<PAGE> 1
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 MARCH 29, 1998
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)
DELAWARE 13-3827791
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3191 CORAL WAY, MIAMI, FL 33145
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(305) 441-6901
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
[X] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK, PAR VALUE $.01 PER
SHARE, OUTSTANDING AS OF MAY 11, 1998; 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.
<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY
STANDARD
STATE OR 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 65-0774450
SPANISH BROADCASTING SYSTEM OF SAN ANTONIO, INC. .......... DELAWARE 4832 65-0820776
</TABLE>
1
<PAGE> 3
SPANISH BROADCASTING SYSTEM, INC.
INDEX
PAGE
NUMBER
------
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 28, 1997 AND
MARCH 29, 1998 (UNAUDITED) ...........................................3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED AND SIX MONTHS ENDED MARCH 30, 1997 AND MARCH 29, 1998
(UNAUDITED) ..........................................................4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED AND SIX MONTHS ENDED MARCH 30, 1997 AND MARCH 29, 1998
(UNAUDITED) ..........................................................5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) .....6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ............................................9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2
<PAGE> 4
SPANISH BROADCASTING SYSTEM,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 28,1997 MARCH 29, 1998
ASSETS (AUDITED) (UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 12,287,764 $ 42,263,162
RECEIVABLES:
TRADE 17,226,345 15,866,642
LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS 2,385,267 4,204,990
------------- -------------
NET RECEIVABLES - TRADE 14,841,078 11,661,652
BARTER (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF
$3,019,828 AT SEPT. 28, 1997 AND $4,408,843 AT MARCH 29, 1998) 270,900 129,590
------------- -------------
NET RECEIVABLES 15,111,978 11,791,242
OTHER CURRENT ASSETS 1,409,906 773,258
------------- -------------
TOTAL CURRENT ASSETS 28,809,648 54,827,662
PROPERTY AND EQUIPMENT, NET 18,409,415 14,988,898
FRANCHISE COSTS, NET 273,631,766 266,613,736
DUE FROM RELATED PARTY 289,869 289,869
DEFERRED FINANCING COSTS, NET 9,262,314 8,109,338
DEFERRED INCOME TAXES 3,674,287 --
OTHER ASSETS 289,784 489,747
------------- -------------
$ 334,367,083 $ 345,319,250
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
CURRENT PORTION OF SENIOR SECURED NOTES $ 15,000,000 $ 0
CURRENT PORTION OF LONG TERM DEBT 44,644 36,962
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 5,090,349 5,666,559
ACCRUED INTEREST 4,536,627 3,941,089
UNEARNED REVENUE 1,551,255 1,424,079
DIVIDENDS PAYABLE 960,761 1,039,747
------------- -------------
TOTAL CURRENT LIABILITIES 27,183,636 12,108,436
12.5% SENIOR SECURED NOTES, NET OF UNAMORTIZED DISCOUNT 88,820,963 91,372,677
11% SENIOR SECURED NOTES 75,000,000 75,000,000
DEFERRED INCOME TAXES PAYABLE -- 7,597,254
OTHER LONG-TERM DEBT, LESS CURRENT PORTION 4,147,676 4,298,672
14.25% SENIOR EXCHANGEABLE REDEEMABLE PREFERRED
STOCK, $.01 PAR VALUE. AUTHORIZED 413,930 SHARES; ISSUED
AND OUTSTANDING 199,997 SHARES 171,261,919 185,788,502
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 6,590,473 6,590,473
ACCUMULATED DEFICIT (35,119,184) (34,983,422)
------------- -------------
(28,522,645) (28,386,883)
LESS: LOANS RECEIVABLE FROM STOCKHOLDERS (3,524,466) (2,459,408)
------------- --------------
TOTAL STOCKHOLDERS' DEFICIENCY (32,047,111) (30,846,291)
------------- -------------
$ 334,367,083 $ 345,319,250
