<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 26, 2000
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.
(Exact name of registrant as specified in its charter)
SEE TABLE OF ADDITIONAL REGISTRANTS
DELAWARE 13-3827791
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 $.0001 per share,
outstanding as of May 4, 2000: 32,399,760 shares of Class A Common Stock and
27,816,900 shares of 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
NAME INCORPORATION NUMBER NUMBER
- ---- ------------------ ----------------- -----------------
<S> <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
Spanish Broadcasting System Network, Inc. New York 4899 13-3511101
SBS Promotions, Inc. New York 7999 13-3456128
Alarcon Holdings, Inc. New York 6512 13-3475833
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
SBS Funding, Inc. Delaware 4832 52-6999475
</TABLE>
<PAGE> 3
SPANISH BROADCASTING SYSTEM, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS - UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 26, 1999 AND
MARCH 26, 2000 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
ENDED MARCH 28, 1999 AND MARCH 26, 2000 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
ENDED MARCH 28, 1999 AND MARCH 26, 2000 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 12
PART II. OTHER INFORMATION 13
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
</TABLE>
2
<PAGE> 4
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 26, 1999 MARCH 26, 2000
------------------ --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 16,974,650 $ 108,138,002
RECEIVABLES:
TRADE 26,006,007 24,856,022
LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS 4,110,499 4,408,763
------------- -------------
NET RECEIVABLES - TRADE 21,895,508 20,447,259
BARTER (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF
$2,255,460 AT SEPT. 26, 1999 AND $3,246,165 AT MARCH 26, 2000) 4,757 11,046
------------- -------------
NET RECEIVABLES 21,900,265 20,458,305
OTHER CURRENT ASSETS 2,194,387 4,220,899
------------- -------------
TOTAL CURRENT ASSETS 41,069,302 132,817,206
PROPERTY AND EQUIPMENT, NET 14,777,703 16,081,091
INTANGIBLE ASSETS, NET 301,454,059 397,870,197
DEFERRED FINANCING COSTS, NET 6,228,716 8,141,325
DEFERRED OFFERING COSTS 1,965,551 --
OTHER ASSETS 185,190 187,054
------------- -------------
TOTAL ASSETS $ 365,680,521 $ 555,096,873
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $ 1,800,572 $ 1,050,572
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 11,836,145 11,616,148
ACCRUED INTEREST 3,941,088 9,107,239
DEFERRED COMMITMENT FEE 2,343,931 2,509,544
DIVIDENDS PAYABLE 1,323,018 --
------------- -------------
TOTAL CURRENT LIABILITIES 21,244,754 24,283,503
12.5% SENIOR UNSECURED NOTES, NET OF UNAMORTIZED DISCOUNT 92,262,924 100,000
11% SENIOR UNSECURED NOTES 75,000,000 --
9.625% SENIOR SUBORDINATED NOTES -- 235,000,000
OTHER LONG-TERM DEBT, LESS CURRENT PORTION 3,422,341 865,660
DEFERRED INCOME TAXES 12,954,515 26,622,604
14.25% SENIOR EXCHANGABLE PREFERRED STOCK,
$.01 PAR VALUE. AUTHORIZED 1,000,000 SHARES; ISSUED AND
OUTSTANDING 245,815 SHARES AT SEPT. 26, 1999; NONE AT MARCH 26, 2000 235,918,055 --
STOCKHOLDERS' EQUITY (DEFICIENCY):
CLASS A COMMON STOCK, $.0001 PAR VALUE. AUTHORIZED
100,000,000 SHARES; NONE ISSUED AND OUTSTANDING AT SEPT. 26, 1999;
32,399,760 ISSUED AND OUTSTANDING AT MARCH 26, 2000 -- 3,240
CLASS B COMMON STOCK, $.0001 PAR VALUE. AUTHORIZED
50,000,000 SHARES; 39,448,550 SHARES ISSUED AND OUTSTANDING
AT SEPT. 26, 1999; 27,816,900 SHARES AT MARCH 26, 2000 3,945 2,782
ADDITIONAL PAID IN CAPITAL 6,869,241 393,019,908
ACCUMULATED DEFICIT (79,535,846) (124,800,824)
------------- -------------
(72,662,660) 268,225,106
LESS: LOANS RECEIVABLE FROM STOCKHOLDERS (2,459,408) --
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (75,122,068) 268,225,106
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 365,680,521 $ 555,096,873
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 5
SPANISH BROADCASTING SYSTEM,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ -------------------------------
MARCH 28, 1999 MARCH 26, 2000 MARCH 28, 1999 MARCH 26, 2000
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
GROSS BROADCASTING REVENUES $ 21,457,906 $ 28,729,792 $ 49,181,124 $ 61,931,899
LESS: AGENCY COMMISSIONS 2,631,542 3,801,650 6,084,946 8,070,354
------------ ------------ ------------ ------------
NET BROADCASTING REVENUES 18,826,364 24,928,142 43,096,178 53,861,545
------------ ------------ ------------ ------------
OPERATING EXPENSES
ENGINEERING 476,825 626,587 1,013,527 1,212,103
PROGRAMMING 2,312,521 3,246,953 4,812,147 6,204,413
