SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from to
Commission file number 0-24516
HISPANIC BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 99-0113417
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3102 Oak Lawn Avenue, Suite 215 75219
Dallas, Texas (Zip Code)
(Address of principal executive offices)
(214) 525-7700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 1, 1999
- ----- -------------------------------
Class A Common Stock, $.001 Par Value 37,193,488
Class B Non-Voting Common Stock, $.001 Par Value 14,156,470
HISPANIC BROADCASTING CORPORATION
SEPTEMBER 30, 1999
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998................................................................. 2
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1999 and 1998 and the Nine Months
Ended September 30, 1999 and 1998..................................................... 3
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998......................................... 4
Notes to Condensed Consolidated Financial Statements ................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................................... 8
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ............................................................................. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 12
Item 6. Exhibits and Reports on Form 8-K ........................................................ 12
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31,
1999 1998
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,625,078 $ 10,293,241
Accounts receivable, net 39,811,641 34,309,106
Prepaid expenses and other current assets 1,124,987 456,843
------------- -------------
Total current assets 49,561,706 45,059,190
Property and equipment, at cost, net 39,250,184 36,005,235
Intangible assets, net 853,085,182 646,200,359
Deferred charges and other assets 11,033,252 19,424,215
------------- -------------
Total assets $ 952,930,324 $ 746,688,999
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $33,901,138 $27,769,816
Current portion of long-term obligations 124,942 121,052
------------- -------------
Total current liabilities 34,026,080 27,890,868
------------- -------------
Long-term obligations, less current portion 52,435,505 1,547,130
------------- -------------
Deferred income taxes 99,930,353 94,630,353
------------- -------------
Stockholders' equity:
Preferred Stock, cumulative, $.001 par value;
authorized 5,000,000 shares; no shares issued or outstanding - -
Class A Common Stock, $.001 par value; authorized
100,000,000 shares; issued and outstanding
37,193,488 at September 30, 1999 and 35,171,980 at
December 31, 1998 37,193 35,172
Class B Common Stock, convertible, $.001 par value;
authorized 50,000,000 shares; issued and outstanding
14,156,470 shares 14,156 14,156
Additional paid-in capital 786,114,683 665,339,306
Accumulated deficit (19,627,646) (42,767,986)
------------- -------------
Total stockholders' equity 766,538,386 622,620,648
------------- -------------
Total liabilities and stockholders' equity $ 952,930,324 $ 746,688,999
------------- -------------
------------- -------------
See accompanying notes to condensed consolidated financial statements.
2
HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net revenues $ 52,370,206 $ 44,205,828 $141,984,388 $119,945,444
Operating expenses 27,607,829 25,204,547 78,722,891 70,716,726
Depreciation and amortization 6,965,963 5,580,111 19,692,498 15,070,764
------------ ------------ ------------ ------------
Operating income before corporate
expenses 17,796,414 13,421,170 43,568,999 34,157,954
Corporate expenses 1,724,360 1,374,888 4,950,357 4,137,527
------------ ------------ ------------ ------------
Operating income 16,072,054 12,046,282 38,618,642 30,020,427
Interest income, net 950,116 97,557 937,495 2,889,032
------------ ------------ ------------ ------------
Income before income tax 17,022,170 12,143,839 39,556,137 32,909,459
Income tax 7,176,871 5,039,693 16,415,797 13,657,425
------------ ------------ ------------ ------------
Net income $ 9,845,299 $ 7,104,146 $ 23,140,340 $ 19,252,034
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per common share - basic
and diluted $ 0.19 $ 0.14 $ 0.46 $ 0.39
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares
outstanding:
Basic 51,349,841 49,328,450 50,177,785 48,918,195
Diluted 52,158,080 49,611,164 50,791,941 49,230,444
See accompanying notes to condensed consolidated financial statements.