============= =============
</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 SIX MONTHS ENDED
MARCH 30, 1997 MARCH 29, 1998 MARCH 30, 1997 MARCH 29, 1998
<S> <C> <C> <C> <C>
GROSS BROADCASTING REVENUES $ 12,746,549 $ 16,623,267 $ 26,741,121 $ 38,211,189
LESS: AGENCY COMMISSIONS 1,322,935 1,964,379 2,951,367 4,611,472
------------ ------------ ------------ ------------
NET BROADCASTING REVENUES 11,423,614 14,658,888 23,789,754 33,599,717
------------ ------------ ------------ ------------
OPERATING EXPENSES
ENGINEERING 586,744 384,830 1,084,514 880,872
PROGRAMMING 1,514,870 2,230,824 3,032,259 4,076,834
SELLING 2,628,309 3,594,644 6,165,789 8,219,002
GENERAL AND ADMINISTRATIVE 1,403,151 2,752,530 2,934,436 5,600,934
CORPORATE EXPENSES 1,528,342 1,694,222 2,522,335 3,003,529
DEPRECIATION & AMORTIZATION 1,406,609 2,277,732 2,801,156 4,652,050
------------ ------------ ------------ ------------
9,068,025 12,934,782 18,540,489 26,433,221
------------ ------------ ------------ ------------
OPERATING INCOME 2,355,589 1,724,106 5,249,265 7,166,496
OTHER (INCOME) EXPENSES:
GAIN ON SALE OF AM STATIONS -- 504,025 -- (36,364,416)
INTEREST EXPENSE, NET 5,321,235 4,816,618 10,327,648 10,608,076
OTHER, NET 452 -- 27,890 --
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (2,966,098) (3,596,537) (5,106,273) 32,922,836
INCOME TAX EXPENSE (BENEFIT) (1,126,385) (1,438,615) (1,940,385) 13,169,134
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (1,839,713) (2,157,922) (3,165,888) 19,753,702
EXTRAORDINARY ITEM, NET OF INCOME TAXES (1,715,206) -- (1,715,206) (1,612,723)
------------ ------------ ------------ ------------
NET INCOME(LOSS) (3,554,919) (2,157,922) (4,881,094) 18,140,979
ACCUMULATED DEFICIT AT
BEGINNING OF PERIOD (14,803,608) (22,079,230) (11,906,690) (35,119,184)
DIVIDENDS ON PREFERRED STOCK (928,642) (6,731,205) (2,253,331) (13,382,634)
ACCRETION OF PREFERRED STOCK (697,877) (616,207) (943,931) (1,223,725)
DIVIDENDS ON COMMON STOCK -- (3,398,858) -- (3,398,858)
ACCUMULATED DEFICIT AT ------------ ------------ ------------ ------------
END OF PERIOD $(19,985,046) $(34,983,422) $(19,985,046) $(34,983,422)
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 6
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 30, 1997 AND MARCH 29, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME ($ 4,881,094) $ 18,140,979
------------- -------------
ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
LOSS ON EXTINGUISHMENT OF DEBT 2,766,460 2,687,872
GAIN ON SALE OF AM STATIONS -- (36,364,416)
DEPRECIATION AND AMORTIZATION 2,801,156 4,652,050
CHANGE IN PROVISION FOR LOSSES ON RECEIVABLES 156,992 3,208,738
AMORTIZATION OF DEBT DISCOUNT 3,203,122 329,375
INTEREST SATISFIED THROUGH THE ISSUANCE OF NEW NOTES 2,433,230 --
AMORTIZATION OF DEFERRED FINANCING COSTS 623,402 686,708
INTEREST ADDED TO FACE AMOUNT NOTE PAYABLE -- 153,600
DEFERRED INCOME TAXES (3,548,451) 11,271,541
CHANGES IN OPERATING ASSETS AND LIABILITIES:
DECREASE IN RECEIVABLES 2,289,834 111,998
DECREASE IN OTHER CURRENT ASSETS 229,091 636,648
DECREASE (INCREASE) IN OTHER ASSETS 25,693 (199,963)
INCREASE IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES 22,381 576,210
INCREASE (DECREASE) IN ACCRUED INTEREST 94,828 (595,538)
(DECREASE) INCREASE IN UNEARNED REVENUE 636,384 (127,176)
------------- -------------
TOTAL ADJUSTMENTS 11,734,122 (12,972,353)
------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,853,028 5,168,626
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF AM STATIONS, NET OF CLOSING COSTS -- 43,283,323
ACQUISITIONS OF RADIO STATIONS NET OF $3,000,000
NOTE PAYABLE ISSUED TO SELLER IN 1997 (143,000,000) --
ADDITIONS TO PROPERTY AND EQUIPMENT (1,346,756) (1,132,410)
-------------- -------------
