<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-82114
SPANISH BROADCASTING SYSTEM, INC.
SEE TABLE OF ADDITIONAL REGISTRANTS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3827791
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
26 WEST 56 STREET, NEW YORK, NY 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(212) 541-9200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Registrant's Common Stock, par value $.01 per share,
outstanding as of August 12, 1997: 606,668 shares of Common Stock of which
558,135 shares are designated Class A Common Stock and 48,533 shares are
designated Class B Common Stock.
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<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY
STATE OR STANDARD
OTHER INDUSTRIAL I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
INCORPORATION NUMBER NUMBER
--------------- -------------- ---------------
<S> <C> <C> <C>
Spanish Broadcasting System, Inc.................... New Jersey 4832 13-3181941
Spanish Broadcasting System of California, Inc...... California 4832 92-3952357
Spanish Broadcasting System of Florida, Inc......... Florida 4832 58-1700848
Alarcon Holdings, Inc............................... New York 6512 13-3475833
Spanish Broadcasting System Network, Inc............ New York 4899 13-3511101
SBS Promotions, Inc................................. New York 7999 13-3456128
SBS of Greater New York, Inc........................ New York 4832 13-3888732
Spanish Broadcasting System of Illinois, Inc........ Delaware 4832 36-4174296
Spanish Broadcasting System of Greater Miami,
Inc............................................... Delaware 4832 Applied for
</TABLE>
1
<PAGE> 3
SPANISH BROADCASTING SYSTEM, INC.
INDEX TO QUARTERLY REPORT
JUNE 29, 1997
<TABLE>
<CAPTION>
PAGE
PART 1. FINANCIAL INFORMATION NUMBER
------
<S> <C>
Condensed Consolidated Balance Sheets as of September 29, 1996 and June 29, 1997
(unaudited)....................................................................... 5
Condensed Consolidated Statements of Operations for the three months ended and nine
months ended June 30, 1996 and June 29, 1997 (unaudited).......................... 6
Condensed Consolidated Statements of Cash Flows for the nine months ended June 30,
1996 and June 29, 1997 (unaudited)................................................ 7
Notes to Condensed Consolidated Financial Statements (unaudited).................... 8
Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 10
</TABLE>
2
<PAGE> 4
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 29,
1996 1997
------------------ -------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 5,468,079 $ 10,906,903
Receivables:
Trade...................................................... 12,104,500 15,717,921
Less allowance for doubtful accounts....................... 1,823,359 1,870,770
------------ ------------
Net receivables -- Trade................................ 10,281,141 13,847,151
Barter (net of allowance for doubtful accounts of
$2,372,386 at September 29, 1996 and $2,400,469 at June
29, 1997)............................................... 548,885 343,542
------------ ------------
Net receivables....................................... 10,830,026 14,190,693
Other current assets......................................... 1,115,332 2,337,763
------------ ------------
Total current assets............................... 17,413,437 27,435,359
Property and equipment, net.................................. 18,873,036 19,305,970
Franchise costs, net......................................... 133,917,182 276,130,653
Due from related party....................................... 289,869 289,869
Deferred financing costs, net................................ 6,235,341 7,711,197
Deferred taxes............................................... -- 1,941,070
Other assets................................................. 131,294 282,102
------------ ------------
$176,860,159 $ 333,096,220
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of senior secured notes...................... -- $ 15,000,000
Current portion of long term debt............................ 53,572 48,588
Accounts payable and accrued expenses........................ 4,918,207 11,874,861
Accrued interest............................................. 2,394,621 2,853,749
Unearned revenue............................................. 875,256 1,755,491
------------ ------------
Total current liabilities.......................... 8,241,656 31,532,689
Senior notes, net of unamortized discount.................... 134,827,372 163,653,148
Deferred income taxes........................................ 387,960 --
Long-term debt, less current portion......................... 1,033,368 4,008,577
Redeemable Series A Preferred Stock, retired................. 35,938,659 --
Redeemable Preferred Stock, $.01 par value. Authorized
413,930 shares; issued and outstanding 175,000 shares...... -- 158,958,916
STOCKHOLDERS' DEFICIENCY:
Class A Common Stock, $.01 par value. Authorized 5,000,000
shares; issued and outstanding 558,135 shares........... 5,581 5,581
