were exercised during the months
of June and July 1996. As of September 30, 1996, there were no outstanding
options or warrants.

Following is a summary of employee stock options and warrants granted,
exercised and outstanding for the three years ended September 30, 1996:



NUMBER OPTION PRICE
OF SHARES PER SHARE
---------- --------------

Options outstanding at September 30, 1993 1,078,631 $ 1.05-$ 4.51
Granted 153,800 $ 4.51-$ 10.00
Exercised (188,925) $ 4.51
Cancelled -- --
---------- --------------
Options outstanding at September 30, 1994 1,043,506 $ 1.05-$ 10.00
Granted 237,100 $ 4.51-$ 14.00
Exercised (160,000) $ 10.50
Cancelled (198,000) $ 4.51
---------- --------------
Options outstanding at September 30, 1995 922,606 $ 1.05-$ 14.00
Granted 524,339 $15.25-$18.625
Exercised (1,441,945) $ 1.05-$18.625
Cancelled (5,000) $ 10.00
---------- --------------
Options outstanding at September 30, 1996 -- --
========== ==============



41

42

10. OTHER FINANCIAL INFORMATION

Accrued Expenses



SEPTEMBER 30,
1996 1995
----------- -----------

Wages, salaries and benefits $ 1,861,745 $ 2,347,107
Commissions payable 3,057,275 2,237,857
Interest payable 756,348 664,399
Liabilities assumed in
business acquisitions -- 1,166,813
Restructuring charges 5,747,843 --
Other accrued operating expenses 2,000,680 1,298,668
----------- -----------
$13,423,891 $ 7,714,844
=========== ===========

Allowance for Doubtful Accounts Receivable

Balance at September 30, 1993 $ 930,654
Provision charged to expense 855,220
Amounts charged to reserve (1,275,471)
Other (arising from business
acquisitions) 431,883
-----------
Balance at September 30, 1994 942,286
Provision charged to expense 1,522,235
Amounts charged to reserve (972,644)
-----------
Balance at September 30, 1995 1,491,877
Provision charged to expense 2,871,700
Amounts charged to reserve (2,705,717)
-----------
Balance at September 30, 1996 $ 1,657,860
===========


Supplemental Disclosures of Noncash Transactions

Noncash transactions for the year ended September 30 included the
following:



1996 1995 1994
---------- ---------- ----------

Issuance of common stock in connection
with business acquisition $ 692,330 $ -- $ --
Issuance of promissory note in connection
with the acquisition of real property 1,499,250 -- --
Reissuance of treasury stock in exchange
for note receivable -- -- 1,000,000
Repurchase of common stock in exchange
for note payable -- -- 1,332,000
Issuance of common stock upon exercise of
stock options in exchange for note receivable -- 1,680,000 852,052
---------- ---------- ----------
$2,191,580 $1,680,000 $3,184,052
========== ========== ==========


In addition to the above, in fiscal 1994 the Company issued common
stock with a fair value of $12,283,000 and assumed long-term debt and other
liabilities totaling $33,437,000 in connection with certain business
acquisitions.

42

43



In fiscal 1995, the Company cancelled a $900,000 note receivable and
assumed long-term debt and other liabilities totaling $3,521,000 in connection
with certain business acquisitions.

11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the quarterly results of operations for
the years ended September 30, 1996 and 1995 (in thousands, except per share
data):



DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1995 1996 1996 1996
- --------------------------------- --------- --------- --------- ---------

Net revenues 17,457 15,696 19,900 18,679

Station operating expenses 11,818 10,948 13,069 13,061
Corporate expenses, depreciation
and amortization 1,798 2,589 2,874 2,951
--------- --------- --------- ---------
Operating Income 3,841 2,159 3,957 2,667

Income (loss) from continuing
operations 1,302 (308) (362) (37,250)

Net income (loss) 858 (971) (863) (45,630)

Income (loss) from continuing
operations per common and
common equivalent shares $ 0.12 $ (0.03) $ (0.04) $ (3.38)
========= ========= ========= =========

Net income (loss) per common
and common equivalent shares $ 0.08 $ (0.10) $ (0.09) $ (4.14)
========= ========= ========= =========




DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1994 1995 1995 1995
- --------------------------------- --------- --------- --------- ---------

Net revenues 16,806 13,208 16,630 17,516

Station operating expenses 10,902 9,795 10,300 12,644
Corporate expenses, depreciation
and amortization 1,867 2,393 2,015 1,792
--------- --------- --------- ---------
Operating Income 4,037 1,020 4,315 3,080

