-----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, QnmDTo89cQGIiyhmNUFH7wSivw9Yh0d+wAUvAsh43/rUyFRBG07zGKFb/+nj2SNe KjnE/nWid4q7GTjnWFHb5g== 0000950144-02-005568.txt : 20020515 0000950144-02-005568.hdr.sgml : 20020515 20020515135333 ACCESSION NUMBER: 0000950144-02-005568 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 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: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27823 FILM NUMBER: 02650524 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-85519-12 FILM NUMBER: 02650529 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-85519-10 FILM NUMBER: 02650531 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-85519-09 FILM NUMBER: 02650532 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 IRS NUMBER: 133888732 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-85519-07 FILM NUMBER: 02650534 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 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-82114-07 FILM NUMBER: 02650535 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 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-82114-02 FILM NUMBER: 02650540 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 SAN FRANCISCO INC CENTRAL INDEX KEY: 0001157666 IRS NUMBER: 943405231 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-68194-02 FILM NUMBER: 02650525 BUSINESS ADDRESS: STREET 1: 2601 S. BAYSHORE DR. STREET 2: PENTHOUSE 2 CITY: COCONUT GROVE STATE: FL ZIP: 33133 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 2601 S. BAYSHORE DR STREET 2: PENTHOUSE 2 CITY: COCONUT GROVE STATE: FL ZIP: 33133 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-85519-14 FILM NUMBER: 02650528 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-85519-08 FILM NUMBER: 02650533 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-82114-06 FILM NUMBER: 02650536 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-82114-03 FILM NUMBER: 02650539 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 FINANCE CORP CENTRAL INDEX KEY: 0001121554 IRS NUMBER: 651081341 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-82114-09 FILM NUMBER: 02650527 BUSINESS ADDRESS: STREET 1: 2601 S. BAYSHORE DR. STREET 2: PENTHOUSE 2 CITY: COCONUT GROVE STATE: FL ZIP: 33133 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 2601 S. BAYSHORE DR STREET 2: PENTHOUSE 2 CITY: COCOUNUT GROVE STATE: FL ZIP: 33133 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPANISH BROADCASTING SYSTEM SOUTHWEST INC CENTRAL INDEX KEY: 0001157665 IRS NUMBER: 752130336 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-68194-03 FILM NUMBER: 02650526 BUSINESS ADDRESS: STREET 1: 2601 S. BAYSHORE DR. STREET 2: PENTHOUSE 2 CITY: COCONUT GROVE STATE: FL ZIP: 33133 BUSINESS PHONE: 3054416901 MAIL ADDRESS: STREET 1: 2601 S. BAYSHORE DR STREET 2: PENTHOUSE 2 CITY: COCONUT GROVE STATE: FL ZIP: 33133 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-82114-05 FILM NUMBER: 02650537 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-85519-11 FILM NUMBER: 02650530 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-Q 1 g75520e10-q.txt SPANISH BROADCASTING SYSTEM, INC SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31,2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 33-82114 SPANISH BROADCASTING SYSTEM, INC. (Exact name of registrant as specified in its charter) SEE TABLE OF ADDITIONAL REGISTRANTS DELAWARE 13-3827791 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2601 SOUTH BAYSHORE DRIVE, PH II COCONUT GROVE, FLORIDA 33133 (Address of principal executive offices) (Zip Code) (305) 441-6901 (Registrant's telephone number, including area code) (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: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of May 13,2002, 37,065,755 shares of Class A common stock, par value $.0001 per share and 27,606,650 shares of Class B common stock, par value $.0001 per share, were outstanding. 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 52-2176317 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 Finance Corporation......... Delaware 4832 65-1081341 Spanish Broadcasting System SouthWest, Inc.............. Delaware 4832 75-2130336 Spanish Broadcasting System - San Francisco, Inc........ Delaware 4832 94-3405231 Spanish Broadcasting System of Puerto Rico, Inc......... Puerto Rico 4832 66-0564244
2 SPANISH BROADCASTING SYSTEM, INC. INDEX PART I. FINANCIAL INFORMATION....................................................................... 4 ITEM 1. FINANCIAL STATEMENTS - UNAUDITED............................................................ 4 CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 30, 2001 AND MARCH 31, 2002.......................................................................... 4 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE- MONTHS ENDED MARCH 25, 2001 AND MARCH 31, 2002.............................................. 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE-MONTHS ENDED MARCH 25, 2001 AND MARCH 31, 2002........................................ 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........................................ 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................... 13 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................. 18 PART II. OTHER INFORMATION........................................................................... 19 ITEM 1. LEGAL PROCEEDINGS........................................................................... 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................ 19
3 PART I. -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS--UNAUDITED SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except per share and share information)
December 30, 2001 March 31, 2002 ----------------- -------------- ASSETS Current assets: Cash and cash equivalents $ 51,640 48,738 Net receivables 23,388 19,120 Other current assets 1,706 1,606 --------- --------- Total current assets 76,734 69,464 Property and equipment, net 24,938 25,246 Intangible assets, net 575,931 524,549 Deferred financing costs, net 10,040 9,720 Other assets 256 245 --------- --------- Total assets $ 687,899 629,224 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: 12 1/2% senior unsecured notes $ 100 100 Current portion of long-term debt 191 195 Accounts payable and accrued expenses 13,765 14,548 Accrued interest 5,316 13,380 Deferred commitment fee 1,282 1,107 --------- --------- Total current liabilities 20,654 29,330 9 5/8% senior subordinated notes, net 323,184 323,415 Other long-term debt, less current portion 4,156 4,106 Deferred income taxes 31,706 55,650 Stockholders' equity: Class A common stock, $.0001 par value. Authorized 100,000,000 shares; 36,862,705 shares issued and outstanding at December 30, 2001; 37,030,455 shares issued and outstanding at March 31, 2002 3 3 Class B common stock, $.0001 par value. Authorized 50,000,000 shares; 27,795,500 shares issued and outstanding at December 30, 2001; 27,638,750 shares issued and outstanding at March 31, 2002 3 3 Additional paid-in capital 435,522 444,521 Accumulated deficit (127,329) (227,804) --------- --------- Total stockholders' equity 308,199 216,723 --------- --------- Total liabilities and stockholders' equity $ 687,899 629,224 ========= =========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except share data)
Three months ended ---------------------------------- March 25, 2001 March 31, 2002 -------------- -------------- Gross revenue $ 28,387 33,448 Less agency commissions 3,335 3,777 --------- --------- Net revenue 25,052 29,671 --------- --------- Operating expenses: Engineering 848 982 Programming 4,086 4,324 Selling 9,153 9,854 General and administrative 4,368 3,366 Corporate expenses 2,645 2,861 Depreciation and amortization 4,433 790 --------- --------- 25,533 22,177 --------- --------- Operating (loss) income (481) 7,494 Other (income) expenses: Interest expense, net 6,585 8,504 Other, net (279) -- --------- --------- Loss before income taxes (6,787) (1,010) Income tax (benefit) expense (2,626) 54,177 --------- --------- Loss before cumulative effect of a change in accounting principle (4,161) (55,187) Cumulative effect of a change in accounting principle for intangible assets, net of income tax benefit of $30,192 -- (45,288) --------- --------- Net loss $ (4,161) (100,475) ========= ========= Net loss per common share before cumulative effect of a change in accounting principle: Basic and Diluted $ (0.06) (0.85) Net loss per common share attributed to a cumulative effect of a change in accounting principle, net of tax: Basic and Diluted $ -- (0.70) Net loss per common share: Basic and Diluted $ (0.06) (1.55) Weighted-average common shares outstanding: Basic and Diluted 64,658 64,661
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
