UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended March 31, 2003 | ||
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to | ||
Commission File Number 33-82114
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Delaware
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13-3827791 | |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
2601 South Bayshore Drive, PH II
(305) 441-6901
Former fiscal year:
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. þ Yes o No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). þ Yes o 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, 2003, 37,076,655 shares of Class A common stock, par value $.0001 per share, and 27,605,150 shares of Class B common stock, par value $.0001 per share, were outstanding.
SPANISH BROADCASTING SYSTEM, INC.
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PART I.
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FINANCIAL INFORMATION | ||||||
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ITEM 1.
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Financial Statements — Unaudited | 2 | |||||
| Unaudited Condensed Consolidated Balance Sheets as of December 29, 2002 and March 31, 2003 | 2 | ||||||
| Unaudited Condensed Consolidated Statements of Operations for the Three-Months Ended March 31, 2002 and 2003 | 3 | ||||||
| Unaudited Condensed Consolidated Statements of Cash Flows for the Three-Months Ended March 31, 2002 and 2003 | 4 | ||||||
| Notes to Unaudited Condensed Consolidated Financial Statements | 5 | ||||||
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ITEM 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | |||||
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ITEM 3.
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Quantitative and Qualitative Disclosures About Market Risk | 21 | |||||
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ITEM 4.
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Controls and Procedures | 21 | |||||
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PART II.
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OTHER INFORMATION | ||||||
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ITEM 2.
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Changes in Securities and Use of Proceeds | 21 | |||||
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ITEM 6.
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Exhibits and Reports on Form 8-K | 22 | |||||
1
Part I. — FINANCIAL INFORMATION
Item 1. Financial Statements — Unaudited
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
| December 29, 2002 | March 31, 2003 | |||||||||
| ASSETS | ||||||||||
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Current assets:
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Cash and cash equivalents
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$ | 71,430 | $ | 65,078 | ||||||
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Receivables, net
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25,516 | 20,912 | ||||||||
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Other current assets
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2,252 | 2,115 | ||||||||
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Total current assets
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99,198 | 88,105 | ||||||||
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Property and equipment, net
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24,482 | 24,974 | ||||||||
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Intangible assets
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502,644 | 517,794 | ||||||||
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Deferred financing costs, net
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8,759 | 8,438 | ||||||||
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Other assets
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201 | 1,303 | ||||||||
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Total assets
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$ | 635,284 | $ | 640,614 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
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Current liabilities:
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Current portion of long-term debt
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$ | 208 | $ | 213 | ||||||
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Accounts payable and accrued expenses
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15,691 | 16,091 | ||||||||
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Accrued interest
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5,226 | 13,376 | ||||||||
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Deferred commitment fee
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581 | 405 | ||||||||
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Total current liabilities
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21,706 | 30,085 | ||||||||
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9 5/8% senior subordinated notes, net
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324,154 | 324,415 | ||||||||
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Other long-term debt, less current portion
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3,948 | 3,893 | ||||||||
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Deferred income taxes
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58,051 | 55,254 | ||||||||
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Total liabilities
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407,859 | 413,647 | ||||||||
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Stockholders’ equity:
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Class A common stock, $.0001 par value.
Authorized 100,000,000 shares; 37,076,655 shares issued and
outstanding at December 29, 2002 and March 31, 2003
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3 | 3 | ||||||||
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Class B common stock, $.0001 par value.
