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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE PERIOD ENDED JUNE 30, 2000
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 001-13715
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BIG CITY RADIO, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 13-3790661
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
</TABLE>
11 SKYLINE DRIVE, HAWTHORNE, NEW YORK 10532
(Address and zip code of principal executive offices)
(914) 592-1071
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
The number of shares of the registrant's Class A common stock and Class B
common stock outstanding as of August 4, 2000 was 6,226,817 and 8,250,458,
respectively.
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BIG CITY RADIO, INC.
PART 1--FINANCIAL INFORMATION
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PAGE
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Item 1. Financial Statements
Consolidated Balance Sheets................................. 2
Consolidated Statements of Operations....................... 3
Consolidated Statement of Stockholders' Equity
(Deficiency)................................................ 4
Consolidated Statements of Cash Flows....................... 5
Notes to Consolidated Financial Statements.................. 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9-15
PART II--OTHER INFORMATION
Item 1. Legal Proceedings........................................... 16
Item 2. Changes in Securities and Use of Proceeds................... 16
Item 3. Defaults Upon Senior Securities............................. 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Item 5. Other Information........................................... 16
Item 6. Exhibits and Reports on Form 8-K............................ 17
Signatures........................................................... 18
</TABLE>
<PAGE>
PART 1--FINANCIAL INFORMATION
ITEM. 1 FINANCIAL STATEMENTS
BIG CITY RADIO, INC.
CONSOLIDATED BALANCE SHEETS
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JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,368,000 $ 2,431,000
Cash held in escrow....................................... -- 275,000
Cash held in investment, restricted....................... 1,321,000 1,934,000
Marketable securities, available for sale................. 4,793,000 7,859,000
Accounts receivable, net of allowance of $138,000 and
$214,000 in 2000 and 1999, respectively................. 5,764,000 6,090,000
Interest receivable....................................... 21,000 526,000
Prepaid expenses and other current assets................. 1,114,000 920,000
------------ ------------
Total current assets.................................... 14,381,000 20,035,000
Property and equipment, net................................. 6,675,000 7,145,000
Intangibles, net............................................ 111,979,000 113,873,000
Deferred financing fees..................................... 3,073,000 3,399,000
Other assets................................................ 109,000 59,000
------------ ------------
Total assets............................................ $136,217,000 $144,511,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 706,000 $ 822,000
Accrued expenses.......................................... 2,972,000 3,146,000
Promissory notes.......................................... 294,000 881,000
Other current liabilities................................. 65,000 93,000
------------ ------------
Total current liabilities............................... 4,037,000 4,942,000
------------ ------------
Senior discount notes....................................... 161,157,000 152,596,000
Other long term liabilities................................. 491,000 498,000
Promissory notes............................................ -- --
Deferred income tax liabilities............................. 2,379,000 2,410,000
Stockholders' equity (deficiency):
Preferred stock, $.01 par value. Authorized 20,000,000
shares; zero shares issued and outstanding in 2000 and
1999.................................................... -- --
Common stock, Class A, $.01 par value. Authorized
80,000,000 shares; issued and outstanding 6,226,817 and
6,218,817 shares in 2000 and 1999, respectively......... 62,000 62,000
Common stock, Class B, $.01 par value. Authorized
20,000,000 shares; issued and outstanding 8,250,458
shares in 2000 and 1999................................. 83,000 83,000
Additional paid-in capital................................ 29,492,000 29,458,000
Other comprehensive loss.................................. (109,000) (149,000)
Accumulated deficit....................................... (61,375,000) (45,389,000)
------------ ------------
Net stockholders' equity (deficiency)..................... (31,847,000) (15,935,000)
------------ ------------
Total liabilities and stockholders' equity
(deficiency).......................................... $136,217,000 $144,511,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
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BIG CITY RADIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
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Gross revenues............................ $ 7,718,000 $ 4,667,000 $12,977,000 $ 8,421,000
Less: commissions and fees.............. 903,000 575,000 1,515,000 968,000
----------- ----------- ----------- -----------
Net revenues.......................... 6,815,000 4,092,000 11,462,000 7,453,000
Operating expenses:
Radio stations.......................... 6,966,000 5,355,000 13,076,000 10,607,000
Internet................................ 390,000 -- 621,000 --
Corporate, general and administrative
expenses.............................. 1,107,000 805,000 1,974,000 1,638,000
Cost of abandonment of station
acquisition agreement................. -- -- 550,000 --
Depreciation and amortization........... 1,214,000 866,000 2,426,000 1,701,000
----------- ----------- ----------- -----------
Total operating expenses.............. 9,677,000 7,026,000 18,647,000 13,946,000
----------- ----------- ----------- -----------
Operating loss...................... (2,862,000) (2,934,000) (7,185,000) (6,493,000)
Other income (expenses):
Gain on sale of station................. -- -- -- 663,000
Interest income......................... 84,000 624,000 182,000 1,396,000
Interest expense........................ (4,547,000) (4,122,000) (8,916,000) (8,042,000)
Other, net.............................. (37,000) (108,000) (98,000) (279,000)
----------- ----------- ----------- -----------
Total other income (expenses)......... (4,500,000) (3,606,000) (8,832,000) (6,262,000)