Three months ended Three months ended March 25, 2001 March 31, 2002 ------------------ ------------------ Cash flows from operating activities: Net loss $ (4,161) (100,475) --------- -------- Adjustments to reconcile net loss to net cash provided by operating activities: Cumulative effect of a change in accounting principle for intangible assets -- 75,480 Depreciation and amortization 4,433 790 Provision for (reduction of) doubtful accounts 1,720 (392) Amortization of debt discount -- 231 Amortization of deferred financing costs 350 320 Deferred income taxes (2,760) 23,944 Decrease in deferred commitment fee (176) (175) Changes in operating assets and liabilities, net of acquisitions: Decrease in receivables 5,476 4,660 (Increase) decrease in other current assets (24) 100 Decrease in other assets 16 11 Increase in accounts payable and accrued expenses 707 783 Increase in accrued interest 6,730 8,064 --------- -------- Total adjustments 16,472 113,816 --------- -------- Net cash provided by operating activities 12,311 13,341 --------- -------- Cash flows from investing activities: Advances on purchase price of radio station (20,704) (15,176) Additions to property and equipment (2,223) (1,098) --------- -------- Net cash used in investing activities (22,927) (16,274) --------- -------- Cash flows from financing activities: Increase in deferred financing costs (20) -- Proceeds from Class A common stock -- 77 Repayment of other long-term debt (42) (46) --------- -------- Net cash (used in) provided by financing activities (62) 31 --------- -------- Net decrease in cash and cash equivalents (10,678) (2,902) Cash and cash equivalents at beginning of period 47,733 51,640 --------- -------- Cash and cash equivalents at end of period $ 37,055 48,738 ========= ======== Supplemental cash flow information: Interest paid $ 126 101 ========= ======== Income taxes paid (received) $ 135 (40) ========= ======== Non-cash financing and investing activities: Issuance of warrants towards the acquisition of a radio station $ -- 8,922 ========= ========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6 SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 (UNAUDITED) (1) BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of Spanish Broadcasting System, Inc. and subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements as of December 30, 2001 and March 31, 2002, and for the three- month periods ended March 25, 2001 and March 31, 2002 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 30, 2001 included in the Company's fiscal year 2001 Annual Report on Form 10-K. The Company reports revenue and expenses on a broadcast calendar basis. "Broadcast calendar basis," means a period ending on the last Sunday of each reporting period. The Company has changed its fiscal year end from the last Sunday in September to the last Sunday in December. As a result, the quarter ended December 30, 2001 represented a transitional reporting period. In the opinion of the Company's management, 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- month period ended March 31, 2002 are not necessarily indicative of the results for a full year. (2) FINANCIAL INFORMATION FOR GUARANTOR AND NON-GUARANTOR SUBSIDIARIES Certain of the Company's subsidiaries (collectively, the "Subsidiary Guarantors") have guaranteed the Company's 9 5/8% senior subordinated notes due 2009 on a joint and several basis. The Company has not included separate financial statements of the Subsidiary Guarantors because (i) all of the Subsidiary Guarantors are wholly owned subsidiaries of the Company, and (ii) the guarantees issued by the Subsidiary Guarantors are full and unconditional. The Company has not included separate parent-only financial statements since the parent is a holding company with no independent assets or operations other than its investments in its subsidiaries. In December 1999, the Company transferred the FCC licenses of WRMA-FM, WXDJ-FM, WLEY-FM, WSKQ-FM, KLEY-FM, WPAT-FM, WCMA-FM, WSMA-FM (formerly WEGM-FM), WMEG-FM, WCMQ-FM, and KLAX-FM, to special purpose subsidiaries that were formed solely for the purpose of holding each respective FCC license. In addition, all FCC licenses acquired subsequent to December 1999 are held by special purpose subsidiaries. All of these special purpose subsidiaries are non-guarantors of the 9 5/8% senior subordinated notes due 2009. Condensed consolidating unaudited financial information for the Company and its guarantor and non-guarantor subsidiaries is as follows (in thousands):
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ----------------------- ------------ ------------ -------- AS OF DECEMBER 30, 2001 --------------------------------------------------------------------- CONDENSED CONSOLIDATING BALANCE SHEET Cash and cash equivalents $ 48,741 2,899 -- 51,640 Net receivables 21,885 1,503 -- 23,388 Other current assets 1,186 520 -- 1,706 --------- -------- ------- -------- Total current assets 71,812 4,922 -- 76,734 Property and equipment, net 17,003 7,935 -- 24,938 Intangible assets, net 35,992 539,939 -- 575,931 Deferred financing costs, net 10,040 -- -- 10,040 Investment in subsidiaries and intercompany 524,623 (447,851) (76,772) -- Other assets 255 1 -- 256 --------- -------- ------- -------- Total assets $ 659,725 104,946 (76,772) 687,899 ========= ======== ======= ======== Current portion of long-term debt $ 159 132 -- 291 Accounts payable and accrued expenses 11,735 2,030 -- 13,765 Accrued interest 5,315 1 -- 5,316 Deferred commitment fee 1,282 -- -- 1,282 --------- -------- ------- -------- Total current liabilities 18,491 2,163 -- 20,654 Long-term debt 323,949 3,391 -- 327,340 Deferred income taxes 9,086 22,620 -- 31,706 --------- -------- ------- -------- Total liabilities 351,526 28,174 -- 379,700 --------- -------- ------- -------- Common stock 6 1 (1) 6 Additional paid-in capital 435,522 94,691 (94,691) 435,522 Accumulated deficit (127,329) (17,920) 17,920 (127,329) --------- -------- ------- -------- Total stockholders' equity 308,199 76,772 (76,772) 308,199 --------- -------- ------- -------- Total liabilities and stockholders' equity $ 659,725 104,946 (76,772) 687,899 ========= ======== ======= ========
7
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ----------------------- ------------ ------------ --------- AS OF MARCH 31, 2002 ------------------------------------------------------------------------- CONDENSED CONSOLIDATING BALANCE SHEET Cash and cash equivalents $ 45,780 2,958 -- 48,738 Net receivables 17,951 1,169 -- 19,120 Other current assets 1,059 547 -- 1,606 --------- --------- --------- --------- Total current assets 64,790 4,674 -- 69,464 Property and equipment, net 17,460 7,786 -- 25,246 Intangible assets, net 60,090 464,459 -- 524,549 Deferred financing costs, net 9,720 -- -- 9,720 Investment in subsidiaries and intercompany 455,482 (427,445) (28,037) -- Other assets 244 1 -- 245 --------- --------- --------- --------- Total assets $ 607,786 49,475 (28,037) 629,224 ========= ========= ========= ========= Current portion of long-term debt $ 159 136 -- 295 Accounts payable and accrued expenses 12,005 2,543 -- 14,548 Accrued interest 13,380 -- -- 13,380 Deferred commitment fee 1,107 -- -- 1,107 --------- --------- --------- --------- Total current liabilities 26,651 2,679 -- 29,330 Long-term debt 324,165 3,356 -- 327,521 Deferred income taxes 40,247 15,403 -- 55,650 --------- --------- --------- --------- Total liabilities 391,063 21,438 -- 412,501 --------- --------- --------- --------- Common stock 6 1 (1) 6 Additional paid-in capital 444,521 94,691 (94,691) 444,521 Accumulated deficit (227,804) (66,655) 66,655 (227,804) --------- --------- --------- --------- Total stockholders' equity 216,723 28,037 (28,037) 216,723 --------- --------- --------- --------- Total liabilities and stockholders' equity $ 607,786 49,475 (28,037) 629,224 ========= ========= ========= =========
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ----------------------- ------------ ------------ --------- FOR THE THREE MONTHS ENDED MARCH 25, 2001 ------------------------------------------------------------------------- CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Net broadcasting revenues $ 22,723 2,329 -- 25,052 Station operating expenses 15,777 2,678 -- 18,455 Corporate expenses 2,645 120 (120) 2,645 Depreciation and amortization 275 4,158 -- 4,433 --------- --------- --------- --------- Operating income (loss) 4,026 (4,627) 120 (481) Interest expense, net 5,204 1,381 -- 6,585 Other expense (income), net 2,724 (3,123) 120 (279) Equity in net loss (income) of subsidiaries 2,934 -- (2,934) -- Income tax (benefit) expense (2,675) 49 -- (2,626) --------- --------- --------- --------- Net (loss) income $ (4,161) (2,934) 2,934 (4,161) ========= ========= ========= =========
8
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------------------------------------------------------------- FOR THE THREE MONTHS ENDED MARCH 31, 2002 ------------------------------------------------------------------- CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Net broadcasting revenues $ 26,723 2,948 -- 29,671 Station operating expenses 16,476 2,050 -- 18,526 Corporate expenses 2,861 120 (120) 2,861 Depreciation and amortization 600 190 -- 790 --------- ------- ------ -------- Operating income 6,786 588 120 7,494 Interest expense, net 7,195 1,309 -- 8,504 Other expense (income), net (119) (1) 120 -- Equity in net loss (income) of subsidiaries 48,735 -- (48,735) -- Income tax expense 51,450 2,727 -- 54,177 Cumulative effect of a change in accounting principle, net of tax -- (45,288) -- (45,288) --------- ------- ------ -------- Net (loss) income $(100,475) (48,735) 48,735 (100,475) ========= ======= ====== ========
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------------------------------------------------------------- FOR THE THREE MONTHS ENDED MARCH 25, 2001 ------------------------------------------------------------------- CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Cash flows from operating activities $ 12,957 (646) -- 12,311 ========= ======= ====== ======== Cash flows from investing activities $ (23,500) 573 -- (22,927) ========= ======= ====== ======== Cash flows from financing activities $ 998 (1,060) -- (62) ========= ======= ====== ========