3
HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
---------------------------------
1999 1998
-------------- --------------
Cash flows from operating activities:
Net income $ 23,140,340 $ 19,252,034
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for bad debts 987,063 831,794
Depreciation and amortization 19,692,498 15,070,764
Deferred income taxes 5,300,000 5,400,000
Other 141,799 (62,004)
Changes in operating assets and liabilities (1,032,909) 806,442
-------------- --------------
Net cash provided by operating activities 48,228,791 41,299,030
-------------- --------------
Cash flows from investing activities:
Property and equipment acquisitions (7,325,118) (2,780,110)
Dispositions of property and equipment 919,612 -
Additions to intangible assets (127,090) -
Increase in deferred charges and other assets (6,165,357) (1,909,352)
Acquisitions of radio stations (208,868,664) (236,563,901)
-------------- --------------
Net cash used in investing activities (221,566,617) (241,253,363)
-------------- --------------
Cash flows from financing activities:
Borrowings on long-term obligations 71,000,000 18,000,000
Payments on long-term obligations (20,107,735) (17,476,345)
Proceeds from stock issuances, net of costs 120,777,398 205,975,368
-------------- --------------
Net cash provided by financing activities 171,669,663 206,499,023
-------------- --------------
Net increase (decrease) in cash and cash equivalents (1,668,163) 6,544,690
Cash and cash equivalents at beginning of period 10,293,241 6,553,271
-------------- --------------
Cash and cash equivalents at end of period $ 8,625,078 $ 13,097,961
-------------- --------------
-------------- --------------
See accompanying notes to condensed consolidated financial statements.
4
HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Hispanic Broadcasting Corporation (formerly Heftel Broadcasting Corporation)
and subsidiaries (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended September
30, 1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), REPORTING COMPREHENSIVE
INCOME. SFAS 130 requires the reporting of comprehensive income in financial
statements by all entities that provide a full set of financial statements. The
Company's net income is the same as its comprehensive income for all periods
presented and no additional disclosures are necessary.
2. ACQUISITIONS AND DISPOSITIONS
1999 ACQUISITIONS
On January 27, 1999, the Company entered into an asset purchase
agreement to acquire for $18.3 million the assets of KHOT(FM), serving the
Phoenix market (the "KHOT(FM) Acquisition"). The KHOT(FM) Acquisition closed on
April 5, 1999. The asset acquisition was made with cash generated from
operations. Immediately after closing, the station's programming was converted
to a Spanish-language format. The Company is in the process of building out new
studios and office space in Phoenix. The anticipated capital costs will
approximate $0.8 million.
On March 1, 1999, the Company entered into an asset purchase agreement
to acquire for $20.3 million the assets of KISF(FM), serving the Las Vegas
market (the "KISF(FM) Acquisition"). The KISF(FM) Acquisition closed on April
30, 1999. The asset acquisition was financed with a $20.0 million borrowing from
the Company's $297.0 million revolving credit facility (the "Credit Facility")
and $0.3 million cash generated from operations. Immediately after closing, the
station's programming was converted to a Spanish-language format.
On January 2, 1997, the Company acquired an option to purchase all
of the assets used in connection with the operation of KSCA(FM), a radio
station serving the Los Angeles market (the "KSCA Option"). In connection
with the acquisition of the KSCA Option, the Company began providing
Spanish-language programming to KSCA(FM) under a time brokerage agreement on
February 5, 1997. The Company exercised the KSCA Option and on September 17,
1999, the Company acquired the assets of KSCA(FM) for $118.1 million. The
Company previously paid $13.0 million to acquire and renew the option to
purchase the assets of KSCA(FM) and such payments were subtracted from the
purchase price at closing. To fund the acquisition, the Company borrowed
$38.0 million from the Credit Facility and used $67.1 million of cash. The
cash was generated from operating activities and proceeds of the June 1999
secondary public stock offering (the "June 1999 Offering").
5
On July 6, 1999, the Company entered into an agreement to acquire from
a nonaffiliated trust for $65.0 million, the FCC licenses and transmission
equipment of a radio station broadcasting at 94.1 MHz, serving the Dallas/Fort
Worth market (the "Dallas Acquisition"). The Dallas Acquisition closed September
24, 1999. To fund the acquisition, the Company borrowed $8.0 million from the
Credit Facility and used $57.0 million of cash. The cash was generated from
operating activities and proceeds of the June 1999 Offering.
With the Dallas Acquisition, the Company assumed a time brokerage
agreement whereby an unaffiliated party (the "Broker") provides the programming
to the radio station broadcasting at 94.1 MHz until the earlier of December 31,
1999 or the seventh day after the Broker notifies the Company in writing of its
desire to terminate the agreement. The time brokerage payments range from
$12,947 to $15,618 per day. Immediately after the time brokerage agreement
terminates, the station's programming will be converted to a Spanish-language
format.
