<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 28, 1999
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, Suite 805, Miami, Florida 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, 1999: 606,668 shares of Class A 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
Spanish Broadcasting System of Puerto Rico, Inc. .......... Delaware 4832 52-2139546
Spanish Broadcasting System of Puerto Rico, Inc. .......... Puerto Rico 4832 66-0564244
</TABLE>
-1-
<PAGE> 3
SPANISH BROADCASTING SYSTEM, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of September 27, 1998 and
March 28, 1999 (unaudited) 3
Condensed Consolidated Statements of Operations for the three months
ended and six months ended March 29, 1998 and March 28, 1999
(unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
six months ended March 29, 1998 (unaudited) and
March 28, 1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosure About Market Risk 13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
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<PAGE> 4
SPANISH BROADCASTING SYSTEM,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 27, 1998 MARCH 28, 1999
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS :
CASH AND CASH EQUIVALENTS $ 37,642,227 $ 36,736,179
RECEIVABLES:
TRADE 20,777,151 19,737,141
LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS 4,245,502 4,092,333
---------------------------------------
NET RECEIVABLES - TRADE 16,531,649 15,644,808
BARTER (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF
$ 3,524,558 AT SEPT. 27,1998 AND $4,316,672 AT MAR. 28,1999) 58,193 26,617
---------------------------------------
NET RECEIVABLES 16,589,842 15,671,425
OTHER CURRENT ASSETS 1,822,584 1,376,301
---------------------------------------
TOTAL CURRENT ASSETS 56,054,653 53,783,905
PROPERTY AND EQUIPMENT, NET 14,942,933 15,167,609
FRANCHISE COSTS, NET 272,261,440 276,704,783
DUE FROM RELATED PARTY 289,869 289,869
DEFERRED FINANCING COSTS, NET 7,275,980 6,455,550
OTHER ASSETS 209,301 178,336
---------------------------------------
$351,034,176 $352,580,052
=======================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES :
CURRENT PORTION OF LONG TERM DEBT $47,496 $47,765
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 8,451,760 7,522,717
ACCRUED INTEREST 3,941,088 3,941,088
UNEARNED REVENUE 2,141,456 2,530,524
DIVIDENDS PAYABLE 1,124,360 1,299,814
------------------------------------
TOTAL CURRENT LIABILITIES 15,706,160 15,341,908
12.5% SENIOR UNSECURED NOTES,NET OF UNAMORTIZED DISCOUNT 91,668,465 91,965,213
11% SENIOR SECURED NOTES 75,000,000 75,000,000
OTHER LONG-TERM DEBT, LESS CURRENT PORTION 4,410,505 4,540,447
DEFERRED INCOME TAXES PAYABLE 9,074,596 9,184,377
14.25% SENIOR EXCHANGEABLE PREFERRED STOCK,
$.01 PAR VALUE. AUTHORIZED 413,930 SHARES; ISSUED
AND OUTSTANDING 229,477 SHARES 201,367,927 218,080,696
STOCKHOLDERS' DEFICIENCY:
CLASS A COMMON STOCK, $.01 PAR VALUE. AUTHORIZED
5,000,000 SHARES; ISSUED AND OUTSTANDING 606,668 SHARES 6,066 6,066
ADDITIONAL PAID IN CAPITAL 6,864,301 6,864,301
ACCUMULATED DEFICIT (50,604,436) (65,943,548)
------------------------------------
(43,734,069) (59,073,181)
LESS: LOANS RECEIVABLE FROM STOCKHOLDERS (2,459,408) (2,459,408)
------------------------------------
TOTAL STOCKHOLDERS' DEFICIENCY (46,193,477) (61,532,589)
------------------------------------
$351,034,176 $352,580,052
====================================
</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 29, 1998 MARCH 28, 1999 MARCH 29, 1998 MARCH 28, 1999
<S> <C> <C> <C> <C>
GROSS BROADCASTING REVENUES $16,623,267 $21,457,906 $38,211,189 $49,181,124
LESS: AGENCY COMMISSIONS 1,964,379 2,631,542 4,611,472 6,084,946
----------------------------------------------------------------------------
NET BROADCASTING REVENUES 14,658,888 18,826,364 33,599,717 43,096,178
----------------------------------------------------------------------------
OPERATING EXPENSES
ENGINEERING 384,830 476,825 880,872 1,013,527
PROGRAMMING 2,230,824 2,312,521 4,076,834 4,812,147
SELLING 3,594,644 4,590,486 8,219,002 10,513,939