PARENT AND GUARANTOR NON-GUARANTOR SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------------------------------------------------------------- FOR THE THREE MONTHS ENDED MARCH 31, 2002 ------------------------------------------------------------------- CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Cash flows from operating activities $ 13,208 133 -- 13,341 ========= ======= ====== ======== Cash flows from investing activities $ (16,232) (42) -- (16,274) ========= ======= ====== ======== Cash flows from financing activities $ 63 (32) -- 31 ========= ======= ====== ========
9 (3) NEW ACCOUNTING PRONOUNCEMENTS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. SFAS No. 141 also specifies the criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. The Company has concluded that its intangible assets, comprised primarily of Federal Communications Commission (FCC) licenses, qualify as indefinite-life intangible assets under SFAS 142. The Company adopted the provisions of SFAS No. 141 upon its issuance and adopted the provisions of SFAS No. 142 effective December 31, 2001. After performing the transitional impairment evaluation of its indefinite-lived intangible assets, the Company determined that the carrying value of certain indefinite-life intangible assets acquired from AMFM Operating, Inc. in January 2000, and certain indefinite-life intangible assets acquired from Rodriguez Communications, Inc. and New World Broadcasters Corp., in November 2000, exceeded their respective fair market values. Fair market values of the Company's FCC licenses were determined through the use of a third-party valuation. These valuations were performed on the FCC licenses, which exclude the franchise values of the stations (i.e. going concern value). These valuations were based on a discounted cash flow model incorporating various market assumptions, type of signal, and assumed the FCC licenses were acquired and operated by a third-party. As a result, the Company recorded a non-cash charge for the cumulative effect of a change in accounting principle of $45.3 million, net of income tax benefit of $30.2 million. Under SFAS 142, goodwill is deemed to be impaired if the net book value of the reporting unit exceeds its estimated fair value. The Company has determined that it has one reporting unit under SFAS 142 and that there was no impairment of goodwill as a result of adopting SFAS 142. The Company will perform an annual impairment review of its indefinite-life intangible assets and goodwill during the fourth quarter of each fiscal year, commencing in the fourth quarter of 2002. Additionally, since amortization of its indefinite-life intangible assets ceased for financial statement purposes under SFAS 142, it could not be assured that the reversals of the deferred tax liabilities relating to those indefinite-life intangible assets would occur within the Company's net operating loss carry-forward period. Therefore, the Company recognized a non-cash charge totaling $55.4 million to income tax expense to establish a valuation allowance against the Company's deferred tax assets, primarily consisting of net operating loss carry-forwards. 10 As of the Company's adoption of SFAS No. 142 effective December 31, 2001, the Company had unamortized goodwill in the amount of $32.7 million, and unamortized identifiable intangible assets in the amount of $543.2 million, all of which was subjected to the transition provision of SFAS No. 142. Amortization expense related to goodwill and identifiable intangible assets was $3.7 million for the three months ended March 25, 2001. The following table presents adjusted financial results for the quarters ended March 25, 2001 and March 31, 2002, respectively, on a basis consistent with the new accounting principle.
(in thousands, except per share data) March 25, 2001 March 31, 2002 -------------- -------------- Reported net loss: $(4,161) $(100,475) Add back: cumulative effect of accounting principle, net of tax (1)- -- 45,288 Add back: income tax valuation allowance (2)- -- 55,358 Add back: amortization of goodwill and intangible assets (3)- 3,655 -- Income tax adjustment (3): (2,877) -- ------- --------- Adjusted net (loss) income $(3,383) $ 171 ======= ========= Basic and diluted (loss) income per share: Net loss per share: $ (0.06) $ (1.55) Cumulative effect per share of a change in accounting principle, net of tax (1): -- 0.70 Income tax valuation allowance per share (2): -- 0.85 Amortization of goodwill and intangible assets per share (3): 0.05 -- Income tax adjustment per share (3): (0.04) -- ------- --------- Adjusted net (loss) income per share: $ (0.05) $ -- ======= =========
(1) As a result of the adoption of SFAS 142, the Company incurred a non-cash transitional charge of $45.3 million, net of income tax benefit of $30.2 million, due to the cumulative effect of the change in accounting principle during the quarter ended March 31, 2002. (2) As a result of adopting SFAS 142, the Company incurred a non-cash income tax expense of $55.4 million to establish a valuation allowance against deferred tax assets during the quarter ended March 31, 2002. (3) The adjusted financial results in the three months ended March 25, 2001 adds back non-cash goodwill and intangible assets amortization of $3.7 million and reflects adjusted income tax expense assuming that SFAS 142 was effective as of January 1, 2001. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment and disposal of long-lived assets. SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company adopted SFAS No. 144 on December 31, 2001 and it had no impact on the Company's consolidated financial statements. 11 (4) ACQUISITIONS On November 2, 2000, we entered into an asset purchase agreement (the "Asset Purchase Agreement") with the International Church of the FourSquare Gospel ("ICFG") to purchase radio station KXOL-FM (formerly KFSG-FM) in Los Angeles, California at a purchase price of $250.0 million and made a non-refundable deposit of $5.0 million to be credited towards the purchase price at closing. The Asset Purchase Agreement contains customary representations and warranties, and the closing of our acquisition is subject to the satisfaction of certain customary conditions, including receipt of regulatory approval from the Federal Communications Commission and expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. On March 13, 2001, we entered into an Addendum to the Asset Purchase Agreement and two Time Brokerage Agreements with ICFG pursuant to which we are permitted to broadcast our programming over radio station KXOL-FM (the "TBA"), and ICFG is permitted to broadcast its programming over radio stations KFSG-FM (formerly KMJR-FM) and KFSB-FM (formerly KNJR-FM) (the "93.5 TBA"). In connection with the Addendum to the Asset Purchase Agreement and TBA, we made an additional non-refundable deposit of $20.0 million, which will be credited towards the purchase price at closing. On April 30, 2001, we commenced broadcasting our programming under the TBA and ICFG commenced broadcasting its programming under the 93.5 TBA. On February 8, 2002, we entered into an additional amendment to the Asset Purchase Agreement and an amendment to the TBA and the 93.5 TBA (collectively, the "Second Amendment"). The Second Amendment extends the deadline for closing under the amended Asset Purchase Agreement (the "KXOL Closing") to December 31, 2003. The KXOL Closing is subject to acceleration if we sell five specified stations during the term of the TBA. Pursuant to the Second Amendment, we made an additional non-refundable deposit of $15.0 million on March 12, 2002, which will be credited towards the purchase price at closing. Additionally, we are required to make payments to ICFG of $5.0 million on September 30, 2002 and $15.0 million on March 12, 2003, if the KXOL Closing has not occurred or the amended Asset Purchase Agreement has not terminated by these respective dates. All future payments are non-refundable (except in case of breach by ICFG) and will be credited towards the purchase price at the KXOL Closing. In addition, pursuant to the Second Amendment, on February 8,2002 we granted ICFG a warrant exercisable for an aggregate of 2,000,000 shares of our Class A common stock at an exercise price of $10.50 per share. This warrant will be exercisable for a period of thirty-six months from the date of issuance after which it will expire if not exercised. To date, this warrant has not been exercised. We assigned the warrant a fair value of approximately $8.9 million based on the Black-Scholes option pricing model in accordance with SFAS No. 123 "Accounting for Stock based Compensation". The fair market value of this warrant was recorded as an increase to intangible assets and additional paid-in capital on the date of grant. Additionally, if ICFG ceases to broadcast its programming under the 93.5 TBA at any time after September 1, 2002, commencing the last day of such calendar month, we will issue to ICFG each month thereafter, warrants exercisable for 100,000 shares of our Class A common stock at an exercise price equal to the closing price of our shares on the last trading day of such month, until the earlier to occur of (i) the KXOL Closing or (ii) the termination of the amended Asset Purchase Agreement. These warrants will also be exercisable for a period of thirty-six months from the date of issuance after which they will expire if not exercised. If these warrants are ever issued, the fair value of these warrants would be recorded as a programming expense. Pursuant to the Second Amendment, the term of the TBA will continue until the earlier to occur of (i) the KXOL Closing or (ii) the termination of the amended Asset Purchase Agreement. If we do not make the September 30, 2002 or March 12, 2003 payments discussed above, the TBA and the amended Asset Purchase Agreement will both terminate on such respective date. The term of the 93.5 TBA will continue until the earlier to occur of (i) the KXOL Closing or (ii) September 1, 2002, unless extended by ICFG for an additional six-month period. ICFG has the right to cancel the 93.5 TBA at anytime upon thirty days prior written notice. We intend to fund the acquisition of radio station KXOL-FM from a combination of cash on hand, internally generated cash flow, potential equity and debt financing and/or asset sales. Although we intend to complete this transaction, there can be no assurance that the acquisition of radio station KXOL-FM will be completed. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The performance of a radio station group is customarily measured by its ability to generate broadcast cash flow and EBITDA. Broadcast cash flow consists of operating income excluding corporate expenses and depreciation and amortization. EBITDA consists of operating income excluding depreciation and amortization. Broadcast cash flow and EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles. These measures are not intended to be substitutes for operating income (loss), cash flow from operating activities, net income (loss), or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. Broadcast cash flow and EBITDA do not take into account our debt service requirements and any other commitments. Our primary source of revenue is the sale of advertising time on our radio stations to local and national advertisers. Our revenue is affected primarily by the advertising rates that our radio stations are able to charge as well as the overall demand for radio advertising time in a market. Seasonal net broadcasting revenue fluctuations are common in the radio broadcasting industry and are due to fluctuations in advertising expenditures by local and national advertisers. Typically for the radio broadcasting industry, the first calendar quarter generally produces the lowest revenue. Our most significant operating expenses for purposes of the computation of broadcast cash flow and EBITDA are personnel compensation expenses, programming expenses, and advertising and promotion expenses. Our management strives to control these expenses by working closely with local station management and others. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THE THREE MONTHS ENDED MARCH 25, 2001. NET REVENUE. Net revenue was $29.7 million for the three months ended March 31, 2002 compared to $25.1 million for the three months ended March 25, 2001, an increase of $4.6 million or 18.3%. The increase was generated partially by the inclusion of the operating results of the Los Angeles FM station, KXOL, which began airing commercials in August 2001. On a same station basis, net revenue increased primarily due to ratings gains in the majority of our markets combined with vigorous sales efforts. STATION OPERATING EXPENSES. Station operating expenses were $18.5 million for the three months ended March 31, 2002 and March 25, 2001. Station operating expenses remained flat, despite an increase in the scale of operations with the introduction of KXOL-FM in April 2001. Additionally, station operating expenses remained flat due to management's continued efforts in administering a cost savings plan previously implemented in Puerto Rico, Dallas and San Antonio, as well as improved operating efficiencies. BROADCAST CASH FLOW. Broadcast cash flow was $11.1 million for the three months ended March 31, 2002 compared to $6.6 million for the three months ended March 25, 2001, an increase of $4.5 million or 68.2%. Our broadcast cash flow margin increased to 37.4% for the three months ended March 31, 2002 compared to 26.3% for the three months ended March 25, 2001. Our broadcast cash flow margin increased mainly due to the increase in net revenues coupled with the positive results of cost savings initiatives. CORPORATE EXPENSES. Corporate expenses were $2.9 million for the three months ended March 31, 2002 compared to $2.6 million for the three months ended March 25, 2001, an increase of $0.3 million or 11.5%. The increase in corporate expenses resulted mainly from an increase in professional fees. EBITDA. EBITDA was $8.3 million for the three months ended March 31, 2002 compared to $4.0 million for the three months ended March 25, 2001, an increase of $4.3 million or 107.5%. The increase in EBITDA was attributed to the increase in broadcast cash flow, partially offset by the increase in corporate expenses. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $0.8 million for the three months ended March 31, 2002 compared to $4.4 million for the three months ended March 25, 2001, a decrease of $3.6 million or 81.8%. The decrease was related to the adoption of SFAS 142, which ceased the amortization of all our intangible assets and goodwill effective December 31, 2001. OPERATING INCOME (LOSS). Operating income was $7.5 million for the three months ended March 31, 2002 compared to an operating loss of $0.5 million for the three months ended March 25, 2001, an increase of $8.0 million. The increase in operating income was caused by the increase in EBITDA and a decrease in amortization expense due to the adoption of SFAS 142 on December 31, 2001. 13 INTEREST EXPENSE, NET. Interest expense, net, was $8.5 million for the three months ended March 31, 2002 compared to $6.6 million for the three months ended March 25, 2001, an increase of $1.9 million or 28.8%. The increase in interest expense, net, was primarily due to interest expense incurred on the additional $100.0 million 9 5/8% senior subordinated notes that were issued in June 2001. In addition, interest expense, net, increased due to a decrease in interest income resulting from a general decline in interest rates on our cash balances. OTHER, NET. We had no meaningful other income during the three months ended March 31, 2002. Other income was $0.3 million for the three months ended March 25, 2001 due to an insurance recovery claim related to an office building in Los Angeles. INCOME TAX EXPENSE (BENEFIT). Income tax expense was $54.2 million for the three months ended March 31, 2002 compared to an income tax benefit of $2.6 million for the three months ended March 25, 2001. Income tax expense for the three months ended March 31, 2002 consisted primarily of a $55.4 million non-cash charge to income tax expense to establish a valuation allowance against our deferred tax assets effective December 31, 2001. As a result of adopting SFAS 142, amortization of indefinite-life intangible assets ceased and we could not be assured that the reversals of our deferred tax liabilities related to those indefinite-life intangible assets would occur within our net operating loss carry-forward period. The non-cash charge to income tax expense was offset by an income tax benefit of $1.2 million based on the estimated effective tax rate for the fiscal year. CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES. Cumulative effect of a change in accounting principle, net of taxes, was a non-cash transitional charge of $45.3 million for the three months ended March 31, 2002. The Company adopted SFAS 142, effective December 31, 2001, which eliminates the amortization of goodwill and intangible assets with indefinite useful lives, and changes the method of determining whether there is a goodwill and intangible assets impairment from an undiscounted cash flow method to a fair value method. As a result of the adoption of this standard, the Company incurred a non-cash transitional charge of $45.3 million, net of income tax benefit. NET LOSS. Net loss was $100.5 million for the three months ended March 31, 2002 compared to $4.2 million for the three months ended March 25, 2001. The net loss was due to the adoption of SFAS 142, which resulted in the $55.4 million non-cash charge to establish a valuation allowance on our deferred tax assets and the non-cash charge of $45.3 million related to the cumulative effect of a change in accounting principle, net of income tax benefit. LIQUIDITY AND CAPITAL RESOURCES Our primary source of liquidity is cash on hand and cash provided by operations. Our ability to increase our indebtedness is limited by the terms of the indentures governing our senior subordinated notes. Additionally, the indentures place restrictions with respect to the sale of assets, liens, investments, dividends, debt repayments, capital expenditures, transactions with affiliates and consolidations and mergers, among other things. Net cash flows provided by operating activities were $13.3 million for the three months ended March 31, 2002 compared to net cash flows provided by operating activities of $12.3 million for the three months ended March 25, 2001. Changes in our net cash flows from operating activities were primarily a result of an increase in operating income for the three months ended March 31, 2002 as compared to the three months ended March 25, 2001. Net cash flows used in investing activities were $16.3 million for the three months ended March 31, 2002 compared to net cash flows used in investing activities of $22.9 million for the three months ended March 25, 2001. Changes in our net cash flows from investing activities were