1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-82114
SPANISH BROADCASTING SYSTEM, INC.
(Exact name of registrant as specified in its charter)
SEE TABLE OF ADDITIONAL REGISTRANTS
DELAWARE 13-3827791
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2601 SOUTH BAYSHORE DRIVE PH II, COCONUT GROVE, FL 33133
(Address of principal executive offices) (Zip Code)
(305) 441-6901
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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.
[X] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Registrant's Common Stock, par value $.0001 per share,
outstanding as of February 12, 2001: 36,856,305 shares of Class A Common Stock
and 27,801,900 shares of Class B Common Stock.
2
TABLE OF ADDITIONAL REGISTRANTS
PRIMARY
STANDARD
STATE OR OTHER INDUSTRIAL I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
NAME INCORPORATION NUMBER NUMBER
- ---- --------------- -------------- ---------------
Spanish Broadcasting System, Inc. New Jersey 4832 13-3181941
Spanish Broadcasting System of California, Inc. California 4832 92-3952357
Spanish Broadcasting System of Florida, Inc. Florida 4832 58-1700848
Spanish Broadcasting System Network, Inc. New York 4899 13-3511101
SBS Promotions, Inc. New York 7999 13-3456128
Alarcon Holdings, Inc. New York 6512 13-3475833
SBS of Greater New York, Inc. New York 4832 13-3888732
Spanish Broadcasting System of Illinois, Inc. Delaware 4832 36-4174296
Spanish Broadcasting System of Greater Miami, Inc. Delaware 4832 65-0774450
Spanish Broadcasting System of San Antonio, Inc. Delaware 4832 65-0820776
Spanish Broadcasting System of Puerto Rico, Inc. Delaware 4832 52-2139546
Spanish Broadcasting System of Puerto Rico, Inc. Puerto Rico 4832 66-0564244
SBS Funding, Inc. Delaware 4832 52-6999475
3
SPANISH BROADCASTING SYSTEM, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS - UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 24, 2000
AND DECEMBER 31, 2000.................................................................. 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED DECEMBER 26, 1999 AND DECEMBER 31, 2000................................... 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED DECEMBER 26, 1999 AND DECEMBER 31, 2000.......................................... 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................. 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................. 13
PART II. OTHER INFORMATION...................................................................... 13
ITEM 1. LEGAL PROCEEDINGS...................................................................... 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................................... 14
4
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS -- UNAUDITED
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 24, 2000 DECEMBER 31, 2000
------------------ -----------------
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 59,558,929 $ 47,733,028
RECEIVABLES:
TRADE 30,986,110 32,228,988
BARTER 2,360,184 3,801,693
------------- -------------
33,346,294 36,030,681
LESS: ALLOWANCE FOR DOUBTFUL ACCOUNTS 8,082,275 10,316,079
------------- -------------
NET RECEIVABLES 25,264,019 25,714,602
OTHER CURRENT ASSETS 3,862,182 2,674,932
------------- -------------
TOTAL CURRENT ASSETS 88,685,130 76,122,562
PROPERTY AND EQUIPMENT, NET 21,675,239 23,536,009
INTANGIBLE ASSETS, NET 513,357,655 570,853,480
DEFERRED FINANCING COSTS, NET 10,794,733 10,452,516
OTHER ASSETS 178,066 327,035
------------- -------------
TOTAL ASSETS $ 634,690,823 $ 681,291,602
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $ 171,262 $ 174,149
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 13,984,267 14,357,100
ACCRUED INTEREST 11,032,889 3,830,451
DEFERRED COMMITMENT FEE 2,158,850 1,983,503
------------- -------------
TOTAL CURRENT LIABILITIES 27,347,268 20,345,203
12.5% SENIOR UNSECURED NOTES 100,000 100,000
9.625% SENIOR SUBORDINATED NOTES 235,000,000 235,000,000
SENIOR CREDIT FACILITIES 65,000,000 65,000,000
OTHER LONG-TERM DEBT, LESS CURRENT PORTION 4,392,302 4,347,968
DEFERRED INCOME TAXES 28,386,169 38,887,175
STOCKHOLDERS' EQUITY:
CLASS A COMMON STOCK, $.0001 PAR VALUE. AUTHORIZED
100,000,000 SHARES; 32,399,760 ISSUED AND OUTSTANDING AT SEPT. 24, 2000;
36,856,305 ISSUED AND OUTSTANDING AT DECEMBER 31, 2000 3,240 3,686
CLASS B COMMON STOCK, $.0001 PAR VALUE. AUTHORIZED
50,000,000 SHARES; 27,816,900 SHARES ISSUED AND OUTSTANDING
AT SEPT. 24, 2000; 27,801,900 SHARES AT DECEMBER 31, 2000 2,782 2,780
ADDITIONAL PAID IN CAPITAL 392,972,851 435,522,410
ACCUMULATED DEFICIT (118,513,789) (117,917,620)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 274,465,084 317,611,256
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 634,690,823 $ 681,291,602
============= =============
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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5
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
