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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 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 333-61211
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RADIO UNICA CORP.
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(Exact name of registrant as specified in its charter)
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DELAWARE 65-0776004
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8400 NW 52ND STREET, SUITE 101
MIAMI, FLORIDA 33166
(Address of principal executive offices) (Zip Code)
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(Registrant's telephone number, including area code) 305-463-5000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 30, 1999, there were 100 shares of Common Stock, par value $.01 per
share, outstanding and owned by Radio Unica Holdings Corp. Accordingly, there is
no practicable manner to obtain an aggregate market valuation.
DOCUMENTS INCORPORATED BY REFERENCE
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TABLE OF CONTENTS
PART I
Item 1. Business ................................................................................. 3
Item 2. Properties ............................................................................... 14
Item 3. Legal Proceedings ........................................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .................... 15
Item 6. Selected Financial Data .................................................................. 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................... 21
Item 8. Financial Statements and Supplemental Data ............................................... 22
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure ...................... 43
PART III
Item 10. Directors and Executive Officers ......................................................... 43
Item 11. Executive Compensation ................................................................... 45
Item 12. Security Ownership of Certain Beneficial Owners and Management ........................... 46
Item 13. Certain Relationships and Related Transactions ........................................... 46
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ......................... 49
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PART I
THIS ANNUAL REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE
ACT"). ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS
ANNUAL REPORT, INCLUDING, WITHOUT LIMITATION, THE STATEMENTS UNDER "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS",
"BUSINESS" AND ELSEWHERE HEREIN, REGARDING THE COMPANY OR ANY OF THE
TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE EFFECTS OF SUCH TRANSACTIONS, ARE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT.
ITEM 1. BUSINESS
GENERAL
Radio Unica Corp. (the "Company"), incorporated on September 12, 1996
(inception), was organized for the purpose of producing, broadcasting and
distributing Spanish-language radio programming in the United States. The
Company's strategy is to develop its radio network as a national advertising
platform that is attractive to national advertisers. The Company launched its
network on January 5, 1998 with 30 affiliated stations and three stations
operated under time brokerage agreements (also known as local marketing
agreements and referred to herein as "LMAs"). In July 1998, the Company effected
a holding company reorganization (the "Reorganization"). In the Reorganization,
the Company became a wholly owned subsidiary of Radio Unica Holdings Corp.
("Holdings") and the Company's stockholders received shares of Holdings common
stock and Holdings Series A Cumulative Redeemable Preferred Stock bearing
identical rights and preferences to the Company's common stock and Series A
Cumulative Redeemable Preferred Stock ("Company Preferred Stock") previously
held by such stockholders. Upon consummation of the Reorganization, each option
to purchase common stock of the Company was converted into an option to purchase
Holdings common stock, exercisable upon the same terms and conditions as they
were under the Company's stock option plan, and the Company's stock option plan
was cancelled.
The Company is the only national long-form, Spanish-language AM radio
network in the U.S., broadcasting 24-hours a day, 7-days a week. The Company,
which began broadcasting its network programming on January 5, 1998, produces 19
hours of live and first-run celebrity-based news/talk, sports and information
programming each weekday and 20 hours of such programming each weekend. With
twelve Company-operated stations and 38 affiliated stations, the Company's
network reaches approximately 82% of the U.S. Hispanic population. The
Company-operated stations are located in eight of the top ten U.S. markets in
terms of Spanish-language media spending. The markets in which the Company
maintains stations collectively account for approximately 57.5% of the total
U.S. Hispanic population.
The Company believes that its strong programming line-up provides the
Company with a competitive advantage over other Spanish-language radio
broadcasters in appealing to U.S. Hispanic listeners. The Company's programming
line-up includes contemporary-themed talk shows hosted by internationally known
personalities such as Pedro Sevcec, Dr. Isabel Gomez-Bassols and Mauricio
Zeillic; sports-talk hosted by Jorge Ramos and other top names in sports
broadcasting; and newscasts on the hour, 24 hours a day. In addition, the
Company airs segments featuring the number one Hispanic talk show host in the
country, Cristina, as well as the most recognized Hispanic female news anchor,
Maria Elena Salinas. Many of the Company's programs are interactive, allowing
listeners nationwide to call in toll-free. The Company's daily program schedule
begins with a three-hour talk and information program focusing on current events
followed by an hour of world news. From mid-morning until late afternoon the
Company broadcasts a series of talk and information shows that focus on topics
including personal and family problem solving, immigration law and policy, and
entertainment news. During the evening commute, the Company broadcasts
entertainment programming, including sports news and talk shows.
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The Company's evening programming contains talk and information programs
whose subjects range from entertainment to relationships. In addition, the
Company broadcast live, play-by-play coverage of the 1998 World Cup matches and
a daily program with World Cup news and interviews with World Cup participants.
The Company has recently acquired exclusive Spanish-language radio broadcasting
rights in the United States for several large soccer events including Copa
America 1999 and 2001, Copa Oro 2000 and 2002, and elimination games for the
2002 World Cup. The Company has experienced ratings increases in key markets
including San Francisco, Houston and Miami. Significant advertising campaigns
for Los Angeles, New York and other markets began in January 1999. Consequently,
the Company hopes to achieve continued rating improvements following these
campaigns.
OWNED AND OPERATED STATIONS
The Company owns radio stations in Los Angeles, New York, Miami, San
Francisco, Houston, Dallas/Fort Worth, and Phoenix.
LOS ANGELES. The Company's station KBLA(AM), broadcasting on 1580 kHz,
serves the Los Angeles market, which has a population of approximately 16.3
million, of which approximately 6.3 million or 38.7% are Hispanic.
Spanish-language radio advertising spending in the market was approximately $119
million in 1998. The Company acquired substantially all of the assets used in
the operation of KBLA from subsidiaries of Sinclair Communications, Inc.
("Sinclair") for a purchase price of approximately $21 million on July 30, 1998.
The acquired assets included the broadcast license, land, the transmitter site
and related transmitter equipment. Radio Korea U.S.A. Inc. operated the station,
broadcasting in the Korean language, pursuant to an LMA with Sinclair through
December 31, 1998. KBLA is licensed at 50,000 watts during the daytime. KBLA's
transmitter site is located in Los Angeles and enables this station to reach
substantially all of the Los Angeles designated market area ("DMA.")
NEW YORK. The Company's station WWRU(AM), broadcasting on 1660 kHz in the
expanded band, serves the New York market which has a population of
approximately 30.5 million, of which approximately 3.6 million or 12% are
Hispanic. Spanish-language radio advertising spending in the market was
approximately $46.7 million in 1998. The Company acquired substantially all of
the assets used in the operation of WWRU from subsidiaries of Children's
Broadcasting Corporation ("CBC") in January 1999 for a purchase price of
approximately $30 million. The acquired assets included the broadcast license,
the transmitter site and related transmitter equipment. WWRU is licensed at
10,000 watts during the daytime. The WWRU's transmitter is located in Elizabeth,
New Jersey and enables this station to reach a significant portion of the New
York DMA.
In connection with the acquisition of WWRU, the Company also acquired
substantially all the assets used in the operation of WJDM(AM), broadcasting on
1530 kHz. The acquired assets included the broadcast license, the transmitter
site and related transmitter equipment. WJDM is licensed at 1,000 watts during
the daytime. This station is currently time brokered to a third party. WJDM's
transmitter is located in Secaucus, New Jersey. Based on current Federal
Communication Commission ("FCC") guidelines, the license of either WWRU or WJDM
must be relinquished by the Company by March 12, 2003.
MIAMI. The Company's station WNMA(AM), broadcasting on 1210 kHz, serves the
Miami market, which has a population of approximately 3.7 million, of which
approximately 1.4 million or 38.1% are Hispanic. Spanish-language radio
advertising spending in the market was approximately $62 million in 1998. The
Company acquired substantially all of the assets used in the operation of WNMA
from subsidiaries of One-on-One Sports Inc. ("One-on-One") in May 1998 for a
purchase price of approximately $9 million. The acquired assets included the
broadcast license, the transmitter site and related transmitter equipment. Prior
to the acquisition, One-on-One operated the station with an English language
sports talk format. WNMA is licensed at 25,000 watts during the daytime. WNMA's
transmitter site is located in Miami Springs, Florida and enables this station
to reach substantially all of the Miami DMA.
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In connection with the acquisition of WNMA, the Company acquired WRUN (AM),
broadcasting on 1700 kHz. This station, which operates in the expanded band,
began simulcasting Radio Unica programming on January 1, 1999. Based on current
FCC guidelines, the license of either WNMA or WRUN must be relinquished by the
Company by October 8, 2002.
SAN FRANCISCO. The Company's station KIQI(AM), broadcasting on 1010 kHz,
serves the San Francisco/San Jose market, which has a population of
approximately 6.8 million, of which approximately 1.2 million or 18.4% are
Hispanic. Spanish-language radio advertising spending in the market was
approximately $18.3 million in 1998. The Company acquired all of the issued and
outstanding shares of Oro Spanish Broadcasting, Inc. ("Oro"), the licensee of
KIQI, in April 1998 for a purchase price of approximately $12 million. In
connection with the acquisition, the Company received assets including the
broadcast license, the transmitter site and related transmitter equipment. Prior
to the acquisition, Oro operated the station for approximately 17 years with a
Spanish-language format. KIQI is licensed at 10,000 watts during the daytime.
KIQI's transmitter site is located in Oakland, California and enables this
station to reach substantially all of the San Francisco DMA.
HOUSTON. The Company's station KXYZ(AM), broadcasting on 1320 kHz, serves
the Houston market, which has a population of approximately 4.7 million, of
which approximately 1.1 million or 24.2% are Hispanic. Spanish-language radio
advertising spending in the market was approximately $32.5 million in 1998. The
Company acquired an 80% economic interest in substantially all of the assets
used in the operation of KXYZ in March 1998 from 13 Radio Corp. ("13 Radio"),
through an investment in Blaya, Inc., and acquired the remaining interest from
Joaquin F. Blaya in September 1998. See "Certain Relationships and Related
Transactions". Blaya, Inc. acquired substantially all of the assets of 13 Radio
for approximately $6.4 million. The acquired assets included the broadcast
license, land, the transmitter site, related transmitter equipment, studios and
related studio equipment. Prior to the acquisition, 13 Radio operated the
station for approximately 13 years with a Spanish-language format. KXYZ is
licensed at 5,000 watts during the daytime. KXYZ's transmitter site is located
in Pasadena, Texas and enables this station to reach substantially all of the
Houston DMA.
DALLAS/FORT WORTH. The Company's station KAHZ(AM), broadcasting on 1360 kHz,
serves the Dallas/Fort Worth market, which has a population of approximately 5.3
million, of which approximately 787,000 or 14.9% are Hispanic. Spanish-language
radio advertising spending in the market was approximately $13 million in 1998.
The Company acquired substantially all of the assets used in the operation of
KAHZ from subsidiaries of CBC in January 1999. The acquired assets included the
broadcast license, land, the transmitter site and related transmitter equipment.
KAHZ is licensed at 5,000 watts during the daytime. KAHZ's transmitter is
located in Fort Worth, Texas and enables this station to reach substantially all
of the Dallas/Forth Worth DMA.
PHOENIX. The Company's station KIDR(AM), broadcasting on 740 kHz, serves the
Phoenix market which has a population of approximately 3.6 million, of which
approximately 668,000 or 18.7% are Hispanic. Spanish-language radio advertising
spending in the market was approximately $6.0 million in 1998. The Company
acquired substantially all of the assets used in the operation of KIDR from
subsidiaries of CBC in January 1999. The acquired assets included the broadcast
license, land, the transmitter site and related transmitter equipment. KIDR is
licensed at 1,000 watts during the daytime. KIDR's transmitter is located in
Phoenix, Arizona and enables this station to reach substantially all of the
Phoenix DMA.
CHICAGO. On February 22, 1999, the Company contracted to acquire
substantially all the assets used in the operations of station WIDB (AM) in
Chicago, Illinois from subsidiaries of One-on-One, for a cash purchase price of
approximately $16.75 million. The Company funded a $1 million escrow account in
conjunction with this transaction. The transaction is expected to be finalized
upon the receipt of the FCC's approval and the expiration or termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
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LOCAL MARKETING AGREEMENTS
The Company has entered into LMAs with respect to radio stations in Los
Angeles, San Antonio and Chicago. Pursuant to these LMAs, the Company operates,
and supplies all programming for, these stations.
LOS ANGELES. The Company operates station KVCA(AM), broadcasting on 670 kHz,
in Los Angeles pursuant to an LMA with Lotus Oxnard Corp. ("Lotus"). The term of
this LMA is through December 31, 2001 and the Company's annual LMA payment was
$2 million in 1998 and increases $200,000 per year thereafter. The Company has
an option to purchase the assets of KVCA. The option is exercisable from June
24, 2001 through September 30, 2001. KVCA is licensed at 5,000 watts during the
daytime. KVCA's transmitter site is located in Simi Valley, California and
enables this station to reach a significant portion of the Los Angeles DMA.
CHICAGO. The Company operates station WYPA(AM), broadcasting on 820 kHz, in
Chicago pursuant to an LMA with Achievement Radio Holdings, Inc.
("Achievement"). Spanish-language radio advertising spending in the Chicago
market was approximately $25.4 million in 1998. The term of this LMA is through
June 8, 1999 and may be extended at the Company's option for an additional
twelve months (the "Renewal Term"). The Company's annual LMA payment for the
first year is $1,416,000 and $1,458,480 for the second year. The Company has an
option to purchase the assets of WYPA. The Company has provided notice to
Achievement that it does not intend to exercise its option for the second year
or exercise its option to acquire the station. WYPA is licensed at 5,000 watts
during the daytime. WYPA's transmitter site is located just outside of Chicago
and enables the station to reach substantially all of the Chicago DMA.
SAN ANTONIO. The Company operates station KZDC(AM), broadcasting on 1250
kHz, in San Antonio pursuant to an LMA with Lotus. Spanish-language radio
advertising spending in the market was approximately $20 million in 1998. The
term of this LMA is through December 31, 2001 and the Company's annual LMA
payment ranges from $200,000 in 1998 to $275,000 in 2001. The Company has an
option to purchase the assets of KZDC. The option is exercisable from June 24,
2001 through September 30, 2001. KZDC is licensed at 5,000 watts during the
daytime. KZDC's transmitter site is located in San Antonio and enables this
station to reach substantially all of the San Antonio DMA.
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The following table sets forth certain information concerning the stations
owned and/or operated by the Company and the stations covered by LMAs and their
respective markets:
Hispanic Hispanic Hispanic
Rank by Purchase Population Population Population
Hispanic Market Company-owned Price in Market as a % of as a % of
Population Served/Station or LMA (in millions) (in thousands) Total Market U.S. Hispanics
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1 Los Angeles
KBLA (AM) Owned $21.0 6,326 38.7% 20.8%
KVCA (AM) LMA N/A
2 New York
WWRU (AM) Owned $25.0 3,645 18.1% 12.0%
WJDM (AM) Owned N/A
3 Miami
WNMA (AM) Owned $9.0 1,423 38.1% 4.7%
WRUN (AM) Owned N/A
4 San Francisco/San Jose
KIQI (AM) Owned $12.0 1,243 18.4% 4.1%
5 Chicago
WYPA (AM) LMA N/A 1,198 12.0% 3.9%
WIDB (AM) Owned* $16.75
6 Houston
KXYZ (AM) Owned $6.4 1,141 24.2% 3.7%
7 San Antonio
KZDC (AM) LMA N/A 1,065 51.6% 3.5%
9 Dallas/Ft. Worth
KAHZ (AM) Owned $2.5 787 14.9% 2.6%
12 Phoenix
KIDR (AM) Owned $2.5 668 18.7% 2.2%
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Totals $95.15 17,496 57.5%
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* Pending the consummation of the acquisition from subsidiaries of One-on-One.
AFFILIATION AGREEMENTS
The Company has entered into Affiliation Agreements ("AFAs") with
substantially all of its affiliated radio stations. Pursuant to the AFAs, the
Company supplies programming for the affiliated stations which are typically
required to carry a minimum of eight hours per day of the Company's network
programming. The AFAs typically provide that the Company's programming will
include a certain number of minutes per hour of network advertising to be sold
by the Company and a certain number of minutes per hour for local advertising to
be sold by the station. The terms of the AFAs are generally one to two years,
subject to earlier termination under certain circumstances. Some of the AFAs
grant the Company a right of first refusal in the event the station owner offers
to sell the station.
