SPANISH BROADCASTING SYSTEM INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2005

or

o		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

Spanish Broadcasting System, Inc.

(Exact name of registrant as specified in its charter)


Delaware		13-3827791
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer 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. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

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 6, 2005, 40,277,805 shares of Class A common stock, par value $.0001 per share, 24,503,500 shares of Class B common stock, par value $.0001 per share and 380,000 shares of Series C convertible preferred stock, $.002 par value per share, which are convertible into 7,600,000 shares of Class A common stock, were outstanding.

SPANISH BROADCASTING SYSTEM, INC.

INDEX


		Page

PART I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements — Unaudited
	Unaudited Condensed Consolidated Balance Sheets as of December 31, 2004 and March 31, 2005		2
	Unaudited Condensed Consolidated Statements of Operations for the Three-Months Ended March 31, 2004 and 2005		3
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three-Months Ended March 31, 2004 and 2005		4
	Notes to Unaudited Condensed Consolidated Financial Statements		5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		21
ITEM 4.	Controls and Procedures		22

PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings		22
ITEM 5.	Other Information		24
ITEM 6.	Exhibits and Reports on Form 8-K		25

PART I. — FINANCIAL INFORMATION


Item 1.	*Financial Statements — Unaudited*

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets


			December 31,			March 31,
			2004			2005

			(In thousands,
			except share data)
ASSETS
Current assets:
	Cash and cash equivalents		$	132,032		$	161,924
	Net receivables			32,622			23,811
	Prepaid expenses and other current assets			2,520			2,216
	Assets held for sale			65,004			64,559

		Total current assets		232,178			252,510
Property and equipment, net				22,178			22,254
FCC licenses				710,410			710,410
Goodwill				32,806			32,806
Other intangible assets, net				1,400			1,391
Deferred financing costs, net				10,073			9,738
Other assets				678			886

			$	1,009,723		$	1,029,995

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of the senior credit facilities term loan due 2009		$	123,750		$	123,438
	Current portion of other long-term debt			3,154			3,112
	Deposit on sales of stations			—			20,036
	Accounts payable and accrued expenses			24,225			19,614
	Accrued interest			5,428			13,397
	Deferred commitment fee			525			506

		Total current liabilities		157,082			180,103
9⁵/8% senior subordinated notes, due 2009, net				326,476			326,807
Other long-term debt, less current portion				567			549
Deferred income taxes				127,055			123,981
Other long-term liabilities				993			966

		Total liabilities		612,173			632,406

Cumulative exchangeable redeemable preferred stock:
	10³/4% Series B cumulative exchangeable redeemable preferred stock, $0.01 par value, liquidation value $1,000 per share. Authorized 280,000 shares, 83,054 shares issued and outstanding at December 31, 2004 and 85,286 shares issued and outstanding at March 31, 2005			84,914			87,196

Stockholders’ equity:
	Series C preferred stock, $0.002 par value and liquidation value. Authorized 600,000 shares; issued and outstanding 380,000 shares			1			1
	Class A common stock, 0.0001 par value. Authorized 100,000,000 shares; 40,197,805 shares issued and outstanding at December 31, 2004 and 40,207,805 shares issued and outstanding at March 31, 2005			4			4
	Class B common stock, 0.0001 par value. Authorized 50,000,000 shares; 24,583,500 shares issued and outstanding at December 31, 2004 and 24,573,500 shares issued and outstanding at March 31, 2005			2			2
	Additional paid-in capital			520,450			520,450
	Accumulated deficit			(207,821	)		(210,064	)

		Total stockholders’ equity		312,636			310,393

			$	1,009,723		$	1,029,995

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations


				Three Months Ended
				March 31,

				2004			2005

				(In thousands, except per
				share data)
Net revenue				$	29,232		$	35,339

Operating expenses:
		Engineering and programming			7,412			7,865
		Selling, general and administrative			10,917			15,318
		Corporate expenses			3,228			3,701
		Depreciation and amortization			822			830

			Total operating expenses		22,379			27,714

			Operating income from continuing operations		6,853			7,625

Other (expense) income:
		Interest expense, net			(10,238	)		(10,170	)
		Other, net			175			7

			Loss from continuing operations before income taxes and discontinued operations		(3,210	)		(2,538	)
Income tax expense (benefit)					(3,948	)		(2,579	)

			Income from continuing operations before discontinued operations		738			41
Income (loss) on discontinued operations, net of tax					10,940			(2	)

			Net income	$	11,678		$	39
Dividends on preferred stock					(2,054	)		(2,282	)

Net income (loss) applicable to common stockholders				$	9,624		$	(2,243	)

Basic and diluted income (loss) per common share:
		Net loss per common share before discontinued operations:		$	(0.02	)	$	(0.03	)
		Net income per common share from discontinued operations:		$	0.17		$	—

		Net income (loss) per common share:		$	0.15		$	(0.03	)