--------------------------------------
DECEMBER 26, 1999 DECEMBER 31, 2000
----------------- -----------------
GROSS BROADCASTING REVENUES $ 33,202,107 $ 42,909,450
LESS: AGENCY COMMISSIONS 4,268,704 5,595,534
------------ ------------
NET BROADCASTING REVENUES 28,933,403 37,313,916
------------ ------------
OPERATING EXPENSES:
ENGINEERING 585,516 747,457
PROGRAMMING 2,957,460 5,712,919
SELLING 6,283,370 10,658,719
GENERAL AND ADMINISTRATIVE 2,677,567 5,091,805
CORPORATE EXPENSES 13,063,184 2,511,206
DEPRECIATION AND AMORTIZATION 2,623,870 4,364,048
------------ ------------
28,190,967 29,086,154
------------ ------------
OPERATING INCOME 742,436 8,227,762
OTHER EXPENSES (INCOME):
INTEREST EXPENSE, NET 2,966,276 7,437,385
OTHER, NET 405,107 (237,500)
------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (2,628,947) 1,027,877
INCOME TAX (BENEFIT) EXPENSE (1,077,868) 431,708
------------ ------------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM (1,551,079) 596,169
EXTRAORDINARY ITEM, NET OF INCOME TAX (16,865,069) --
------------ ------------
NET (LOSS) INCOME (18,416,148) 596,169
DIVIDENDS ON PREFERRED STOCK (28,372,393) --
------------ ------------
NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS (46,788,541) 596,169
------------ ------------
NET (LOSS) INCOME PER COMMON SHARE BEFORE EXTRAORDINARY ITEM:
BASIC (0.58) 0.01
DILUTED (0.58) 0.01
NET (LOSS) INCOME PER COMMON SHARE FOR EXTRAORDINARY ITEM:
BASIC (0.32) --
DILUTED (0.32) --
NET (LOSS) INCOME PER COMMON SHARE:
BASIC (0.90) 0.01
DILUTED (0.90) 0.01
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 52,000,704 62,528,076
DILUTED 52,000,704 62,538,521
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
December 26, 1999 December 31, 2000
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME $ (18,416,148) $ 596,169
------------- ------------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH USED IN OPERATING ACTIVITIES:
LOSS ON EARLY EXTINGUISHMENT OF DEBT 28,584,862 --
DEPRECIATION AND AMORTIZATION 2,623,870 4,364,048
PROVISION FOR DOUBTFUL ACCOUNTS 1,145,734 2,315,727
AMORTIZATION OF DEBT DISCOUNT 61,295 --
AMORTIZATION OF DEFERRED FINANCING COSTS 287,174 346,077
ACCRETION OF INTEREST TO PRINCIPAL ON OTHER LONG-TERM DEBT 151,441 --
DEFERRED INCOME TAXES (9,347,357) 401,006
CHANGES IN OPERATING ASSETS AND LIABILITIES:
INCREASE IN RECEIVABLES (2,540,133) (2,766,310)
(INCREASE) DECREASE IN OTHER CURRENT ASSETS (3,262,818) 481,637
INCREASE IN OTHER ASSETS (1,451) (148,969)
INCREASE IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES 37,112 286,473
DECREASE IN ACCRUED INTEREST (554,526) (7,202,438)
INCREASE (DECREASE) IN DEFERRED COMMITMENT FEE 65,347 (175,347)
------------- ------------
TOTAL ADJUSTMENTS 17,250,550 (2,098,096)
------------- ------------
NET CASH USED IN OPERATING ACTIVITIES (1,165,598) (1,501,927)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
DEPOSIT ON SALE OF STATIONS 700,000 --
ACQUISITIONS OF RADIO STATIONS (374,111) (3,412,344)
ADVANCES ON PURCHASE PRICE OF RADIO STATIONS -- (5,096,908)
ADDITIONS TO PROPERTY AND EQUIPMENT (182,691) (1,769,415)
------------- ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 143,198 (10,278,667)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
RETIREMENT OF 14.25% SENIOR EXCHANGEABLE PREFERRED STOCK (265,613,466) --
RETIREMENT OF SENIOR NOTES (190,295,268) --
DECREASE IN LOANS RECEIVABLE FROM STOCKHOLDERS 2,459,408 --
PROCEEDS FROM SENIOR SUBORDINATED NOTES 227,170,507 --
PROCEEDS FROM CLASS A COMMON STOCK 388,350,978 --
REPAYMENT OF OTHER LONG-TERM DEBT (3,444,941) (41,447)
INCREASE IN DEFERRED FINANCING COSTS -- (3,860)
------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 158,627,218 (45,307)
------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 157,604,818 (11,825,901)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,974,650 59,558,929
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 174,579,468 $ 47,733,028
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID $ 5,875,754 $ 15,189,849
============= ============
INCOME TAXES PAID $ 430,324 $ 10,306
============= ============
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The accompanying unaudited
condensed consolidated financial statements as of September 24, 2000 and
December 31, 2000, and for the three-month periods ended December 26,1999 and
December 31, 2000 do not contain all disclosures required by generally accepted
accounting principles. These condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements of the Company
as of and for the fiscal year ended September 24, 2000 included in the Company's
2000 Form 10-K.
In the opinion of management of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments, which are
all of a normal, recurring nature, necessary for a fair presentation of the
results of the interim periods. The results of operations for the three-month
period ended December 31, 2000 are not necessarily indicative of the results for
a full year.