Income (loss) from continuing
operations 1,768 (423) 2,473 501

Net income (loss) 1,367 (849) 3,162 11

Income (loss) from continuing
operations per common and
common equivalent shares $ 0.16 $ (0.04) $ 0.22 $ 0.05
========= ========= ========= =========

Net income (loss) per common
and common equivalent shares $ 0.13 $ (0.08) $ 0.29 $ 0.00
========= ========= ========= =========



43

44

12. SUBSEQUENT EVENTS

Secondary Public Stock Offering

On October 18, 1996, the Company filed a Registration Statement on Form
S-3 with the Securities and Exchange Commission to register the sale of
4,025,000 shares of Class A Common Stock to be offered in a secondary public
offering. The proceeds from this stock offering will be used to repay
outstanding debt under the Company's credit agreement. The registration
statement has not yet been declared effective by the Securities and Exchange
Commission.



44

45

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None

PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

The current directors and executive officers of the Company are as
follows:




Name Age Position
---- --- --------

L. Lowry Mays................ 61 President, Chief Executive
Officer and Director
John T. Kendrick............. 44 Senior Vice President and
Chief Financial Officer
Ernesto Cruz................. 42 Director
B.J. McCombs................. 68 Director
James M. Raines.............. 56 Director
John H. Williams............. 62 Director


All directors hold office until the annual meeting of stockholders next
following their election, or until their successors are elected and qualified.
Except for Mr. John Kendrick, officers are elected annually by the Board of
Directors and serve at the discretion of the Board. (See "Item 11- Employment
Agreements").

Information with respect to the business experience and affiliations of
the current directors and executive officers of the Company is set forth below.

Mr. Mays became President, Chief Executive Officer and director of the
Company on August 5, 1996. Mr. Mays is also President, Chief Executive Officer
and director of Clear Channel and has served as such since 1972.

Mr. Kendrick joined the Company as Vice President, Finance in September
1993. In December 1993, he was promoted to Senior Vice President and Chief
Financial Officer. From October 1992 through September 1993, Mr. Kendrick
provided financial consulting to the entertainment and computer software
industries. From June 1988 through October 1992, Mr. Kendrick served as Senior
Vice President and Chief Financial Officer of Skouras Pictures, Inc.

Mr. Cruz became a director of the Company on August 5, 1996. Mr. Cruz
has been a Managing Director of Credit Suisse First Boston Corp. for more than
five years.

Mr. McCombs became a director of the Company on August 5, 1996. Mr.
McCombs also serves as a director of Clear Channel. Mr. McCombs is and has been
a private investor for more than five years.

45

46
Mr. Raines became a director of the Company on August 5, 1996. Mr.
Raines has been the President of James M. Raines & Company and has served in
such a position for more than five years. Mr. Raines also serves as a director
of 50-OFF Stores, Inc.

Mr. Williams became a director of the Company on August 5, 1996. Mr.
Williams also serves as a director of Clear Channel and of GAINSCO, Inc. Mr.
Williams is Senior Vice President of Everen Securities, Inc., and has served in
such a position for more than five years.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16 of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than 10%
of a registered class of the Company's equity securities to file various reports
with the Securities and Exchange Commission concerning their holdings of, and
transactions in, securities of the Company. Copies of these filings must be
furnished to the Company.

Based on a review of the copies of such forms furnished to the Company
and written representations from the Company's executive officers and directors,
the Company notes Messrs. Lowry Mays, Ernesto Cruz, B.J. McCombs, James M.
Raines and John H. Williams failed to file a Form 3 on a timely basis after they
were elected to the Company's Board of Directors.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth information concerning the compensation
of the Chief Executive Officer, the former Co-Chief Executive Officers and the
other most highly compensated executive officers of the Company for the fiscal
years ended September 30, 1996, 1995 and 1994:


46
47


SUMMARY COMPENSATION TABLE



Long Term
Compensation
Annual Compensation Awards
-------------------- -------------
Securities Under- All Other
Name and Principal Position Salary Bonus ying Option Compensation
--------------------------- ------- ----- ---------------- ------------

L. Lowry Mays, President and Chief Executive
Officer .................................... 1996 $ -- $ -- $ -- $ --

Cecil Heftel, former Chairman of the Board
and Co-Chief Executive Officer ............. 1996 $428,205 $806,808 271,075 $ --(1)
1995 $500,000 $170,002 -- $ --
1994 $416,667(2) -- $ --