THE HISPANIC MARKET IN THE UNITED STATES
The Hispanic population is currently one of the fastest growing segments of
the U.S. population, growing at approximately five times the rate of the
non-Hispanic population, and represents the fifth largest Hispanic population in
the world. The Hispanic population, which consisted of 23.7 million people (9.5%
of the U.S. population) in 1990, is estimated to be 30.5 million people (11.3%
of the U.S. population) in 1998, and is expected to grow to 45.8 million people
(15.4% of the U.S. population) by 2010. Approximately 55% of the Hispanic
population is concentrated in the top eight markets, making the group relatively
easy to reach with broadcast media.
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Hispanic households on average are larger and younger and spend a larger
percentage of their total household income on consumer products than
non-Hispanic households. Furthermore, approximately 69% of all Hispanics,
regardless of income or educational level, use Spanish as the language most
frequently spoken at home. This percentage is expected to remain relatively
constant through 2010. Consequently, the aggregate number of Hispanics speaking
Spanish in the home is expected to increase significantly in the foreseeable
future.
According to published reports, total advertising expenditures targeting
Hispanics grew from $730 million in 1992 to approximately $1.7 billion in 1998,
representing a compound annual growth rate of 15%. Radio is an increasingly
important medium for advertisers targeting the Hispanic market. Approximately
26% of the $1.7 billion in advertising expenditures in 1998 targeting Hispanics
was spent on Spanish-language radio, compared with 8% for all U.S. media
advertising. The Company believes that advertiser interest in the Hispanic
population will continue to grow primarily because Hispanic consumer spending,
which is expected to total approximately $380 billion in 1998, is expected to
grow at an annual rate of 7.8% over the next 12 years to $939 billion in 2010,
far outpacing the expected growth in total U.S. consumer spending.
In addition, Hispanic consumer spending currently represents approximately
6.6% of all U.S. consumer spending while Hispanic-targeted advertising
expenditures represent approximately 1% of all U.S. advertising expenditures.
The Company believes that this disparity will narrow and fuel growth in
Hispanic-targeted advertising as major advertisers continue to find that
Spanish-language advertising is a more effective means to target the growing
Hispanic audience than English-language advertising.
TALK AND INFORMATION PROGRAMS. Three of the most popular programs produced
by the Company are "Sevcec en Vivo", a three-hour talk show hosted by Pedro
Sevcec devoted to in-depth coverage of the top news stories of the day, issues
of importance to the Hispanic population and interviews with prominent figures;
"Dra. Isabel", an advice program hosted by Dr. Isabel Gomez-Bassols that focuses
on such issues as personal relationships and child rearing; and "Inmigracion . .
. Preguntas y Respuestas", a program hosted by Fulvia Peimbert that focuses on
the rules of the U.S. immigration system. The format of these programs allows
listeners to participate via toll-free phone lines.
NEWS. The Company produces newscasts on the hour, 24 hours a day, including
an hour-long late morning newscast, all of which focus on events of interest to
Hispanic audiences. The Company also produces a three-hour national morning news
program Monday through Saturday, "Esta Manana en Unica", that allows local
stations the opportunity to insert local segments of news, weather, sports and
other information. In addition, the Company has a five-year agreement with the
publisher of El Nuevo Herald newspaper, the Spanish-language version of the
Miami Herald (the "Herald"), under which the Company and the Herald jointly
produce and sell advertising for the local segments inserted in "Esta Manana en
Unica" broadcast Monday through Friday mornings on the Company's Miami stations.
El Nuevo Herald is the number one Spanish-language newspaper in Miami and the
U.S. in terms of circulation.
SPORTS. The Company's regular sports programming includes "Unica en
Deportes" a sports talk show hosted by Jorge Ramos which features sports news
and interviews appealing to Hispanic audiences. In addition, under an agreement
with Univision Network Limited Partnership, the Company obtained exclusive
Spanish-language radio broadcasting rights in the U. S. for all of the 1998
World Cup soccer matches. The purchase price for such rights was $2.65 million.
These rights allowed the Company to produce its own play-by-play description of
each of the 56 matches in the 1998 World Cup, an estimated total of
approximately 168 hours of programming. The Company has recently acquired radio
broadcasting rights for several large soccer events including Copa America 1999
and 2001, Copa Oro 2000 and 2002, and elimination games for the 2002 World Cup.
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ENTERTAINMENT. The Company also produces afternoon entertainment programming
featuring comedians, entertainment-world news, gossip and interviews with major
Hispanic celebrities. The show is hosted by Mauricio Zeilic and others. Mauricio
Zeilic has been hosting entertainment shows for more than 20 years and is
currently the host of an entertainment segment on Telemundo's daily afternoon
magazine show.
ON-AIR TALENT. The Company has contracts with some of the Hispanic world's
best known media personalities to host its programs. Pedro Sevcec was a senior
reporter for Telemundo's popular TV newsmagazine, "Ocurrio Asi," and currently
hosts his own talk show on Telemundo called "Sevcec." "Sevcec" is one of
Telemundo's highest rated shows. Dr. Isabel Gomez-Bassols is a noted
psychologist and educator and makes regular appearances on such popular
television shows as "Cristina," "Sevcec" and "Miami Ahora." Jorge Ramos has
served as sports anchor for Telemundo since 1994 and in his career has broadcast
four World Cups. In addition, the Company airs segments featuring the number one
Hispanic talk show host in the country, Cristina, as well as the most recognized
Hispanic female news anchor, Maria Elena Salinas. All of these personalities are
under contracts with the Company that include revenue sharing and/or equity
participation agreements.
ADVERTISING
The Company believes that radio is one of the most efficient and cost
effective means for advertisers to reach targeted demographic groups.
Advertising rates charged by a radio station are based primarily on the
station's ability to attract listeners in a given market and on the
attractiveness to advertisers of the station's listener demographics. Rates vary
depending upon a program's popularity among the listeners an advertiser is
seeking to attract, the number of advertisers vying for available air time, and
the availability of alternative media in the market. Radio advertising rates
generally are highest during the morning and afternoon drive-time hours.
The Company believes that its rates are somewhat below the rates charged by
similarly-rated and even lower-rated English-language stations in the Company's
markets although the Company believes this differential will narrow and that the
Company should be able to increase its rates as advertisers recognize the
desirability of targeting the growing Hispanic population in the United States.
The Company employs its own sales representatives to obtain advertising
revenues and currently does not use third party national representatives or
"rep" firms. As a result, the Company has more control over and greater
accountability from its sales force. The Company believes that its sales force
is important in maintaining relationships with key advertisers and agencies and
identifying new advertisers. The Company generally pays sales commissions to its
sales staff upon the receipt from advertisers of the payments related to such
sales. The Company offers assistance to advertisers by providing them with
content and production advice and services and with studio facilities to produce
commercials.
Virtually all of the Company's revenue is derived from advertising sales.
Advertising revenue is broken down into two categories: station and network.
STATION ADVERTISING. Station advertising consists of local and national
advertising. Local advertising time is sold by the Company's local sales force
to the local community. The Company generates its local advertising revenues
primarily from local merchants and service providers. National advertising time
is sold by the Company's national sales force to clients outside the local
community. The Company generates its national advertising revenues primarily
from regional and national businesses which wish to reach Hispanic audiences in
particular local market(s) but not all of the markets in which the Company's
programming is broadcast.
NETWORK ADVERTISING. Network revenue is earned by sales of advertising time
by the Company's national sales force on the Company's network programming. The
Company attracts network advertising expenditures from diverse industries, with
advertising for food and beverages, personal care products, automobiles, other
household goods and telephone services representing the majority of network
advertising. Network advertisers typically wish to target the entire U.S.
Hispanic audience.
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COMPETITION
The radio broadcasting business is highly competitive. Competition for
advertising revenues is based on the size of the applicable market, the cost of
such advertising and the effectiveness of such advertising. The Company believes
that it is competitive in the size of market it reaches and the cost and
effectiveness of advertising time it sells.
The Company competes for listeners and revenues with other Spanish-language
and English-language radio stations. The Company also competes for viewers and
revenues with television stations, other video media, suppliers of cable
television programs, direct broadcast systems, newspapers, magazines and other
forms of entertainment and advertising.
SEASONALITY
The Company's revenues and cash flow are expected to be typically lowest in
the first calendar quarter and highest in the fourth calendar quarter. Seasonal
fluctuations are common in the radio broadcasting industry and are due primarily
to fluctuations in consumer spending.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
In the course of its business, the Company uses various trademarks, names
and service marks, including its logos, in its advertising and promotions. The
Company believes the strength of its trademarks, trade names and service marks
are important to its business and intends to continue to protect and promote its
marks as appropriate. The Company does not hold or depend upon any material
patent, government license, franchise or concession, except the broadcast
licenses granted by the FCC.
FEDERAL REGULATION OF RADIO BROADCASTING
The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act of 1934, as amended (the "Communications Act"). Among other
things, the FCC assigns frequency bands for broadcasting; determines the
particular frequencies, locations and power of stations; issues, renews, revokes
and modifies station licenses; determines whether to approve changes in
ownership or control of station licenses; regulates equipment used by stations;
imposes regulations and takes other action to prevent harmful interference
between stations; adopts and implements regulations and policies that directly
or indirectly affect the ownership, management, programming, operation and
employment practices of stations; and has the power to impose penalties for
violations of its rules or the Communications Act.
In February 1996, Congress enacted the Telecommunications Act of 1996 (the
"Telecom Act") to amend the Communications Act. The Telecom Act, among other
measures, directed the FCC, which has since conformed its rules, to (a)
eliminate the national radio ownership limits; (b) liberalize the local radio
ownership limits as specified in the Telecom Act; (c) issue broadcast licenses
for periods of up to eight years; and (d) eliminate the opportunity for the
filing of competing applications against broadcast license renewal applications.
Congress, via the Balanced Budget Act of 1997, authorized the FCC for the
first time to conduct auctions for the awarding of construction permits for
commercial radio and television stations. To facilitate the settlement without
auctions of already pending mutually exclusive applications, Congress directed
the FCC to waive existing rules as necessary. The FCC has initiated a rulemaking
proceeding to implement these provisions. While the Company is not a participant
in any such proceeding, this recent action should result in the awarding of
construction permits for additional radio stations, some of which might have the
potential to compete with the Company's radio stations.
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LICENSE GRANTS AND RENEWALS
The Communications Act provides that a broadcast license may be granted to
an applicant if the grant would serve the public interest, convenience and
necessity, subject to certain limitations referred to below. In making licensing
determinations, the FCC considers the legal, technical, financial and other
qualifications of the applicant, including compliance with the Communications
Act's limitations on alien ownership, compliance with various rules limiting
common ownership of broadcast, cable and newspaper properties, and the
"character" of the licensee and those persons holding "attributable" interests
in the licensee.
Broadcast licenses are granted for specific periods of time and, upon
application, are renewable for additional terms. The Telecom Act amended the
Communications Act to provide that broadcast licenses be granted, and thereafter
renewed, for a term not to exceed eight years, if the FCC finds that the public
interest, convenience, and necessity would be served. Generally, the FCC renews
broadcast licenses without a hearing.
The Telecom Act amended the Communications Act to require the FCC to grant
an application for renewal of a broadcast license if: (i) the station has served
the public interest, convenience and necessity; (ii) there have been no serious
violations by the licensee of the Communications Act or the rules and
regulations of the FCC; and (iii) there have been no other violations by the
licensee of the Communications Act or the rules and regulations of the FCC
which, taken together, would constitute a pattern of abuse.
Competing applications against broadcast license renewal applications are
therefore not entertained. The Telecom Act provided that if the FCC, after
notice and an opportunity for a hearing, decides that the requirements for
renewal have not been met and that no mitigating factors warrant lesser
sanctions, it may deny a renewal application. Only thereafter may the FCC accept
applications by third parties to operate on the frequency of the former
licensee.
The Communications Act continues to authorize the filing of petitions to
deny against broadcast license renewal applications during particular periods of
time following the filing of renewal applications. Petitions to deny can be used
by interested parties, including members of the public, to raise issues
concerning the qualifications of the renewal applicant.
None of the Company's licenses are currently subject to renewal proceedings.
The Company does not anticipate any material difficulty in obtaining license
renewals for full terms in the future.
The action of the FCC or its staff granting a renewal application may be
reconsidered during specified time periods by the FCC or its staff on their own
motion or by request of the petitioner, and the petitioner may also appeal
within a certain period actions by the FCC to the U.S. Court of Appeals.
If the FCC does not, on its own motion, or upon a request by an interested
party for reconsideration or review, review a staff grant or its own action
within the applicable time periods, and if no further reconsideration, review or
appeals are sought within the applicable time periods, an action by the FCC or
its staff becomes a "Final Order."
LICENSE ASSIGNMENTS AND TRANSFERS OF CONTROL
The Communications Act prohibits the assignment of an FCC license or the
transfer of control of a corporation holding such a license without the prior
approval of the FCC. Applications to the FCC for such assignments or transfers
are subject to petitions to deny by interested parties and must satisfy
requirements similar to those for renewal and new station applications. Many
transactions involving radio stations provide, as a waivable pre-condition to
closing, that the FCC consent to the transaction has become a "Final Order."
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OWNERSHIP RULES
Rules of the FCC limit the number and location of broadcast stations in
which one licensee (or any party with a control position or attributable
ownership interest therein) may have an attributable interest. The FCC, pursuant
to the Telecom Act, eliminated the previously existing "national radio ownership
rule." Consequently, there now is no limit imposed by the FCC to the number of
radio stations one party may own nationally.
The "local radio ownership rule" limits the number of stations in a radio
market in which any one individual or entity may have a control position or
attributable ownership interest. Pursuant to the Telecom Act, the FCC revised
its rules to set the local radio ownership limits as follows: (a) in markets
with 45 or more commercial radio stations, a party may own up to eight
commercial radio stations, no more than five of which are in the same service
(AM or FM); (b) in markets with 30-44 commercial radio stations, a party may own
up to seven commercial radio stations, no more than four of which are in the
same service; (c) in markets with 15-29 commercial radio stations, a party may
own up to six commercial radio stations, no more than four of which are in the
same service; and (d) in markets with 14 or fewer commercial radio stations, a
party may own up to five commercial radio stations, no more than three of which
are in the same service, provided that no party may own more than 50% of the
commercial stations in the market.
FCC cross-ownership rules also prohibit one party from having attributable
interests in a radio station as well as in a local television station or daily
newspaper, although such limits are waived by the FCC under certain
circumstances. In addition, the FCC has a "cross interest" policy that may
prohibit a party with an attributable interest in one station in a market from
also holding either a "meaningful" non-attributable equity interest (e.g.,
non-voting stock, voting stock, limited partnership interests) or key management
position in another station in the same market, or which may prohibit local
stations from combining to build or acquire another local station.
The FCC is presently evaluating its radio/television, radio/newspaper and
cross-interest rules and policies as well as policies governing attributable
ownership interests. The Company cannot predict whether the FCC will adopt any
changes in these policies or, if so, what the new policies will be or how they
might affect the Company.
ATTRIBUTION RULES
All holders of attributable interests must comply with, or obtain waivers
of, the FCC's multiple and cross-ownership rules. Under the current FCC rules,
an individual or other entity owning or having voting control of 5% or more of a
corporation's voting stock is considered to have an attributable interest in the
corporation and its stations, except that banks holding such stock in their
trust accounts, investment companies, and certain other passive interests are
not considered to have an attributable interest unless they own or have voting
control over 10% or more of such stock. The FCC is currently evaluating whether
to raise the foregoing benchmarks to 10% and 20%, respectively.
An officer or director of a corporation or any general partner of a
partnership also is deemed to hold an attributable interest in the media
license. At present, when a single shareholder holds a majority of the voting
stock of a corporate licensee, the FCC considers other shareholders, unless they
are also officers or directors, exempt from attribution. The FCC has asked for
comments as to whether it should continue the single majority shareholder
exemption.
Holders of non-voting stock generally will not be attributed an interest in
the issuing entity, and holders of debt and instruments such as warrants,
convertible debentures, options, or other non-voting interests with rights to
conversion to voting interests generally will not be attributed such an interest
unless and until such conversion is effected. The FCC is currently considering
whether it should expand its attribution rules to reach certain of these
interests in certain circumstances. The Company cannot predict whether the FCC
will adopt these or any other proposals to change its attribution policies.
Under current FCC rules, any stockholder of the Company with 5% or more of the
outstanding votes (except for qualified institutional investors, for which the
10% benchmark is applicable), will be considered to hold attributable interests
in the Company. Such holders of attributable interests must comply with or
obtain waivers of the FCC's multiple and cross-ownership rules.