(2) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. SFAS No. 133, as amended by SFAS No. 137, is effective for the Company's
fiscal year ending September 30, 2001. The adoption of SFAS No. 133 had no
impact on the Company's consolidated financial statements since the Company had
no derivative instruments outstanding or hedging activities during the
three-month period ended December 31, 2000.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition", which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met in order to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. In June 2000, the SEC
issued SAB 101B, "Second Amendment: Revenue Recognition in Financial Statements"
which extends the effective date of SAB 101 to the fourth fiscal quarter of
fiscal years commencing after December 15, 1999. At this time, management is
still assessing the impact of SAB 101 on the Company's financial position and
results of operations.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140 ("SFAS No. 140"), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (A Replacement of SFAS No.
125)". SFAS No. 140 provides guidance on accounting for (1) securitization
transactions involving financial assets; (2) sales of financial assets
(including loan participations); (3) factoring transactions; (4) wash sales; (5)
servicing assets and liabilities; (6) collateralized borrowing arrangements; (7)
securities lending transactions; (8) repurchase agreements; and (9)
extinguishment of liabilities. While most of the provisions of SFAS No. 140 will
become effective for transactions entered into after March 31, 2001, companies
with calendar fiscal year ends that hold beneficial interests from previous
securitizations will be required to make additional disclosures in their
December 31, 2000 financial statements. Management does not believe that the
adoption of SFAS No. 140 will have a significant impact on the Company's
consolidated financial statements.
6
8
(3) ACQUISITIONS
On May 8, 2000, we entered into a stock purchase agreement with
Rodriguez Communications, Inc., a Delaware corporation ("RCI"), and the
stockholders of RCI to acquire all of the outstanding capital stock of RCI, the
owner of radio stations KMJR-FM (formerly KFOX-FM), and KNJR-FM (formerly
KREA-FM) serving the Los Angeles, California market, KXJO-FM serving the San
Francisco, California market and KSAH-AM serving the San Antonio, Texas market.
On May 8, 2000, we also entered into (1) an agreement with New World
Broadcasters Corp., a Texas corporation and an affiliate of RCI ("New World"),
to acquire radio station KTCY-FM serving the Dallas, Texas market, and (2) a
stock purchase agreement with New World and 910 Broadcasting Corp., a Texas
corporation and a wholly owned subsidiary of New World, to acquire all the
outstanding capital stock of 910 Broadcasting Corp., the owner and operator of
radio station KXEB-AM serving the Dallas, Texas market.
On November 10, 2000, we completed the purchase of all the outstanding
capital stock of RCI and the purchase of radio station KTCY-FM for total
consideration of $167.8 million, consisting of $42.6 million of our Class A
common stock and $125.2 million in cash, including closing costs of $2.8
million. The consideration paid by us for these acquisitions was determined
through arms-length negotiations between us, RCI, the shareholders of RCI and
New World. We financed these acquisitions with previously unissued shares of our
Class A common stock, cash on hand and borrowings under our credit agreement,
among us, the several banks and other financial institutions or entities from
time to time party to the credit agreement and Lehman Commercial Paper, Inc., as
administrative agent, dated as of July 6, 2000. Substantially all of the
purchase price for these acquisitions has been allocated to FCC licenses
(included in intangible assets) and a related deferred tax liability in the
accompanying condensed consolidated balance sheet.
Prior to the acquisition of these radio stations by RCI (the "Assets"),
we broadcasted our programming on the Assets under time brokerage agreements
until closing on November 10, 2000. Due to the lack of continuity in the
operations of the Assets acquired in the purchase of all the capital stock of
RCI, prior to and after RCI's acquisition of the Assets, at which time we began
operating the Assets, we have not included separate historical financial
statements or pro forma financial information relating to the acquisition of the
Assets.
We have not yet closed on the purchase of all the outstanding capital
stock of 910 Broadcasting Corp., the owner of radio station KXEB-AM. FCC
approval is still pending for this transaction, and there can be no assurances
that the acquisition of 910 Broadcasting Corp. will be completed. Until closing
on KXEB-AM, we will continue to broadcast our programming under a time brokerage
agreement that commenced on May 8, 2000.