H. Carl Parmer, former President and
Co-Chief Executive Officer ................. 1996 $485,897 $471,224 48,264 $420,819(1)(3)
1995 $500,000 $467,897 160,000 $ --
1994 $452,985(2) $300,000 -- $ --
John T. Kendrick, Senior Vice
President and Chief Financial
Officer .................................... 1996 $183,194 $ 42,500 30,000 $ --
1995 $160,615(4) $ 14,754 -- $ --
1994 $128,846 $ 25,000 -- $ --


- --------------------

(1) Does not include payments made to Messrs. Heftel and Parmer under the
Settlement Agreements relating to the termination of their employment
or the agreements not to compete entered into in connection with the
completion of the Tender Offer. See "Item 1: Business - Recent
Developments - Clear Channel Tender Offer."

(2) Does not include amounts received by Messrs. Heftel and Parmer from
Heftel Management Group, of which they were the sole beneficial owners
during the applicable period, which received fees of $133,400 for
management services rendered during the period from October 1, 1993
until December 1, 1993. Effective December 1, 1993, the Management
Agreement was terminated and the Company entered into employment
agreements with Messrs. Heftel and Parmer.

(3) Includes bonuses paid of $384,849 to reimburse Mr. Parmer for interest
paid to the Company under loans made by the Company to Mr. Parmer to
pay the exercise price of certain warrants, the exercise of which was
made at the request and for the benefit of the Company.

(4) On August 1, 1995, the Company entered into an Employment Agreement
with Mr. Kendrick.

WARRANTS AND OPTIONS

The following sets forth information concerning the grants of stock
options to the executive officers named in the "Summary Compensation Table"
under the Company's Stock Option Plan. The vesting of all of these options was
accelerated to the date of the closing of the Tender Offer. All of these options
were exercised on such closing date and the shares acquired upon exercise were
sold to Clear Channel in the Tender Offer.





47


48

Option Grants In Last Fiscal Year






Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of Stock
Shares Granted to Price Appreciation for
Underlying Employees Exercise Option Term
Option in Fiscal Price Expiration ----------------------
Name Granted Year ($/Sh) Date 5% 10%
---- ------- ---- ---------- -------- ---- ----

Cecil Heftel 271,075 53% $15.25 12/14/05 $2,599,784 $6,588,362

H. Carl Parmer 48,264 9% $15.25 12/14/05 $ 462,883 $1,173,036
John T. Kendrick 30,000 6% $15.25 12/14/05 $ 287,719 $ 729,137



The following table provides certain information concerning exercises
of warrants and options in the last fiscal year, and unexercised options and
warrants held as of September 30, 1996, by the executive officers named in the
Summary Compensation Table:

Aggregate Option and Warrant Exercises In Last
Fiscal Year and Fiscal Year End Values



Number of Unexercised Value of Unexercised
Options and Warrants In-the-Money Options and
at September 30, 1996 Warrants at September 30, 1996
Shares Acquired Value ---------------------------- ------------------------------
Name Upon Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------- -------- ----------- ------------- ----------- -------------

L. Lowry Mays --- --- --- --- --- ---
Cecil Heftel 806,678 $11,454,828 --- --- --- ---

Cecil Heftel 271,075 2,100,831 --- --- --- ---


H. Carl Parmer 48,264 374,046 --- --- --- ---


John T. Kendrick 16,667 216,671 --- --- --- ---

John T. Kendrick 8,333 133,328 --- --- --- ---

John T. Kendrick 5,000 50,000 --- --- --- ---

John T. Kendrick 25,000 193,750 --- --- --- ---


EMPLOYMENT AGREEMENTS

The Company had ten-year Employment Agreements with each of Messrs.
Cecil Heftel and Carl Parmer which were terminated in connection with the
closing of the Tender Offer. See "Item 1. Business - Recent Developments - Clear
Channel Tender Offer."


