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 MARCH 25, 2001
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 33-82114
SPANISH BROADCASTING SYSTEM, INC.
(Exact name of registrant as specified in its charter)
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, FLORIDA 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 outstanding as of May 8, 2001:
36,856,305 shares of Class A Common Stock, par value $.0001 per share and
27,801,900 shares of Class B Common Stock, par value $.0001 per share.
2
SPANISH BROADCASTING SYSTEM, INC.
INDEX
PART I. FINANCIAL INFORMATION..........................................................................
ITEM 1. FINANCIAL STATEMENTS - UNAUDITED...............................................................
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 24, 2000
AND MARCH 25, 2001............................................................................. 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE- AND SIX-
MONTHS ENDED MARCH 26, 2000 AND MARCH 25, 2001................................................. 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX-MONTHS
ENDED MARCH 26, 2000 AND MARCH 25, 2001........................................................ 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................................................................... 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................... 15
PART II. OTHER INFORMATION.............................................................................. 15
ITEM 1. LEGAL PROCEEDINGS.............................................................................. 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................ 15
ITEM 5. OTHER INFORMATION.............................................................................. 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................... 16
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS--UNAUDITED
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 24, 2000 MARCH 25, 2001
------------------ ------------------
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 59,558,929 37,054,808
RECEIVABLES:
TRADE 30,986,110 25,154,200
BARTER 2,360,184 4,969,617
------------------ ------------------
33,346,294 30,123,817
LESS: ALLOWANCE FOR DOUBTFUL ACCOUNTS 8,082,275 11,605,310
------------------ ------------------
NET RECEIVABLES 25,264,019 18,518,507
OTHER CURRENT ASSETS 3,862,182 2,698,949
------------------ ------------------
TOTAL CURRENT ASSETS 88,685,130 58,272,264
PROPERTY AND EQUIPMENT, NET 21,675,239 24,981,470
INTANGIBLE ASSETS, NET 513,357,655 587,901,484
DEFERRED FINANCING COSTS, NET 10,794,733 10,123,469
OTHER ASSETS 178,066 311,001
------------------ ------------------
TOTAL ASSETS $ 634,690,823 681,589,688
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $ 171,262 177,106
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 13,984,267 15,064,382
ACCRUED INTEREST 11,032,889 10,560,242
DEFERRED COMMITMENT FEE 2,158,850 1,808,156
------------------ ------------------
TOTAL CURRENT LIABILITIES 27,347,268 27,609,886
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 4,302,662
DEFERRED INCOME TAXES 28,386,169 36,126,898
STOCKHOLDERS' EQUITY:
CLASS A COMMON STOCK, $.0001 PAR VALUE. AUTHORIZED
100,000,000 SHARES; 32,399,760 SHARES ISSUED AND OUTSTANDING AT SEPT. 24, 2000;
36,856,305 SHARES ISSUED AND OUTSTANDING AT MARCH 25, 2001 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 ISSUED AND OUTSTANDING AT MARCH 25, 2001 2,782 2,780
ADDITIONAL PAID IN CAPITAL 392,972,851 435,522,410
ACCUMULATED DEFICIT (118,513,789) (122,078,634)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 274,465,084 313,450,242
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 634,690,823 681,589,688
================== ==================
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
4
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
MARCH 26, 2000 MARCH 25, 2001 MARCH 26, 2000 MARCH 25, 2001
-------------- -------------- -------------- --------------
GROSS BROADCASTING REVENUES $ 28,729,792 28,561,858 61,931,899 71,471,309
LESS: AGENCY COMMISSIONS 3,801,650 3,510,157 8,070,354 9,105,692
-------------- -------------- -------------- --------------
NET BROADCASTING REVENUES 24,928,142 25,051,701 53,861,545 62,365,617
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
ENGINEERING 626,587 848,166 1,212,103 1,595,623
PROGRAMMING 3,246,953 4,086,356 6,204,413 9,799,275
SELLING 5,171,226 9,153,063 11,454,596 19,811,782
GENERAL AND ADMINISTRATIVE 3,207,520 4,367,814 5,885,087 9,459,619
CORPORATE EXPENSES 2,391,330 2,644,954 15,454,514 5,156,160
DEPRECIATION AND AMORTIZATION 3,223,763 4,432,554 5,847,633 8,796,602
-------------- -------------- -------------- --------------
17,867,379 25,532,907 46,058,346 54,619,061
-------------- -------------- -------------- --------------
OPERATING INCOME (LOSS) 7,060,763 (481,206) 7,803,199 7,746,556
OTHER (INCOME) EXPENSES:
INTEREST EXPENSE, NET 4,528,397 6,585,422 7,494,673 14,022,807
OTHER, NET (48,892) (279,712) 356,215 (517,212)
-------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 2,581,258 (6,786,916) (47,689) (5,759,039)
INCOME TAX EXPENSE (BENEFIT) 1,057,695 (2,625,902) (20,173) (2,194,194)
-------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 1,523,563 (4,161,014) (27,516) (3,564,845)
EXTRAORDINARY ITEM, NET OF INCOME TAX -- -- (16,865,069) --
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $ 1,523,563 (4,161,014) (16,892,585) (3,564,845)
DIVIDENDS ON PREFERRED STOCK -- -- (28,372,393) --
-------------- -------------- -------------- --------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ 1,523,563 (4,161,014) (45,264,978) (3,564,845)
