<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 DECEMBER 26, 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.
(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
<PAGE> 2
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Registrant's Common Stock, par value $.0001 per share,
outstanding as of February 4, 2000: 25,731,760 shares of Class A Common Stock
and 34,484,900 shares of Class B Common Stock.
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
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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>
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SPANISH BROADCASTING SYSTEM, INC.
INDEX
<TABLE>
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 26, 1999 AND
DECEMBER 26, 1999 (UNAUDITED) 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED DECEMBER 27, 1998 AND DECEMBER 26, 1999 (UNAUDITED) 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED DECEMBER 27, 1998 AND DECEMBER 26, 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 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 11
PART II. OTHER INFORMATION 11
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K 11
</TABLE>
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SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 26, 1999 DECEMBER 26, 1999
------------------ ----------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 16,974,650 $ 174,579,468
RECEIVABLES:
TRADE 26,006,007 27,529,764
LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS 4,110,499 4,246,146
------------- -------------
NET RECEIVABLES - TRADE 21,895,508 23,283,618
BARTER (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF
$2,255,460 AT SEPT. 26, 1999 AND $3,108,944 AT DEC. 26, 1999) 4,757 11,046
------------- -------------
NET RECEIVABLES 21,900,265 23,294,664
OTHER CURRENT ASSETS 2,194,387 5,457,206
------------- -------------
TOTAL CURRENT ASSETS 41,069,302 203,331,338
PROPERTY AND EQUIPMENT, NET 14,777,703 14,510,610
FRANCHISE COSTS, NET 301,454,059 299,654,084
DEFERRED FINANCING COSTS, NET 6,228,716 8,257,221
DEFERRED OFFERING COSTS 1,965,551 --
OTHER ASSETS 185,190 186,641
------------- -------------
$ 365,680,521 $ 525,939,894
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $ 1,800,572 $ 1,050,572
DEPOSIT ON SALE OF STATIONS -- 700,000
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 11,494,072 11,531,184
ACCRUED INTEREST 3,941,088 3,386,562
DEFERRED COMMITMENT FEE 2,686,004 2,751,351
DIVIDENDS PAYABLE 1,323,018 --
------------- -------------
TOTAL CURRENT LIABILITIES 21,244,754 19,419,669
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 3,422,341 878,841
DEFERRED INCOME TAXES 12,954,515 3,607,158
14.25% SENIOR EXCHANGEABLE PREFERRED STOCK,
$.01 PAR VALUE. AUTHORIZED 1,000,000 SHARES; ISSUED AND
OUTSTANDING 245,815 SHARES AT SEPT. 26, 1999; NONE AT DEC. 26, 1999 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; 25,731,210 ISSUED AND OUTSTANDING AT DEC. 26, 1999 -- 2,573
CLASS B COMMON STOCK, $.0001 PAR VALUE. AUTHORIZED
50,000,000 SHARES; 39,448,550 SHARES ISSUED AND OUTSTANDING
AT SEPT. 26, 1999; 34,485,450 SHARES AT DEC. 26, 1999 3,945 3,449
ADDITIONAL PAID IN CAPITAL 6,869,241 393,252,591
ACCUMULATED DEFICIT (79,535,846) (126,324,387)
------------- -------------
(72,662,660) 266,934,226
LESS: LOANS RECEIVABLE FROM STOCKHOLDERS (2,459,408) --
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (75,122,068) 266,934,226
------------- -------------
$ 365,680,521 $ 525,939,894
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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SPANISH BROADCASTING SYSTEM,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 27, 1998 DECEMBER 26, 1999
----------------- -----------------
<S> <C> <C>
GROSS REVENUES $27,723,218 $33,202,107
LESS: AGENCY COMMISSIONS 3,453,404 4,268,704
----------- ------------
NET REVENUES 24,269,814 28,933,403
----------- ------------
OPERATING EXPENSES:
ENGINEERING 536,702 585,516
PROGRAMMING 2,499,626 2,957,460
SELLING 5,923,453 6,283,370
GENERAL AND ADMINISTRATIVE 2,075,533 2,677,567
CORPORATE EXPENSES 2,085,038 13,063,184
DEPRECIATION & AMORTIZATION 2,288,023 2,623,870
----------- ------------
15,408,375 28,190,967
----------- ------------
OPERATING INCOME 8,861,439 742,436
OTHER (INCOME) EXPENSES:
INTEREST EXPENSE, NET 5,226,999 2,966,276
OTHER, NET 13,700 405,107
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 3,620,740 (2,628,947)
INCOME TAX EXPENSE (BENEFIT) 1,595,607 (1,077,868)
----------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 2,025,133 (1,551,079)
EXTRAORDINARY ITEM, LOSS ON EXTINGUISHMENT OF DEBT,
NET OF INCOME TAXES -- (16,865,069)
----------- ------------
NET INCOME (LOSS) 2,025,133 (18,416,148)
DIVIDENDS ON PREFERRED STOCK (8,438,054) (28,372,393)
----------- ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $(6,412,921) $(46,788,541)
=========== ============
NET LOSS PER COMMON SHARE BEFORE EXTRAORDINARY ITEM:
BASIC (0.21) (0.58)
DILUTED (0.21) (0.58)
NET LOSS PER COMMON SHARE FOR EXTRAORDINARY ITEM:
BASIC
DILUTED -- (0.32)
-- (0.32)
NET LOSS PER COMMON SHARE:
BASIC (0.21) (0.90)
DILUTED (0.21) (0.90)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 30,333,400 52,000,704
DILUTED 30,333,400 52,000,704
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 27, 1998 AND DECEMBER 26, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 27, 1998 DECEMBER 26, 1999
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 2,025,133 $ (18,416,148)
------------- -------------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
LOSS ON EARLY EXTINGUISHMENT OF DEBT -- 28,584,862
DEPRECIATION AND AMORTIZATION 2,288,023 2,623,870
CHANGE IN PROVISION FOR LOSSES ON RECEIVABLES 832,388 1,145,734
AMORTIZATION OF DEBT DISCOUNT 148,134 61,295
AMORTIZATION OF DEFERRED FINANCING COSTS 429,848 287,174
ACCRETION OF INTEREST TO PRINCIPAL ON OTHER LONG-TERM DEBT 76,800 151,441
DEFERRED INCOME TAXES 1,066,175 (9,347,357)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
INCREASE IN RECEIVABLES (3,330,865) (2,540,133)
(INCREASE) DECREASE IN OTHER CURRENT ASSETS 386,887 (3,262,818)
(INCREASE) DECREASE IN OTHER ASSETS 965 (1,451)
INCREASE IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES 119,051 37,112
DECREASE IN ACCRUED INTEREST (871,656) (554,526)
INCREASE IN DEFERRED COMMITMENT FEE 59,347 65,347
------------- -------------
TOTAL ADJUSTMENTS 1,205,097 17,250,550
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,230,230 (1,165,598)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
DEPOSIT ON SALE OF STATIONS -- 700,000
ACQUISITIONS OF RADIO STATIONS (8,367,728) (374,111)
ADDITIONS TO PROPERTY AND EQUIPMENT (324,924) (182,691)
------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (8,692,652) 143,198
------------- -------------
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 -- 227,170,507
PROCEEDS FROM CLASS A COMMON STOCK -- 388,350,978
REPAYMENT OF OTHER LONG-TERM DEBT (11,604) (3,444,941)
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (11,604) 158,627,218
------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,474,026) 157,604,818
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 37,642,227 16,974,650
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32,168,201 $ 174,579,468
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID $ 5,908,723 $ 5,875,754
============= =============
INCOME TAXES PAID $ 184,838 $ 430,324
============= =============
</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
DECEMBER 27, 1998 AND DECEMBER 26, 1999
(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 month periods ended
December 27, 1998 and December 26, 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 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 period. The results of operations for the three month
period ended December 26, 1999 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.
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.
On September 22, 1999, Spanish Broadcasting System of Puerto Rico,
Inc., a Delaware corporation, a wholly owned subsidiary of Spanish Broadcasting
System, Inc., a Delaware corporation, entered into a stock purchase agreement
(the "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.,
6
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WLDI, Inc., WRPC, Inc., WOYE, Inc., WZNT, Inc. and WOQI, Inc. (the
"Subsidiaries"). The Subsidiaries own and operate 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 Subsidiaries for total cash
consideration of $90.3 million, including a $10.0 million deposit that was made
on this purchase during fiscal year 1999 and closing costs of $0.3 million. This
acquisition was financed with cash on hand.
ITEM 2. SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 26, 1999 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 27, 1998
NET REVENUES. Our net revenues were $28.9 million for the three
months ended December 26, 1999, compared to $24.3 million for the three months
ended December 27, 1998, an increase of $4.6 million or 18.9%. The increase in
net revenues was mostly attributable to the higher local advertising rates at
our New York, Chicago and Los Angeles market stations as advertisers continued
to be attracted to the Spanish market as an important advertising choice.
Additionally, our net revenues for the three months ended December 26, 1999
included a full quarter of results from certain of our stations in Puerto Rico,
WMEG-FM, WEGM-FM and WCMA-FM.
STATION OPERATING EXPENSES. Total station operating expenses were
$12.5 million for the three months ended December 26, 1999, compared to $11.0
million for the three months ended December 27, 1998, an increase of $1.5
million or 13.6%. Most of the increase, was attributable to the inclusion of a
full quarter of results from certain of our stations in Puerto Rico, WMEG-FM,
WEGM-FM and WCMA-FM and JuJu Media, Inc.
