-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NGEuwfqXiD+Uisj9/EJe+VnbBUwuCVlqWlFI1fPmAcC10cfzzlJSIzu8nq0iR7At 1j7GLLGwsmIAoMKpeZ1z5Q== 0000950123-00-004615.txt : 20000509 0000950123-00-004615.hdr.sgml : 20000509 ACCESSION NUMBER: 0000950123-00-004615 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990926 FILED AS OF DATE: 20000508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM INC CENTRAL INDEX KEY: 0000927720 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 133827791 STATE OF INCORPORATION: DE FISCAL YEAR END: 0926 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-27823 FILM NUMBER: 621344 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM INC /NJ/ CENTRAL INDEX KEY: 0000927721 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 133181941 STATE OF INCORPORATION: DE FISCAL YEAR END: 0926 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 033-82114-01 FILM NUMBER: 621345 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: NY ZIP: 33145 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM OF CALIFORNIA INC CENTRAL INDEX KEY: 0000927722 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 923952357 STATE OF INCORPORATION: CA FISCAL YEAR END: 0926 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 033-82114-02 FILM NUMBER: 621346 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM OF FLORIDA INC CENTRAL INDEX KEY: 0000927723 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 581700848 STATE OF INCORPORATION: FL FISCAL YEAR END: 0926 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 033-82114-03 FILM NUMBER: 621347 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALARCON HOLDINGS INC CENTRAL INDEX KEY: 0000927725 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 133475833 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 033-82114-05 FILM NUMBER: 621348 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM NETWORK INC CENTRAL INDEX KEY: 0000927726 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 133511101 STATE OF INCORPORATION: NY FISCAL YEAR END: 0926 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 033-82114-06 FILM NUMBER: 621349 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SBS PROMOTIONS INC CENTRAL INDEX KEY: 0000927727 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 133456128 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 033-82114-07 FILM NUMBER: 621350 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SBS OF GREATER NEW YORK INC CENTRAL INDEX KEY: 0001017144 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133888732 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 333-85519-07 FILM NUMBER: 621351 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM OF GREATER MIAMI INC CENTRAL INDEX KEY: 0001096126 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 650774450 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 333-85519-08 FILM NUMBER: 621352 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM OF ILLINOIS INC CENTRAL INDEX KEY: 0001096127 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 364174296 STATE OF INCORPORATION: IL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 333-85519-09 FILM NUMBER: 621353 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM OF SAN ANTONIO INC CENTRAL INDEX KEY: 0001096128 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 650820776 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 333-85519-10 FILM NUMBER: 621354 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM OF PUERTO RICO INC /DE/ CENTRAL INDEX KEY: 0001096129 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 650820776 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 333-85519-11 FILM NUMBER: 621355 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SBS FUNDING INC CENTRAL INDEX KEY: 0001096130 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 333-85519-12 FILM NUMBER: 621356 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM OF PUERTO RICO INC /PR/ CENTRAL INDEX KEY: 0001096342 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] STATE OF INCORPORATION: DE FISCAL YEAR END: 0926 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 333-85519-14 FILM NUMBER: 621357 BUSINESS ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 3191 CORAL WAY CITY: MIAMI STATE: FL ZIP: 33145 10-K405/A 1 AMENDMENT NO. 2 TO FORM 10-K405 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K/A (MARK ONE) [X] AMENDMENT NO. 3 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 26, 1999 COMMISSION FILE NUMBER 000-27823 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ 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 (I.R.S. Employer of incorporation or organization) Identification No.)
3191 CORAL WAY MIAMI, FLORIDA 33145 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (305) 441-6901 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK, PAR VALUE $.0001 PER SHARE (Title of Class) 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. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of December 20, 1999, the aggregate market value of the Class A Common Stock held by non-affiliates of the Company was approximately $862.8 million. The aggregate market value of the Class B Common Stock held by non-affiliates of the Company was approximately $226.5 million. (We have assumed that our shares of Class B Common Stock would trade at the same price per share as our shares of Class A Common Stock.) (For purposes of this paragraph, directors, executive officers and 10% or greater shareholders have been deemed affiliates.) As of December 20, 1999, 25,723,210 shares of Class A Common Stock, par value $.0001 per share and 34,493,450 shares of Class B Common Stock, par value $.0001 per share were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: NONE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF ADDITIONAL REGISTRANTS
PRIMARY STANDARD STATE OR OTHER INDUSTRIAL I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION IDENTIFICATION NAME INCORPORATION NUMBER NUMBER - ---- --------------- ----------------- --------------- Spanish Broadcasting System of California, Inc..... California 4832 92-3952357 Spanish Broadcasting System Network, Inc........... New York 4899 13-3511101 SBS Promotions, Inc................................ New York 7999 13-3456128 SBS Funding, Inc................................... Delaware 4832 52-6999475 Alarcon Holdings, Inc.............................. New York 6512 13-3475833 SBS of Greater New York, Inc....................... New York 4832 13-3888732 Spanish Broadcasting System of Florida, Inc........ Florida 4832 58-1700848 Spanish Broadcasting System of Greater Miami, Inc.............................................. Delaware 4832 65-0774450 Spanish Broadcasting System of Puerto Rico, Inc.... Delaware 4832 52-2139546 Spanish Broadcasting System, Inc................... New Jersey 4832 13-3181941 Spanish Broadcasting System of Illinois, Inc....... Delaware 4832 36-4174296 Spanish Broadcasting System of San Antonio, Inc.... Delaware 4832 65-0820776 Spanish Broadcasting System of Puerto Rico, Inc.... Puerto Rico 4832 66-0564244
2 3 The registrant, Spanish Broadcasting System, Inc., together with its subsidiaries listed herein under the Table of Additional Registrants (collectively, "SBS" or the "Company"), hereby amends its Annual Report on Form 10-K (the "10-K") for the year ended September 26, 1999, filed with the Securities and Exchange Commission on December 27, 1999, as amended, by making the following changes: 1. ITEM 6 -- the Selected Financial Data -- is hereby amended as follows: a. the "Other Financial Data" is hereby revised to be placed below the "Balance Sheet Data" and supplemented by adding three additional line items at the bottom of the table which read as follows: Net cash provided by operating activities................... 14,438 8,813 6,386 10,923 20,782 Net cash provided by (used in) investing activities......... (4,988) (90,195) (144,358) 32,190 (38,384) Net cash provided by (used in) financing activities......... (3,769) 69,034 144,792 (17,758) (3,065)
b. Footnote 5 to the Selected Historical Consolidated Financial Information is hereby revised to add three additional sentences at the end which read as follows: Broadcast cash flow may not be comparable to a similarly entitled item reported by other entities that do not define the term exactly as the Company defines it. The Company believes that broadcast cash flow is a useful indicator to investors of the cash flow generated by the operations of the Company's stations and permits investors to compare the Company's performance with respect to station operations with those of other radio broadcast companies. The Company believes that broadcast cash flow is particularly useful in analyzing acquisition opportunities. c. Footnote 6 to the Selected Historical Consolidated Financial Information is hereby revised to delete the second sentence thereof and add three sentences at the end which read as follows: Although EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles, EBITDA is widely used in the broadcasting industry as a measure of a broadcasting company's operating performance. EBITDA may not be comparable to a similarly entitled item reported by other entities that do not define the term exactly as the Company defines it. The Company believes that EBITDA is a useful indicator to investors of the Company's capacity to incur and service debt. Many debt instruments, including the indenture governing the Company's 9 5/8% Senior Subordinated Notes, contain covenants which use formulas based on EBITDA calculations. The revised Item 6 in its entirety reads as follows: 3 4 ITEM 6. SELECTED FINANCIAL DATA SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS EXCEPT RATIOS, SHARES OUTSTANDING AND PER SHARE DATA) The following table sets forth the historical financial information of our business. The selected historical consolidated financial information presented below under the caption "Statement of Operations Data" and "Balance Sheet Data," as of and for each of the fiscal years in the five-year period ended September 26, 1999 are derived from our historical consolidated financial statements, which have been audited by KPMG LLP, independent certified public accountants. Our selected historical consolidated financial data should be read in conjunction with our historical consolidated financial statements as of September 27, 1998 and September 26, 1999, and for each of the fiscal years in the three-year period ended September 26, 1999, the related notes and independent auditor's report included elsewhere in this report. For additional information see the financials section of this report and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