48

49

On August 1, 1995, the Company and Mr. John Kendrick entered into a
three-year Employment Agreement pursuant to which Mr. Kendrick currently
receives a yearly salary of $190,000 (subject to increases in the third year and
each year thereafter) plus bonuses determined by the Company subject to a
minimum bonus of $45,000 for the second year (the minimum bonus is increased in
the third year and each year thereafter). The Company may terminate the
Employment Agreement upon the occurrence of any of the following events: (i)
fraud, negligence, wilful misconduct or embezzlement, (ii) Mr. Kendrick is
indicted or convicted of a crime constituting a felony, (iii) any act or
omission by Mr. Kendrick which causes a material adverse effect on the Company's
business or jeopardizes any FCC license for any of the Company's radio stations,
(iv) Mr. Kendrick fails to perform his duties within 15 business days after
notice, (v) unlawful drug use, (vi) receipt of payments or gifts in excess of
$250 from advertisers for Mr. Kendrick's own benefit, or (vii) commission of a
crime of moral turpitude. If such a termination occurs, Mr. Kendrick will be
entitled to receive all amounts payable by the Company under his Employment
Agreement to the date of termination. If the Company terminates the Employment
Agreement for a reason other than the occurrence of the events set forth in the
Employment Agreement, Mr. Kendrick will be entitled to receive his salary and
minimum bonus through the later of the one year anniversary of the termination
date or the end of the term of the Employment Agreement (the "Period") (which
the Company may pay in a lump sum payment equal to the present value of such
amounts) and monthly premiums payable for allowing Mr. Kendrick and his family
to participate in the Company's health insurance for the shorter of the Period
or the maximum COBRA continuation coverage period mandated by law. At the end of
the initial three year term, the Employment Agreement is automatically extended
for one year unless the Company gives notice of non-renewal at least six months
prior to the end of the initial three year period. If a change in control of the
Company occurs, the term of the Employment Agreement is automatically extended
for three years from the date of the change of control. The Tender Offer was
deemed a change of control, and therefore the term of the Employment Agreement
has been automatically extended to August 4, 1999.

DIRECTOR COMPENSATION

Each member of the Board of Directors who is not an employee of the
Company receives a fee of $2,500 for each board or committee meeting attended.
The Company also reimburses directors for expenses related to attending board or
committee meetings.

COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION

During the fiscal year ended September 30, 1996, Messrs. Jeffrey
Amling, Madison Graves and John Mason, former directors of the Company, and
Messrs. L. Lowry Mays, James H. Raines, and Ernesto Cruz, current directors of
the Company, served on the Compensation Committee.

During the year ended September 30, 1996, the Company obtained legal
services from the law firm of Jeffer, Mangels, Butler & Marmaro LLP. Mr. John
Mason is of-counsel to this law firm.

L. Lowry Mays is an executive officer and director of the Company and
is also a stockholder, director, and member of the compensation committee of
Clear Channel.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

STOCK OWNERSHIP

The following table sets forth certain information regarding ownership
of the Company's Class A Common Stock as of December 5, 1996, by each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Class A Common Stock:



49

50




Name and Address Number Percent of Class
---------------- ------------- -----------------

Clear Channel Communications, Inc. 7,297,821 (1) 63.2%
200 Concord Plaza, Suite 600
San Antonio, Texas 78216

Ronald Baron 987,000 (2) 14.5%
767 Fifth Avenue, 24th Floor
New York, New York 10153


--------------------

(1) Includes shares held by Clear Channel Radio, Inc., a wholly-owned
subsidiary of Clear Channel Communications, Inc.

(2) Includes 20,000 shares owned by Baron Investment Partners, L.P., of
which Mr. Baron is the general partner, 870,000 shares owned by Baron
Asset Fund and Baron Growth & Income Fund (collectively the "Funds"),
which are registered investment companies advised by BAMCO, Inc., and
97,000 shares owned by Baron Capital Management, Inc. ("BCMI"). Mr.
Baron controls BAMCO, Inc. and BCMI. Mr. Baron disclaims beneficial
ownership of the shares owned by the Funds and BCMI.

No directors or executive officers of the Company own any shares of
Class A Common Stock. No shares of the Company's Class B Common Stock are
outstanding.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Tower Company, Inc. ("TTC"), a wholly subsidiary of the Company,
previously loaned $293,303 to Mr. Christopher Heftel, the son of Mr. Cecil
Heftel, the former Co-Chief Executive Officer and Chairman of the Board of the
Company. This loan accrued interest at 7% per annum, with principal and interest
due on demand. All amounts owed were repaid on August 5, 1996.

TTC previously loaned $100,000 to Mr. Cecil Heftel. This loan accrued
interest at 7% per annum, with principal and interest due on demand. All amounts
owed were repaid on August 5, 1996.

