10-Q 1 a2063164z10-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, 2001 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 14, 2001, 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................................. 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.....................................15 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, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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 2000 consolidated financial statements and notes thereto. The Company is a wholly-owned subsidiary of Radio Unica Communications Corp. ("RUCC"). The Company has had negative cash flow since inception and its primary source of liquidity is the remaining proceeds from RUCC's initial public offering. The Company's revenue and cash flow are typically lowest in the first 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 2000 consolidated financial statements have been reclassified to conform with the 2001 presentation. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations". The statement discontinues the use of the pooling of interests method of accounting for business combinations. The statement is effective for all business combinations after June 30, 2001. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". The statement will require discontinuing the amortization of goodwill and other intangible assets with indefinite useful lives. Instead, these assets will be tested periodically for impairment and written down to their fair market value as necessary. The Company will adopt this statement effective January 1, 2002. Management is currently evaluating the effect of the adoption of the statement on the Company's results of operations and financial position. 5 RADIO UNICA CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ------------------------------------------------------------------------------ 2. ACQUISITIONS On April 30, 2001, the Company entered into an asset purchase agreement with Marketing Advertising & Sales Services, Inc. and related companies to acquire its marketing and promotions businesses for a purchase price of approximately $4.2 million. In connection with this transaction, the Company acquired approximately $1.5 million in working capital, which included approximately $0.7 million in cash. The purchase price was comprised of a cash payment of approximately $2.1 million and a promissory note of approximately $2.1 million. The promissory note bears interest at a rate of 8% per annum. Principal and interest on the promissory note are payable concurrently. Principal payments are scheduled to be made as follows: April 30, 2002 $ 953,561 April 30, 2003 625,000 April 30, 2004 500,000 ----------- $ 2,078,561 -----------

The acquisition was accounted for as a purchase and, accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on estimates of their underlying values. The pro forma unaudited results of operations of the Company for the nine months ended September 30, 2001 and 2000 assuming this acquisition had been consummated as of January 1, 2000 are as follows:

The unaudited pro forma results do not purport to be indicative of the results of operations which actually would have resulted had this acquisition occurred on January 1, 2000, or of future results of operations of the consolidated entities. 6 RADIO UNICA CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ------------------------------------------------------------------------------ 3. INVESTMENTS On July 18, 2000, the Company acquired approximately 13.5% of Estrellamundo, LLC for $1.5 million in cash. As of February 9, 2001, Estrellamundo, LLC completed construction and commenced operations of its Latin-themed restaurant and club, "Y Arriba Y Arriba", which is located within Disneyland in Anaheim, California. In 2001, the Company guaranteed a $3.5 million loan for Estrellamundo, LLC. The loan was guaranteed through the issuance of a letter of credit and reduced the Company's borrowing capacity under its revolving credit facility. In exchange for this guarantee, the Company received an additional 10.5% equity interest in Estrellamundo, LLC valued at approximately $1.2 million. In connection with this transaction, the Company recorded $1.2 million in deferred income which was being amortized over the life of the guarantee. On September 28, 2001 due to financial difficulties encountered by Estrellamundo, LLC, the loan, which was guaranteed through the letter of credit, was called by the issuing bank. The letter of credit was subsequently drawn upon and on October 5, 2001, the Company repaid the amounts outstanding under the letter of credit. In October 2001, Estrellamundo, LLC filed for relief under Chapter 11 of the Bankruptcy code. Accordingly, the Company evaluated the recoverability of its investment, including the $3.5 million associated with the loan guaranteee, in Estrellamundo, LLC and determined that the carrying value of its investment was impaired. Therefore, at September 30, 2001, based on the information available, the Company wrote off the entire carrying value in its investment in Estrellamundo, LLC. The loss on this investment is reflected in the accompanying statement of operations. The $3.5 million liability related to the loan guarantee is reflected in accrued expenses in the accompanying balance sheet at September 30, 2001. 