To facilitate the Dallas Acquisition, the Company entered into a bridge
loan agreement (the "Bridge Loan") with a nonaffiliated partnership. The Bridge
Loan, in the amount of $57.0 million, was made on July 1, 1999. The partnership
sold the radio station broadcasting at 94.1 MHz to the aforementioned
nonaffiliated trust. The Bridge Loan interest rate was 7.0% and the principal
and accrued interest matured on September 22, 1999.
1998 ACQUISITIONS
On December 1, 1997, the Company entered into an asset exchange
agreement to exchange WPAT(AM), serving the New York City market, and $115.5
million in cash for the assets of WCAA(FM) (formerly WNWK(FM)), serving the New
York City market (the "WCAA(FM) Acquisition"). The asset exchange was financed
with a portion of the proceeds from the January 1998 secondary public stock
offering (the "January 1998 Offering"). The WCAA(FM) Acquisition closed on May
22, 1998. Immediately after closing, the station's programming was converted to
a Spanish-language format.
On March 25, 1998, the Company entered into an asset purchase
agreement to acquire for $54.0 million, the assets of KLTN(FM) (formerly
KKPN(FM)), serving the Houston market (the "KLTN(FM) Acquisition"). The asset
acquisition was financed with a portion of the proceeds from the January 1998
Offering. The KLTN(FM) Acquisition closed on May 29, 1998. Immediately after
closing, the station's programming was converted to a Spanish-language format.
The Company entered into an asset purchase agreement on May 26, 1998,
to acquire for $65.2 million, the assets of KLQV(FM) and KLNV(FM) (formerly
KJOY(FM) and KKLQ(FM)) serving the San Diego market (the "San Diego
Acquisition"). The asset acquisition was financed with a portion of the proceeds
from the January 1998 Offering, an additional $18.0 million borrowing under the
Company's Credit Facility and cash generated from operations. The San Diego
Acquisition closed on August 10, 1998. Immediately after closing, the
programming of the stations was converted to two Spanish-language formats.
6
Pro forma results of operations for the nine months ended September 30,
1998, calculated as though the WCAA(FM) Acquisition had occurred at the
beginning of 1998, is as follows (dollars in thousands, except per share data):
Nine Months Ended September 30,
------------------------------------------
Historical Pro forma
1999 1998
------------------ -----------------
Net revenues $ 141,984 $ 121,226
Operating income 38,619 29,477
Net income 23,140 17,100
Net income per common share:
Basic 0.46 0.35
Diluted 0.46 0.34
PENDING TRANSACTIONS
On April 14, 1999, the Company entered into an agreement with Z-Spanish
Media Corporation ("Z"), to exchange the assets of KRTX(FM), a radio station
serving the Houston market, for the assets of KLNZ(FM), a radio station owned by
Z serving the Phoenix market. Although the asset exchange has received all
necessary governmental consents, the transaction has not closed. Pursuant to the
terms of the asset exchange agreement, the Company has instituted arbitration
proceedings seeking, among other relief, specific performance to compel the
closing of the transaction.
On October 15, 1999, the Company entered into an asset purchase
agreement to acquire for $75.0 million the assets of KACE(FM) and KRTO(FM),
serving the Los Angeles market. The closing of this acquisition is expected
to occur during the fourth quarter of 1999. Immediately after closing, the
stations' programming will be converted to a single Spanish-language format.
Consummation of the purchase is subject to a number of conditions, including
approval by the FCC of the transfer of the FCC licenses. This transaction
will be financed with a borrowing from the Credit Facility.
3. LONG-TERM OBLIGATIONS
The Company's ability to borrow under the Credit Facility is subject to
compliance with certain financial ratios and other conditions set forth in the
Credit Facility. The Credit Facility is secured by the stock of the Company's
subsidiaries. Borrowings under the Credit Facility bear interest at a rate based
on the LIBOR rate plus an applicable margin as determined by the Company's
leverage ratio. As of September 30, 1999, the Company has $246.0 million of
credit available, and may elect under the terms of the Credit Facility to
increase the facility by $150.0 million. Availability under the Credit Facility
decreases quarterly commencing September 30, 1999 and ending December 31, 2004.
As of September 30, 1999, the Company had a $51.0 million outstanding
balance due on the Credit Facility. On April 30, 1999, the Company borrowed
$20.0 million on the Credit Facility and repaid the entire amount by June 30,
1999 from the proceeds of the June 1999 Offering. In September 1999, the Company
borrowed $51.0 million on the Credit Facility.