FISCAL YEAR ENDED ------------------------------------------------------------------- 9/24/95 9/29/96 9/28/97 9/27/98 9/26/99 ----------- ----------- ----------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Gross revenues........................................ $ 54,152 $ 55,338 $ 67,982 $ 86,766 $ 111,233 Less: agency commissions.............................. 6,828 6,703 7,972 10,623 13,882 ----------- ----------- ----------- ----------- ----------- Net revenues.......................................... 47,324 48,635 60,010 76,143 97,351 Station operating expenses(1)......................... 22,998 27,876 31,041 39,520 44,620 Corporate expenses.................................... 4,281 3,748 5,595 6,893 10,636 Depreciation and amortization......................... 3,389 4,556 7,619 8,877 9,906 ----------- ----------- ----------- ----------- ----------- Operating income.................................. 16,656 12,455 15,755 20,853 32,189 Interest expense, net(2).............................. (12,874) (16,533) (22,201) (20,860) (21,178) Other income (expense), net(3)........................ (381) (1,574) (791) (213) (749) Gain on sale of AM stations........................... -- -- 36,242 -- -- ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes and extraordinary item.......................... 3,401 (5,652) (7,237) 36,022 10,262 Income tax expense (benefit).......................... 1,411 (1,166) (2,715) 15,624 4,445 ----------- ----------- ----------- ----------- ----------- Income (loss) before extraordinary items.............. 1,990 (4,486) (4,522) 20,398 5,817 Extraordinary gain (loss) net of income taxes(4)...... -- (1,647) (1,613) -- -- ----------- ----------- ----------- ----------- ----------- Net income (loss)................................. $ 1,990 $ (4,486) $ (6,169) $ 18,785 $ 5,817 =========== =========== =========== =========== =========== Dividends on preferred stock.......................... -- (2,994) (17,044) (30,270) (34,749) ----------- ----------- ----------- ----------- ----------- Net income (loss) applicable to common stock...... $ 1,990 $ (7,480) $ (23,213) $ (11,485) $ (28,932) =========== =========== =========== =========== =========== Dividends per share on common stock................... $ -- $ -- $ -- $ 0.11 $ -- =========== =========== =========== =========== =========== Earnings (loss) per common share: Basic (before extraordinary item)................. $ 0.07 $ (0.25) $ (0.71) $ (0.33) $ (0.86) Diluted (before extraordinary item)............... 0.06 (0.25) (0.71) (0.33) (0.86) Basic............................................. 0.07 (0.25) (0.77) (0.38) (0.86) Diluted........................................... 0.06 (0.25) (0.77) (0.38) (0.86) Weighted average common shares outstanding(8): Basic............................................. 30,333,400 30,333,400 30,333,400 30,333,400 33,584,576 Diluted........................................... 35,793,409 30,333,400 30,333,400 30,333,400 33,584,576
4 5
AS OF ----------------------------------------------------- 9/24/95 9/29/96 9/28/97 9/27/98 9/26/99 -------- -------- --------- -------- -------- BALANCE SHEET DATA: Cash and cash equivalents................................... $ 17,817 $ 5,468 $ 12,288 $ 37,642 $ 16,975 Total assets................................................ 103,629 176,860 334,367 351,034 365,681 Total debt (including current portion)...................... 95,523 135,914 183,013 171,126 172,486 Preferred stock............................................. -- 35,939 171,262 201,368 235,918 Total stockholders' deficiency.............................. (1,150) (3,569) (32,047) (46,193) (75,122) OTHER FINANCIAL DATA: Broadcast cash flow(5)...................................... $ 24,326 $ 20,759 $ 28,969 $ 36,623 $ 52,731 Broadcast cash flow margin.................................. 51.4% 42.7% 48.3% 48.1% 54.2% BITDA(6).................................................... 20,045 17,011 23,374 29,730 42,095 After-tax cash flow(7)...................................... 5,379 70 3,097 7,530 15,723 Capital expenditures........................................ 4,888 3,811 2,022 1,645 2,100 Net cash provided by operating activities................... 14,438 8,813 6,386 10,923 20,782 Net cash provided by (used in) investing activities......... (4,988) (90,195) (144,358) 32,190 (38,384) Net cash provided by (used in) financing activities......... (3,769) 69,034 144,792 (17,758) (3,065)
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION (1) Station operating expenses include engineering, programming, selling and general and administrative expenses. (2) Interest expense includes non-cash interest, such as the accretion of principal, the amortization of discounts on debt and the amortization of deferred financing costs. (3) During the 1996, 1997 and 1999 fiscal years, we wrote down the value of our land and building located on Sunset Boulevard in Los Angeles by $697,741, $487,973 and $451,048, respectively. The write-downs were based on current market values of real estate in the Los Angeles area. Financing costs are also included in other income (expenses). (4) On June 29, 1994, we sold 107,059 units, each consisting of $1,000 principal amount of our 12 1/2% notes and warrants to purchase one share of common stock per unit. The 12 1/2% notes were issued at a substantial discount from their principal amount. The sale of the 12 1/2% notes and warrants generated gross proceeds of $94,000,000 and proceeds to us of $87,774,002, net of financing costs of $6,225,998. Of the $94,000,000 of gross proceeds from the sale of the 12 1/2% notes and warrants, $88,603,000 was allocated to the 12 1/2% notes and $5,397,000 was determined to be the value of the warrants. Of the net proceeds from the sale of the 12 1/2% notes and warrants, $83,000,000 was used to satisfy in full our obligations to our two former principal lenders and the balance was used to settle litigation with a former stockholder and for general corporate purposes. For the fiscal year ended September 28, 1997, we recorded an extraordinary loss resulting from the redemption of our 12 1/4% senior secured notes due 2001 at par which was approximately $1.5 million in excess of their carrying value and from the write-off of the related unamortized deferred financing costs of approximately $1.3 million, net of the related tax benefit of approximately $1.1 million. For the fiscal year ended September 27, 1998, we recorded an extraordinary loss resulting from the repurchase of $13.2 million par value of 12 1/2% notes, at a premium of approximately $2.2 million in excess of their carrying value and from the write-off of the related unamortized deferred financing costs of approximately $0.5 million, net of the related tax benefit of approximately $1.1 million. (5) The term "broadcast cash flow" means operating income before depreciation, amortization and corporate expenses. Broadcast cash flow should not be considered in isolation from, or as a substitute for, net income or cash flow and other consolidated income or cash flow statement data or as a measure of our profitability or liquidity. Although broadcast cash flow is not a measure of performance calculated in accordance with generally accepted accounting principles, broadcast cash flow is widely used in the broadcasting industry as a measure of a broadcasting company's operating performance. Broadcast cash flow may not be comparable to a similarly entitled item reported by other entities that do not define the term exactly as the Company defines it. The Company believes that broadcast cash flow is a useful indicator to investors of the cash flow generated by the operations of the Company's stations and permits investors to compare the Company's performance with respect to station operations with those of other 5 6 radio broadcast companies. The Company believes that broadcast cash flow is particularly useful in analyzing acquisition opportunities. (6) The term "EBITDA" means earnings before extraordinary items, gain on sale of AM stations, net interest expense, income taxes, depreciation, amortization and other income or expense. Although EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles, EBITDA is widely used in the broadcasting industry as a measure of a broadcasting company's operating performance. EBITDA may not be comparable to a similarly entitled item reported by other entities that do not define the term exactly as the Company defines it. The Company believes that EBITDA is a useful indicator to investors of the Company's capacity to incur and service debt. Many debt instruments, including the indenture governing the Company's 9 5/8% Senior Subordinated Notes, contain covenants which use formulas based on EBITDA calculations. (7) The term "after-tax cash flow" means income before income tax benefit (expense) and extraordinary items, minus net gain on sale of AM stations (net of tax) and the current income tax provision, plus depreciation and amortization expense. Although after-tax cash flow is not a measure of performance calculated in accordance with generally accepted accounting principles, after-tax cash flow is widely used in the broadcasting industry as a measure of a broadcasting company's operating performance. (8) On September 29, 1999, we filed a third amended and restated certificate of incorporation which resulted in (1) the redesignation of our previously outstanding shares of Class A Common Stock into shares of Class B Common Stock, (2) a 50-to-1 stock split of our Class B Common Stock and (3) a reduction in the par value of our Class A Common Stock and Class B Common Stock from $0.01 per share to $0.0001 per share. The financial information has been restated to reflect this redesignation, stock split and change in par value. 2. The following changes have been made to the Consolidated Financial Statements: a. INDEPENDENT AUDITOR'S REPORT: The Independent Auditor's Report on page F-2 is hereby revised to add "Miami Florida," the city and state where the report was issued and "/s/ KPMG LLP", the signature of the independent auditors. b. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS: The unaudited pro forma summary at the end of Footnote 3 to the Consolidated Financial Statements is hereby revised to add the line item "Net loss per share (0.17)" after the line item "Net loss" to the unaudited pro forma summaries to read as follows:
YEAR ENDED SEPTEMBER 28, 1997 ----------------------------- (UNAUDITED) Net revenues................................................ $66,762,000 Loss before extraordinary item.............................. (3,498,000) Net loss.................................................... (5,145,000) Net loss per share.......................................... (0.17)
The revised Consolidated Financial Statements in their entirety read as follows: 6 7 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of KPMG LLP, independent auditors.................... F-2 Consolidated Balance Sheets as of September 27, 1998 and September 26, 1999........................................ F-3 Consolidated Statements of Operations for each of the fiscal years in the three-year period ended September 26, 1999... F-4 Consolidated Statements of Changes in Stockholders' Deficiency for each of the fiscal years in the three-year period ended September 26, 1999........................... F-5 Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended September 26, 1999... F-6 Notes to Consolidated Financial Statements.................. F-8 Financial Statement Schedule -- Valuation and Qualifying Accounts.................................................. F-26
F-1 8 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Spanish Broadcasting System, Inc.: We have audited the consolidated financial statements of Spanish Broadcasting System, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Spanish Broadcasting System, Inc. and subsidiaries as of September 27, 1998 and September 26, 1999, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended September 26, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP -------------------------------------- Miami, Florida December 10, 1999 F-2 9 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999
