-----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, VOhqiUusUdleZ4tjNEB3fhJSgp1OlNP1pz8KFvulUZQKBqycXGppX8Z1OE+Hu6wG DqKfuGDc6XybbnGLu+d3PQ== 0000950123-99-007463.txt : 19990812 0000950123-99-007463.hdr.sgml : 19990812 ACCESSION NUMBER: 0000950123-99-007463 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990627 FILED AS OF DATE: 19990811 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-Q SEC ACT: SEC FILE NUMBER: 033-82114 FILM NUMBER: 99684199 BUSINESS ADDRESS: STREET 1: 26 WEST 56TH ST CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125419200 MAIL ADDRESS: STREET 1: 26 WEST 56TH ST CITY: NEW YORK STATE: NY ZIP: 10019 10-Q 1 SPANISH BROADCASTING SYSTEM, INC. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 27, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 33-82114 SPANISH BROADCASTING SYSTEM, INC. See Table of Additional Registrants (Exact name of registrant as specified in its charter) DELAWARE 13-3827791 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3191 Coral Way, Suite 805, Miami, Florida 33145 (Address of principal executive offices) (Zip Code) (305) 441-6901 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ( x ) YES ( ) NO APPLICABLE ONLY TO CORPORATE ISSUERS: Number of shares of Registrant's Common Stock, par value $.01 per share, outstanding as of August 11, 1999: 788,971 shares of Class A Common Stock. ================================================================================ 2 TABLE OF ADDITIONAL REGISTRANTS
Primary Standard I.R.S. State or Other Industrial Employer Jurisdiction of Classification Identification Incorporation Number Number --------------- -------------- -------------- Spanish Broadcasting System, Inc. New Jersey 4832 13-3181941 Spanish Broadcasting System of California, Inc. California 4832 92-3952357 Spanish Broadcasting System of Florida, Inc. Florida 4832 58-1700848 Alarcon Holdings, Inc. New York 6512 13-3475833 Spanish Broadcasting System Network, Inc. New York 4899 13-3511101 SBS Promotions, Inc. New York 7999 13-3456128 SBS of Greater New York, Inc. New York 4832 13-3888732 Spanish Broadcasting System of Illinois, Inc. Delaware 4832 36-4174296 Spanish Broadcasting System of Greater Miami, Inc. Delaware 4832 65-0774450 Spanish Broadcasting System of San Antonio, Inc. Delaware 4832 65-0820776 Spanish Broadcasting System of Puerto Rico, Inc. Delaware 4832 52-2139546 Spanish Broadcasting System of Puerto Rico, Inc. Puerto Rico 4832 66-0564244 Ju Ju Media, Inc. New York 4832 13-3988159
1 3 SPANISH BROADCASTING SYSTEM, INC. INDEX Part I. Financial Information ....................................................... 3 Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 27, 1998 and June 27, 1999 ........................................................... 3 Condensed Consolidated Statements of Operations for the three months ended and nine months ended June 28, 1998 and June 27, 1999.................. 4 Condensed Consolidated Statements of Cash Flows for the nine months ended June 28, 1998 and June 27, 1999 ....................................... 5 Notes to Condensed Consolidated Financial Statements......................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. .................................................. 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk. ................. 12 Part II. Other Information ........................................................... 13 Item 6. Exhibits and Reports on Form 8-K ............................................ 13
2 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 27, 1998 AND JUNE 27, 1999
SEPTEMBER 27, JUNE 27, 1998 1999 ------------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents .............................................. $ 37,642,227 $ 20,895,220 Net receivables ........................................................ 16,589,842 20,491,131 Other current assets ................................................... 1,822,584 2,675,530 ------------- ------------- Total current assets ............................................... 56,054,653 44,061,881 Property and equipment, net .............................................. 14,942,933 14,838,400 Intangible assets, net of accumulated amortization of $27,563,051 in 1998 and $33,347,195 in 1999 (unaudited) ............................ 272,261,440 293,656,711 Deferred financing costs, net of accumulated amortization of $4,257,074 in 1998 and 5,377,349 in 1999 (unaudited) ................... 7,275,980 6,064,968 Due from related party ................................................... 289,869 289,869 Deferred offering costs .................................................. -- 403,334 Other assets ............................................................. 209,301 185,666 ------------- ------------- $ 351,034,176 $ 359,500,829 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Current portion of other long-term debt ................................ $ 47,496 $ 1,049,791 Accounts payable ....................................................... 