On January 29, 1998, the Company repaid the $12.0 million outstanding
balance on the Credit Facility from the proceeds of the January 1998 Offering.
In the quarter ended September 30, 1998, the Company borrowed $18.0 million on
the Credit Facility and repaid $5.0 million.
7
4. STOCKHOLDERS' EQUITY
On June 7, 1999, the Company completed the June 1999 Offering, selling
2,000,000 shares of Class A Common Stock at $60.03 per share, net of
underwriters' discounts and commissions. The net proceeds of the offering were
approximately $119.9 million.
On January 22, 1998, the Company completed the January 1998 Offering,
selling 5,175,000 shares of Class A Common Stock at $39.75 per share, net of
underwriters' discounts and commissions. The net proceeds of the offering were
approximately $205.1 million.
The following is a reconciliation of the denominators of the basic and
diluted earnings per share computations:
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- -------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Denominator for basic earnings
per share 51,349,841 49,328,450 50,177,785 48,918,195
Effect of dilutive securities:
Stock options 804,794 275,891 607,201 304,104
Employee Stock Purchase Plan 3,445 6,823 6,955 8,145
---------- ---------- ---------- ----------
Denominator for diluted earnings
per share 52,158,080 49,611,164 50,791,941 49,230,444
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
5. LONG-TERM INCENTIVE PLAN
On May 21, 1997, the stockholders of the Company approved the Hispanic
Broadcasting Corporation Long-Term Incentive Plan (the "Incentive Plan"). The
types of awards that may be granted under the Incentive Plan include (a)
incentive stock options, (b) non-qualified stock options, (c) stock appreciation
rights, (d) rights to receive a specified amount of cash or shares of Class A
Common Stock and (e) restricted stock. In addition, the Incentive Plan provides
that directors of the Company may elect to receive some or all of their annual
director compensation in the form of shares of Class A Common Stock. Subject to
certain exceptions set forth in the Incentive Plan, the aggregate number of
shares of Class A Common Stock that may be the subject of awards under the
Incentive Plan at one time shall be an amount equal to (a) five percent of the
total number of shares of Class A Common Stock outstanding from time to time
minus (b) the total number of shares of Class A Common Stock subject to
outstanding awards on the date of calculation under the Incentive Plan and any
other stock-based plan for employees or directors of the Company (other than the
Company's Employee Stock Purchase Plan). The Company has granted incentive and
non-qualified stock options for 1,413,184 shares of Class A Common Stock to
directors and key employees. The exercise prices range from $16.44 to $76.00 per
share and were equal to the fair market value of the Class A Common Stock on the
dates such options were granted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The performance of a radio station group is customarily measured by its
ability to generate broadcast cash flow. The two components of broadcast cash
flow are net revenues (gross revenues net of agency commissions) and operating
expenses (excluding depreciation, amortization and corporate general and
administrative expense). The primary source of revenues is the sale of
broadcasting time for advertising. The Company's most significant operating
expenses for purposes of the computation of broadcast cash flow are employee
salaries and commissions, programming expenses, and advertising and
8
promotion expenses. The Company strives to control these expenses by working
closely with local station management. The Company's revenues vary throughout
the year. As is typical in the radio broadcasting industry, the Company's first
calendar quarter generally produces the lowest revenues. The second and third
quarters generally produce the highest revenues.
Another measure of operating performance is EBITDA. EBITDA consists of
operating income or loss excluding depreciation and amortization.
Broadcast cash flow and EBITDA are not calculated in accordance with
generally accepted accounting principles. These measures should not be
considered in isolation or as substitutes for operating income, cash flows from
operating activities or any other measure for determining the Company's
operating performance or liquidity that is calculated in accordance with
generally accepted accounting principles. Broadcast cash flow and EBITDA do not
take into account the Company's debt service requirements and other commitments
and, accordingly, broadcast cash flow and EBITDA are not necessarily indicative
of amounts that may be available for dividends, reinvestment in the Company's
business or other discretionary uses.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
The results of operations for the three and nine months ended September
30, 1999 are not comparable to results of operations for the same periods in
1998 primarily due to the start-up of radio stations WCAA(FM) in New York on May
22, 1998 (WPAT(AM) was exchanged for WCAA(FM)), KRTX(AM/FM) in Houston on May
29, 1998, KLQV(FM) and KLNV(FM) in San Diego on August 10, 1998, KHOT(FM) in
Phoenix on April 5, 1999, and the start-up of HBC Radio Network (a radio network
sales and programming division) on January 1, 1999.