SELLING 4,590,486 5,171,226 10,513,939 11,454,596
GENERAL AND ADMINISTRATIVE 2,500,116 3,207,520 4,575,649 5,885,087
CORPORATE EXPENSES 2,249,272 2,391,330 4,334,310 15,454,514
DEPRECIATION & AMORTIZATION 2,379,647 3,223,763 4,667,670 5,847,633
------------ ------------ ------------ ------------
14,508,867 17,867,379 29,917,242 46,058,346
------------ ------------ ------------ ------------
OPERATING INCOME 4,317,497 7,060,763 13,178,936 7,803,199
OTHER (INCOME) EXPENSES:
INTEREST EXPENSE, NET 5,216,805 4,528,397 10,443,804 7,494,673
OTHER, NET 49,828 (48,892) 63,528 356,215
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (949,136) 2,581,258 2,671,604 (47,689)
INCOME TAX EXPENSE (BENEFIT) (474,013) 1,057,695 1,121,594 (20,173)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (475,123) 1,523,563 1,550,010 (27,516)
EXTRAORDINARY ITEM, NET OF INCOME TAXES -- -- -- (16,865,069)
------------ ------------ ------------ ------------
NET INCOME (LOSS) (475,123) 1,523,563 1,550,010 (16,892,585)
DIVIDENDS ON PREFERRED STOCK (8,451,068) -- (16,889,122) (28,372,393)
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS (8,926,191) 1,523,563 (15,339,112) (45,264,978)
------------ ------------ ------------ ------------
NET INCOME (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEM:
BASIC (0.29) 0.03 (0.51) (0.51)
DILUTED (0.29) 0.03 (0.51) (0.51)
NET LOSS PER COMMON SHARE FOR EXTRAORDINARY ITEM:
BASIC -- -- -- (0.30)
DILUTED -- -- -- (0.30)
NET INCOME (LOSS) PER COMMON SHARE:
BASIC (0.29) 0.03 (0.51) (0.81)
DILUTED (0.29) 0.03 (0.51) (0.81)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
(BASIC AND DILUTED):
BASIC 30,333,400 60,216,660 30,333,400 56,108,682
DILUTED 30,333,400 60,610,716 30,333,400 56,108,682
</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
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------
MARCH 28, 1999 MARCH 26, 2000
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 1,550,010 $ (16,892,585)
------------ -------------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
LOSS ON RETIREMENT OF DEBT -- 28,584,862
DEPRECIATION AND AMORTIZATION 4,667,670 5,847,633
GAIN ON SALE OF RADIO STATIONS -- (54,963)
PROVISION FOR DOUBTFUL ACCOUNTS 638,945 1,646,499
AMORTIZATION OF DEBT DISCOUNT 296,748 61,295
AMORTIZATION OF DEFERRED FINANCING COSTS 820,430 513,466
ACCRETION OF INTEREST TO PRINCIPAL ON OTHER LONG-TERM DEBT 153,600 151,441
DEFERRED INCOME TAXES 109,781 (8,531,911)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
DECREASE IN RECEIVABLES 279,472 2,295,461
(INCREASE) DECREASE IN OTHER CURRENT ASSETS 446,280 (3,155,512)
(INCREASE) DECREASE IN OTHER ASSETS 30,965 (1,864)
DECREASE IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES (929,043) (2,611,567)
INCREASE IN ACCRUED INTEREST -- 5,166,151
INCREASE IN DEFERRED COMMITMENT FEE 389,068 165,613
------------ -------------
TOTAL ADJUSTMENTS 6,903,916 30,076,604
------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,453,926 13,184,019
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
ACQUISITIONS OF RADIO STATIONS, NET OF CASH ACQUIRED (8,392,814) (80,608,272)
PROCEEDS FROM SALE OF STATIONS -- 690,304
ADDITIONS TO PROPERTY AND EQUIPMENT (943,771) (373,658)
------------ -------------
NET CASH USED IN INVESTING ACTIVITIES (9,336,585) (80,291,626)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
RETIREMENT OF 14.25% SENIOR EXCHANGEABLE PREFERRED STOCK -- (265,613,466)
RETIREMENT OF SENIOR NOTES -- (190,295,268)
DECREASE IN LOANS RECEIVABLE FROM STOCKHOLDERS -- 2,459,408
PROCEEDS FROM SENIOR SUBORDINATED NOTES -- 227,060,112
PROCEEDS FROM CLASS A COMMON STOCK -- 388,118,295
REPAYMENT OF OTHER LONG-TERM DEBT (23,389) (3,458,122)
------------ -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (23,389) 158,270,959
------------ -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (906,048) 91,163,352
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 37,642,227 16,974,650
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,736,179 $ 108,138,002
============ =============
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID $ 10,049,820 $ 5,927,284
============ =============
INCOME TAXES PAID $ 889,938 $ 430,324
============ =============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
5
<PAGE> 7
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1999 AND MARCH 26, 2000
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
the Company and its 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 28, 1999 and March 26, 2000 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 26, 1999 included in the Company's 1999 Form 10-K.
