10-Q 1 a2029355z10-q.txt FORM 10-Q -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report pursuant to Section 13 or 15(d) of the |X| Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR Transition Report Pursuant to Section 13 or 15(d) of |_| the Securities Exchange Act of 1934 COMMISSION FILE NO. 333-61211 RADIO UNICA CORP. (Exact name of registrant as specified in its charter) DELAWARE 65-0776004 (State of Incorporation) (I.R.S. Employer Identification Number) 8400 N.W. 52ND STREET, SUITE 101 MIAMI, FL 33166 (Address of principal executive offices) (Zip Code) 305-463-5000 (Registrant's telephone number, including area code) N/A (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 |X| NO |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of November 8, 2000, 100 shares of Common Stock, $.01 par value were outstanding. -------------------------------------------------------------------------------- RADIO UNICA CORP. TABLE OF CONTENTS PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements........................................... 2 Item 2. Management's Discussion and Analysis........................... 7 Item 3. Quantitative and Qualitative Disclosures about Market Risk..... 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................... 12 RADIO UNICA CORP. CONSOLIDATED BALANCE SHEETS

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 2 RADIO UNICA CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3 RADIO UNICA CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4 RADIO UNICA CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements of Radio Unica Corp. and subsidiaries (the "Company") for the periods indicated herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The consolidated financial statements include the accounts of the Company and all majority owned subsidiaries over which the Company has control. All significant intercompany accounts and transactions have been eliminated. For further information, refer to the Company's 1999 consolidated financial statements and notes thereto. The Company's revenue and cash flow are typically lowest in the first calendar quarter and highest in the fourth calendar quarter. Seasonal fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in consumer spending. Certain amounts appearing in the 1999 consolidated financial statements have been reclassified to conform with the 2000 presentation. 2. ACQUISITIONS On October 18, 1999, the Company entered into an asset purchase agreement with Den-Mex LLC to acquire Denver radio station KCUV-AM for a cash purchase price of $2.7 million. On January 3, 2000, after receiving the consent of the Federal Communications Commission (the "FCC") to assign the broadcasting license, the Company completed the acquisition. On February 11, 2000, the Company entered into an asset purchase agreement with El Pistolon Investments, L.P. to acquire McAllen radio station KVJY-AM for a cash purchase price of $2.5 million. On June 1, 2000 after receiving the consent of the FCC to assign the broadcasting license, the Company completed the acquisition. On December 23, 1999, the Company entered into an asset purchase agreement with Harry Pappas to acquire Fresno radio station KFRE-AM for a purchase price of $7.5 million. The purchase price was comprised of approximately $5.5 million cash and 76,555 shares of the Company's common stock valued at $2.0 million. On June 28, 2000 after receiving the consent of the FCC to assign the broadcasting license, the Company completed the acquisition. On April 12, 2000, the Company entered into an asset purchase agreement with Texas Lotus, Ltd. to acquire San Antonio radio station KZDC-AM for a cash purchase price of $1.83 million. The Company operated the station under a local marketing agreement from January 1998 through July 27, 2000, at which time the Company received the consent of the FCC to assign the side broadcasting license, and completed the acquisition. 5 RADIO UNICA CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- 2. ACQUISITIONS, CONTINUED On April 27, 2000, the Company entered into an asset purchase agreement with Cima Broadcasting, L.L.C. to acquire Tucson radio station KQTL-AM for a cash purchase price of approximately $3.3 million. The Company funded a $300,000 escrow in conjunction with this transaction. On August 4, 2000 after receiving the consent of the FCC to assign the broadcasting license, the Company completed the acquisition. The purchase price has been allocated to the assets acquired based on preliminary estimates. On June 8, 2000, the Company entered into an asset purchase agreement with Peoples Radio, Inc. to acquire Pittsburgh, California radio station KATD-AM for approximately $5.0 million. The purchase price is comprised of approximately $4.5 million cash and 87,500 shares of the Company's common stock valued at approximately $0.5 million. The Company funded a $450,000 escrow in conjunction with this transaction. On October 18, 2000 after receiving the consent of the FCC to assign the broadcasting license, the Company completed the acquisition. 3. SUMMARIZED FINANCIAL INFORMATION The Senior Discount Notes issued by the Company are guaranteed by all of the Company's Domestic Restricted Subsidiaries on a full, unconditional, joint and several basis. The financial statements of the subsidiary guarantors are omitted as management has determined that separate financial statements and other disclosures concerning the subsidiaries are not material to investors.

