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Form 10-Q SPANISH BROADCASTING For: Mar 31

May 16, 2016 5:14 PM EDT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

 (Mark One)

x

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

For the quarterly period ended March 31, 2016

OR

¨

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 000-27823

 

 

 

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.)

 

7007 NW 77th Ave.

Miami, Florida 33166

(Address of principal executive offices) (Zip Code)

 

(305) 441-6901

(Registrant’s telephone number, including area code)

 

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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

¨

  

Accelerated filer

  

¨

Non-accelerated filer

 

¨ (Do not check if a smaller reporting company)

  

Smaller reporting company

  

x

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

As of May 9, 2016, 4,166,991 shares of Class A common stock, par value $0.0001 per share, 2,340,353 shares of Class B common stock, par value $0.0001 per share and 380,000 shares of Series C convertible preferred stock, $0.01 par value per share, which are convertible into 760,000 shares of Class A common stock, were outstanding.

 

 

 

 

 

 

 


SPANISH BROADCASTING SYSTEM, INC.

INDEX

 

 

 

 

2


Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not based on historical facts, but rather reflect our current expectations concerning future results and events. These forward-looking statements generally can be identified by the use of statements that include phrases such as “believe”, “expect”, “anticipate”, “intend”, “estimate”, “plan”, “project”, “foresee”, “likely”, “will” or other words or phrases with similar meanings. Similarly, statements that describe our objectives, plans or goals are, or may be, forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be different from any future results, performance and anticipated achievements expressed or implied by these statements. We do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to those described in our Annual Report on Form 10-K for the year ended December 31, 2015, and those described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”).

 

 

3


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements—Unaudited

 

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share data)

 

March 31,

 

 

December 31,

 

Assets

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

27,405

 

 

$

19,443

 

Receivables:

 

 

 

 

 

 

 

Trade

 

28,230

 

 

 

34,415

 

Barter

 

233

 

 

 

231

 

 

 

28,463

 

 

 

34,646

 

Less allowance for doubtful accounts

 

1,402

 

 

 

1,431

 

Net receivables

 

27,061

 

 

 

33,215

 

Prepaid expenses and other current assets

 

6,961

 

 

 

5,318

 

Total current assets

 

61,427

 

 

 

57,976

 

Property and equipment, net of accumulated depreciation of $72,719 in 2016 and $71,590 in 2015

 

29,605

 

 

 

30,460

 

FCC broadcasting licenses

 

323,957

 

 

 

319,356

 

Goodwill

 

32,806

 

 

 

32,806

 

Other intangible assets, net of accumulated amortization of $1,044 in 2016 and $1,020 in 2015

 

1,504

 

 

 

1,528

 

Assets held for exchange

 

 

 

 

2,794

 

Deferred tax assets

 

1,727

 

 

 

1,758

 

Other assets

 

496

 

 

 

531

 

Total assets

$

451,522

 

 

$

447,209

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

17,223

 

 

$

16,552

 

Accrued interest

 

15,836

 

 

 

7,194

 

Unearned revenue

 

818

 

 

 

796

 

Other liabilities

 

30

 

 

 

30

 

Current portion of other long-term debt

 

4,845

 

 

 

306

 

10 3/4% Series B cumulative exchangeable redeemable preferred stock outstanding and dividends

   outstanding, $0.01 par value, liquidation value $1,000 per share. Authorized 280,000 shares: 90,549

   shares issued and outstanding at March 31, 2016 and December 31, 2015 and $57,998 and $55,565

   of dividends payable as of March 31, 2016 and December 31, 2015, respectively.

 

148,547

 

 

 

146,114

 

Total current liabilities

 

187,299

 

 

 

170,992

 

Other liabilities, less current portion

 

3,057

 

 

 

3,007

 

Derivative instruments

 

175

 

 

 

220

 

12.5% senior secured notes due 2017, net of unamortized discount of $2,138 in 2016 and $2,609 in 2015 and net of deferred financing costs of $3,688 in 2016 and $4,535 in 2015

 

269,174

 

 

 

267,856

 

Other long-term debt, less current portion

 

 

 

 

4,616

 

Deferred income taxes

 

101,253

 

 

 

99,066

 

Total liabilities

 

560,958

 

 

 

545,757

 

Commitments and contingencies (note 6)

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

Series C convertible preferred stock, $0.01 par value and liquidation value. Authorized 600,000 shares;

     380,000 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively

 

4

 

 

 

4

 

Class A common stock, $0.0001 par value. Authorized 100,000,000 shares; 4,166,991 shares

     issued and outstanding at March 31, 2016 and December 31, 2015, respectively

 

 

 

 

 

Class B common stock, $0.0001 par value. Authorized 50,000,000 shares; 2,340,353 shares

     issued and outstanding at March 31, 2016 and December 31, 2015, respectively

 

 

 

 

 

Additional paid-in capital

 

525,727

 

 

 

525,344

 

Accumulated other comprehensive loss, net

 

(175

)

 

 

(220

)

Accumulated deficit

 

(634,992

)

 

 

(623,676

)

Total stockholders’ deficit

 

(109,436

)

 

 

(98,548

)

Total liabilities and stockholders’ deficit

$

451,522

 

 

$

447,209

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

4


 

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

and Comprehensive Loss

(In thousands, except per share data)

 

 

Three-Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net revenue

$

31,613

 

 

 

32,142

 

Operating expenses:

 

 

 

 

 

 

 

Engineering and programming

 

8,162

 

 

 

7,664

 

Selling, general and administrative

 

15,455

 

 

 

15,262

 

Corporate expenses

 

2,993

 

 

 

2,148

 

Depreciation and amortization

 

1,250

 

 

 

1,287

 

Total operating expenses

 

27,860

 

 

 

26,361

 

(Gain) loss on the disposal of assets

 

(3

)

 

 

(6

)

Operating income

 

3,756

 

 

 

5,787

 

Other (expense) income:

 

 

 

 

 

 

 

Interest expense, net

 

(10,036

)

 

 

(9,933

)

Dividends on Series B preferred stock classified as interest expense

 

(2,433

)

 

 

(2,433

)

Loss before income taxes

 

(8,713

)

 

 

(6,579

)

Income tax expense

 

2,603

 

 

 

2,036

 

Net loss

$

(11,316

)

 

 

(8,615

)

Basic and Diluted net loss per common share

$

(1.56

)

 

 

(1.19

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic and Diluted

 

7,267

 

 

 

7,267

 

Net loss

$

(11,316

)

 

 

(8,615

)

Other comprehensive income, net of taxes- unrealized gain on

     derivative instrument

 

45

 

 

 

32

 

Total comprehensive loss

$

(11,271

)

 

 

(8,583

)

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

5


 

 

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit

for the Three-Months Ended March 31, 2016

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series C convertible preferred stock

 

 

Class A common stock

 

 

Class B common stock

 

 

Additional

 

 

Accumulated other

 

 

 

 

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Number of

 

 

 

 

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

stockholders’

 

 

 

shares

 

 

Par value

 

 

shares

 

 

Par value

 

 

shares

 

 

Par value

 

 

capital

 

 

loss, net

 

 

deficit

 

 

deficit

 

Balance at December 31, 2015

 

 

380,000

 

 

$

4

 

 

 

4,166,991

 

 

$

 

 

 

2,340,353

 

 

$

 

 

$

525,344

 

 

$

(220

)

 

$

(623,676

)

 

$

(98,548

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,316

)

 

 

(11,316

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

383

 

 

 

 

 

 

 

 

 

383

 

Unrealized gain on derivative instrument

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45

 

 

 

 

 

 

45

 

Balance at March 31, 2016

 

 

380,000

 

 

$

4

 

 

 

4,166,991

 

 

$

 

 

 

2,340,353

 

 

$

 

 

$

525,727

 

 

$

(175

)

 

$

(634,992

)

 

$

(109,436

)

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

6


SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

 

Three-Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(11,316

)

 

$

(8,615

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Dividends on Series B preferred stock classified as interest expense

 

2,433

 

 

 

2,433

 

(Gain) loss on the disposal of assets

 

(3

)

 

 

(6

)

Stock-based compensation

 

383

 

 

 

 

Depreciation and amortization

 

1,250

 

 

 

1,287

 

Net barter (income) loss

 

(76

)

 

 

(75

)

Provision for trade doubtful accounts

 

3

 

 

 

(258

)

Amortization of deferred financing costs

 

847

 

 

 

842

 

Amortization of original issued discount

 

471

 

 

 

412

 

Deferred income taxes

 

2,218

 

 

 

1,963

 

Unearned revenue-barter

 

139

 

 

 

11

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Trade receivables

 

5,800

 

 

 

2,388

 

Prepaid expenses and other current assets

 

(1,328

)

 

 

(1,029

)

Other assets

 

35

 

 

 

 

Accounts payable and accrued expenses

 

965

 

 

 

342

 

Accrued interest

 

8,642

 

 

 

8,596

 

Other liabilities

 

50

 

 

 

(15

)

Net cash provided by operating activities

 

10,513

 

 

 

8,276

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(577

)

 

 

(285

)

Proceeds from the sale of property and equipment

 

 

 

 

6

 

Cash payment related to station exchange

 

(1,897

)

 

 

 

Net cash used in investing activities

 

(2,474

)

 

 

(279

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments of other debt

 

(77

)

 

 

(85

)

Net cash used in financing activities

 

(77

)

 

 

(85

)

Net increase in cash and cash equivalents

 

7,962

 

 

 

7,912

 

Cash and cash equivalents at beginning of period

 

19,443

 

 

 

23,991

 

Cash and cash equivalents at end of period

$

27,405

 

 

$

31,903

 

Supplemental cash flows information:

 

 

 

 

 

 

 

Interest paid

$

79

 

 

$

86

 

Income tax paid

$

 

 

$

34

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

Nonmonetary asset exchange

$

2,794

 

 

$

 

Unrealized gain on derivative instruments

$

45

 

 

$

32

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

 

7


SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO THE 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, we, us, our or SBS). All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements as of March 31, 2016 and December 31, 2015 and for the three-month periods ended March 31, 2016 and 2015 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. They do not include all information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements as of, and for the fiscal year ended December 31, 2015, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. In the opinion of 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. Additionally, we evaluated subsequent events after the balance sheet date of March 31, 2016 through the financial statements issuance date. The results of operations for the three-months ended March 31, 2016 are not necessarily indicative of the results for the entire year ending December 31, 2016, or for any other future interim or annual periods.