-------------- -------------- -------------- --------------
NET INCOME (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEM:
BASIC $ 0.03 (0.06) (0.51) (0.06)
DILUTED $ 0.03 (0.06) (0.51) (0.06)
NET INCOME (LOSS) PER COMMON SHARE FOR EXTRAORDINARY ITEM:
BASIC $ -- -- (0.30) --
DILUTED $ -- -- (0.30) --
NET INCOME (LOSS) PER COMMON SHARE:
BASIC $ 0.03 (0.06) (0.81) (0.06)
DILUTED $ 0.03 (0.06) (0.81) (0.06)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 60,216,660 64,658,205 56,108,682 63,511,213
DILUTED 60,610,716 64,658,205 56,108,682 63,511,213
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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5
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 26, 2000 MARCH 25, 2001
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (16,892,585) (3,564,845)
------------- -------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
LOSS ON EARLY EXTINGUISHMENT OF DEBT 28,584,862 --
DEPRECIATION AND AMORTIZATION 5,847,633 8,796,602
GAIN ON SALE OF RADIO STATION (54,963) --
PROVISION FOR DOUBTFUL ACCOUNTS 1,646,499 4,035,667
AMORTIZATION OF DEBT DISCOUNT 61,295 --
AMORTIZATION OF DEFERRED FINANCING COSTS 513,466 695,126
ACCRETION OF INTEREST TO PRINCIPAL ON OTHER LONG-TERM DEBT 151,441 --
DEFERRED INCOME TAXES (8,531,911) (2,359,271)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
DECREASE IN RECEIVABLES 2,295,461 2,709,845
(INCREASE) DECREASE IN OTHER CURRENT ASSETS (3,155,512) 457,620
INCREASE IN OTHER ASSETS (1,864) (132,935)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES (2,611,567) 993,755
(DECREASE) INCREASE IN ACCRUED INTEREST 5,166,151 (472,647)
INCREASE (DECREASE) IN DEFERRED COMMITMENT FEE 165,613 (350,694)
------------- -------------
TOTAL ADJUSTMENTS 30,076,604 14,373,068
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,184,019 10,808,223
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
ACQUISITIONS OF RADIO STATIONS, NET OF CASH ACQUIRED (80,608,272) (3,412,344)
PROCEED FROM SALE OF STATIONS 690,304 --
ADVANCES ON PURCHASE PRICE OF RADIO STATIONS -- (25,800,012)
ADDITIONS TO PROPERTY AND EQUIPMENT (373,658) (3,992,330)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (80,291,626) (33,204,686)
------------- -------------
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 227,060,112 --
PROCEEDS FROM CLASS A COMMON STOCK 388,118,295 --
INCREASE IN DEFERRED FINANCING COSTS -- (23,862)
REPAYMENT OF OTHER LONG-TERM DEBT (3,458,122) (83,796)
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 158,270,959 (107,658)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 91,163,352 (22,504,121)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,974,650 59,558,929
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 108,138,002 37,054,808
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID $ 5,927,284 15,315,809
============= =============
INCOME TAXES PAID $ 430,324 145,077
============= =============
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
6
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 2001
(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 March
25, 2001, and for the three- and six-month periods ended March 26, 2000 and
March 25, 2001 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
fiscal year 2000 Annual Report on 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- and
six-month periods ended March 25, 2001 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 six month
period ended March 25, 2001.
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. Most of the provisions of SFAS No. 140 will
become effective for transactions entered into after March 31, 2001. The Company
adopted SFAS No. 140 on April 1, 2001. The adoption of SFAS No. 140 had no
significant impact on the Company's consolidated financial statements.
(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 asset purchase 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.
6
7
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.
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 assurance that the
acquisition of 910 Broadcasting Corp. will be completed. Until closing on the
purchase of KXEB-AM, we will continue to broadcast our programming under a time
brokerage agreement that commenced on May 8, 2000.
Due to the lack of continuity in the operations of the radio stations
acquired in the purchase of all the capital stock of RCI (the "RCI Stations"),
prior to and after RCI's acquisition of the RCI Stations, at which time we began
operating the RCI Stations under time brokerage agreements until closing on
November 10, 2000, we have not included separate historical financial
statements or pro forma financial information relating to the acquisition of the
RCI Stations.
On November 2, 2000, we entered into an asset purchase agreement with the
International Church of the FourSquare Gospel ("ICFG") 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 a non-refundable deposit of $5.0
million to be credited towards the purchase price at closing. 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. On March 13, 2001, we
entered into two time brokerage agreements with ICFG pursuant to which we are
permitted to broadcast our programming over radio station KFSG-FM (the "TBA"),
and ICFG is permitted to broadcast its programming over radio stations KMJR-FM
and KNJR-FM (the "93.5 TBA") and an addendum to the asset purchase agreement
(the "Addendum"). On May 1, 2001, we commenced broadcasting our programming over
radio station KFSG-FM (under the call letters KXOL) under the TBA. ICFG
commenced broadcasting its programming under the 93.5 TBA on May 1, 2001.