2,612,952 1,195,949 Accrued expenses ....................................................... 5,838,808 7,339,362 Accrued interest ....................................................... 3,941,088 3,069,431 Deferred commitment fees ............................................... 2,141,456 2,533,310 Dividends payable ...................................................... 1,124,360 9,640,271 ------------- ------------- Total current liabilities .......................................... 15,706,160 24,828,114 12 1/2% Senior unsecured notes due 2002, net of unamortized discount of $2,224,535 in 1998 and $1,779,173 in 1999 (unaudited) .................. 91,668,465 92,113,827 11% Senior secured notes due 2004 ........................................ 75,000,000 75,000,000 Other long-term debt, less current portion ............................... 4,410,505 4,603,251 Deferred income taxes .................................................... 9,074,596 12,002,078 Redeemable Preferred Stock: 14 1/4% Senior Exchangeable Preferred Stock, $.01 par value. Authorized 413,930 shares, issued and outstanding 214,260 shares (liquidation value $214,260,000) in 1998 and 229,526 shares (liquidation value $229,526,000) in 1999 (unaudited) ...................................... 201,367,927 218,850,691 Stockholders' deficiency: Class A Common Stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 606,668 in 1998 and 788,971 in 1999 (unaudited) . 6,066 7,889 Class B Common Stock, $.01 par value. Authorized 200,000 shares; issued and outstanding -0- in 1998 and -0- in 1999 .................... -- -- Additional paid-in capital ............................................. 6,864,301 6,865,297 Accumulated deficit .................................................... (50,604,436) (72,310,910) ------------- ------------- (43,734,069) (65,437,724) Less loans receivable from stockholders .................................. (2,459,408) (2,459,408) ------------- ------------- Total stockholders' deficiency ..................................... (46,193,477) (67,897,132) Commitments and contingencies ............................................ -- -- ------------- ------------- $ 351,034,176 $ 359,500,829 ============= =============
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 3 5 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT (unaudited) Three Months Ended and Nine Months Ended June 28, 1998 and June 27, 1999
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 28, 1998 JUNE 27, 1999 JUNE 28, 1998 JUNE 27, 1999 ------------- ------------- ------------- ------------- Gross revenues ................................... $ 23,887,651 $ 31,256,172 $ 62,098,840 $ 80,437,296 Less agency commissions .......................... 2,896,757 3,997,395 7,508,229 10,082,341 ------------ ------------ ------------ ------------ Net revenues ............................. 20,990,894 27,258,777 54,590,611 70,354,955 ------------ ------------ ------------ ------------ Operating expenses: Engineering .................................... 499,784 534,377 1,380,656 1,547,904 Programming .................................... 1,919,274 2,623,607 5,996,108 7,435,754 Selling ........................................ 4,889,604 5,541,856 13,108,606 16,055,795 General and administrative ..................... 2,210,877 2,166,675 7,811,811 6,742,324 Corporate expenses ............................. 2,118,768 3,324,146 5,122,297 7,658,456 Depreciation and amortization .................. 2,214,911 2,554,903 6,866,961 7,222,573 ------------ ------------ ------------ ------------ 13,853,218 16,745,564 40,286,439 46,662,806 ------------ ------------ ------------ ------------ Operating income ......................... 7,137,676 10,513,213 14,304,172 23,692,149 Other income (expense): Interest expense, net .......................... (5,394,375) (5,291,746) (16,002,451) (15,735,550) Other, net ..................................... -- (421,490) -- (485,018) Gain on sale of AM stations .................... (117,469) -- 36,246,947 -- ------------ ------------ ------------ ------------ Income (loss) before income taxes and extraordinary item ........................... 1,625,832 4,799,977 34,548,668 7,471,581 Income tax expense (benefit) ..................... 650,333 2,055,888 13,819,467 3,177,482 ------------ ------------ ------------ ------------ Income (loss) before extraordinary item .......... 975,499 2,744,089 20,729,201 4,294,099 Extraordinary item-loss on extinguishment of debt, net of income taxes of $1,075,149 in 1998 ..... -- -- (1,612,723) -- ------------ ------------ ------------ ------------ Net income (loss) ..... $ 975,499 $ 2,744,089 $ 19,116,478 $ 4,294,099 ------------ ------------ ------------ ------------ Accumulated deficit at beginning of period........ (34,983,422) (65,943,548) (35,119,184) (50,604,436) Dividend on preferred stock....................... (7,125,342) (8,333,720) (20,507,976) (23,776,120) Accretion of preferred stock...................... (659,652) (777,731) (1,883,377) (2,224,453) Dividends on common stock......................... (599,798) -- (3,998,656) -- ------------- ------------ ------------ ------------ Accumulated deficit at end of period.............. ($ 42,392,715) ($ 72,310,910) ($ 42,392,715) ($ 72,310,910) ============ ============ ============ ============