Class B Common Stock, $.01 par value. Authorized 200,000
shares; issued and outstanding 48,533 shares............ 485 485
Additional paid in capital................................. 10,806,004 5,277,553
Accumulated deficit........................................ (11,906,690) (26,861,564)
------------ ------------
(1,094,620) (21,577,945)
Less: Loans receivable from stockholders................... (2,474,236) (3,479,165)
------------ ------------
Total stockholders' deficiency..................... (3,568,856) (25,057,110)
------------ ------------
$176,860,159 $ 333,096,220
============ ============
</TABLE>
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE> 5
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
1996 1997 1996 1997
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Gross broadcasting revenues......... $16,247,973 $ 20,652,792 $40,417,493 $ 47,393,913
Less: Agency commissions.......... 1,951,986 2,497,144 4,884,094 5,448,511
----------- ------------ ----------- ------------
Net broadcasting
revenues................ 14,295,987 18,155,648 35,533,399 41,945,402
----------- ------------ ----------- ------------
Operating expenses
Engineering....................... 450,550 478,737 1,311,083 1,563,250
Programming....................... 1,639,909 1,949,463 4,344,061 4,981,721
Selling........................... 3,700,203 4,252,060 10,434,166 10,417,849
General and administrative........ 1,682,048 1,654,840 4,800,005 4,589,278
Corporate expenses................ 900,811 1,558,779 2,837,133 4,081,114
Depreciation and amortization..... 1,349,459 2,293,084 2,986,198 5,094,240
----------- ------------ ----------- ------------
9,722,980 12,186,963 26,712,646 30,727,452
----------- ------------ ----------- ------------
Operating income.......... 4,573,007 5,968,685 8,820,753 11,217,950
Other expenses:
Interest expense, net............. 4,928,744 6,075,201 11,577,767 16,402,849
Other, net........................ (53,702) (1,901) 857,448 25,989
----------- ------------ ----------- ------------
Loss before income taxes............ (302,035) (104,615) (3,614,462) (5,210,888)
Income tax benefit.................. 127,003 20,721 1,451,974 1,961,106
----------- ------------ ----------- ------------
Loss before extraordinary item...... (175,032) (83,894) (2,162,488) (3,249,782)
Extraordinary loss -- extinguishment
of debt, net of taxes............. -- -- -- (1,715,206)
----------- ------------ ----------- ------------
Net loss............................ (175,032) (83,894) (2,162,488) 4,964,988)
Accumulated deficit at beginning of
period............................ (6,413,338) (19,985,046) (4,425,882) (11,906,690)
Dividends on preferred stock........ (1,465,389) (6,792,624) (1,465,389) (9,989,886)
----------- ------------ ----------- ------------
Accumulated deficit at end of
period............................ (8,053,759) (26,861,564) (8,053,759) (26,861,564)
=========== ============ =========== ============
</TABLE>
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE> 6
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1996 AND JUNE 29, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss....................................................... $ (2,162,488) $ (4,964,988)
------------ -------------
Adjustments to reconcile net loss to net cash provided by
operating activities :
Loss on extinguishment of debt............................ -- 2,766,460
Depreciation and amortization............................. 2,986,198 5,094,240
Change in provision for losses on receivables............. (1,027,073) 75,494
Amortization of debt discount............................. 4,010,656 4,629,084
Interest satisfied through the issuance of new notes...... -- 2,433,230
Amortization of deferred financing costs.................. 760,637 948,580
Deferred income taxes..................................... (1,671,354) (2,329,030)
Changes in operating assets and liabilities:
Decrease (Increase) in receivables...................... 908,320 (3,436,161)
Increase in other current assets........................ (331,683) (1,222,431)
Decrease (Increase) in other assets..................... 178,270 (150,808)
Increase in accounts payable and accrued expenses....... 1,128,820 722,279
Increase (Decrease) in accrued interest................. (2,007,352) 459,128
Decrease in income taxes payable........................ (196,835) --
Increase in unearned revenue............................ 80,474 880,235
------------ -------------
Total adjustments.................................. 4,819,078 10,870,300
------------ -------------
Net cash provided by operating activities............ 2,656,590 5,905,312
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of radio stations net of $3,000,000 note payable
issued to Seller in 1997..................................... (86,482,736) (143,000,000)
Additions to property and equipment............................ (2,778,152) (1,740,645)
------------ -------------
Net cash used in investing activities................ (89,260,888) (144,740,645)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Senior Secured Notes net of issuance