primarily a result of the decrease in the advances on acquisition of stations and additions to property and equipment during the three months ended March 31, 2002 as compared to the three months ended March 25, 2001. Net cash flows provided by and used in financing activities were minimal for the three months ended March 31, 2002 and March 25, 2001, respectively. Management believes that cash from operating activities, together with cash on hand, should be sufficient to permit us to meet our operating obligations in the foreseeable future, including: required significant cash 14 interest payments pursuant to the terms of the senior subordinated notes due 2009 and 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 further deteriorate in any material respect; - we will continue to successfully implement our business strategy; - we will not incur any material unforeseen liabilities, including 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 largest Hispanic markets in the United States. We engage in discussions regarding potential acquisitions from time to time in the ordinary course of business. On November 2, 2000, we entered into an asset purchase agreement (the "Asset Purchase Agreement") with the International Church of the FourSquare Gospel ("ICFG") to purchase radio station KXOL-FM (formerly KFSG-FM) in Los Angeles, California at a purchase price of $250.0 million and made a non-refundable deposit of $5.0 million to be credited towards the purchase price at closing. The Asset Purchase Agreement contains customary representations and warranties, and the closing of our acquisition is subject to the satisfaction of certain customary conditions, including receipt of regulatory approval from the Federal Communications Commission and expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. On March 13, 2001, we entered into an Addendum to the Asset Purchase Agreement and two Time Brokerage Agreements with ICFG pursuant to which we are permitted to broadcast our programming over radio station KXOL-FM (the "TBA"), and ICFG is permitted to broadcast its programming over radio stations KFSG-FM (formerly KMJR-FM) and KFSB-FM (formerly KNJR-FM) (the "93.5 TBA"). In connection with the Addendum to the Asset Purchase Agreement and TBA, we made an additional non-refundable deposit of $20.0 million, which will be credited towards the purchase price at closing. On April 30, 2001, we commenced broadcasting our programming under the TBA and ICFG commenced broadcasting its programming under the 93.5 TBA. On February 8, 2002, we entered into an additional amendment to the Asset Purchase Agreement and an amendment to the TBA and the 93.5 TBA (collectively, the "Second Amendment"). The Second Amendment extends the deadline for closing under the amended Asset Purchase Agreement (the "KXOL Closing") to December 31, 2003. The KXOL Closing is subject to acceleration if we sell five specified stations during the term of the TBA. Pursuant to the Second Amendment, we made an additional non-refundable deposit of $15.0 million on March 12, 2002, which will be credited towards the purchase price at closing. Additionally, we are required to make payments to ICFG of $5.0 million on September 30, 2002 and $15.0 million on March 12, 2003, if the KXOL Closing has not occurred or the amended Asset Purchase Agreement has not terminated by these respective dates. All future payments are non-refundable (except in case of breach by ICFG) and will be credited towards the purchase price at the KXOL Closing. In addition, pursuant to the Second Amendment, on February 8,2002 we granted ICFG a warrant exercisable for an aggregate of 2,000,000 shares of our Class A common stock at an exercise price of $10.50 per share. This warrant will be exercisable for a period of thirty-six months from the date of issuance after which it will expire if not exercised. To date, this warrant has not been exercised. We assigned the warrant a fair value of approximately $8.9 million based on the Black-Scholes option pricing model in accordance with SFAS No. 123 "Accounting for Stock based Compensation". The fair market value of this warrant was recorded as an increase to intangible assets and additional paid-in capital on the date of grant. Additionally, if ICFG ceases to broadcast its programming under the 93.5 TBA at any time after September 1, 2002, commencing the last day of such calendar month, we will issue to ICFG each month thereafter, warrants exercisable for 100,000 shares of our Class A common stock at an exercise price equal to the closing price of our shares on the last trading day of such month, until the earlier to occur of (i) the KXOL Closing or (ii) the termination of the amended Asset Purchase Agreement. These warrants will also be exercisable for a period of thirty-six months from the date of issuance after which they will expire if not exercised. If these warrants are ever issued, the fair value of these warrants would be recorded as a programming expense. Pursuant to the Second Amendment, the term of the TBA will continue until the earlier to occur of (i) the KXOL Closing or (ii) the termination of the amended Asset Purchase Agreement. If we do not make the September 30, 2002 or March 12, 2003 payments discussed above, the TBA and the amended Asset Purchase Agreement will both terminate on such respective date. The term of the 93.5 TBA will continue until the earlier to occur of (i) the KXOL Closing or (ii) September 1, 2002, unless extended by ICFG for an additional six-month period. ICFG has the right to cancel the 93.5 TBA at anytime upon thirty days prior written notice. 15 We intend to fund the acquisition of radio station KXOL-FM from a combination of cash on hand, internally generated cash flow, potential equity and debt financing and/or asset sales. Although we intend to complete this transaction, there can be no assurance that the acquisition of radio station KXOL-FM will be completed. We have no other written understandings, letters of intent or contracts to acquire radio stations or other companies. We anticipate that any future acquisitions would be financed through funds generated from permitted debt financing, equity financing, operations, asset sales or a combination of these sources. However, there can be no assurance that financing from any of these sources, if available, can be obtained on favorable terms. NEW ACCOUNTING PRONOUNCEMENTS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. SFAS No. 141 also specifies the criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. The Company has concluded that its intangible assets, comprised primarily of Federal Communications Commission (FCC) licenses, qualify as indefinite-life intangible assets under SFAS 142. The Company adopted the provisions of SFAS No. 141 upon its issuance and adopted the provisions of SFAS No. 142 effective December 31, 2001. After performing the transitional impairment evaluation of its indefinite-lived intangible assets, the Company determined that the carrying value of certain indefinite-life intangible assets acquired from AMFM Operating, Inc. in January 2000, and certain indefinite-life intangible assets acquired from Rodriguez Communications, Inc. and New World Broadcasters Corp., in November 2000, exceeded their respective fair market values. Fair market values of the Company's FCC licenses were determined through the use of a third-party valuation. These valuations were performed on the FCC licenses, which exclude the franchise values of the stations (i.e. going concern value). These valuations were based on a discounted cash flow model incorporating various market assumptions, type of signal, and assumed the FCC licenses were acquired and operated by a third-party. As a result, the Company recorded a non-cash charge for the cumulative effect of a change in accounting principle of $45.3 million, net of income tax benefit of $30.2 million. Under SFAS 142, goodwill is deemed to be impaired if the net book value of the reporting unit exceeds its estimated fair value. The Company has determined that it has one reporting unit under SFAS 142 and that there was no impairment of goodwill as a result of adopting SFAS 142. The Company will perform an annual impairment review of its indefinite-life intangible assets and goodwill during the fourth quarter of each fiscal year, commencing in the fourth quarter of 2002. Additionally, since amortization of its indefinite-life intangible assets ceased for financial statement purposes under SFAS 142, it could not be assured that the reversals of the deferred tax liabilities relating to those indefinite-life intangible assets would occur within the Company's net operating loss carry-forward period. Therefore, the Company recognized a non-cash charge totaling $55.4 million to income tax expense to establish a valuation allowance against the Company's deferred tax assets, primarily consisting of net operating loss carry-forwards. As of the Company's adoption of SFAS No. 142 effective December 31, 2001, the Company had unamortized goodwill in the amount of $32.7 million, and unamortized identifiable intangible assets in the amount of $543.2 million, all of which was subjected to the transition provision of SFAS No. 142. Amortization expense related to goodwill and identifiable intangible assets was $3.7 million for the three months ended March 25, 2001. The following table presents adjusted financial results for the quarters ended March 25, 2001 and March 31, 2002, respectively, on a basis consistent with the new accounting principle.