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 4 6 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended June 28, 1998 and June 27, 1999 (unaudited)
JUNE 28, 1998 JUNE 27, 1999 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ....................................................... $ 19,116,478 $ 4,294,099 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Loss on extinguishment of debt ................................... 2,687,872 -- Gain on sale of radio stations ................................... (36,246,947) -- Depreciation and amortization .................................... 6,866,961 7,222,573 Change in provision for losses on receivables .................... 2,779,443 (1,739,373) Amortization of debt discount .................................... 477,029 445,362 Write down of fixed assets ................................. -- 451,048 Amortization of deferred financing costs ......................... 1,013,387 1,211,012 Interest added to face amount of note payable .................... 230,400 230,400 Deferred income taxes ............................................ 11,245,578 2,927,482 Changes in operating assets and liabilities: Increase in receivables ........................................ (3,493,803) (2,161,916) Increase in other current assets ............................... (973,270) (852,946) Decrease in other assets ....................................... 72,724 23,635 Increase in accounts payable and accrued expenses .............. 2,443,677 83,551 Decrease in accrued interest ................................... (1,467,195) (871,656) Increase in unearned revenue ................................... 254,610 391,854 ------------ ------------ Total adjustments ........................................ (14,109,534) 7,361,026 ------------ ------------ Net cash provided by operating activities ........................ 5,006,944 11,655,125 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of radio stations, net of closing costs ....... 43,165,854 -- Acquisitions of radio stations ................................... (9,327,713) (26,280,067) Additions to property and equipment .............................. (1,290,128) (1,684,292) ------------ ------------ Net cash (used in) provided by investing activities ............ 32,548,013 (27,964,359) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of Warrants ............................................. -- 2,819 Dividends on Common Stock ........................................ (2,676,348) -- Increase in Deferred Offering Costs .............................. -- (403,334) Purchase of Senior Secured Notes ................................. (15,000,055) -- Repayments of debt, including accrued interest ................... (47,089) (37,258) Decrease (increase) in loans receivables from stockholders ....... 14,827 -- ------------ ------------ Net cash provided by (used in) financing activities ......... (17,708,665) (437,773) ------------ ------------ Net increase in cash and cash equivalents ........................ 19,846,292 (16,747,007) Cash and cash equivalents at the beginning period ................ 12,287,764 37,642,227 ------------ ------------ Cash and cash equivalents at the end of period ................... $ 32,134,056 $ 20,895,220 ============ ============ Cash paid for: Interest .................................................... $ 15,913,831 $ 15,861,624 ============ ============ Income taxes ................................................ $ 1,693,335 $ 1,253,915 ============ ============
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 5 7 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 28, 1998 and June 27, 1999 (unaudited) (Dollars in Thousands) (1) BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements for the three and nine month periods ended June 28, 1998 and June 27, 1999 do not contain all disclosures required by generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company as of and for the fiscal year ended September 27, 1998 included in the Company's 1998 Form 10K. In the opinion of management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are all of a normal, recurring nature, necessary for a fair presentation of the results of the interim periods. The results of operations for the three and nine month periods ended June 27, 1999 are not necessarily indicative of the results for a full year. (2) ACQUISITIONS On December 1, 1998, the Company acquired from Pan Caribbean Broadcasting Corporation the FCC broadcast license and substantially all of the assets of WDOY-FM in Puerto Rico for $8.3 million. The acquisition of