Authorized 50,000,000 shares; 27,605,150 shares issued and
outstanding at December 29, 2002 and March 31, 2003
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3 | 3 | ||||||||
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Additional paid-in capital
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444,594 | 444,937 | ||||||||
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Accumulated deficit
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(217,175 | ) | (217,976 | ) | ||||||
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Total stockholders’ equity
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227,425 | 226,967 | ||||||||
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Total liabilities and stockholders’ equity
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$ | 635,284 | $ | 640,614 | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
2
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
| Three Months Ended | ||||||||||
| March 31, 2002 | March 31, 2003 | |||||||||
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Gross revenue
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$ | 32,592 | $ | 33,049 | ||||||
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Less agency commissions
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3,689 | 4,242 | ||||||||
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Net revenue
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28,903 | 28,807 | ||||||||
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Operating expenses:
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Engineering
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934 | 985 | ||||||||
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Programming
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4,200 | 5,468 | ||||||||
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Stock-based programming
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— | 343 | ||||||||
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Selling
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9,557 | 8,020 | ||||||||
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General and administrative
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3,214 | 3,626 | ||||||||
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Corporate expenses
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2,862 | 4,489 | ||||||||
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Depreciation and amortization
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732 | 743 | ||||||||
| 21,499 | 23,674 | |||||||||
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Operating income from continuing operations
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7,404 | 5,133 | ||||||||
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Other (income) expenses:
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Interest expense, net
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8,511 | 8,627 | ||||||||
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Other, net
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— | (26 | ) | |||||||
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Loss from continuing operations before income
taxes, discontinued operations, extraordinary item and
cumulative effect of a change in accounting principle
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(1,107 | ) | (3,468 | ) | ||||||
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Income tax expense (benefit)
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54,063 | (2,667 | ) | |||||||
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Loss from continuing operations before
discontinued operations, extraordinary item and cumulative
effect of a change in accounting principle
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(55,170 | ) | (801 | ) | ||||||
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Discontinued operations:
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Loss from operations of discontinued station
KTCY-FM, net of tax
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(17 | ) | — | |||||||
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Cumulative effect of a change in accounting
principle for intangible assets, net of income tax benefit of
$30.2 million
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(45,288 | ) | — | |||||||
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Net loss
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$ | (100,475 | ) | $ | (801 | ) | ||||
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Net loss per common share before discontinued
operations, extraordinary item and cumulative effect of a change
in accounting principle:
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Basic and Diluted
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$ | (0.85 | ) | $ | (0.01 | ) | ||||
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Net (loss) income per common share for
discontinued operations
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Basic and Diluted
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$ | — | $ | — | ||||||
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Net loss per common share attributed to a
cumulative effect of a change in accounting principle, net of
tax:
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Basic and Diluted
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$ | (0.70 | ) | $ | — | |||||
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Net loss per common share:
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Basic and Diluted
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$ | (1.55 | ) | $ | (0.01 | ) | ||||
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Weighted-average common shares outstanding:
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Basic and Diluted
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64,661 | 64,682 | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
| Three Months | Three Months | |||||||||||
| Ended | Ended | |||||||||||
| March 31, | March 31, | |||||||||||
| 2002 | 2003 | |||||||||||
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Cash flows from operating activities:
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Net loss
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$ | (100,475 | ) | $ | (801 | ) | ||||||
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Adjustments to reconcile net loss to net cash
provided by operating activities:
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Loss from discontinued operations
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17 | — | ||||||||||
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Stock-based programming expense
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— | 343 | ||||||||||
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Cumulative effect of a change in accounting
principle for intangible assets
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75,480 | — | ||||||||||
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Depreciation and amortization
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732 | 743 | ||||||||||
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Bad debt recoveries
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(351 | ) | (183 | ) | ||||||||
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Amortization of debt discount
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231 | 261 | ||||||||||
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Amortization of deferred financing costs
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320 | 321 | ||||||||||
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Deferred income taxes
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23,830 | (2,797 | ) | |||||||||
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Decrease in deferred commitment fee
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(175 | ) | (176 | ) | ||||||||
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Changes in operating assets and liabilities, net
of acquisitions:
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Decrease in receivables
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4,507 | 4,787 | ||||||||||
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Decrease in other current assets