On November 2, 2000, we entered into an asset purchase agreement with
International Church of the Four Square Gospel to purchase radio station KFSG-FM
in Los Angeles, California at a purchase price of $250.0 million. In connection
with this acquisition, we made an initial non-refundable deposit of $5.0 million
toward the purchase price. The agreement contains customary representations and
warranties, and the closing of our acquisition is subject to the satisfaction of
certain customary conditions, including receipt of regulatory approval from the
FCC. The agreement may be terminated by us or by the seller if the closing does
not occur by December 31, 2001. We cannot assure you that the acquisition of
KFSG-FM described above will occur.
7
9
The Company and the subsidiaries listed as additional registrants have
guaranteed the Senior Notes on a full, unconditional, and joint and several
basis. Condensed consolidating unaudited financial information for the Company
and its guarantor and non-guarantor subsidiaries is as follows:
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------- ------------ ------------
AS OF DECEMBER 31, 2000
--------------------------------------------------------------------
CONDENSED CONSOLIDATING BALANCE SHEET
Cash and cash equivalents 46,920,650 812,378 -- 47,733,028
Receivables, net 24,194,544 1,520,058 -- 25,714,602
Other current assets 2,138,024 536,908 -- 2,674,932
------------ ------------ ------------ ------------
Current Assets 73,253,218 2,869,344 -- 76,122,562
Property and equipment, net 15,519,856 8,016,153 -- 23,536,009
Intangible assets, net 459,691,703 111,161,777 -- 570,853,480
Deferred financing costs, net 10,449,959 2,557 -- 10,452,516
Investment in subsidiaries and intercompany (84,695,733) (9,996,534) (94,692,267) --
Other assets 327,035 -- -- 327,035
------------ ------------ ------------ ------------
Total Assets 474,546,038 112,053,297 (94,692,267) 681,291,602
============ ============ ============ ============
Current portion of long-term debt 53,805 120,344 -- 174,149
Accounts payable and accrued expenses 14,357,100 -- -- 14,357,100
Accrued interest 865,626 2,964,825 -- 3,830,451
Deferred commitment fee 1,983,503 -- -- 1,983,503
------------ ------------ ------------ ------------
Current Liabilities 17,260,034 3,085,169 -- 20,345,203
Long-term debt 300,924,241 3,523,727 -- 304,447,968
Deferred income taxes 16,687,175 22,200,000 -- 38,887,175
------------ ------------ ------------ ------------
Total Liabilities 334,871,450 28,808,896 -- 363,680,346
------------ ------------ ------------ ------------
Common stock 6,466 1,000 (1,000) 6,466
Additional paid-in capital 435,522,416 94,691,267 (94,691,267) 435,522,410
Accumulated deficit (106,469,754) (11,447,866) -- (117,917,620)
------------ ------------ ------------ ------------
Stockholders' equity 329,059,122 83,244,401 (94,692,267) 317,611,256
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity 663,930,572 112,053,297 (94,692,267) 681,291,602
============ ============ ============ ============
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------- ------------ ------------
FOR THE THREE MONTHS ENDED DECEMBER 31, 2000
--------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Net broadcasting revenues 33,811,230 3,502,686 -- 37,313,916
Station operating expenses 16,727,680 5,483,220 -- 22,210,900
Corporate expenses 2,511,206 -- -- 2,511,206
Depreciation and amortization 3,354,440 1,009,608 -- 4,364,048
------------ ------------ ----------- ------------
Operating income 11,217,904 (2,990,142) -- 8,227,762
Interest expense, net 6,086,865 1,350,520 -- 7,437,385
Other income, net (230,000) (7,500) -- (237,500)
Income tax expense 431,312 396 -- 431,708
------------ ------------ ----------- ------------
Net income (loss) 4,929,727 (4,333,558) -- 596,169
============ ============ =========== ============
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------- ------------ ------------
FOR THE THREE MONTHS ENDED DECEMBER 31, 2000
--------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Cash flows from operating activities (3,603,980) 2,102,053 -- (1,501,927)
============ ============ =========== ============
Cash flows from investing activities (8,591,214) (1,687,453) -- (10,278,667)
============ ============ =========== ============
Cash flows from financing activities (1,051,021) 1,005,714 -- (45,307)
============ ============ =========== ============
Parent-only financial information has not been provided since the parent has no
operations or assets separate from its investments in its subsidiaries.
8
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 26, 1999
NET REVENUES. Our net revenues were $37.3 million for the three months
ended December 31, 2000, compared to $28.9 million for the three months ended
December 26, 1999, an increase of $8.4 million or 29.1%. Most of the increase
was generated by the inclusion of operating results of the stations purchased
during the year 2000 in Puerto Rico, Dallas, San Antonio, San Francisco and Los
Angeles. Additionally, net revenues increased in our Chicago and Miami stations
due to more effective sales efforts and ratings improvements and due to the
three-way barter agreement we signed in May, 2000 with La Musica.com and America
Online, Inc. (the "AOL Agreement") partially offset by lower sales in the Los
Angeles market related to lower ratings and a softening of the advertising
market.