GENERAL AND ADMINISTRATIVE 2,752,530 2,500,116 5,600,934 4,575,649
CORPORATE EXPENSES 1,694,222 2,249,272 3,003,529 4,334,310
DEPRECIATION & AMORTIZATION 2,277,732 2,379,647 4,652,050 4,667,670
----------------------------------------------------------------------------
12,934,782 14,508,867 26,433,221 29,917,242
----------------------------------------------------------------------------
OPERATING INCOME 1,724,106 4,317,497 7,166,496 13,178,936
OTHER (INCOME) EXPENSES :
GAIN ON SALE OF AM STATIONS 504,025 (25) (36,364,416) (25)
INTEREST EXPENSE, NET 4,816,618 5,216,805 10,608,076 10,443,804
OTHER, NET - 49,853 -- 63,553
----------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (3,596,537) (949,136) 32,922,836 2,671,604
INCOME TAX EXPENSE (BENEFIT) (1,438,615) (474,013) 13,169,134 1,121,594
----------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (2,157,922) (475,123) 19,753,702 1,550,010
EXTRAORDINARY ITEM, NET OF INCOME TAXES -- -- (1,612,723) --
----------------------------------------------------------------------------
NET INCOME(LOSS ) (2,157,922) (475,123) 18,140,979 1,550,010
ACCUMULATED DEFICIT AT
BEGINNING OF PERIOD (22,079,230) (57,017,357) (35,119,184) (50,604,436)
DIVIDENDS ON PREFERRED STOCK (6,731,205) (7,724,564) (13,382,634) (15,442,400)
ACCRETION OF PREFERRED STOCK (616,207) (726,504) (1,223,725) (1,446,722)
DIVIDENDS ON COMMON STOCK (3,398,858) -- (3,398,858) --
----------------------------------------------------------------------------
ACCUMULATED DEFICIT AT
END OF PERIOD (34,983,422) (65,943,548) (34,983,422) (65,943,548)
============================================================================
</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 29, 1998 AND MARCH 28, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $18,140,979 $1,550,010
------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
LOSS ON EXTINGUISHMENT OF DEBT 2,687,872 --
GAIN ON SALE OF AM STATIONS (36,364,416) --
DEPRECIATION AND AMORTIZATION 4,652,050 4,667,670
CHANGE IN PROVISION FOR LOSSES ON RECEIVABLES 3,208,738 638,945
AMORTIZATION OF DEBT DISCOUNT 329,375 296,748
AMORTIZATION OF DEFERRED FINANCING COSTS 686,708 820,430
ACCRETION OF INTEREST TO PRINCIPAL ON OTHER LONG-TERM DEBT 153,600 153,600
DEFERRED INCOME TAXES 11,271,541 109,781
CHANGES IN OPERATING ASSETS AND LIABILITIES:
DECREASE IN RECEIVABLES 111,998 279,472
DECREASE IN OTHER CURRENT ASSETS 636,648 446,280
(INCREASE) DECREASE IN OTHER ASSETS (199,963) 30,965
INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES 576,210 (929,043)
DECREASE IN ACCRUED INTEREST (595,538) 0
(DECREASE) INCREASE IN UNEARNED REVENUE (127,176) 389,068
------------------------------
TOTAL ADJUSTMENTS (12,972,353) 6,903,916
------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,168,626 8,453,926
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF AM STATIONS, NET OF CLOSING COSTS 43,283,323 --
ACQUISITIONS OF RADIO STATIONS -- (8,392,814)
ADDITIONS TO PROPERTY AND EQUIPMENT (1,132,410) (943,771)
------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 42,150,913 (9,336,585)
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
PAYMENT OF DIVIDENDS (3,398,858)
PURCHASE OF SENIOR SECURED NOTES (15,000,055) --
DECREASE IN LOANS RECEIVABLE FROM STOCKHOLDERS 1,065,058
REPAYMENTS OF DEBT (10,286) (23,389)
------------------------------
NET CASH USED IN FINANCING ACTIVITIES (17,344,141) (23,389)
------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,975,398 (906,048)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,287,764 37,642,227
------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $42,263,162 $36,736,179
==============================
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID $10,686,515 $10,049,820
==============================
INCOME TAXES PAID $ 197,235 $ 889,938
==============================
</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 29, 1998 AND MARCH 28, 1999
(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 six month periods ended March 29, 1998 and March 28, 1999 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 27, 1998 included in the Company's 1998 Form 10K.