Our consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As of March 31, 2016, we had a working capital deficit due to the reclassification of our Series B preferred stock as a current liability, although under Delaware law, our state of incorporation, the Series B preferred stock is deemed equity. Because the holders of the Series B preferred stock are not creditors, they do not have rights of, or remedies available to, creditors. Delaware law does not recognize a right of preferred stockholders to force redemptions or repurchases where the corporation does not have funds legally available. Currently, we do not have sufficient funds legally available to be able to repurchase the Series B preferred stock and its accumulated unpaid dividends and management does not expect to be required to make any such repurchases during the next twelve months.  Management does not believe that the Series B preferred stockholders, based on provisions in the 12.5% Senior Secured Notes Indenture and Delaware law, have legal remedies that would require such repurchases (see note 10).

As discussed in Note 9, the 12.5% Senior Secured Notes have a maturity date of April 15, 2017.  During the first quarter of 2016, we have engaged financial advisors to assist us in developing a comprehensive refinancing strategy that considers all of the Company’s obligations under its debt and capital structure.  Additionally, we are participating in the Broadcast Incentive Auction and evaluating the potential monetization of our spectrum and other assets to generate cash proceeds that would be used to repay our outstanding notes in accordance with the Indenture. The inability of the Company to repay or refinance its obligations so as to restructure its capital structure in a manner that ensures its short and long term liquidity could result in significant liquidity requirements on the Company. As there can be no assurance that we will be able to successfully implement our strategy, this condition raises substantial doubt about the Company’s ability to continue as a going-concern. The financial statements do not include adjustments, if any, that might arise from the outcome of this uncertainty.  

 

Recently Issued Accounting Pronouncements

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718).  This new standard’s objective is to simplify certain aspects of the accounting for share-based payment award transactions, including (i) income tax consequences, (ii) classification of awards as either equity or liabilities, and (iii) classification on the statement of cash flows. This update is effective on a prospective, retrospective, and modified retrospective basis for annual and interim periods beginning after December 15, 2016 with early adoption permitted.  We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).  This new standard requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases and disclose key information about the leasing agreements.  The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption is permitted as of the beginning of an interim or annual reporting period. We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

In January 2016, the FASB issued ASU No. 2016-01, Accounting for Financial Instruments – Recognition and Measurement. The new guidance changes how entities measure equity investments and present changes in the fair value of financial liabilities. The new guidance requires entities to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception.  A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do

8


not qualify for the practical expedient to estimate fair value and as such these investments may be measured at cost.  The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes.  This new standard provides guidance to simplify the presentation of deferred taxes in a classified statement of financial position. The guidance requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. The new guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company elected to retroactively adopt the accounting standard in the beginning of the fourth quarter of 2015, and the adoption had no material impact on the consolidated financial position of the Company.

 

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, and not recorded as separate assets. This update is effective for reporting periods beginning after December 15, 2015, and is to be applied on a retrospective basis. The Company has adopted the accounting standard and presented its debt issuance costs as a deduction from the long-term debt in the balance sheet. Debt issuance costs totaled $3.7 million and $4.5 million at March 31, 2016 and December 31, 2015, respectively.

 

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements- Going Concern.  This new standard defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.  The standard is effective for annual reporting periods ending after December 15, 2016 and interim periods thereafter. The Company has elected to early adopt the accounting standard during the first quarter of 2016.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).  This new standard provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under U.S. GAAP.  In July 2015, the FASB postponed the effective date of this standard.  The standard is now effective for the first interim period within annual reporting periods beginning after December 15, 2017.  We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

2. Stockholders’ Deficit

(a) Series C Convertible Preferred Stock

On December 23, 2004, in connection with the closing of the merger agreement, dated October 5, 2004, with CBS Radio (formerly known as Infinity Media Corporation, CBS Radio), a division of CBS Corporation, Infinity Broadcasting Corporation of San Francisco (“Infinity SF”) and SBS Bay Area, LLC, a wholly-owned subsidiary of SBS, pursuant to which SBS acquired the FCC license of Infinity SF (the “CBS Radio Merger”), we issued to CBS Radio an aggregate of 380,000 shares of Series C convertible preferred stock, $0.01 par value per share (the “Series C preferred stock”). Each share of Series C preferred stock is convertible at the option of the holder into two fully paid and non-assessable shares of the Class A common stock. The shares of Series C preferred stock issued at the closing of the CBS Radio Merger are convertible into 760,000 shares of Class A common stock, subject to certain adjustments. In connection with the CBS Radio Merger, we also entered into a registration rights agreement with CBS Radio, pursuant to which CBS Radio may instruct us to file up to three registration statements, on a best efforts basis, with the SEC, providing for the registration for resale of the Class A common stock issuable upon conversion of the Series C preferred stock.

We are required to pay holders of Series C preferred stock dividends on parity with our Class A common stock and Class B common stock, and each other class or series of our capital stock created after December 23, 2004.

(b) Class A and B Common Stock

The rights of the Class A common stockholders and Class B common stockholders are identical except with respect to their voting rights and conversion provisions. The Class A common stock is entitled to one vote per share and the Class B common stock is entitled to ten votes per share. The Class B common stock is convertible to Class A common stock on a share-for-share basis at the option of the holder at any time, or automatically upon a transfer of the Class B common stock to a person or entity which is not a permitted transferee (as described in our Certificate of Incorporation). Holders of each class of common stock are entitled to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders. Neither the holders of the Class A common stock nor the holders of the Class B common stock have preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to such shares. Each class of common stock is subordinate to our

9


10 3/4% Series B cumulative exchangeable redeemable preferred stock, par value $0.01 per share (the “Series B preferred stock”). The Series B preferred stock has a liquidation preference of $1,000 per share and is on parity with the Series C preferred stock with respect to dividend rights and rights upon liquidation, winding up and dissolution of SBS.