4. SEGMENT OPERATING RESULTS Pursuant to SFAS No. 131, "Disclosure About Segments of a Business Enterprise and Related Information", the Company is required to report segment information. As a result of the MASS acquisition, during the second quarter of 2001 the Company classified its businesses into two reporting segments: Radio-Broadcasting and Promotion Services. The radio-broadcasting segment includes the operations of the Company's radio network, the operations of all owned and/or operated radio stations and corporate expenses. The promotion services segment includes the operations of the Company's recently acquired marketing and promotions business, MASS. The Company evaluates performance based on several factors, of which the primary financial measures are business segment net revenue, operating income (loss) and operating income (loss) before depreciation and amortization ("EBITDA"). 7 RADIO UNICA CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ------------------------------------------------------------------------------ 4. SEGMENT OPERATING RESULTS, CONTINUED Results by segment are as follows:

8 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 2001 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 revenue is stated net of any agency commissions. We recognize advertising revenue when the commercials are broadcast. We also generate revenue from our promotional and merchandising services company, MASS Promotions, Inc. ("MASS"). We recognize revenue generated by MASS when the promotional and/or merchandising services are performed. Our operating expenses consist of programming expenses, marketing and selling costs, including commissions paid to our sales staff, technical and engineering costs, cost of promotion services and general and administrative expenses. 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). The Company is a wholly-owned subsidiary of Radio Unica Communications Corp. ("RUCC"). RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000 NET REVENUE. Net revenue increased by approximately $2.7 million or 31% to approximately $11.4 million for the three months ended September 30, 2001 from approximately $8.7 million for the comparable period in the prior year. The increase in net revenue relates to increased network and O&Os sales and revenue generated by promotional and merchandising services associated with MASS. OPERATING EXPENSES. Operating expenses increased by approximately $3.4 million or 28% to approximately $15.5 million for the three months ended September 30, 2001 from approximately $12.1 million for the comparable period in the prior year. The increase in operating expenses is due to increased selling, general and administrative expenses of approximately $0.9 million, increased network expenses of approximately $1.5 million, increased depreciation and amortization of approximately $0.1 million and costs associated with the operations of MASS of approximately $1.5 million, offset in part by a decrease in direct operating expense of $0.1 million and a decrease in stock option compensation expense of $0.6 million. Direct operating expenses decreased by approximately $0.1 million or 6% to approximately $1.8 million for the three months ended September 30, 2001 from approximately $1.9 million for the comparable period in the prior year. The decrease in direct operating expenses is primarily due to decreased spending relating to the promotion and marketing of the Company's O&Os. 9 RADIO UNICA CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) -------------------------------------------------------------------------------- Selling, general and administrative expenses increased by approximately $0.9 million or 24% to approximately $4.6 million for the three months ended September 30, 2001 from approximately $3.7 million for the comparable period in the prior year. The increase in selling, general and administrative expenses primarily relates to the increase in the number of O&Os, increased sales commissions associated with the increase in revenue, and administrative cost associated with MASS. Network expenses increased by approximately $1.5 million or 47% to approximately $4.7 million for the three months ended September 30, 2001 from approximately $3.2 million for the comparable period in the prior year. The increase in network expenses is mainly due to an increase in the cost of network programming, including sporting events, increased sales costs associated with the increase in network revenue, and increased spending associated with the promotion and marketing of the network. Corporate expenses remained constant at approximately $0.9 million for the three months ended September 30, 2001 and 2000. Corporate expenses are comprised of the cost of corporate management as well as legal and professional fees. Cost of promotion services of approximately $1.5 million for the three months ended September 30, 2001 relates to the cost of promotional and merchandising services incurred by MASS for its clients. Depreciation and amortization increased by approximately $0.1 million or 8% to approximately $1.7 million for the three months ended September 30, 2001 from approximately $1.6 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 and buildout of O&Os. Stock option compensation expense decreased by approximately $0.6 million or 76% to approximately $0.2 million for the three months ended September 30, 2001 from approximately $0.8 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 to purchase shares of RUCC common stock. The decrease in stock option compensation expense is due to a large portion of the stock options granted becoming fully vested during 2000. OTHER INCOME (EXPENSE). Other income (expense) increased by approximately $(5.8) million or 150% to approximately $(9.6) million for the three months ended September 30, 2001 from approximately $(3.8) million for the comparable period in the prior year. Other income (expense) for the three months ended September 30, 2001 is mainly comprised of interest expense of approximately $(4.4) million and a loss on investment in an unconsolidated company of approximately $(5.2) million. Interest expense primarily relates to the interest on the outstanding balance of the Senior Discount Notes. The Company had approximately $(3.9) million in interest expense during the three months ended September 30, 2000. INCOME TAX BENEFIT. The Company recorded an income tax benefit of approximately $39,000 for the three months ended September 30, 2001. The benefit results from the Company's ability to utilize a portion of its net operating tax loss carryfowards to offset existing deferred tax liabilities. 