SEPTEMBER 27, SEPTEMBER 26, 1998 1999 ------------- ------------- ASSETS Current assets: Cash and cash equivalents................................. $ 37,642,227 16,974,650 Receivables: Trade................................................... 20,777,151 26,006,007 Barter.................................................. 3,582,751 2,260,217 ------------ ------------ 24,359,902 28,266,224 Less allowance for doubtful accounts...................... 7,770,060 6,365,959 ------------ ------------ Net receivables.................................... 16,589,842 21,900,265 Other current assets.................................... 1,822,584 2,194,387 ------------ ------------ Total current assets............................... 56,054,653 41,069,302 Property and equipment, net................................. 14,942,933 14,777,703 Intangible assets, net of accumulated amortization of $27,563,051 in 1998 and $35,654,956 in 1999............... 272,261,440 301,454,059 Deferred financing costs, net of accumulated amortization of $4,257,074 in 1998 and $5,815,931 in 1999................. 7,275,980 6,228,716 Due from related party...................................... 289,869 -- Deferred offering costs..................................... -- 1,965,551 Other assets................................................ 209,301 185,190 ------------ ------------ $351,034,176 365,680,521 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Current portion of other long-term debt................... $ 47,496 1,800,572 Accounts payable.......................................... 2,612,952 1,381,966 Accrued expenses.......................................... 5,838,808 10,112,106 Accrued interest.......................................... 3,941,088 3,941,088 Deferred commitment fee................................... 2,141,456 2,686,004 Dividends payable......................................... 1,124,360 1,323,018 ------------ ------------ Total current liabilities.......................... 15,706,160 21,244,754 12 1/2% Senior unsecured notes due 2002, net of unamortized discount of $2,224,535 in 1998 and $1,630,076 in 1999..... 91,668,465 92,262,924 11% Senior unsecured notes due 2004......................... 75,000,000 75,000,000 Other long-term debt, less current portion.................. 4,410,505 3,422,341 Deferred income taxes....................................... 9,074,596 12,954,515 Redeemable Preferred Stock: 14 1/4% Series A Senior Exchangeable Preferred Stock, $.01 par value. Authorized 1,000,000 shares, issued and outstanding 214,260 shares (liquidation value $214,260,000) in 1998 and 245,815 shares (liquidation value $245,815,000) in 1999............................. 201,367,927 235,918,055 Stockholders' deficiency: Class A common stock, $.0001 par value. Authorized 100,000,000 shares; none issued and outstanding......... -- -- Class B common stock, $.0001 par value. Authorized 50,000,000 shares; issued and outstanding 30,333,400 shares in 1998 and 39,448,550 shares in 1999............ 3,033 3,945 Additional paid-in capital.................................. 6,867,334 6,869,241 Accumulated deficit......................................... (50,604,436) (79,535,846) ------------ ------------ (43,734,069) (72,662,660) Less loans receivable from stockholders..................... (2,459,408) (2,459,408) ------------ ------------ Total stockholders' deficiency..................... (46,193,477) (75,122,068) ------------ ------------ Commitments and contingencies (notes 10, 12 and 15)......... $351,034,176 365,680,521 ============ ============
See accompanying notes to consolidated financial statements. F-3 10 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FISCAL YEARS ENDED SEPTEMBER 28, 1997, SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999
YEAR ENDED ------------------------------------------ 1997 1998 1999 ------------ ------------ ------------ Gross revenues....................................... $ 67,981,407 86,766,158 111,233,463 Less agency commissions.............................. 7,971,827 10,623,062 13,882,877 ------------ ------------ ------------ Net revenues............................... 60,009,580 76,143,096 97,350,586 ------------ ------------ ------------ Operating expenses: Engineering........................................ 2,099,116 1,924,744 2,222,605 Programming........................................ 7,081,521 8,462,258 10,120,338 Selling............................................ 14,980,035 18,574,529 22,015,346 General and administrative......................... 6,879,443 10,558,965 10,260,931 Corporate expenses................................. 5,595,403 6,892,705 10,636,435 Depreciation and amortization...................... 7,618,921 8,876,876 9,905,574 ------------ ------------ ------------ 44,254,439 55,290,077 65,161,229 ------------ ------------ ------------ Operating income........................... 15,755,141 20,853,019 32,189,357 Other income (expense): Interest expense, net.............................. (22,201,114) (20,860,210) (21,178,164) Other, net......................................... (790,548) (213,239) (748,898) Gain on sale of AM stations........................ -- 36,241,947 -- ------------ ------------ ------------ Income (loss) before income taxes and extraordinary item....................... (7,236,521) 36,021,517 10,262,295 Income tax expense (benefit)......................... (2,714,411) 15,624,032 4,444,919 ------------ ------------ ------------ Income (loss) before extraordinary item.............. (4,522,110) 20,397,485 5,817,376 Extraordinary item -- loss on extinguishment debt, net of income taxes of $1,097,836 in 1997 and $1,075,149 in 1998................................. (1,646,753) (1,612,723) -- ------------ ------------ ------------ Net income (loss).......................... $ (6,168,863) 18,784,762 5,817,376 ============ ============ ============ Net loss applicable to common stockholders [note 2(n)].............................................. $(23,212,494) (11,484,845) (28,931,410) ============ ============ ============ Basic and diluted loss per common share: Net loss per common share before extraordinary item............................................ $ (0.71) (0.33) (0.86) Net loss per common share for extraordinary item... (0.06) (0.05) -- ------------ ------------ ------------ Net loss per common share.......................... $ (0.77) (0.38) (0.86) ============ ============ ============ Weighted average common shares outstanding (basic and diluted).................................... 30,333,400 30,333,400 33,584,576 ============ ============ ============
See accompanying notes to consolidated financial statements. F-4 11 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY FISCAL YEARS ENDED SEPTEMBER 28, 1997, SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999
CLASS B COMMON STOCK LESS: LOANS ------------------- ADDITIONAL RECEIVABLE TOTAL NUMBER PAR PAID-IN ACCUMULATED FROM STOCKHOLDERS' OF SHARES VALUE CAPITAL DEFICIT STOCKHOLDERS DEFICIENCY ---------- ------ ----------- ----------- ------------ ------------- Balance at September 29, 1996............... 30,333,400 $3,033 10,809,037 (11,906,690) (2,474,236) (3,568,856) Retirement of preferred stock and warrants.................................. -- -- (11,887,981) -- -- (11,887,981) Issuance of warrants........................ -- -- 16,625,000 -- -- 16,625,000 Accretion of preferred stock................ -- -- -- (1,659,695) -- (1,659,695) Preferred stock dividends................... -- -- -- (15,383,936) -- (15,383,936) Issuance costs for preferred stock.......... -- -- (8,952,550 -- -- (8,952,550) Increase in loans receivable from stockholders.............................. -- -- -- -- (1,050,230) (1,050,230) Net loss.................................... -- -- -- (6,168,863) -- (6,168,863) ---------- ------ ----------- ----------- ---------- ----------- Balance at September 28, 1997............... 30,333,400 3,033 6,593,506 (35,119,184) (3,524,466) (32,047,111) Preferred stock dividends................... -- -- -- (27,717,142) -- (27,717,142) Accretion of preferred stock................ -- -- -- (2,552,465) -- (2,552,465) Decrease in loans receivable from stockholders.............................. -- -- -- -- 14,827 14,827 Cash dividends on common stock.............. -- -- -- (3,726,579) 1,050,231 (2,676,348) Issuance of warrants as dividends........... -- -- 273,828 (273,828) -- -- Net income.................................. -- -- -- 18,784,762 -- 18,784,762 ---------- ------ ----------- ----------- ---------- ----------- Balance at September 27, 1998............... 30,333,400 3,033 6,867,334 (50,604,436) (2,459,408) (46,193,477) Preferred stock dividends................... -- -- -- (31,755,475) -- (31,755,475) Accretion of preferred stock................ -- -- -- (2,993,311) -- (2,993,311) Exercised warrants for common stock......... 9,115,150 912 1,907 -- -- 2,819 Net income.................................. -- -- -- 5,817,376 -- 5,817,376 ---------- ------ ----------- ----------- ---------- ----------- Balance at September 26, 1999............... 39,448,550 $3,945 6,869,241 (79,535,846) (2,459,408) (75,122,068) ========== ====== =========== =========== ========== ===========
See accompanying notes to consolidated financial statements. F-5 12 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FISCAL YEARS ENDED SEPTEMBER 28, 1997, SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999
YEAR ENDED ------------------------------------------- 1997 1998 1999 ------------- ------------ ------------ Cash flows from operating activities: Net income (loss)................................. $ (6,168,863) 18,784,762 5,817,376 ------------- ------------ ------------ Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss on extinguishment of debt................. 2,744,589 2,687,872 -- Gain on sale of AM stations.................... -- (36,241,947) -- Depreciation and amortization.................. 7,618,921 8,876,876 9,905,574 Provision for doubtful accounts................ 3,530,259 2,634,509 1,670,438 Amortization of debt discount.................. 4,772,539 658,297 594,459 Interest satisfied through issuance of notes... 1,185,722 -- -- Amortization of deferred financing costs....... 1,390,736 1,555,016 1,601,594 Write-down of fixed assets..................... 487,973 -- 451,048 Write-off of amounts due from related party.... -- -- 289,869 Accretion of interest to principal on long-term debt......................................... 161,523 307,200 313,037 Deferred income taxes.......................... (4,062,247) 12,748,883 3,879,919 Changes in operating assets and liabilities: Increase in receivables...................... (7,812,211) (4,112,373) (6,980,861) Increase in other current assets............. (294,574) (412,678) (371,803) Decrease (increase) in other assets.......... (158,490) 80,483 24,111 Increase (decrease) in accounts payable...... (196,443) 1,245,380 (1,230,986) Increase in accrued expenses................. 368,585 2,116,031 4,273,298 Increase (decrease) in accrued interest...... 2,142,006 (595,539) -- Increase in deferred commitment fee.......... 675,999 590,201 544,548 ------------- ------------ ------------ Total adjustments....................... 12,554,887 (7,861,789) 14,964,245 ------------- ------------ ------------ Net cash provided by operating activities........................... 6,386,024 10,922,973 20,781,621 ------------- ------------ ------------ Cash flows from investing activities: Proceeds from sale of AM stations, net of disposal costs of $838,167.............................. -- 43,161,833 -- Additions to property and equipment............... (2,022,344) (1,644,533) (2,099,507) Acquisition of radio licenses..................... (142,335,513) (9,327,713) (26,284,504) Deposit for acquisition of radio stations......... -- -- (10,000,000) ------------- ------------ ------------ Net cash provided by (used in) investing activities........................... (144,357,857) 32,189,587 (38,384,011) ------------- ------------ ------------
F-6 13 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) FISCAL YEARS ENDED SEPTEMBER 28, 1997, SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999