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 period ended March 26, 2000 are not necessarily indicative of the
results for a full year.
(2) ACQUISITIONS
During fiscal year 1999, we acquired three stations, WCMA-FM (formerly
WDOY-FM), WMEG-FM and WEMG-FM (all serving Puerto Rico), and eighty percent of
the issued and outstanding capital stock of JuJu Media, Inc., the owner of
LaMusica.com, a bilingual Spanish-English Internet Web site. The acquisitions of
WCMA-FM, WMEG-FM and WEGM-FM were financed by cash on hand. The acquisition of
JuJu Media, Inc. was financed by cash on hand and the issuance of promissory
notes. The results of these acquisitions did not meet the significance test for
pro forma presentation and, consequently, no pro forma results have been
included with respect to these acquisitions. Our results include the operations
of these stations and JuJu Media, Inc. from the date of their respective
acquisitions.
On September 22, 1999, Spanish Broadcasting System of Puerto Rico,
Inc., a Delaware corporation, a wholly owned subsidiary of the Company, entered
into a stock purchase agreement to purchase all of the outstanding capital stock
of the following nine subsidiaries of AMFM Operating Inc., a Delaware
corporation (formerly known as Chancellor Media Corporation of Los Angeles)
("AMFM"): Primedia Broadcast Group, Inc., WIO, Inc., Cadena Estereotempo, Inc.,
Portorican American Broadcasting, Inc., WLDI, Inc., WRPC, Inc., WOYE, Inc.,
WZNT, Inc., WOQI, Inc. (the "Primedia Station Group"). The Primedia Station
Group owns and operates eight radio stations in Puerto Rico: WIOA-FM, WIOB-FM,
WIOC-FM, WCOM-FM, WZMT-FM, WZNT-FM, WOYE-FM, and WCTA-FM. On January 14, 2000,
the Company completed the purchase from AMFM of all of the outstanding capital
stock of the Primedia Station Group for total cash consideration of $91.3
million, including a $10.0 million deposit that was made on September 22, 1999
and closing costs of $0.7 million. This acquisition was financed from cash on
hand.