WDOY-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. As a result of these acquisitions, the Company has completed the transfer of certain assets to its newly formed subsidiaries, Spanish Broadcasting System of Puerto Rico Inc. (Del.) and Spanish Broadcasting System of Puerto Rico Inc. (Puerto Rico) (together, the "New Subsidiaries"). The Company has not included separate financial statements for its subsidiaries because (a) such subsidiaries (including the New Subsidiaries) have jointly and severally guaranteed our senior notes on a full and unconditional basis, (b) the aggregate assets, liabilities, earnings and equity of the subsidiaries are substantially equivalent to the assets, liabilities, earnings and equity of the parent on a consolidated basis and (c) the separate financial statements and other disclosures concerning the subsidiary guarantors are not deemed material to investors. On April 26, 1999, the company acquired eighty percent of the issued and outstanding capital stock of Ju-Ju 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. Our results include the operations of these stations and Ju Ju Media, Inc. from the date of their respective acquisitions. 6 8 ITEM 2. SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 27, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 28, 1998 Net Revenues. Our net revenues were $27.3 million for the three months ended June 27, 1999, compared to $21.0 million for the three months ended June 28, 1998, an increase of $6.3 million or 30.0%. The increase in net revenues was mostly attributable to the New York, Los Angeles and Chicago market stations where our net revenues increased 26.6%, 27.5% and 27.3%, respectively, due to high ratings and increased advertising rates. All of the markets in which we operate stations experienced strong increases in net revenues. Station Operating Expenses. Total station operating expenses were $10.9 million for the three months ended June 27, 1999, compared to $9.5 million for the three months ended June 28, 1998, an increase of $1.4 million or 14.7%. The higher station operating expenses were caused mainly by the inclusion of the results of the recent acquisitions in San Antonio and Puerto Rico as well as of Ju Ju Media, accounting for $1.3 million (92.9%) of the increase in station operating expenses. To a lesser extent, on a same station basis, we experienced a 1.0% increase in operating expenses partially due to music license fees associated with higher sales, increased programming salaries and performance bonuses related to the New York market. This increase in operating expenses was offset by improved collections. Broadcast Cash Flow. Broadcast cash flow was $16.4 million for the three months ended June 27, 1999, compared to $11.5 million for the three months ended June 28, 1998, an increase of $4.9 million or 42.6%. This increase was attributable to continued strong revenue growth and effective management of operating expenses. Our broadcast cash flow margin increased to 60.1% for the three months ended June 27, 1999 compared to 54.7% for the three months ended June 28, 1998. Corporate Expenses. Total corporate expenses were $3.3 million for the three months ended June 27, 1999, compared to $2.1 million for the three months ended June 28, 1998, an increase of $1.2 million or 57.1%. The increase in corporate expenses resulted mainly from performance bonuses paid to the Chief Executive Officer, increases in the number of our employees and increased travel and other corporate overhead expenses relating to our expansion into new markets. EBITDA. EBITDA was $13.1 million for the three months ended June 27, 1999, compared to $9.4 million for the three months ended June 29, 1998, an increase of $3.7 million or 39.4%. Our EBITDA margin was 48.0% for the three months ended June 27, 1999, compared to 44.8% for the three months ended June 28, 1998. The increase in EBITDA and EBITDA margin was caused by the increase in net revenues which was partially offset by the increase in station operating expenses and corporate expenses. Depreciation and Amortization. Depreciation and amortization expense was $2.6 million for the three months ended June 27, 1999, compared to $2.2 million for the three months ended June 28, 1998, an increase of $0.4 million or 18.2%. The increase was related to an increase in amortization costs as a result of the stations purchased in Puerto Rico, WDOY-FM, WMEG-FM and WEGM-FM. 7 9 Operating Income. Operating income was $10.5 million for the three months ended June 27, 1999, compared to $7.1 million for the three months ended June 28, 1998, an increase of $3.4 million or 47.9%. The increase was due to the increase in net revenues, partially offset by the increase in operating expenses. Interest Expense, Net. Interest expense was $5.3 million for the three months ended June 27, 1999, compared to $5.4 million for the three months ended June 28, 1998, a decrease of $0.1 million or 1.9%. This decrease was due to increased interest