The payment of $25.0 million made pursuant to the TBA, consisting of the
original $5.0 million deposit and an additional payment of $20.0 million, gives
us the right to broadcast our programming on radio station KFSG-FM under the TBA
through March 13, 2002. We have the option to extend the term of the TBA to
December 31, 2002 by making payment to ICFG of an additional $35.0 million no
later than March 13, 2002. The full amounts of the payments for the TBA will be
applied to the purchase price of radio station KFSG-FM if we close under the
amended asset purchase agreement on or before August 1, 2002. Thereafter, there
will be a charge against such credit equal to $1.2 million for each month we
delay the closing past August 1, 2002. Under the amended asset purchase
agreement, if we elect to extend the term of the TBA to December 31, 2002, the
termination date for closing on the purchase of radio station KFSG-FM will be
extended from March 13, 2002 until December 31, 2002. ICFG has the right to
terminate or extend the 93.5 TBA after its initial term of 60 days. If ICFG does
not extend the 93.5 TBA and we have not either closed under the amended asset
purchase agreement or terminated such agreement, we will issue to ICFG warrants,
exercisable for five years, to purchase 234,375 shares of our class A common
stock for each month from the termination of the 93.5 TBA through March 13,
2002, with an exercise price of $6 per share. If we extend the TBA, the number
of shares granted will be reduced to 197,917 shares of class A common stock for
each month from March 14, 2002 through December 31, 2002, with the same exercise
price. Such obligation shall terminate immediately if we either close under the
amended asset purchase agreement for radio station KFSG-FM or we terminate such
agreement. The acquisition of radio station KFSG-FM will be funded primarily
from the senior credit facility, cash on hand and internally generated cash
flow, as well as potential equity and debt financing and asset sales. There can
be no assurance that the acquisition of radio station KFSG-FM will occur.
7
8
The Company and certain of its subsidiaries have guaranteed the Senior
Notes on a full, unconditional, and joint and several basis. In December 1999,
the Company transferred the FCC licenses of WRMA-FM, WXDJ-FM, WLEY-FM, WSKQ-FM,
KLEY-FM, WPAT-FM, WCMA-FM, WEGM-FM, WMEG-FM, WCMQ-FM, and KLAX-FM, to special
purpose subsidiaries that were formed solely for the purpose of holding each
respective company's FCC licenses. These special purpose subsidiaries are
non-guarantors of the Senior Notes as first disclosed in the prospectus relating
to our Senior Notes filed in October 1999. 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 SEPTEMBER 24, 2000
------------------------------------------------------------
CONDENSED CONSOLIDATING BALANCE SHEET
Cash and cash equivalents $ 59,237,041 321,888 -- 59,558,929
Receivables, net 23,718,499 1,545,520 -- 25,264,019
Other current assets 3,315,263 546,919 -- 3,862,182
------------- ------------ ------------ ------------
Current assets 86,270,803 2,414,327 -- 88,685,130
Property and equipment, net 14,183,896 7,491,343 -- 21,675,239
Intangible assets, net 121,115,260 392,242,395 -- 513,357,655
Deferred financing costs, net 10,792,176 2,557 -- 10,794,733
Investment in subsidiaries and intercompany 377,830,574 (283,138,307) (94,692,267) --
Other assets 178,683 (617) -- 178,066
------------- ------------ ------------ ------------
Total assets $ 610,371,392 119,011,698 (94,692,267) 634,690,823
============= ============ ============ ============
Current portion of long-term debt $ 53,805 117,457 -- 171,262
Accounts payable and accrued expenses 11,624,801 2,359,466 -- 13,984,267
Accrued interest 11,032,889 -- -- 11,032,889
Deferred commitment fee 2,158,850 -- -- 2,158,850
------------- ------------ ------------ ------------
Current liabilities 24,870,345 2,476,923 -- 27,347,268
Long-term debt 300,937,384 3,554,918 -- 304,492,302
Deferred income taxes 6,186,169 22,200,000 -- 28,386,169
------------- ------------ ------------ ------------
Total liabilities 331,993,898 28,231,841 -- 360,225,739
------------- ------------ ------------ ------------
Common stock 6,022 1,000 (1,000) 6,022
Additional paid-in capital 392,972,851 94,691,267 (94,691,267) 392,972,851
Accumulated deficit (114,601,379) (3,912,410) -- (118,513,789)
------------- ------------ ------------ ------------
Stockholders' equity 278,377,494 90,779,857 (94,692,267) 274,465,084
------------- ------------ ------------ ------------
Total liabilities and stockholders'
equity $ 610,371,392 119,011,698 (94,692,267) 634,690,823
============= ============ ============ ============
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------- ------------ ------------
AS OF MARCH 25, 2001
-------------------------------------------------------------
CONDENSED CONSOLIDATING BALANCE SHEET
Cash and cash equivalents $ 36,445,877 608,931 -- 37,054,808
Receivables, net 17,626,523 891,984 -- 18,518,507
Other current assets 2,168,204 530,745 -- 2,698,949
------------- ------------ ------------ ------------
Current Assets 56,240,604 2,031,660 -- 58,272,264
Property and equipment, net 16,749,924 8,231,546 -- 24,981,470
Intangible assets, net 35,794,803 552,106,681 -- 587,901,484
Deferred financing costs, net 10,123,469 -- -- 10,123,469
Investment in subsidiaries and intercompany 549,532,935 (454,840,668) (94,692,267) --
Other assets 311,001 -- -- 311,001
------------- ------------ ------------ ------------
Total Assets $ 668,752,736 107,529,219 (94,692,267) 681,589,688
============= ============ ============ ============
Current portion of long-term debt $ 53,805 123,301 -- 177,106
Accounts payable and accrued expenses 10,532,870 4,531,512 -- 15,064,382
Accrued interest 10,560,242 -- -- 10,560,242