6
<PAGE> 8
All of the Company's direct and indirect subsidiaries (except for JuJu Media,
Inc. and the Primedia Station Group) have guaranteed the Senior Notes on a full,
unconditional, and joint and several basis. Condensed consolidating unaudited
financial information for the Company and its guarantor and non-guarantor
subsidiaries is as follows:
<TABLE>
<CAPTION>
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ -----
AS OF MARCH 26, 2000
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATING BALANCE SHEET
Cash and cash equivalents 105,406,733 2,731,269 -- 108,138,002
Receivables, net 18,792,817 1,665,488 -- 20,458,305
Other current assets 5,288,518 (1,067,619) -- 4,220,899
------------ ------------ ------------ ------------
Current assets 129,488,068 3,329,138 -- 132,817,206
Property and equipment, net 13,946,296 2,134,795 -- 16,081,091
Intangible assets, net 284,420,752 113,449,445 -- 397,870,197
Deferred financing costs, net 8,141,325 -- -- 8,141,325
Investment in subsidiaries and intercompany 94,807,528 (2,145,892) (92,661,636) --
Other assets 179,709 7,345 -- 187,054
------------ ------------ ------------ ------------
Total assets 530,983,678 116,774,831 (92,661,636) 555,096,873
============ ============ ============ ============
Current portion of long-term debt 1,050,572 -- -- 1,050,572
Accounts payable and accrued expenses 9,702,953 1,913,195 -- 11,616,148
Accrued interest 9,107,239 -- -- 9,107,239
Deferred commitment fee 2,509,544 -- -- 2,509,544
------------ ------------ ------------ ------------
Current liabilities 22,370,308 1,913,195 -- 24,283,503
Long-term debt 235,965,660 -- -- 235,965,660
Deferred income taxes 4,422,604 22,200,000 -- 26,622,604
------------ ------------ ------------ ------------
Total liabilities 262,758,572 24,113,195 -- 286,871,767
Common stock 6,022 1,000 (1,000) 6,022
Additional paid-in capital 393,019,908 94,500,323 (94,500,323) 393,019,908
Accumulated deficit (124,800,824) (1,839,687) 1,839,687 (124,800,824)
------------ ------------ ------------ ------------
Stockholders' equity 268,225,106 92,661,636 (92,661,636) 268,225,106
------------ ------------ ------------ ------------
Total liabilities and stockholders'
equity 530,983,678 116,774,831 (92,661,636) 555,096,873
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ -----
FOR THE THREE MONTHS ENDED MARCH 26, 2000
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATING INCOME STATEMENT
Net broadcasting revenues 22,802,390 2,125,752 -- 24,928,142
Station operating expenses 10,340,244 1,912,042 -- 12,252,286
Corporate expenses 2,391,330 -- -- 2,391,330
Depreciation and amortization 2,433,584 790,179 -- 3,223,763
------------ ------------ ------------ ------------
Operating income 7,637,232 (576,469) -- 7,060,763
Interest income (expense), net (4,528,397) -- -- (4,528,397)
Other income (expense), net 48,892 -- -- 48,892
Income tax expense (benefit) 1,301,536 (243,841) -- 1,057,695
Extraordinary item, net of income taxes -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) 1,856,191 (332,628) -- 1,523,563
============ ============ ============ ============
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ -----
FOR THE THREE MONTHS ENDED MARCH 26, 2000
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Cash flows from operating activities 11,499,720 1,684,299 -- 13,184,019
============ ============ ============ ============
Cash flows from investing activities (80,281,975) (9,651) -- (80,291,626)
============ ============ ============ ============
Cash flows from financing activities 157,223,220 1,047,739 -- 158,270,959
============ ============ ============ ============
</TABLE>
Parent-only financial information has not been provided since the parent has no
operations or assets separate from its investments in its subsidiaries.
The Company completed the sale of WVMQ-FM in Key West and WZMQ-FM in
Key Largo to South Broadcasting System, Inc., a company owned by Mr. Pablo Raul
Alarcon, Sr., on February 2, 2000 for total cash consideration of $0.7 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 26, 2000 COMPARED TO THE THREE MONTHS ENDED
MARCH 28, 1999
NET REVENUES. Our net revenues were $24.9 million for the three
months ended March 26, 2000, compared to $18.8 million for the three months
ended March 28, 1999, an increase of $6.1 million or 32.5%. Most of the increase
was generated by higher advertising rates, as advertisers continued to be
attracted to the Spanish-language market as an important advertising choice.
Additionally, our net revenues for the three months ended March 26, 2000
included results of certain of our stations in Puerto Rico, the Primedia Station
Group, WMEG-FM and WEGM-FM, that had not yet been acquired during the same
period in fiscal year 1999.
STATION OPERATING EXPENSES. Total station operating expenses were
$12.3 million for the three months ended March 26, 2000, compared to $9.9
million for the three months ended March 28, 1999, an increase of $2.4 million
or 24.2%. The increase was primarily attributable to the inclusion of operating
results from certain of our stations in Puerto Rico, the Primedia Station Group,
WMEG-FM and WEGM-FM, and JuJu Media, Inc., the owner and operator of our
bilingual Spanish-English Internet Web site, LaMusica.com, that had not yet been
acquired during the same period in fiscal year 1999. In addition, on a same
station basis, we experienced higher music license fees and commissions
associated with increased sales, that were offset by lower station operating
costs.