BROADCAST CASH FLOW. Broadcast cash flow was $16.4 million for the
three months ended December 26, 1999, compared to $13.2 million for the three
months ended December 27, 1998, an increase of $3.2 million or 24.2%. This
increase was attributable to continued revenue growth and effective management
of operating expenses. Our broadcast cash flow margin increased to 56.7% for the
three months ended December 26, 1999 compared to 54.3% for the three months
ended December 27, 1998.
CORPORATE EXPENSES. Total corporate expenses were $13.1 million
for the three months ended December 26, 1999, compared to $2.1 million for the
three months ended December 27, 1998, an increase of $11.0 million. 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 retiring executives
and executive performance bonuses.
EBITDA. EBITDA was $3.4 million for the three months ended
December 26, 1999, compared to $11.1 million for the three months ended December
27, 1998, a decrease of $7.7 million. The decrease in EBITDA was caused
primarily by the non-recurring severance payment of $10.2 million, partially
offset by increased broadcast cash flow. Excluding the non-recurring severance
payment, EBITDA was $13.6 million for the three months ended December 26, 1999,
an increase of $2.5 million or 22.5% compared to the three months ended December
27, 1998. Our EBITDA margin for the three months ended December 26, 1999 was
47.1%.
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DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense was $2.6 million for the three months ended December 26, 1999, compared
to $2.3 million for the three months ended December 27, 1998, an increase of
$0.3 million or 13.0%. The increase was related to an increase in amortization
costs as a result of the purchases of 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 $0.7 million for the three
months ended December 26, 1999, compared to $8.9 million for the three months
ended December 27, 1998, a decrease of $8.2 million. The decrease was due
primarily to the non-recurring severance payment of $10.2 million.
INTEREST EXPENSE, NET. Interest expense was $3.0 million for the
three months ended December 26, 1999, compared to $5.2 million for the three
months ended December 27, 1998, a decrease of $2.2 million or 42.3%. 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, as well as the 14 1/4%
preferred stock.
OTHER INCOME (EXPENSE). We had other expenses of $0.4 million for
the three months ended December 26, 1999. The other expenses resulted primarily
from the write-off of refinancing costs.
EXTRAORDINARY LOSS. The Company incurred an extraordinary loss of
$16.9 million, net of an income tax benefit of $11.7 million, in the three
months ended December 26, 1999 related to the early extinguishment 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 $18.4 million for the three
months ended December 26, 1999, compared to net income of $2.0 million for the
three months ended December 27, 1998. The loss was caused primarily by the
extraordinary loss and the non-recurring severance payment.
AFTER-TAX CASH FLOW. After-tax cash flow was $1.1 million for the
three months ended December 26, 1999, compared to $4.3 million for the three
months ended December 27, 1998. This decrease was primarily attributable to the
non-recurring severance payment. Excluding the net non-recurring severance
payment, after-tax cash flow was $7.1 million for the three months ended
December 26, 1999, an increase of $2.8 million or 65.1% compared to the three
months ended December 27, 1998.
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.
8
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Net cash flows used in operating activities were $1.2 million for
the three months ended December 26, 1999, compared to net cash flows provided by
operating activities of $3.2 million for the three months ended December 27,
1998. 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 provided by investing activities were $0.1 million
for the three months ended December 26, 1999, compared to net cash flows used in
investing activities of $8.7 million for the three months ended December 27,
1998. 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 $158.6
million for the three months ended December 26, 1999, compared to no meaningful
net cash flows used in financing activities for the three months ended December
27, 1998. Changes in our net cash flow from financing activities are primarily a
result of the initial public offering and related refinancing transactions that
were completed during the three-month period ended December 26, 1999.
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 be able 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.
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. Other than the acquisition
of the stations in Puerto Rico which were completed in January 2000, and
described elsewhere in this report, we have no 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 operations, equity financing, permitted debt financing 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 year 2000 issue is the result of
computer programs which use two digits rather than four to define the applicable
year. Any of our computer programs or hardware that have date-sensitive software
or
9
<PAGE> 11
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could cause system failures or miscalculations at our broadcast
and corporate locations which in turn could cause disruptions of our operations,
including, among other things, a temporary inability to: produce broadcast
signals, process financial transactions, or engage in similar normal business
activities.
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 December 26, 1999 we had spent $0.1 million to
upgrade/replace non-compliant systems and equipment.
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.
However, we have no means of ensuring that such vendors are year 2000 compliant.
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.
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ITEM 3. SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES 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-month period ended December 26, 1999.
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 February 7, 2000. Our financial instruments outstanding at December 26,
1999 with market risk are our senior subordinated notes due 2009.
PART II -- OTHER INFORMATION
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
None
(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.
11
<PAGE> 13
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, 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: February 8, 2000 Chief Financial Officer and Secretary
(principal financial and accounting officer)
12
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<NAME>SPANISH BROADCASTING
<S> <C>
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<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> SEP-27-1999
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