On February 11, 1992, the predecessor-in-interest to the Company
granted to Mr. Carl Parmer, the former Co-Chief Executive Officer and President
of the Company, as part of his employment agreement the right to purchase
188,925 shares of Class B Common Stock at a per share price of $4.51. In
connection with entering into Mr. Parmer's Employment Agreement in December
1993, the Company issued to Mr. Parmer a warrant to purchase 188,925 shares of
Class B Common Stock at the same exercise price as a replacement of the rights
of Mr. Parmer to purchase the 188,925 shares of Class B Common Stock under his
previous employment agreement. On August 3, 1994, Mr. Parmer exercised these
warrants and in connection with such exercise, the Company made a loan in the
amount of $1.25 million, approximately $852,000 of which was used to pay the
exercise price of the warrants and the remainder of which was used to pay income
taxes payable by Mr. Parmer upon exercise of the warrants. The loan accrued
interest at a rate of 7.67% per annum and was due on August 3, 2004. All amounts
owed were repaid on August 5, 1996.

On June 3, 1993, Messrs. Carl Parmer and Richard Heftel, a former
director of the Company and the current general manager of the Company's Los
Angeles stations, each borrowed $366,000 from the Company and used the proceeds
to purchase 94,462 shares of Class B Common Stock from a third-party
stockholder. These loans accrued interest at a rate of 4.5% per annum. Interest
and principal were due on June 2, 2002. On October 8, 1993, Mr. Carl Parmer
borrowed $1 million from the Company and used the proceeds to

50
51

purchase 226,695 shares of Class B Common Stock. This loan accrued interest at
4.5% per annum. Interest and principal were due on October 8, 2003. All amounts
owed were repaid on August 5, 1996.

On December 30, 1993, the Company repurchased 220,000 shares of Class B
Common Stock from the daughter of Mr. Cecil Heftel. The purchase price for these
shares was payable in 60 installments of $10,000 beginning in August 1994 and
one installment of $1 million on the first day of the month after the month in
which the 60th installment is paid. On August 5, 1996, the Company repaid this
obligation in full.

During the year ended September 30, 1996, the Company advanced funds to
Heftel Management Group, of which Mr. Cecil Heftel is the sole beneficial owner.
These advances did not bear interest. On August 5, 1996, all of such advances
were repaid.

On January 10, 1995, the Company granted to Mr. Carl Parmer a warrant
to purchase 160,000 shares of Class A Common Stock at an exercise price of
$10.50 per share (which was the closing price for the Class A Common Stock on
January 9, 1995). On January 24, 1995, Mr. Parmer exercised this warrant in
full. The exercise price was payable on or before June 30, 1995. On June 30,
1995, Mr. Parmer borrowed $1,680,000 from the Company to pay the exercise price
and granted to the Company a security interest in these shares to secure his
obligation to repay the loan. This loan accrued interest at 8.75% per annum. All
amounts owed were repaid on August 5, 1996.

On January 10, 1996, pursuant to an Agreement of Purchase and Sale,
dated September 7, 1995, between the Company and Mambisa Broadcasting
Corporation ("Mambisa"), the Company purchased the entire parcel of real
property on which the radio transmission towers for WAQI-AM (the "WAQI Towers")
are located for approximately $1.5 million in cash and a note for approximately
$1.5 million (the "Note"). The Company has the right to subdivide such parcel
and resell to Mambisa the portion of the parcel on which the WAQI Towers are not
located for the same per acre price paid by the Company to Mambisa. The parties
currently are attempting to complete such a subdivision. The Note is due on the
later of the date on which all rights to subdivide the parcel expire or the date
on which the resale of the subdivided portion of the parcel is completed.
Amancio Victor Suarez and Charles Fernandez, former directors of the Company,
own part of Mambisa.

On December 3, 1995, the Company, Marcos A. Rodriguez, Jr.
("Rodriguez") and Hispanic Coalition, Inc. ("HCI") entered into certain
agreements relating to HCI and a new FM radio station in Haltom City, Texas (for
which HCI was seeking a construction permit from the FCC) (the "Haltom Station")
(the "Haltom City Agreements"). As a result of disputes relating to the Haltom
City Agreements, Rodriguez and the Company entered into a Settlement Agreement
pursuant to which the Company released all claims and rights it may have to
acquire the construction permit for the Haltom Station, including all rights
under the Haltom City Agreements. Mr. Cecil Heftel and the Company entered into
an agreement under which Mr. Heftel agreed to indemnify the Company against any
losses arising out of the Haltom City Agreements. The Company has sent written
demand to Mr. Heftel for indemnification of $1,383,187.

In connection with the Tender Offer, each of Messrs. Cecil Heftel and
Carl Parmer entered into agreements not to compete and a Settlement Agreement
relating to the termination of their employment. Approximately $25.8 million was
paid to Messrs. Heftel and Parmer under these agreements (see "Item 1. Business
- - Recent Developments - Clear Channel Tender Offer").