BROADCAST CASH FLOW. Broadcast cash flow was $12.7 million for the
three months ended March 26, 2000, compared to $8.9 million for the three months
ended March 28, 1999, an increase of $3.8 million or 42.7%. This increase was
attributable to continued revenue growth and effective management of operating
expenses. Our broadcast cash flow margin increased to 51.0% for the three months
ended March 26, 2000 compared to 47.3% for the three months ended March 28,
1999. Excluding net internet operating costs of $0.3 million, broadcast cash
flow would have increased $4.1 million to $13.0 million, a 46.1% increase, and
our broadcast cash flow margins would have reached 52.2% for the three months
ended March 26, 2000.
CORPORATE EXPENSES. Total corporate expenses were $2.4 million for
the three months ended March 26, 2000, compared to $2.2 million for the three
months ended March 28, 1999, an increase of $0.2 million or 9.1%. The increase
in corporate expenses resulted mainly from higher legal expenses.
8
<PAGE> 10
EBITDA. EBITDA was $10.3 million for the three months ended March
26, 2000, compared to $6.7 million for the three months ended March 28, 1999, an
increase of $3.6 million or 53.7%. The increase in EBITDA was mostly
attributable to increased revenues and operating efficiencies.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense was $3.2 million for the three months ended March 26, 2000, compared to
$2.4 million for the three months ended March 28, 1999, an increase of $0.8
million or 33.3%. The increase was related to an increase in amortization costs
and depreciation resulting from the purchases of the Primedia Station Group,
WMEG-FM and WEGM-FM in Puerto Rico as well as the purchase of 80% of JuJu Media.
OPERATING INCOME. Operating income was $7.1 million for the three
months ended March 26, 2000, compared to $4.3 million for the three months ended
March 28, 1999, an increase of $2.8 million or 65.1%. The increase was due
primarily to the increase in EBITDA, that was partially offset by the increase
in depreciation and amortization.
INTEREST EXPENSE, NET. Interest expense was $4.5 million for the
three months ended March 26, 2000, compared to $5.2 million for the three months
ended March 28, 1999, a decrease of $0.7 million or 13.5%. This decrease was due
to interest income earned on the unused proceeds from the initial public
offering, partially offset by interest on additional debt related to the
refinancing of the 12 1/2% and 11% notes.
OTHER INCOME (EXPENSE). We had no meaningful other expenses during
the three months ended March 26, 2000 and March 28, 1999.
NET INCOME (LOSS.) Our net income was $1.5 million for the three
months ended March 26, 2000, compared to a net loss of $0.5 million for the
three months ended March 28, 1999. The net income was caused by significantly
increased operating income and reduced interest expense, net.
AFTER-TAX CASH FLOW. After-tax cash flow was $4.7 million for the
three months ended March 26, 2000, compared to $1.9 million for the three months
ended March 28, 1999. This increase was primarily attributable to the increase
in EBITDA and the decrease in interest expense, net.
SIX MONTHS ENDED MARCH 26, 2000 COMPARED TO THE SIX MONTHS ENDED MARCH 28, 1999
NET REVENUES. Our net revenues were $53.9 million for the six
months ended March 26, 2000, compared to $43.1 million for the six months ended
March 28, 1999, an increase of $10.8 million or 25.1%. Most of the increase was
generated by higher advertising rates, as advertisers continued to be attracted
to the Spanish-language market as an important advertising choice. Additionally,
our net revenues for the six months ended March 26, 2000 included results of
certain of our stations in Puerto Rico, the Primedia Station Group, WMEG-FM and
WEGM-FM, that had not yet been acquired during the same period in fiscal year
1999.
STATION OPERATING EXPENSES. Total station operating expenses were
$24.8 million for the six months ended March 26, 2000, compared to $20.9 million
for the six months ended March 28, 1999, an increase of $3.9 million or 18.7%.
The increase was primarily attributable to the inclusion of operating results
from certain of our stations in Puerto Rico, the Primedia Station Group, WMEG-FM
and WEGM-FM, and JuJu Media, Inc., the owner and operator of our bilingual
Spanish-English Internet Web site, LaMusica.com, that had not yet been acquired
during the same period in fiscal year 1999. In addition, on a same station
basis, we experienced higher music license fees and commissions associated with
increased sales.
BROADCAST CASH FLOW. Broadcast cash flow was $29.1 million for the
six months ended March 26, 2000, compared to $22.2 million for the six months
9
<PAGE> 11
ended March 28, 1999, an increase of $6.9 million or 31.1%. This increase was
attributable to continued revenue growth and effective management of operating
expenses. Our broadcast cash flow margin increased to 54.0% for the six months
ended March 26, 2000 compared to 51.5% for the six months ended March 28, 1999.