NET CASH, (USED IN) PROVIDED BY INVESTING ACTIVITIES (144,346,756) 42,150,913
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
PURCHASE OF SENIOR SECURED NOTES -- (15,000,055)
PROCEEDS FROM ISSUANCE OF SENIOR SECURED NOTES
NET OF ISSUANCE COSTS 71,146,678 --
PROCEEDS FROM ISSUANCE OF REDEEMABLE PREFERRED STOCK
AND WARRANTS, NET OF ISSUANCE COSTS 164,760,190 --
REDEMPTION OF SENIOR SECURED NOTES (39,687,741) --
REDEMPTION OF PREFERRED STOCK (42,699,590) --
REDEMPTION OF PRIMARY WARRANTS (8,323,000) --
PAYMENT OF DIVIDENDS -- (3,398,858)
REPAYMENTS OF OTHER LONG-TERM DEBT (19,509) (10,286)
DECREASE IN LOANS RECEIVABLE FROM STOCKHOLDERS -- 1,065,058
------------- -------------
NET CASH, PROVIDED BY, (USED IN) FINANCING ACTIVITIES 145,177,028 (17,344,141)
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,683,300 29,975,398
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,468,079 12,287,764
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,151,379 $ 42,263,162
============= =============
CASH PAID FOR:
INTEREST $ 4,022,235 $ 10,686,515
============= =============
INCOME TAXES $ 358,826 $ 197,235
============= =============
</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
March 30, 1997 and March 29, 1998
(Unaudited)
(Dollars in Thousands)
(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 six month periods ended March 30, 1997 and March 29, 1998 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 28, 1997.
In the opinion of management of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments, which are
all of a normal, recurring nature, necessary for a fair presentation of the
results of the interim periods. The results of operations for the three and
six month periods, ended March 29, 1998 are not necessarily indicative of the
results for a full year.
(2) ACQUISITIONS AND DISPOSITIONS
On March 27, 1997, the Company acquired the FCC broadcast license and
substantially all of the assets used or useful in the operation 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, plus closing costs of $0.5
million. The Company subsequently changed the call letters to WLEY-FM.
Additionally, on March 27, 1997, the Company acquired the FCC broadcast licenses
and substantially all of the assets used or useful in the operations of radio
stations WRMA-FM and WXDJ-FM, serving the Miami metropolitan area, for a
purchase price of $111 million plus closing costs of $0.8 million.
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 of radio stations WRMA-FM,
WXDJ-FM and WLEY-FM (the "Acquisitions") and to retire the notes issued in 1996.
The Company's consolidated results of operations for the six month
period ended March 30, 1997 include four days of operations of WRMA-FM, WXDJ-FM
and WLEY-FM. The following unaudited pro-forma summary presents the consolidated
results of operations as if the acquisition of WRMA-FM and WXDJ-FM 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.
6
<PAGE> 8
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The results of WLEY-FM prior to its acquisition have not been included
in the pro-forma summary as the acquisition does not meet the significance test
for presentation of pro-forma information.
<TABLE>
<CAPTION>
Six Months Ended
March 30, 1997
--------------
<S> <C>
Pro-Forma Results:
Net Revenues...................................... $30,542
Net Loss.......................................... $ 2,043
</TABLE>
On July 22, 1997, the Company commenced an exchange offer whereby
shares of Series A Preferred Stock were 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 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 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,
liabilities, 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.