Net revenues increased by $8.2 million or 18.6% to $52.4 million for
the three months ended September 30, 1999 from $44.2 million for the same
period in 1998. Net revenues for the nine months ended September 30, 1999
increased by $22.1 million, or 18.4% to $142.0 million, compared to $119.9
million for the same period in 1998. Net revenues increased for the three and
nine months ended September 30, 1999, compared to the same periods in 1998
primarily because of (a) revenue growth of same stations, and (b) revenues
from start-up stations which were not operating for all or part of the three
and nine months ended September 30, 1998. Had the WCAA(FM) Acquisition
occurred on January 1, 1998, net revenues, on a pro forma basis, for the nine
months ended September 30, 1999 would have increased 17.1% compared to the
same period in 1998.
Operating expenses increased by $2.4 million or 9.5% to $27.6
million for the three months ended September 30, 1999 from $25.2 million for
the same period in 1998. Operating expenses for the nine months ended
September 30, 1999 increased by $8.0 million or 11.3% to $78.7 million,
compared to $70.7 million for the same period in 1998. Operating expenses
increased primarily due to operating expenses of start-up stations. As a
percentage of net revenues, operating expenses decreased to 52.7% from 57.0%
for the three months ended September 30, 1999 and 1998, respectively, and
decreased to 55.4% from 59.0% for the nine months ended September 30, 1999
and 1998, respectively. Had the WCAA(FM) Acquisition occurred on January 1,
1998, operating expenses, on a pro forma basis, for the nine months ended
September 30, 1999 would have increased 10.2% compared to the same period in
1998.
Operating income before corporate expenses, depreciation and
amortization ("broadcast cash flow") for the three and nine months ended
September 30, 1999 increased 30.5% and 28.7%, to $24.8 million and $63.3
million, respectively, compared to $19.0 million and $49.2 million,
respectively, for the three and nine months ended September 30, 1998. As a
percentage of net revenues, broadcast cash flow increased to 47.3% from 43.0%
for the three months ended September 30, 1999 and 1998, respectively, and
increased to
9
44.6% from 41.0% for the nine months ended September 30, 1999 and 1998,
respectively. Had the WCAA(FM) Acquisition occurred on January 1, 1998,
broadcast cash flow, on a pro forma basis, for the nine months ended September
30, 1999 would have increased 27.0% compared to the same period in 1998.
Corporate expenses increased by $0.4 million or 28.6% to $1.8
million for the three months ended September 30, 1999 from $1.4 million for
the same period in 1998. Corporate expenses for the nine months ended
September 30, 1999 increased by $0.9 million, or 22.0%, to $5.0 million,
compared to $4.1 million for the same period of 1998. The increase was
primarily due to higher staffing costs of the Company and the one-time
expenses related to the resignation of an executive officer in the first
quarter of 1999. As a percentage of net revenues, corporate expenses
increased to 3.4% from 3.2% for the three months ended September 30, 1999 and
1998, respectively, and increased to 3.5% from 3.4% for the nine months ended
September 30, 1999 and 1998, respectively.
EBITDA for the three and nine months ended September 30, 1999 increased
30.7% and 29.3%, to $23.0 million and $58.3 million, respectively, compared to
$17.6 million and $45.1 million, respectively, for the three and nine months
ended September 30, 1998. As a percentage of net revenues, EBITDA increased to
43.9% from 39.8% for the three months ended September 30, 1999 and 1998,
respectively, and increased to 41.1% from 37.6% for the nine months ended
September 30, 1999 and 1998, respectively.
Depreciation and amortization for the three months ended September 30,
1999 increased 25.0% to $7.0 million compared to $5.6 million for the same
period in 1998. Depreciation and amortization for the nine months ended
September 30, 1999 increased 30.5% to $19.7 million compared to $15.1 million
for the same period in 1998. The increases in both periods are due to radio
station acquisitions and capital expenditures.