Excluding net internet operating costs of $0.7 million, broadcast cash flow
would have increased $7.6 million to $29.8 million, a 34.2% increase, and our
broadcast cash flow margin would have reached 55.3% for the six months ended
March 26, 2000.
CORPORATE EXPENSES. Total corporate expenses were $15.5 million
for the six months ended March 26, 2000, compared to $4.3 million for the six
months ended March 28, 1999, an increase of $11.2 million or 260.5%. The
increase in corporate expenses resulted mainly from a non-recurring severance
payment of $10.2 million related to the purchase of an annuity for two of our
retired executives, executive performance bonuses and higher legal expenses.
EBITDA. EBITDA was $13.7 million for the six months ended March
26, 2000, compared to $17.8 million for the three months ended March 28, 1999, a
decrease of $4.1 million or 23.0%. The decrease in EBITDA was mostly
attributable to the non-recurring severance payment of $10.2 million, partially
offset by increased broadcast cash flow. Excluding the non-recurring severance
payment, EBITDA was $23.9 million for the six months ended March 26, 2000, an
increase of $6.1 million or 34.3% compared to the six months period ended March
28, 1999 and our EBITDA margin was 44.3%.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense was $5.8 million for the six months ended March 26, 2000, compared to
$4.7 million for the six months ended March 28, 1999, an increase of $1.1
million or 23.4%. The increase was related to an increase in amortization costs
as a result of the purchases of the Primedia Station Group, WMEG-FM, WEGM-FM and
WCMA-FM in Puerto Rico as well as the purchase of 80% of JuJu Media.
OPERATING INCOME. Operating income was $7.8 million for the six
months ended March 26, 2000, compared to $13.2 million for the six months ended
March 28, 1999, a decrease of $5.4 million or 40.9%. The decrease was due
primarily to non-recurring severance payment of $10.2 million.
INTEREST EXPENSE, NET. Interest expense was $7.5 million for the
six months ended March 26, 2000, compared to $10.4 million for the six months
ended March 28, 1999, a decrease of $2.9 million or 27.9%. This decrease was due
to interest income earned on the unused proceeds from the initial public
offering, partially offset by interest on additional debt related to the
refinancing of the 12 1/2% and 11% notes.
OTHER INCOME (EXPENSE). We had other expenses of $0.4 million for
the six months ended March 26, 2000. The other expenses resulted primarily from
the write-off of financing costs related to financing which the Company chose
not to complete.
EXTRAORDINARY LOSS. The Company incurred an extraordinary loss of
$16.9 million, net of an income tax benefit of $11.7 million, in the six months
ended March 26, 2000 related to the early retirement of our 11% and 12 1/2%
notes for an amount in excess of our carrying value and the write-off of the
related unamortized debt issuance costs.
NET INCOME (LOSS.) Our net loss was $16.9 million for the six
months ended March 26, 2000, compared to net income of $1.6 million for the six
months ended March 28, 1999. The loss was caused primarily by the extraordinary
loss and the non-recurring severance payment.
AFTER-TAX CASH FLOW. After-tax cash flow was $5.8 million for the
six months ended March 26, 2000, compared to $6.2 million for the six months
ended March 28, 1999, a decrease of $0.4 million or 6.5%. This decrease was
10
<PAGE> 12
primarily attributable to the non-recurring severance payment. Excluding the net
non-recurring severance payment, after-tax cash flow was $11.7 million for the
six months ended March 26, 2000, an increase of $5.5 million or 88.7% compared
to the six months period ended March 28, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity is cash on hand and cash provided
by operations. We intend to use a significant portion of our capital resources
to make future acquisitions. These acquisitions will be funded primarily from
cash on hand and internally generated cash flow, as well as potential credit
facilities and equity financing.
Our ability to increase our indebtedness is limited by the terms
of the indentures governing our senior subordinated notes. Additionally, such
indentures place restrictions on us with respect to the sale of assets, liens,
investments, dividends, debt repayments, capital expenditures, transactions with
affiliates and consolidations and mergers, among other things.
Net cash flows provided by operating activities were $13.2 million
for the six months ended March 26, 2000, compared to net cash flows provided by
operating activities of $8.5 million for the six months ended March 28, 1999.
Changes in our net cash flow from operating activities are primarily a result of
changes in advertising revenues and station operating expenses which are
affected by the acquisition and disposition of stations during those periods.
Net cash flows used in investing activities were $80.3 million for
the six months ended March 26, 2000, compared to net cash flows used in
investing activities of $9.3 million for the six months ended March 28, 1999.