On July 2, 1997, the Company entered into an agreement (as amended, the
"One-on-One Agreement") with One-on-One Sports, Inc. ("One-on-One") 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 One-on-One Agreement contained customary representations,
warranties and conditions, including receipt of FCC approval to the transfer of
the FCC licenses. Pursuant to the One-on-One Agreement, on September 29, 1997,
the Company sold the assets and FCC licenses of WXLX-AM and WCMQ-AM to
One-on-One for a purchase price of $26 million. On December 2, 1997, the Company
consummated the sale of the assets and FCC licenses of KXMG-AM to One-on-One for
a purchase price of $18 million (together with the sale of WXLX-AM and WCMQ-AM,
the "Dispositions"). The gain from the sale of these stations amounts to
approximately $36.4 million before income taxes. The Company was required to use
the greater of $25 million or 50% of the net proceeds of such sale to make
offers to purchase 12-1/2% Senior Notes due 2002 ("Old Notes") at 110% of the
principal amount.
Pursuant to the terms of the Company's debt agreements, in October
1997, the Company made an offer to holders of its Notes to acquire $22,730 in
principal amount of Notes at a purchase price of $1,100 for each $1,000 in
principal amount. Pursuant to this tender offer, the Company purchased $5,500 in
principal amount of Notes for $6,050. In November 1997, the Company purchased an
additional $7,666 in principal amount of Notes for $8,950. The Company
recognized a loss on the transactions of $1.6 million, net of income taxes. This
amount has been classified as an extraordinary item in the accompanying
condensed consolidated financial statements.
7
<PAGE> 9
(3) SUBSEQUENT EVENTS
On January 28, 1998, the Company entered into an Asset Purchase
Agreement with Radio Station KRIO-FM, Ltd. to buy the FCC broadcast license and
substantially all of the assets used or useful in the operation of radio station
KRIO-FM serving the San Antonio area for $9.25 million. The Company has made a
$250 deposit towards this acquisition. The purchase of this station is subject
to certain closing conditions, including approval of the FCC. The Company
expects to finance this purchase from cash on hand and from operations.
8
<PAGE> 10
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(All Dollar Amounts Are Presented in Thousands)
RESULTS OF OPERATIONS
Three Months Ended March 30, 1997 Compared to the Three Months Ended
March 29, 1998.
Net Revenues. Net revenues increased from $11,424 for the three months
ended March 30, 1997 to $14,659 for the three months ended March 29, 1998, an
increase of $3,235 or 28.3%. This increase was due primarily to the inclusion of
the results of WRMA-FM, WXDJ-FM, and WLEY-FM which were purchased on March 27,
1997. The increase in net revenues attributable to these three stations was
$5,140. The increase in net revenues also resulted from an increase in net
revenues at the New York Stations, WPAT-FM and WSKQ-FM and another Miami
station, WCMQ-FM. This increase was offset by a decrease in net revenues from
the Company's other Florida stations, WCMQ-AM, WVMQ-FM and WZMQ-FM, and the Los
Angeles station, KLAX-FM in addition to the decrease in revenues attributable
to the sale of the AM stations, in New York, Miami and Los Angeles.
Operating Expenses. Total operating expenses increased from $9,068 in
the three months ended March 30, 1997 to $12,935 in the three months ended March
29, 1998, an increase of $3,867 or 42.6%. The higher operating expenses were
caused by an increase of $2,830 in broadcasting operating expenses, an increase
of $871 in depreciation and amortization expense, and an increase of $166 in
corporate expenses.
The increase in broadcasting operating expenses was caused mainly by
the inclusion of the results of WRMA-FM, WXDJ-FM and WLEY-FM. The increase in
corporate expenses was caused by increased professional fees and salaries. 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 WLEY-FM.
Operating Income. Operating income decreased from $2,356 during the
three months ended March 30, 1997 to $1,724 during the three months ended March
29, 1998, a decrease of $632 or 26.8%. The decrease was due to the increase in
operating expenses, partially offset by the increase in net revenues.