STATION OPERATING EXPENSES. Total station operating expenses were $22.2
million for the three months ended December 31, 2000, compared to $12.5 million
for the three months ended December 26, 1999, an increase of $9.7 million or
77.6%. The increase was primarily attributable to the inclusion of operating
results of the stations purchased in the year 2000 as well as the expenses
related to the AOL Agreement. In addition, operating expenses were affected by
higher compensation expenses related to increased staffing in the programming
department, the hiring of additional management personnel, higher marketing
costs and an increase to the allowance for doubtful accounts.
BROADCAST CASH FLOW. Broadcast cash flow was $15.1 million for the
three months ended December 31, 2000, compared to $16.4 million for the three
months ended December 26, 1999, a decrease of $1.3 million or 7.9%. Our
broadcast cash flow margin decreased to 40.5% for the three months ended
December 31, 2000, compared to 56.7% for the three months ended December 26,
1999 due to higher station operating expenses.
CORPORATE EXPENSES. Total corporate expenses were $2.5 million for the
three months ended December 31, 2000, compared to $13.1 million for the three
months ended December 26, 1999, a decrease of $10.6 million or 80.9%. The
decrease in corporate expenses resulted mainly from the absence in fiscal year
2001 of the $10.2 million non-recurring severance payment related to the
purchase of an annuity for two of our retired executives.
EBITDA. EBITDA was $12.6 million for the three months ended December
31, 2000, compared to $3.4 million for the three months ended December 26, 1999,
an increase of $9.2 million or 270.6%. The increase in EBITDA was mostly
attributable to decreased corporate expenses related to the $10.2 million
non-recurring severance payment in fiscal year 2000, partially offset by
decreased broadcast cash flow.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
was $4.4 million for the three months ended December 31, 2000, compared to $2.6
million for the three months ended December 31, 2000, an increase of $1.8
million or 69.2%. The increase was related to an increase in amortization and
depreciation resulting from the purchase of the Puerto Rico stations from AMFM
Operating, Inc., a Delaware corporation (formerly known as Chancellor Media
Corporation of Los Angeles), as well as the stations purchased from Rodriguez
Communications, Inc., a Delaware corporation ("RCI"), and New World Broadcasters
Corp., a Texas corporation and an affiliate of RCI ("New World").
OPERATING INCOME. Operating income was $8.2 million for the three
months ended December 31, 2000, compared to $0.7 million for the three months
ended December 26, 1999, an increase of $7.5 million or 1,071.4%. The increase
was due primarily to the increase in EBITDA that was partially offset by the
increase in depreciation and amortization.
INTEREST EXPENSE, NET. Interest expense was $7.4 million for the three
months ended December 31, 2000, compared to $3.0 million for the three months
ended December 26, 1999, an increase of $4.4 million or 146.7%. This increase
was due primarily to interest expense incurred on higher debt resulting from the
$235.0 million of 9 5/8% senior subordinated notes due 2009 which were issued on
October 28, 1999 and the $65.0 million outstanding on the company's senior
secured credit facility.
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OTHER INCOME (EXPENSE). We recorded $0.2 million of income for the
three months ended December 31, 2000 due to the settlement of a legal dispute
related to a back-up auxiliary transmitter and antenna for KLAX-FM serving the
Los Angeles market. We had other expenses of $0.4 million for the three months
ended December 26, 1999 which resulted primarily from the write-off of financing
costs related to a financing transaction that was aborted.
EXTRAORDINARY LOSS. During the three months ended December 31, 2000 the
Company did not record any extraordinary items. The Company incurred an
extraordinary loss of $16.9 million, net of an income tax benefit of $11.7
million, in the three months ended December 26, 1999 related to the early
extinguishment of our 11% and 12 1/2% notes for an amount in excess of our
carrying value and the write off of the related unamortized debt issuance costs.
NET INCOME. Our net income was $0.6 million for the three months ended
December 31, 2000, compared to a net loss of $18.4 million for the three months
ended December 26, 1999. The net income was caused by the absence of an
extraordinary loss and the absence of the non-recurring severance payment,
partially offset by an increase in interest expense and a decrease in broadcast
cash flow.
AFTER-TAX CASH FLOW. After-tax cash flow was $5.0 million for the three
months ended December 31, 2000, compared to $1.1 million for the three months
ended December 26, 1999, an increase of $3.9 million or 354.6%. This increase
was primarily attributable to the increase in EBITDA partially offset by the
increase in interest expense, net.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity is cash on hand, cash provided by
operations and, to the extent necessary, undrawn commitments that are available
under the $150.0 million senior credit facility arranged by Lehman Brothers Inc.
in July 2000, of which $65.0 million was outstanding at December 31, 2000. The
senior credit facility includes a six-year $25.0 million revolving credit
facility and $125.0 million multi-draw term loan facility. We intend to use a
significant portion of our capital resources to make future acquisitions. These
acquisitions will be funded primarily from the senior credit facility, cash on
hand and internally generated cash flow, as well as potential equity financing.