Changes in our net cash flow from investing activities are primarily a result of
the acquisition and disposition of stations during those periods.
Net cash flows provided by financing activities were $158.3
million for the six months ended March 26, 2000, compared to no meaningful net
cash flows used in financing activities for the six months ended March 28, 1999.
Changes in our net cash flow from financing activities during the six months
period ended March 26, 2000 were primarily a result of the initial public
offering and related refinancing transactions that were completed during the
first quarter of fiscal year 2000.
Management believes that cash from operating activities, together
with cash on hand, should be sufficient to permit us to meet our obligations in
the foreseeable future, including: (1) required significant cash interest
payments pursuant to the terms of the senior subordinated notes due 2009, (2)
operating obligations and (3) capital expenditures. Assumptions (none of which
can be assured) that underlie management's belief, include:
o the economic conditions within the radio broadcasting market and
economic conditions in general will not deteriorate in any material
respect;
o we will continue to successfully implement our business strategy;
o we will not incur any material unforeseen liabilities, including,
without limitation, environmental liabilities; and
o no future acquisitions will adversely affect our liquidity.
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<PAGE> 13
We continuously review, and are currently reviewing, opportunities
to acquire additional radio stations, primarily in the largest Hispanic markets
in the United States. We engage in discussions regarding potential acquisitions
from time to time in the ordinary course of business. On May 8, 2000, we entered
into agreements to acquire all of the outstanding capital stock of Rodriguez
Communications, Inc. ("RCI") and certain holdings of its affiliate, New World
Broadcasters Corp. ("New World"), for total consideration of $165.2 million,
consisting of $43.5 million of our Class A common stock and $121.7 million in
cash, subject to certain conditions and adjustments.
The purchase of RCI includes the rights to acquire the following
radio stations -- KFOX-FM and KREA-FM broadcasting, on a co-channeled basis, at
93.5 MHz serving the Los Angeles, California market; KXJO-FM broadcasting at
92.7 MHz serving the San Francisco, California market; and KSAH-AM broadcasting
at 720 kHz serving the San Antonio, Texas market. Spanish Broadcasting will
acquire Dallas radio stations KTCY-FM broadcasting at 104.9 MHz and KXEB-AM
broadcasting at 910 kHz from New World. Once acquired by RCI we intend to
broadcast our programming on each of RCI's stations we have agreed to acquire
under a time brokerage agreement until closing. Until closing, we are
broadcasting our programming on New World's stations in the Dallas market under
a time brokerage agreement that commenced on May 8. The closing of these
acquisitions is targeted for November of this year and each of these
transactions is subject to numerous conditions and approvals, including receipt
of regulatory approvals under the federal communications laws and review by
federal antitrust authorities. Additionally, the acquisition of KXJO-FM is
subject to the completion of Clear Channel, Inc.'s merger with AMFM, Inc. We
cannot assure you that the acquisition described above will occur during the
expected time frame, under the terms described, or at all.
We have no other written understandings, letters of intent or
contracts to acquire radio stations or other companies. We anticipate that any
future acquisitions would be financed through funds generated from permitted
debt financing, equity financing, operations or a combination of these sources.
However, there can be no assurance that financing from any of these sources, if
available, can be obtained on favorable terms.
YEAR 2000 ISSUE
To date, no material interruptions to our operations have occurred
as a result of the year 2000 issue. The greatest threat to our ability to
continue broadcasting due to year 2000 issues comes from the utilities upon
which we are dependent. To date, we are not aware of any external utility vendor
with a year 2000 issue that has materially impacted our results of operations,
liquidity, or capital resources. While we believe our efforts provide reasonable
assurance that material disruptions will not occur due to internal or vendor
failure, the possibility of interruption still exists.
In 1999, we performed various analyses of potential problems
related to the year 2000 issue. Internally, we bear some risks in the following
areas: computer hardware and software for our accounting and administrative
functions, computer-controlled programming of music and the transmission of our
signals. Externally, we are at risk, like most companies, of losing power and
phone lines. As of March 26, 2000 we had spent $0.1 million to upgrade/replace
non-compliant systems and equipment.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe that inflation has not had a material impact on our
results of operations for each of our fiscal years in the three-year period
ended September 26, 1999 and in the three-and six-month periods ended March 26,
2000. However, there can be no assurance that future inflation would not have an
adverse impact on our operating results and financial condition.