income. Other. We had other expense of $0.4 million for the three months ended June 27, 1999 compared to other expenses of $0.1 million for the three months ended June 28, 1998. The other expenses in fiscal 1999 resulted primarily from an additional write-down of owned vacant real estate in the Los Angeles area. Net Income. Our net income was $2.7 million for the three months ended June 27, 1999, compared to $1.0 million for the three months ended June 28, 1998, an increase of $1.7 million or 170.0%. The increase was caused by the increase in operating income, partially offset by an increase in related income taxes. NINE MONTHS ENDED JUNE 27, 1999 COMPARED TO THE NINE MONTHS ENDED JUNE 28, 1998 Net Revenues. Our net revenues were $70.4 million for the nine months ended June 27, 1999, compared to $54.6 million for the nine months ended June 28, 1998, an increase of $15.8 million or 28.9%. The increase in net revenues was mostly attributable to the Chicago and New York market stations where our net revenues increased 34.3% and 31.7%, respectively, due to high ratings, robust local economies and increased advertising rates. All of the markets in which we operate stations experienced strong increases in net revenues, including our Los Angeles FM station where net revenue increased by 19.4%. Station Operating Expenses. Total station operating expenses were $31.8 million for the nine months ended June 27, 1999, compared to $28.3 million for the nine months ended June 28, 1998, an increase of $3.5 million or 12.4%. The higher station operating expenses were caused mainly by the inclusion of the results of the recent acquisitions in San Antonio and Puerto Rico, as well as Ju Ju Media, accounting for $2.7 million or 77.1% of the increase in station operating expenses. To a lesser extent, all of our other radio stations experienced a 2.7% increase in operating expenses due to higher commissions and music license fees associated with higher sales. In the New York and Miami markets, we had an increase in advertising, promotional and audience research expenses. This increase in operating expenses was offset by lower general and administrative expenses due to improved collections. Broadcast Cash Flow. Broadcast cash flow was $38.6 million for the nine months ended June 27, 1999, compared to $26.3 million for the nine months ended June 28, 1998, an increase of $12.3 million or 46.8%. This increase was attributable to strong revenue growth and effective management of operating expenses. Our broadcast cash flow margin increased to 54.8% for the nine months ended June 27, 1999 compared to 48.2% for the nine months ended June 28, 1998. Corporate Expenses. Total corporate expenses were $7.7 million for the nine months ended June 27, 1999, compared to approximately $5.1 million for the nine months ended June 28, 1998, an increase of $2.6 million or 51.0%. The increase in corporate expenses resulted mainly from performance bonuses paid to our Chief Executive Officer, increases in the number of our employees and increased travel and other corporate overhead expenses relating to our expansion into new markets. 8 10 EBITDA. EBITDA was $30.9 million for the nine months ended June 27, 1999, compared to $21.2 million for the nine months ended June 29, 1998, an increase of $9.7 million or 45.7%. Our EBITDA margin was 44.0% for the nine months ended June 27, 1999, compared to 38.8% for the nine months ended June 28, 1998. The increase in EBITDA and EBITDA margin was caused by the increase in net revenues which was partially offset by the increase in station operating expenses and corporate expenses. Depreciation and Amortization. Depreciation and amortization expense was $7.2 million for the nine months ended June 27, 1999, compared to $6.9 million for the nine months ended June 28, 1998, an increase of $0.3 million or 4.3%. The increase was related to an increase in amortization costs as a result of the stations purchased in Puerto Rico, WDOY-FM, WMEG-FM and WEGM-FM. Operating Income. Operating income was $23.7 million for the nine months ended June 27, 1999, compared to $14.3 million for the nine months ended June 28, 1998, an increase of $9.4 million or 65.7%. The increase was due to the increase in net revenues, partially offset by the increase in operating expenses. Interest Expense, Net. Interest expense was $15.7 million for the nine months ended June 27, 1999, compared to $16.0 million for the nine months ended June 28, 1998, a decrease of $0.3 million or 1.9%. This decrease was due to the repurchase of $13.2 million aggregate principal amount of our 12 1/2% notes due 2002 in the first quarter of fiscal 1998. Other. We had other expense of $0.5 million for the nine months ended June 27, 1999, compared to other income of $36.2 million for the nine months ended June 28, 1998. The other expenses in fiscal 1999 resulted primarily from an additional write-down of owned vacant real estate in the Los Angeles area. The other income in fiscal 