YEAR ENDED ------------------------------------------ 1997 1998 1999 ------------ ------------ ------------ Cash flows from financing activities: Dividends on common stock.......................... $ -- (2,676,348) -- Purchase of Senior unsecured notes................. -- (15,055,055) -- Retirement of Senior secured notes................. (38,414,562) -- -- Retirement of Series A preferred stock............. (42,699,590) -- -- Redemption of warrants............................. (8,323,000) -- -- Exercise of warrants............................... -- -- 2,819 Repayments of debt, including accrued interest..... (56,143) (41,521) (548,125) Proceeds from senior notes, net of financing costs of $5,712,407................................... 69,287,593 -- -- Proceeds from Redeemable Series A Preferred stock and warrants, net of issuance cost of $8,952,550...................................... 166,047,450 -- -- Increase in deferred financing costs............... -- -- (554,330) Increase in deferred offering costs................ -- -- (1,965,551) Decrease (increase) in loans receivable from stockholders.................................... (1,050,230) 14,827 -- ------------ ------------ ------------ Net cash provided by (used in) financing activities............................ 144,791,518 (17,758,097) (3,065,187) ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents........................... 6,819,685 25,354,463 (20,667,577) Cash and cash equivalents at beginning of period..... 5,468,079 12,287,764 37,642,227 ------------ ------------ ------------ Cash and cash equivalents at end of period........... $ 12,287,764 37,642,227 16,974,650 ============ ============ ============ Supplemental cash flow information: Interest paid during the period.................... $ 13,175,308 20,561,613 20,540,882 ============ ============ ============ Income taxes paid during the period................ $ 294,262 1,787,191 1,166,846 ============ ============ ============ Noncash investing and financing activities: Issuance of notes as payment for interest.......... $ 1,185,722 -- -- ============ ============ ============ Dividends declared on preferred stock.............. $ 15,383,936 27,717,142 31,755,475 ============ ============ ============ Issuance of preferred stock as payment of preferred stock dividends................................. $(13,030,211) (27,553,543) (31,556,817) ============ ============ ============ Issuance of warrants as payment of dividends....... $ -- 273,828 -- ============ ============ ============ Issuance of note as payment towards purchase price of radio station................................ $ 3,000,000 -- 1,000,000 ============ ============ ============ Repayment of stockholder loan and accrued interest through dividend withholding.................... $ -- 1,098,368 -- ============ ============ ============
See accompanying notes to consolidated financial statements. F-7 14 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 (1) ORGANIZATION AND NATURE OF BUSINESS Spanish Broadcasting System, Inc., a Delaware corporation, and subsidiaries (the "Company") owns and operates thirteen Spanish-language radio stations serving the New York, Puerto Rico, Miami, Chicago, San Antonio and Los Angeles markets through its subsidiaries, SBS of Greater New York, Inc., Spanish Broadcasting System of Florida, Inc., Spanish Broadcasting System of California, Inc., Spanish Broadcasting System of Greater Miami, Inc., Spanish Broadcasting System of San Antonio, Inc., Spanish Broadcasting System of Illinois, Inc. and Spanish Broadcasting System of Puerto Rico, Inc., a Puerto Rico corporation. Additionally, the Company's other subsidiaries include Spanish Broadcasting System, Inc., a New Jersey corporation, Spanish Broadcasting System of Puerto Rico, Inc., a Delaware corporation, SBS Funding, Inc., a Delaware corporation, JuJu Media, Inc., a New York corporation, Alarcon Holdings, Inc. ("Alarcon"), Spanish Broadcasting System Network, Inc. ("SBS Network") and SBS Promotions, Inc. ("SBS Promotions"). Alarcon owns and operates the building where the Company's New York offices are located. SBS Network and SBS Promotions are currently dormant. SBS Network was formerly the Company's exclusive agency representative for national advertising sales. SBS Promotions formerly performed promotional services for the Company's radio stations. The domestic broadcasting industry is subject to extensive federal regulation which, among other things, requires approval by the Federal Communications Commission ("FCC") for the issuance, renewal, transfer and assignment of broadcasting station operating licenses and limits the number of broadcasting properties the Company may acquire. The Company operates in the domestic radio broadcasting industry which is subject to extensive and changing regulation by the FCC. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS (a) Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company's subsidiaries (hereinafter referred to in this paragraph collectively as "Subsidiary Guarantors") are fully, unconditionally, and jointly and severally liable for the Company's senior unsecured notes referred to in note 6. The Company has not included separate financial statements of the Subsidiary Guarantors because (i) the Subsidiary Guarantors are wholly owned and constitute substantially all of the Company's direct or indirect subsidiaries, and (ii) the Company is a holding company with no independent assets or operations other than its investments in the Subsidiary Guarantors. The Company's fiscal year is the 52-week or 53-week period which ends on the last Sunday of September. (b) Revenue Recognition Revenues are recognized when advertisements are aired. (c) Property and Equipment Property and equipment are stated at cost. The Company depreciates the cost of its property and equipment using the straight-line method over the respective estimated useful lives. Leasehold improvements are amortized on a straight-line basis over the shorter of the remaining life of the lease or the useful life of the improvements. F-8 15 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 (d) Long-Lived Assets The Company follows the provisions of Statement of Financial Accounting Standards No. 121, (Statement 121) "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Statement 121 requires that long-lived assets and certain identifiable intangibles to be held and used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. See note 5 for impairment losses related to fixed assets. (e) Intangible Assets Intangible assets primarily represent the portion of the purchase price of station acquisitions allocated to FCC licenses of those stations and are amortized on a straight-line basis over 40 years, based on the industry practice of renewing FCC licenses periodically, and other intangible assets, including goodwill, which are being amortized on a straight-line basis over 5 years. The Company periodically assesses the recoverability of the carrying amount of intangible assets, including goodwill, as well as the amortization period to determine whether current events or circumstances warrant adjustments to the carrying value and/or revised estimates of useful lives. This evaluation consists of the projection of undiscounted cash flows for each of the Company's radio stations over the remaining amortization periods of the related intangible assets. If such projections indicate that undiscounted cash flows are not expected to be adequate to recover the carrying amounts of the related intangible assets, a loss is recognized to the extent the carrying amount of the asset exceeds its fair value. At this time, the Company believes that no significant impairment of its intangible assets, including goodwill, has occurred and that no reduction of the estimated useful lives is warranted. This assessment will be impacted if such projections are not achieved. (f) Deferred Financing Costs Deferred financing costs relate to the refinancing of the Company's debt and additional debt financing obtained in connection with Company's acquisition of WXDJ-FM and WRMA-FM in Miami and WLEY-FM in Chicago (see note 6). Deferred financing costs are being amortized using a method which approximates the effective-interest method over the respective lives of the related indebtedness. (g) Barter Transactions Barter transactions represent advertising time exchanged for promotional items, advertising, supplies, equipment and services. Revenues from barter transactions are recognized as income when advertisements are broadcast. Expenses are recognized when goods or services are received or used. The Company records barter transactions at the fair value of goods or services received. (h) Cash Equivalents Cash equivalents, consisting primarily of interest-bearing money marrket accounts and certificates of deposits which have an original maturity date of less than three months, totaled approximately $37.6 million and $17.0 million at September 27, 1998 and September 26, 1999, respectively. (i) Income Taxes The Company files a consolidated federal income tax return with its subsidiaries. The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the F-9 16 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (j) Advertising Costs The Company incurs various marketing and promotional costs to add and maintain listenership. These costs are charged to expense in the period incurred. (k) Deferred Commitment Fee On December 30, 1996, the Company entered into an agreement with a national advertising agency (the "Agency") whereby the Agency would serve as the Company's exclusive sales representative for all national sales for a seven-year period. Pursuant to this agreement, the Agency agreed to pay a commitment fee of $5.1 million to the Company, of which $1.0 million was paid upon execution of the agreement and $4.1 million is to be remitted on a monthly basis over a three-year period. The commitment fee is recognized on a straight-line basis over the seven-year contractual term of the arrangement as a reduction of Agency commissions. Deferred commitment fee represents the excess of payments received from the Agency over the amount recognized. (l) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (m) Concentration of Risk All of the Company's business is conducted in the New York, Miami, Los Angeles, Chicago, San Antonio and Puerto Rico markets. Net revenue earned from radio stations in these markets as a percentage of total revenue for the fiscal years ended September 28, 1997, September 27, 1998 and September 26, 1999 is as follows:
1997 1998 1999 ---- ---- ---- New York................................................ 49% 44% 44% Miami................................................... 22% 28% 24% Los Angeles............................................. 28% 17% 17% Chicago................................................. 1% 11% 11% San Antonio............................................. -- -- 2% Puerto Rico............................................. -- -- 2% --- --- --- 100% 100% 100% === === ===
F-10 17 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 The increase in market concentration risk in Miami and Chicago in fiscal 1997 and 1998 results from the acquisitions of WRMA-FM and WXDJ-FM in Miami and WLEY-FM (formerly WYSY-FM) in Chicago as discussed in note 3. (n) Basic and Diluted Net Loss Per Common Share The Company has presented net loss per common share pursuant to SFAS No. 128, "Earnings Per Share", and the Securities and Exchange Commission Staff Accounting Bulletin No. 98. In accordance with Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 98, certain common stock and common stock equivalents issued for nominal consideration prior to the initial filing of a registration statement relating to an initial public offering are treated as outstanding for the entire period. The Company had no nominal issuances during this period. Basic net loss per common share was computed by dividing net loss by the weighted average number of shares of common stock outstanding for each period presented. Diluted net loss per common share is computed by giving effect to common stock equivalents as if they were outstanding for the entire period. Common stock equivalents were not considered for the years presented since their effect would be antidilutive. Common stock equivalents of 8,772,776 and 8,798,612 in 1997 and 1998, respectively, related to warrants outstanding (see note 7). There were no common stock equivalents outstanding at September 26, 1999.