Our ability to increase our indebtedness is limited by the terms of the
credit agreement governing our senior credit facilities and the indenture
governing our senior subordinated notes. Additionally, such credit agreement and
indenture place restrictions on us with respect to the sale of assets, liens,
investments, dividends, debt repayments, capital expenditures, transactions with
affiliates and consolidations and mergers, among other things.
Net cash flows used in operating activities were $1.5 million for the
three months ended December 31, 2000, compared to net cash flows used in
operating activities of $1.2 million for the three months ended December 26,
1999. Changes in our net cash flow from operating activities are primarily a
result of changes in advertising revenues and station operating expenses which
are affected by the acquisition of stations during those periods.
Net cash flows used in investing activities were $10.3 million for the
three months ended December 31, 2000, compared to net cash flows provided by
investing activities of $0.1 million for the three months ended December 26,
1999. Changes in our net cash flow from investing activities are primarily a
result of the acquisition and disposition of stations during those periods.
Net cash flows used in financing activities were minimal for the three
months ended December 31, 2000, compared to net cash flows provided by financing
activities of $158.6 million for the three months ended December 26, 1999.
Changes in our net cash flow from financing activities during the three months
ended December 31, 2000 were primarily a result of the initial public offering
and related refinancing transactions that were completed during the first
quarter of fiscal year 2000.
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Management believes that cash from operating activities, together with
cash on hand, should be sufficient to permit us to meet our obligations in the
foreseeable future, including: (1) required significant cash interest payments
pursuant to the terms of the senior subordinated notes due 2009, (2) operating
obligations and (3) capital expenditures. Assumptions (none of which can be
assured) that underlie management's belief, include:
- the economic conditions within the radio broadcasting market
and economic conditions in general will not deteriorate in any
material respect;
- we will continue to successfully implement our business
strategy;
- we will not incur any material unforeseen liabilities,
including environmental liabilities; and
- no future acquisitions will adversely affect our liquidity.
We continuously review, and are currently reviewing, opportunities to
acquire additional radio stations, primarily in the largest Hispanic markets in
the United States. We engage in discussions regarding potential acquisitions
from time to time in the ordinary course of business. On May 8, 2000, we entered
into a stock purchase agreement with RCI and the stockholders of RCI to acquire
all of the outstanding capital stock of RCI, the owner of radio stations KMJR-FM
(formerly KFOX-FM) and KNJR-FM (formerly KREA-FM) serving the Los Angeles,
California market, KXJO-FM serving the San Francisco, California market and
KSAH-AM serving the San Antonio, Texas market. On May 8, 2000, we also entered
into (1) an asset purchase agreement with New World to acquire radio station
KTCY-FM serving the Dallas, Texas market and (2) a stock purchase agreement with
New World and 910 Broadcasting Corp., a Texas corporation and a wholly owned
subsidiary of New World, to acquire all the outstanding capital stock of 910
Broadcasting Corp., the owner and operator of radio station KXEB-AM serving the
Dallas, Texas market.
On November 10, 2000, we completed the purchase of all the outstanding
capital stock of RCI and the purchase of radio station KTCY-FM for total
consideration of $167.8 million, consisting of $42.6 million of our Class A
common stock and $125.2 million in cash, including closing costs of $2.8
million. The consideration paid by us for these acquisitions was determined
through arms-length negotiations between us, RCI, the shareholders of RCI and
New World. We financed these acquisitions with previously unissued shares of our
Class A common stock, cash on hand and borrowings under our credit agreement,
among us, the several banks and other financial institutions or entities from
time to time party to the credit agreement and Lehman Commercial Paper, Inc., as
administrative agent, dated as of July 6, 2000. We have not yet closed on the
purchase of all the outstanding capital stock of 910 Broadcasting Corp., the
owner of radio station KXEB-AM. FCC approval is still pending for this
transaction, and there can be no assurances that the acquisition of 910
Broadcasting Corp. will be completed. Until closing on KXEB-AM, we will continue
to broadcast our programming under a time brokerage agreement that commenced on
May 8, 2000.
On November 2, 2000, we entered into an asset purchase agreement with
International Church of the Four Square Gospel to purchase radio station KFSG-FM
in Los Angeles, California at a purchase price of $250.0 million. In connection
with this acquisition, we made an initial non-refundable deposit of $5.0 million
toward the purchase price. The agreement contains customary representations and
warranties, and the closing of our acquisition is subject to the satisfaction of
certain customary conditions, including receipt of regulatory approval from the
FCC. The agreement may be terminated by us or by the seller if the closing does
not occur by December 31, 2001. We cannot assure you that the acquisition of
KFSG-FM described above will occur.
We have no other written understandings, letters of intent or contracts
to acquire radio stations or other companies. We anticipate that any future
acquisitions would be financed through funds generated from permitted debt
financing, equity financing, operations or a combination of these sources.