 (c) 2006 Omnibus Equity Compensation Plan

In July 2006, we adopted an omnibus equity compensation plan (the “Omnibus Plan”) in which grants of Class A common stock can be made to participants in any of the following forms: (i) incentive stock options, (ii) nonqualified stock options, (iii) stock appreciation rights, (iv) stock units, (v) stock awards, (vi) dividend equivalents, and (vii) other stock-based awards. The Omnibus Plan authorizes up to 350,000 shares of our Class A common stock for issuance, subject to adjustment in certain circumstances. The Omnibus Plan provides that the maximum aggregate number of shares of Class A common stock units, stock awards and other stock-based awards that may be granted, other than dividend equivalents, to any individual during any calendar year is 100,000 shares, subject to adjustments.

(d) Stock Options and Nonvested Share Activity

Stock options have only been granted to employees or directors. Our stock options have various vesting schedules and are subject to the employees’ continuing service. A summary of the status of our stock options, as of March 31, 2016 and December 31, 2015, and changes during the quarter ended March 31, 2016, is presented below (in thousands, except per share data and contractual life):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Average

 

 

Aggregate

 

 

Remaining

 

 

 

 

 

 

Exercise

 

 

Intrinsic

 

 

Contractual

 

 

Shares

 

 

Price

 

 

Value

 

 

Life (Years)

 

Outstanding at December 31, 2015

 

128

 

 

$

11.25

 

 

 

 

 

 

 

 

 

Granted

 

315

 

 

 

3.07

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2016

 

443

 

 

$

5.42

 

 

$

126,100

 

 

 

8.8

 

Exercisable at March 31, 2016

 

223

 

 

$

7.38

 

 

$

67,900

 

 

 

7.1

 

 

The following table summarizes information about our stock options outstanding and exercisable at March 31, 2016 (in thousands, except per share data and contractual life):

 

 

Outstanding

 

 

 

 

 

 

Exercisable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

 

 

 

 

Average

 

 

Vested

 

 

Unvested

 

 

Exercise

 

 

Contractual

 

 

Number

 

 

Exercise

 

Range of Exercise Prices

Options

 

 

Options

 

 

Price

 

 

Life (Years)

 

 

Exercisable

 

 

Price

 

$1.03 - 49.99

 

223

 

 

 

220

 

 

$

5.42

 

 

 

8.8

 

 

 

223

 

 

$

7.38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

223

 

 

 

220

 

 

 

5.42

 

 

 

8.8

 

 

 

223

 

 

 

7.38

 

 

As of March 31, 2016, there was $0.6 million of total unrecognized compensation costs related to nonvested stock-based compensation arrangements granted under all of our plans.  The cost is expected to be recognized over a weighted average period of approximately 1.9 years.

 

(e) Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss is comprised of accumulated gains and losses on a derivative instrument (interest rate swap) that qualifies for cash flow hedge treatment. Our total comprehensive loss consists of our net loss and a gain on our interest rate swap for the respective periods. The gain on the interest rate swap is shown net of taxes; however, there is no tax effect as a result of a full deferred tax asset valuation allowance related to the interest rate swap.

10


For the three-months ended March 31, 2016 and 2015, we reclassified from other comprehensive loss to interest expense $0.1 million.  During the three-months ended March 31, 2016 and 2015, we recognized in other comprehensive income, net of taxes- an unrealized gain on derivative instrument of approximately $45 thousand and $32 thousand, respectively.  

 

 

 

3. Basic and Diluted Net Loss Per Common Share

 

Basic net loss per common share was computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock and convertible preferred stock outstanding for each period presented, using the “if converted” method. Diluted net loss per common share is computed by giving effect to common stock equivalents as if they were outstanding for the entire period.

The following is a reconciliation of the shares used in the computation of basic and diluted net loss per share for the three-month periods ended March 31, 2016 and 2015 (in thousands):

 

 

Three-Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Basic weighted average shares outstanding

 

7,267

 

 

 

7,267

 

Effect of dilutive equity instruments

 

 

 

 

 

Dilutive weighted average shares outstanding

 

7,267

 

 

 

7,267

 

Options to purchase shares of common stock and other stock-based

    awards outstanding which are not included in the calculation of

    diluted net income per share because their impact is anti-dilutive

 

433

 

 

 

104

 

 

 

 

11


4. Operating Segments

We have two reportable segments: radio and television.