----------- ----------- ----------- -----------
Loss before income taxes.................. (7,362,000) (6,540,000) (16,017,000) (12,755,000)
Income tax benefit, net................... 31,000 -- 31,000 --
----------- ----------- ----------- -----------
Net Loss................................ (7,331,000) (6,540,000) (15,986,000) (12,755,000)
=========== =========== =========== ===========
Basic and diluted loss per share:
Net loss................................ $ (0.51) $ (0.46) $ (1.10) $ (0.91)
=========== =========== =========== ===========
Weighted average shares outstanding....... 14,475,016 14,069,275 14,472,145 14,069,275
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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BIG CITY RADIO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
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COMMON STOCK ADDITIONAL OTHER
--------------------- PAID-IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL GAIN (LOSS) DEFICIT TOTAL
---------- -------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1999 (Audited).......... 14,469,275 $145,000 $29,458,000 $(149,000) $(45,389,000) $(15,935,000)
Employee stock options.... 8,000 -- 34,000 -- -- 34,000
Unrealized gain (loss) on
marketable securities... -- -- -- 40,000 -- 40,000
Net loss.................. -- -- -- -- (15,986,000) (15,986,000)
---------- -------- ----------- --------- ------------ ------------
Balance at June 30, 2000
(Unaudited)............. 14,477,275 $145,000 $29,492,000 $(109,000) $(61,375,000) $(31,847,000)
========== ======== =========== ========= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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BIG CITY RADIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
(UNAUDITED)
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2000 1999
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Cash flows from operating activities:
Net loss.................................................. $(15,986,000) $(12,755,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 2,426,000 1,701,000
Non cash interest....................................... 8,887,000 7,988,000
Deferred income tax..................................... (31,000) --
Gain on sale of station................................. -- (663,000)
Employment stock incentives............................. 34,000 --
Change in operating assets and liabilities
(Increase) decrease in assets:
Accounts receivable................................. 326,000 (41,000)
Interest receivable................................. 505,000 746,000
Prepaid expenses and other current assets........... (194,000) (529,000)
Other assets........................................ (50,000) (691,000)
Increase (decrease) in liabilities:
Accounts payable.................................... (116,000) 165,000
Accrued expenses.................................... (174,000) (33,000)
Other liabilities................................... (35,000) (50,000)
------------ ------------
Net cash used in operating activities............. (4,408,000) (4,162,000)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment........................ (413,000) (1,540,000)
Purchase of marketable securities......................... -- (34,508,000)
Sales of marketable securities............................ 3,105,000 45,884,000
Cash paid and advanced for assets of radio stations
acquired................................................ -- (5,821,000)
Cash held in escrow....................................... 275,000 --
Cash held in restricted investment........................ 613,000 881,000
Cash received for radio stations sold..................... 352,000 1,195,000
------------ ------------
Net cash provided by investing activities......... 3,932,000 6,091,000
------------ ------------
Cash flows from financing activities:
Repayment of promissory notes............................. (587,000) (587,000)
------------ ------------
Net cash used in financing activities............. (587,000) (587,000)
------------ ------------
Change in cash and cash equivalents............... (1,063,000) 1,342,000
Cash and cash equivalents at beginning of period............ 2,431,000 5,285,000
------------ ------------
Cash and cash equivalents at end of period.................. $ 1,368,000 $ 6,627,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Company owns and operates radio stations in four of the largest radio
markets in the United States. The Company's radio broadcast properties are
located in or adjacent to major metropolitan markets and utilize innovative
engineering techniques and low-cost, ratings-driven operating strategies to
develop these properties into successful metropolitan radio stations.
The Company also owns Hispanic Internet Holdings, Inc. which owns
TodoAhora.com, a bilingual Internet portal, which delivers a full range of
Internet programming to the Hispanic community including news, entertainment,
finance, culture and e-commerce opportunities.
The accompanying consolidated financial statements include the accounts of
Big City Radio, Inc. and all its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The accompanying interim consolidated financial statements have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the consolidated financial
statements and related footnotes included in the Company's Form 10-K for the
year ended December 31, 1999 (the "1999 Form 10-K"). In the opinion of
management all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly in all material respects the financial position of
the Company as of June 30, 2000 and the results of its operations and its cash
flows for the three and six months ended June 30, 2000 and 1999, have been
included. The results of operations for the interim period are not necessarily
indicative of the results which may be realized for the full year.
2. EARNINGS PER SHARE
Basic earnings per share excludes all dilutive securities. It is based upon
the weighted average number of common shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that would occur if
securities to issue common stock were exercised or converted into common stock.
In calculating diluted earnings per share, no potential shares of common stock
are included in the computation when a loss from continuing operations available
to common stockholders exists. For the three and six months ended June 30, 2000
and 1999, the Company had losses from continuing operations. The Company had
antidilutive options amounting to 1,891,800 and 1,022,500 at June 30, 2000 and
1999, respectively, which were not included in the computation of diluted EPS.