Deferred commitment fee 1,808,156 -- -- 1,808,156
------------- ------------ ------------ ------------
Current Liabilities 22,955,073 4,654,813 -- 27,609,886
Long-term debt 300,910,891 3,491,771 -- 304,402,662
Deferred income taxes 13,926,898 22,200,000 -- 36,126,898
------------- ------------ ------------ ------------
Total Liabilities 337,792,862 30,346,584 -- 368,139,446
------------- ------------ ------------ ------------
Common stock 6,466 1,000 (1,000) 6,466
Additional paid-in capital 435,522,410 94,691,267 (94,691,267) 435,522,410
Accumulated deficit (104,569,002) (17,509,632) -- (122,078,634)
------------- ------------ ------------ ------------
Stockholders' equity 330,959,874 77,182,635 (94,692,267) 313,450,242
------------- ------------ ------------ ------------
Total liabilities and stockholders' equity $ 668,752,736 107,529,219 (94,692,267) 681,589,688
============= ============ ============ ============
8
9
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------- ------------ ------------
FOR THE THREE MONTHS ENDED MARCH 26, 2000
------------------------------------------------------------
CONDENSED CONSOLIDATING INCOME STATEMENT
Net broadcasting revenues $ 22,802,390 2,125,752 -- 24,928,142
Station operating expenses 10,340,244 1,912,042 -- 12,252,286
Corporate expenses 2,391,330 -- -- 2,391,330
Depreciation and amortization 402,142 2,821,621 -- 3,223,763
------------ ---------- ------------ ------------
Operating income (loss) 9,668,674 (2,607,911) -- 7,060,763
Interest expense, net 4,528,397 -- -- 4,528,397
Other, net 1,982,550 (2,031,442) -- (48,892)
Income tax expense (benefit) 1,301,536 (243,841) -- 1,057,695
Extraordinary item, net of income taxes -- -- -- --
------------ ---------- ------------ ------------
Net income (loss) $ 1,856,191 (332,628) -- 1,523,563
============ ========== ============ ============
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------- ------------ ------------
FOR THE THREE MONTHS ENDED MARCH 25, 2001
------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Net broadcasting revenues $ 22,664,140 2,387,561 -- 25,051,701
Station operating expenses 10,108,837 8,346,562 -- 18,455,399
Corporate expenses 2,644,954 -- -- 2,644,954
Depreciation and amortization 399,680 4,032,874 -- 4,432,554
------------ ---------- ------------ ------------
Operating income (loss) 9,510,669 (9,991,875) -- (481,206)
Interest expense, net 5,145,662 1,439,760 -- 6,585,422
Other, net 2,567,464 (2,847,176) -- (279,712)
Income tax benefit (2,625,902) -- -- (2,625,902)
------------ ---------- ------------ ------------
Net income (loss) $ 4,423,445 (8,584,459) -- (4,161,014)
============ ========== ============ ============
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------- ------------ ------------
FOR THE SIX MONTHS ENDED MARCH 26, 2000
------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Net broadcasting revenues $ 51,687,310 2,174,235 -- 53,861,545
Station operating expenses 22,444,116 2,312,083 -- 24,756,199
Corporate expenses 15,337,454 117,060 -- 15,454,514
Depreciation and amortization 782,698 5,064,935 -- 5,847,633
------------ ---------- ------------ ------------
Operating income (loss) 13,123,042 (5,319,843) -- 7,803,199
Interest expense, net 7,494,726 (53) -- 7,494,673
Other, net 4,409,941 (4,053,726) -- 356,215
Income tax benefit (20,173) -- -- (20,173)
Extraordinary item, net of income tax (16,865,069) -- (16,865,069)
------------ ---------- ------------ ------------
Net loss $(15,626,521) (1,266,064) -- (16,892,585)
============ ========== ============ ============
9
10
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------- ------------ ------------
FOR THE SIX MONTHS ENDED MARCH 25, 2001
-------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Net broadcasting revenues 56,592,110 5,773,507 -- 62,365,617
Station operating expenses 31,579,830 9,086,469 -- 40,666,299
Corporate expenses 5,156,160 -- -- 5,156,160
Depreciation and amortization 2,030,565 6,766,037 -- 8,796,602
------------ ------------ ------------ ------------
Operating income (loss) 17,825,555 (10,078,999) -- 7,746,556
Interest expense, net 11,348,497 2,674,310 -- 14,022,807
Other, net 4,363,072 (4,880,284) -- (517,212)
Income tax benefit (2,194,194) -- -- (2,194,194)
------------ ------------ ------------ ------------
Net income (loss) 4,308,180 (7,873,025) -- (3,564,845)
============ ============ ============ ============
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------- ------------ ------------
FOR THE SIX MONTHS ENDED MARCH 26, 2000
-------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Cash flows from operating activities 11,499,720 1,684,299 -- 13,184,019
------------ ------------ ------------ ------------
Cash flows from investing activities 243,405,429 (323,697,055) -- (80,291,626)
------------ ------------ ------------ ------------
Cash flows from financing activities (166,464,184) 324,735,143 -- 158,270,959
============ ============ ============ ============
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------- ------------ ------------
FOR THE SIX MONTHS ENDED MARCH 25, 2001
------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Cash flows from operating activities 9,352,609 1,455,614 -- 10,808,223
============ ============ ============ ============
Cash flows from investing activities 134,935,634 (168,140,320) -- (33,204,686)
============ ============ ============ ============
Cash flows from financing activities (167,079,137) 166,971,479 -- (107,658)
============ ============ ============ ============
Certain prior year amounts have been reclassified to reflect the transfer of FCC
licenses from guarantor subsidiaries to non-guarantor subsidiaries. Parent-only
financial information has not been provided since the parent has no operations
or assets separate from its investments in its subsidiaries.