The following summary table presents separate financial data for each of our operating segments (in thousands):  

 

 

Three-Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net revenue:

 

 

 

 

 

 

 

Radio

$

28,525

 

 

 

29,227

 

Television

 

3,088

 

 

 

2,915

 

Consolidated

$

31,613

 

 

 

32,142

 

Engineering and programming expenses:

 

 

 

 

 

 

 

Radio

$

6,032

 

 

 

5,399

 

Television

 

2,130

 

 

 

2,265

 

Consolidated

$

8,162

 

 

 

7,664

 

Selling, general and administrative expenses:

 

 

 

 

 

 

 

Radio

$

13,476

 

 

 

13,648

 

Television

 

1,979

 

 

 

1,614

 

Consolidated

$

15,455

 

 

 

15,262

 

 

Corporate expenses:

$

2,993

 

 

 

2,148

 

Depreciation and amortization:

 

 

 

 

 

 

 

Radio

$

488

 

 

 

507

 

Television

 

663

 

 

 

684

 

Corporate

 

99

 

 

 

96

 

Consolidated

$

1,250

 

 

 

1,287

 

(Gain) loss on the disposal of assets, net:

 

 

 

 

 

 

 

Radio

$

(3

)

 

 

(6

)

Television

 

 

 

 

 

Corporate

 

 

 

 

 

Consolidated

$

(3

)

 

 

(6

)

Operating income (loss):

 

 

 

 

 

 

 

Radio

$

8,532

 

 

 

9,679

 

Television

 

(1,684

)

 

 

(1,648

)

Corporate

 

(3,092

)

 

 

(2,244

)

Consolidated

$

3,756

 

 

 

5,787

 

Capital expenditures:

 

 

 

 

 

 

 

Radio

$

382

 

 

 

173

 

Television

 

94

 

 

 

84

 

Corporate

 

101

 

 

 

28

 

Consolidated

$

577

 

 

 

285

 

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

Total Assets:

 

 

 

 

 

 

 

Radio

$

392,341

 

 

$

392,926

 

Television

 

55,433

 

 

 

51,388

 

Corporate

 

3,748

 

 

 

2,895

 

Consolidated

$

451,522

 

 

$

447,209

 

 

 

5. Income Taxes

We are calculating our effective income tax rate using a year-to-date income tax calculation, due to the full valuation allowance on the SBS companies, other than the U.S. Licensing companies and the U.S. AMT tax credits. In assessing the realizability of the

12


deferred tax assets, management considers whether it is more likely than not that some portion or the entire deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependant upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. Due to the continued operating losses reported through Q1 2016, management has not changed its position on valuation allowance as of March 31, 2016.

Our income tax expense differs from the statutory federal tax rate of 35% and related statutory state tax rates primarily due to the tax amortization on some of our indefinite-lived intangible assets that do not have any valuation allowance and the currently generated losses that cannot be benefited due to the full valuation allowance.

We file federal, state and local income tax returns in the United States and Puerto Rico. The tax years that remain subject to assessment of additional liabilities by the United States federal tax authorities are 2012 through 2015.   The tax years that remain subject to assessment of additional liabilities by state, local, and Puerto Rico tax authorities are 2010 through 2015.

From time to time, we continue to be subject to state income tax audits, including an audit by a State tax authority (the “State”) for the income tax years from December 31, 2010 through 2013.  The audit is in the preliminary stages; however, based on the company’s history of audits with the state, we do not anticipate any material tax impact, and thus have not set up a reserve.

Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our consolidated financial statements as of March 31, 2016 and December 31, 2015.

 

6. Commitments and Contingencies

We are subject to certain legal proceedings and claims that have arisen in the ordinary course of business and have not been fully adjudicated. In our opinion, we do not have a potential liability related to any current legal proceedings and claims that would individually or in the aggregate have a material adverse effect on our financial condition or operating results. However, the results of legal proceedings cannot be predicted with certainty. Should we fail to prevail in any of these legal matters or should all of these legal matters be resolved against us in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.

Litigation- Brevan Howard and Others Complaint

On December 27, 2013, River Birch Master Fund, L.P., P River Birch Ltd. (together, “River Birch”) and Visium Catalyst Credit Master Fund, Ltd. (collectively with River Birch, “Initial Plaintiffs”) brought a claim against us in the Delaware Court of Chancery (the “Court”) seeking a declaratory judgment that a “Voting Rights Triggering Event” had occurred (as of April 15, 2010) under our certificate of designations for the Series B preferred stock (the “Certificate of Designations”) as a result of our non-payment of dividends. The claim alleges that as a result of such Voting Rights Triggering Event, the incurrence of indebtedness for the purpose of purchasing our Houston television station and the issuance of our 12.5% Senior Secured Notes due 2017 (the “Notes”) under the Indenture governing the Notes, among other things, were prohibited incurrences of indebtedness under the Certificate of Designations.

The Initial Plaintiffs further claim that we violated the Certificate of Designations by failing to take any actions or explore any options that would have given us legally available funds with which to repurchase the outstanding Series B preferred stock on October 15, 2013. In connection with their claims, Initial Plaintiffs also seek an injunction requiring us to repurchase the Series B preferred stock and an award of contract damages.

On January 17, 2014, we filed a motion to dismiss the complaint. On March 3, 2014, the complaint was amended to remove River Birch and add Brevan Howard Credit Catalyst Master Fund Ltd., Brevan Howard Master Fund, ALJ Capital I, LP, ALJ Capital II, LP, LJR Capital, LP, and Cedarview Opportunities Master Fund, LP (collectively with Visium Catalyst Credit Master Fund, Ltd., “Plaintiffs”) as additional plaintiffs. We filed an Opening Brief in support of our Motion to Dismiss on March 31, 2014. Plaintiffs filed an answering brief to our Motion to Dismiss on April 30, 2014.  Our reply brief was filed on May 16, 2014, and a hearing was held on our Motion to Dismiss on June 10, 2014. Following the hearing, the parties agreed to stay all proceedings relating to Count I (which seeks a declaration that a Voting Rights Triggering Event was in effect at all times after April 15, 2010), Count II (which alleges that SBS breached the Certificate of Designations by incurring indebtedness in 2011 and 2012) and Count IV (which alleges that SBS breached the implied covenant of good faith and fair dealing by deferring certain dividends) of the amended complaint.  The stay has since been lifted.  On June 27, 2014, the Court denied our motion to dismiss Count III (which alleges that SBS breached the Certificate of Designations by failing to redeem all of the Series B Preferred Stock on October 15, 2013) of the amended complaint.  A hearing on our motion to dismiss Counts I, II and IV of the amended complaint was held on February 10, 2015. On May 19, 2015, the Court of Chancery granted our motion to dismiss Counts I, II and IV of the amended complaint. An order dismissing those Counts with prejudice was entered on May 22, 2015.