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 28, 1999 are not necessarily indicative of
the results for a full year.
(2) ACQUISITIONS, DISPOSITIONS AND FINANCINGS
On December 1, 1998, the Company acquired the FCC broadcast license
and substantially all of the assets used or useful in the operation of WDOY-FM
serving Puerto Rico for $8.3 million, plus closing costs of $0.1 million. The
Company financed this purchase from cash on hand and from operations. In
January, 1999 the Company entered into an Asset Purchase Agreement with Guayama
Broadcasting Company, Inc. and LaMega Estacion, Inc., to purchase the FCC
broadcast licenses and substantially all of the assets used or useful in the
operation of WMEG-FM and WEGM-FM serving Puerto Rico for $16.0 million. The
purchase is subject to certain closing conditions, including FCC approval. The
Company expects this transaction to close during the third fiscal quarter and
expects to finance this purchase from cash on hand. The results of WDOY-FM and
KLEY-FM, which was purchased in fiscal 1998, do not meet the significance test
for pro-forma presentation and, consequently, no pro-forma results have been
included.
On April 26, 1999, the Company purchased eighty percent of the issued
and outstanding capital stock of Ju-Ju Media, Inc. for $3.0 million, consisting
of cash of $2.0 million and a promissory note for $1.0 million. Ju-Ju Media,
Inc. is a company which is a content provider for the Latin music community,
on-line.
The Company has completed the transfer of certain assets to its newly
formed subsidiaries, Spanish Broadcasting System of San Antonio, Inc., Spanish
Broadcasting System of Puerto Rico Inc. (Del.) and Spanish Broadcasting System
of Puerto Rico, Inc. (Puerto Rico) (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.
The Company sold the assets and FCC licenses of WXLX-AM of New York
and WCMQ-AM of Miami for a sales price of $26.0 million on September 29, 1997.
On December 2, 1997, the Company consummated the sale of the assets and FCC
license of KXMG-AM of Los Angeles for a sales price of $18.0 million, resulting
in a gain on all three stations of $36.4 million.
-6-
<PAGE> 8
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 29, 1998 AND MARCH 28, 1999
(UNAUDITED)
On October 17, 1997, the Company made a "Tender Offer" to purchase for
cash any and all of the Notes up to $22.7 million plus accrued interest up to,
but not including the payment date. The amount payable by the Company was 110%
of the principal amount of the Notes. The Company paid $15.7 million to the
noteholders who responded to the "Tender Offer" and purchased $13.2 million in
principal amount of Notes for $15.0 million plus accrued interest of $0.7
million in October and November 1997. The Company recognized a loss on the
"Tender Offer" of $1.6 million, net of income taxes of $1.1 million, due to the
premium paid for the Notes and the subsequent write-off of the deferred
financing costs and original issue discounts related to the Notes purchased.
This amount has been classified as an extraordinary item in the accompanying
Consolidated Statement of Operations.
-7-
<PAGE> 9
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's financial results depend on a number of factors,
including the strength of the national economy and the local economies served
by the Company's stations, total advertising dollars dedicated to the markets
served by the Company's stations, advertising dollars targeted to the Hispanic
consumers in the markets served by the Company's stations, the Company's
stations' audience ratings, the Company's ability to provide popular
programming, local market competition from other radio stations and other
advertising media, and government regulations and policies.
Gross revenues derived from radio advertising are affected primarily
by the advertising rates the Company's radio stations are able to charge and
the number of advertisements that can be broadcast without jeopardizing
audience listening levels and the resultant audience ratings. Advertising rates
are, in large part, based upon each station's ability to attract audiences in
demographic groups targeted by advertisers. Audience levels are generally
measured by quarterly Arbitron Radio Market Reports. Each of the Company's
stations strives to maximize net revenues by actively managing the amount of
airtime available for sale and adjusting prices based upon local market
conditions and audience ratings.
As is true of other radio groups, the Company's performance is
customarily measured by its ability to generate broadcast cash flow and EBITDA.