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 25, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 26,
2000.
NET REVENUES. Net revenues were $25.1 million for the three months
ended March 25, 2001 compared to $24.9 million for the three months ended March
26, 2000, an increase of $0.2 million or 0.8%. Most of the increase was
generated by the inclusion of the operating results of the stations acquired
during the year 2000 in Puerto Rico, Dallas, San Antonio, San Francisco and Los
Angeles, as well as our barter agreement with America Online, Inc. (the "AOL
Agreement"), which commenced in September 2000. On a same station basis, we
experienced decreases in net revenues, generally related to lower advertising
demand.
STATION OPERATING EXPENSES. Total station operating expenses were $18.5
million for the three months ended March 25, 2001 compared to $12.3 million for
the three months ended March 26, 2000, an increase of $6.2 million or 50.4%. The
increase was primarily attributed to the inclusion of the operating results of
the stations acquired in the year 2000, as well as the expenses related to the
AOL Agreement. In addition, higher compensation expenses related to improvements
in our programming department, the hiring of additional programming and sales
management personnel, higher marketing costs, and an increase in the allowance
for doubtful accounts related to an overall softening in the general economy
also increased operating expenses.
BROADCAST CASH FLOW. Broadcast cash flow was $6.6 million for the
three months ended March 25, 2001 compared to $12.7 million for the three months
ended March 26, 2000, a decrease of $6.1 million or 48.0%. In addition, our
broadcast cash flow margin decreased to 26.3% for the three months ended March
25, 2001 compared to 51.0% for the three months ended March 26, 2000, due to
decreased same station net revenues and higher station operating expenses.
CORPORATE EXPENSES. Corporate expenses were $2.6 million for the three
months ended March 25, 2001 compared to $2.4 million for the three months ended
March 26, 2000, an increase of $0.2 million or 8.3%. The increase in corporate
expenses resulted mainly from an increase in professional fees.
EBITDA. EBITDA was $4.0 million for the three months ended March 25,
2001 compared to $10.3 million for the three months ended March 26, 2000, a
decrease of $6.3 million or 61.2%. The decrease in EBITDA was attributed to
decreased broadcast cash flow.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
was $4.4 million for the three months ended March 25, 2001 compared to $3.2
million for the three months ended March 26, 2000, an increase of $1.2 million
or 37.5%. The increase in depreciation and amortization was related to the
stations acquired during the year 2000.
OPERATING (LOSS) INCOME. Operating loss was $0.5 million for the three
months ended March 25, 2001 compared to $7.1 million of operating income for the
three months ended March 26, 2000. The operating loss was caused by the decrease
in EBITDA and an increase in depreciation and amortization expense.
INTEREST EXPENSE, NET. Interest expense was $6.6 million for the three
months ended March 25, 2001 compared to $4.5 million of interest expense for the
three months ended March 26, 2000, an increase of $2.1 million or 46.7%. This
increase was due primarily to interest expense incurred on our senior secured
credit facility of $65.0 million, which was entered into in July 2000.
OTHER, NET. Other income was $0.3 million for the three months ended
March 25, 2001 due to an insurance recovery claim related to an office building
in Los Angeles. We had no meaningful other income during the three months ended
March 26, 2000.
NET (LOSS) INCOME. Net loss was $4.2 million for the three months ended
March 25, 2001 compared to net income of $1.5 million for the three months ended
March 26, 2000. The net loss was caused by the decrease in EBITDA and an
increase in depreciation and amortization expense and interest expense, net.
AFTER-TAX CASH FLOW. After-tax cash flow was $0.3 million for the three
months ended March 25, 2001 compared to $4.7 million for the three months ended
March 26, 2000, a decrease of $4.4 million or 93.6%. The decrease was primarily
attributed to the decrease in EBITDA and an increase in interest expense, net.
11
12
SIX MONTHS ENDED MARCH 25, 2001 COMPARED TO THE SIX MONTHS ENDED MARCH 26, 2000.
NET REVENUES. Our net revenues were $62.4 million for the six months
ended March 25, 2001 compared to $53.9 million for the six months ended March
26, 2000, an increase of $8.5 million or 15.8%. Most of the increase was
generated by the inclusion of the operating results of the stations acquired
during the year 2000, as well as the barter AOL Agreement. On a same station
basis, we experienced a decrease in net revenues, generally related to lower
advertising demand.