(in thousands, except per share data) March 25, 2001 March 31, 2002 -------------- -------------- Reported net loss: $(4,161) $(100,475) Add back: cumulative effect of accounting principle, net of tax (1)- -- 45,288 Add back: income tax valuation allowance (2)- -- 55,358 Add back: amortization of goodwill and intangible assets (3)- 3,655 -- Income tax adjustment (3): (2,877) -- ------- --------- Adjusted net (loss) income $(3,383) $ 171 ======= =========
16 Basic and diluted (loss) income per share: Net loss per share: $ (0.06) $ (1.55) Cumulative effect per share of a change in accounting principle, net of tax (1): -- 0.70 Income tax valuation allowance per share (2): -- 0.85 Amortization of goodwill and intangible assets per share (3): 0.05 -- Income tax adjustment per share (3): (0.04) -- ------- --------- Adjusted net (loss) income per share: $ (0.05) $ -- ======= =========
(1) As a result of the adoption of SFAS 142, the Company incurred a non-cash transitional charge of $45.3 million, net of income tax benefit of $30.2 million, due to the cumulative effect of the change in accounting principle during the quarter ended March 31, 2002. (2) As a result of adopting SFAS 142, the Company incurred a non-cash income tax expense of $55.4 million to establish a valuation allowance against deferred tax assets during the quarter ended March 31, 2002. (3) The adjusted financial results in the three months ended March 25, 2001 adds back non-cash goodwill and intangible assets amortization of $3.7 million and reflects adjusted income tax expense assuming that SFAS 142 was effective as of January 1, 2001. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment and disposal of long-lived assets. SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company adopted SFAS No. 144 on December 31, 2001 and it had no impact on the Company's consolidated financial statements. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This report on Form 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are not based on historical facts, but rather reflect our current expectations concerning future results and events. These forward-looking statements generally can be identified by the use of statements that include phrases such as "believe," "expect," "anticipate," "intend," "plan," "foresee," "likely," "will" or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. Factors that could cause actual results to differ from those expressed in forward-looking statements include, but are not limited to: - Our ability to finance the acquisition of KXOL-FM may be limited. In the event that we are unable to complete the acquisition under its current terms, we will lose the non-refundable deposits that we have made (except in case of breach by ICFG); - We will continue to incur promotional costs in connection with our TBA for KXOL-FM; - If we complete our acquisition of KXOL-FM and/or acquire additional stations in the future, depending on the financing used to fund these acquisitions, interest expense may increase; - Our most important operating assets are our intangible assets, principally consisting of our FCC licenses. Impairment to the carrying value of these assets could have a material effect on our results of operations and financial position; - Our broadcast revenue and operating results could be adversely affected by the current recession or by another national or regional recession; 17 - Our substantial level of debt could limit our ability to grow and compete; - Despite current indebtedness levels and limits imposed by our indentures on additional indebtedness, we and our subsidiaries may still be able to incur substantially more debt which could further limit our ability to grow and compete; - If any lender to us or our subsidiaries accelerates any debt in the event of a default under our or our subsidiaries' indebtedness, we and our subsidiaries may not have the resources to repay that debt, and an event of default under any material debt instrument would harm our business and financial condition; - The terms of our debt restrict us from engaging in many activities, require us to satisfy various financial tests and may adversely affect our business by limiting our flexibility; - We have experienced net losses in the past and to the extent that we experience losses in the future, the market price of our securities and our ability to raise capital could be adversely affected; - A large portion of our net broadcast revenue and broadcast cash flow comes from the New York and Miami markets and a significant decline in net broadcast revenue or broadcast cash flow from our stations in either of these markets could have a material adverse effect on our financial position and results of operations; - Loss of key personnel, including Raul Alarcon, Jr., our Chairman of the Board of Directors, President and Chief Executive Officer, could adversely affect our business; - We compete for advertising revenue with other radio groups as well as television and other media, many operators of which have greater resources than we do; - Our growth depends on successfully executing our acquisition strategy. We intend to grow by acquiring radio stations primarily in the largest U.S. Hispanic markets, but we cannot assure you that our acquisition strategy will be successful; - Raul Alarcon, Jr., Chairman of the Board of Directors, Chief Executive Officer and President, has majority voting control and this control may discourage or influence certain types of transactions, including an actual or potential change of control of SBS such as a merger or sale of SBS; - We must be able to respond to rapidly changing technology, services and standards which characterize our industry for us to remain competitive; - Our business depends on maintaining our FCC licenses. We cannot assure you that we will be able to maintain these licenses; - We may face regulatory review for additional acquisitions in our existing markets and, potentially, new markets; - The market price of our shares of Class A common stock may fluctuate significantly; and - Current or future sales by existing stockholders could depress the market price of our Class A common stock. Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. We do not undertake any obligation to update any forward-looking statements to reflect subsequent events or circumstances. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We believe that inflation has not had a material impact on our results of operations for each of our fiscal years in the three-year period ended September 30, 2001, the transitional period ended December 30, 2001, and in the three-month period ended March 31, 2002. However, there can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition. We are not subject to currency fluctuations since we do not have any operations other than where the currency is the U.S. dollar. We do not have any variable rate debt or derivative financial or commodity instruments. 18 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time we are involved in litigation incidental to the conduct of our business, such as contractual matters and employee-related matters. We are not currently a party to litigation, which in the opinion of management, is likely to have a material adverse effect on our business, operating results or financial position. On November 28, 2001, a class action lawsuit was filed in the United States District Court for the Southern District of New York on behalf of purchasers who acquired shares of our Class A common stock pursuant to the registration statement and prospectus (collectively, the "Prospectus") relating to our initial public offering which closed on November 2, 1999 (the "IPO"). The lawsuit was filed against SBS, eight underwriters of the IPO (collectively, the "Underwriters"), two members of our senior management team, one of which is our Chairman of the Board of Directors, and an additional director. The claims being made under the complaint are similar to claims currently being made under hundreds of class action suits filed against companies with recent initial public offerings and their underwriters. The class action complaint alleges violations of the federal securities laws, specifically that the Prospectus contained materially false and misleading statements based on alleged misstatements and/or omissions of material facts relating to underwriting commissions. The complaint also alleges Rule 10b-5 fraud violations by the Underwriters, but not by SBS or the individually named defendants. We believe that we would have a valid claim against the Underwriters for indemnification in the event that the plaintiffs were to be awarded damages as a result of such lawsuit. Discovery in the lawsuit has been stayed while motions to dismiss the complaint are being prepared. On June 14, 2001, an action was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida, by Julio Rumbaut against SBS, alleging that he is entitled to compensation for work performed for SBS and a commission for the purchase of a radio station by SBS. Mr. Rumbaut has amended his theory of damages and now is claiming approximately $8.0 million in damages plus attorney's fees and pre-judgment interest. SBS is vigorously contesting Mr. Rumbaut's claim. Trial has commenced on the action and is scheduled to conclude at the end of May 2002. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - 10.1 Warrant dated February 8, 2002 by the Company in favor of International Church of the FourSquare Gospel. 10.2 Stock Option Agreement dated as of January 16, 2002 between the Company and Joseph A. Garcia. (b) Reports on Form 8-K There were no reports on Form 8-K filed for the three months ended March 31, 2002. 19 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 and on behalf of the additional registrants by the undersigned thereunto duly authorized. Spanish Broadcasting System, Inc. and each of the additional registrants listed in the Table of Additional Registrants By: /s/ JOSEPH A. GARCIA ----------------------------------------------- Date: May 15, 2002 Joseph A. Garcia, Executive Vice President, Chief Financial Officer and Secretary (principal financial and accounting officer and duly authorized officer of the registrant) 20 EX-10.1 3 g75520ex10-1.txt WARRANT DATED FEBRUARY 8, 2002 EXHIBIT 10.1 THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT. Number of Shares of Class A Common Stock: 2,000,000 Date of Issuance: February 8, 2002