1998 was the result of a gain on the sale of our AM stations during the nine months ended June 28, 1998. Net Income. Our net income was $4.3 million for the nine months ended June 27, 1999, compared to $19.1 million for the nine months ended June 28, 1998, a decrease of $14.8 million or 77.5%. The decrease was caused by the absence of the gain on the sale of our AM stations. After-Tax Cash Flow. After-tax cash flow was $11.5 million for the nine months ended June 27, 1999, compared to $5.8 million for the nine months ended June 28, 1998, an increase of $5.7 million or 98.3%. This increase was primarily attributable to an increase in EBITDA offset by higher income taxes. LIQUIDITY AND CAPITAL RESOURCES Our primary source of liquidity is cash provided by operations. We intend to use a significant portion of our capital resources to make future acquisitions. These acquisitions will be funded primarily from internally generated cash flow and additional indebtedness. Our ability to increase our indebtedness will be limited by the terms of the indentures governing our senior notes. Additionally, such indentures place restrictions on us with respect to the sale of assets, liens, investments, dividends, debt repayments, capital expenditures, transactions with affiliates and consolidations and mergers, among other things. Net cash flows provided by operating activities were $11.7 million and $5.0 million for the nine months ended June 27, 1999 and June 28, 1998, respectively. Net cash flows provided by operating activities 9 11 were $10.9 million, $6.4 million and $8.8 million for fiscal years 1998, 1997 and 1996. Changes in our net cash flow from operating activities are primarily a result of changes in advertising revenues and station operating expenses which are affected by the acquisition and disposition of stations during those periods. Net cash flows used in investing activities were $28.0 million for the nine months ended June 27, 1999 and net cash flows provided by investing activities were $32.5 million for the nine months ended June 28, 1998. Net cash flows provided by investing activities were $32.2 million for the 1998 fiscal year and net cash flows used in investing activities were $144.4 million and $90.2 million for the 1997 and 1996 fiscal years, respectively. Net cash flows used in financing activities were $0.4 million and $17.7 million for the nine months ended June 27, 1999 and June 28, 1998, respectively. Net cash flows used in financing activities were $17.8 million for the 1998 fiscal year and net cash flows provided by financing activities were $144.8 million and $69.0 million for the 1997 and 1996 fiscal years, respectively. For fiscal year 1999, management anticipates total capital expenditures will be between $2.0 million and $2.4 million. We anticipate that these expenditures will be financed by funds from operations. Management believes that cash from operating activities, together with cash on hand, should be sufficient to permit us to meet our obligations for the foreseeable future, including: (1) required significant cash interest payments pursuant to the terms of our outstanding senior notes, (2) operating obligations, and (3) capital expenditures. Assumptions (none of which can be assured) that underlie management's belief, include: - the economic conditions within the radio broadcasting market and economic conditions in general will not deteriorate in any material respect; - we will be able to successfully implement our business strategy; - we will not incur any material unforeseen liabilities, including, without limitation, environmental liabilities; and - no future acquisitions will adversely affect our liquidity. We continuously review, and are currently reviewing, opportunities to acquire additional radio stations, primarily in the top 10 Hispanic markets in the United States. Although we engage in discussions regarding potential acquisitions from time to time in the ordinary course of business, as of August 10, 1999, we have no written understandings, letters of intent or contracts to acquire radio stations. We anticipate that any future radio station acquisitions would be financed through funds generated from operations, equity financings, permitted debt financings or a combination of these sources. However, there can be no assurance that financing from any of these sources, if available, will be available on favorable terms. Seasonal net broadcasting revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures by local and national advertisers. Our second fiscal quarter (January through March) generally produces the lowest net broadcasting revenue for the year because of normal post-holiday decreases in advertising expenditures. 