However, there can be no assurance that financing from any of these sources, if
available, can be obtained on favorable terms.
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YEAR 2000 ISSUE
To date, no material interruptions to our operations have occurred as a
result of the year 2000 issue. In 1999 we performed various analysis of
potential problems related to the year 2000 issue. Internally, we bear some
risks in the following areas: computer hardware and software for our accounting
and administrative functions, computer-controlled programming of music and the
transmission of our signals. Externally, we are at risk, like most companies, of
losing power and phone lines. As of December 31, 2000, we had spent $0.1 million
to upgrade/replace non-compliant systems and equipment.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. SFAS No. 133, as amended by SFAS No. 137, is effective for the Company's
fiscal year ending September 30, 2001. The adoption of SFAS No. 133 had no
impact on the Company's consolidated financial statements since the Company had
no derivative instruments outstanding or hedging activities during the
three-month period ended December 31, 2000.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition", which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met in order to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. In June 2000, the SEC
issued SAB 101B, "Second Amendment: Revenue Recognition in Financial Statements"
which extends the effective date of SAB 101 to the fourth fiscal quarter of
fiscal years commencing after December 15, 1999. At this time, management is
still assessing the impact of SAB 101 on the Company's financial position and
results of operations.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140 ("SFAS No. 140"), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (A Replacement of SFAS No.
125)". SFAS No. 140 provides guidance on accounting for (1) securitization
transactions involving financial assets; (2) sales of financial assets
(including loan participations); (3) factoring transactions; (4) wash sales; (5)
servicing assets and liabilities; (6) collateralized borrowing arrangements; (7)
securities lending transactions; (8) repurchase agreements; and (9)
extinguishment of liabilities. While most of the provisions of SFAS No. 140 will
become effective for transactions entered into after March 31, 2001, companies
with calendar fiscal year ends that hold beneficial interests from previous
securitizations will be required to make additional disclosures in their
December 31, 2000 financial statements. Management does not believe that the
adoption of SFAS No. 140 will have a significant impact on the Company's
consolidated financial statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe that inflation has not had a material impact on our results
of operations for each of our first quarters ended December 26, 1999 and
December 31, 2000. However, there can be no assurance that future inflation
would not have an adverse impact on our operating results and financial
condition.
We are not subject to currency fluctuations since we do not have any
international operations other than Puerto Rico where the currency is the U.S.
dollar. We have limited market risk exposure since we do not have any
outstanding variable rate debt or derivative financial and commodity instruments
as of February 14, 2001. Our financial instruments outstanding at December 31,
2000 with market risk are our 9 5/8% senior subordinated notes due 2009 and our
12 1/2% senior notes due 2002 of which only an aggregate principal amount of
$100,000 remains outstanding.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we are involved in litigation incidental to the
conduct of our business, such as contract matters and employee-related matters.
We are not currently a party to litigation which, in the opinion of management,
is likely to have a material adverse effect on our business.
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
On November 10, 2000, we issued an aggregate of 4,441,545 shares of our
Class A Common Stock to New World, the shareholders of RCI, and to certain
individuals as part of the purchase price for radio station KTCY-FM and all the
outstanding capital stock of RCI. We relied on Section 4(2) of the Securities
Act of 1933, as amended, to claim exemption from registration for this issuance,
as a transaction not involving any public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
3.1 Third Amended and Restated Certificate of Incorporation of the
Company, dated September 29, 1999 (incorporated by reference to the
Company's 1999 Registration Statement on Form S-1 (Commission File
No. 333-85499) (the "1999 Registration Statement")) (Exhibit A to
this Exhibit 3.1 is incorporated by reference to the Company's
Current Report on Form 8-K, dated March, 25 1996 (the "1996 Current
Report")).
3.2 Certificate of Amendment to the Third Amended and Restated
Certificate of Incorporation of the Company, dated September 29, 1999
(incorporated by reference to the Company's 1999 Registration
Statement).
3.3 Amended and Restated By-Laws of the Company (incorporated by
reference to the Company's 1999 Registration Statement).
4.1 Article V of the Third Amended and Restated Certificate of
Incorporation of the Company, dated September 29, 1999 (incorporated
by reference to the Company's 1999 Registration Statement) (see
Exhibit 3.1).
4.2 Certificate of Designation filed as Exhibit A to the Third Amended
and Restated Certificate of Incorporation of the Company, dated
September 29, 1999 (incorporated by reference to the Company's 1999
Registration Statement) (see Exhibit 3.1).
4.3 Indenture dated June 29, 1994 among the Company, IBJ Schroder Bank
and Trust Company, as Trustee, the Guarantors named therein and the
Purchasers named therein (incorporated by reference to Exhibit 4.1 of
the Company's 1994 Registration Statement on Form S-4.
4.4 First Supplemental Indenture dated as of March 25, 1996 to the
Indenture dated as of June 29, 1994 among the Company, the
Guarantors named therein and IBJ Schroder Bank & Trust Company, as
Trustee (incorporated by reference to the 1996 Current Report).