EBITDA. EBITDA (defined as income before extraordinary item, net
interest expense, financing costs, income taxes, depreciation and amortization,
writedown of franchise costs, gains on sales of radio stations and other income
and expenses) increased $240 or 6.4% from $3,762 during the three months ended
March 30, 1997 to $4,002 during the three months ended March 29, 1998. The
increases in EBITDA was caused by the increase in net revenues, offset by
increases in broadcasting operating expenses and corporate expenses.
Other Income and Expenses. Other income and expenses decreased from
$5,322 during the three months ended March 30, 1997 to $5,321 during the three
months ended March 29, 1998. This decrease of $1 resulted from an increase in
interest income offset by expenses related to the sale of the AM Stations.
Extraordinary Item. In the three months ended March 30, 1997, the
Company recorded an extraordinary loss of $1,715, net of income taxes. This loss
resulted from an amount paid in excess of the Company's carrying value and the
write-off of the related unamortized debt issuance costs in conjunction with the
refinancing of debt when the Company purchased WRMA-FM, WXDJ-FM and WLEY-FM.
There were no extraordinary items in the three months ended March 29, 1998.
Net Income (Loss). The Company's net loss for the three months ended
March 29, 1998, was $2,158 compared to the net loss of $3,555 for the three
months ended March 30, 1997. The decrease in the net loss for the three months
ended March 29, 1998, of $1,397 or 39.3%, was due to an increase in revenues
offset by the increase in operating expenses as well as the absence of
extraordinary items.
9
<PAGE> 11
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(All Dollar Amounts Are Presented in Thousands)
RESULTS OF OPERATIONS
Six Months Ended March 30, 1997 Compared to the Six Months Ended March
29, 1998.
Net Revenues. Net revenues increased from $23,790 for the six months
ended March 30, 1997 to $33,600 for the six months ended March 29, 1998, an
increase of $9,810 or 41.2%. This increase was due primarily to the inclusion of
the results of WRMA-FM, WXDJ-FM, and WLEY-FM which were purchased on March 27,
1997. The increase in net revenues attributable to these three stations was
$10,767. The increase in net revenues also resulted from a significant increase
in net revenues of $2,192 at the New York Stations, WPAT-FM and WSKQ-FM and a
Miami station, WCMQ-FM. The increase was offset by a decrease in net revenues
from the Company's other Florida stations, WCMQ-AM, WVMQ-FM, and WZMQ-FM, and
the Los Angeles station, KLAX-FM in addition to the decrease in revenues
attributable to the sale of the AM stations in New York, Miami and Los Angeles.
Operating Expenses. Total operating expenses increased from $18,540 in
the six months ended March 30, 1997 to $26,433 in the six months ended March 29,
1998, an increase of $7,893 or 42.6%. The higher operating expenses were caused
by an increase of $5,561 in broadcasting operating expenses, an increase of
$1,851 in depreciation and amortization expense, and a $481 increase in
corporate expenses.
The increase in broadcasting operating expenses was caused mainly by
the inclusion of the results of WRMA-FM, WXDJ-FM and WLEY-FM. The increase in
corporate expenses was caused by increased professional fees and salaries. 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 WLEY-FM.
Operating Income. Operating income increased from $5,249 during the six
months ended March 30, 1997 to $7,166 during the six months ended March 29,
1998, an increase of $1,917 or 36.5%. The increase was due to the significant
increase in net revenues partially offset by the increase in operating expenses.
EBITDA. EBITDA (defined as income before extraordinary item, net
interest expense, financing costs, income taxes, depreciation and amortization,
writedown of franchise costs, gains on sales of radio stations and other income
and expenses) increased $3,769 or 46.8% from $8,050 during the six months ended
March 30, 1997 to $11,819 during the six months ended March 29, 1998. The
increase in EBITDA was similarly caused by the increase in net revenues,
partially offset by an increase in operating expenses.