"Broadcast cash flow" means operating income before depreciation and
amortization, write-down of franchise costs and corporate expenses. Although
broadcast cash flow and EBITDA are not measures of performance calculated in
accordance with generally accepted accounting principles, the Company believes
that broadcast cash flow and EBITDA are useful in evaluating the Company
because such measures are accepted by the broadcasting industry as generally
recognized measures of performance and are used by securities industry analysts
who publish reports on the performance of broadcasting companies. In addition,
the Company has included information concerning EBITDA because it is used by
certain investors as a measure of a company's ability to service its debt
obligations and it is also the basis for determining compliance with certain
covenants in the Indentures and the Certificate of Designation. Broadcast cash
flow and EBITDA are not intended to be substitutes for operating income (as
determined in accordance with generally accepted accounting principles), or
alternatives to cash flow from operating activities (as a measure of
liquidity), or alternatives to net income.
-8-
<PAGE> 10
RESULTS OF OPERATIONS
Three Months Ended March 29, 1998 Compared to the Three Months Ended
March 28, 1999
Net Revenues. Net revenues increased from $14.7 million for the three
months ended March 29, 1998 to $18.8 million for the three months ended March
28, 1999, an increase of $4.1 million or 27.9%. All of the markets in which the
Company operates stations experienced strong increases in net revenues with the
greatest increase being in the New York market. The Company's stations continued
to benefit from high ratings, a robust economy and successful sales efforts
related to attracting advertisers to Spanish radio. The Company's revenues also
increased due to the purchases of KLEY-FM in San Antonio and WDOY-FM in Puerto
Rico.
Operating Expenses. Total operating expenses increased from $12.9
million in the three months ended March 29, 1998 to $14.5 million in the three
months ended March 28, 1999, an increase of $1.6 million or 12.4%. The higher
operating expenses were caused by an increase of $0.9 million in broadcasting
operating expenses, an increase of $0.6 million in corporate expenses, and an
increase of $0.1 million in depreciation and amortization.
The increase in broadcasting operating expenses was caused mainly by
the inclusion of the results of KLEY-FM which was acquired in May, 1998 and
WDOY-FM which was purchased in December 1998 as well as an increase in
programming salaries for the Los Angeles station. The increase in corporate
expenses was caused by an increase in the number of employees, increased travel
expenses related to acquisitions and a performance bonus related to increases in
net revenues and profits. The increase in depreciation and amortization was due
to the franchise costs resulting from the purchases of KLEY-FM and WDOY-FM.
Operating Income. Operating income increased from $1.7 million during
the three months ended March 29, 1998 to $4.3 million during the three months
ended March 28, 1999, an increase of $2.6 million or 152.9%. The increase was
due to the increase in net revenues, partially offset by the increase in
operating expenses.
EBITDA. EBITDA (defined as income before extraordinary item, net
interest expense, income taxes, depreciation and amortization, gains on sales
of radio stations and other income and expenses) increased $2.7 million or
67.5% from $4.0 million during the three months ended March 29, 1998 to $6.7
million during the three months ended March 28, 1999. The increase in EBITDA
was caused by the increase in net revenues, partially offset by increases in
broadcasting operating expenses and corporate expenses.
Other (Income) Expenses. The Company's other expenses were $5.3
million during the three months ended March 29, 1998 compared to other expenses
of $5.3 million during the three months ended March 28, 1999.
Net Loss. The Company's net loss decreased from $2.2 million for the
three months ended March 29, 1998 to $0.5 million for the three months ended
March 28, 1999, a decrease of $1.7 million or 77.3%. The decrease was caused by
the increase in operating income, partially offset by a decrease in the income
tax benefit.
-9-
<PAGE> 11
RESULTS OF OPERATIONS
Six Months Ended March 29, 1998 Compared to the Six Months Ended March
28, 1999
Net Revenues. Net revenues increased from $33.6 million for the six
months ended March 29, 1998 to $43.1 million for the six months ended March 28,
1999, an increase of $9.5 million or 28.3%. All of the markets in which the
Company operates stations experienced strong increases in net revenues with the
greatest increase being in the New York market. The Company's stations continued
to benefit from high ratings, a robust economy and successful sales efforts
related to attracting advertisers to Spanish radio. The Company's revenues also
increased due to the purchases of KLEY-FM in San Antonio and WDOY-FM in Puerto
Rico.