At present, Count III of the amended complaint remains outstanding. Court of Chancery Rule 41 (e) permits any party (or the Court sua sponte) to move for a dismissal for failure to prosecute in any case wherein no action has been taken for a period of one

13


year. Given that the last action in this case was taken on May 22, 2015, such a motion may be filed on or after May 22, 2016. We note, however, that such a motion could be denied if “good reason for the inaction is given”, as provided by Court of Chancery Rule 41 (e). In addition, on April 21, 2016, the Court requested a status update from the parties regarding proceedings on Count III of the amended complaint.

We deny the allegations contained in the amended complaint and, to the contrary, assert that we have been and continue to be in full and complete compliance with all of our obligations under the Certificate of Designations, as fully disclosed in our public filings dating back to 2009. Accordingly, we believe that the complaint’s allegations are frivolous and wholly without merit and intend to contest such allegations vigorously.

 

 

 

7. Fair Value Measurement Disclosures

Fair Value of Financial Instruments

Cash and cash equivalents, receivables, as well as accounts payable and accrued expenses, and other current liabilities, as reflected in the consolidated financial statements, approximate fair value because of the short-term maturity of these instruments. The estimated fair value of our other long-term debt instruments, approximate their carrying amounts as the interest rates approximate our current borrowing rate for similar debt instruments of comparable maturity, or have variable interest rates.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The fair value of the senior secured notes are estimated using market quotes from a major financial institution taking into consideration the most recent activity and are considered Level 2 measurements within the fair value hierarchy.  The fair value of the Series B cumulative exchangeable redeemable preferred stock and the promissory notes payable were based upon either: (a)  unobservable market quotes from a major financial institution taking into consideration the most recent activity or (b) discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

The estimated fair values of our financial instruments are as follows (in millions):

 

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

Fair Value

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

Description

Hierarchy

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

12.5% senior secured notes due 2017

Level 2

 

$

275.0

 

 

 

276.4

 

 

$

275.0

 

 

 

281.2

 

10 3/4% Series B cumulative exchangeable

     redeemable preferred stock

Level 3

 

 

148.5

 

 

 

57.3

 

 

 

146.1

 

 

 

60.1

 

Promissory note payable, included in other long-

     term debt

Level 3

 

 

4.8

 

 

 

4.3

 

 

 

4.9

 

 

 

4.2

 

 

Fair Value of Derivative Instruments

The following table represents required quantitative disclosures regarding fair values of our derivative instruments (in thousands).

 

 

 

 

 

 

Fair value measurements at March 31, 2016

 

 

 

 

 

 

Liabilities

 

Description

March 31, 2016

carrying value and

balance sheet

location of derivative

instruments

 

 

Quoted prices in

active markets

for identical

instruments

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant

unobservable

inputs

(Level 3)

 

Derivative designated as a cash flow

hedging instrument:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap liability

$

175

 

 

 

 

 

 

175

 

 

 

 

14


 

 

 

 

 

 

 

Fair value measurements at December 31, 2015

 

 

 

 

 

 

Liabilities

 

Description

December 31, 2015

carrying value  and

balance sheet

location of derivative

instruments

 

 

Quoted prices in

active markets

for identical

instruments

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant

unobservable

inputs

(Level 3)

 

Derivative designated as a cash flow

hedging instrument:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap liability

$

220

 

 

 

 

 

 

220

 

 

 

 

 

 

The interest rate swap fair value is derived from the present value of the difference in cash flows based on the forward-looking LIBOR yield curve rates, as compared to our fixed rate applied to the hedged amount through the term of the agreement, less adjustments for credit risk. There were no transfers between Levels during the three-month periods ended March 31, 2016 and 2015, respectively.

 

 

 

Three-Months Ended

 

 

 

March 31,

 

Interest rate swaps

 

2016

 

 

2015

 

Gain recognized in other comprehensive loss

     (effective portion)

 

 

45

 

 

 

32

 

 

 

 

8. Derivative Instrument and Hedging Activity

On January 4, 2007, in connection with a promissory note issued for the acquisition of a building, we entered into a ten-year interest rate swap agreement for the original notional principal amount of $7.7 million whereby we agreed to pay a fixed interest rate of 6.31%, as compared to interest at a floating rate equal to one-month LIBOR plus 125 basis points. The interest rate swap amortization schedule is identical to the promissory note amortization schedule, which has an effective date of January 4, 2007, monthly notional reductions and an expiration date of January 4, 2017.