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At present, none of the attributable stockholders, officers or directors
of the Company have any other media interests besides those of the Company that
implicate the FCC's multiple ownership limits except that affiliates of Warburg,
Pincus Ventures, L.P. ("Warburg Ventures L.P.") hold interests in several daily
newspapers none of which is published in communities served by the Company's
stations.
The FCC will consider a radio station providing programming and sales on
another local radio station pursuant to an LMA to have an attributable ownership
interest in the other station for purposes of the FCC's radio multiple ownership
rules. In particular, a radio station is not permitted to enter into an LMA
giving it the right to program more than 15% of the broadcast time, on a weekly
basis, of another local radio station which it could not own under the FCC's
local radio ownership rules.
ALIEN OWNERSHIP LIMITS
Under the Communications Act, broadcast licenses may not be granted,
transferred or assigned to any corporation of which more than one-fifth of the
capital stock is owned of record or voted by non-U.S. citizens or foreign
governments or their representatives or by foreign corporations (collectively,
"Aliens"). Where the corporation owning the license is controlled by another
corporation, the parent corporation cannot have more than one-fourth of the
capital stock owned of record or voted by Aliens, unless the FCC finds it in the
public interest to allow otherwise. The FCC has issued interpretations of
existing law, under which the Alien ownership restrictions in slightly modified
form apply to other forms of business organizations, including general and
limited partnerships.
The FCC also prohibits a licensee from continuing to control broadcast
licenses if the licensee otherwise falls under Alien influence or control in a
manner determined by the FCC to be in violation of the Communications Act or
contrary to the public interest. At present, none of the Company's officers,
directors or stockholders are known to be Aliens.
PROGRAMMING REQUIREMENTS
While the FCC has relaxed or eliminated many of its regulatory requirements
related to programming and content, radio stations are still required to
broadcast programming responsive to the problems, needs and interests of the
stations' service areas and must comply with various rules promulgated under the
Communications Act that regulate political broadcasts and advertisements,
sponsorship identifications, indecent programming and other matters. Affirmative
action requirements also exist. The U.S. Court of Appeals for the D.C. Circuit,
however, recently found that these requirements are unconstitutional. In
response to this ruling, the FCC issued a notice of proposed rulemaking
suggesting changes to its rules to bring them in compliance with the decision of
the U.S. Court of Appeals for the D.C. Circuit. No final decision has been made
regarding the FCC's proposed changes. Failure to observe these or other FCC
rules can result in the imposition of monetary forfeitures, in the grant of a
"short" (less than full term) license term or, where there have been serious or
a pattern of violations, license revocation.
AGREEMENTS WITH OTHER BROADCASTERS
Over the past several years a significant number of broadcast licensees have
entered into cooperative agreements with other stations in their markets. One
typical example is an LMA between two separately or co-owned stations, whereby
the licensee of one station programs substantial portions or all of the
broadcast day on the other licensee's station, subject to ultimate editorial and
other controls being exercised by the latter licensee, and sells advertising
time during such program segments for its own account.
The FCC has held that LMAs do not per se constitute a transfer of control
and are not contrary to the Communications Act provided that the licensee of the
station maintains ultimate responsibility for and control over operations of its
broadcast station.
As is the case with the Company, in certain circumstances the LMA is
entered into in anticipation of the sale of the station, with the proposed
acquirer providing programming for the station while the parties are awaiting
the necessary regulatory approvals to the transaction.
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The FCC's rules also prohibit a radio licensee from simulcasting more than
25% of its programming on other radio stations in the same broadcast service
(e.g., AM-AM), whether it owns both stations or operates one or both through a
LMA, where such stations serve substantially the same geographic area as defined
by the stations' principal community contours. The Company-operated stations in
the Los Angeles and Miami markets are subject to this limitation.
PROPOSED REGULATORY CHANGES
The FCC has not yet formally implemented certain of the changes to its rules
necessitated by the Telecom Act. Moreover, the Congress and the FCC have under
consideration, and may in the future consider and adopt, new laws, regulations
and policies regarding a wide variety of matters that could, directly or
indirectly, (i) affect the operation, programming, technical requirements,
ownership and profitability of the Company and its radio broadcast stations,
(ii) result in the loss of audience share and advertising revenues of the
Company's radio broadcast stations, (iii) affect the ability of the Company to
acquire additional radio broadcast stations or finance such acquisitions, (iv)
affect cooperative agreements and/or financing arrangements with other radio
broadcast licensees, or (v) affect the Company's competitive position in
relationship to other advertising media in its markets.
Such matters include, for example, changes to the license, authorization and
renewal process; proposals to revise the FCC's equal employment opportunity
rules and other matters relating to minority and female involvement in
broadcasting; proposals to alter the benchmark or thresholds for attributing
ownership interest in broadcast media; proposals to change rules or policies
relating to political broadcasting; changes to technical and frequency
allocation matters, including those relative to the implementing of digital
audio broadcasting on both a satellite and terrestrial basis; proposals to
restrict or prohibit the advertising of beer, wine and other alcoholic beverages
on radio; changes in the FCC's cross-interest, multiple ownership, Alien
ownership and cross-ownership policies; and proposals to limit the tax
deductibility of advertising expenses by advertisers.
Although the Company believes the foregoing discussion is sufficient to
provide the reader with a general understanding of all material aspects of FCC
regulations that affect the Company, it does not purport to be a complete
summary of all provisions of the Communications Act the Telecom Act or FCC rules
and policies. Reference is made to the Communications Act, the Telecom Act, FCC
rules, and the public notices and rulings of the FCC for further information.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 176 full-time
employees. As of such date, none of the Company's employees were represented by
unions. Management believes that its relations with its employees are good.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Miami, Florida. The
types of properties required to support each of the Company's owned and operated
stations and stations operated under LMAs include offices, studios and towers
where broadcasting transmitters and antenna equipment are located. The Company
leases space in the building housing its corporate headquarters under a lease
expiring in 2004. The studios and offices of the Company's owned and operated
stations and of the stations operated by the Company under LMAs are located in
leased facilities with lease terms expiring from 2000 to 2007.
The Company owns the transmitter, building and equipment and, in certain
markets, the building and land for each of its owned and operated stations. The
transmitter sites for the Company's stations are material to the Company's
overall operations. Management believes that the Company's properties are in
good condition and are suitable for its operations; however, the Company
continually seeks opportunities to upgrade its properties.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE FOR COMMON STOCK
The Company's Common Stock has not been registered under the Securities Act
of 1933 (the "Securities Act") or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and is not listed on any national securities
exchange. There is no established public trading market for the Company's Common
Stock. All of the Company's outstanding shares of common stock are owned by
Radio Unica Holdings Corp. The indenture relating to the Company's 11 3/4%
Senior Discount Notes due 2006 and the Senior Secured Revolving Credit Facility
have covenants restricting among other things, the payment of dividends. For the
year ended December 31, 1998, the Company did not declare nor pay any dividends.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below as of and for the years ended
December 31, 1998 and 1997 and as of and for the period from September 12, 1996
(inception) through December 31, 1996, have been derived from the consolidated
financial statements of the Company, which were audited by Ernst & Young LLP,
independent certified public accountants. The selected historical financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements,
including the notes thereto, appearing elsewhere in this annual report.
FOR THE PERIOD FROM
FOR THE YEAR ENDED SEPTEMBER 12, 1996
DECEMBER 31, (INCEPTION) THROUGH
--------------------------------- DECEMBER 31,
1998 1997 1996
------------- ------------- -------------
STATEMENT OF OPERATIONS DATA:
Net revenue .................................. $ 8,218,043 $ -- $ --
Operating expenses ........................... 28,196,739 1,802,816 40,000
------------- ------------- -------------
Loss from operations.......................... (19,978,696) (1,802,816) (40,000)
Interest expense, net ........................ (4,289,658) (12,765) --
Other loss ................................... (14,867) -- --
------------- ------------- -------------
Loss before income taxes ..................... (24,283,221) (1,815,581) (40,000)
Income tax benefit ........................... 2,446,745 -- --
------------- ------------- -------------
Net loss ..................................... $ (21,836,476) $ (1,815,581) $ (40,000)
============= ============= =============
Net loss applicable to common
shareholders ............................. $ (24,687,084) $ (1,935,071) $ (40,000)
============= ============= =============
Net loss per common share applicable to
common shareholders-basic and diluted .... $ (2,438.47) $ (356.10) $ (13.33)
============= ============= =============
Weighted average common
shares outstanding-basic and diluted .... 10,124 5,434 3,000
============= ============= =============
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents .................... $ 38,894,144 $ 1,126,862 $ 5,000
Working capital .............................. 52,867,136 1,047,193 5,000
Total assets ................................. 123,505,573 6,678,088 5,000
Long-term debt ............................... 105,029,128 -- --
Series A redeemable cumulative preferred
stock ..................................... 38,266,437 5,316,990 --
Stockholders' (deficit) equity ............... (26,303,393) (1,922,571) 5,000
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the accompanying consolidated financial statements, the notes thereto and the
supplemental data included in this annual report.
GENERAL
The Company, incorporated on September 12, 1996 (inception), was organized
for the purpose of producing, broadcasting and distributing Spanish-language
radio programming in the United States. The Company's strategy is to develop its
radio network as a national advertising platform that is attractive to national
advertisers. The network is comprised of owned and operated stations, stations
operated under LMAs and affiliated stations. From inception through the year
ended December 31, 1997, the Company had no revenue and had not commenced
operations. The Company launched its network on January 5, 1998 with 30
affiliated stations and three stations operated under LMAs. The Company expects
to incur operating losses for the foreseeable future as the Company develops its
network and stations and establishes its base of advertising revenue.
The Company generates revenue from sales of network advertising time and
sales of advertising time on the Company-owned and operated stations and
stations operated under LMAs (collectively "O&Os"). Advertising rates are, in
large part, based upon the network's and each station's ability to attract
audiences in demographic groups targeted by advertisers. All revenues are stated
net of any agency commissions.
The Company's operating expenses consist of network programming expenses,
marketing and selling costs, including commissions paid to the Company's sales
staff, technical and engineering costs, and general and administrative expenses.
As is true of other radio operators, the Company's performance is
customarily measured by its earnings before net interest, taxes, depreciation
and amortization ("EBITDA"). EBITDA is defined as net income (loss) plus (i)
provision for income taxes, (ii) interest expense, net and (iii) depreciation
and amortization. EBITDA is presented not as an alternative measure of operating
results or cash flow from operations (as determined in accordance with generally
accepted accounting principles ("GAAP")), but because it is a widely accepted
supplemental financial measure of a company's ability to service debt. The
Company's calculation of EBITDA may not be comparable to similarly titled
measures reported by other companies since all companies do not calculate this
non-GAAP measure in the same fashion. The Company's EBITDA calculation is not
intended to represent cash used in operating activities, since it does not
include interest and taxes and changes in operating assets and liabilities, nor
is it intended to represent the net increase or decrease in cash, since it does
not include cash provided by (used in) investing and financing activities.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
NET REVENUE. Net revenue for the year ended December 31, 1998 was
approximately $8.2 million relating to sales of network advertising and sales of
advertising on the Company's O&Os. The Company was not operating its network or
O&Os during the year ended December 31, 1997 and as a result had no revenues.
OPERATING EXPENSES. Operating expenses for the year ended December 31, 1998
were approximately $28.2 million as compared to approximately $1.8 million for
the year ended December 31, 1997.
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Direct operating expenses of approximately $1.9 million related to
engineering and programming costs of the Company's O&Os.
Selling, general and administrative expenses of approximately $10.1 million
related to the operations of the Company's O&Os, an increase of approximately
$10.0 million over the year ended December 31, 1997. Selling, general and
adminstrative expenses for the year ended December 31, 1997 primarily related to
sales personnel hired for the Company's stations operated under LMAs.
Network expenses of approximately $11.8 million related to the operations of
the Company's network including engineering, programming, sales and
administration, an increase of approximately $11 million over the year ended
December 31, 1997. Network expenses for the year ended December 31, 1997
included costs related to the developing and launching of the network including
programming, sales, engineering and administration.
Corporate expenses for the year ended December 31, 1998 of approximately
$2.8 million related to the costs of executive management, legal and
professional fees and other costs, an increase of approximately $1.8 million
over the year ended December 31, 1997. Corporate expenses for the year ended
December 31, 1997 included primarily legal and professional fees, promotional
costs and travel expenses incurred during the development stage.
Depreciation and amortization for the year ended December 31, 1998 of
approximately $1.7 million related to the depreciation of the Company's fixed
assets as well as the amortization of its intangibles. The Company placed a
majority of its property and equipment as well as its broadcast licenses and
other intangibles into service on or about December 31,1997; therefore, there
was no depreciation and amortization expense recorded for the year ended
December 31, 1997.
OTHER INCOME (EXPENSE). Other income (expense) for the year ended December
31, 1998 included interest income of approximately $1.7 million, interest
expense of approximately $6.0 million and equity in loss of equity investee of
approximately $15,000. Interest income primarily related to interest earned on
the remaining proceeds from the Senior Discount Notes. Interest expense related
primarily to the interest on the outstanding balance of the Senior Discount
Notes. The Company had approximately $13,000 in interest expense during the year
ended December 31, 1997 associated with promissory notes due to stockholders.
INCOME TAX BENEFIT. The Company recorded an income tax benefit in 1998 of
approximately $2.4 million. The benefit results from the Company's ability to
utilize a portion of its net operating loss to offset existing deferred tax
liabilities.
NET LOSS. The Company incurred a net loss of approximately $21.8 million for
the year ended December 31, 1998 as compared to a loss of approximately $1.8
million for the year ended December 31, 1997. The increase in the net loss is a
result of the increased costs associated with the operation of the Company's
network and O&Os as well as the increase in interest expense resulting from the
Senior Discount Notes.
EBITDA. EBITDA was approximately $(18.3) million for the year ended December
31, 1998 as compared to approximately $(1.8) million for the year ended December
31, 1997. The decrease in EBITDA is a result of the increased costs associated
with the operations of the Company's network and O&Os.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE PERIOD FROM SEPTEMBER 12, 1996
(INCEPTION) THROUGH DECEMBER 31, 1996
NET REVENUE. During the year ended December 31, 1997 and for the period from
inception through December 31, 1996, the Company had no revenue and had not
begun operations.
OPERATING EXPENSES. Operating expenses for the year ended December 31, 1997
were approximately $1.8 million as compared to $40,000 for the period from
inception through December 31, 1996. The increase in costs was associated with
the Company's planned launching of its network and operations.
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Selling, general and administrative expenses of approximately $31,000 for
the year ended December 31, 1997 primarily related to sales personnel hired for
the Company's stations operated under LMAs.
Network expenses of approximately $813,000 for the year ended December 31,
1997 included costs related to the development and launching of the network
including programming, sales, engineering and administration.
Corporate expenses of approximately $959,000 for the year ended December 31,
1997 primarily related to the costs of personnel, legal and professional fees
and travel associated with the development of the Company. Corporate expenses
for the period from inception through December 31, 1996 were primarily related
to legal and professional fees and travel expenses.
INTEREST EXPENSE. Interest expense for the year ended December 31, 1997
related to certain promissory notes due to stockholders.
NET LOSS. The Company incurred a net loss of approximately $1.8 million for
the year ended December 31, 1997 and $40,000 for the period from inception
through December 31, 1996. The increase in the net loss was related to the
increased costs incurred in 1997 associated with the Company's planned launching
of its network and operations.
EBITDA. EBITDA was approximately $(1.8) million for the year ended December
31, 1997 as compared to $(40,000) for the period from inception through December
31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Due to the developmental nature of the Company, the Company has had negative
cash flows since inception. Working capital and financing for the Company's
acquisitions to date have been provided primarily by the issuance of the 11 3/4
% Senior Discount Notes due August 1, 2006 and promissory notes, common stock
and preferred stock to the Company's shareholders.
The Company's primary sources of liquidity will be the remaining proceeds
from the Senior Discount Notes issued on July 27, 1998 (see Note 5 to financial
statements) and the Senior Secured Revolving Credit Facility. The Senior Secured
Revolving Credit Facility is a senior secured revolver with $20.0 million of
available borrowings subject to certain conditions. At December 31, 1998 there
were no amounts outstanding under the Senior Secured Revolving Credit Facility.
Net cash used in operating activities was approximately $21.7 million for
the year ended December 31, 1998 as compared to approximately $2.2 million for
the year ended December 31, 1997. The increase in cash used in operating
activities during the year ended December 31, 1998 is due to the increased costs
associated with the operations of the Company's network and O&Os. Net cash used
in operating activities for the period from inception through December 31, 1996
was approximately $40,000. Net cash used in operating activities increased
during 1997 as compared to 1996 as a result of the Company's planned launching
of its network and programming.