1997 1998 1999 ------------ ----------- ------------ Income (loss) before extraordinary item....... $ (4,522,110) 20,397,485 5,817,376 Less accretion of preferred stock............. 1,659,695 2,552,465 2,993,311 Less dividends on preferred stock............. 15,383,936 27,717,142 31,755,475 ------------ ----------- ------------ Loss before extraordinary item................ (21,565,741) (9,872,122) (28,931,410) Extraordinary item............................ (1,646,753) (1,612,723) -- ------------ ----------- ------------ Net loss applicable to common stockholders.... $(23,212,494) (11,484,845) (28,931,410) ============ =========== ============ Weighted average common shares outstanding (basic and diluted)......................... 30,333,400 30,333,400 33,584,576 ============ =========== ============ Basic and diluted loss per common share Net loss per common share before extraordinary item.......................... $ (0.71) (0.33) (0.86) Net loss per common share for extraordinary item........................................ (0.06) (0.05) -- ------------ ----------- ------------ Net loss per common share..................... $ (0.77) (0.38) (0.86) ============ =========== ============
(o) Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of fair value of certain financial instruments. Cash and cash equivalents, receivables, other current assets and due from related party, as well as accounts payable, accrued expenses and other current liabilities, as reflected in the consolidated financial statements, approximate fair value because of the short-term maturity of these instruments. The estimated fair value of the Company's other long-term debt instruments approximate the carrying amount as the interest rates approximate the Company's current borrowing rate for similar debt instruments of comparable maturity. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties F-11 18 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The estimated fair value of the Company's unsecured notes and preferred stock is as follows (in millions):
1998 1999 ---------------- ---------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ----- -------- ----- 12 1/2% Senior unsecured notes......................... $ 91.6 91.6 92.3 102.5 11% Senior unsecured notes............................. 75.0 75.0 75.0 81.4 14 1/4% Series A senior exchangeable preferred stock... 201.3 201.3 235.9 258.4
The fair value estimates of the unsecured notes and preferred stock were based upon quotes from major financial institutions taking into consideration current rates offered to the Company for debt instruments of the same remaining maturities. (p) Redeemable Preferred Stock Redeemable preferred stock is stated at redemption value less the unamortized discount. The discount is accreted into the carrying value of the preferred stock through the date at which the preferred stock is mandatorily redeemable with a charge to accumulated deficit using the effective-interest method. (q) Reclassification Certain prior year amounts have been reclassified to conform with the current year presentation. (r) Segment Reporting In June 1997, the FASB issued Statement of Financial Accounting Standard No. 131, "Disclosures about Segment of an Enterprise and Related Information" (SFAS 131). SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. SFAS No. 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. The adoption of SFAS No. 131 did not have a significant impact on the Company's financial reporting as of and for each of the fiscal years in the three-year period ended September 26, 1999, since the Company believes it has one reportable segment. (3) ACQUISITIONS On March 25, 1996, the Company acquired the FCC broadcast license and substantially all of the assets used or useful in the operation of radio station WPAT-FM for $84.6 million, plus financing and closing costs of $1.8 million. The Company assumed operational responsibility of WPAT-FM on January 26, 1996 under an interim agreement, at which time the Company changed the musical format of WPAT-FM to Spanish language adult contemporary. The Company financed the acquisition of WPAT-FM through the issuance of senior notes and preferred stock in March 1996 (see note 6). On March 27, 1997, the Company acquired the FCC broadcast license and substantially all of the assets used or useful in the operation of WLEY-FM (formerly WYSY-FM) in Chicago for $33.0 million plus financing and closing costs of $0.2 million. F-12 19 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 On March 27, 1997, the Company acquired the FCC broadcast licenses and substantially all of the assets used or useful in the operation of WRMA-FM and WXDJ-FM in Miami for $111.0 million plus financing and closing costs of $1.1 million. The Company financed the purchases of WLEY-FM (formerly WYSY-FM), WRMA-FM and WXDJ-FM with proceeds from a combination of issuances consisting of 175,000 shares of the Company's 14 1/4% Series A Senior Exchangeable Preferred Stock (see note 6) and warrants to purchase 3,745,000 shares of the Company's Class B common stock (par value $.0001 per share) and $75 million aggregate principal amount of the Company's 11% Senior Notes due 2004 (see note 6), plus a note payable to the seller of WLEY-FM (formerly WYSY-FM) for $3.0 million. The following unaudited pro forma summary presents the consolidated results of operations as if the acquisitions of WPAT-FM, WRMA-FM and WXDJ-FM had occurred as of the beginning of fiscal 1997 after giving effect to certain adjustments, including amortization of intangible assets and interest expense on the acquisition debt. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of that date or of results which may occur in the future. The results of WYSY-FM prior to its respective acquisition date has not been included in the pro forma summary as this acquisition was not considered material.
YEAR ENDED SEPTEMBER 28, 1997 ------------- (UNAUDITED) Net revenues............................................ $66,762,000 Loss before extraordinary item.......................... (3,498,000) Net loss................................................ (5,145,000) Net loss per share...................................... (0.17)
On May 13, 1998, the Company acquired the FCC broadcast license and substantially all of the assets used or useful in the operation of radio station KRIO-FM serving the San Antonio area for $9.2 million, plus closing costs of $0.1 million. The Company financed this purchase from cash on hand and from operations. The Company subsequently changed the call letters to KLEY-FM. The aforementioned acquisition was not deemed material in fiscal 1998 for financial pro forma presentation purposes. On December 1, 1998, the Company acquired from Pan Caribbean Broadcasting Corporation the FCC broadcast license and substantially all of the assets of WCMA-FM (formerly WDOY-FM) in Puerto Rico for $8.3 million. The acquisition of WCMA-FM was financed from cash on hand and cash from operations. On April 30, 1999, the Company acquired the FCC broadcast licenses and substantially all of the assets used or useful in the operation of WMEG-FM and WEGM-FM, in Puerto Rico for $16.0 million. The Company financed this purchase from cash on hand and cash from operations. On April 26, 1999, the Company acquired 80 percent of the issued and outstanding capital stock of JuJu Media, Inc., the owner and operator of LaMusica.com, an Internet web site and "portal" targeting the U.S. hispanic market, for $2.0 million in cash and the issuance of a promissory note for $1.0 million. On September 22, 1999, the Company entered into a definitive agreement to purchase all of the outstanding capital stock of nine subsidiaries of Chancellor Media Corporation of Los Angeles. The Company has agreed to purchase, own and operate eight radio stations in Puerto Rico, including stations WIOA-FM, WIOP-FM, WIOC-FM, WCOM-FM, WZMT-FM, WZNT-FM, WOYE-FM, and WCTA-FM. The purchase price is $90.0 million. In connection with this acquisition, the Company made a $10.0 million nonrefundable deposit on the purchase price into escrow. The closing of this acquisition is subject to F-13 20 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 satisfaction of certain customary conditions, including receipt of regulatory approvals from the FCC and Department of Justice. The Company expects to finance the purchase of these companies from a combination of bank borrowings and cash on hand. The Company expects to close the acquisition of these companies in January 2000. However, there can be no assurance that this acquisition can be completed during the expected time frame or at all. The aforementioned acquisitions are not deemed material in fiscal 1999 for financial pro forma presentation purposes. The Company's consolidated results of operations include the results of WPAT-FM, WLEY-FM, WRMA-FM, WXDJ-FM, KLEY-FM, WCMA-FM, WMEG-FM, WEGM-FM, and JuJu Media, Inc. from the respective dates of acquisition. These acquisitions have been accounted for under the purchase method of accounting. The purchase price has been allocated to the assets acquired, principally FCC licenses. (4) SALE OF AM STATIONS On July 2, 1997, the Company entered into a definitive agreement (as amended, the "One-on-One Agreement") with One-on-One Sports, Inc. ("One-on-One") for the sale of the assets and FCC licenses of radio stations WXLX-AM, serving the New York metropolitan area, KXMG-AM, serving the Los Angeles metropolitan area, and WCMQ-AM, serving the Miami metropolitan area. The One-on-One Agreement contained customary representations, warranties and conditions, including receipt of FCC approval to the transfer of the FCC licenses. Pursuant to the One-on-One Agreement, on September 29, 1997, the Company sold the assets and FCC licenses of WXLX-AM and WCMQ-AM to One-on-One for a sales price of $26.0 million and recorded a gain of $18.6 million. On December 2, 1997, the Company consummated the sale of the assets and FCC license of KXMG-AM to One-on-One for a sales price of $18.0 million and recorded a gain of $17.6 million. These transactions are classified under other income as gain on sale of AM stations. Pursuant to the 1994 12 1/2% Senior Notes due 2002 (the "12 1/2% Notes") (see note 6) the Company is required to use the greater of $25.0 million or 50% of the net proceeds from any disposition of certain asset sales including the FCC broadcast licenses of the aforementioned AM stations to make offers to purchase the 12 1/2% Notes at 110% of the principal value thereof. On October 17, 1997, the Company made a tender offer to purchase for cash any and all of the 12 1/2% 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 12 1/2% Notes. The Company paid $6.3 million to the noteholders who responded to the tender offer and purchased $5.5 million in principal amount of 12 1/2% Notes for $6.0 million plus accrued interest of $0.3 million in November 1997. The Company also repurchased $7.7 million in principal amount of 12 1/2% Notes for $9.0 million plus accrued interest of $0.4 million in November 1997. The Company recognized a loss on the tender offer and repurchased notes of $1.6 million, net of income tax benefit of $1.1 million, due to the premium paid for the 12 1/2% Notes and the subsequent write-off of the deferred financing costs and original issue discounts related to the 12 1/2% Notes purchased. This amount has been classified as an extraordinary item in the accompanying consolidated statement of operations. Prior to the sale of the assets of WCMQ-AM, the station operated on the frequency of 1210 kHz. As part of the sale of WCMQ-AM, the Company entered into a five-year local marketing agreement ("LMA") with One-on-One in November 1997. Under the terms of the LMA, the Company began programming and selling advertising on WCMQ-AM using a newly-authorized frequency of 1700 kHz. The 1700 kHz transmitter is co-located at the 1210 kHz transmitter/antenna site which was part of the aforementioned asset sale. F-14 21 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 (5) PROPERTY AND EQUIPMENT Property and equipment consist of the following at September 27, 1998 and September 26, 1999:
ESTIMATED 1998 1999 USEFUL LIVES ----------- ---------- ------------ Land.............................................. $ 1,368,407 1,000,000 -- Building and building leasehold improvements...... 11,250,742 14,995,440 20 years Tower and antenna systems......................... 2,138,824 2,257,814 7-15 years Studio and technical equipment.................... 5,135,586 5,564,258 10 years Furniture and fixtures............................ 1,685,745 2,072,817 3-10 years Transmitter equipment............................. 931,750 1,220,225 7-10 years Leasehold improvements............................ 1,405,759 1,873,609 5-13 years Computer equipment................................ 1,333,888 1,739,392 5 years Other............................................. 520,369 629,997 5 years ----------- ---------- 25,771,070 31,353,552 Less accumulated depreciation and amortization.... 10,828,137 16,575,849 ----------- ---------- $14,942,933 14,777,703 =========== ==========
During fiscal 1997 and 1999, the Company wrote down the value of one of its properties in Los Angeles (which was part of the assets acquired in the purchase of the Los Angeles AM radio station) by $0.4 million and $0.5 million, respectively. The write-downs were based on current market values of real estate in the Los Angeles area. These amounts are included in other, net in the accompanying consolidated statements of operations. (6) SENIOR NOTES AND PREFERRED STOCK 12 1/2% Senior Unsecured Notes On June 29, 1994, the Company, through a private placement offering (the "Offering") completed the sale of 107,059 units (the "Units"), each consisting of $1,000 principal amount of 12 1/2% Senior Notes (the "12 1/2% Notes") due 2002 and warrants to purchase 5,352,950 shares of Class B common stock. The 12 1/2% Notes and warrants are separately transferable. The 12 1/2% Notes were issued at a discount and generated proceeds to the Company of $87.8 million, net of financing costs of $6.2 million. Of the $94.0 million of gross proceeds, $88.6 million was allocated to the 12 1/2% Notes and $5.4 million was determined to be the value of the warrants. On September 30, 1999, the Company commenced tender offers and consent solicitations relating to the 12 1/2% Notes. Pursuant to these tender offers and consent solicitations, the Company repurchased $101.5 million in principal amount of 12 1/2% Notes on November 2, 1999 -- see note 15(a). In connection with this repurchase, the Company will recognize an extraordinary loss on the early extinguishment of debt of approximately $9.5 million, net of income taxes of approximately $7.4 million, in the first quarter of fiscal 2000. REDEEMABLE SERIES A PREFERRED STOCK AND 12 1/4% SENIOR SECURED NOTES DUE 2001 On March 25, 1996, the Company financed the purchase of radio station WPAT-FM with a combination of the proceeds from the sale in a private placement of 37,500 shares of the Company's Redeemable Series A Preferred Stock and $35.0 million of the Company's 12 1/4% Senior Secured Notes due 2001 together with cash on hand. F-15 22 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 On March 27, 1997, these financial instruments were redeemed and retired with a portion of the proceeds from issuance of the Series A Preferred Stock and 11% Senior Unsecured Notes described below. The Company realized a loss on the extinguishment of the 12 1/4% Senior Secured Notes which has been classified as an extraordinary item in the accompanying fiscal 1997 consolidated statement of operations. 14 1/4% SERIES A SENIOR EXCHANGEABLE PREFERRED STOCK AND 11% SENIOR UNSECURED NOTES On March 27, 1997, the Company financed the purchase of radio stations WYSY-FM (renamed WLEY-FM by the Company), WRMA-FM and WXDJ-FM with proceeds from the sale through a private placement of 175,000 shares of the Company's 14 1/4% Series A Senior Exchangeable Preferred Stock ("Series A Preferred Stock") and warrants to purchase 3,745,000 shares of the Company's Class B common stock. The Series A Preferred Stock and the warrants are separately transferable. The gross proceeds from the issuance of the Series A Preferred Stock and warrants, amounted to $175.0 million. The value of the warrants was determined to be $16.6 million. The Company also issued $75.0 million aggregate principal amount of the Company's 11% Senior Unsecured Notes (the "11% Senior Notes") due 2004. In connection with this transaction, the Company capitalized financing costs of $5.7 million related to the 11% Senior Notes and charged issuance costs of $9.0 million related to the Series A Preferred Stock and warrants to paid-in capital. On September 30, 1999, the Company commenced tender offers and consent solicitations relating to the 11% Senior Notes. Pursuant to these tender offers and consent solicitations, the Company repurchased $75.0 million in principal amount of 11% Senior Notes on November 2, 1999 -- see note 15(a). In connection with this repurchase, the Company will recognize an extraordinary loss on the early extinguishment of debt of approximately $6.6 million, net of income taxes of approximately $5.1 million, in the first quarter of fiscal 2000. On December 2, 1999, the Company also redeemed in full the Series A Preferred Stock - see note 15(a). In connection with this redemption, the Company will recognize total additional dividends of approximately $28.4 million, on the Series A Preferred Stock, which will further reduce the income available to common stockholders in the first quarter of fiscal 2000. (7) WARRANTS Warrants consist of the following:
NUMBER OF CLASS B COMMON SHARES REPRESENTED BY OUTSTANDING WARRANTS ------------------------------------- 1997 1998 1999 ----------- ----------- --------- Issued in connection with: 12 1/2% Senior Notes(a)................................ 5,352,950 2,469,950 -- Redeemable Series A Preferred Stock and 12 1/4% Senior Secured Notes(b)..................................... -- -- -- 14 1/4% Series A Senior Exchangeable Preferred Stock(c)............................................. 3,745,000 3,745,000 -- Replacement warrants(a)................................ -- 2,910,450 -- --------- --------- ------- Total........................................ 9,097,950 9,125,400 -- ========= ========= =======
(a) In 1994, in conjunction with the issuance of 12 1/2% Senior Notes, the Company issued warrants exercisable for 5,352,950 shares of Class B common stock at an exercise price of $.01 per warrant share which are subject to adjustment upon the occurrence of certain events, as defined in the warrant agreement. In connection with the declaration of a cash dividend on common stock, in March 1998, holders of these warrants were given the option to participate in such dividends in lieu F-16 23 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 of maintaining their antidilution rights with respect to such dividends. Holders of warrants representing 2,910,450 shares of Class B common stock exercised this option and received cash dividends of $0.326 million and replacement warrants representing 2,910,450 shares of Class B common stock which have an exercise price of $.01 per share. The remaining warrant holders had their underlying shares adjusted upward resulting in an increase to additional paid-in capital and a charge to accumulated deficit of $0.274 million. The remaining warrant holders exercised the warrants during the nine-month period ended June 27, 1999. During the fiscal year ended September 26, 1999, replacement warrants were exercised for 2,900,950 shares of Class B common stock. The remaining replacement warrants expired on June 30, 1999, representing 9,500 shares of common stock. (b) In 1996, in conjunction with the issuance of Redeemable Series A Preferred Stock and 12 1/4% Senior Secured Notes, the Company issued warrants exercisable for 6% at the Company's Class B common stock on a fully diluted basis. In 1997, these warrants were redeemed with proceeds from the Company's 14 1/4% Series A Exchangeable Preferred Stock. (c) In 1997, in conjunction with the issuance of the 14 1/4% Series A Senior Exchangeable Preferred Stock, the Company issued warrants that entitle the holder to acquire 21.4 shares of Class B common stock or 3,745,000 shares at a price equal to $0.01 per 21.4 shares, subject to adjustment from time to time upon the occurrence of certain changes of common stock, certain common stock distributions, certain issuances of options or convertible securities, certain dividends and distributions and certain other increases in the number of shares or common stock. During the fiscal year ended September 26, 1999, warrants were exercised for 3,744,250 shares of Class B common stock. The remaining warrants expired on June 30, 1999, representing 750 shares of common stock. (8) OTHER LONG-TERM DEBT Other long-term debt consists of the following at September 27, 1998 and September 26, 1999:
1998 1999 ---------- --------- Obligation under capital lease with related party payable in monthly installments of $9,000, including interest at 6.25%, commencing June 1992 (see note 12)................. $ 989,278 941,761 Note payable due in quarterly installments of $187,500, including interest at an annual rate of three-month LIBOR plus 450 basis points, commencing September 1999, with balance due on March 27, 2003; paid in full in December 1999 -- see note 15(a).................................... 3,468,723 3,281,152 Note payable due on April 26, 2000 including interest which accrues at an annual rate of 6%........................... -- 1,000,000 ---------- --------- 4,458,001 5,222,913 Less current portion........................................ 47,496 1,800,572 ---------- --------- $4,410,505 3,422,341 ========== =========
F-17 24 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 The scheduled maturities of other long-term debt are as follows at September 26, 1999:
FISCAL YEAR ENDING SEPTEMBER - ---------------------------- 2000................................................... $1,800,572 2001................................................... 803,825 2002................................................... 807,287 2003................................................... 1,091,246 2004................................................... 64,894 Thereafter............................................... 655,089 ---------- $5,222,913 ==========