Our interest rate swap is governed by a master netting arrangement, which is required to be disclosed as a balance sheet offsetting item as follows (in thousands):

 

 

As of March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross amounts not offset in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the  balance sheet

 

 

 

 

 

 

Gross amounts of

 

 

Gross amounts

 

 

Net amounts of

 

 

 

 

 

 

Cash

 

 

 

 

 

 

recognized

 

 

offset in the

 

 

liabilities presented

 

 

Financial

 

 

collateral

 

 

 

 

 

Description

liabilities

 

 

balance sheet

 

 

in the balance sheet

 

 

Instruments

 

 

received

 

 

Net amount

 

Interest rate swap

$

175

 

 

 

 

 

 

175

 

 

 

175

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross amounts not offset in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the  balance sheet

 

 

 

 

 

 

Gross amounts of

 

 

Gross amounts

 

 

Net amounts of

 

 

 

 

 

 

Cash

 

 

 

 

 

 

recognized

 

 

offset in the

 

 

liabilities presented

 

 

Financial

 

 

collateral

 

 

 

 

 

Description

liabilities

 

 

balance sheet

 

 

in the balance sheet

 

 

Instruments

 

 

received

 

 

Net amount

 

Interest rate swap

$

220

 

 

 

 

 

 

220

 

 

 

220

 

 

 

 

 

 

 

 

 

 

 

9. 12.5% Senior Secured Notes due 2017

On February 7, 2012 we closed our offering of $275 million in aggregate principal amount of 12.5% senior secured notes due 2017 (the “Notes”), due April 15, 2017, at an issue price of 97% of the principal amount. The Notes were offered solely by means of a private placement either to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act, or to certain persons outside the United States pursuant to Regulation S under the Securities Act. We used the net proceeds from the

15


offering, together with some cash on hand, to repay and terminate the senior credit facility term loan, and to pay the transaction costs related to the offering. The Notes mature in April of 2017. Cash from operating activities will not be sufficient to repay the Notes. During the first quarter of 2016, we have engaged financial advisors to assist us in developing a comprehensive refinancing strategy that considers all of the Company’s obligations under its debt and capital structure.  Additionally, we are participating in the Broadcast Incentive Auction and evaluating the potential monetization of our spectrum and other assets to generate cash proceeds that would be used to repay our outstanding notes in accordance with the Indenture. The inability of the Company to repay or refinance its obligations so as to restructure its capital structure in a manner that ensures its short and long term liquidity could result in significant liquidity requirements on the Company. As there can be no assurance that we will be able to successfully implement our strategy, this condition raises substantial doubt about the Company’s ability to continue as a going-concern.          

Interest

The Notes accrue interest at a rate of 12.5% per year. Interest on the Notes is paid semi-annually on each April 15 and October 15 (the “Interest Payment Date”), commencing on April 15, 2012. After April 15, 2013, interest will accrue at a rate of 12.5% per annum on (i) the original amount of the Notes plus (ii) any Additional Interest (as defined below) payable but unpaid in any prior interest period, payable in cash on each Interest Payment Date. Further, beginning on the Interest Payment Date occurring on April 15, 2013, additional interest will be payable at a rate of 2.00% per annum (the “Additional Interest”) on (i) the original principal amount of the Notes plus (ii) any amount of Additional Interest payable but unpaid in any prior interest period, to be paid in cash, at our election, (x) on the applicable Interest Payment Date or (y) on the earliest of the maturity date of the Notes, any acceleration of the Notes and any redemption of the Notes; provided that no Additional Interest will be payable on any Interest Payment Date if, for the applicable fiscal period, either (a) we record positive consolidated station operating income for our television segment or (b) our secured leverage ratio on a consolidated basis is less than 4.75 to 1.00.

The measurement periods that determine if Additional Interest is applicable for the respective Interest Payment Dates are as follows:

(1)

Six-months ended December 31, 2012 or as of December 31, 2012 for the Interest Payment Date of April 15, 2013

(2)

Last twelve months ended June 30, 2013 or as of June 30, 2013 for the Interest Payment Date of October 15, 2013

(3)

Last twelve months ended December 31, 2013 or as of December 31, 2013 for the Interest Payment Date of April 15, 2014

(4)

Last twelve months ended June 30, 2014 or as of June 30, 2014 for the Interest Payment Date of October 15, 2014

(5)

Last twelve months ended December 31, 2014 or as of December 31, 2014 for the Interest Payment Date of April 15, 2015

(6)

Last twelve months ended June 30, 2015 or as of June 30, 2015 for the Interest Payment Date of October 15, 2015

(7)

Last twelve months ended December 31, 2015 or as of December 31, 2015 for the Interest Payment Date of April 15, 2016

(8)

Last twelve months ended June 30, 2016 or as of June 30, 2016 for the Interest Payment Date of October 15, 2016

(9)

Last twelve months ended December 31, 2016 or as of December 31, 2016 for the Interest Payment Date of April 15, 2017

Additional Interest during any given interest period, shall not be deemed to “accrue”.  Rather, Additional Interest becomes payable on a given Interest Payment Date (April 15 or October 15) unless the condition in either clause (a) or (b) above has been met as of that Interest Payment Date or unless the Television Segment has been divested or the Notes redeemed prior to that Interest Payment Date.

Although for the Additional Interest applicable periods (1), (2), (3), (4), (5), (6) and (7) our secured leverage ratio was greater than 4.75 to 1.00, we recorded positive consolidated station operating income for our television segment for those respective periods (as defined in the Indenture). Therefore, no Additional Interest was incurred and/or payable for those respective Interest Payment Dates.