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99 | 137 | ||||||||||
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Decrease (increase) in other assets
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11 | (1,102 | ) | |||||||||
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Increase in accounts payable and accrued expenses
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802 | 400 | ||||||||||
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Increase in accrued interest
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8,064 | 8,150 | ||||||||||
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Net cash provided by continuing operations
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13,092 | 10,083 | ||||||||||
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Net cash provided by discontinued operations
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249 | — | ||||||||||
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Net cash provided by operating activities
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13,341 | 10,083 | ||||||||||
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Cash flows from investing activities:
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Advances on purchase price of radio stations
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(15,176 | ) | (15,150 | ) | ||||||||
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Additions to property and equipment
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(1,095 | ) | (1,235 | ) | ||||||||
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Additions to property and equipment of
discontinued operations
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(3 | ) | — | |||||||||
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Net cash used in investing activities
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(16,274 | ) | (16,385 | ) | ||||||||
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Cash flows from financing activities:
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Proceeds from Class A stock option exercised
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77 | — | ||||||||||
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Repayment of other long-term debt
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(46 | ) | (50 | ) | ||||||||
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Net cash provided by (used in) financing
activities
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31 | (50 | ) | |||||||||
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Net decrease in cash and cash equivalents
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(2,902 | ) | (6,352 | ) | ||||||||
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Cash and cash equivalents at beginning of period
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51,640 | 71,430 | ||||||||||
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Cash and cash equivalents at end of period
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$ | 48,738 | $ | 65,078 | ||||||||
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Supplemental cash flow information:
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Interest paid
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$ | 101 | $ | 142 | ||||||||
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Income taxes (received) paid
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$ | (40 | ) | $ | 187 | |||||||
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Non-cash financing and investing activities:
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Issuance of warrants towards the acquisition of a
radio station
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$ | 8,922 | $ | — | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES
1. Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of Spanish Broadcasting System, Inc. and its subsidiaries (the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements as of December 29, 2002 and March 31, 2003, and for the three-month periods ended March 31, 2002 and 2003 do not contain all disclosures required by generally accepted accounting principles. These unaudited 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 December 29, 2002 included in the Company’s fiscal year 2002 Annual Report on Form 10-K.
Effective December 30, 2002, the Company changed its year-end from a broadcast calendar 52-53-week fiscal year ending on the last Sunday in December to a calendar year ending on December 31. Pursuant to Securities and Exchange Commission Financial Reporting Release No. 35, such change is not deemed a change in fiscal year for financial reporting purposes and the Company is not required to file a separate transition report or to report separate financial information for the two-day period of December 30 and 31, 2002. Financial results for December 30 and 31, 2002 are included in the Company’s financial results for the first quarter ended March 31, 2003.
In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are all of a normal and 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, 2003 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 Federal Communications Commission (“FCC”) licenses of WRMA-FM, WXDJ-FM, WLEY-FM, WSKQ-FM, KLEY-FM, WPAT-FM, WCMA-FM, WZET-FM (formerly WSMA-FM and prior to that, 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 and/or non-guarantor subsidiaries. All of the special purpose subsidiaries are non-guarantors of the 9 5/8% senior subordinated notes due 2009. Condensed
5
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
consolidating unaudited financial information for the Company and its guarantor and non-guarantor subsidiaries is as follows (in thousands):
CONDENSED CONSOLIDATING BALANCE SHEET
| As of December 29, 2002 | |||||||||||||||||
| Parent and | |||||||||||||||||
| Guarantor | Non-Guarantor | ||||||||||||||||
| Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||
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Cash and cash equivalents
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$ | 69,253 | $ | 2,177 | $ | — | $ | 71,430 | |||||||||
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Receivables, net
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23,837 | 1,679 | — | 25,516 | |||||||||||||
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Other current assets
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1,875 | 377 | — | 2,252 | |||||||||||||
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Total current assets
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94,965 | 4,233 | — | 99,198 | |||||||||||||
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Property and equipment, net
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17,005 | 7,477 | — | 24,482 | |||||||||||||
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Intangible assets
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66,189 | 436,455 | — | 502,644 | |||||||||||||
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Deferred financing costs, net
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8,759 | — | — | 8,759 | |||||||||||||
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Investment in subsidiaries and intercompany
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428,740 | (401,926 | ) | (26,814 | ) | — | |||||||||||
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Other assets
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200 | 1 | — | 201 | |||||||||||||
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Total assets
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$ | 615,858 | $ | 46,240 | $ | (26,814 | ) | $ | 635,284 | ||||||||
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Current portion of long-term debt
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$ | 62 | $ | 146 | $ | — | $ | 208 | |||||||||
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Accounts payable and accrued expenses
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12,333 | 3,358 | — | 15,691 | |||||||||||||
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Accrued interest
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5,226 | — | — | 5,226 | |||||||||||||
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