costs........................................................ 34,541,579 71,258,995
Proceeds from issuance of Redeemable Preferred Stock and
Warrants, net of issuance costs.............................. 35,860,433 164,734,530
Redemption of Senior Secured Notes............................. -- (39,662,074)
Redemption of Preferred Stock.................................. -- (42,699,590)
Redemption of Primary Warrants................................. -- (8,323,000)
Repayments of other long-term debt............................. (114,208) (29,775)
Increase in loans receivable from stockholders................. -- (1,004,929)
Advances to related party...................................... (3,490) --
------------ -------------
Net cash used in financing activities................ 70,284,314 144,274,157
------------ -------------
Net Increase (Decrease) in cash and cash equivalents........... (16,319,984) 5,438,824
Cash and cash equivalents at beginning of period............... 17,817,119 5,468,079
------------ -------------
Cash and cash equivalents at end of period..................... $ 1,497,135 $ 10,906,903
============ =============
Cash paid for:
Interest..................................................... $ 8,072,194 $ 8,070,338
============ =============
Income taxes................................................. $ 597,844 $ 369,162
============ =============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE> 7
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND JUNE 29, 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of the
Company and its direct and indirect subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. The
accompanying unaudited condensed consolidated financial statements for the three
and nine month periods ended June 30, 1996 and June 29, 1997 do not contain all
disclosures required by generally accepted accounting principles. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements of the Company as of and for the fiscal
year ended September 29, 1996.
In the opinion of management of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments, which are
all of a normal, recurring nature, necessary for a fair presentation of the
results of the interim periods. The results of operations for the three and nine
month periods ended June 29, 1997 are not necessarily indicative of the results
for a full year.
(2) ACQUISITIONS AND DISPOSITIONS
On March 27, 1997, the Company acquired (a) from Infinity Holding Corp. of
Orlando ("Infinity") substantially all of the tangible and intangible assets
owned or held by Infinity and used or useful in the business or operations of
radio station WYSY-FM, serving the Chicago metropolitan area, for a purchase
price of $33.0 million, including a $3.0 million seller note (the "Chicago
Acquisition") and (b) from New Age Broadcasting Inc. and The Seventies
Broadcasting Corporation (together, the "Miami Sellers") all of the tangible and
intangible assets owned or held by the Miami Sellers and used or useful in the
business or operations of radio stations WRMA-FM and WXDJ-FM, serving the Miami
metropolitan area, for a cash purchase price of $112.5 million, including
acquisition costs (the "Miami Acquisitions," and together with the Chicago
Acquisition, the "Acquisitions").
On March 27, 1997, the Company completed offerings of (a) 175,000 units
(the " Units Offering") comprised of 175,000 shares of the Company's Series A
Senior Exchangeable Preferred Stock (the "Series A Preferred Stock"),
liquidation preference $1,000 per share, and warrants to purchase 74,900 shares
of the Company's Class A Common Stock, par value $.01 per share ("Common Stock")
and (b) $75.0 million aggregate principal amount of the Company's 11% Senior
Notes due 2004 (the "Senior Notes") (the "Notes Offering") in transactions not
registered under the Securities Act of 1933, as amended (the "Act") in reliance
upon the exemption provided in Section 4 (2) of the Act. The proceeds of these
offerings were used to finance the acquisitions and retire the notes issued in
1996.
On July 22, 1997, the Company commenced an exchange offer whereby shares of
Series A Preferred Stock may be exchanged for an equal number of Series B Senior
Exchangeable Preferred Stock (the "Series B Preferred Stock"). The exchange of
Series A Preferred Stock for Series B Preferred Stock has been registered under
the Act.
On July 22, 1997, the Securities and Exchange Commission declared effective
a shelf registration statement relating to the Senior Notes, and to $338,930,000
in aggregate principal amount of 14 1/4% Exchange Debentures due 2005, Series A
and 23,836 shares of Common Stock that may be issued upon the occurrence of
certain events, each of which may be offered from time to time by or for the
account of the holders thereof. The Company is using its best efforts to keep
such shelf registration continuously effective.
The Company has completed the transfer of certain assets to its newly
formed subsidiaries, Spanish Broadcasting System of Greater Miami, Inc. and
Spanish Broadcasting System of Illinois, Inc. (together the "New Subsidiaries").