Operating Expenses. Total operating expenses increased from $26.4
million in the six months ended March 29, 1998 to $29.9 million in the six
months ended March 28, 1999, an increase of $3.5 million or 13.3%. The higher
operating expenses were caused by an increase of $2.2 million in broadcasting
operating expenses and an increase of $1.3 million in corporate expenses.
The increase in broadcasting operating expenses was caused mainly by
the inclusion of the results of KLEY-FM which was acquired in May, 1998 and
WDOY-FM which was purchased in December 1998 as well as an advertising campaign
related to various stations. The increase in corporate expenses was caused by an
increase in the number of employees, increased salaries, a performance bonus
related to increases in net revenues and profits and increased travel expenses
related to acquisitions.
Operating Income. Operating income increased from $7.2 million during
the six months ended March 29, 1998 to $13.2 million during the six months
ended March 28, 1999, an increase of $6.0 million or 83.3%. The increase was
due to the increase in net revenues, partially offset by the increase in
operating expenses.
EBITDA. EBITDA increased $6.0 million or 50.8% from $11.8 million
during the six months ended March 29, 1998 to $17.8 million during the six
months ended March 28, 1999. The increase in EBITDA was caused by the increase
in net revenues, partially offset by increases in broadcasting operating
expenses and corporate expenses.
Other (Income) Expenses. The Company's other income was $25.8 million
during the six months ended March 29, 1998 compared to other expenses of $10.5
million during the six months ended March 28, 1999. Other income in fiscal 1998
was caused by the gain on the sale of certain AM stations of $36.4 million,
partially offset by interest expense, net of $10.6 million. The net interest
expense for the six months ended March 28, 1999 was $10.4 million which is lower
than the six months ended March 29, 1998 due to the purchase of Old Notes in the
first quarter of fiscal 1998.
Net Income. The Company's net income decreased from $18.1 million for
the six months ended March 29, 1998 to $1.6 million for the six months ended
March 28, 1999, a decrease of $16.5 million or 91.2 %. The decrease was caused
by the absence of the gain on the sale of the AM stations, offset by the
increased operating income and lower income taxes for the period ended March
28, 1999.
-10-
<PAGE> 12
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.
The Company sold the assets and FCC licenses of WXLX-AM of New York
and WCMQ-AM of Miami for a sales price of $26.0 million on September 29, 1997.
On December 2, 1997, the Company consummated the sale of the assets and FCC
license of KXMG-AM of Los Angeles for a sales price of $18.0 million. The total
gain on all three stations was $36.4 million.
On December 1, 1998, the Company acquired the FCC broadcast license
and substantially all of the assets used or useful in the operation of WDOY-FM
serving Puerto Rico for $8.3 million plus closing costs of $0.1 million. The
Company financed this purchase from cash on hand and from operations. In
January, 1999 the Company entered into an Asset Purchase Agreement with Guayama
Broadcasting Company, Inc..and LaMega Estacion, Inc., to purchase the FCC
broadcast licenses and substantially all of the assets used or useful in the
operation of WMEG-FM and WEGM-FM serving Puerto Rico for $16.0 million. The
purchase is subject to certain closing conditions, including FCC approval. The
Company expects this transaction to close during the third fiscal quarter and
expects to finance this purchase from cash on hand.
Cash flow generated from operations was $8.5 million for the six
months ended March 28, 1999. A portion of the Company's cash flow was used to
make its semiannual interest payments on the Company's Notes of $10.0 million.
Additionally, the Company purchased WDOY-FM for $8.3 million, plus closing
costs of $0.1 million and invested $1.0 million in capital expenditures,
including $0.6 million related to improvements and furniture for its corporate
location.
Cash flow generated from operations was $5.2 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 $10.0 million.
Additionally, the Company invested $1.1 million in capital expenditures and
used $15.0 million to purchase Old Notes. Proceeds from the sales of WXLX-AM,
WCMQ-AM and KXMG-AM were approximately $43.3 net of closing costs of $0.7
million.