4. INVESTMENTS On June 26, 2000 the Company acquired approximately 3% of SportsYA! Inc, through the purchase of preferred stock, in exchange for $2.0 million in cash and $1.0 million in advertising on the Company's network. SportsYA! Inc. owns SportsYA.com, the leading Spanish and Portuguese language sports portal serving Latin America, Spain and the U.S. Hispanic market. On July 18, 2000, the Company acquired approximately 13% of Estrellamundo, LLC for $1.5 million in cash. Estrellamundo LLC is completing construction of a Latin-themed club located within Disneyland in Anaheim, California. 6 RADIO UNICA CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -------------------------------------------------------------------------------- This report contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, among others, statements concerning the Company's outlook for 2000 and beyond, the Company's expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The forward-looking statements in this report are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements. OVERVIEW We generate revenue from sales of network advertising time, and sales of local and national advertising time on radio stations that we own and those that we operate under local marketing agreements (collectively "O&Os"). Advertising rates are, in large part, based upon the network's and each station's ability to attract audiences in demographic groups targeted by advertisers. All revenues are stated net of any agency commissions. We recognize advertising revenue when the commercials are broadcast. Our operating expenses consist of programming expenses, marketing and selling costs, including commissions paid to our sales staff, technical and engineering costs, and general and administrative expenses. As is true of other radio operators, the Company's performance is customarily measured by its earnings before net interest, taxes, depreciation and amortization ("EBITDA"). EBITDA is defined as operating income (loss) plus depreciation and amortization. Although EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles, EBITDA is presented because it provides useful information regarding the Company's ability to service debt. However, EBITDA should not be considered as an alternative measure of operating results or cash flows from operations (as determined in accordance with generally accepted accounting principles). RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999 NET REVENUE. Net revenue increased by approximately $4.0 million or 83% to approximately $8.7 million for the three months ended September 30, 2000 from approximately $4.7 million for the comparable period in the prior year. The increase in net revenue relates to an increase in the Company's customer base due to the strengthening of the Company's network and O&Os, the addition of new O&O's and increases in advertising rates at the Company's network and O&Os. OPERATING EXPENSES. Operating expenses decreased by approximately $16.8 million or 58% to approximately $12.1 million for the three months ended September 30, 2000 from approximately $28.9 million for the comparable period in the prior year. The decrease in operating expenses is due to a non-cash stock option compensation expense charge of approximately $19.6 million incurred during the three months ended September 30, 1999, offset in part by increased depreciation and amortization relating to the increase in the number of O&Os of approximately $0.2 million and increased costs associated with the increase in the number of O&Os. 7 RADIO UNICA CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) -------------------------------------------------------------------------------- Direct operating expenses increased by approximately $0.9 million or 95% to approximately $1.9 million for the three months ended September 30, 2000 from approximately $1.0 million for the comparable period in the prior year. The increase in direct operating expenses is primarily due to the increase in the number of O&Os as well as spending relating to the promotion of these O&Os. Selling, general and administrative expenses increased by approximately $1.0 million or 39% to approximately $3.7 million for the three months ended September 30, 2000 from approximately $2.7 million for the comparable period in the prior year. The increase in selling, general and administrative expenses primarily relates to the increase in variable sales costs as well as the increase in the number of O&Os. Network expenses decreased by $0.3 million or 8% to approximately $3.2 million for the three months ended September 30, 2000 from approximately $3.5 million for the comparable period in the prior year. The decrease in network expenses is mainly due to a decrease in the cost of sporting event rights during the three months ended September 30, 2000 as compared to the comparable period in 1999. Corporate expenses increased by approximately $0.2 million or 20% to approximately $0.9 million for the three months ended September 30, 2000 from approximately $0.7 million for the comparable period in the prior year. The increase in corporate expenses is mainly due to increased costs in legal and professional fees and other costs associated with the growth of the Company. Depreciation and amortization increased by approximately $0.2 million or 13% to approximately $1.6 million for the three months ended September 30, 2000 from approximately $1.4 million for the comparable period in the prior year. The increase in depreciation and amortization is due to additions of fixed and intangible assets arising from the acquisitions of O&Os. Stock option compensation decreased by approximately $18.8 million or 96% to approximately $0.8 million from $19.6 million for the comparable period in the prior year. Stock option compensation expense represents a non-cash charge relating to the vesting of stock options granted to employees of the Company to purchase shares of Radio Unica Communications Corp's ("RUCC") common stock. These stock options were granted before October 19, 1999, the date of RUCC's initial public offering ("IPO"). The Company is a