3. SENIOR DISCOUNT NOTES
OFFERING OF SENIOR DISCOUNT NOTES
The Company completed a private placement of $174.0 million aggregate
principal amount, at maturity, 11 1/4% Senior Discount Notes due 2005 (the
"Notes") on March 17, 1998 (the "Notes Offering"), generating approximately
$125.4 million of gross proceeds for the Company of which the Company used
6
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BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SENIOR DISCOUNT NOTES (CONTINUED)
approximately $32.8 million to repay outstanding indebtedness under its Old
Credit Facility. The Company has used the proceeds of the Notes Offering to
finance the acquisition costs of radio station properties and intends to use the
remaining proceeds for general working capital purposes. (See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources").
SUBSIDIARY GUARANTORS
Pursuant to the terms of the indenture relating to the Notes due 2005 (the
"Indenture"), the direct subsidiaries of Big City Radio, Inc. --consisting of
Odyssey Traveling Billboards, Inc., Big City Radio-NYC, L.L.C., Big City
Radio-LA, L.L.C., Big City Radio-CHI, L.L.C., and Big City Radio-Phoenix, L.L.C.
(collectively, the "Subsidiary Guarantors")--have, jointly and severally, fully
and unconditionally guaranteed the obligations of Big City Radio, Inc. with
respect to the Notes.
All of the then existing Subsidiary Guarantors except Odyssey Traveling
Billboards, Inc. (the "Station Subsidiaries"), were created in December 1997 as
special purpose Delaware limited liability companies formed at the request of
the lenders under the Credit Facility for the sole purpose of holding the
Company's Federal Communications Commission ("FCC") radio licenses. Big City
Radio-Phoenix, L.L.C. was created in December 1998 upon signing the intent to
purchase the broadcast radio properties in Phoenix. The operating agreements for
the Station Subsidiaries limit the activities of these companies to owning the
FCC radio licenses. Odyssey Traveling Billboards, Inc. owns and operates certain
vehicles used to advertise for the Company's radio stations. Because the Station
Subsidiaries have entered into assignment and use agreements with the Company
whereby the Company manages and directs the day-to-day operations of the radio
stations, pays all expenses and capital costs incurred in operating the radio
stations, and retains all advertising and other receipts collected in operating
the radio stations, the Station Subsidiaries have no income or expenses other
than the amortization of the FCC licenses. Odyssey Travelling Billboards, Inc.
is similarly a special purpose corporation with no income and only expenses.
The covenants in the Notes, the Indenture and the Revolving Credit Facility
(as such term is defined below) do not restrict the ability of the Station
Subsidiaries to make cash distributions to the Company.
Accordingly, set forth below is certain summarized financial information
(within the meaning of Section 1-02(bb) of Regulation S-X) for the Subsidiary
Guarantors, as of June 30, 2000 and December 31, 1999 and for the three and six
months ended June 30, 2000 and 1999 on an as if pooling basis given the common
control relationship of the Company and the Subsidiary Guarantors.
<TABLE>
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JUNE 30, 2000 DECEMBER 31, 1999
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<S> <C> <C>
Current assets......................................... -- --
Noncurrent assets...................................... $110,597,000 $112,331,000
Current liabilities.................................... -- --
Noncurrent liabilities................................. -- --
</TABLE>
7
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BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SENIOR DISCOUNT NOTES (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED,
JUNE 30, JUNE 30,
--------------------- -------------------------
2000 1999 2000 1999
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales............................. -- -- -- --
Costs and expenses.................... -- -- -- --
Depreciation and amortization......... $ 748,000 $ 556,000 $ 1,498,000 $ 1,099,000
Net loss.............................. $(748,000) $(556,000) $(1,498,000) $(1,099,000)
</TABLE>
The summarized financial information for the Subsidiary Guarantors has been
prepared from the books and records maintained by the Subsidiary Guarantors and
the Company. The summarized financial information may not necessarily be
indicative of the results of operations or financial position had the Subsidiary
Guarantors operated as independent entities.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements set forth below under this caption constitute
"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"). See "Special Note
Regarding Forward-Looking Statements".
GENERAL
The Company owns and operates radio stations in four of the largest radio
markets in the United States. The Company's radio broadcast properties are
located in or adjacent to major metropolitan markets and utilize innovative
engineering techniques and low-cost, ratings-driven operating strategies to
develop these properties into successful metropolitan radio stations.
In the Los Angeles area, the Company owns and operates three FM radio
stations, KLYY-FM, KSYY-FM, and KVYY-FM, all trimulcasting on 107.1 FM to form
"Viva107.1" (the "LA Stations"). These stations were acquired in 1996.