(9) LOANS RECEIVABLE FROM STOCKHOLDERS AND RELATED-PARTY TRANSACTIONS Loans receivable from stockholders are comprised of loans receivable from the Company's Chief Executive Officer ("CEO") and Chairman of the Board of Directors ("Chairman"), and consist of notes which bear interest at 6.36% per annum, mature on December 30, 2025, and are payable in 30 equal annual installments of $0.2 million. Loans receivable have been classified as an increase in stockholders' deficiency in the accompanying consolidated balance sheets. Interest receivable of $0.4 million and $0.5 million, respectively, at September 27, 1998 and September 26, 1999, is included in other current assets. At September 27, 1998, the Company had advances totaling $0.3 million due from a party related through common ownership. During fiscal 1999, the Company agreed to forgive these advances and wrote off the amount due from the related party. Additionally, at September 27, 1998, and September 26, 1999, the Company had trade receivables totaling $0.4 million due from this related party which have been fully reserved as being uncollectible. The Company pays the operating expenses for a boat owned by a party related through common ownership which is used by the Company for business entertainment purposes. Such expenses approximated $0.1 million for each of the fiscal years ended September 28, 1997, September 27, 1998 and September 26, 1999. The Company leases an apartment from its CEO for annual rentals of $0.1 million through August 2007. Certain renovation expenses were paid for by the Company totaling $0.2 million during 1998 and 1999. Additionally, the Company occupies a building under a capital lease agreement with certain stockholders (see note 12). The building lease expires in 2012 and calls for an annual base rent of approximately $0.1 million. In connection with the relocation of offices from the New York metropolitan area to the Miami metropolitan area, the Company advanced the CEO an aggregate of $1.1 million to pay for various expenses. On July 16, 1997, the CEO executed a promissory note to the Company for the principal amount of $1.1 million to evidence these advances. The note was payable on demand and bore interest at a rate of 7% per annum. The Company declared and paid a dividend in 1998 and applied a portion of the proceeds of such dividend which were otherwise payable to the CEO to the repayment in full of this promissory note. (10) BENEFIT PLANS The Company maintains a stock option plan pursuant to which the Company has reserved up to 1,337,500 shares of Class B common stock for issuance upon the exercise of options granted under the plan. The plan covers all regular salaried employees of the Company and its subsidiaries. No options have been granted under this plan as of September 26, 1999. F-18 25 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 In September 1999, the Company adopted an employee incentive stock option plan ("the 1999 ISO Plan"), a nonemployee director stock option plan ("the 1999 NQ Plan"), and a tax-qualified employee savings and retirement plan ("the 401(k) Plan"). Options granted under the 1999 ISO Plan will vest according to terms to be determined by the Compensation Committee of the Company's Board of Directors, and will have a contractual life of five to ten years from date of grant. Options granted under the 1999 NQ Plan will vest 20% upon grant, and 20% each year for the first four years from grant. All options granted under the 1999 ISO Plan and the 1999 NQ Plan vest immediately upon a change in control of the Company, as defined. A total of 3,000,000 shares and 300,000 shares of Class A common stock have been reserved for issuance under the 1999 ISO Plan and the 1999 NQ Plan, respectively. No options have been granted under this plan as of September 26, 1999. The 401(k) Plan provides for Company contributions to match 25% of an eligible employee's contributions, up to 5% of the employee's base monthly earnings. All employees over the age of 21 that have completed at least 500 hours of service are eligible to participate in the 401(k) Plan. (11) CAPITAL STOCK On September 29, 1999, the Company amended and restated its Certificate of Incorporation, resulting in a conversion of all existing shares of Class A common stock into shares of Class B common stock equal to the number of shares representing a 50 to 1 stock split for each share. The number of authorized shares of capital stock was increased to 151 million comprised of 100 million shares of Class A common stock, 50 million shares of Class B common stock and 1 million shares of Preferred Stock, and the par values of both the Class A common stock and Class B common stock were changed from $.01 per share to $.0001 per share. In addition, Class B common stockholders are entitled to ten votes per share and Class A common stockholders are entitled to one vote per share. Upon transfer or sale of stock by Class B common stockholders to non-affiliate parties, such shares automatically convert to shares of Class A common stock. The accompanying consolidated financial statements have been retroactively restated to reflect these actions. The rights of the holders of shares of Class A common stock and Class B common stock are identical except for voting rights and conversion provisions. Holders of each class of common stock are entitled to receive dividends and upon liquidation or dissolution are entitled to receive all assets available for distribution to stockholders. The holders of each class have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. Each class of common stock is subordinate to the Series A Preferred Stock with respect to dividend rights and rights on liquidation, winding up and dissolution of the Company. (12) COMMITMENTS AND CONTINGENCIES Commitments The Company occupies a building under a capital lease agreement with certain stockholders of the Company expiring in June 2012. The amount capitalized under this lease agreement and included in property and equipment at September 27, 1998 and September 26, 1999 is as follows:
1998 1999 ---------- --------- Building under capital lease................................ $1,230,440 1,230,440 Less: Accumulated depreciation.............................. (389,533) (451,055) ---------- --------- $ 840,907 779,385 ========== =========
F-19 26 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 The Company leases office space and facilities and certain equipment under operating leases, one of which is with a related party (see note 9), that expire at various dates through 2035. Certain leases provide for base rental payments plus escalation charges for real estate taxes and operating expenses. At September 26, 1999, future minimum lease payments under such leases are as follows:
FISCAL YEAR ENDING SEPTEMBER CAPITAL LEASE OPERATING LEASES - ---------------------------- ------------- ---------------- 2000................................................ $ 149,000 942,300 2001................................................ 149,000 730,600 2002................................................ 149,000 662,800 2003................................................ 149,000 583,000 2004................................................ 149,000 452,900 Thereafter.......................................... 1,120,229 2,962,800 ---------- --------- Total minimum lease payments............................. 1,865,229 6,334,400 ========= Less executory costs..................................... (509,114) ---------- 1,356,115 Less interest at 6.25%................................... (414,354) ---------- Present value of minimum lease payments.................. $ 941,761 ==========
Total rent expense for the fiscal years ended September 28, 1997, September 27, 1998 and September 26, 1999 amounted to $1.6 million, $1.1 million and $1.4 million, respectively. The Company has agreements to sublease its radio frequencies and portions of its tower sites. Such agreements provide for payments through 2004. The future minimum rental income to be received under these agreements as of September 26, 1999 is as follows:
FISCAL YEAR ENDING SEPTEMBER AMOUNT - ---------------------------- ----------- 2000............................................... $ 609,718 2001............................................... 548,937 2002............................................... 398,374 2003............................................... 289,044 2004............................................... 289,044 ----------- $ 2,135,117 ===========
At September 26, 1999, the Company is committed to employment contracts for certain executives, on-air talent and general managers expiring through 2005. Future payments under such contracts are as follows:
FISCAL YEAR ENDING SEPTEMBER AMOUNT - ---------------------------- ----------- 2000............................................... $ 3,614,383 2001............................................... 3,312,367 2002............................................... 2,615,417 2003............................................... 1,575,000 2004............................................... 1,225,000 Thereafter.............................................. 475,000 ----------- $12,817,167 ===========
Included in the future payments schedule above is a five-year employment agreement with the CEO. The agreement provides for a base salary of not less than $1.3 million, which may be increased by the board of F-20 27 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 directors in its sole discretion. Under the terms of the agreement, the CEO is paid a cash bonus equal to the sum of (a) 2.5% of the dollar increase in same station revenue in the aggregate for any fiscal year and (b) 5.0% of the dollar increase in same station broadcast cash flow for any fiscal year. Certain employees' contracts provide for additional amounts to be paid if station ratings or cash flow targets are met. On September 24, 1999, the Company entered into letters of understanding with its then Chairman and Secretary. These letters outline the mutual intentions of the Company and these individuals in connection with the Company's initial public offering ("IPO"), and were contingent upon the completion of the IPO [see note 15(a)]. These letters provide for the following: - The sale by these individuals of $14.0 million of their Class B common stock in the IPO [see note 15(a)]; - The purchase by the Company of annuities providing aggregate annual retirement compensation of $1.0 million to these individuals. These annuities were purchased by the Company for $10.2 million in November 1999; - The retention of these individuals as members of the Company's Board of Directors, with titles of "Chairman Emeritus" and "Secretary Emeritus", respectively; - An agreement to sell, to the Chairman, the Company's two radio stations located in the Florida Keys for $0.7 million. The closing of this transaction is subject to satisfaction of certain customary conditions, including receipt of regulatory approvals from the FCC and Department of Justice; - The repayment by the Chairman of a stockholder loan for approximately $0.6 million, plus accrued interest of approximately $0.1 million. This stockholder loan and the related accrued interest was repaid in full by the Chairman in November 1999; - An agreement by the Chairman to assume responsibility for a boat currently leased by the Company. Responsibility for this boat was assumed by the Chairman in November 1999; and - The use by the Chairman of a car and driver, and by the Secretary of a car, to be provided by the Company. Contingencies In connection with the sale of WXLX-AM (see note 4), the Company assigned a lease for a transmitter site which is located on a former landfill which ceased operations in the late 1960s. As part of the sales agreement, the Company retained potential exposure relating to possible environmental liabilities relating to this site. Management is unable to assess the likelihood that any claim for remediation of this site will arise and no amounts have been accrued in the consolidated financial statements relating to this contingent liability. F-21 28 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 (13) INCOME TAXES Income tax expense (benefit) for the fiscal years ended September 28, 1997, September 27, 1998 and September 26, 1999 consists of the following and was allocated as follows:
1997 --------------------------------------------- CURRENT- STATE AND CURRENT DEFERRED LOCAL FEDERAL FEDERAL TOTAL --------- ------- ---------- ---------- Loss from operations........................ $250,000 -- (2,964,411) (2,714,411) Extraordinary item -- loss on extinguishment of debt................................... -- -- (1,097,836) (1,097,836) -------- ------- ---------- ---------- $250,000 -- (4,062,247) (3,812,247) ======== ======= ========== ==========
1998 --------------------------------------------- CURRENT- STATE AND CURRENT DEFERRED LOCAL FEDERAL FEDERAL TOTAL --------- ------- ---------- ---------- Income from operations...................... $950,000 850,000 13,824,032 15,624,032 Extraordinary item -- loss on extinguishment of debt................................... -- -- (1,075,149) (1,075,149) -------- ------- ---------- ---------- $950,000 850,000 12,748,883 14,548,883 ======== ======= ========== ==========
1998 --------------------------------------------- CURRENT- STATE AND CURRENT DEFERRED LOCAL FEDERAL FEDERAL TOTAL --------- ------- ---------- ---------- Income from operations...................... $550,000 15,000 3,879,919 4,444,919 ======== ======= ========== ==========
During fiscal 1997, 1998 and 1999, the Company utilized net operating loss carryforwards of approximately $0.7 million, $38.8 million and $0.2 million, respectively. F-22 29 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 The tax effect of temporary differences and carryforwards that give rise to deferred tax assets and deferred tax liabilities at September 28, 1997, September 27, 1998 and September 26, 1999 is as follows:
1997 1998 1999 ------------ ----------- ----------- Deferred tax assets: Net operating loss carryforwards......... $ 32,955,490 16,919,249 16,849,019 Deferred interest..................... 5,717,617 6,080,278 6,458,459 Allowance for doubtful accounts....... 2,162,038 3,108,024 2,546,384 Fixed assets.......................... 474,286 474,286 474,286 Unearned revenue...................... -- 856,582 1,074,402 AMT credit............................ -- 850,000 865,000 ------------ ----------- ----------- Total gross deferred tax assets......................... 41,309,431 28,288,419 28,267,550 Less valuation allowance................... (17,396,470) (17,396,470) (17,396,470) ------------ ----------- ----------- Total net deferred tax assets.... 23,912,961 10,891,949 10,871,080 ------------ ----------- ----------- Deferred tax liabilities: Depreciation and amortization............ 11,776,023 14,463,595 18,322,645 Intangible assets........................ 8,382,950 5,502,950 5,502,950 Unearned revenue......................... 79,701 -- -- ------------ ----------- ----------- Total gross deferred tax liabilities..... 20,238,674 19,966,545 23,825,595 ------------ ----------- ----------- Net deferred tax asset (liability).................... $ 3,674,287 (9,074,596) (12,954,515) ============ =========== ===========
Total income tax expense (benefit) differed from the amounts computed by applying the U.S. Federal income tax rate of 35% for fiscal years 1997, 1998 and 1999 as a result of the following:
1997 1998 1999 ------ ---- ---- Computed "expected" tax expense (benefit)................... (35.0)% 35.0% 35.0% State income taxes, net of federal income tax benefit....... (2.8)% 6.5% 5.5% Nondeductible expenses...................................... 1.4% 0.4% 0.4% Other....................................................... (1.8)% 1.8% 2.7% ------ ---- ---- 38.2% 43.7% 43.6% ====== ==== ====
The valuation allowance for deferred tax assets as of September 28, 1997, September 27, 1998 and September 26, 1999 was $17,396,470. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. F-23 30 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 At September 26, 1999, the Company has net operating loss carryforwards available to offset future taxable income expiring as follows:
EXPIRING IN SEPTEMBER NET OPERATING LOSS CARRYFORWARDS --------------------- -------------------------------- 2007.................................... $ 5,597,000 2008.................................... 12,213,000 2009.................................... 11,445,000 2010.................................... 12,868,000 ----------- $42,123,000 ===========
(14) LITIGATION The Company is the defendant in a number of lawsuits and claims incidental in its ordinary course of business, certain of which have been brought by former employees. The litigation which is probable to result in an unfavorable outcome and can be reasonably estimated amounts to $0.3 million which the Company has accrued. The Company does not believe the outcome of any litigation, current or pending, would have a material adverse impact on the financial position or the results of operations of the Company. (15) SUBSEQUENT EVENTS (a) Tender Offers and Initial Public Offering On September 30, 1999, the Company commenced tender offers and consent solicitations (the "Tender Offers") relating to any and all of its outstanding 11% Senior Notes and 12 1/2% Notes, at approximately 111% and 114%, respectively, of their par values. The Tender Offers were contingent upon the completion of the Company's IPO and debt offering (which were both completed on November 2, 1999 -- see below), and the valid tender of not less than a majority in aggregate principal amount of both the 11% Senior Notes and the 12 1/2% Notes. On October 27, 1999, the Company and selling shareholders sold 25,055,510 shares of Class A common stock in an IPO, from which the Company received proceeds of $389.4 million after payment of underwriter commissions. Concurrently with this IPO, on October 28, 1999, the Company sold $235.0 million aggregate principal amount of 9 5/8% senior subordinated notes due 2009 (the "1999 Notes"), from which the Company received proceeds of $228.0 million after payment of underwriter commissions. On November 2, 1999, the Company repurchased the 11% Senior Notes and 12 1/2% Notes solicited under the Tender Offers for $205.0 million, including accrued interest of $6.0 million. In connection with the repurchase of the 11% Senior Notes and the 12 1/2% Notes, the Company realized a loss on the early extinguishment of debt of approximately $16.1 million, net of income taxes of approximately $12.5 million, in the first quarter of fiscal 2000. This loss relates to the premium paid on the repurchase of the 11% Senior Notes and 12 1/2% Notes, the write-off of related deferred financing costs, and the amortization of the remaining original issue discount on the 12 1/2% Notes. On December 2, 1999, the Company redeemed in full the Series A Preferred Stock for $265.6 million, including accrued dividends of $7.5 million. In connection with the redemption of the Series A Preferred Stock, the Company recorded additional dividends of approximately $28.4 million on the Series A Preferred Stock in the first quarter of fiscal 2000. These additional dividends relate to the premium on the redemption, and the accretion of the remaining original issue discount on the Series A Preferred Stock, and will reduce the net income available to common stockholders during the first quarter of fiscal 2000. In connection with these offerings, in October 1999 the Company amended its employment agreement with its CEO and entered into employment agreements with two other executive officers of the Company. In F-24 31 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999 addition, the CEO repaid a shareholder loan for approximately $1.9 million, plus accrued interest of approximately $0.4 million, in November 1999. In connection with the IPO, the Company also granted an aggregate of 100,000 options to non-employee directors, 250,000 options to a former director, and an aggregate of 300,000 options to executives of the Company, in November 1999. These options were granted at an exercise price per share equal to the IPO price per share, with vesting periods ranging from zero to four years. On December 2, 1999, the Company repaid in full the note payable to the seller of WLEY-FM (formerly WYSY-FM) of approximately $3.3 million, plus accrued interest of approximately $0.1 million. The Company has also entered into a commitment letter with a lender for the arrangement of senior credit facilities in an amount of up to $150.0 million. These senior credit facilities are currently contingent upon completion of a definitive agreement with the lender. There is no assurance that the senior credit facilities will be obtained. (b) Contingency On September 28, 1999, the Company received notice form the purchaser of KXMG-AM that it would make a claim against the Company for indemnification under the agreement pursuant to which KXMG-AM was sold, for the removal of an underground fuel storage tank located on the site of KXMG-AM's transmitter. The notice did not specify the amount involved in the indemnification claim. The Company does not have sufficient information to assess the potential exposure related to this matter, and no amounts have been accrued in the consolidated financial statements relating to this contingent liability. F-25 32 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES FINANCIAL STATEMENT SCHEDULE -- VALUATION AND QUALIFYING ACCOUNTS FISCAL YEARS ENDED SEPTEMBER 28, 1997, SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999
COLUMN C ADDITIONS COLUMN B ----------------------- COLUMN E BALANCE CHARGED TO CHARGED TO BALANCE AT COLUMN A BEGINNING COST AND OTHER COLUMN D END DESCRIPTION OF PERIOD EXPENSE ACCOUNTS DEDUCTIONS(1) OF PERIOD - --------------------------------------------- ---------- ---------- ---------- ------------- ----------- Fiscal year 1997: Allowance for doubtful accounts............ $4,510,763 3,530,259 -- 2,635,927 5,405,095 Fiscal year 1998: Allowance for doubtful accounts............ $5,405,095 2,634,509 -- 269,544 7,770,060 Fiscal year 1999: Allowance for doubtful accounts............ $7,770,060 1,670,438 -- 3,074,539 6,365,959
- --------------- (1) Write-offs, net of recoveries. F-26 33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 3 to its Annual Report on Form 10-K to be signed on its behalf and on behalf of the additional registrants by the undersigned, thereunto duly authorized, on the 5th day of May, 2000. Spanish Broadcasting System, Inc. and each of the additional registrants listed on the Table of Additional Registrants By: /s/ Joseph A. Garcia ------------------------------------ Name: Joseph A. Garcia Title: Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----