The Company has not included separate financial statements for its guarantor
subsidiaries because (a) such guarantor subsidiaries (including the New
Subsidiaries) have jointly and
6
<PAGE> 8
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
severally guaranteed the Senior Notes on a full and unconditional basis, (b) the
aggregate assets, liabilities, earnings and equity of the guarantor subsidiaries
are substantially equivalent to the assets, liability, earnings and equity of
the parent on a consolidated basis and (c) the separate financial statements and
other disclosures concerning the subsidiary guarantors are not deemed material
to investors.
The Company's consolidated results of operations include the results of
WXDJ-FM, WRMA-FM and WYSY-FM from the date of acquisition. The following
unaudited pro-forma summary presents the consolidated results of operations as
if the acquisitions had occurred as of the beginning of fiscal year 1997, after
giving effect to certain adjustments, including amortization of franchise costs
and interest expense on the acquisition debt. These pro-forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been made as of that date or of
results which may occur in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 29, 1997
-----------------
<S> <C>
Net Revenues...................................... $48,698
Net Loss Before Extraordinary Item................ $ 2,127
</TABLE>
On July 2, 1997, the Company entered into an agreement to sell the FCC
licenses and all of the assets used or useful in operating its AM stations,
KXMG-AM of Los Angeles, WXLX-AM of New York and WCMQ-AM of Miami for $44
million. The sale of these stations is expected to be completed before the end
of the calendar year, subject to FCC approval. The Company is required to use
the greater of $25 million or 50% of the net proceeds of such sale to make
offers to purchase Old Notes at 110% of the principal amount.
ALL AMOUNTS ARE PRESENTED IN $ THOUSANDS RESULTS OF OPERATIONS THREE MONTHS
ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 29, 1997
Net Revenues. Net revenues increased from $14,296 for the three months
ended June 30, 1996, to $18,156 for the three months ended June 29, 1997, an
increase of $3,860 or 27.0%. This increase was due primarily to the inclusion of
the results of WRMA-FM and WXDJ-FM which were purchased on March 27, 1997. The
increase in net revenues attributable to these two stations was $3,772. The
increase in net revenues also resulted from an increase in net revenues of $701
at the Los Angeles stations KLAX-FM and KXMG-AM and an increase in net revenues
of $239 from the New York stations, WPAT-FM, WSKQ-FM and WXLX-AM, offset by a
decrease in net revenues of $2,120 from the Company's other Miami stations,
WCMQ-AM and WCMQ-FM. In addition, the Company had an increase in net revenues of
$182 related to its national sales representation agreement.
Operating Expenses. Total operating expenses increased from $9,723 in the
three months ended June 30, 1996, to $12,187 in the three months ended June 29,
1997, an increase of $2,464 or 25.3%. The higher operating expenses were caused
by an increase of $944 in depreciation and amortization expense, an increase of
$862 in broadcasting operating expenses and a $658 increase in corporate
expenses.
The increase in broadcasting operating expenses was also caused mainly by
the inclusion of the results of the recently acquired stations in Miami, WRMA-FM
and WXDJ-FM, as well as the newly acquired station in Chicago, WYSY-FM. The
increase in corporate expenses was caused by higher salaries and the creation of
a new senior position as well as higher professional fees. The increase in
depreciation and amortization was the result of increased amortization of
franchise costs related to the acquisitions of WRMA-FM, WXDJ-FM and WYSY-FM.
Operating Income. Operating income increased from $4,573 during the three
months ended June 30, 1996 to $5,969 during the three months ended June 29,
1997, an increase of $1,396 or 30.5%. The increase was due to the significant
increase in net revenues partially offset by the increase in operating expenses.
7
<PAGE> 9
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EBITDA. EBITDA (defined as income before extraordinary item, net interest
expense, financing costs, income taxes, depreciation and amortization, writedown
of franchise costs and other expenses and income) increased $2,340 or 39.5% from
$5,922 during the three months ended June 30, 1996 to $8,262 during the three
months ended June 29, 1997. The increase in EBITDA was caused by the increase in
net revenues, partially offset by an increase in operating expenses.
Other Expenses. Other expenses, comprised mostly of interest expense,
increased from $4,929 in the three months ended June 30, 1996 to $6,075 in the
three months ended June 29, 1997 an increase of $1,146 or 23.3%. The increase
was caused by the increase in interest expenses of new Senior Secured Notes
issued to partially finance the acquisitions of WRMA-FM, WXDJ-FM and WYSY-FM.