Net cash used in investing activities for the year ended December 31, 1998
was approximately $60.6 million as compared to approximately $2.2 million for
the year ended December 31, 1997. The increase in cash used in investing
activities during the year ended December 31, 1998 is due to the acquisition of
radio stations, funding of escrow accounts related to acquisitions and
acquisitions of property and equipment. Net cash used in investing activities
for the year ended December 31, 1997 was due to the Company advancing funds to
an equity investee and acquiring property and equipment related to its network
and stations operated under LMAs. No cash was used in investing activities in
1996.
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Capital expenditures primarily related to the purchase of broadcast
equipment for the network and O&Os, leasehold improvements, computer equipment
and telecommunications equipment. For the year ended December 31, 1998, capital
expenditures were approximately $5.3 million as compared to approximately $1.2
million for the year ended December 31, 1997. The Company expects to spend, in
the aggregate, approximately $2.0 million over the next two years for planned
equipment purchases and for upgrades of existing stations.
Net cash provided by financing activities for the year ended December 31,
1998 was approximately $120.1 million as compared to approximately $5.6 million
for the year ended December 31, 1997. The increase in cash provided by financing
activities during the year ended December 31, 1998 is primarily related to the
net proceeds from the issuance of the Senior Discount Notes as well as
additional capital which was raised through the issuance of preferred and common
stock. In addition, the Company entered into promissory notes payable with
Warburg Ventures, L.P. of approximately $21.8 million. Net cash provided by
financing activities for the year ended December 31, 1997 primarily related to
the issuance of $5.2 million in preferred and common stock. The funds were
mainly used to acquire radio stations, fund escrow accounts related to
acquisitions, make investments and advances to an equity investee and acquire
property and equipment.
The Company believes that its current cash position, the remaining proceeds
from the issuance of the Senior Discount Notes and the borrowing availability
under the Senior Secured Revolving Credit Facility will provide adequate
resources to fund the Company's operating expenses, working capital
requirements, capital expenditures and acquisitions until the implementation of
its business strategy provides the Company with sufficient operating cash flow.
Upon the implementation of its business strategy, the Company believes that cash
from operating activities should be sufficient to permit the Company to meet
required cash interest obligations (which will consist of cash interest expense
on the Senior Discount Notes commencing August 1, 2002 of $18.6 million
annually), capital expenditures of approximately $1.0 million per year for
existing owned and operated stations, and operating obligations. In the event
that the Company is unable to generate the cash flow that is sufficient to
service its obligations, the Company may be forced to adopt one or more
alternatives, such as refinancing or restructuring its indebtedness, selling
material assets or operations or selling equity.
There can be no assurance that such business strategy will be successfully
implemented. Furthermore there can be no assurance that any such actions could
be effected on satisfactory terms or at all, that they would enable the Company
to satisfy its debt service requirements or that they would be permitted by the
terms of the Senior Discount Notes or the Senior Secured Revolving Credit
Facility. The failure to generate such sufficient cash flow or to achieve such
alternatives could significantly adversely affect the market value of the Senior
Discount Notes and the Company's ability to pay the principal of and interest on
the Senior Discount Notes.
The known impact on future operating results related to the Senior Discount
Notes will be annual interest expense through August 1, 2006 as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
(IN MILLIONS)
-----------------
1999................ $ 12.7
2000................ 14.2
2001................ 16.0
2002................ 17.9
2003................ 18.6
2004................ 18.6
2005................ 18.6
2006................ 10.8
20
21
Expected interest payments under the terms of the Senior Discount Notes are
as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
(IN MILLIONS)
-------------------
2002.............. $ 9.3
2003.............. 18.6
2004.............. 18.6
2005.............. 18.6
2006.............. 9.3
Amortization of deferred financing costs and intangibles resulting from the
Senior Discount Notes and the acquisitions of radio stations will be
approximately $3.7 million annually.
YEAR 2000 ISSUES
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and has
developed an implementation plan to resolve the issue. The Year 2000 issue is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's computer programs that have
time/date sensitive software and hardware may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a major system failure
or miscalculation. The Company presently believes that based on the results of
recent investigations, the Company's primary information and communication
systems are believed to be compliant with Year 2000 requirements. The Company's
cost of compliance has been minimal and any future costs are not anticipated to
be material to financial condition and results of operations.
The Year 2000 issue creates risk for the Company from unforeseen problems in
its own computer systems and from third parties on which the Company relies.
Accordingly, the Company is requesting assurances from all software vendors from
which it has purchased or from which it may purchase software that the software
sold to the Company correctly processes all date information at all times. In
addition, the Company is querying its customers and suppliers as to their
progress in identifying and addressing problems that their computer systems will
face in correctly processing date information as the Year 2000 approaches and is
reached. However, there are no assurances that the Company will identify all
date handling problems in its business systems or that the Company will be able
to successfully remedy Year 2000 compliance issue that are discovered. To the
extent that the Company is unable to resolve its Year 2000 issues prior to
January 1, 2000 operating results could be adversely affected. In addition, the
Company could be adversely affected if other entities (e.g., vendors or
customers) not affiliated with the Company do not appropriately address their
own Year 2000 compliance issues in advance of their occurrence.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
21
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO FINANCIAL STATEMENTS
Page
Number
----------
Report of Independent Certified Public Accountants 23
Consolidated Balance Sheets as of December 31, 1998 and 1997 24
Consolidated Statements of Operations for the Years Ended December 31, 1998 and
1997 and for the period from September 12, 1996 (inception) through
December 31, 1996 25
Consolidated Statements of Changes in Series A Redeemable Cumulative Preferred
Stock and Stockholders' (Deficit) Equity 26
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and
1997 and for the period from September 12, 1996 (inception) through
December 31, 1996 27
Notes to Consolidated Financial Statements 28
22
23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Radio Unica Corp.
We have audited the accompanying consolidated balance sheets of Radio Unica
Corp. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, changes in Series A redeemable cumulative
preferred stock and stockholders' (deficit) equity and cash flows for each of
the two years in the period ended December 31, 1998 and for the period from
September 12, 1996 (inception) through December 31, 1996. Our audits also
included the financial statement schedule listed in the Index of Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Radio Unica Corp. and subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1998 and 1997 and for the period from September 12, 1996
(inception) through December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Miami, Florida
February 24, 1999
23
24
RADIO UNICA CORP.
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------------
1998 1997
------------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 38,894,144 $ 1,126,862
Restricted cash 12,600,000 -
Accounts receivable, net of allowance for doubtful accounts of $116,031 1,232,402 -
Prepaid expenses 5,012,001 554,000
Radio broadcasting rights - 2,650,000
------------- -----------
Total current assets 57,738,547 4,330,862
Property and equipment, net 11,769,654 1,221,995
Broadcast licenses, net of accumulated amortization of $752,775 43,729,708 -
Other intangible assets, net 9,894,522 -
Investments and advances to equity investee - 1,016,590
Other assets 373,142 108,641
------------- -----------
$ 123,505,573 $ 6,678,088
============= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 922,064 $ 354,120
Accrued expenses 3,199,347 179,549
Radio broadcasting rights obligation - 2,385,000
Notes payable 750,000 365,000
------------- -----------
Total current liabilities 4,871,411 3,283,669
Deferred taxes 1,641,990 -
Senior discount notes 105,029,128 -
Commitments and contingencies
Series A redeemable cumulative preferred stock of Radio Unica
Holdings Corp. $.01 par, value; 450,000 shares authorized;
353,560 and 951,975 issued and outstanding at December 31, 1998
and 1997, respectively 38,266,437 5,316,990
Stockholders' deficit:
Common stock $.01 par value; 1,000 shares and 100,000 shares
authorized at December 31, 1998 and 1997, respectively;
100 shares and 5,250 shares issued and outstanding
at December 31, 1998 and 1997, respectively 1 53
Capital deficiency (2,611,337) (67,043)
Accumulated deficit (23,692,057) (1,855,581)
------------- -----------
Total stockholders' deficit (26,303,393) (1,922,571)
------------- -----------
$ 123,505,573 $ 6,678,088
============= ===========
The accompanying notes are an integral part of these financial statements.
24
25
RADIO UNICA CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the period from
September 12, 1996
(inception)
through
For the Year Ended December 31, December 31,
1998 1997 1996
------------ ------------ -----------------
Net revenue $ 8,218,043 $ -- $ --
Operating expenses:
Direct operating expenses 1,852,832 -- --
Selling, general and administrative expenses 10,064,219 31,124 --
Network expenses 11,812,105 812,654 --
Corporate expenses 2,771,207 959,038 40,000
Depreciation and amortization 1,696,376 -- --
------------ ------------ ------------
28,196,739 1,802,816 40,000
------------ ------------ ------------
Loss from operations (19,978,696) (1,802,816) (40,000)
Other income (expense):
Interest expense (6,038,483) (12,765) --
Interest income 1,748,825 -- --
Equity in loss of equity investee (14,867) -- --
------------ ------------ ------------
(4,304,525) (12,765) --
------------ ------------ ------------
Loss before income taxes (24,283,221) (1,815,581) (40,000)
Income tax benefit 2,446,745 -- --
------------ ------------ ------------
Net loss (21,836,476) (1,815,581) (40,000)
Accrued dividends on Series A redeemable
cumulative preferred stock 2,850,608 119,490 --
------------ ------------ ------------
Net loss applicable to common shareholders $(24,687,084) $ (1,935,071) $ (40,000)
============ ============ ============
Net loss per common share applicable to
common shareholders - basic and diluted $ (2,438.47) $ (356.10) $ (13.33)
============ ============ ============
Weighted average common shares
outstanding - basic and diluted 10,124 5,434 3,000
============ ============ ============
The accompanying notes are an integral part of these financial statements.
25
26
RADIO UNICA CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE CUMULATIVE PREFERRED
STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
- --------------------------------------------------------------------------------
Series A
Redeemable
Cumulative
Preferred Stock Common Stock
----------------------------- -------------------------------
Shares Amount Shares Amount
---------- ------------ ------------ ------------
Balance at September 12, 1996 -- $ -- -- $ --
Issuance of common stock -- -- 3,000 300
Net loss -- -- -- --
---------- ------------ ------------ ------------
Balance at December 31, 1996 -- -- 3,000 300
Issuance of common stock -- -- 7,000 700
Conversion of Predecessor
Company common stock to
Radio Unica Corp. Series A
redeemable cumulative
preferred stock and common
stock 4,950 495,000 (9,500) (995)
Issuance of Series A
redeemable cumulative
preferred stock and common
stock 47,025 4,702,500 4,750 48
Accrued dividends in arrears
on Series A redeemable
cumulative preferred stock -- 119,490 -- --
Net loss -- -- -- --
---------- ------------ ------------ ------------
Balance at December 31, 51,975 5,316,990 5,250 53
Issuance of Series A
redeemable cumulative
preferred stock and common
stock 148,500 14,850,000 15,000 150
Conversion of notes payable
and promissory notes payable
to stockholders to Series A
redeemable cumulative preferred
stock and common stock 154,700 15,469,965 15,626 156
Cancellation of common stock in
connection with the Radio
Unica Holdings Corp.
reorganization -- -- (35,876) (359)
Issuance of common stock in
connection with the Radio
Unica Holdings Corp.
reorganization -- -- 100 1
Redemption and cancellation of
Series A redeemable cumulative
preferred stock of Radio Unica
Holdings Corp. (2,110) (221,126) -- --
Issuance of Series A
reedemable cumulative
preferred stock of Radio Unica
Holdings Corp. 495 49,500 -- --
Shareholder note receivable issued
for Series A redeemable
cumulative preferred stock
of Radio Unica Holdings Corp. -- (49,500) -- --
Accrued dividends in arrears
on Series A redeemable
cumulative preferred stock
of Radio Unica Holdings Corp. -- 2,850,608 -- --
Net loss -- -- -- --
---------- ------------ ------------ ------------
Balance at December 31, 1998 353,560 $ 38,266,437 100 $ 1
---------- ============ ============ ============
Additional
Paid-in
Capital Accumulated
(Deficiency) Deficit Total
------------ ------------ ------------
Balance at September 12, 1996 $ -- $ -- $ --
Issuance of common stock 44,700 -- 45,000
Net loss -- (40,000) (40,000)
------------ ------------ ------------
Balance at December 31, 1996 44,700 (40,000) 5,000
Issuance of common stock 454,300 -- 455,000
Conversion of Predecessor
Company common stock to
Radio Unica Corp. Series A
redeemable cumulative
preferred stock and common
stock (494,005) -- (495,000)
Issuance of Series A
redeemable cumulative
preferred stock and common
stock 47,452 -- 47,500
Accrued dividends in arrears
on Series A redeemable
cumulative preferred stock (119,490) -- (119,490)
Net loss -- (1,815,581) (1,815,581)
------------ ------------ ------------
Balance at December 31, (67,043) (1,855,581) (1,922,571)
Issuance of Series A
redeemable cumulative
preferred stock and common
stock 149,850 -- 150,000
Conversion of notes payable
and promissory notes payable
to stockholders to Series A
redeemable cumulative preferred
stock and common stock 156,106 -- 156,262
Cancellation of common stock in
connection with the Radio
Unica Holdings Corp.
reorganization 359 -- --
Issuance of common stock in
connection with the Radio
Unica Holdings Corp.
reorganization (1) -- --
Redemption and cancellation of
Series A redeemable cumulative
preferred stock of Radio Unica
Holdings Corp. -- -- --
Issuance of Series A
reedemable cumulative
preferred stock of Radio Unica
Holdings Corp. -- -- --
Shareholder note receivable issued
for Series A redeemable
cumulative preferred stock
of Radio Unica Holdings Corp. -- -- --
Accrued dividends in arrears
on Series A redeemable
cumulative preferred stock
of Radio Unica Holdings Corp. (2,850,608) -- (2,850,608)
Net loss -- (21,836,476) (21,836,476)
------------ ------------ ------------
Balance at December 31, 1998 $ (2,611,337) $(23,692,057) $(26,303,393)
============ ============ ============
The accompanying notes are an integral part of these financial statements.
26
27
RADIO UNICA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period from
September 12, 1996
(inception)
through
For the Year Ended December 31, December 31,
1998 1997 1996
------------- ------------- ------------------
Operating activities
Net loss $ (21,836,476) $ (1,815,581) $ (40,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization and amortization 1,696,376 -- --
Equity in loss of equity investee 14,867 -- --
Interest on notes payable paid with the issuance of
preferred and common stock 261,227 -- --
Accretion of interest on senior discount notes 5,029,128 -- --
Amortization of deferred financing costs 321,181 -- --
Deferred taxes (2,446,745) -- --
Change in assets and liabilities:
Accounts receivable (1,136,353) -- --
Prepaid expenses (3,433,576) (554,000) --
Radio broadcasting rights 1,650,000 (2,650,000) --
Other assets (301,689) (108,641) --
Accounts payable 551,046 354,120 --
Accrued expenses 324,743 179,549 --
Radio broadcasting rights obligation (2,385,000) 2,385,000 --
------------- ------------- -------------
Net cash used in operating activities (21,691,271) (2,209,553) (40,000)
------------- ------------- -------------
Investing activities
Acquisition of property and equipment (5,336,309) (1,221,995) --
Restricted cash-escrow account (12,600,000) -- --
Advances to equity investee -- (1,016,590) --
Repayment of advances to equity investee 1,016,590 -- --
Acquisition of WNMA-AM and WWRU-AM Miami (9,167,000) -- --
Acquisiton of KIQI-AM San Francisco (6,276,520) -- --
Acquisition of KBLA-AM Los Angeles (21,465,920) -- --
Acquisition of KXYZ-AM Houston (6,500,000) -- --
Covenant not to compete (276,743) -- --
------------- ------------- -------------
Net cash used in investing activities (60,605,902) (2,238,585) --
------------- ------------- -------------
Financing activities
Proceeds from issuance of senior discount notes, net 95,535,581 -- --
Proceeds from issuance of Series A redeemable cumulative
preferred stock and common stock 15,000,000 5,205,000 45,000
Proceeds from issuance of notes payable to stockholders 21,795,000 365,000 --
Repayment on notes payable to stockholders (6,795,000) -- --
Repayment on note payable issued in connection with
the acquisition of KIQI-AM San Francisco (5,250,000) -- --
Redemption and cancellation of preferred stock (221,126) -- --
------------- ------------- -------------
Net cash provided by financing activities 120,064,455 5,570,000 45,000
------------- ------------- -------------
Net increase in cash and cash equivalents 37,767,282 1,121,862 5,000
Cash and cash equivalents at beginning of period 1,126,862 5,000 --
------------- ------------- -------------
Cash and cash equivalents at end of period $ 38,894,144 $ 1,126,862 $ 5,000
============= ============= =============
Supplemental disclosures of cash flow information:
Note payable issued in connection with the
acquisition of KIQI-AM San Francisco $ 6,000,000 $ -- $ --
============= ============= =============
Cash paid for interest $ 413,712 $ -- $ --
============= ============= =============
The accompanying notes are an integral part of these financial statements.