51

52


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) List of Financial Statements

The consolidated financial statements are filed as Item 8 of Part II of
this Form 10-K.

(a) (2) List of Financial Statement Schedules

Information required by Schedule VIII - Valuation and Qualifying
Accounts is included in Note 10 of the consolidated financial
statements filed as Item 8 of Part II of this Form 10-K.

All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and
therefore have been omitted.

(a) (3) List of Exhibits

The exhibits listed in the accompanying Index to Exhibits are filed as
part of this Form 10-K.

(b) Reports on Form 8-K

The Company filed a report on Form 8-K dated August 19, 1996, relating
to the Company entering into a $155 million credit facility with
Nations Bank of Texas, N.A. and other lenders. This matter is described
under the Caption "Recent Developments" in Item 1 of Part I of this
Form 10-K.

The Company filed a report on Form 8-K dated September 23, 1996, as
amended October 15, 1996, relating to the discontinuance of the
operations of the radio network owned by the Company's wholly owned
subsidiary, Spanish Coast-to- Coast Ltd., dba Cadena Radio Centro,
effective August 5, 1996. This matter is described under the Caption
"Recent Developments" in Item 1 of Part I of this Form 10-K.




52

53
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 this 20 day of
December, 1996.

HEFTEL BROADCASTING CORPORATION

By: /s/ L. Lowry Mays
--------------------------------
L. Lowry Mays, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature Title Date
- --------- ----- ----

/s/ L. Lowry Mays President, Chief December 20, 1996
- -------------------------------- Executive Officer
L. Lowry Mays and Director

/s/ John T. Kendrick Senior Vice President, December 20, 1996
- -------------------------------- Chief Financial Officer
John T. Kendrick and Assistant Secretary
(principal accounting
officer)

/s/ Ernesto Cruz Director December 20, 1996
- --------------------------------
Ernesto Cruz

/s/ B.J. McCombs Director December 20, 1996
- --------------------------------
B.J. McCombs

/s/ James M. Raines Director December 20, 1996
- --------------------------------
James M. Raines

/s/ John H. Williams Director December 20, 1996
- --------------------------------
John H. Williams



53

54



Index to Exhibits



Exhibit Sequentially
Number Description Numbered Page
------- ------------------ -------------

2.1.1 Amended and Restated Agreement and Plan of Reorganization,
dated September 7, 1995, among Registrant, Viva Acquisition
Corporation, Mambisa Broadcasting Corporation
("Mambisa"), SFS Management Corporation, Amancio
Victor Suarez, Charles Fernandez and Amancio Jorge Suarez, Jr.,
(such three individuals are referred to herein collectively as
the ("Stockholders") (the "Purchase Agreement") (Schedules
omitted) (incorporated by reference to Exhibit 1.1.1 to
Registrant's Form 8-K filed on September 22, 1995)

2.1.2 Escrow Agreement, dated September 7, 1995, among the
Registrant, Mambisa, the Stockholders and Citibank,
N.A.(incorporated by reference to Exhibit 1.1.2 to
Registrant's Form 8-K filed on September 22, 1995)

2.1.3 Mutual Release, dated September 7, 1995, among the parties to
the Purchase Agreement and other parties (incorporated by
reference to Exhibit 1.1.3 to Registrant's Form 8-K filed on
September 22, 1995)

2.1.4 Agreement of Purchase and Sale, dated September 7, 1995, among the
Registrant, Mambisa, Amancio Victor Suarez and Amancio Jorge
Suarez, Jr. (incorporated by reference to Exhibit 1.1.4 to Registrant's
Form 8-K filed on September 22, 1995)

2.1.5 Promissory Note dated January 9, 1996, executed by Registrant and HBC
Florida, Inc. to the order of Mambisa Broadcasting Corporation

2.2.1 Tender Offer Agreement, dated June 1, 1996, between the Company and
Clear Channel Radio, Inc. ("Clear Channel") (incorporated herein by
reference to Exhibit 99(c)(1) of Clear Channel's Schedule 14D-1 filed
on June 7, 1996)

2.2.2 Amendment No. 1 to Tender Offer Agreement, dated June 6, 1996
(incorporated herein by reference to Exhibit 99(c)(9) of Clear Channel's
Schedule 14D-1 filed on June 7, 1996)