In the New York area, the Company owns and operates four FM radio stations,
WYNY-FM, WWXY-FM, WWZY-FM, and WWYY-FM, all programmed on 107.1 FM to form "New
Country Y-107" (the "New York Stations"). New Country Y-107 began broadcasting
on December 4, 1996. WWXY-FM and WWZY-FM were operated under Local Marketing
Agreements ("LMAs") throughout the periods from December 1996 to April 1, 1997
and June 5, 1997, their effective acquisition dates, respectively, and WWYY-FM
was operated under LMA throughout the period from April 27, 1998 to August 13,
1998, its effective acquisition date. WYNY-FM was acquired on January 1, 1995.
In the Chicago area, the Company owns five radio stations, WXXY-FM and
WYXX-FM, both simulcasting on 103.1 FM as "The EightiesChannel" and WKIE-FM,
WKIF-FM, and WDEK-FM, trimulcasting as 92 KISS FM (the EightiesChannel and 92
KISS FM are collectively referred to herein as, the "Chicago Stations"). The
103.1 FM stations were acquired on August 8, 1997. The Company operated WXXY-FM
as a stand-alone, brokered-programming FM station and leased WYXX-FM to the
previous owner under a LMA agreement until the Company commenced operation of
this simulcast in early February 1998. The 103.1 simulcast began broadcasting
its current format of "The EightiesChannel" in August 1999. WKIE-FM and WKIF-FM
were acquired on August 4 and 7, 1998, respectively. These stations commenced
operations as 92 KISS FM, a contemporary hit radio format in November 1998. On
February 25, 1999 the Company acquired WDEK-FM and WLBK-AM. The Company added
WDEK-FM to the 92 KISS FM stations and sold the operating assets of WLBK-AM on
April 12, 2000. No gain or loss was recorded on this transaction.
In the Phoenix area, the Company owns four radio stations, KEDJ-FM on 106.3
FM, KDDJ-FM on 100.3 FM, and KBZR-FM on 106.5, all trimulcasting the modern rock
format known as "The Edge" with the Howard Stern morning show. KEDJ-FM and
KDDJ-FM were acquired on July 30, 1999. On September 22, 1999 the Company
acquired KBZR-FM and added it to "The Edge" stations to form a trimulcast. On
September 28, 1999, the Company acquired KSSL-FM. In February 2000, the Company
began operating KSSL-FM as a stand-alone radio station broadcasting its Hispanic
contemporary hit radio format ("The Edge" stations and KSSL-FM are collectively
referred to herein as, the "Phoenix Stations").
Through the merger and registration rights agreement (the "Agreement") in
which the Company acquired, on November 1, 1999, in an all stock transaction,
all the issued and outstanding stock of Hispanic Internet Holdings, Inc., a
privately held bilingual Online Service Provider for the U.S. Hispanic and Latin
American markets, the Company owns TodoAhora.com, a bilingual Internet portal,
which delivers a full range of world wide web programming to the Hispanic
community including news, entertainment, finance, culture, and e-commerce
opportunities. TodoAhora.com will serve the Hispanic community both in the
9
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U.S. and overseas. TodoAhora.com was formally launched on May 5, 2000 and had no
significant operations in the prior year.
RESULTS OF OPERATIONS
BACKGROUND
The Company's financial results are dependent on a number of factors,
including the general strength of the local and national economies, local market
competition, the relative efficiency and effectiveness of internet media and
radio broadcasting compared to other advertising media, government regulation
and policies and the Company's ability to provide popular programming and
high-quality internet content and service.
The Company's primary source of revenue is the sale of advertising. Each
station's total revenue is determined by the number of advertisements aired by
the station and the advertising rates that the station is able to charge.
Internet revenues will be derived from the sale of various forms of
advertisement, including sponsorships, endorsements and product placements, and
from electronic commerce activities related to its programming on pages
delivered to users of the Company's Internet channel. Internet revenues are not
expected to be a significant revenue stream for the Company in 2000.
Given the fact that the Company's strategy involves developing brand new
metropolitan area radio stations and a new web portal, the initial revenue base
is zero and subject to factors other than ratings and radio broadcasting
seasonality. After the start-up period, as is typical in the radio broadcasting
industry, the Company's first calendar quarter generally will produce the lowest
revenues for the year, and the fourth quarter generally will produce the highest
revenues for the year. The Company's operating results in any period may be
affected by the incurrence of advertising and promotion expenses that do not
produce commensurate revenues in the period in which the expenses are incurred.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
NET REVENUES for the three months ended June 30, 2000 were $6,815,000
compared with $4,092,000 for the three months ended June 30, 1999 an increase of
$2,723,000 or 66.5%. This increase was due primarily to net revenue growth in
the Company's existing New York and Chicago Stations and the addition of the
Phoenix Stations subsequent to June 30, 1999. Partially offsetting the net
revenue increase was a decrease in net revenues at the LA Stations compared to
the same period in 1999 resulting from their change in format in December 1999.
The same radio stations' revenue growth compared with the corresponding period
in the prior year was $1,121,000 or 27.4%.
STATION OPERATING EXPENSES EXCLUDING DEPRECIATION AND AMORTIZATION for the
three months ended June 30, 2000 were $6,966,000 compared with $5,355,000 for
the three months ended June 30, 1999, an increase of $1,611,000 or 30.0%. This
increase was due principally to the start-up operations of the Phoenix Stations,
partially offset by the reduction in operating expenses for the New York and LA
Stations.