Other Income and Expenses. Other income and expenses, changed from an
expense of $10,356 in the six months ended March 30, 1997 to income of $25,756
in the six months ended March 29, 1998. The change was primarily a result of the
sale of the AM Stations at a gain of $36,364.
Extraordinary Item. The extraordinary loss of $1,613, net of taxes, in
the six months ended March 29, 1998 is a result of premiums paid on the purchase
of certain outstanding Old Notes and the write off of related unamortized debt
discount and deferred financing costs. In the six months ended March 30, 1997,
the Company recorded an extraordinary loss of $1,715, net of income taxes. This
loss resulted from an amount paid in excess of the Company's carrying value and
the write-off of the related unamortized debt issuance costs in conjunction
with the refinancing of debt when the Company purchased WRMA-FM, WXDJ-FM and
WLEY-FM.
Net Income (Loss). The Company's net income for the six months ended
March 29, 1998, was $18,141 compared to the net loss of $4,881 for the six
months ended March 30, 1997. The net income resulted from the increase in
operating income and the gain from the sale of AM stations partially offset by
the increase in interest expense and the extraordinary loss related to the
retirement of debt.
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.
10
<PAGE> 12
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. A dividend of
$5.60 per share common stock was declared on March 10, 1998 and distributed to
the stockholders on March 12, 1998. In April 1998, holders of warrants to
purchase shares of Class A Common Stock that were issued pursuant to the
Warrant Agreement dated June 29, 1994 were given the option to participate in
such dividend as if they were stockholders, subject to agreeing to waive their
anti-dilution rights with respect to such dividend. Holders of warrants to
purchase 58,209 shares participated in the dividend.
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 Company was 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. The agreement contained customary representations,
warranties and conditions, including receipt of FCC approval to the transfer of
the FCC licenses. Pursuant to this agreement, the Company sold the assets and
FCC licenses of WXLX-AM and WCMQ-FM to One-on-One for a purchase price of $26
million on September 29, 1997. On December 2, 1997, the Company consummated the
sale of the assets and FCC licenses of KXMG-AM to ONE-on-ONE for a purchase
price of $18 million. On January 28, 1998 the Company entered into an Asset
Purchase Agreement to purchase the FCC broadcast license and substantially all
the assets used or useful in the operation of radio station KRIO-FM for $9.25
million. The Company made a $0.25 million deposit and expects to finance the
remainder from cash on hand and from operations. The Company expects to
consummate this acquisition in May 1998.
Cash flow generated from operations was $5,169 for the six months ended
March 29, 1998. A portion of the Company's cash flow was used to make its
semiannual interest payments on the Company's Notes of $10,472. Additionally,
the Company invested $1,132 in capital expenditures and used $15,000 to purchase
Old Notes. Proceeds from the sales of WXLX-AM, WCMQ-AM and KXMG-AM were
approximately $43,283, net of closing costs of $717.
Cash flow generated from operations was $6,853 for the six months ended
March 30, 1997. A portion of the Company's cash flow was used to make its
semiannual interest payment on the Company's 12 1/2% Senior Notes due 2002 (the
"Old Notes"). Additionally, the Company invested $1,347 in capital expenditures,
mostly for the construction of a new tower and antenna system 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, together with cash on hand, 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, operating
obligations and the pending acquisition of KRIO-FM. However, significant
assumptions (none of which can be assured) underlie this belief, including that
(i) economic conditions within the radio broadcasting market and economic
conditions generally will not deteriorate in any material respect, (ii) the
Company will be able to successfully implement its business strategy, (iii) the
Company will not incur any material unforeseen liabilities, including, without
limitation, environmental liabilities, and (iv) 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.
11
<PAGE> 13
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
No Current Report on Form 8-K was filed by the Company in November or
December, 1997 or January or February, 1998.
<PAGE> 14
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.
Spanish Broadcasting System of San Antonio, Inc.
By: /s/ Joseph A. Garcia
-----------------------------------
Joseph A. Garcia
EVP and Chief Financial Officer
(principal financial and accounting officer)
Date: May 11, 1998
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<PERIOD-START> SEP-29-1997
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