wholly owned subsidiary of RUCC. OTHER INCOME (EXPENSE). Other income (expense) increased by approximately $0.1 million or 5% to approximately $(3.8) million for the three months ended September 30, 2000 from approximately $(3.7) million for the comparable period in the prior year. Other income (expense) for the three months ended September 30, 2000 is mainly comprised of interest expense of approximately $(3.9) million. Interest expense primarily relates to the interest on the outstanding balance of the Senior Discount Notes. The Company had approximately $(3.7) million in interest expense during the three months ended September 30, 1999. NET LOSS. Net loss decreased by approximately $20.5 million or 74% to approximately $7.3 million for the three months ended September 30, 2000 from approximately $27.8 million for the comparable period in the prior year. The decrease in net loss is mainly the result of the increase in the Company's revenue, the decrease in the non-cash stock option compensation expense partially offset by increased costs associated with the operation of the Company's network and O&Os, increased variable sales costs associated with the increase in revenue and depreciation and amortization resulting from the increase in the number of O&Os. 8 RADIO UNICA CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) ---------------------------------------------------------------------------- EBITDA. EBITDA, less the non-cash charge relating to the stock option compensation expense of approximately $0.8 million and $19.6 million in 2000 and 1999, respectively, increased by approximately $2.1 million or 66% to approximately $(1.1) million for the three months ended September 30, 2000 from approximately $(3.2) million for the comparable period in the prior year. EBITDA increased by approximately $20.9 million or 92% to approximately $(1.9) million for the three months ended September 30, 2000 from approximately $(22.8) million for the comparable period in the prior year. The increase in EBITDA is mainly a result of the increase in the Company's revenues offset by increase costs associated with the operation of the Company's network and O&Os, as well as the non-cash stock option compensation expense of $19.6 million incurred during 1999. NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999 NET REVENUE. Net revenue increased by approximately $11.5 million or 104% to approximately $22.6 million for the nine months ended September 30, 2000 from approximately $11.1 million for the comparable period in the prior year. The increase in net revenue relates to an increase in the Company's customer base due to the strengthening of the Company's network and O&Os, the addition of new O&O's and increases in advertising rates at the Company's network and O&Os. OPERATING EXPENSES. Operating expenses decreased by approximately $12.3 million or 25% to approximately $36.1 million for the nine months ended September 30, 2000 from approximately $48.4 million for the comparable period in the prior year. The decrease in operating expenses is due to a non-cash stock option compensation expense charge of approximately $19.6 million incurred during 1999, offset in part by increased depreciation and amortization relating to the increase in the number of O&Os of approximately $0.6 million, increased costs in network programming as well as costs associated with the increase in the number of O&Os. Direct operating expenses increased by approximately $2.5 million or 91% to approximately $5.2 million for the nine months ended September 30, 2000 from approximately $2.7 million for the comparable period in the prior year. The increase in direct operating expenses is primarily due to the increase in the number of O&Os as well as spending relating to the promotion of these O&Os. Selling, general and administrative expenses increased by approximately $2.5 million or 28% to approximately $11.6 million for the nine months ended September 30, 2000 from approximately $9.1 million for the comparable period in the prior year. The increase in selling, general and administrative expenses primarily relates to the increase in variable sales costs as well as the increase in the number of O&Os. Network expenses increased by $0.9 million or 10% to approximately $10.0 million for the nine months ended September 30, 2000 from approximately $9.1 million for the comparable period in the prior year. The increase in network expenses is mainly due to the increase in cost of network programming, including sporting events, as well as increased marketing expenditures. Corporate expenses increased by approximately $0.5 million or 24% to approximately $2.6 million for the nine months ended September 30, 2000 from approximately $2.1 million for the comparable period in the prior year. The increase in corporate expenses is mainly due to increased costs in legal and professional fees and other costs associated with the growth of the Company. 9 RADIO UNICA CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) ---------------------------------------------------------------------------- Depreciation and amortization increased by approximately $0.6 million or 17% to approximately $4.4 million for the nine months ended September 30, 2000 from approximately $3.8 million for the comparable period in the prior year. The increase in depreciation and amortization is due to the additions of fixed and intangible assets arising from the acquisitions of O&Os. Stock option compensation expense decreased by approximately $17.3 million or 88% to approximately $2.3 million from approximately $19.6 million for the comparable period in the prior year. Stock option compensation expense represents a non-cash charge relating to the vesting of stock options granted to employees of the Company to purchase shares of RUCC common stock. These stock options were granted before October 19, 1999 the date of the Company's IPO. The Company is a wholly owned subsidiary of RUCC. OTHER INCOME (EXPENSE). Other income (expense) increased by approximately $1.3 million or 14% to approximately $(11.1) million for the nine months ended September 30, 2000 