WARRANT To Purchase Class A Common Stock of SPANISH BROADCASTING SYSTEM, INC. Void after February 8, 2005 THIS IS TO CERTIFY THAT, for value received, International Church of the FourSquare Gospel (the "Holder") is entitled, subject to the terms and conditions set forth herein, to purchase from Spanish Broadcasting System, Inc. (the "Company") 2,000,000 shares of the Company's Class A Common Stock, par value $0.0001 per share (the "Class A Common Stock"). The number, character and Exercise Price (defined below) of such shares of Class A Common Stock are subject to adjustment as provided herein. The term "Warrant" as used herein shall include this Warrant and any warrants delivered in substitution, replacement or exchange therefor as provided herein. This Warrant is issued pursuant to that certain Amendment No. 1 dated as of February 8, 2002 to Time Brokerage Agreement dated as of March 13, 2001, by and between Holder, as Licensee, and the Company, as Broker. 1. Term of Warrant. Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole only and not in part, during the term commencing on the date hereof and ending at 5:00 p.m., prevailing local time in New York, New York, on February 8, 2005, and shall be void thereafter. 2. Exercise Price. The price at which this Warrant may be exercised shall be $10.50 per share of Class A Common Stock, as adjusted from time to time pursuant to Section 9 hereof (the "Exercise Price"). 3. Exercise of Warrant. (a) The purchase right represented by this Warrant shall be exercisable by the Holder, in whole only and not in part, at any time during the term hereof upon (i) the surrender of this Warrant and the delivery of a duly completed and executed Notice of Exercise (in the form of Exhibit A attached hereto) at the principal office of the Company (listed as the Company's address in Section 14 herein) or such other office or agency as the Company may designate by notice pursuant to Section 14 herein, and (ii) payment of the aggregate Exercise Price equal to the number of shares of Class A Common Stock being purchased upon exercise of this Warrant multiplied by the Exercise Price (the "Aggregate Exercise Price") in cash, by certified or official bank check payable to the order of the Company, or by wire transfer to an account in a bank designated for such purpose by the Company. (b) This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise and payment as provided above, and the person entitled to receive the shares of Class A Common Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date. As promptly as practicable on or after such date, the Company shall issue and deliver to the person entitled to receive the same, a certificate for the number of shares of Class A Common Stock issuable upon such exercise. If such certificate shall be registered in a name other than the name of the Holder, then funds sufficient to pay all stock transfer taxes which shall be payable upon the issuance of such certificate shall be paid by the Holder at the time of exercise of this Warrant and the Company shall not be required to issue or deliver any certificate until such tax or other charge has been paid by the Holder. (c) Notwithstanding any provisions herein to the contrary, if the Current Market Price (defined below) of one share of Class A Common Stock is greater than the Exercise Price on the date of calculation, the Holder shall have the right, at its election, in lieu of delivering the Aggregate Exercise Price in cash, to instruct the Company in the Notice of Exercise to retain, in payment of the Aggregate Exercise Price, the number of shares of Class A Common Stock equal to the quotient of the Aggregate Exercise Price divided by the Current Market Price. Upon exercise, the Holder shall then receive the number of shares of Class A Common Stock computed using the following formula: X = Y(A-B) ------ A Where X= the number of shares of Class A Common Stock to be issued by the Company to the Holder; Y= the number of shares of Class A Common Stock purchasable under the Warrant; A= the Current Market Price of one share of the Company's Class A Common Stock; and 2 B= the Exercise Price. The "Current Market Price" shall mean the closing price per share of the Class A Common Stock on the day immediately preceding the day as of which the Current Market Price is being determined. The closing price shall be the last reported sale price on the principal national securities exchange on which the shares are listed or admitted to trading, or if the shares are not so listed or admitted to trading, the last reported sale price as officially quoted on The Nasdaq Stock Market or through a similar organization if The Nasdaq Stock Market is no longer reporting such information. If shares of the Class A Common Stock are not listed or admitted to trading on any exchange or quoted through The Nasdaq Stock Market or any similar organization, the Current Market Price shall be determined in good faith by the Company's Board of Directors. 4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Current Market Price of one share of Class A Common Stock multiplied by such fraction. 5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and equal amount. 6. NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle the Holder to any rights as a stockholder of the Company. 7. WARRANT REGISTER. The Company shall maintain a register (the "Warrant Register") containing the name and address of the Holder. The Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes and shall not be affected by any notice to the contrary. 8. RESERVATION OF STOCK. The Company covenants that during the term that this Warrant is exercisable, the Company shall reserve from its authorized and unissued Class A Common Stock a sufficient number of shares to provide for the issuance of Class A Common Stock upon the exercise hereof. 9. ADJUSTMENTS. The Exercise Price and the number and type of shares purchasable hereunder are subject to adjustment from time to time as follows: 9.1 STOCK SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If during the period that this Warrant remains outstanding and unexpired, the Company shall split or subdivide the securities as to which purchase rights exist under this Warrant into a 3 different number of securities of the same class, the Exercise Price for such securities shall be proportionately decreased, and the number of shares of such securities for which this Warrant may be exercised shall be proportionately increased. If during the period that this Warrant remains outstanding and unexpired, the Company shall combine the securities as to which purchase rights exist under this Warrant into a different number of securities of the same class, the Exercise Price for such securities shall be proportionately increased and the number of shares of such securities for which this Warrant may be exercised shall be proportionately decreased. 9.2 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES. If during the period that this Warrant remains outstanding and unexpired, the Company shall take a record of the holders of Class A Common Stock for the purpose of entitling them to receive a dividend, without payment therefor, payable in additional stock or other securities of the Company, then this Warrant shall represent the right to acquire, in addition to the number of shares of Class A Common Stock receivable upon exercise of this Warrant, the amount of such additional stock or other securities of the Company that the Holder would have received if the Holder had exercised this Warrant in full to purchase shares of Class A Common Stock and had been the record holder of such shares on the date that the Company took a record of the holders of Class A Common Stock for the purpose of entitling them to receive such dividend. 9.3 MERGER, SALE OF ASSETS, REORGANIZATION, RECLASSIFICATION. If during the period that this Warrant remains outstanding and unexpired, there shall be (i) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity and by which the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, (ii) a sale or transfer of all or substantially all of the Company's properties and assets to any other person, or (iii) a capital reorganization or reclassification of the Class A Common Stock (other than a combination or subdivision of shares otherwise provided for herein), then, lawful provision shall be made so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder, upon the exercise hereof at any time after the consummation of such event, shall be entitled to purchase, in lieu of the shares of Class A Common Stock for which this Warrant could have been exercised immediately prior to such consummation, the stock or other securities, cash or property which the Holder would have been entitled to receive upon such consummation if the Holder had exercised this Warrant for such shares of Class A Common Stock immediately prior thereto, subject to adjustment as nearly equivalent as possible to the adjustments provided for in this Section 9. If the per share consideration payable to the Holder in connection with any such event is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant such that the Holder's rights and interest in this Warrant shall be applicable after such event, to the 4 greatest extent possible, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. 10. CERTIFICATES OF ADJUSTMENTS; NOTICES. (a) Whenever the Exercise Price or number or type of shares purchasable hereunder shall be adjusted or readjusted pursuant to Section 9 herein, the Company shall issue a certificate signed by its Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment or readjustment, the amount of the adjustment or readjustment, the method by which such adjustment or readjustment was calculated, the Exercise Price and number of shares purchasable hereunder after giving effect to such adjustment or readjustment and the amount, if any, of other property to be received upon exercise of this Warrant after giving effect to such adjustment or readjustment. The Company shall deliver a copy of such certificate to the Holder in accordance with Section 14 herein. (b) In the event: (i) that the Company shall take a record of the holders of its Class A Common Stock (or other stock or securities at the time receivable upon the exercise of this Warrant) for the purpose of entitling them to receive any dividend in stock or other securities; or (ii) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation, or any conveyance of all or substantially all of the assets of the Company to another person; or (iii) of any voluntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company shall mail or cause to be mailed to the Holder a notice specifying, as the case may be, (A) the date on which a record is to be taken for the purpose of such dividend, and stating the amount and character of such dividend, or (b) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is to take place, and the date, if any is to be fixed, as of which the holders of record of Class A Common Stock (or such other stock or securities at the time receivable upon the exercise of this Warrant), shall be entitled to exchange their shares of Class A Common Stock (or such other stock or securities at the time receivable upon exercise of this Warrant), for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be mailed at least 15 days prior to the date therein specified for the occurrence of any of the foregoing events. (c) All notices pursuant to this Section 9 shall be given in the manner set forth in Section 14 herein. 5 11. RESTRICTIVE LEGEND ON STOCK CERTIFICATE. A certificate for shares issued upon exercise of this Warrant, unless at the time of exercise such shares are registered under the Securities Act, shall bear a legend in substantially the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND ARE SUBJECT TO THE CONDITIONS SPECIFIED IN A CERTAIN WARRANT DATED FEBRUARY 8, 2002, BY AND BETWEEN SPANISH BROADCASTING SYSTEM, INC. AND INTERNATIONAL CHURCH OF THE FOURSQUARE GOSPEL, COPIES OF WHICH WARRANT ARE AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF SPANISH BROADCASTING SYSTEM, INC. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THE WARRANT. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY THE PROVISIONS OF SUCH WARRANT. 12. NO TRANSFER. This Warrant may not be transferred in whole or in part. 13. AMENDMENTS. This Warrant may not be modified or amended without the written consent of the Company and the Holder. 14. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware. 15. NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given if (i) personally delivered by hand or by messenger, (ii) mailed by registered or certified mail, postage prepaid and return receipt requested or (iii) sent by a nationally recognized overnight courier service for next morning delivery. Any such notice shall be deemed to have been received on the date of personal delivery; on the fourth day after deposit in the U.S. mail if mailed by registered or certified mail; and on the day after delivery to a nationally recognized overnight courier service. Notices shall be addressed as follows (or to such other address as a party requests by written notice): If to Holder, to: International Church of the FourSquare Gospel 1910 W. Sunset Boulevard 6 Los Angeles, CA 90026-0176 Attention: Brent R. Morgan with a copy (which shall not constitute notice) to: Farrand Cooper, P.C. 235 Montgomery Street, Suite 905 San Francisco, CA 94104 Attention: Stephen R. Farrand, Esq. If to the Company, to: Spanish Broadcasting System, Inc. 2601 South Bayshore Drive, PH II Coconut Grove, Florida 33133 Attention: Joseph A. Garcia with a copy (which shall not constitute notice) to: Kaye Scholer LLP 425 Park Avenue New York, New York 10022-3598 Attention: William E. Wallace, Jr., Esq. 16. SEVERABILITY. If any provision of this Warrant is held to be prohibited by or invalid under applicable law, then such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 17. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 7 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of February 8, 2002 by its duly authorized officer and its corporate seal to be impressed hereon and attested by its Secretary. SPANISH BROADCASTING SYSTEM, INC. By: /s/ Raul Alarcon, Jr. --------------------------------------------- Name: Raul Alarcon, Jr. Title: Chairman of the Board of Directors, Chief Executive Officer and President Attest: By: /s/ Joseph A. Garcia --------------------------------------------- Name: Joseph A. Garcia Title: Executive Vice President, Chief Financial Officer and Secretary 8 EXHIBIT A NOTICE OF EXERCISE The undersigned registered owner of the attached Warrant irrevocably exercises the attached Warrant in full for the purchase of 2,000,000 shares of Class A Common Stock of SPANISH BROADCASTING SYSTEM, INC. and herewith makes payment therefor, all at the price and on the terms and conditions specified in the attached Warrant, and requests that a certificate for the shares of Class A Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of the undersigned and delivered to the undersigned at the address below. In exercising the attached Warrant, the undersigned hereby confirms and acknowledges that the shares of Class A Common Stock to be issued are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment, and that the undersigned shall not offer, sell or otherwise dispose of any such shares of Class A Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. Dated: --------------------- Signature: ------------------------------ Registered Owner ------------------------------ Print Name ------------------------------ ------------------------------ Address 9 EX-10.2 4 g75520ex10-2.txt STOCK OPTION AGREEMENT EXHIBIT 10.2 STOCK OPTION AGREEMENT THIS AGREEMENT, dated as of January 16, 2002, is made by and between Spanish Broadcasting System, Inc., a Delaware corporation (the "Company") and Joseph A. Garcia (the "Optionee"). WHEREAS, the Optionee has been selected by the Committee to receive a grant of stock options under the Spanish Broadcasting System 1999 Stock Option Plan (the "Plan"). NOW, THEREFORE, in consideration of the Optionee's employment with the Company, the Company and the Optionee agree as follows: 1. DEFINITIONS. Any capitalized term not defined herein shall have the meaning set forth in the Plan. 2. GRANT OF OPTION. (a) Grant; Grant Date. Subject to the terms and conditions hereof, the Company hereby grants to the Optionee as of January 16, 2002, (the "Grant Date") an option to purchase 150,000 Shares at an exercise price equal to the closing price of the Shares on January 16, 2002, of $9.10 per share. (b) Adjustments in Option. In the event that the outstanding Shares subject to the Option are changed into or exchanged for a different number or kind of shares or securities of the Company, or of another corporation, by reason of reorganization, merger or other subdivision, consolidation, recapitalization, reclassification, stock split, issuance of warrants, stock dividend or combination of shares or similar event, the Committee shall make an appropriate and equitable adjustment in the Option so that the Optionee's proportionate interest shall be maintained as before the occurrence of such event, provided that any such adjustment shall be consistent with the provisions of the Optionee's employment agreement, if applicable. (c) Form of Option. The Option is intended to be an Incentive Stock Option to the fullest extent provided by law. (d) Term. The Option shall expire on the tenth anniversary of the Grant Date, unless terminated earlier by the Committee. (e) Vesting. The Option shall become exercisable as follows: 20% immediately on the Grant Date; 20% on the first anniversary of the Grant Date; 20% on the second anniversary of the Grant Date; 20% on the third anniversary of the Grant Date; and 20% on the fourth anniversary of the Grant Date. (f) Exercise. The Optionee may exercise an Option in whole or in part at any time by delivering written notice of such exercise to the Secretary of the Company of the number of Shares as to which the Option is being exercised, and enclosing payment for the Shares with respect to which the Option is being exercised. Such payment shall be in cash or by check, or if approved by the Committee, by the delivery of Shares previously owned by the Employee, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery equal to the aggregate purchase price of the Shares with respect to which the Option is being exercised, or pursuant to a "cashless exercise," or any combination of the foregoing approved by the Committee, in its sole discretion. Partial exercise shall be for whole Shares only and shall not be for less than one hundred (100) Shares unless the number of Shares purchased constitutes the total number of Shares then remaining subject to the Option or the Committee permits such smaller exercise in its sole discretion. (g) Exercise Following Termination of Employment. In the event the Optionee's Termination of Employment is for Cause, the Option, whether exercisable or nonexercisable, at such time, shall be deemed to have terminated as of the day preceding such Termination of Employment. If such Termination of Employment is for any reason other than cause, any outstanding portion of the Option that has not become exercisable shall terminate on the date of such Termination of Employment, unless provided otherwise by the Board, in its sole discretion. Any outstanding exercisable portion shall be exercisable for the following periods: (A) If the Optionee's Termination of Employment is due to death, Permanent Disability, or Retirement, the Option shall be exercisable by the Optionee (or his personal representative or beneficiary) for the shorter of twelve (12) months following the date of such Termination of Employment or the remainder of its original term. (B) In all other cases, the Option shall be exercisable for the shorter of three months following such Termination of Employment, or the remainder of its original term. (h) Nontransferability. The Option shall not be transferable other than by will or the laws of descent and distribution, and no transfer so effected shall be effective to bind the Company unless the Company has been furnished with written notice thereof and a copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of the Option, provided, however, that, in the discretion of the Committee, Options may be transferred pursuant to a Qualified Domestic Relations Order (within the meaning of the Code). (i) Conditions to Issuance of Stock Certificates. (1) The Shares deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued Shares or issued Shares which have been reacquired by the Company. Such Shares shall be fully paid and non-assessable. The stock certificates evidencing the Shares shall bear such legends restricting transferability as the Committee deems necessary or advisable. 2 (2) The Company shall not be required to issue or deliver any certificate or certificates for Shares deliverable upon any exercise of the Option prior to fulfillment of all of the following conditions: (A) The completion of any registration or other qualification of such Shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, or the obtaining of approval or other clearance from any state or federal governmental agency which the Committee shall, in its sole discretion, deem necessary or advisable. (B) If, in its sole discretion, the Committee deems it necessary or advisable, the execution by the Employee of a written representation and agreement, in a form satisfactory to the Committee, in which the Optionee represents that the Shares acquired by him upon exercise are being acquired for investment and not with a view to distribution thereof. (j) Rights as a Stockholder. The Optionee shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any Shares purchasable upon the exercise of the Option unless and until certificates representing such Shares have been issued by the Company. 3. MISCELLANEOUS. (a) Administration. The Committee shall have the power to interpret the Plan and this Agreement, and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Optionee, the Company, and all other interested persons. (b) Withholding of Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Optionee for federal income tax purposes with respect to the grant of the Option under this Agreement, the Optionee shall pay to the Company, or the Optionee (or his Designated Beneficiary) shall make arrangements satisfactory to the Company regarding the payment of, any federal, state, or local taxes of any kind required by law or the Company to be withheld with respect to such amount. The obligations of the Company under this Agreement shall be conditioned on such payment or arrangements, and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Optionee. (c) No Right to Continued Employment. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company or shall interfere with or restrict in any way the rights of the Company, which are hereby expressly reserved, to discharge the Optionee at any time for any reason whatsoever, with or without cause. 3 (d) Entire Agreement; Amendment. This Agreement, and the Plan, constitute the entire agreement between the parties with respect to the subject matter hereof, and supersedes all prior agreements and understandings between the parties with respect to such subject matter. Any term or provision of this Agreement may be waived at any time by the party which is entitled to the benefits thereof, and any term or provision of this Agreement may be amended or supplemented at any time by the mutual consent of the parties hereto, except that any waiver of any term or condition, or any amendment, of this Agreement must be in writing. (e) Governing Law. The laws of the State of New York shall govern the interpretation, validity and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflict of laws. (f) Successors. This Agreement shall be binding upon and inure to the benefit of the successors, assigns and heirs of the respective parties. (g) Notices. All notices or other communications made or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by registered or certified mail, return receipt requested, to those listed below at their following respective addresses or at such other address as each may specify by notice to the others: To the Optionee: Joseph A. Garcia c/o Spanish Broadcasting System, Inc. 2601 South Bayshore Drive Coconut Grove, Florida 33133 To the Company: Spanish Broadcasting System, Inc. 2601 South Bayshore Drive Coconut Grove, Florida 33133 Attention: Raul Alarcon, Jr. Copy to: Kaye Scholer LLP 425 Park Avenue New York, New York 10022 Attention: William E. Wallace, Jr., Esq. (h) Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (i) Conflict with the Plan. In the event of any conflict or inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan shall control. 4 (j) Injunctive Relief. The Optionee acknowledges and agrees that a violation of Section 2(h) hereof will cause the Company irreparable injury for which adequate remedy at law is not available. Accordingly, the Optionee agrees that the Company shall be entitled to an injunction, restraining order or other equitable relief to prevent the breach of such provisions and to enforce the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which it may be entitled at law or equity. (k) Titles; Construction. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Agreement. The masculine pronoun shall include the feminine and neuter and the singular shall include the plural, when the context so indicates. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Spanish Broadcasting System, Inc. By: /s/ Raul Alarcon, Jr. -------------------------------------- Name: Raul Alarcon, Jr. Title: President and CEO OPTIONEE /s/ Joseph A. Garcia ----------------------------------------- 5 -----END PRIVACY-ENHANCED MESSAGE-----