INTERNET OPERATING EXPENSES EXCLUDING DEPRECIATION AND AMORTIZATION for the
three months ended June 30, 2000 were $390,000, compared with no Internet
operating expenses in the 1999 period due to the start-up operations of
TodoAhora.com since its acquisition in November 1999.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES for the three months ended
June 30, 2000 were $1,107,000 compared with $805,000 for the three months ended
June 30, 1999, an increase of $302,000, or 37.5%. This increase was primarily
attributable to the higher personnel costs associated with supporting the
Company's increased operations.
DEPRECIATION AND AMORTIZATION EXPENSES for the three months ended June 30,
2000 were $1,214,000 compared with $866,000 for the three months ended June 30,
1999, an increase of $348,000, or 40.2%. This increase was due primarily to the
amortization of intangibles and depreciation of capital assets of the
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Phoenix Stations which were acquired in July and September 1999 and Hispanic
Internet Holdings, Inc. which was acquired in November 1999.
INTEREST EXPENSE for the three months ended June 30, 2000 was $4,547,000
compared with $4,122,000 for the three months ended June 30, 1999, an increase
of $425,000, or 10.3%. This increase reflects additional interest resulting from
the accreted principal amount of the Notes for the quarter ended June 30, 2000
when compared to the quarter ended June 30, 1999. In the three months ended
June 30, 2000 and 1999, the average outstanding total debt for the Company was
$160,073,000 and $144,626,000, respectively. The average rate of interest on the
outstanding debt was 11.36% and 11.38%, respectively. Interest income for the
three months ended June 30, 2000 was $84,000 compared with $624,000 for the
three months ended June 30, 1999. This decrease was a result of lower average
balance of investments in marketable securities.
NET LOSSES for the three months ended June 30, 2000 were $7,331,000 compared
with $6,540,000 for the three months ended June 30, 1999. The increase in net
loss of $791,000 was primarily attributable to higher station operating
expenses, depreciation and amortization expenses, net interest expense, and the
start-up operations of Todoahora.com, offset by net revenue increases.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
NET REVENUES for the six months ended June 30, 2000 were $11,462,000 as
compared with $7,453,000 for the six months ended June 30, 1999, an increase of
$4,009,000 or 53.8%. This increase was due primarily to the increase in net
revenues of the New York Stations and the Chicago Stations and the addition of
the Phoenix Stations subsequent to June 30, 1999. Partially offsetting the net
revenue increase was a decrease in net revenues at the LA Stations compared to
the same period in 1999 resulting from their change in format in December 1999.
STATION OPERATING EXPENSES EXCLUDING DEPRECIATION AND AMORTIZATION for the
six months ended June 30, 2000 were $13,076,000 as compared to $10,607,000 for
the six months ended June 30, 1999, an increase of $2,469,000 or 23.3%. This
increase was due principally to the addition of the operations of the Phoenix
Stations and the increased costs associated with Chicago Stations' revenue
growth, partially offset by the reduction in operating expenses for the New York
Stations and WRKL-AM.
INTERNET OPERATING EXPENSES excluding depreciation and amortization for the
six months ended June 30, 2000 were $621,000, compared with no Internet
operating expenses in the 1999 period due to the start-up operations of
TodoAhora.com since its acquisition in November 1999.
CORPORATE, GENERAL AND ADMINISTRATIVE expenses for the six months ended
June 30, 2000 were $1,974,000 as compared to $1,638,000 for the six months ended
June 30, 1999, an increase of $336,000 or 20.5%. This increase was primarily
attributable to the higher personnel costs associated with supporting the
Company's increased operations.
COST OF ABANDONMENT ON STATION ACQUISITION AGREEMENT was the result of the
cancellation of a signed agreement whereby the assets of radio station KLVA-FM,
Casa Grande, Arizona would have been exchanged for the assets of radio station
KDDJ-FM, Globe, Arizona. On signing of the acquisition agreement, the Company
deposited $275,000 into an escrow account in April 1999. In February 2000, the
Company paid the balance in the escrow account and an additional amount of
$275,000, totaling $550,000, to cancel the signed KLVA-FM acquisition. The
decision to abandon the transaction was made in response to a change in the
engineering enhancement plan for our Phoenix radio licenses.
DEPRECIATION AND AMORTIZATION EXPENSES for the six months ended June 30,
2000 were $2,426,000 as compared to $1,701,000 for the six months ended
June 30, 1999, an increase of $725,000 or 42.6%. This increase was due primarily
to the amortization of intangibles and depreciation of capital assets of the
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<PAGE>
Phoenix Stations which were acquired in July and September 1999 and Hispanic
Internet Holdings, Inc. which was acquired in November 1999.