Net Loss. The Company's net loss for the three months ended June 29, 1997
was $84 compared to a net loss of $175 for the three months ended June 30, 1996
a decrease in the net loss of $91 or 52.0%. This decrease was caused by the
increase in operating income offset by the increase in interest expense.
ALL AMOUNTS ARE PRESENTED IN $ THOUSANDS RESULTS OF OPERATIONS NINE MONTHS ENDED
JUNE 30, 1996 COMPARED TO THE NINE MONTHS ENDED JUNE 29, 1997
Net Revenues. Net revenues increased from $35,533 for the nine months
ended June 30, 1996, to $41,945 for the nine months ended June 29, 1997, an
increase of $6,412 or 18.0%. This increase was due primarily to the inclusion of
the results of WPAT-FM for the entire nine month period as opposed to five
months during the same period last year. The increase in net revenues also
resulted from an increase in net revenues of $1,784 and $1,382 from the
Company's Miami and Los Angeles stations, respectively, offset by a decrease in
net revenues of $1,023 from the Company's other New York stations. The Miami
market benefited from the inclusion of results of WRMA-FM and WXDJ-FM which were
purchased on March 27, 1997 and increased net revenues by $3,903.
Operating Expenses. Total operating expenses increased from $26,713 in the
nine months ended June 30, 1996, to $30,727 in the nine months ended June 29,
1997, an increase of $4,014 or 15.0%. The higher operating expenses were caused
by an increase of $2,108 in depreciation and amortization expense, an increase
of $1,244 in corporate expenses and a $662 increase in broadcasting operating
expenses.
The increase in broadcasting operating expenses was caused mainly by the
inclusion of the results of the recently acquired stations in Miami, WRMA-FM and
WXDJ-FM, the newly acquired station in Chicago, WYSY-FM as well as a full nine
months of expenses for WPAT-FM. The increase in corporate expenses was caused by
higher salaries and the creation of a new senior position as well as higher
professional fees. The increase in depreciation and amortization was the result
of increased amortization of franchise costs related to the acquisitions of
WRMA-FM, WXDJ-FM, WYSY-FM and WPAT-FM.
Operating Income. Operating income increased from $8,821 during the nine
months ended June 30, 1996 to $11,218 during the nine months ended June 29,
1997, an increase of $2,397 or 27.2%. The increase was due to the significant
increase in net revenues partially offset by the increase in operating expenses.
EBITDA. EBITDA increased $4,505 or 38.2% from $11,807 during the nine
months ended June 30, 1996 to $16,312 during the nine months ended June 29,
1997. The increase in EBITDA was caused by the increase in net revenues,
partially offset by an increase in operating expenses.
Other Expenses. Other expenses, comprised mostly of interest expense,
increased from $12,435 in the nine months ended June 30, 1996 to $16,429 in the
nine months ended June 29, 1997 an increase of $3,994 or 32.1%. The increase was
caused by the increase in interest expenses of new Senior Secured Notes issued
to partially finance the acquisitions of WRMA-FM, WXDJ-FM and WYSY-FM and the
retirement of notes issued in 1996 partially offset by the absence in fiscal
year 1997 of other charges related to non-recurring financing costs.
Net Loss. As a result of the Company's refinancing of its debt and the
issuance of new Senior Secured Notes which partially financed the acquisitions
of WYSY-FM in Chicago and WRMA-FM and WXDJ-FM in Miami, the Company recorded an
extraordinary loss on the retirement of old debt for the amount paid in
8
<PAGE> 10
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
excess of the Company's carrying value and the write-off of the related
unamortized debt issuance costs, net of the related income tax benefits. The
amount of this loss, net of taxes, is $1,715. Consequently, the Company's net
loss for the nine months ended June 29, 1997 was $4,965 compared to a net loss
of $2,162 for the nine months ended June 30, 1996, an increase in the net loss
of $2,803 or 129.6%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from its debt service
obligations, preferred stock dividend requirements, funding of the Company's
working capital needs and capital expenditures. The Company's primary form of
financing is cash generated from operations, long-term indebtedness and the
issuance of preferred stock.