10 RADIO UNICA CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) -------------------------------------------------------------------------------- NET LOSS. Net loss increased by approximately $6.4 million or 88% to approximately $13.7 million for the three months ended September 30, 2001 from approximately $7.3 million for the comparable period in the prior year. The increase in net loss is mainly the result of the loss on the investment in an unconsolidated company, increased costs of network programming, marketing and promotion, increased depreciation and amortization resulting from the increase in the number of and buildout of O&Os and increased interest on the outstanding balance of the Senior Discount Notes. EBITDA. EBITDA less the non-cash charge relating to the stock option compensation expense of approximately $0.2 million decreased by approximately $1.1 million or 104% to approximately $(2.2) million for the three months ended September 30, 2001 from approximately $(1.1) million for the comparable period in the prior year. EBITDA decreased by approximately $0.6 million or 30% to approximately $(2.4) million for the three months ended September 30, 2001 from approximately $(1.8) million for the comparable period in the prior year. The decrease in EBITDA is mainly a result of the increased costs of network programming, marketing and promotion, offset in part by the reduction of approximately $0.6 million in non-cash stock option compensation expense. NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000 NET REVENUE. Net revenue increased by approximately $4.4 million or 19% to approximately $27.0 million for the nine months ended September 30, 2001 from approximately $22.6 million for the comparable period in the prior year. The increase in net revenue relates to increased network sales and revenue generated by promotional and merchandising services associated with MASS. OPERATING EXPENSES. Operating expenses increased by approximately $5.6 million or 15% to approximately $41.7 million for the nine months ended September 30, 2001 from approximately $36.1 million for the comparable period in the prior year. The increase in operating expenses is due to increased direct operating expenses of approximately $0.7 million, increased selling, general and administrative expenses of approximately $1.4 million, increased network expenses of approximately $2.4 million, increased depreciation and amortization of approximately $0.5 million and the cost associated with the operations of MASS of approximately $2.2 million, offset in part by a reduction in stock option compensation expense of approximately $1.7 million. Direct operating expenses increased by approximately $0.7 million or 14% to approximately $5.9 million for the nine months ended September 30, 2001 from approximately $5.2 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 and increased spending relating to the promotion and marketing of those O&Os. Selling, general and administrative expenses increased by approximately $1.4 million or 12% to approximately $13.0 million for the nine months ended September 30, 2001 from approximately $11.6 million for the comparable period in the prior year. The increase in selling, general and administrative expenses primarily relates to the increase in the number of O&Os, increased sales costs associated with the increase in revenue, and administrative costs associated with MASS. Network expenses increased by approximately $2.4 million or 24% to approximately $12.4 million for the nine months ended September 30, 2001 from approximately $10.0 million for the comparable period in the prior year. The increase in network expenses is mainly due to an increase in the cost of network programming, including sporting events, increased sales costs associated with the increase in network revenue, and increased spending associated with the promotion and marketing of the network. 11 RADIO UNICA CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) -------------------------------------------------------------------------------- Corporate expenses remained constant at approximately $2.6 million for the nine months ended September 30, 2001 and 2000. Corporate expenses are comprised of the cost of corporate management as well as legal and professional fees. Cost of promotion services of approximately $2.2 million for the nine months ended September 30, 2001 relates to the cost of promotional and merchandising services incurred by MASS for its clients. Depreciation and amortization increased by approximately $0.5 million or 12% to approximately $5.0 million for the nine months ended September 30, 2001 from approximately $4.5 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 and buildout of O&Os. Stock option compensation expense decreased by approximately $1.7 million or 76% to approximately $0.5 million for the nine months ended September 30, 