INTEREST EXPENSES for the six months ended June 30, 2000 were $8,916,000 as
compared with $8,042,000 for the six months ended June 30, 1999, an increase of
$874,000 or 10.9%. This increase reflects additional interest resulting from the
accreted principal amount of the Notes for six months ended June 30, 2000 when
compared to the six months ended June 30, 1999. In the six months ended
June 30, 2000 and 1999, the average outstanding total debt for the Company was
$158,060,000 and $142,774,000, respectively. The average rate of interest on the
outstanding debt was 11.27% and 11.25%, respectively. Interest income for the
six months ended June 30, 2000 was $182,000 compared with $1,396,000 for the six
months ended June 30, 1999. This decrease was a result of lower average balance
of investments in marketable securities.
NET LOSSES for the six months ended June 30, 2000 were$15,986,000 as
compared with $12,755,000 for the six months ended June 30, 1999. The increase
in the net loss of $3,231,000 was primarily attributable to higher station
operating expenses, the start-up operations of TodoAhora.com, depreciation and
amortization expenses, net interest expense, a $550,000 cancellation charge
related to the KLVA-FM acquisition, and the absence of the gain on sale of radio
stations in 2000 offset by the increase in net revenues for the six months ended
June 30, 2000, compared to the corresponding six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has reported net losses since inception primarily due to
broadcast cash flow deficits characteristic of the start up of the LA Stations,
the New York Stations, the Chicago Stations, and the Phoenix Stations and
depreciation and amortization charges relating to the Company's acquisition of
radio stations, as well as interest charges on its outstanding debt. In
addition, because certain of its broadcast properties and the internet
operations are in the early stages of development, the Company expects to
generate significant net losses as it continues to expand its presence in its
markets for the foreseeable future. As a result, working capital needs have been
met by borrowings, including loans from the Principal Stockholders (which
borrowings were contributed to the capital of the Company immediately prior to
the consummation of the Company's initial public offering in December 1997),
borrowings under the Old Credit Facility and the issuance of the Notes. The
Company has entered into various employment contracts with twenty-six
individuals comprised of mainly officers and senior management that provide for
minimum salaries and incentives based upon specified levels of performance. The
minimum payments under these contracts are $1,643,000 in 2000, $1,570,000 in
2001 and $514,000 in 2002.
The Company has never paid cash or stock dividends on shares of common
stock. Furthermore, it intends to retain any future earnings for use in its
business and does not anticipate paying dividends on shares of its common stock
in the foreseeable future.
CASH FLOWS FROM OPERATING ACTIVITIES
In both the six months ended June 30, 2000 and 1999, the Company used cash
in its operations. In the six months ended June 30, 2000, the deficit was
predominantly due to the start-up operating losses of the LA Stations as Viva
107.1 and Hispanic Internet Holdings, Inc. In the six months ended June 30,
1999, the deficit was predominantly due to the operating losses of the Chicago
Stations.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excluding acquisitions of radio stations) were
$413,000 and $1,540,000 for the six months ended June 30, 2000 and 1999,
respectively. These expenditures primarily reflect costs associated with the FCC
Power Increases and other technical improvements at the Company's stations, the
upgrade and expansion of the studio and broadcast facilities, and computer
support equipment. For the six months ended June 30, 2000, the Company sold
$3,105,000 in marketable securities for general working capital purposes. For
the six months ended June 30, 1999, the Company purchased $34,508,000 in
12
<PAGE>
marketable securities and sold $45,884,000 to generate cash for the purchase of
the radio stations in DeKalb, Illinois and for general working capital purposes.
Cash paid and advanced for assets of radio stations acquired were $5,821,000 in
the six months ended June 30, 1999. There were no such acquisitions during the
six months ended June 30, 2000.
CASH FLOWS FROM FINANCING ACTIVITIES
The Company completed the Notes offering of $174.0 million aggregate
principal amount at maturity of Notes on March 17, 1998, generating
approximately $125.4 million of gross proceeds for the Company of which the
Company used approximately $32.8 million to repay outstanding indebtedness under
its previous credit facility. The Company has used the proceeds of the Notes
Offering to finance the acquisition costs of radio station properties and
intends to use the remaining proceeds for general working capital purposes.
The Notes were issued at an original issue discount and will accrete in
value until March 15, 2001 at a rate of 11 1/4% per annum, compounded
semi-annually, to an aggregate principal amount of $174.0 million. Cash interest
will not accrue on the Notes prior to March 15, 2001. Thereafter, interest on
the Notes will accrue at a rate of 11 1/4% per annum and will be payable in cash
semi-annually, commencing September 15, 2001. The Notes will mature on
March 14, 2005 but may be redeemed after March 15, 2001 at the option of the
Company, in whole or in part, at a redemption price of 105.625%, 102.813% or
100.000% if redeemed during the 12-month period commencing on March 15, 2002,
2003 and 2004, respectively. In addition, up to 33 1/3% of the original
principal amount of the Notes may be redeemed at the option of the Company prior
to March 15, 2001 at a redemption price equal to 111.25% of the accreted value
of the Notes with net cash proceeds of one or more equity offerings of the
Company so long as there is a public market for the Class A common stock, par
value $.01 per share, at the time of such redemption and provided that at least
66 2/3% of the original principal amount of the Notes remains outstanding.