Interest income, net increased to $1.0 million from $0.1 million for
the three months ended September 30, 1999 and 1998, respectively. Interest
income, net decreased to $0.9 million from $2.9 million for the nine months
ended September 30, 1999 and 1998, respectively. The increase for the three
months ended September 30, 1999 compared to the same period in 1998 was because
in 1999 the unspent proceeds of the June 1999 Offering were invested most of the
quarter, whereas in 1998 the unspent proceeds of the January 1998 Offering were
spent in early August. The decrease for the nine months ended September 30, 1999
compared to the same period in 1998 was because the proceeds from the June 1999
Offering were smaller in amount and were received later in the year in
comparison to the proceeds of the January 1998 Offering.
Federal and state income taxes are being provided at an effective rate
of 41.5% in 1999 and 1998.
For the three months ended September 30, 1999, the Company's net income
totaled $9.8 million ($0.19 per common share) compared to $7.1 million ($0.14
per common share) in the same period in 1998. For the nine months ended
September 30, 1999, the Company's net income totaled $23.1 million compared to
$19.2 million in the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months ended
September 30, 1999 was $48.2 million as compared to $41.3 million for the same
period in 1998. Net cash used in investing activities was $221.6 and $241.3
million for the nine months ended September 30, 1999 and 1998, respectively. The
$19.7 million decrease from 1998 to 1999 is mostly due to $27.7 million more
spent during the first nine months of 1998 on radio station acquisitions than
the comparable period of 1999 offset somewhat by a $4.5 million increase in 1999
in property and equipment acquisitions. Net cash provided by financing
activities was $171.7 and $206.5 million for the nine months ended September 30,
1999 and 1998, respectively. The $34.8 million decrease from 1998 to 1999 is due
to the proceeds of the January 1998 Offering being larger than
10
those of the June 1999 Offering offset somewhat by the increased borrowing in
1999 against the Credit Facility versus the amount borrowed in the comparable
period in 1998.
Generally, capital expenditures are made with cash provided by
operations. Capital expenditures totaled $7.3 and $2.8 million for the nine
months ended September 30, 1999 and 1998, respectively. Approximately $4.1
million of the capital expenditures incurred during the nine months ended
September 30, 1999 related to radio signal upgrade projects for four different
radio stations and the build-out of studios related to acquisitions made in New
York, Phoenix and Los Angeles.
Available cash on hand plus cash flow provided by operations was
sufficient to fund the Company's operations, meet its debt obligations, and to
fund capital expenditures. The Company believes it will have sufficient cash on
hand and cash provided by operations to finance its operations, satisfy its debt
service requirements, and to fund capital expenditures. The Company regularly
reviews potential acquisitions. The Company intends to finance acquisitions
primarily through proceeds from borrowings under the Credit Facility, proceeds
from securities offerings, and/or from cash provided by operations.
YEAR 2000
The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculations.
All software used in the accounting system has been replaced. The key
software components used in the accounting system are the general ledger and
traffic system. The general ledger is used to record all transactional activity
whereas the traffic system is used to record the airing of commercials, perform
billing and maintain the accounts receivable detail. The new Year 2000 compliant
general ledger software has been implemented in all locations in which the
Company operates. All locations in which the Company operates have implemented
traffic software which is Year 2000 compliant. The Company has reviewed the
hardware used in its operations that might be affected by the Year 2000 problem.
Hardware which was not Year 2000 compliant has been replaced and is now Year
2000 compliant.
The Company decided, after the merger with Tichenor Media System, Inc.
in February 1997, to change its general ledger and traffic system software so
all locations would be on the same system. The replacement of the general ledger
and traffic system software was not accelerated due to Year 2000 issues.
Inquiries of the Company's top twenty customers regarding Year 2000
compliance have been made during 1999. The customer responses which have been
received by the Company indicate they are Year 2000 compliant.
The Company does not believe the costs related to the Year 2000
compliance project have been and will be material to its financial position or
results of operations. Unanticipated failures by critical customers, vendors and
service providers, as well as the failure by the Company to have adequately
executed its own remediation efforts, could have a material adverse effect on
the cost of the Year 2000 project, its completion date, and the Company's
financial position or results of operations. The Company has established a
contingency plan in the event of the failure of its system and the systems of
its significant customers, vendors and service providers, with regard to Year
2000 compliance. There is no assurance that such a contingency plan will be
adequate to meet the Company's needs in the event of any disruption in the
Company's operations.