2001 from approximately $2.2 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 to purchase shares of RUCC common stock. The decrease in stock option compensation expense is due to a large portion of the stock options granted becoming fully vested during 2000. OTHER INCOME (EXPENSE). Other income (expense) increased by approximately $(6.5) million or 58% to approximately $(17.6) million for the nine months ended September 30, 2001 from approximately $(11.1) million for the comparable period in the prior year. Other income (expense) for the nine months ended September 30, 2001 is mainly comprised of interest expense of approximately $(12.6) million and a loss on investment in an unconsolidated company of approximately $(5.0) million. Interest expense primarily relates to the interest on the outstanding balance of the Senior Discount Notes. The Company had approximately $(11.2) million in interest expense during the nine months ended September 30, 2000. INCOME TAX BENEFIT. The Company recorded an income tax benefit of approximately $0.1 million for the nine months ended September 30, 2001. The benefit results from the Company's ability to utilize a portion of its net operating tax loss carryfowards to offset existing deferred tax liabilities. NET LOSS. Net loss increased by approximately $7.6 million or 31% to approximately $32.2 million for the nine months ended September 30, 2001 from approximately $24.6 million for the comparable period in the prior year. The increase in net loss is mainly the result of the loss on the investment in an unconsolidated company, increased costs of network programming, increased costs associated with the promotion and marketing of the Company's network and O&Os, increased depreciation and amortization resulting from the increase in the number of and buildout of O&Os and increased interest on the outstanding balance of the Senior Discount Notes. 12 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 $0.5 million decreased by approximately $2.5 million or 37% to approximately $(9.2) million for the nine months ended September 30, 2001 from approximately $(6.7) million for the comparable period in the prior year. EBITDA decreased by approximately $0.8 million or 8% to approximately $(9.8) million for the nine months ended September 30, 2001 from approximately $(9.0) million for the comparable period in the prior year. The decrease in EBITDA is mainly a result of increased costs of network programming, increased costs associated with the promotion and marketing of the Company's network and O&Os and the increased costs associated with the operation of the O&Os. LIQUIDITY AND CAPITAL RESOURCES The Company has had negative cash flows since inception. Working capital and financing for 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 the Company's shareholders. The Company's primary source of liquidity is the remaining proceeds from RUCC's initial public offering. Net cash used in operating activities decreased by approximately $4.5 million or 35% to approximately $8.4 million for the nine months ended September 30, 2001 from approximately $12.9 million for the comparable period in the prior year. Net cash used in investing activities was approximately $3.6 million and $18.1 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of approximately $14.5 million from 2000 to 2001 is primarily due to the lack of radio station acquisitions and investments in unconsolidated companies during 2001. Net cash used in financing activities was approximately $14.4 million and $28.6 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of approximately $14.2 million from 2000 to 2001 is due to fewer borrowings from RUCC due to the lack of radio station acquisitions during 2001. Capital expenditures primarily relate to the purchase of broadcast equipment for the network and O&Os, leasehold improvements, computer equipment and telecommunications equipment. Capital expenditures were approximately $2.3 million and $2.7 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease in capital expenditures is primarily due to fewer station buildouts and signal upgrades taking place during 2001. The Company believes that its current cash position and the remaining proceeds from RUCC's initial public offering, 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. 13 RADIO UNICA CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) -------------------------------------------------------------------------------- RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the FASB issued SFAS No. 141, "Business Combinations". The statement discontinues the use of the pooling of interests method of accounting for business combinations. The statement is effective for all business combinations after June 30, 2001. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". The statement will require discontinuing the amortization of goodwill and other intangible assets with indefinite useful lives. Instead, these assets will be tested periodically for impairment and written down to their fair market value as necessary. The Company will adopt this statement effective January 1, 2002. Management is currently evaluating the effect of the adoption of the statement on the Company's results of operations and financial position. 14 RADIO UNICA CORP. PART II - OTHER INFORMATION -------------------------------------------------------------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) None (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. By: /s/ Steven E. Dawson ---------------------------- Steven E. Dawson Chief Financial Officer Date: November 14, 2001 15

RADIO UNICA CORP 10-Q