4.5 Second Supplemental Indenture dated as of March 21, 1997 to the
Indenture dated as of June 29, 1994 among the Company, the Guarantors
named therein and IBJ Schroder Bank & Trust Company, as Trustee
(incorporated by reference to the 1996 Current Report).
4.6 Supplemental Indenture dated as of October 21, 1999 to the Indenture
dated as of June 29, 1994 among the Company, the Guarantors named
therein and IBJ Schroder Bank & Trust Company, as Trustee
(incorporated by reference to the Company's 1999 Registration
Statement).
4.7 Indenture with respect to 9-5/8% Senior Subordinated Notes due 2009
with The Bank of New York as Trustee, dated November 2, 1999
(incorporated by reference to the Company's Current Report on Form 8-K
dated November 2, 1999).
4.8 Form of stock certificate for the Class A Common Stock of the Company
(incorporated by reference to the Company's 1999 Registration
Statement).
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(b) Reports on Form 8-K.
(i) The Company filed a report on Form 8-K dated November 27, 2000, which
reported that:
(1) On May 8, 2000, the Company entered into a stock
purchase agreement, by and among RCI, each of the stockholders of RCI
identified on Annex I thereto, and the Company, to purchase all of
the outstanding capital stock of RCI; and an Asset Purchase
Agreement, by and between New World and the Company, to purchase
radio station KTCY-FM in Texas ("KTCY").
(2) On November 10, 2000, the Company completed the
purchase of KTCY and all of the outstanding capital stock of RCI; in
consideration for which SBS paid to RCI, the shareholders of RCI and
New World, total consideration of $165.2 million, consisting of $43.5
million of the Company's Class A common stock and $121.7 million in
cash.
(ii) The Company filed a report on Form 8-K dated December 8, 2000, which
reported that:
(1) The annual meeting of the shareholders (the "Meeting")
of the Company, was to be held on February 9, 2001. Shareholder
proposals to be presented at the Meeting were required to be received
by the Company no later than December 29, 2000, to be included in the
Company's Proxy Statement for the Meeting.
(2) If the Company was not notified of a stockholder
proposal by December 29, 2000, then the management proxies would have
discretion to vote against such stockholder proposal, even though
such proposal was not discussed in the proxy statement.
(iii) The Company filed an Amended report on Form 8-K dated January 24,
2001 (the "Amended 8-K"), to amend the report on Form 8-K dated
November 27, 2000, to add that:
(1) Due to the lack of continuity in the operations of the
radio stations (the "Assets") acquired in the purchase of all the
capital stock of RCI, prior to and after RCI's acquisition of the
Assets, at which time the Company began operating the Assets, the
Company did not include separate audited financial statements or pro
forma financial information relating to the acquisition of the Assets
in the Amended 8-K.
(2) The Company had not yet closed on the purchase of all
the outstanding capital stock of 910 Broadcasting Corp., the owner of
radio station KXEB-AM, as of the date of the Amended 8-K. FCC approval
was still pending for this transaction as of the date of the Amended
8-K and there could be no assurances that the acquisition of 910
Broadcasting Corp. would be completed.
(3) The Company did not include separate audited financial
statements or pro forma financial information relating to the
acquisition of KTCY-FM (Pilot Point, Texas) from New World or the
potential acquisition of all the outstanding capital stock of 910
Broadcasting Corp., the owner of KXEB-AM (Sherman, Texas), in the
Amended 8-K because neither acquisition is considered significant.
(4) Of the total purchase price paid by the Company for the
capital stock of RCI and the purchase of KTCY-FM from New World,
$40.5 million was allocated to the purchase of KTCY-FM from New
World. The purchase price for KXEB-AM is $0.95 million.
(iv) The Company filed a report on Form 8-K dated February 9, 2001, which
reported that the Meeting was re-scheduled from February 9, 2001 to
March 5, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the
registrants has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Spanish Broadcasting System, Inc., a Delaware Corporation
Spanish Broadcasting System, Inc., a New Jersey Corporation
Spanish Broadcasting System of California, Inc.
Spanish Broadcasting System of Florida, Inc.
Spanish Broadcasting System Network, Inc.
SBS Promotions, Inc.
Alarcon Holdings, Inc.
SBS of Greater New York, Inc.
Spanish Broadcasting System of Illinois, Inc.
Spanish Broadcasting System of Greater Miami, Inc.
Spanish Broadcasting System of San Antonio, Inc.
Spanish Broadcasting System of Puerto Rico, Inc., a Delaware Corporation
Spanish Broadcasting System of Puerto Rico, Inc., a Puerto Rico Corporation
SBS Funding, Inc.
By: /s/ JOSEPH A. GARCIA
--------------------------------------------
Joseph A. Garcia, Executive Vice President,
Date: February 14, 2001 Chief Financial Officer and Secretary
(principal financial and accounting officer)
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