STATION OPERATING EXPENSES. Total station operating expenses were
$40.7 million for the six months ended March 25, 2001 compared to $24.8 million
for the six months ended March 26, 2000, an increase of $15.9 million or 64.1%.
The increase was primarily attributed to the inclusion of the operating results
of the stations acquired in the year 2000, as well as the expenses related to
the AOL Agreement. In addition, higher compensation expenses related to
improvements in our programming department, the hiring of additional programming
and sales management personnel, higher marketing costs, and an increase in the
allowance for doubtful accounts related to an overall softening in the general
economy also increased operating expenses.
BROADCAST CASH FLOW. Broadcast cash flow was $21.7 million for the six
months ended March 25, 2001 compared to $29.1 million for the six months ended
March 26, 2000, a decrease of $7.4 million or 25.4%. In addition, our broadcast
cash flow margin decreased to 34.8% for the six months ended March 25, 2001
compared to 54.0% for the six months ended March 26, 2000, due to decreased same
station net revenues and higher station operating expenses.
CORPORATE EXPENSES. Corporate expenses were $5.2 million for the six
months ended March 25, 2001 compared to $15.5 million for the six months ended
March 26, 2000, a decrease of $10.3 million or 66.5%. The decrease in corporate
expenses resulted mainly from the absence of the non-recurring severance payment
in fiscal year 2001, which was recorded in the first quarter of fiscal year
2000.
EBITDA. EBITDA was $16.5 million for the six months ended March 25,
2001 compared to $13.7 million for the six months ended March 26, 2000, an
increase of $2.8 million or 20.4%. The increase in EBITDA was mainly attributed
to decreased corporate expenses, offset by decreased broadcast cash flow.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
was $8.8 million for the six months ended March 25, 2001 compared to $5.8
million for the six months ended March 26, 2000, an increase of $3.0 million or
51.7%. The increase in depreciation and amortization was related to the stations
acquired during the year 2000.
OPERATING INCOME. Operating income was $7.7 million for the six months
ended March 25, 2001 compared to $7.8 million of operating income for the six
months ended March 26, 2000, a decrease of $0.1 million or 1.3%. The decrease in
operating income was caused by an increase in depreciation and amortization
expense, offset by an increase in EBITDA.
INTEREST EXPENSE, NET. Interest expense was $14.0 million for the six
months ended March 25, 2001 compared to $7.5 million of interest expense for the
six months ended March 26, 2000, an increase of $6.5 million or 86.7%. This
increase was due primarily to interest expense incurred on our senior secured
credit facility of $65.0 million, which was entered into in July 2000.
OTHER, NET. Other income was $0.5 million for the six months ended
March 25, 2001 due to the settlement of a legal dispute related to a back-up
auxiliary transmitter and antenna for KLAX-FM and an insurance recovery claim
related to an office building in Los Angeles. We had other expenses of $0.4
million for the six months ended March 25, 2000, which resulted primarily from
the write-off of financing costs.
EXTRAORDINARY LOSS. During the six months ended March 25, 2001, we did
not record any extraordinary items. During the six months ended March 26, 2000,
we incurred an extraordinary loss of $16.9 million, net of an income tax benefit
of $11.7 million, which was 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 LOSS. Net loss was $3.6 million for the six months ended March 25,
2001 compared to a net loss of $16.9 million for the six months ended March 26,
2000, a decrease of $13.3 million or 78.7%. The decrease in net loss was caused
by an increase in EBITDA and the absence of an extraordinary loss, offset by an
increase in depreciation and amortization expense and interest expense, net.
12
13
AFTER-TAX CASH FLOW. After-tax cash flow was $5.2 million for the six
months ended March 25, 2001 compared to $5.8 million for the six months ended
March 26, 2000, a decrease of $0.6 million or 10.3%. The decrease was primarily
attributed to the increase in interest expense, net, offset by a decrease in
EBITDA.
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
$90.0 million senior credit facility arranged by Lehman Brothers Inc. in July
2000, of which $65.0 million was outstanding as of March 25, 2001. The senior
credit facility includes a six-year $25.0 million revolving credit facility and
$65.0 million multi-draw term loan facility.
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 provided by operating activities were $10.8 million for the
six months ended March 25, 2001 compared to net cash flows provided by operating
activities of $13.2 million for the six months ended March 25, 2000. Changes in
our net cash flow from operating activities were primarily a result of changes
in advertising revenues and station operating expenses, which were affected by
the acquisition of stations during these periods.
Net cash flows used in investing activities were $33.2 million for the six
months ended March 25, 2001 compared to net cash flows used in investing
activities of $80.3 million for the six months ended March 26, 2000. Changes in
our net cash flow from investing activities were primarily a result of the
acquisition and disposition of stations during these periods.
Net cash flows used in financing activities were $0.1 million for the six
months ended March 25, 2001 compared to net cash flows provided by financing
activities of $158.3 million for the six months ended March 26, 2000. Changes in
our net cash flow from financing activities during the six months ended March
26, 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.
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 Rodriguez Communications, Inc. ("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 Broadcasters Corp. ("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 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.
13
14
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 assurance that the acquisition of 910
Broadcasting Corp. will be completed. Until closing on the purchase of KXEB-AM,
we will continue to broadcast our programming on KXEB-AM under a time brokerage
agreement that commenced on May 8, 2000.