27
28
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRESENTATION
Radio Unica Corp., a Florida corporation incorporated on September 12, 1996
("Old Radio Unica"), was merged into Radio Unica Corp. (the "Company"), a
Delaware corporation, on August 7, 1997. As a result of the merger, the
investors of Old Radio Unica exchanged all of their common shares in Old Radio
Unica for 500 shares of common stock and 4,950 shares of preferred stock of the
Company, the surviving corporation. The merger was accounted for as a
combination of entities under common control in a manner similar to a pooling.
The Company was formed for the purpose of producing, broadcasting and
distributing Spanish language radio programming in the United States. The
Company launched its network on January 5, 1998 and began broadcasting
programming to radio broadcast stations that it operates and to affiliated
stations in the United States and abroad. Prior to the launch, the Company was a
development stage company.
The Company has entered into Affiliation Agreements ("AFAs") with
substantially all of its affiliated radio stations. Pursuant to the AFAs, the
Company supplies programming for the affiliated stations which are typically
required to carry a minimum of eight hours per day of the Company's network
programming. The AFAs typically provide that the Company's programming will
include a certain number of minutes per hour of network advertising to be sold
by the Company and a certain number of minutes per hour for local advertising to
be sold by the station. The terms of the AFAs are generally one to two years,
subject to earlier termination under certain circumstances. Some of the AFAs
grant the Company a right of first refusal in the event the station owner offers
to sell the station.
In July 1998, the Company effected a holding company reorganization (the
"Reorganization"), pursuant to which the Company became a wholly owned
subsidiary of Radio Unica Holdings Corp. ("Holdings"). Holdings has no assets
other than the shares of Company's common stock. In connection with the
Reorganization, the holders of the Company's common stock and Series A
redeemable cumulative preferred stock exchanged their shares for shares of
Holdings' common stock and Series A redeemable cumulative preferred stock
bearing identical rights and preferences to the Company's then existing common
stock and Series A cumulative redeemable preferred stock. The existing shares of
the Company's common stock and Series A redeemable cumulative preferred stock
were cancelled. The Company subsequently authorized and issued 100 shares par
value $0.01 of common stock to Holdings. The outstanding shares of Series A
redeemable cumulative preferred stock issued by Holdings have been "pushed-down"
to the Company and accordingly are reflected in the Company's financial
statements as of December 31, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation. The Company accounts for investments in
20% to 50% owned companies and for investments in over 50% owned companies over
which the Company does not have control under the equity method of accounting.
CASH EQUIVALENTS
The Company defines as cash equivalents all highly liquid investments with a
maturity of three months or less at the time of purchase.
RESTRICTED CASH
Restricted cash represents escrow accounts established by the Company in
connection with asset purchase agreements or local marketing agreements entered
into during the year.
28
29
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is recorded on a
straight-line basis over the estimated useful lives of the related assets, which
range from 3 to 30 years. Leasehold improvements are capitalized and amortized
over their estimated useful lives or the remaining life of the lease, whichever
is shorter. The Company place a majority of its property and equipment into
service on or about December 31, 1997; therefore, there was no depreciation
expense recorded for the year ended December 31, 1997 and for the period from
September 12, 1996 (inception) through December 31, 1996.
INTANGIBLE ASSETS
Intangible assets are recorded at cost. Amortization of intangible assets
is provided in amounts sufficient to relate the asset cost to operations over
the estimated useful lives on a straight-line basis. Intangible assets consist
primarily of broadcast licenses, goodwill and other identifiable intangible
assets. The estimated useful lives are as follows:
Broadcast licenses...... 30 years
Goodwill................ 30 years
Other intangibles....... 1-5 years
The Company evaluates periodically the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest for each of the Company's radio stations over the remaining
amortization periods of the related intangible assets. If such projections
indicate that undiscounted operating income is not expected to be adequate to
recover the carrying amounts of the related intangible assets, a loss is
recognized to the extent the carrying amount of the asset exceeds its fair
value. At this time, the Company believes that no impairment of goodwill or
other intangible assets has occurred and that no reduction of the estimated
useful lives is warranted.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local, national and network advertisers. Revenue is recognized as commercials
are broadcast.
ADVERTISING COSTS
The Company incurs various marketing and promotional costs to add and
maintain listenership. These costs are charged to expense as incurred and for
the periods ended December 31, 1998, 1997 and 1996 amounted to approximately
$3.6 million, $82,000 and $1,150, respectively.
BARTER TRANSACTIONS
Barter transactions represent advertising time exchanged for promotional
items, advertising, supplies, equipment and services. Barter transactions are
recorded at the estimated fair value of the goods or services received. Revenues
from barter transactions are recognized as income when advertisements are
broadcast. Expenses are recognized when goods or services are received. Barter
amounts are not significant to the Company's consolidated financial statements.
29
30
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
Prior to August 7, 1997, the Company, with the consent of its shareholders,
elected S Corporation treatment for the Company. As a result, the shareholders
of the Company were taxed on their proportionate share of the Company's taxable
income. Accordingly, no provision or credit for federal income tax amounts has
been included in the consolidated financial statements for the period prior to
August 7, 1997. On August 7, 1997, upon the merger of Old Radio Unica into the
Company, the Company became a C Corporation.
Deferred tax assets and liabilities are determined based upon differences
between the financial statements and income tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion
of the deferred tax assets will not be realized.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for the impairment of long-lived assets under the
provisions of SFAS No. 121, "Accounting For The Impairment Of Long-Lived
Assets". SFAS No. 121 requires impairment losses to be recorded on long-lived
assets when indications of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets
carrying amounts. If the carrying value of the assets will not be recoverable,
as determined based on the undiscounted cash flows estimated, the carrying value
of the assets are reduced to fair value. Generally, fair value will be
determined using valuation techniques such as expected discounted cash flows or
appraisals, as appropriate. The Company has not recorded any impairment losses.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments of cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses approximate fair value
because of their short duration to maturity. The fair value of the long term
debt is based on quoted market prices. At December 31, 1998, the fair value of
the senior discount notes was $85,367,520.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Accordingly, actual results could differ from those
reported.
BUSINESS SEGMENTS
Pursuant to SFAS No. 131, "Disclosure About Segments of a Business
Enterprise and Related Information," the Company is required to report segment
information. As the Company only operates in one business segment, no additional
reporting is required.
LOSS PER SHARE
In 1997, the Company retroactively adopted SFAS No. 128, "Earnings Per
Share", which replaced the calculations of primary and fully diluted earnings
per share (EPS) with basic and diluted EPS. For the years ended December 31,
1998 and 1997 and for the period from September 12, 1996 (inception) through
December 31, 1996, there was no difference between the basic and diluted EPS
calculations.
30
31
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
LOSS PER SHARE, CONTINUED
Net loss per common share is calculated using the weighted average number of
common shares for the basic EPS presentation, and the weighted average number of
common and common equivalent shares for the diluted EPS presentation,
outstanding during the respective periods.
3. RADIO BROADCASTING RIGHTS AGREEMENTS
On July 30, 1997, the Company entered into a Radio Broadcasting Rights
Agreement with Univision Network Limited Partnership for the 1998 World Cup
Soccer Championship (1998 World Cup). This agreement granted the Company
exclusive Spanish-language radio broadcast rights in the United States for the
1998 World Cup. The Company amortized the cost of the Rights Agreement, on a
pro-rata basis, as revenue for the 1998 World Cup was earned.
4. ACQUISITIONS
On January 26, 1998, the Company entered into an asset purchase agreement
with One-on-One Sports License of Florida, L.L.C. and One-on-One Sports Radio of
Florida L.L.C. to acquire Miami radio stations WNMA-AM and WRUN-AM for a cash
purchase price of $9.0 million. Other costs associated with the transaction were
approximately $167,000. On May 13, 1998, after receiving the consent of the
Federal Communications Commission (the "FCC") to assign the broadcasting
licenses, the Company completed the acquisitions. The Company operated the
stations under a Time Brokerage Agreement (also known as local marketing
agreements and referred to herein as "LMAs") for a monthly fee of $72,500 from
February 1, 1998 to May 13, 1998. Based on current Federal Communication
Commission ("FCC") guidelines, the license of either WNMA or WRUN must be
relinquished by the Company by October 8, 2002.
On February 20, 1998, the Company entered into a stock purchase agreement
with Oro Spanish Broadcasting, Inc. to acquire San Francisco radio station
KIQI-AM for $11.5 million. In connection with this acquisition, the Company
entered into a five-year non-compete agreement with the seller for $500,000.
Other costs associated with the transactions were approximately $277,000. On
April 30, 1998, after receiving the consent of the FCC to transfer the
broadcasting license, the Company completed the acquisition of all the common
stock of Oro Spanish Broadcasting, Inc. The purchase price was comprised of a $6
million cash payment and a $6 million promissory note. The promissory note bears
interest at 8% and is payable monthly. On July 2, 1998 the Company revised
certain terms of and paid down $5.25 million against the promissory note. The
remaining $750,000 is due on or before October 31, 1999. The Company operated
the station under an LMA for a monthly fee of $58,000 from March 2, 1998 to
April 30, 1998. Effective February 1999, the Company ceased interest payments on
the note. The Company has made a claim to offset certain costs and expenses
related to the acquired transmitter site against the balance due. The Company
accounted for the acquisition as a purchase and, accordingly, the purchase price
was allocated to the assets acquired and liabilities assumed based on appraisals
and other estimates of the underlying values.
On May 20, 1998, the Company entered into an asset purchase agreement to
acquire the assets of Los Angeles radio station KBLA-AM from subsidiaries of
Sinclair Communications, Inc. for $21 million in cash. Other costs associated
with the transaction were approximately $466,000. On July 30, 1998, after
receiving the FCC's consent to assign the broadcasting licenses, the Company
completed the acquisition.
31
32
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITIONS, CONTINUED
On October 27, 1997, the Company obtained 49.9% of the ownership and voting
rights of Blaya, Inc., a newly formed company. The remaining ownership interest
was held by one of the stockholders of Holdings.
On December 24, 1997, Blaya, Inc. entered into an asset purchase agreement
with 13 Radio Corporation ("13 Radio"), a CBS Broadcasting ("CBS") subsidiary,
to acquire Houston radio station KXYZ-AM, for a cash purchase price of $6.4
million. In connection with this acquisition, the Company advanced $1,016,590 to
Blaya, Inc., which was reflected in investments and advances to equity investee.
Also on December 24, 1997, Blaya, Inc. entered into an LMA with 13 Radio
effective as of January 5, 1998. The LMA made available to Blaya, Inc.
substantially all of the broadcasting time of the station, pending the
completion of the acquisition, which was subject to FCC consent. The Company
entered into an LMA with Blaya, Inc. for substantially all of the broadcasting
time of the station for a fee of $165,000 per quarter. The Company began
operating the station under its LMA on January 5, 1998. Blaya, Inc. did not have
any operations during 1997.
On March 6, 1998, Blaya, Inc.'s capital stock was divided into the following
two classes: (i) Class A common stock with rights identical to all other shares
of Blaya, Inc.'s capital stock except that each share is entitled to cast 4.016
votes and (2) Class B common stock with rights identical to all other shares of
Blaya, Inc.'s capital stock except that each share is entitled to cast 1 vote.
On March 6, 1998, the Company acquired 800 shares of Blaya, Inc.'s Class B
common stock, representing 49.9% of the voting rights and 80% of the economic
ownership rights in Blaya, Inc., in exchange for its 499 shares of common stock
in Blaya, Inc. and $640,000. On the same day, the Company loaned Mr. Blaya
$160,000 in the form of a 10 year 9% promissory note. These proceeds were used
by Mr. Blaya to purchase 200 shares of Blaya, Inc.'s Class A common stock
representing 50.1% of the voting rights and 20% of the ownership rights in
Blaya, Inc. In connection with this equity investment, the stockholders of
Blaya, Inc. entered into a stockholders agreement that provided the Company the
right of first refusal if the majority voting stockholder decided to sell any
interest in Blaya, Inc.
On March 10, 1998, the Company entered into a promissory note in the amount
of $5.7 million with Blaya, Inc. The proceeds were used to complete the asset
purchase agreement with 13 Radio and to pay related closing costs. The
promissory note bore interest of 9% compounded quarterly and was payable
annually. The entire principal amount outstanding under the promissory note was
due and payable in full on the earliest to occur of (i) the termination of the
LMA, (ii) fifteen days following the date when 50% of the voting stock was
transferred to any party or substantially all the assets of Blaya, Inc. were
sold, or (iii) March 10, 2008. The promissory note was secured by substantially
all of the assets of Blaya, Inc.
On March 11, 1998, Blaya Inc. completed the acquisition of certain assets of
13 Radio for $6.4 million pursuant to an asset purchase agreement dated December
24, 1997. Other costs associated with the transaction were approximately
$100,000.
On June 10, 1998, the Company entered into a stock purchase agreement
with the majority-voting stockholder of Blaya, Inc. to purchase his remaining
50.1% voting rights and 20% ownership interest in Blaya, Inc. (the "Remaining
Interest"). On September 11, 1998, the Company completed the acquisition of the
Remaining Interest for $160,000 and, accordingly, Blaya, Inc., became a wholly
owned subsidiary of the Company and Radio Unica of Houston License Corp., a
wholly owned subsidiary of Blaya, Inc., became an indirect, wholly owned
subsidiary of the Company. The majority-voting stockholder of Blaya, Inc. repaid
the $160,000, plus interest, he owed the Company pursuant to the 10 year 9%
promissory note. In addition, the $5.7 million promissory note was cancelled by
the Company and accounted for such cancellation as a contribution to Blaya,
Inc.'s capital.
32
33
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITIONS, CONTINUED
The Company accounted for the acquisition of Blaya, Inc. as a purchase and
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on appraisals and other estimates of the underlying
values. The operations of Blaya, Inc. are included in the consolidated statement
of operations of the Company beginning on September 11, 1998.
On October 27, 1998, the Company entered into an asset purchase agreement
with Children's Broadcasting Corporation to acquire certain assets of New York
City area radio stations WWRU-AM and WJDM-AM, Dallas/Ft. Worth radio station
KAHZ-AM and Phoenix radio station KIDR-AM for a purchase price of $29.25
million. In connection with this acquisition, the Company entered into a
two-year non-compete agreement with the seller for $750,000. Pursuant to this
agreement, the Company established escrow accounts totaling $10 million. The
Company operated these stations under an LMA for a monthly fee of $200,000 until
the transaction closed. An advanced payment of $2.5 million was made to
Children's Broadcasting Corporation with the execution of the LMA. On January
14, 1999, after receiving the consent of the FCC to assign the broadcasting
licenses, the Company completed the acquisitions. Based on current FCC
guidelines, the license of either WWRU or WJDM must be relinquished by the
Company by March 12, 2003.
The acquisitions of the assets of WNMA-AM and WRUN-AM, Miami and KBLA-AM,
Los Angeles, were not the purchases of businesses, as the format and language of
the stations were changed and the Company did not assume responsibility for any
employees. The acquisitions were accounted for as purchases and, accordingly,
the purchase price was allocated to the assets acquired and liabilities assumed
based on appraisals and other estimates of their underlying values.
The pro forma results of operations of the Company for the years ended
December 31, 1998 and 1997 assuming the Oro Spanish Broadcasting, Inc. and
Blaya, Inc. acquisitions had been consummated as of January 1, 1997 and assuming
Blaya, Inc. had acquired 13 Radio as of January 1, 1997 are as follows:
YEAR ENDED
DECEMBER 31,
-------------------------------
1998 1997
------------- -----------
Net revenue ................................... $ 8,529,015 $ 3,586,407
============= ===========
Net loss applicable to common shareholders .... $ (25,004,564) $(3,433,090)
============= ===========
Net loss per common share applicable to
common shareholders - basic and diluted ..... $ (2,469.83) $ (631.78)
============= ===========
5. SENIOR DISCOUNT NOTES AND SENIOR SECURED REVOLVING CREDIT FACILITY
SENIOR DISCOUNT NOTES
On July 27, 1998, the Company sold in an unregistered offering to qualified
institutional buyers and accredited institutional investors $158,088,000
aggregate principal amount at maturity of the Company's 11 3/4% Senior Discount
Notes due August 1, 2006 (the "Old Notes"). Cash interest on the Old Notes would
not accrue or be payable prior to August 1, 2002. Thereafter, cash interest
would accrue at a rate of 11 3/4% per annum on the principal amount at maturity
of the Old Notes through and including the maturity date and would be payable
semi-annually on August 1 and February 1 of each year. In connection with this
transaction, the Company received net proceeds of approximately $94.4 million
after deducting issuance expenses of approximately $5.6 million of which
approximately $1.1 million are accrued for at December 31, 1998.