2.2.3 Amendment No. 2 to Tender Offer Agreement, dated June 20, 1996
(incorporated by reference to Exhibit (c)(3) of the Company's
Schedule 14D-9 dated June 20, 1996)

2.2.4 Amendment No. 3 to Tender Offer Agreement, dated July 2, 1996



54

55




(incorporated by reference to Exhibit 99(c)(15) of Amendment No. 2 to
the Schedule 14D-1 of Clear Channel filed on July 9, 1996)

2.3 Confidentiality Letter Agreement dated May 31, 1996, between the
Company and Clear Channel (incorporated herein by reference to
Exhibit 99(c)(12) of Clear Channel's Schedule 14D-1 filed
on June 7, 1996)

2.4.1 Asset Purchase Agreement, dated November 1, 1995, between
HBC New York, Inc. and Park Radio of Greater New York, Inc.
(incorporated by reference to Exhibit 2.2 of Registrant's Form
10-K filed on December 29, 1995)

2.4.2 First Amendment to Asset Purchase Agreement, dated
March 25, 1996 between HBC New York, Inc. and Park Radio of
Greater New York, Inc. (incorporated by reference to Exhibit 1.1.2 of
Registrant's Form 8-K filed on March 28, 1996)

2.5.1 Agreement and Plan of Merger, dated July 9, 1996, between Clear
Channel Communications, Inc. and Tichenor Media System, Inc.
with Exhibits (Schedules omitted) (incorporated by reference to
Exhibit 99(c)(16) of Amendment No. 2 to Schedule 14D-1 of Clear
Channel Communications, Inc., filed on July 9, 1996)

2.5.2 Stock Purchase Agreement dated as of July 9, 1996, by and among
Clear Channel Communications, Inc., and McHenry T. Tichenor, Sr.
(incorporated by reference to Exhibit 99(c)(17) of Amendment No. 2
to Schedule 14D-1 of Clear Channel Communications, Inc., filed
on July 9, 1996)

2.5.3 Stock Purchase Agreement dated as of July 9, 1996, by and among
Clear Channel Communications, Inc., and McHenry T. Tichenor, Jr.
(incorporated by reference to Exhibit 99(c)(18) of Amendment No. 2
to Schedule 14D-1 of Clear Channel Communications, Inc., filed
on July 9, 1996)

2.5.4 Stock Purchase Agreement dated as of July 9, 1996, by and
among Clear Channel Communications, Inc., and Warren Tichenor
(incorporated by reference to Exhibit 99(c)(19) of Amendment No. 2
to Schedule 14D-1 of Clear Channel Communications, Inc., filed
on July 9, 1996)

2.5.5 Stock Purchase Agreement dated as of July 9, 1996, by and among
Clear Channel Communications, Inc., and William Tichenor
(incorporated by reference to Exhibit 99(c)(20) of Amendment No. 2





55

56




to Schedule 14D-1 of Clear Channel Communications, Inc., filed
on July 9, 1996)

2.5.6 Stock Purchase Agreement dated as of July 9, 1996, by and
among Clear Channel Communications, Inc., and Jean Russell
(incorporated by reference to Exhibit 99(c)(21) of Amendment
No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc.,
filed on July 9, 1996)

2.5.7 Amended and Restated Agreement and Plan of Merger, dated
October 10, 1996, between Clear Channel Communications, Inc.
and Tichenor Media System, Inc. without Exhibits (Schedules omitted)

2.5.8 Assignment Agreement, dated October 10, 1996 by Registrant and
Heftel Merger Sub, Inc.

2.5.9 Form of Registration Rights Agreement by and among the
Registrant, 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 T. Hinson and
David D. Lykes (included in Exhibit 2.5.1)

2.5.10 Form of Employment Agreement by and between the Registrant and
McHenry T. Tichenor, Jr. (included in Exhibit 2.5.1)

2.5.11 Form of Stockholders Agreement by and among the Registrant and
each of the stockholders listed on the signature pages thereto (included
in Exhibit 2.5.1)

2.5.12 Form of the Registrant's Indemnification Agreement (included
in Exhibit 2.5.1)

2.5.13 Form of Registration Rights Agreement by and among the Registrant
and Clear Channel Communications, Inc. (included in Exhibit 2.5.1)

3.1 Restated Certificate of Incorporation of the Registrant (1)



56

57




3.2 Amended and Restated Bylaws of the Registrant (1)

4.1 Specimen certificate for the Class A Common Stock (1)

4.2 Article 4 of the Restated Certificate of Incorporation (included in
Exhibit 3.1)

4.3 Credit Agreement, dated August 5, 1996, among the Registrant,
Nations Bank of Texas, N.A. and the other lenders signatory
thereto (incorporated by reference to Exhibit 1.0 of Registrant's
Form 8-K filed on August 20, 1996)