from approximately $(9.8) million for the comparable period in the prior year. Other income (expense) for the nine months ended September 30, 2000 is mainly comprised of interest expense of approximately $(11.2) million. Interest expense primarily relates to the interest on the outstanding balance of the Senior Discount Notes. The Company had approximately $(10.4) million in interest expense during the nine months ended September 30, 1999. NET LOSS. Net loss decreased by approximately $22.4 million or 48% to approximately $24.6 million for the nine months ended September 30, 2000 from approximately $47.0 million for the comparable period in the prior year. The decrease in net loss is mainly the result of the increase in the Company's revenue, the decrease in the non-cash stock option compensation expense partially offset by increased costs associated with the operation of the Company's O&Os, increased variable sales costs associated with the increase in revenue and depreciation and amortization resulting from the increase in the number of O&Os. EBITDA. EBITDA, less the non-cash charge relating to the stock option compensation expense of approximately $2.3 million and $19.6 million for 2000 and 1999, respectively, increased by approximately $7.2 million or 51% to approximately $(6.7) million for the nine months ended September 30, 2000 from approximately $(13.9) million for the comparable period in the prior year. EBITDA increased by approximately $24.5 million or 73% to approximately $(9.0) million for the nine months ended September 30, 2000 from approximately $(33.5) million for the comparable period in the prior year. The increase in EBITDA is mainly a result of the increase in the Company's revenues offset by increase costs associated with the operation of the Company's network and O&Os, as well as the decrease of $17.3 million relating to the non-cash stock option compensation expense. LIQUIDITY AND CAPITAL RESOURCES The Company has had negative cash flows since inception. Working capital and financing of the Company's acquisitions to date have been provided primarily by the proceeds from RUCC's initial public offering, the issuance of the 11 3/4% Senior Discount Notes due August 1, 2006 and the issuance of promissory notes, common stock and preferred stock to RUCC's and the Company's shareholders. The Company's primary source of liquidity is the remaining proceeds from RUCC's initial public offering and the borrowing availability under its Senior Secured Revolving Credit Facility. The Senior Secured Revolving Credit Facility is a senior secured revolver with $20.0 million of available borrowings subject to certain conditions. At September 30, 2000 there were no amounts outstanding under the Senior Secured Revolving Credit Facility. 10 RADIO UNICA CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) ---------------------------------------------------------------------------- Net cash used in operating activities decreased by approximately $4.6 million or 26% to approximately $12.9 million for the nine months ended September 30, 2000 from approximately $17.5 million for the comparable period in the prior year. Net cash used in investing activities was approximately $18.1 million and $34.6 million for the nine months ended September 30, 2000 and 1999, respectively. The decrease of approximately $16.5 million from 1999 to 2000 is primarily due to fewer radio station acquisitions that took place during 2000. Net cash provided by financing activities was approximately $28.6 million and $13.3 million for the nine months ended September 30, 2000 and 1999, respectively. The increase of approximately $15.3 million from 1999 to 2000 is due to borrowings from RUCC partially offset by borrowings under the Senior Secured Revolving Credit Facility which took place during 1999. Capital expenditures primarily relate to the purchases of broadcast equipment for the network and O&Os, leasehold improvements, computer equipment and telecommunications equipment. Capital expenditures were approximately $2.7 million and $2.4 million for the nine months ended September 30, 2000 and 1999, respectively. The increase in capital expenditures is primarily due to station build-outs and signal upgrades that have taken place during 2000. The Company believes that its current cash position, the remaining proceeds from RUCC's initial public offering and the borrowing availability under the Senior Secured Revolving Credit Facility, will provide adequate resources to fund the Company's operating expenses, working capital requirements, capital expenditures and acquisitions until its business strategy provides the Company with sufficient operating cash flow. There can be no assurance that such business strategy will be successfully implemented or that the future cash flows of the Company will be sufficient to meet all of the Company's obligations and commitments. The failure to generate such sufficient cash flow could significantly adversely affect the market value of the Company's Senior Discount Notes, and the Company's ability to pay the principal of and interest on the Senior Discount Notes. IMPACT OF YEAR 2000 In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $10,000 during 1999 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our market risk exposure with respect to financial instruments is to changes in the "prime rate" in the United States. We may borrow up to $20 million under our Senior Secured Revolving Credit Facility. Amounts outstanding under the credit facility bear interest, at the Company's option, at the bank's prime rate plus 1.25% or LIBOR plus 2.50%. At September 30, 2000, there were no amounts outstanding under our Senior Secured Revolving Credit Facility. 11 RADIO UNICA CORP. PART II - OTHER INFORMATION -------------------------------------------------------------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit 27.1 - Financial Data Schedule. (b) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Radio Unica Corp. /s/ Steven E. Dawson By: ---------------------------- Steven E. Dawson Chief Financial Officer Date: November 8, 2000 12

RADIO UNICA CORP 10-Q