Holders of the Notes have the right to require the Company to repurchase
their Notes upon a "change of control" of the Company, at a price equal to 101%
of the accreted value of the Notes if such repurchase occurs prior to March 15,
2001 or at a price equal to the principal amount of such Notes if such
repurchase occurs thereafter. A "change of control" for purposes of the Notes is
deemed to occur (i) when any person other than the Principal Stockholders, the
management and their affiliates (the "Permitted Holders"), becomes the owner of
more than 35% of the total voting power of the Company's stock and the Permitted
Holders own in the aggregate a lesser percentage of such voting power and do not
have the right or ability to elect a majority of the Company's Board of
Directors, (ii) when the Board of Directors does not consist of a majority of
continuing directors, (iii) upon the occurrence of a sale or transfer of all or
substantially all of the assets of the Company taken as a whole, or (iv) upon
the adoption by the stockholders of a plan for the liquidation or dissolution of
the Company.
Payments under the Notes are guaranteed on a senior unsecured basis by the
Company's "Restricted Subsidiaries", as defined in the Indenture governing the
Notes; as of November 5, 1999, all of the Company's subsidiaries were Restricted
Subsidiaries. The Notes contain certain financial and operational covenants and
other restrictions with which the Company and its Restricted Subsidiaries must
comply, including restrictions on the incurrence of additional indebtedness,
investments, payment of dividends on and redemption of capital stock and the
redemption of certain subordinated obligations, sales of assets and the use of
proceeds therefrom, transactions with affiliates, creation and existence of
liens, the types of businesses in which the Company may operate, asset swaps,
restriction on distributions from Restricted Subsidiaries, sales of capital
stock of Restricted Subsidiaries and consolidations, mergers and transfers of
all or substantially all of the Company's assets. The Company is currently in
compliance with all covenants and other restrictions under the Notes and
anticipates that it will continue to meet the requirements of the Notes.
13
<PAGE>
The Notes contain customary events of default including payment defaults and
default in the performance of other covenants, certain bankruptcy defaults,
judgment and cross defaults, and failure of a subsidiary guarantee to be in full
force and effect.
On July 6, 1998, the Company completed an exchange offer for the Notes, in
which the holders of substantially all outstanding Notes exchanged their Notes
for newly-issued Notes registered under the Securities Act of 1933. The new
Notes have the same terms as the exchanged Notes, except that the new Notes are
registered. The amount exchanged was $172,500,000 aggregate principal amount at
maturity of the Notes.
In connection with the consummation of the Notes Offering, the Company
entered into a revolving credit facility with The Chase Manhattan Bank ("Chase")
providing for up to $15.0 million of availability, based upon a multiple of the
Company's radio stations' positive rolling four quarter broadcast cash flow (the
"Revolving Credit Facility"). The Revolving Credit Facility will mature on the
fifth anniversary of March 17, 1998 and amounts outstanding under the Revolving
Credit Facility will bear interest at an applicable margin plus, at the
Company's option, Chase's prime rate (in which case the applicable margin will
initially be 2.00% subject to reduction upon achieving performance criteria
based on the Company's leverage ratio) or the London Interbank Borrowing Rate
(in which case the applicable margin will initially be 3.00% subject to
reduction upon achieving performance criteria based on the Company's leverage
ratio). The Company's obligations under the Revolving Credit Facility are
secured by a pledge of substantially all of the Company's and its Station
Subsidiaries' assets. The Company paid $36,000 in each of the six months ended
June 30, 1999 and 2000 in fees based on the aggregate unused portion of the
facility.
The Revolving Credit Facility contains certain financial and operational
covenants and other restrictions with which the Company must comply, including,
among others, limitations on capital expenditures, the incurrence of additional
indebtedness, restrictions on sales of assets, restrictions on the use of
borrowings, limitations on paying cash dividends and redeeming or repurchasing
capital stock of the Company or the Notes, and requirements to maintain certain
minimum interest coverage ratios. The Company is currently in compliance with
all covenants and other restrictions under the Revolving Credit Facility and
anticipates that it will continue to meet the requirements of the Revolving
Credit Facility.
The Revolving Credit Facility contains customary events of default,
including material misrepresentations, payment defaults and default in the
performance of other covenants, certain bankruptcy and ERISA defaults, judgment
and cross defaults, and defaults upon the revocation of any of the Company's
broadcast licenses. The Revolving Credit Facility also provides that an event of
default will occur upon the occurrence of a "change of control" as defined in
the Revolving Credit Facility. For purposes of the Revolving Credit Facility, a
change of control will occur when (i) any person or group other than the
Principal Stockholders and their affiliates obtains the power to elect a
majority of the Board of Directors, (ii) the Company fails to own 100% of the
capital stock of its subsidiaries owning any of the FCC broadcast licenses, or
(iii) the Board of Directors does not consist of a majority of continuing
directors, as defined.