4.4 Form of Second Amended and Restated Certificate of Incorporation of
the Registrant (included in Exhibit 2.5.7)

4.5 Loan Agreement, dated July 9, 1996, between Clear Channel
Communications, Inc., as the lender, and TMS Assets California, Inc.,
as the borrower (2)

4.6 Guarantee, dated July 9, 1996, by Tichenor Media System, Inc., in favor
of Clear Channel Communications, Inc. (2)

10.1 Agreement Not To Compete, dated June 1, 1996, between the Company
and Carl Parmer (incorporated herein by reference to Exhibit 99(c)(4)
of Clear Channel's Schedule 14D-1 filed on June 7, 1996)

10.2 Agreement Not To Compete, dated June 1, 1996, between the Company
and Cecil Heftel (incorporated herein by reference to Exhibit 99 (c)(3)
of Clear Channel's Schedule 14D-1 filed on June 7, 1996)

10.3 Settlement Agreement, dated June 1, 1996, between the Company and
Carl Parmer (incorporated herein by reference to Exhibit 99 (c)(6)
of Clear Channel's Schedule 14D-1 filed on June 7, 1996)

10.4 Settlement Agreement, dated June 1, 1996, between the Company and
Cecil Heftel (incorporated herein by reference to Exhibit 99 (c)(5)
of Clear Channel's Schedule 14D-1 filed on June 7, 1996)

10.5 Stock Option Plan (incorporated by reference to Exhibit 10.4 of Registrant's
Registration Statement on Form S-1 (Registration No. 33-78370)
filed on April 29, 1994, as amended ("Registrant's S-1"))

10.6 Lease dated April 26, 1994, between the Registrant and Tropicana
Trail Limited Partnership (incorporated by reference to Exhibit 10.14
of Registrant's S-1)




57

58




10.7 Lease dated May 15, 1987, between the Registrant and Hollywood
and Vine Development Co. (incorporated by reference to Exhibit
10.15 of Registrant's S-1)

10.8 Tower Lease Agreement, dated April 13, 1990, between the Registrant
and KTNQ/KLVE, Inc. (formerly Heftel Broadcasting of California, Inc.),
together with the Assignment and Assumption Agreement dated
April 13, 1990 between the Registrant and The Tower Company
(incorporated by reference to Exhibit 10.16 of Registrant's S-1)

10.9 Lease Agreement dated June 18, 1991 between Newcrow XI and
KTNQ/KLVE, Inc. (incorporated by reference to Exhibit 10.17 of
Registrant's S-1)

10.10 Reciprocal Easement Agreement, dated June 18, 1991, between
Newcrow XI and KTNQ/KLVE, Inc. (incorporated by reference
to Exhibit 10.18 of Registrant's S-1)

10.11 Form of Indemnification Agreement (incorporated by reference to
Exhibit 10.22 of Registrant's S-1)

10.12 Employment Agreement between KTNQ/KLVE, Inc. and Richard
Heftel (incorporated by reference to Exhibit 10.23 of Registrant's S-1)

10.13 Amendment No. 1 to Employment Agreement dated May 31, 1996,
between KTNQ/KLVE, Inc. and Richard Heftel (incorporated by
reference to Exhibit 10.5 of Registrant's Form 10-Q/A filed on
November 6, 1996)

10.14 Lease Agreement, dated July 17, 1995, between the Registrant and
485 Madison Associates, a New York Limited Partnership
(incorporated by reference to Exhibit 10.20 of Registrant's Form 10-K
filed on December 29, 1995)

10.15 Employment Agreement dated August 1, 1995 between the Registrant and
John T. Kendrick.

11 Statement regarding Computations of Per Share Earnings

21 Subsidiaries of the Registrant

23 Consent of Ernst & Young LLP

23.1 Consent of Ernst & Young LLP


- -----------------------------------------------------

Registrant agrees to furnish supplementally a copy of any omitted schedules to
the Commission upon request.

(1) Incorporated by reference to the identically numbered Exhibit to the
Company's Registration Statement on Form S-1, as amended (Reg. No.
33-78370)

(2) Not a current obligation of the Registrant. Will remain an obligation
of a subsidiary of the Registrant upon consummation of the Tichenor
Merger.


58