33
34
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SENIOR DISCOUNT NOTES AND SENIOR SECURED REVOLVING CREDIT FACILITY, CONTINUED
The Old Notes were general senior unsecured obligations of the Company and
ranked pari passu in right of payment with all existing and future unsecured and
unsubordinated indebtedness of the Company and senior in right of payment to any
subordinated indebtedness of the Company. The Old Notes were guaranteed on a
senior unsecured basis, as to payment of principal, premium if any, and
interest, by the Guarantors, which consist of the Company's Domestic Restricted
Subsidiaries, (as defined in the Indenture, dated July 27, 1998 between the
Company, Wilmington Trust as trustee and the Guarantors named therein (the
"Indenture")), on a full, unconditional, joint and several basis. The Old Notes
were redeemable at any time and from time to time at the option of the Company,
in whole or in part on or after August 1, 2002, plus accrued and unpaid interest
thereon to the date of redemption.
In addition, on or prior to August 1, 2001, the Company could redeem, at its
option, up to 35% of the aggregate principal amount at maturity of the Old Notes
with the net proceeds of one or more Equity Offerings, as defined, at 111.75% of
the Accreted Value thereof, as defined in the Indenture, as long as Old Notes
representing at least $65.0 million of the aggregate initial Accreted Value of
the Old Notes originally issued remained outstanding after each such redemption
and that such redemption occurred within 90 days of the closing of any such
Equity Offering.
Upon a Change of Control as defined in the Indenture, the Company would be
required to offer to repurchase the Old Notes at a purchase price equal to (i)
101% of the Accreted Value thereof, if the purchase date was on or prior to
August 1, 2002, or (ii) 101% of the principal amount at maturity thereof, plus
accrued and unpaid interest thereon, if any, to the purchase date, if such date
was after August 1, 2002.
The Old Notes restricted, among other things, the Company's ability to incur
additional indebtedness, pay dividends or make certain other restricted
payments, consummate certain asset sales, create liens on assets, enter into
transactions with affiliates, make investments, loans or advances, consolidate
or merge with or into any other person or convey, transfer or lease all or
substantially all of its assets or change the business conducted by the Company.
On December 17, 1998, in order to satisfy certain obligations of the Company
under a Registration Rights Agreement, dated July 22, 1998 (the "Registration
Rights Agreement"), between the Company, CIBC Oppenheimer Corp. and Bear,
Stearns & Co. Inc., the Company completed the registration of the Old Notes and
exchanged the Old Notes for newly issued 11 3/4% Senior Discount Notes Series B
due 2006 (the "New Notes").
The form and terms of the New Notes are substantially the same as the Old
Notes, except that the New Notes have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), and hence are not subject to certain
transfer restrictions, registration rights and related liquidated damages
provisions applicable to the Old Notes. The New Notes evidence the same debt as
the Old Notes and are entitled to the benefits of the Indenture. The Indenture
provides for the issuance of both the Old Notes and the New Notes.
SENIOR SECURED REVOLVING CREDIT FACILITY
On July 8, 1998, the Company entered into a credit agreement with a bank for
a senior secured revolving credit facility (the "Revolving Credit Facility")
providing for up to $20.0 million of availability. The Revolving Credit Facility
will mature in May 2002. Amounts outstanding under the Revolving Credit Facility
bear interest at the higher of the (i) bank's prime rate plus 1.25% or (ii)
LIBOR plus 2.50%. The obligations under the Revolving Credit Facility are
guaranteed by Holdings and secured by substantially all the assets of the
Company and its subsidiaries.
34
35
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SENIOR DISCOUNT NOTES AND SENIOR SECURED REVOLVING CREDIT FACILITY, CONTINUED
SENIOR SECURED REVOLVING CREDIT FACILITY, CONTINUED
The Company has paid and pays certain fees in connection with the Revolving
Credit Facility, including a commitment fee of 0.50% per annum on the aggregate
unused portion of the Revolving Credit Facility. At December 31, 1998, there
were no amounts outstanding under the Revolving Credit Facility.
The Revolving Credit Facility contains certain financial and operational
covenants and customary events of default, including, among others, payment
defaults and default in the performance of other covenants, breach of
representations or warranties, cross-default to other indebtedness, certain
bankruptcy or ERISA defaults, the entry of certain judgments against the Company
or any subsidiary, and any security interest or guarantee that ceases to be in
effect. The Revolving Credit Facility also provides that an event of default
will occur upon the occurrence of a "change of control", as defined. As of
December 31, 1998 the Company was in compliance with these covenants.
6. PROMISSORY NOTES PAYABLE
On July 15 and July 24, 1997, the Company entered into promissory notes
payable with several stockholders amounting to $365,000. On April 17, 1998 the
Company converted $365,000 in notes payable to stockholders plus accrued
interest of $22,323 into 3,835 shares of Series A redeemable cumulative
preferred stock and 387 shares of common stock valued at $383,450 and $3,873,
respectively.
On January 5, 1998, WPV purchased 148,500 shares of preferred stock and
15,000 shares of common stock in exchange for $15,000,000.
In April, May and June 1998, the Company entered into four promissory notes
payable to Warburg, Pincus Ventures, L.P. ("WPV") in the aggregate amount of
approximately $21.8 million. Such notes bore interest at 10% per annum and were
due on demand. On June 30, 1998, the Company converted $15 million of the
promissory notes payable to preferred stock. The Company paid the remaining
$6.795 million on July 15, 1998.
On June 30, 1998, the Company converted $15 million in promissory notes
payable to WPV plus $238,904 in accrued interest into 150,865 shares of Series A
redeemable cumulative preferred stock and 15,239 shares of common stock valued
at $15,086,515 and $152,389, respectively.
35
36
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
USEFUL LIVES ----------------------------
(YEARS) 1998 1997
----------- ----------- -----------
Land ................................................. -- $ 2,629,241 $ --
Buildings ............................................ 30 1,064,349 --
Broadcast equipment .................................. 7 6,273,644 867,735
Leasehold improvements ............................... 10 910,393 147,759
Office equipment, computers & software ............... 3-5 1,205,049 146,804
Furniture & fixtures ................................. 5 380,804 59,697
----------- -----------
12,463,480 1,221,995
Less: Accumulated depreciation and amortization....... 693,826 --
----------- -----------
$11,769,654 $ 1,221,995
=========== ===========
Depreciation expense for the years ended December 31, 1998 and 1997 and for
the period from September 12, 1996 (inception) through December 31, 1996 was
$693,826, $0 and $0, respectively.
8. OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following:
DECEMBER 31,
USEFUL LIVES ----------------------------
(YEARS) 1998 1997
----------- ----------- -----------
Goodwill ............................................. 30 4,088,735 --
Deferred financing costs ............................. 4-8 5,600,000 --
Covenants not to compete ............................. 1-5 776,743 --
----------- ----------
10,465,478 --
Less: Accumulated amortization ........................ 570,956 --
----------- ----------
$ 9,894,522 $ --
=========== ==========
Amortization expense for the year ended December 31, 1998 was $570,956.
Amortization expense relating to the deferred financing costs of $321,181 for
the year ended December 31, 1998 was classified as interest expense. There was
no amortization expense for the year ended December 31, 1997 and for the period
from September 12, 1996 (inception) through December 31, 1996.
9. INCOME TAXES
Concurrent with the August 7, 1997 merger of Old Radio Unica with and into
the Company, Old Radio Unica's S Corporation election was terminated.
Thereafter, the Company became subject to corporate income taxes. The Company
had no income tax expense or benefit for the year ended December 31, 1997 and
for the period from September 12, 1996 (inception) through December 31, 1996.
36
37
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES, CONTINUED
HISTORICAL
The components of the income tax benefit are as follows:
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997
----------- ------------
Current .......................................... $ -- $ --
Deferred ......................................... (2,446,745) --
----------- ------------
$(2,446,745) $ --
=========== ============
The differences between the federal statutory income tax and the effective
income tax rate are summarized below:
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
Tax benefit at federal statutory rate ............ $(8,499,127) $ (493,823)
State income tax benefit, net of federal benefit . (1,239,329) (52,375)
Permanent differences ............................ 60,111 3,259
Other ............................................ (58,775) (7,924)
Increase in valuation allowance .................. 7,290,375 550,863
----------- -----------
$(2,446,745) $ --
=========== ===========
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant
components of the Company's net deferred income taxes are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997
------------ ------------
Deferred tax assets:
Net operating loss carryforwards ................. $ 11,079,878 $ 542,939
Other ............................................ 45,340 7,924
------------ ------------
11,125,218 550,863
Valuation allowance .............................. (7,841,238) (550,863)
------------ ------------
Total deferred tax assets ........................ 3,283,980 --
Deferred tax liabilities:
Amortization ..................................... (4,912,080) --
Other ............................................ (13,890) --
------------ ------------
(4,925,970) --
------------ ------------
Total net deferred taxes ......................... $ (1,641,990) $ --
============ ============
37
38
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES, CONTINUED
The differences between the federal statutory income tax rate of 34% and the
effective income tax rate are summarized below assuming the Company was a C
corporation for the periods presented:
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996
--------- ---------
Tax benefit at federal statutory rate ............ $(617,298) $ (13,600)
State income tax benefit, net of federal benefit . (65,392) (1,422)
Permanent differences ............................ 4,810 280
Valuation allowance .............................. 677,880 14,742
--------- ---------
Net deferred tax asset ........................... $ -- $ --
========= =========
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a $7,841,238 valuation allowance at December 31, 1998 is
necessary to reduce the deferred tax assets to the amount that will more likely
than not be realized. The change in the valuation allowance for the current year
is approximately $7,290,000. At December 31, 1998, the Company has available net
operating loss carryforwards of approximately $27,575,000, of which
approximately $24,578,000 expire in the year 2018 and the remaining $2,997,000
expires in years 2007 through 2012.
10. SERIES A REDEEMABLE CUMULATIVE PREFERRED STOCK
Holdings has 450,000 authorized shares of redeemable, 10% cumulative,
nonconvertible, voting, Series A Preferred Stock (the "Preferred Stock"), $.01
par value, of which 353,560 and 51,975 shares were issued and outstanding at
December 31, 1998 and 1997, respectively. If and when dividends are declared by
the Board of Directors of Holdings, holders of the Preferred Stock shall be
entitled to receive cumulative dividends at the rate of 10% per annum. Each
share of Preferred Stock shall be entitled to ten votes per share on all matters
upon which common stockholders of Holdings are entitled to vote (one vote per
common share) and have a redemption price of $100 per share, together with
accrued and unpaid dividends thereon. Redemption of the Preferred Stock is at
the option of the holders for any or all the outstanding shares upon the
occurrence of (i) a change in control, (ii) an initial public offering or (iii)
on August 6, 2007. In the event of any liquidation, dissolution or winding up of
the affairs of the Company, holders of Preferred Stock shall be paid the
redemption price plus all accrued dividends to the date of liquidation,
dissolution or wind up of affairs before any payment to other stockholders.
Pursuant to the Reorganization, all of the outstanding shares of Series A
redeemable cumulative preferred stock issued by Holdings have been "pushed-down"
to the Company, and accordingly are reflected in the Company's financial
statements as of December 31, 1998. Accrued dividends in arrears of
approximately $2,970,000 and $119,000, as of December 31, 1998 and 1997,
respectively, are included in the redemption value of the Preferred Stock.
On August 28, 1998 the Company, pursuant to a separation agreement between
the Company and its former President and Chief Operating Officer, redeemed and
cancelled 2,110 shares of Series A redeemable cumulative preferred stock of
Holdings in exchange for $221,126.
38
39
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTION PLAN
On August 8, 1997, the Company adopted the 1997 Stock Option Plan (the Plan)
which provides for the granting of incentive stock options to purchase shares of
the Company's common stock to officers, directors and key employees responsible
for the direction and management of the Company and to non-employee consultants
and independent contractors. At December 31, 1997, the Company reserved 20,000
shares of its common stock for issuance under the Plan. The vesting period and
the terms of the incentive stock options granted are established by a Committee
of the Board of Directors (the Committee). The incentive stock options expire no
later than ten years from the date of grant. Upon the adoption of the Plan, the
Company granted options to its employees to purchase 7,700 shares of its common
stock. Such options were cancelled by the Company and reissued by Holdings in
1998. The Company has granted options to its employees to purchase 9,177 shares
of Holdings' common stock. Of the 9,177 options granted, 2,188 vested
immediately, 1,315 vest ratably over time and 2,050 vest upon the attainment of
certain performance goals as determined by the Committee. The exercise price of
these incentive stock options is $10 per share, which was determined by the
Committee to be the fair value at the date of grant. As a result, no
compensation cost has been recognized under the provisions of APB Opinion No.
25. The remaining 3,624 incentive stock options vest upon the attainment of
specified return on equity targets and have a variable exercise price per share
based on a formula which is triggered upon the occurrence of certain events.
There were no options granted by the Company prior to the adoption of this plan.
Upon consummation of the Reorganization, each option to purchase one share of
the Company's common stock was converted into an option to purchase one share of
Holdings common stock, exercisable upon the same terms and conditions as they
were under the Company's stock option plan, and the Company's stock option plan
was cancelled. All of the options issued by Holdings were issued to employees of
the Company and accordingly such options are reflect below.
Changes to the plan for 1998, 1997 and 1996 are as follows:
DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996
------------------------ --------------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
HOLDINGS' EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- --------- ------ --------- -------- -------
Outstanding at beginning of
Year ............................ 7,700 $ 10.00 -- -- -- --
Granted ............................ 9,177 $ 10.00 7,700 -- -- --
Exercised .......................... -- -- -- -- -- --
Cancelled .......................... (7,700) $ 10.00 -- -- -- --
-------- --------- ------ --------- ------ ------
Outstanding at end of year ......... 9,177 $ 10.00 7,700 $ 10.00 -- --
-------- ========= ====== ========= ====== ======
Options exercisable at year-end .... 2,611 $ 10.00 2,153 $ 10.00 -- --
======== ========= ====== ========= ====== ======
The following table summarizes information about stock options outstanding
at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- --------------------------------------
WEIGHTED
NUMBER AVERAGE NUMBER WEIGHTED
OUTSTANDING AT REMAINING EXERCISABLE AVERAGE
EXERCISE PRICE DECEMBER 31, 1998 CONTRACTUAL LIFE AT DECEMBER 31, 1998 EXERCISE PRICE
-------------- ------------------ ----------------- -------------------- ---------------
$10.00 9,177 6.93 2,611 $10.00
39
40
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTION PLAN, CONTINUED
The weighted average per share fair values of options granted under the
stock option plan during 1998 and 1997 based on the Black-Scholes option
valuation model, were $2.13 and $2.59, respectively. Had the compensation
expense for the grants under this plan been recognized the proforma net loss and
proforma basic and diluted loss per share would have not materially differed
from actual.
The following weighted average assumptions were used:
DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------ ----------- ----------
Expected life.......... 5-9 years 5 years --
Interest rate.......... 6.00% 6.00% --
Volatility............. -- -- --
Dividend yield......... -- -- --
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because Holdings' stock options have characteristics significantly
different from traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, the existing models,
in management's opinion, do not necessarily provide a reliable single measure of
the fair value of Holdings' stock options.
12. COMMITMENTS
LOTUS OXNARD CORP. TIME BROKERAGE AGREEMENTS
On October 31, 1997, the Company entered into a LMA with Lotus Oxnard Corp.
(Lotus) to operate Simi Valley, CA radio station KVCA, effective January 5,
1998. Simultaneous with the LMA, the Company entered into an escrow agreement
whereby the Company provided a $2.5 million escrow account deposit on January 5,
1998 to secure compliance with the LMA terms. In addition to the LMA and escrow
agreement, the Company entered into an asset purchase option agreement with
Lotus, which provides an option to purchase the assets of KVCA, including its
broadcasting license, from Lotus. This purchase option is exercisable at any
time from June 24, 2001 through and including December 31, 2001. The LMA shall
end upon the earliest to occur of (i) the closing or termination as defined in
the asset purchase option agreement or (ii) December 31, 2001.