Weighted average common shares outstanding:
	Basic				64,693			72,381

	Diluted				65,359			72,381

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows


					Three Months Ended
					March 31,

					2004			2005

					(In thousands)
Cash flows from operating activities:
	Net income				$	11,678		$	39
	Adjustments to reconcile net income to net cash provided by operating activities:
		(Income) loss from discontinued operations, net of tax				(10,940	)		2
		Gain on disposal of fixed assets				—			(9	)
		Depreciation and amortization				822			830
		Net barter expense				46			257
		Reduction of trade doubtful accounts				(232	)		(107	)
		Amortization of debt discount				294			331
		Amortization of deferred financing costs				493			499
		Decrease in deferred income taxes				(4,012	)		(2,623	)
		Amortization of deferred commitment fee				(19	)		(19	)
		Changes in operating assets and liabilities:
			Decrease in trade receivables			3,861			8,812
			Decrease in other current assets			267			304
			Increase in other assets			(577	)		(208	)
			Decrease in accounts payable and accrued expenses			(3,537	)		(4,925	)
			Increase in deferred commitment fee			300			—
			Increase in accrued interest			7,115			7,969

				Net cash provided by continuing operations		5,559			11,152
				Net cash provided by (used in) discontinued operations		908			(3	)

				Net cash provided by operating activities		6,467			11,149

Cash flows from investing activities:
	Proceeds from sale of radio stations, net of closing costs					23,730			—
	Deposit on sale of stations					—			20,036
	Additions to property and equipment					(682	)		(894	)

				Net cash provided by investing activities		23,048			19,142

Cash flows from financing activities:
	Repayments of other long-term debt					(55	)		(87	)
	Increase in deferred financing costs					(140	)		—
	Increase in deferred offering costs					(430	)		—
	Repayment of senior credit facilities					(312	)		(312	)

				Net cash used in financing activities		(937	)		(399	)

				Net increase in cash and cash equivalents		28,578			29,892
Cash and cash equivalents at beginning of period						45,609			132,032

Cash and cash equivalents at end of period						74,187			161,924

Supplemental cash flows information:
	Interest paid during the period					2,479			1,945

	Income taxes paid during the period					323			1,649

	Noncash investing and financing activities:
		Accrual of preferred stock as payment of preferred stock dividend			$	1,366		$	1,910

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS


1.	Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Spanish Broadcasting System, Inc. and its subsidiaries (the “Company”). All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements as of December 31, 2004 and March 31, 2005, and for the three-month periods ended March 31, 2004 and 2005 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 31, 2004 included in the Company’s fiscal year end 2004 Annual Report on Form 10-K.

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, 2005 is not necessarily indicative of the results for a full year.


2.	Financial Information for Parent, Guarantor and Non-Guarantor Subsidiaries

Certain of the Company’s subsidiaries (collectively, the “Subsidiary Guarantors”) have guaranteed the Company’s 9⁵/8% 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 (Spanish Broadcasting System, Inc., a Delaware corporation) is a holding company with no independent assets or operations other than its investments in its subsidiaries. All Federal Communications Commission (“FCC”) licenses are held by special purpose subsidiaries formed solely for the purpose of holding each respective FCC license and/or non-guarantor subsidiaries. All of the special purpose subsidiaries are non-guarantors of the 9⁵/8% senior subordinated notes due 2009. Condensed consolidating

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

unaudited financial information for the parent and its guarantor and non-guarantor subsidiaries is as follows (in thousands):


		As of December 31, 2004

							Non
					Guarantor		Guarantor
Condensed Consolidating Balance Sheet		Parent			Subsidiaries		Subsidiaries			Eliminations			Total

Cash and cash equivalents		$	110,374			18,647		3,011			—			132,032
Net receivables			—			30,974		1,648			—			32,622
Other current assets			992			1,069		459			—			2,520
Assets held for sale			—			1,107		63,897			—			65,004

	Total current assets		111,366			51,797		69,015			—			232,178
Property and equipment, net			1,334			14,177		6,667			—			22,178
Intangible assets, net			1,962			9,249		733,405			—			744,616
Deferred financing costs, net			10,073			—		—			—			10,073
Investment in subsidiaries and intercompany			738,151			342,518		(644,000	)		(436,669	)		—
Other assets			37			640		1			—			678

		$	862,923			418,381		165,088			(436,669	)		1,009,723

Current portion of long-term debt		$	123,750			70		3,084			—			126,904
Accounts payable and accrued expenses			8,206			11,542		4,477			—			24,225
Accrued interest			5,423			5		—			—			5,428
Deferred commitment fee			525			—		—			—			525

	Current liabilities		137,904			11,617		7,561			—			157,082
Long-term debt			326,476			567		—			—			327,043
Other debt			993			—		—			—			993
Deferred income taxes			—			—		127,055			—			127,055

	Total liabilities		465,373			12,184		134,616			—			612,173

Series B preferred stock			84,914			—		—			—			84,914

Series C preferred stock			1			—		—			—			1
Common stock			6			—		1			(1	)		6
Additional paid-in capital			520,450			—		94,691			(94,691	)		520,450
Accumulated deficit			(207,821	)		406,197		(64,220	)		(341,977	)		(207,821	)

	Stockholders’ equity		312,636			406,197		30,472			(436,669	)		312,636

		$	862,923			418,381		165,088			(436,669	)		1,009,723