We are not subject to currency fluctuations since we do not have
any international operations other than Puerto Rico where the currency is the
U.S. dollar. We have limited market risk exposure since we do not have any
outstanding variable rate debt or derivative financial and commodity instruments
as of May 10, 2000. Our financial instruments outstanding at March 26, 2000 with
market risk are our senior subordinated notes due 2009.
12
<PAGE> 14
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we are involved in litigation incidental to the
conduct of our business, such as contract matters and employee-related matters.
We are not currently a party to litigation which, in the opinion of management,
is likely to have a material adverse effect on our business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 18, 1999, we filed a registration statement of Form S-1
with the SEC (Registration No. 333-85499) with respect to our initial public
offering of 21,787,400 shares of Class A Common Stock, par value $.0001. The SEC
declared our registration statement effective on October 27, 1999. The initial
public offering closed on November 2, 1999 and we and certain selling
shareholders issued and sold 20,768,110 (including over-allotment options of
3,268,110) shares and 4,287,400 shares of Class A Common Stock, respectively.
All of the 21,787,400 shares of Class A Common Stock registered in the offering
were sold at an initial offering price of $20.00 per share, resulting in an
aggregate-offering price of $435,748,000. Lehman Brothers, Inc. and Merrill,
Lynch, Pierce, Fenner & Smith Incorporated acted as representatives for the
underwriters, to whom SBS paid an aggregate of $26.0 million and the selling
shareholders paid an aggregate of about $5.4 million in underwriting discounts
and commissions ($1.25 per share), resulting in net proceeds to SBS of $389.4
million and $80.4 million to the selling shareholders.
On August 18, 1999, we also filed a registration statement on Form
S-1 with the Commission (Registration No. 333-85519) with respect to an offering
of Senior Subordinated Notes. On November 2, 1999, we closed the offering of the
9 5/8% Senior Subordinated Notes due 2009. All of the notes registered in the
offering were sold at an aggregate-offering price of $235.0 million. Lehman
Brothers Inc. and CIBC World Markets Corp. served as underwriters, to whom SBS
paid an aggregate underwriting discount of $7.1 million (3.00%), resulting in
net proceeds to SBS of $228.0 million. Other expenses of these two offerings
were $4.1 million including Securities and Exchange Commission registration
fees, printing, accounting, legal fees and expenses and miscellaneous expenses.
The net proceeds to SBS after deducting the total expense described above was
$613.3 million.
We used the net proceeds of our initial public offering and the
concurrent senior subordinated notes offering to (1) redeem our preferred stock
at 105% of aggregate liquidation preference at a cost of $265.6 million (2)
repurchase our 11% notes and 12 1/2% notes at approximately 111% and 114% of
their par value, respectively, pursuant to the tender offers and consent
solicitations we completed on November 2, 1999 at a cost of $205.0 million (3)
purchase an annuity for two of our retiring executives at a cost of $10.2
million (4) repay a promissory note to Infinity Broadcasting Corp., including
accrued interest, for a total of $3.4 million, and (5) $129.1 million in excess
proceeds remained for use by us for general corporate purposes, including
potential acquisitions. In connection with these offerings, we also were paid
$3.0 million by Messrs. Alarcon Sr. and Alarcon Jr. for repayment of loans
previously made to them and $0.7 million by Mr. Alarcon Sr. for the acquisition
of the Keys' stations, WVMQ-FM and WZMQ-FM. None of the expenses or net proceeds
of the initial public offering were paid directly or indirectly to any director
or officer of SBS or their associates, persons owning 10% or more of the equity
position, or an affiliate of SBS. The excess proceeds of such offerings have not
been separately allocated and are used by us, together with cash on hand, cash
from operations and cash received from the sale of the Keys' stations, for
general corporate purposes, including acquisitions. From November 2, 1999
through March 26, 2000, we have used approximately $100 million in our
operations, including funding the acquisition of the Primedia Station Group.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
27 Financial Data Schedule
(b) Reports on Form 8-K. A Current Report on Form 8-K was filed by the
Company on January 28, 2000, reporting an "Acquisition or
Disposition of Assets" pursuant to Item 2 of Form 8-K and Form
8-K/A-1, Amendment No. 1 to the Current Report on Form 8-K, was
filed on March 29, 2000.
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<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the
registrants 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, Inc., a New Jersey
Corporation
Spanish Broadcasting System of California, Inc.
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
SBS Funding, Inc.
By: /s/ Joseph A. Garcia
---------------------------------------------
Joseph A. Garcia Executive Vice President,
Date: May 10, 2000 Chief Financial Officer and Secretary
(principal financial and accounting officer)
14
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