On November 2, 2000, we entered into an asset purchase agreement with the
International Church of the FourSquare Gospel ("ICFG") 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 a non-refundable deposit of $5.0
million to be credited towards the purchase price at closing. 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. On March 13, 2001, we
entered into two time brokerage agreements with ICFG pursuant to which we are
permitted to broadcast our programming over radio station KFSG-FM (the "TBA"),
and ICFG is permitted to broadcast its programming over radio stations KMJR-FM
and KNJR-FM (the "93.5 TBA") and an addendum to the asset purchase agreement
(the "Addendum"). On May 1, 2001, we commenced broadcasting our programming over
radio station KFSG-FM (under the call letters KXOL) under the TBA. ICFG
commenced broadcasting its programming under the 93.5 TBA on May 1, 2001.
The payment of $25.0 million made pursuant to the TBA, consisting of the
original $5.0 million deposit and an additional payment of $20.0 million, gives
us the right to broadcast our programming on radio station KFSG-FM under the TBA
through March 13, 2002. We have the option to extend the term of the TBA to
December 31, 2002 by making payment to ICFG of an additional $35.0 million no
later than March 13, 2002. The full amounts of the payments for the TBA will be
applied to the purchase price of radio station KFSG-FM if we close under the
amended asset purchase agreement on or before August 1, 2002. Thereafter, there
will be a charge against such credit equal to $1.2 million for each month we
delay the closing past August 1, 2002. Under the amended asset purchase
agreement, if we elect to extend the term of the TBA to December 31, 2002, the
termination date for closing on the purchase of radio station KFSG-FM will be
extended from March 13, 2002 until December 31, 2002. ICFG has the right to
terminate or extend the 93.5 TBA after its initial term of 60 days. If ICFG does
not extend the 93.5 TBA and we have not either closed under the amended asset
purchase agreement or terminated such agreement, we will issue to ICFG warrants,
exercisable for five years, to purchase 234,375 shares of our class A common
stock for each month from the termination of the 93.5 TBA through March 13,
2002, with an exercise price of $6 per share. If we extend the TBA, the number
of shares granted will be reduced to 197,917 shares of class A common stock for
each month from March 14, 2002 through December 31, 2002 with the same exercise
price. Such obligation shall terminate immediately if we either close under the
amended asset purchase agreement for radio station KFSG-FM or we terminate such
agreement. The acquisition of radio station KFSG-FM will be funded primarily
from the senior credit facility, cash on hand and internally generated cash
flow, as well as potential equity and debt financing and asset sales. There can
be no assurance that the acquisition of radio station KFSG-FM 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.
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 six month
period ended March 25, 2001.
14
15
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. Most of the provisions of SFAS No. 140 will
become effective for transactions entered into after March 31, 2001. The Company
adopted SFAS No. 140 on April 1, 2001. The adoption of SFAS No. 140 will have a
significant impact on the Company's consolidated financial statements.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1999. Discussions
containing such forward-looking statements may be found in this report. In
addition, when used in this report, the words "believes," "anticipates,"
"expects," "estimates," "plans," "intends," and similar expressions are intended
to identify forward-looking statements. All forward-looking statements are
subject to a number of risks and uncertainties that could cause actual results
to differ materially from projected results. Factors that may cause these
differences include, but are not limited to:
o our substantial level of debt could limit our ability to grow and
compete;
o the terms of our debt restrict us from engaging in many activities and
require us to satisfy various financial tests;
o we have experienced net losses in the past and to the extent that we
experience losses in the future, our ability to raise capital and the
market prices of our securities could be adversely affected;
o a large portion of our net broadcast revenue and broadcast cash flow
comes from the New York and Miami markets;
o loss of key personnel could adversely affect our business, including
Raul Alarcon, Jr., our Chairman of the Board of Directors, President and
Chief Executive Officer;
o we compete for advertising revenue with other radio groups as well as
television and other media, many operators of which have greater
resources than we do;
o our growth depends on successfully executing our acquisition strategy.
We intend to grow by acquiring radio stations primarily in the largest
U.S. Hispanic markets. We cannot assure you that our acquisition
strategy will be successful;
o Raul Alarcon, Jr., Chairman of the Board of Directors, Chief Executive
Officer and President, has majority voting control;
o we must be able to respond to rapidly changing technology, services and
standards which characterize our industry in order to remain
competitive;
o our business depends on maintaining our FCC licenses. We cannot assure
you that we will be able to maintain these licenses;
o we may face regulatory review for additional acquisitions in our
existing markets and, potentially, new markets;
o a national or regional recession could impair our revenues; and
o future sales by existing stockholders could depress the market price of
our class A common stock.
Consequently, such forward-looking statements should be regarded solely as
the Company's current plans, estimates and beliefs. The Company does not
undertake any obligation to update any forward-looking statements to reflect
future events or circumstances after the date of such statements.