On October 31, 1997, the Company entered into a LMA with Lotus to operate
San Antonio radio station KZDC, effective January 5, 1998. Simultaneous with the
LMA, the Company entered into an asset purchase option agreement with Lotus
which provides an option to purchase the assets of KZDC, including its
broadcasting license, from Lotus, which is exercisable at any time from June 24,
2001 through and including December 31, 2001. The LMA shall end upon the
earliest to occur of (i) the closing or termination as defined in the asset
purchase option agreement or (ii) December 31, 2001.
The future minimum payments under the Lotus LMAs are as follows:
1999 .................... $2,425,000
2000 .................... 2,650,000
2001 .................... 2,875,000
----------
$7,950,000
==========
40
41
RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS, CONTINUED
TIME BROKERAGE AGREEMENT FOR KDFT-AM DALLAS
On April 27, 1998, the Company entered into a LMA with The Freedom Network,
Inc. to operate Dallas radio station KDFT-AM through May 18, 2000 for a monthly
fee of $44,786 and $56,546 through May 18, 1999 and 2000, respectively. An
advance payment of $146,903 was made to The Freedom Network, Inc. in connection
with the execution of the LMA. In accordance with the terms of the LMA
agreement, on December 11, 1998, the Company gave The Freedom Network, Inc. the
required termination notification. The Company operated the station under the
LMA through March 11, 1999.
TIME BROKERAGE AGREEMENT AND OPTION TO PURCHASE WYPA-AM CHICAGO
On June 9, 1998, the Company entered into a LMA with Achievement Radio
Holdings, Inc. ("Achievement") for substantially all of the broadcast time on
Chicago radio station WYPA-AM for a monthly fee of $118,000 through June 8,
1999. The term of the LMA may be extended at the Company's option through June
9, 2000 (Renewal Term). In addition to the LMA, the Company has an option to
purchase the assets of WYPA-AM, which is exercisable from June 9, 1998 through
June 9, 1999 and will be exercisable for the Renewal Term if the LMA is
extended. The Company has provided Achievement with a termination notification
and expects to cease broadcasting by June, 1999.
RADIO BROADCASTING RIGHTS
On September 28, 1998, the Company entered into Radio Broadcasting Rights
Agreements ("Rights Agreements") with Inter/Forever Sports, Inc. for several
large soccer events including Copa America 1999 and 2001, Copa Oro 2000 and
2002, and elimination games for the 2002 World Cup (collectively the "Soccer
Events"). The Rights Agreements grant the Company exclusive Spanish-language
radio broadcast rights in the United States for the Soccer Events.
At December 31, 1998, remaining cash payment obligations under the Rights
Agreements are as follows:
January 15, 2000 .... $ 600,000
June 30, 2000 ....... 600,000
March 31, 2001 ...... 600,000
----------
$1,800,000
==========
LEASES
The Company leases office space, broadcasting studios and certain equipment
under operating leases, which expire at various dates through September 2007.
Certain leases contain renewal options and provide for base rental payments plus
escalation charges for real estate taxes and operating expenses.
At December 31, 1998, future minimum lease payments under such leases are as
follows:
1999 .................... $ 638,000
2000 .................... 632,000
2001 .................... 556,000
2002 .................... 538,000
2003 .................... 462,000
Thereafter .............. 539,000
----------
$3,365,000
==========
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RADIO UNICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS, CONTINUED
Total rent expense for the years ended December 31, 1998 and 1997 and for
the period from September 12, 1996 (inception) through December 31, 1996 was
approximately $526,000, $109,000 and $0, respectively.
13. SUMMARIZED FINANCIAL INFORMATION
The New Notes are guaranteed by all of the Company's Domestic Restricted
Subsidiaries, which comprises all of the Company's existing subsidiaries, on a
full, unconditional, joint and several basis. The financial statements of the
subsidiary guarantors are omitted as management has determined that separate
financial statements and other disclosures concerning the subsidiaries are not
material to investors.
Summarized financial information of guarantor subsidiaries are as follows:
AS OF AND FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
1998 1997
------------ ------------
Current assets ..................................... $ 18,844,403 $ 3,204,000
Total assets ....................................... 84,611,429 6,678,088
Current liabilities (including due to parent of
$19,421,468 and $514,730, respectively) ......... 24,292,879 3,433,399
Total liabilities .................................. 25,934,869 3,798,399
Net revenue ........................................ 8,218,043 --
Operating expenses ................................. 22,677,176 1,641,592
Net loss ........................................... (16,316,913) (1,654,357)
14. SUBSEQUENT EVENTS
On February 22, 1999, the Company contracted to acquire substantially all
the assets used in the operation of station WIDB (AM) in Chicago, Illinois from
subsidiaries of One-on-One, for a cash purchase price of approximately $16.75
million. The Company funded a $1 million escrow account in conjunction with this
transaction. The transaction is expected to be finalized upon the receipt of the
FCC's approval and the expiration or termination of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
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ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company and certain key employees of Radio Unica
Network, Inc.
NAME AGE POSITION
- -------------------------------- ------------- ---------------------------------------
Joaquin F. Blaya 53 Chairman of the Board and
Chief Executive Officer
Jose C. Cancela 41 President
Steven E. Dawson 35 Chief Financial Officer, Executive
Vice President, Secretary
and Director
Andrew C. Goldman 51 Executive Vice President, Business
Affairs and Director
Blaine R. Decker 47 Executive Vice President,
Network Sales
Omar Marchant 63 Vice President, Programming of
Radio Unica Network, Inc.
Adrianna Grillet 45 Vice President, Affiliate Relations of
Radio Unica Network, Inc.
Roy Pressman 45 Vice President, Engineering of
Radio Unica Network, Inc.
John D. Santoleri 35 Director
Sidney Lapidus 61 Director
JOAQUIN F. BLAYA. Mr. Blaya has been Chairman of the Board of Directors and
Chief Executive Officer of the Company since August 1997. From 1995 through
1996, Mr. Blaya served as the President of Solomon International Latino, the
Latin American division of Solomon International Enterprises, an international
telecommunications company. From 1992 through 1995, Mr. Blaya was the President,
Chief Executive Officer and a member of the Board of Directors of Telemundo, the
second largest U.S. Spanish-language television network. Prior to that, Mr.
Blaya was employed by Univision since 1971 in various positions, the latest
being President and a member of Univision's Board of Directors.
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44
JOSE C .CANCELA. Mr. Cancela has been President of the Company since September
1998. He initially joined the Company in July 1998 serving as President,
Network. From 1992 through 1998, Mr. Cancela served as Executive Vice President
of Telemundo, responsible for the overall management of Telemundo's owned and
operated television stations in Puerto Rico and Miami. From 1990 to 1992, Mr.
Cancela was the Vice President of the Univision Southwest Station Group.
STEVEN E. DAWSON. Mr. Dawson has been Chief Financial Officer, Executive Vice
President, Secretary and a Director of the Company since August 1997. From 1991
through 1997, Mr. Dawson was employed by Telemundo in several positions, the
most recent being Vice President, Finance and Controller. Prior to that, Mr.
Dawson was employed at Coopers & Lybrand since 1986. Mr. Dawson is a Certified
Public Accountant.
ANDREW C. GOLDMAN. Mr. Goldman has been a Director and Executive Vice President,
Business Affairs of the Company since August 1997. Mr. Goldman served in
different capacities for Univision from 1981 to 1993 including as Executive Vice
President and President of Galavision. Prior to joining Univision, Mr. Goldman
was the Senior Vice President of Marketing at Teleprompter Corporation. Mr.
Goldman has served as President and Director of Cable Television Administration
and Marketing Society (CTAM), and as Founder and Director of the Cable
Advertising Bureau (CAB).
BLAINE R. DECKER. Mr. Decker has served as the Company's Executive Vice
President, Network Sales since October 1997. He was previously employed by
KWHY-TV--Los Angeles as General Sales Manager from November 1995 through October
1997. From February 1984 through February 1995, Mr. Decker was employed by
Univision as Senior Vice President, Network Sales and in other management
positions. Prior to joining Univision, Mr. Decker was employed by Arbitron
Ratings Company as Vice President of Sales and Marketing from January 1980
through February 1984.
OMAR MARCHANT. Mr. Marchant has served as Radio Unica Network, Inc.'s Vice
President, Programming and as Creative Director since September 1997. Mr.
Marchant has been employed in various media-related capacities including TV
host, radio disc jockey, radio director, producer and creator of jingles and
producer of TV specials for the Latin and general market. Additionally, Mr.
Marchant served as Senior Vice President and Creative Director for Telemundo
from June 1992 through July 1994 and as Vice President and Director of
Promotions and Special Events or in other capacities for Univision from
September 1972 through July 1994.
ADRIANA GRILLET. Ms. Grillet has served as Radio Unica Network, Inc.'s Vice
President, Affiliate Relations since August 1997. Ms. Grillet had previously
served as Director of Affiliate Relations for Caracol (Latino Broadcasting
Company) from April 1996 through July 1997 and CBS--Americas from February 1992
through April 1996. From 1992 through 1996 Ms. Grillet also served as a program
production consultant at WADO-NY and from 1988 through 1992 as Senior Program
Producer.
ROY PRESSMAN. Mr. Pressman has served as Radio Unica Network, Inc.'s Vice
President, Engineering since December 1997. Mr. Pressman has over 20 years of
experience in building and managing radio station facilities. From August 1997
to December 1997, Mr. Pressman served as Director of Engineering at Clear
Channel Communications, Inc. ("Clear Channel"). He was employed as Vice
President, Engineering at Paxson Communications Corp., the predecessor to Clear
Channel, from August 1993 to July 1997. Prior to that, Mr. Pressman was employed
as Director of Engineering at Gilmore Broadcasting, Inc.
JOHN D. SANTOLERI. Mr. Santoleri has been a Director of the Company since August
1997. Mr. Santoleri is a Managing Director and a member of Warburg, Pincus &
Company LLC ("Warburg") where he has been employed since 1989. Warburg is the
managing entity of Warburg Ventures, L.P., the Company's controlling
stockholder. Prior to joining Warburg, Mr. Santoleri was a Vice President of the
New York based real estate consulting firm, The Harlan Company, Inc. Mr.
Santoleri is also a director of Axxess Technologies, Inc., Grubb & Ellis
Company, and NexCycle, Inc.
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45
SIDNEY LAPIDUS. Mr. Lapidus, a Director of the Company since September 1998, is
a Managing Director and a member of Warburg, where he has been employed since
1967. Mr. Lapidus is also a director of Caribiner International, Inc., Grubb &
Ellis Company, Information Holdings Inc., Journal Register Company, Knoll Inc.,
Lennar Corp. and several private companies.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information regarding the total compensation
of the Chief Executive Officer and each of the four most highly compensated
executive officers of the Company during the year ended December 31, 1998, as
well as the total compensation paid to each such individual for the Company's
previous fiscal years.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-----------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------------------------- --------------------- ------------------------------
OTHER RESTRICTED (1)
NAME AND ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPEN- AWARDS SARs PAYOUT COMPEN-
POSITION YEAR ($) ($) SATION($) (#) (#) ($) SATION($)
--------- ---- --------- -------- --------- -------- -------- ------- ---------
Joaquin F. Blaya ........................ 1998 $350,000 $160,000 -- -- -- -- $ 5,000
Chairman and Chief ................... 1997 145,834 -- -- -- -- -- 4,375
Executive Officer
Jose C. Cancela ......................... 1998 $168,500 -- -- -- -- -- $ 438
President ............................ 1997 -- -- -- -- -- -- --
Steven E. Dawson ........................ 1998 $200,000 -- -- -- -- -- $ 4,006
Chief Financial Officer and ........... 1997 88,667 -- -- -- -- -- 2,065
Secretary
Blaine R. Decker ........................ 1998 $165,000 $ 65,100 -- -- -- -- --
Executive Vice President ............. 1997 52,500 -- -- -- -- -- --
Herbert M. Levin (2) .................... 1998 $183,312 -- -- -- -- -- --
Chief Operating Officer and President ... 1997 114,583 -- -- -- -- -- 2,005
(1) Amounts in this column represent the Company's matching contributions to a
401(k) plan.
(2) Mr. Levin resigned from his position as Chief Operating Officer, President
and Director of the Company in August 1998.
STOCK OPTION PLANS/ARRANGEMENTS
Prior to the consummation of the Reorganization, each of the officers held
options to purchase shares of Company common stock. Upon consummation of the
Reorganization, each option was converted into an option to purchase Holdings
common stock.
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46
DIRECTORS COMPENSATION
Directors do not receive any compensation for serving on the Company's
Board of Directors. The Company also maintains a directors' and officers'
liability insurance policy for its directors.
EMPLOYMENT AGREEMENTS
Joaquin F. Blaya and Steven E. Dawson each entered into separate
Non-Competition and Confidentiality Agreements on August 13, 1997 pursuant to
which they have each agreed, among other things, that: (i) until the later of
(a) August 13, 2002 or (b) two years after the termination of their respective
employment (if terminated for cause or if voluntarily resigned) they will not
engage directly or indirectly in any business directly competitive to that of
the Company or any of its subsidiaries; (ii) during the two year period after
their respective termination (if terminated for cause or if voluntarily
resigned) they will not hire, offer to hire or entice away any of the Company's
officers, employees, affiliates or agents; and (iii) they will not at any time
divulge, furnish, use, publish or make accessible to others any confidential
information about the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Company's Common Stock has not been registered under the Securities Act
of 1933 (the "Securities Act") or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and is not listed on any national securities
exchange. There is no established public trading market for the Company's Common
Stock. All of the Company's outstanding shares of common stock are owned by
Radio Unica Holdings Corp.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a matter of policy the Company approves all transactions involving
insiders through the majority vote of disinterested directors.
PURCHASE OF RADIO STATION KXYZ(AM); TRANSACTIONS INVOLVING BLAYA, INC.
Blaya, Inc., a Delaware corporation, was formed in October 1997 to
facilitate the purchase of radio station KXYZ (AM) located in Houston, Texas
("KXYZ"). Upon such formation, the Company acquired 499 shares of Blaya Inc.'s
common stock (which represented a 49.9% interest in Blaya, Inc.) and Joaquin F.
Blaya acquired 501 shares of Blaya, Inc.'s common stock (which represented a
50.1% interest in Blaya, Inc.). On December 24, 1997, Blaya, Inc. entered into
an asset purchase agreement with 13 Radio to acquire substantially all of the
assets necessary to operate KXYZ for a cash purchase price of $6.4 million. In
connection with the purchase, the Company advanced $1,016,590 to Blaya, Inc.
On March 6, 1998, the Company acquired 800 shares of Blaya, Inc.'s Class B
common stock, representing 49.9% of the voting rights and 80% of the economic
ownership rights in Blaya, Inc., in exchange for its 499 shares of Blaya, Inc.'s
common stock and $640,000. On the same day, the Company loaned Mr. Blaya
$160,000 in exchange for a 10 year 9% promissory note. These proceeds were used
by Mr. Blaya (together with the surrender of 501 shares of Blaya, Inc.'s common
stock then held by him) to acquire 200 shares of Blaya, Inc.'s Class A common
stock, representing 50.1% of the voting rights and 20% of the ownership rights
in Blaya, Inc.
On March 10, 1998, the Company loaned $5.7 million to Blaya, Inc. in
exchange for a promissory note. The proceeds were used to complete the asset
purchase agreement with 13 Radio and to pay related closing costs. The
promissory note bore interest at 9%, compounded quarterly and payable annually,
and was secured by substantially all of the assets of Blaya, Inc.
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On September 11, 1998, the Company purchased all of Mr. Blaya's interest in
Blaya, Inc. for $160,000 and Mr. Blaya repaid the $160,000, plus interest, he
owed to the Company pursuant to the 10 year 9% promissory note. Upon the
Company's purchase of Mr. Blaya's shares, Blaya, Inc. became a wholly-owned
subsidiary of the Company and Radio Unica of Houston License Corp., a
wholly-owned subsidiary of Blaya, Inc., became an indirect, wholly-owned
subsidiary of the Company. Effective September 11, 1998, the $5.7 million
promissory note was cancelled by the Company and accounted for as a contribution
to Blaya, Inc.'s capital.