As of the date of this report, the Company has no binding commitments for
any acquisitions. After giving effect to the Notes Offering and application of
net proceeds therefrom, the Company had available approximately $6.2 million of
cash and cash equivalents on hand and marketable securities at June 30, 2000 and
has available borrowing capacity of $6.7 million under the Revolving Credit
Facility, which can be used for working capital purposes, including financing
any such acquisitions. Cash and cash equivalents on hand, marketable securities,
and amounts available under the Revolving Credit Facility may not be sufficient
to support the Company's growth strategy and as a result the Company may require
additional debt or equity financing in order to acquire additional radio
stations and accomplish its long-term business strategies. There can be no
assurance that any such financing will be available or available on acceptable
terms. In addition, because of the Company's substantial indebtedness, a
significant portion of the Company's broadcast cash flow will be required for
debt service.
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<PAGE>
The Company anticipates that its working capital and available borrowing
capacity will be sufficient to finance its capital expenditure programs, as well
as existing operational and debt service requirements, through June 30, 2001.
Management believes that its long term liquidity needs will be satisfied through
a combination of (i) the Company's successful implementation and execution of
its growth strategy to acquire and build a major market broadcast group; and
(ii) the Company's properties achieving positive operating results and cash
flows through revenue growth and control of operating expenses. If the Company
is unable successfully to implement its strategy, the Company may be required to
obtain additional financing through public or private sale of debt or equity
securities of the Company or otherwise restructure its capitalization.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report, including those utilizing phrases "will,"
"expects," "intends," "estimates," "contemplates," and similar phrases, are
"forward-looking" statements (as such term is defined in 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"), including
statements regarding, among other items, (i) the Company's growth strategy,
(ii) the Company's intention to acquire additional radio stations and to enter
additional markets, including its ability to do so at attractive valuations,
(iii) the Company's expectation of improving the coverage areas of its radio
stations, and (iv) the Company's ability to successfully implement its business
strategy. Certain, but not necessarily all, of such forward-looking statements
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and other factors which may cause the actual
results, performance and achievements of the Company and its subsidiaries to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to, the following: (i) changes in the Company's and its
competitors, (ii) changes in the regulatory framework, (iii) changes in audience
tastes, changes or advances in technology and (iv) changes in the economic
conditions of local markets. Other factors which may materially affect actual
results include, among others, the following: general economic and business
conditions, industry capacity, demographic changes, changes in political, social
and economic conditions and various other factors beyond the Company's control.
The Company does not undertake and specifically declines any obligation to
release publicly the results of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
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<PAGE>
PART II--OTHER INFORMATION
ITEM 1--LEGAL PROCEEDINGS
The Company is involved in litigation from time to time in the ordinary
course of its business. In management's opinion, the outcome of all pending
legal proceedings, individually and in the aggregate, will not have a material
adverse effect on the Company.
ITEM 2--CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3--DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 2000 Annual Meeting of Stockholders held on May 18, 2000,
the holders of Class A common stock of the Company were asked to consider and
vote as a separate class upon the election of two members to the Company's Board
of Directors to serve a one year term as Class A Directors, and the holders of
Class A common stock together with the holders of Class B common stock were
asked to consider and vote as a single class upon the approval and adoption of
amendments to the Big City Radio, Inc. 1999 Incentive Stock Plan to increase the
number of shares of Class A common stock that may be issued under the plan from
400,000 to 2,500,000 and to increase the number of shares of Class A common
stock that may be issued under the plan to any one optionee from 100,000 to
1,000,000 and the ratification of the selection of KPMG LLP as the Company's
independent accountants for the year ending December 31, 2000.
At such meeting, a majority of the Company's stockholders (i) elected
Michael H. Boyer and Leonard White as Class A Directors for a one year term
ending in the year 2001, (ii) approved the amendments to the 1999 Incentive
Stock Plan and (iii) ratified the appointment of KPMG LLP as the Company's
independent accountants for the year ending December 31, 2000.
The following is a summary of the voting results with respect to each of the
proposals:
<TABLE>
<CAPTION>
PROPOSAL FOR AGAINST ABSTAIN BROKER NON-VOTES
-------- ---------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
1. The Election of Class A Directors.............
NAME
Michael H. Boyer.............................. 4,530,728 54,125 -- --
Leonard White................................. 4,530,728 54,125 -- --
2. Amendment to the 1999 Incentive Stock Plan.... 83,284,969 143,820 3,000 3,657,644
3. Ratification of the Appointment of Independent
Auditors.................................... 87,085,533 3,900 -- --
</TABLE>
No other matters were submitted to a vote of the Company's stockholders,
through the solicitation of proxies or otherwise, during the second quarter of
the year ending December 31, 2000.
ITEM 5--OTHER INFORMATION.
None.
16
<PAGE>
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Exhibit
<C> <S>
27 Financial Data Schedule for the period ended June 30, 2000*
</TABLE>
(b) Reports on Form 8-K
No reports were filed during the quarter for which this report was filed.
------------------------
* Filed herewith
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
BIG CITY RADIO, INC.
By: /s/ PAUL R. THOMSON
-----------------------------------------
Paul R. Thomson
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND TREASURER
</TABLE>
Dated: August 9, 2000
18