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 fiscal years in the three-year period ended September
24, 2000 and in the three- and six-month periods ended March 25, 2001. However,
there can be no assurance that future inflation will 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. Other than our senior credit facility, we do not have any variable rate
debt, or derivative financial or commodity instruments. At the current level of
drawing under the senior credit facility, a 10% increase in interest rates would
not have a material impact on net interest expense. Consequently, we have
determined not to pursue any type of hedging transactions.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of shareholders at our
annual meeting of shareholders held on March 5, 2001:
(1) Voters elected the following five incumbent directors
with the noted vote tabulation:
Class A Common Stock Class B Common Stock Total
-------------------------------- --------------------------------- ------------------------------------
Votes Votes Votes
Directors Votes For Against Abstentions Votes for Against Abstentions Votes for Against Abstentions
- --------- --------- ------- ----------- --------- ------- ----------- --------- ------- -----------
Raul Alarcon, Jr. 25,481,039 -- 1,174,349 261,667,500 -- -- 287,148,539 -- 1,174,349
Pablo Raul Alarcon, Sr. 25,600,109 -- 1,055,279 261,667,500 -- -- 287,267,609 -- 1,055,279
Jose Grimalt 25,583,459 -- 1,071,929 261,667,500 -- -- 287,250,959 -- 1,071,929
Roman Martinez IV 25,498,489 -- 1,156,899 261,667,500 -- -- 287,165,989 -- 1,156,899
Jason L. Shrinsky 25,512,859 -- 1,142,529 261,667,500 -- -- 287,180,559 -- 1,142,529
There were no broker non-votes.
(2) Voters approved the ratification of the appointment
of KPMG LLP as independent auditors to audit our
financial statements for the year ending September
30, 2001.
There was a total of 288,282,588 votes for,
consisting of 26,615,088 votes by Class A
shareholders and 261,667,500 votes by Class B
shareholders, and 20,698 votes against.by Class A
shareholders. There were 19,602 abstentions by Class
A shareholders and no broker non-votes.
ITEM 5. OTHER INFORMATION
DIRECTORS
On May 7, 2001, Roman Martinez IV resigned from his position as a member of
our board of directors.
FEES PAID TO KPMG LLP
The following table sets forth the aggregate fees billed to us for the
fiscal year ended September 24, 2000 by our independent certified accountants,
KPMG LLP:
Audit Fees ..................................................... $ 500,000 (1)
Financial Information Systems Design and Implementation Fees..... $ --
All Other Fees ................................................. $ 827,000 (2)
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The audit committee of the board of directors has considered whether the
provision of the services by KPMG LLP covered by "Financial Information Systems
Design and Implementation Fees" and "All Other Fees" above is compatible with
maintaining KPMG LLP's independence and has determined that such provision of
services is compatible with maintaining KPMG LLP's independence.
(1) Includes fees for the audit of our annual consolidated financial
statements for the fiscal year ended September 24, 2000, and the reviews of our
quarterly condensed consolidated financial information included in our reports
on Form 10-Q filed during fiscal year 2000.
(2) Includes fees related to internal audit services, tax consulting and
compliance services and other non-audit special projects (including SEC filings
for our initial public offering in November 1999 and certain significant
acquisitions in fiscal 2000; statutory financial statements required for Puerto
Rico tax purposes; and debt compliance letters required under our senior
subordinated notes payable and our senior credit facilities).
NETWORK AFFILIATION AGREEMENT
On April 5, 2001, SBS of San Francisco, Inc. entered into a two-year radio
network affiliation agreement with Clear Channel Broadcasting, Inc. ("Clear
Channel") whereby Clear Channel provides a network programming service
consisting of rock music programming to our radio station KXJO-FM in
Alameda, California. The network agreement provides for monthly compensation
payments to KXJO of $100,000 for the first year. For the second year of the
agreement and for the automatic renewal term of one additional year, the
payments will be adjusted based upon a compensation formula using the consumer
price index, as more fully described in the agreement. The agreement may be
terminated by either party upon thirty days' prior written notice.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
10.1 First Amendment to Credit Agreement, dated as of March 5, 2001, by and
among the Company, the lenders party to the Credit Agreement dated as
of July 6, 2000 and Lehman Commercial Paper, Inc.
10.2 Addendum to Asset Purchase Agreement, dated March 13, 2001, by and
between International Church of the FourSquare Gospel and the Company.
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10.3 Time Brokerage Agreement, dated March 13, 2001, by and between
International Church of the FourSquare Gospel and the Company.
10.4 93.5 Time Brokerage Agreement, dated March 13, 2001, by and between
Spanish Broadcasting System Southwest, Inc. and International Church of
the FourSquare Gospel.
10.5 Radio Network Affiliation Agreement, dated April 5, 2001, between Clear
Channel Broadcasting, Inc. and SBS of San Francisco, Inc.
(b) Reports on Form 8-K.
(i) 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) On November 10, 2000, SBS completed the purchase of all
the outstanding capital stock of Rodriguez Communications, Inc.
("RCI") and the purchase of radio station KTCY-FM, for total
consideration of 164.3 million, consisting of 42.6 million of
SBS's Class A common stock and 121.7 million in cash.
(2) 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.
(3) 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.
(4) 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
Broadcasters Corp. ("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.
(5) 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.
(ii) The Company filed a report on Form 8-K dated February 9, 2001,
which reported that the annual meeting of the shareholders of the Company 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, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Spanish Broadcasting System, Inc., a Delaware Corporation
By: /s/ JOSEPH A. GARCIA
--------------------------------------------
Joseph A. Garcia, Executive Vice President,
Date: May 9, 2001 Chief Financial Officer and Secretary
(principal financial and accounting officer
and duly authorized officer of the
registrant)
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