11
FORWARD LOOKING STATEMENTS
Certain statements contained in this report are not based on historical
facts, but are forward looking statements that are based on numerous assumptions
made as of the date of this report. When used in the preceding and following
discussions, the words "believes," "intends," "expects," "anticipates" and
similar expressions are intended to identify forward looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed in any of the forward
looking statements. Such risks and uncertainties include, but are not limited
to, industry-wide market factors and regulatory developments affecting the
Company's operations, acquisitions and dispositions of broadcast properties
described elsewhere herein, the financial performance of start-up stations, and
efforts by the new management to integrate its operating philosophies and
practices at the station level. This report should be read in conjunction with
the Company's Annual Report on Form 10-K. The Company disclaims any obligation
to update the forward looking statements in this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is subject to interest rate risk on both the interest
earned on cash and cash equivalents and interest paid on borrowings under the
Credit Facility. A change of 10% in the interest rate earned on short-term
investments and interest paid under the Credit Facility would not have had a
significant impact on the Company's historical financial statements.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various claims and lawsuits, which are
generally incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position or results of
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1 Second Amended and Restated Certificate of Incorporation of
the Company dated February 14, 1997 (incorporated by
reference to Exhibit 3.1 to the Company's Form 8-K filed on
March 3, 1997).
3.2 Certificate of Amendment to the Second Amended and Restated
Certificate of Incorporation of the Registrant dated June 4,
1998 (incorporated by reference to Exhibit 3.1 to the
Company's Form 10-Q filed on November 11, 1998).
3.3 Certificate of Amendment to the Second Amended and Restated
Certificate of Incorporation of the Registrant dated June 3,
1999 (incorporated by reference to Exhibit 3.3 to the
Company's Form 10-Q filed on August 12, 1999).
3.4 Amended and Restated Bylaws of the Registrant (incorporated
by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1, as amended Reg. No. 33-78370).
4.1 Credit Agreement among the Registrant and its subsidiaries,
The Chase Manhattan Bank, as administrative agent, and
certain other lenders, dated February 14, 1997 without
Exhibits (Schedules omitted) (incorporated by reference to
Exhibit 10.5 to the Registrant's Form 8-K filed on March 3,
1997).
12
Exhibit No. Description
----------- -----------
10.1 Assignment and Assumption dated September 24, 1999, by and
between SBT Communications 10.1 Statutory Trust, HBC License
Corporation and HBC Broadcasting Texas, L.P.
10.2 Time Brokerage Agreement dated September 22, 1999, by and
between SBT Communications 10.2 Statutory Trust and Sunburst
Dallas, LP.
10.3 Asset Purchase Agreement dated October 15, 1999, by and
between Cox Radio, Inc. and Hispanic Broadcasting
Corporation.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hispanic Broadcasting Corporation
---------------------------------
(Registrant)
/s/ Jeffrey T. Hinson
----------------------------------
Jeffrey T. Hinson
Senior Vice President/
Chief Financial Officer
Dated: November 1, 1999
13
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
3.1 Second Amended and Restated Certificate of Incorporation of
the Company dated February 14, 1997 (incorporated by
reference to Exhibit 3.1 to the Company's Form 8-K filed on
March 3, 1997).
3.2 Certificate of Amendment to the Second Amended and
Restated Certificate of Incorporation of the Registrant
dated June 4, 1998 (incorporated by reference to Exhibit 3.1
to the Company's Form 10-Q filed on November 11, 1998).
3.3 Certificate of Amendment to the Second Amended and Restated
Certificate of Incorporation of the Registrant dated June 3,
1999 (incorporated by reference to Exhibit 3.3 to the
Company's Form 10-Q filed on August 12, 1999).
3.4 Amended and Restated Bylaws of the Registrant (incorporated
by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1, as amended Reg. No. 33-78370).
4.1 Credit Agreement among the Registrant and its subsidiaries,
The Chase Manhattan Bank, as administrative agent, and
certain other lenders, dated February 14, 1997 without
Exhibits (Schedules omitted) (incorporated by reference to
Exhibit 10.5 to the Registrant's Form 8-K filed on March 3,
1997).
10.1 Assignment and Assumption dated September 24, 1999, by and
between SBT Communications 10.1 Statutory Trust, HBC License
Corporation and HBC Broadcasting Texas, L.P.
10.2 Time Brokerage Agreement dated September 22, 1999, by and
between SBT Communications 10.2 Statutory Trust and Sunburst
Dallas, LP.
10.3 Asset Purchase Agreement dated October 15, 1999, by and
between Cox Radio, Inc. and Hispanic Broadcasting
Corporation.
27 Financial Data Schedule.
14