10 12 YEAR 2000 ISSUE The year 2000 issue is the result of computer programs which use two digits rather than four to define the applicable year. Any of our computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could cause system failures or miscalculations at our broadcast and corporate locations which in turn could cause disruptions of our operations, including, among other things, a temporary inability to: produce broadcast signals, process financial transactions, or engage in similar normal business activities. We have performed a preliminary analysis of potential problems related to the year 2000 issue. Internally, we bear some risks in the following areas: computer hardware and software for our accounting and administrative functions, computer-controlled programming of music and the transmission of our signals. Externally, we are at risk, like most companies, of losing power and phone lines. In the administrative area, the vast majority of our hardware and software has been purchased over the past two years and is year 2000 compliant. We have no more than 30 computers that may need to be replaced or upgraded. In the programming areas we utilize a system which is year 2000 compliant. Studio equipment, transmitters and other broadcasting equipment are not date sensitive and, consequently, do not pose a significant year 2000 threat, although we will continue to seek assurances and/or upgrades from all significant vendors. Our MIS manager and one of our engineers have visited the majority of our locations and reported to upper management on definitive problems and solutions. Prior to September 1, 1999, they will have visited and inspected all of our stations. As of June 27, 1999 we have spent $0.1 million to upgrade/replace non-compliant systems and equipment. The greatest threat to our ability to continue broadcasting on and after January 1, 2000 comes from the utilities upon which we are dependent. To date, we are not aware of any external utility vendor with a year 2000 issue that would materially impact our results of operations, liquidity, or capital resources. However, we have no means for ensuring that such vendors will be year 2000 compliant. The inability of such vendors to adequately address the year 2000 issue on a timely basis could have a material adverse effect on us, including loss of revenue, substantial unanticipated costs and service interruptions. In addition, disruptions in the economy generally resulting from the year 2000 issue could also materially adversely affect us. While we believe our efforts will provide reasonable assurance that material disruptions will not occur due to internal failure, the possibility of interruption still exists. We do not anticipate spending more than an additional $0.2 million to become year 2000 compliant. We are performing this analysis with our MIS manager, our engineers and our accounting staff. We have anticipated that all assessments and solutions will be in place by the fourth quarter of fiscal year 1999. We are in the process of developing a contingency plan to address possible failures by us or our vendors related to Year 2000 compliance. 11 13 ITEM 3. SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We believe that inflation has not had a material impact on our results of operations for each of our fiscal years in the three-year period ended September 27, 1998 and in the nine month period ended June 27, 1999. However, there can be no assurance that future inflation would not have an adverse impact on our operating results and financial condition. We do not have significant market risk exposure since we do not have any outstanding variable rate debt or derivative financial and commodity instruments as of June 27, 1999. We are not subject to currency fluctuations since we do not have any international operations. 12 14 PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None (b) Reports on Form 8-K. No Current Report on Form 8-K has been filed by the Company since November 1997. 13 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Spanish Broadcasting System, Inc., a Delaware Corporation. Spanish Broadcasting System of California, Inc. Spanish Broadcasting System, Inc., a New Jersey Corporation. Spanish Broadcasting System of Florida, Inc. Spanish Broadcasting System Network, Inc. SBS Promotions, Inc. Alarcon Holdings, Inc. SBS of Greater New York, Inc. Spanish Broadcasting System of Illinois, Inc. Spanish Broadcasting System of Greater Miami, Inc. Spanish Broadcasting System of San Antonio, Inc. Spanish Broadcasting System of Puerto Rico, Inc., a Delaware Corporation Spanish Broadcasting System of Puerto Rico, Inc., a Puerto Rico Corporation. Ju Ju Media, Inc. By: /s/ Joseph A. Garcia -------------------------------------------------- Joseph A. Garcia EVP and Chief Financial Officer (principal financial and accounting officer) Date: August 11, 1999 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS JUN-27-1999 SEP-28-1998 JUN-27-1999 20,895,220 0 26,521,818 6,030,687 0 44,061,881 14,838,400 0 359,500,829 24,828,114 0 0 218,850,691 7,889 0 359,500,829 80,437,296 0 0 0 0 0 15,735,550 7,471,581 3,177,482 4,294,099 0 0 0 4,294,099 0 0
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