INITIAL INVESTMENTS IN THE COMPANY; AGREEMENTS AMONG STOCKHOLDERS
On August 11, 1997, Warburg, Pincus Ventures, L.P. ("Warburg Ventures
L.P."), Joaquin F. Blaya, Herbert M. Levin, Andrew C. Goldman, Alan Stess,
Barrett Alley (collectively, the "Investors") and the Company, entered into a
Securities Purchase Agreement (the "Purchase Agreement") pursuant to which the
Investors purchased (the "Initial Investment") an aggregate of 21,000 shares of
the Company common stock and 207,900 shares of the Company preferred stock. The
purchase price for the Company common stock was $10 per share and the purchase
price for the Company preferred stock was $100 per share. In addition, Warburg
Ventures, L.P. was given the option at any time on or prior to three years from
the date of the Purchase Agreement and upon the request of the Chief Executive
Officer ("CEO") of the Company, to purchase an additional 198,000 shares of the
Company preferred stock and 20,000 shares of the Company common stock (the
"Additional Shares") on the same terms as the shares purchased in the Initial
Investment. Each of the other Investors and the Senior Executives (as defined in
the Purchase Agreement) of the Company had the right to acquire its pro rata
share (based on the original shares and vested options owned by such Investor or
Senior Executive) of the Additional Shares on the same terms and conditions.
For so long as Warburg Ventures, L.P. owned more than 5% of the Company
preferred stock, the Company agreed to (among other things) furnish certain
financial reports to the Investors and to cause each of its significant
employees to enter into agreements relating to non-disclosure of information and
confidentiality and not to compete with the Company. The Company also agreed to
use its reasonable best efforts to cause its Board of Directors to consist of
six persons, who were to be designated jointly by Warburg Ventures, L.P. and the
CEO. However, Warburg Ventures, L.P. had the right at any time, in its sole
discretion, to designate a majority of the directors, provided, further,
however, that if Warburg Ventures, L.P. designated a majority of the directors,
it agreed not to make any material change in the nature of the business
conducted by the Company without the consent of the CEO.
Pursuant to the Purchase Agreement, the Company also agreed that for so long
as any Company preferred stock remained outstanding, it would not, without the
prior approval of Warburg Ventures, L.P., (i) become a party to a merger or
consolidation, sell or lease any of its assets other than in the ordinary course
of business or voluntarily dissolve, liquidate or wind up, (ii) engage in any
business other than the operation or ownership of the Network (as defined in the
Purchase Agreement), (iii) purchase or redeem any shares of its capital stock,
(iv) declare or pay any dividends except for dividends declared and paid on the
Company preferred stock, (v) create, incur, or assume any additional
indebtedness, except for commitments of up to an aggregate of $200,000 in any
fiscal year, (vi) make any capital expenditures in excess of that set forth in
the budget prepared according to the Purchase Agreement, (vii) acquire any
properties, assets or stock of another entity, except in the ordinary course of
business, (viii) amend its Articles of Incorporation or Bylaws, (ix) create or
issue any series or shares of capital stock, options, warrants or other rights
to purchase or acquire its capital stock, (x) hire, fire or change the
compensation of any of the Chief Executive Officer, Chief Financial Officer or
Chief Operating Officer, (xi) engage in any transactions with any of its
officers, directors or stockholders or any Affiliate or Associate of such
person, (xii) create, incur or suffer to exist any mortgage, pledge, lien,
security interest or other encumbrance except as provided in the annual budget
or (xiii) engage or discharge its independent certified public accountants or
legal counsel.
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Additionally, the Purchase Agreement provided that the Company would not
make a registered public offering of its securities without the prior consent of
Warburg Ventures, L.P. Warburg Ventures, L.P. had demand registration rights and
the other Investors could have registered their Shares with Warburg Ventures,
L.P.'s demand registration statement. All of the Investors had piggy-back
registration rights with respect to any registration statement initiated by the
Company. The Investors also had preemptive rights to purchase any new securities
offered by the Company on the same terms as such new securities were offered
until there is a public offering of the Company's securities.
All of the stockholders or holders of Options (including Warburg Ventures,
L.P. and the Investors) entered into a Stockholders' Agreement, dated as of
August 11, 1997 (the "Stockholders' Agreement") to remain in effect until the
Company completed an initial public offering which resulted in aggregate gross
proceeds of at least $21 million. Pursuant to the Stockholders' Agreement, each
of the stockholders agreed (i) not to sell, offer to sell or otherwise dispose
of its shares of Company common stock and Company preferred stock, other than
those included in such public offering, for a period of at least 180 days from
the effective date of a registration statement in connection with such public
offering and (ii) for a period of five years, to grant the Company a right of
first refusal with respect to any of its shares of Company common stock and
Company preferred stock that the stockholder proposed to sell or otherwise
dispose of. If Warburg Ventures, L.P. had decided to sell the Company, each of
the stockholders would have been obligated to sell its stock pursuant to such
sale. If the employment of any stockholder terminated, the Company and then
Warburg Ventures, L.P. and Messrs. Blaya and Levin had the option to purchase
any stock owned by such stockholder.
As part of the Reorganization, Holdings assumed the rights and obligations
of the Company with respect to the agreements described above with the Company's
stockholders (who became stockholders of Holdings) on the same terms and
conditions as the Stockholder Agreement.
LOANS TO THE COMPANY
On July 15, 1997, Joaquin F. Blaya, Herbert M. Levin and Andrew C. Goldman,
Officers of the Company, and Barrett Alley, a stockholder of the Company, loaned
the Company an aggregate of $100,000. The loan was due upon demand and bore
interest at a rate of 9% per annum. In April 1998, the Company fully repaid the
loan by issuing Messrs. Blaya, Levin, Goldman and Alley 40.584, 40.584, 18.156
and 7.476 shares of Company common stock, respectively, and 401.7816, 401.7816,
179.7444 and 74.0124 shares of Company preferred stock, respectively.
On July 24, 1997, Warburg Ventures, L.P. loaned the Company $265,000. The
loan was due upon demand and bore interest at a rate of 8% per annum. The funds
from the loan were used to pay a deposit to Univision Network Limited
Partnership ("Univision Network L.P.") pursuant to the Radio Broadcasting Rights
Agreement, dated as of July 30, 1997(the "World Cup Rights Agreement"), entered
into by and between Univision Network L.P. and the Company for the exclusive
Spanish-language radio broadcast rights in the United States for the 1998 World
Cup. Warburg Ventures, L.P. also arranged for the issuance of a letter of credit
(the "Original Letter of Credit") in the amount of $2,385,000 to Univision
Network L.P. on behalf of the Company to secure the Company's payments under the
World Cup Rights Agreement. In April 1998, the Company fully repaid the loan by
issuing Warburg Ventures, L.P. 280.5231 shares of Company common stock and
2,777.1788 shares of Company preferred stock. On July 9, 1998, the Original
Letter of Credit was replaced by a letter of credit issued by Canadian Imperial
Bank of Commerce (the "CIBC Letter of Credit") for the remaining amount of
$795,000.
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On April 3, April 27, May 19 and June 16, 1998, Warburg Ventures, L.P.
loaned the Company $5,000,000, $11,000,000, $5,000,000 and $795,000 in exchange
for the Promissory Notes. The funds from the Promissory Notes were primarily
used to finance the acquisition of radio stations in San Francisco and Miami.
Each of the Promissory Notes was due upon demand and bore interest at the rate
of 10% per annum. On June 30, 1998, the Company repaid $15,000,000 of the
Promissory Notes plus accrued interest by issuing Warburg Ventures, L.P.
15,238.9041 shares of Company common stock and 150,865.1507 shares of Company
preferred stock. The remaining $6,795,000 due under the Promissory Notes has
been repaid from amounts borrowed under the Revolving Credit Facility.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following financial statements have been filed under Item 8 of this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended December 31, 1998 and
1997 and for the period from September 12, 1996 (inception) through
December 31, 1996
Consolidated Statements of Changes in Series A Redeemable Cumulative Preferred
Stock and Stockholders' (Deficit) Equity
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and
1997 and for the period from September 12, 1996 (inception) through
December 31, 1996
Notes to Consolidated Financial Statements
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2. FINANCIAL STATEMENT SCHEDULES
RADIO UNICA CORP.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
ADDITIONS
---------------------------
BALANCE AT CHARGED CHARGES BALANCE AT
BEGINNING OF TO COSTS TO OTHER END OF
DESCRIPTION YEAR AND EXPENSES ACCOUNTS DEDUCTION YEAR
- ----------- ----------- ------------- -------- --------- ----------
1998:
Allowance for doubtful trade accounts
Receivable $ -- $ 118,098 $ -- $ 2,067 $ 116,031
=========== ============= ======== ========= ==========
Deferred tax valuation allowance $ 550,863 $ 7,290,375 $ -- $ -- $7,841,238
=========== ============= ======== ========= ==========
1997:
Allowance for doubtful trade accounts
Receivable $ -- $ -- $ -- $ -- $ --
=========== ============= ======== ========= ==========
Deferred tax valuation allowance $ -- $ 550,863 $ -- $ -- $ 550,863
=========== ============= ======== ========= ==========
1996:
Allowance for doubtful trade accounts
Receivable $ -- $ -- $ -- $ -- $ --
=========== ============= ======== ========= ==========
Deferred tax valuation allowance $ -- $ -- $ -- $ -- $ --
=========== ============= ======== ========= ==========
(B) REPORTS ON FORM 8-K
None
(C) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
EXHIBIT
NUMBER DESCRIPTION
3.1* Certificate of Incorporation of the Company.
3.2* Bylaws of the Company.
4.1* Purchase Agreement, dated July 22, 1998, among the Company, each of the
Company's subsidiaries set forth therein, CIBC Oppenheimer Corp. and Bear,
Stearns & Co. Inc.
4.2* Indenture dated as of July 27, 1998 between the Company and Wilmington
Trust Company, as Trustee.
4.3* Registration Rights Agreement, dated as of July 22, 1998, between the
Company and CIBC Oppenheimer Corp. and Bear, Stearns & Co. Inc.
10.1* Credit Agreement, dated as of July 8, 1998 among the Company, Holdings,
the several banks and other financial institutions from time to time parties
thereto and Canadian Imperial Bank of Commerce, in its individual capacity and
as Agent ("CIBC").
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10.2* Securities Purchase Agreement, dated as of August 11, 1997, by and among
the Company, Warburg, Pincus Ventures, L.P. and the other investors named
therein.
10.3* Supplement to Securities Purchase Agreement, dated as of June, 1998, among
the Company, Holdings, Warburg, Pincus Ventures, L.P. and the other investors
named therein.
10.4* Stockholders' Agreement, dated as of June 30, 1998, by and among Holdings,
Warburg, Pincus Ventures, L.P., Joaquin Blaya, Herbert Levin and the other
persons listed therein.
10.5* Time Brokerage Agreement, dated as of October 31, 1997, by and between the
Company and Lotus Oxnard Corp. relating to KVCA(AM).
10.6* Time Brokerage Agreement, dated as of October 31, 1997, by and between the
Company and Texas Lotus Corp. relating to KZDC(AM).
10.7* Time Brokerage Agreement, dated as of June 9, 1998, by and between
Achievement Radio Holdings, Inc. and the Company relating to WYPA(AM).
10.8* Time Brokerage Agreement, dated as of April 27, 1998, by and between The
Freedom Network, Inc. and the Company relating to KDFT(AM).
10.9*(a) Asset Purchase Agreement, dated as of January 26, 1998, by and among
the Company, One-On-One Sports License of Florida, L.L.C. and One-On-One Sports
Radio of Florida, L.L.C.
10.10*(a) Stock Purchase Agreement, dated as of February 20, 1998, by and among
the Company, Oro Spanish Broadcasting, Inc. and Rene De La Rosa.
10.11* Asset Purchase Agreement, dated as of May 20, 1998, by and among the
Company, Sinclair Radio of Los Angeles, Inc. and Sinclair Radio of Los Angeles
Licensee, Inc.
10.12* Form of Non Competition and Confidentiality Agreement between each of
Joaquin F. Blaya, Herbert M. Levin and Steven E. Dawson, dated August 13, 1997.
10.13* Agreement, dated as of November 19, 1997, entered into by and between The
Miami Herald Publishing Company and the Company.
10.14* Agreement, dated as of January 15, 1998, entered into by and between
Radio Unica Corp. and Jorge Ramos.
10.15* Amended and Restated Artist Agreement, dated as of June 5, 1998, entered
into by and between Radio Unica Network, Inc. and Raque Productions (for
services of Pedro Sevcec).
10.16* Independent Contractor Agreement dated as of June 30, 1998 between Radio
Unica Network, Inc. and Dra Isabel, Inc. (for services of Isabel Gomez Bassols).
10.17* Amendment to Time Brokerage Agreement, dated as of May 20, 1998, by and
between The Freedom Network, Inc. and the Company relating to KDFT(AM).
10.18* Local Programming and Marketing Agreement, dated as of June 1, 1998, by
and between Children's Radio of New York, Inc. and the Company relating to
WBAH(AM) (now known as WWRU).
10.19* Stock Purchase Agreement, dated as of June 10, 1998, by and among the
Company, Blaya, Inc. and Joaquin F. Blaya.
10.20* Option Agreement, dated as of October 31, 1997, by and between Lotus
Oxnard Corp. and the Company.
10.21* Option Agreement, dated as of October 31, 1997, by and between Texas
Lotus Corp. and the Company.
10.22* Option Agreement, dated as of June 9, 1998, by and between Personal
Achievement Radio of Illinois, Inc. and the Company.
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52
10.23* First Supplemental Indenture, dated as of September 11, 1998, among the
Company, Blaya, Inc., Radio Unica of Houston License Corp. and Wilmington Trust
Company.
10.24*(a) Agreement, dated as of September 28, 1998, between the Company and
Inter/Forever Sports, Inc.
10.25*(a) Agreement, dated as of September 28, 1998, between the Company and
Inter/Forever Sports, Inc.
10.26* Asset Purchase Agreement, dated as of October 26, 1998, among the
Company, Children's Broadcasting Corporation, Children's Radio of Dallas, Inc.,
Children's Radio of Phoenix, Inc. and Children's Radio of New York, Inc.
10.27* First Amendment to Asset Purchase Agreement, dated as of October 27,
1998, among the Company, Children's Broadcasting Corporation, Children's Radio
of Dallas, Inc., Children's Radio of Phoenix, Inc. and Children's Radio of New
York, Inc.
10.28* Local Programming and Marketing Agreement, dated as of October 26, 1998,
among the Company, Children's Radio of New York, Inc., Children's Radio of
Dallas, Inc. and Children's Radio of Phoenix, Inc.
10.29* Security Agreement, dated as of October 26, 1998, among the Company,
Children's Radio of Dallas, Inc., Children's Radio of Phoenix, Inc., Children's
Radio of New York, Inc., KAHZ-AM, Inc. and Children's Broadcasting Corporation.
10.30 Asset Purchase Agreement, dated as of February 22, 1999, among the
Company, One-on-One Sports License of Illinois, L.L.C. and One-on-One Sports
Radio of Illinois, L.L.C.
10.31 Time Brokerage Agreement, dated as of February 22, 1999, by and between
the Company and , One-on-One Sports License of Illinois, L.L.C. and One-on-One
Sports Radio of Illinois, L.L.C., relating to WIDB (AM).
10.32 Second Supplemental Indenture dated as of January 14, 1999, among the
Company, Radio Unica of New York, Inc., Radio Unica of New York License Corp.,
Radio Unica of Dallas, Inc., Radio Unica of Dallas License Corp., Radio Unica of
Phoenix, Inc., Radio Unica of Phoenix License Corp., and Wilmington Trust
Company, as trustee.
21.1 Subsidiaries
27.1 Financial data schedule
- ----------
* Incorporated by reference from Registration Statement on Form S-4 filed on
December 17, 1998.
(a) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment and have been filed separately with the Securities
and Exchange Commission
52
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 30, 1999.
Radio Unica Corp.
By: /s/ Joaquin F. Blaya
------------------------------------
Joaquin F. Blaya
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Joaquin F. Blaya Chairman of the Board March 30, 1999
- ----------------------------- Chief Executive Officer
Joaquin F. Blaya
/s/ Steven E. Dawson Chief Financial Officer March 30, 1999
- ----------------------------- Secretary and Director
Steven E. Dawson
/s/ Manuel Borges Chief Accounting Officer March 30, 1999
- -----------------------------
Manuel Borges
/s/ John Santoleri Director March 30, 1999
- -----------------------------
John Santoleri
/s/ Sidney Lapidus Director March 30, 1999
- -----------------------------
Sidney Lapidus
/s/ Andrew C. Goldman Director March 30, 1999
- -----------------------------
Andrew C. Goldman
53