On March 27, 1997, the Company consummated the Acquisitions. The
Acquisitions were financed with proceeds of the Units Offering and the Notes
Offering (the "Offerings"). Concurrently with the consummation of the
Acquisitions and the Offerings, the Company effected a series of transactions
including the redemption (the "Redemption") of the Company's Senior Secured
Notes due 2002 and Senior Exchangeable Preferred Stock, Series A and the
repurchase of related warrants to purchase an aggregate of 6.0% of the Company's
Common Stock, on a fully-diluted basis. In addition, simultaneously with the
consummation of the Offerings, the Company announced its intention to declare a
dividend of up to $4 million in the aggregate (the "Distribution") to its
stockholders and existing warrantholders who elected to receive their pro rata
portion of the Distribution in lieu of the anti-dilution adjustment they would
otherwise have been entitled to as a result of the Distribution. This dividend
has yet to be declared.
On July 2, 1997, the Company entered into an agreement to sell the FCC
licenses and all of the assets used or useful in operating its AM stations,
KXMG-AM of Los Angeles, WXLX-AM of New York and WCMQ-AM of Miami for $44
million. The sale of these stations is expected to be completed before the end
of the calendar year, subject to FCC approval. The Company is required to use
the greater of $25 million or 50% of the net proceeds of such sale to make
offers to purchase Old Notes at 110% of the principal amount.
Cash flow generated from operations was $5,905 for the nine months ended
June 29, 1997. A portion of the company's cash flow was used to make its
semiannual interest payments, on the Company's 12 1/2% Senior Notes due 2002.
Additionally, the Company invested $1,741 in capital expenditures, mostly for
the construction of a new tower and antenna system for WXLX-AM.
Cash flow generated from operations was $2,657 for the nine months ended
June 30, 1996. A portion of the Company's cash flow was used to make its
semiannual interest payments on the Company's Old Notes. Additionally, the
Company invested $2,778 for capital expenditures, mostly for the upgrade of the
Los Angeles building being used for its radio operations and the construction of
the new tower and antenna for WXLX-AM.
The Company's revenues fluctuate throughout the year. The Company's second
fiscal quarter (January through March) generally produces the lowest revenues
for the year and its third fiscal quarter (April through June) generally
produces the highest revenues primarily due to increased levels of advertising
during this period.
Management 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 Notes and cash
interest expense on the Company's Old Notes, which, commencing June 15, 1997,
began to accrue cash interest at a rate of 12 1/2% per annum) for the
foreseeable future as well as capital expenditures and operating obligations.
However, significant assumptions (none of which can be assured) underlie this
belief, including that (i) the Company will be able to successfully integrate
the Acquisitions, (ii) economic conditions within the radio broadcasting market
and economic conditions generally will not deteriorate in any material respect,
(iii) the Company will be able to successfully implement its business strategy,
(iv) the Company will not
9
<PAGE> 11
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
incur any material unforeseen liabilities, including, without limitation,
environmental liabilities, and (v) no future acquisition will adversely affect
the Company's liquidity. The Company expects that it may be required to
refinance the Old Notes on or prior to their maturity date on June 15, 2002, and
no assurances can be given that it will not be required to refinance the Senior
Notes and/or the Senior Preferred Stock. No assurance can be given that any such
refinancing, if required, will be obtained on terms satisfactory to the Company,
if at all.
10
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Spanish Broadcasting System, Inc.,
a Delaware Corporation
Spanish Broadcasting System
of California, Inc.
Spanish Broadcasting System, Inc.,
a New Jersey Corporation
Spanish Broadcasting System of
Florida, Inc.
Spanish Broadcasting System Network,
Inc.
SBS Promotions, Inc.
Alarcon Holdings, Inc.
SBS of Greater New York, Inc.
Spanish Broadcasting System of
Illinois, Inc.
Spanish Broadcasting System of
Greater Miami, Inc.
By: /s/ Joseph A. Garcia
------------------------------------
Joseph A. Garcia
EVP and Chief Financial Officer
(principal financial and accounting
officer)
Date: August 12, 1997
11
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-29-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> JUN-29-1997
<CASH> 10,906,903
<SECURITIES> 0
<RECEIVABLES> 15,717,921
<ALLOWANCES> 1,870,770
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<CURRENT-ASSETS> 27,435,359
<PP&E> 10,305,470
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<CURRENT-LIABILITIES> 31,532,689
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0
158,958,916
<COMMON> 5,581
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<TOTAL-LIABILITY-AND-EQUITY> 333,096,220
<SALES> 0
<TOTAL-REVENUES> 47,393,913
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<INCOME-PRETAX> (5,210,888)
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