Management believes that cash from operating activities, together with
cash on hand, should be sufficient to permit the Company to meet required
significant cash interest obligations (which will consist of cash interest
expense on the Senior Notes and cash interest expense on the Company's Old
Notes) for the foreseeable future as well as capital expenditures, operating
obligations and the pending acquisitions of WMEG-FM, WEGM-FM and 80% of the
issued and outstanding capital stock of Ju-Ju Media Inc., which was purchased
on April 26, 1999. However, significant assumptions (none of which can be
assured) underlie this belief, including (i ) the economic conditions within
the radio broadcasting market and economic conditions in general 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 acquisitions will adversely
affect the Company's liquidity. The Company anticipates paying dividends on its
Preferred Stock through the issuance of additional shares as permitted under
the Preferred Stock Agreement. The Company expects that it may be required to
refinance the Old Notes on or prior to their maturity date of 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
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could cause a system failure or miscalculations in the
Company's broadcast and corporate locations which could cause disruptions of
operations, including, among other things, a temporary inability to produce
broadcast signals, process financial transactions, or engage in similar normal
business activities.
The Company has performed a preliminary analysis of potential problems
related to the "Y2K" issue. Internally, the Company bears some risks in the
following areas: computer hardware and software for its accounting and
administrative functions, computer-controlled programming of music and the
actual transmission of its signals. Externally, the Company is at risk, like
most companies, of losing power and phone lines.
In the administrative area, the vast majority of the hardware and
software has been purchased over the preceding two years and is Year 2000
compliant. There are no more than 30 computers that may have to be replaced or
upgraded. In the programming areas the system in use is year 2000 compliant.
Studio equipment, transmitters and other broadcasting equipment are not date
sensitive and, consequently do not pose much of a threat although the Company
will continue to seek assurances and/or upgrades from all significant vendors.
The Company will have one of its engineers and its M.I.S. manager
visit each location and report back to upper management on definite problems
and solutions. The New York and Miami markets have been analyzed and the
Company has spent less than $0.1 million to upgrade/replace non-compliant
systems and equipment. Visits to all locations will occur by June, 1999 with
remedies to quickly follow.
The greatest threat to the Company's ability to broadcast is from the
utilities upon which the Company is dependent. To date, the Company is not
aware of any external vendor with a Y2K issue that would materially impact the
Company's results of operations, liquidity or capital resources. However, the
Company has no means for ensuring that third parties will be Y2K ready. The
inability of third parties to complete their Y2K resolution process in a timely
fashion could materially impact the Company. The effect of non-compliance by
external vendors is not determinable. In addition, disruptions in the economy,
resulting from the Y2K issues could also materially and adversely affect the
Company.
While the Company believes its efforts will provide reasonable
assurance that material disruptions will not occur due to internal failure, the
possibility of interruption still exits. The Company is not anticipating having
to spend more than $0.1 million to be Year 2000 compliant. It is performing
this analysis with its MIS manager, its engineers and its accounting staff. It
is anticipated that all assessments and solutions will be in place by the
fourth quarter of fiscal year 1999.
-12-
<PAGE> 14
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have significant market risk exposure since it does
not have any outstanding variable rate debt or derivative financial and
commodity instruments as of March 28, 1999.
The Company is not subject to currency fluctuations since it does not have
any international operations.
-13-
<PAGE> 15
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
None
(b) Reports on Form 8-K No Current Report on Form 8-K was filed by the
Company since November 1997.
-14-
<PAGE> 16
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.
Spanish Broadcasting System of Puerto Rico, Inc.,
a Delaware Corporation
Spanish Broadcasting System of Puerto Rico, Inc., a
Puerto Rico Corporation.
By: /s/ Joseph A. Garcia
---------------------------------------------------
Joseph A. Garcia
EVP and Chief Financial Officer
(principal financial and accounting officer)
Date: May 11, 1999
-15-
<PAGE> 17
EXHIBIT INDEX
EXHIBITS
No. 27 Financial Data Schedule (for SEC use only)
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> SEP-28-1998
<PERIOD-END> MAR-28-1999
<CASH> 36,736,179
<SECURITIES> 0
<RECEIVABLES> 19,737,141
<ALLOWANCES> 4,092,333
<INVENTORY> 0
<CURRENT-ASSETS> 53,783,905
<PP&E> 15,167,609
<DEPRECIATION> 0
<TOTAL-ASSETS> 352,580,052
<CURRENT-LIABILITIES> 15,341,908
<BONDS> 0
0
218,080,696
<COMMON> 6,066
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 352,580,052
<SALES> 49,181,124
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,443,804
<INCOME-PRETAX> 2,671,604
<INCOME-TAX> 1,121,594
<INCOME-CONTINUING> 1,550,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,550,010
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