     Collateral and Ranking

The Notes and the guarantees are secured on a first-priority basis by a security interest in certain of the Company’s and the guarantors’ existing and future tangible and intangible assets (other than Excluded Assets (as defined in the Indenture)). The Notes and the guarantees are structurally subordinated to the obligations of our non-guarantor subsidiaries. The Notes and guarantees are senior to all of the Company’s and the guarantors’ existing and future unsecured indebtedness to the extent of the value of the collateral.

The Indenture permits us, under specified circumstances, to incur additional debt; however, the occurrence and continuance of the Voting Rights Triggering Event (as defined in note 10) currently prevents us from incurring any such additional debt.

The Notes are senior secured obligations of the Company that rank equally with all of our existing and future senior indebtedness and senior to all of our existing and future subordinated indebtedness. Subject to certain exceptions, the Notes are fully and unconditionally guaranteed by each of our existing and future wholly owned domestic subsidiaries (which excludes (i) our

16


existing and future subsidiaries formed in Puerto Rico (the “Puerto Rican Subsidiaries”), (ii) our future subsidiaries formed under the laws of foreign jurisdictions and (iii) our existing and future subsidiaries, whether domestic or foreign, of the Puerto Rican Subsidiaries or foreign subsidiaries) and our other domestic subsidiaries that guarantee certain of our other debt. The Notes and guarantees are structurally subordinated to all existing and future liabilities (including trade payables) of our nonguarantor subsidiaries.

Covenants and Other Matters

The Indenture governing the Notes contains covenants that, among other things, limit our ability and the ability of the guarantors to:

 

·

incur or guarantee additional indebtedness;

 

·

pay dividends and make other restricted payments;

 

·

incur restrictions on the payment of dividends or other distributions from our restricted subsidiaries;

 

·

engage in sale-lease back transactions;

 

·

enter into new lines of business;

 

·

make certain payments to holders of Notes that consent to amendments to the Indenture governing the Notes without paying such amounts to all holders of Notes;

 

·

create or incur certain liens;

 

·

make certain investments and acquisitions;

 

·

transfer or sell assets;

 

·

engage in transactions with affiliates; and

 

·

merge or consolidate with other companies or transfer all or substantially all of our assets.

The Indenture contains certain customary representations and warranties, affirmative covenants and events of default which could, subject to certain conditions, cause the Notes to become immediately due and payable, including, but not limited to, the failure to make premium, principal or interest payments; failure by us to accept and pay for Notes tendered when and as required by the change of control and asset sale provisions of the Indenture; failure to comply with certain covenants in the Indenture; failure to comply with certain agreements in the Indenture for a period of 60 days following notice by the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding; failure to pay any debt within any applicable grace period after the final maturity or acceleration of such debt by the holders thereof because of a default, if the total amount of such debt unpaid or accelerated exceeds $15 million; failure to pay final judgments entered by a court or courts of competent jurisdiction aggregating $15 million or more (excluding amounts covered by insurance), which judgments are not paid, discharged or stayed, for a period of 60 days; and certain events of bankruptcy or insolvency.

As of March 31, 2016, we were in compliance with all of our covenants under our Indenture.

 

10. 10 3/4% Series B Cumulative Exchangeable Redeemable Preferred Stock

Voting Rights Triggering Event

On October 30, 2003, we partially financed the purchase of a radio station with proceeds from the sale, through a private placement, of 75,000 shares of our 10 3/4% Series A cumulative exchangeable redeemable preferred stock, par value $0.01 per share, with a liquidation preference of $1,000 per share (the “Series A preferred stock”), without a specified maturity date. The gross proceeds from the issuance of the Series A preferred stock amounted to $75.0 million.

On February 18, 2004, we commenced an offer to exchange registered shares of our 10 3/4% Series B cumulative exchangeable redeemable preferred stock, par value $0.01 per share and liquidation preference of $1,000 per share for any and all shares of our outstanding unregistered Series A preferred stock. On April 5, 2004, we completed the exchange offer and exchanged 76,702 shares of our Series B preferred stock for all of our then outstanding shares of Series A preferred stock.

We had the option to redeem all or some of the registered Series B preferred stock for cash on or after October 15, 2009 at 103.583%, October 15, 2010 at 101.792% and October 15, 2011 and thereafter at 100%, plus accumulated and unpaid dividends to the redemption date. On October 15, 2013, each holder of Series B preferred stock had the right to request that we repurchase (subject to the legal availability of funds under Delaware General Corporate Law) all or a portion of such holder’s shares of Series B preferred stock at a purchase price equal to 100% of the liquidation preference of such shares, plus all accumulated and unpaid dividends (as

17


described in more detail below) on those shares to the date of repurchase. Under the terms of our Series B preferred stock, we are required to pay dividends at a rate of 10 3/4% per year of the $1,000 liquidation preference per share of Series B preferred stock. From October 30, 2003 to October 15, 2008, we had the option to pay these dividends in either cash or additional shares of Series B preferred stock. During October 15, 2003 to October 30, 2008, we increased the carrying amount of the Series B preferred stock by approximately $17.3 million for stock dividends, which were accreted using the effective interest method. Since October 15, 2008, we have been required to pay the dividends on our Series B preferred stock in cash.

On October 15, 2013, holders of shares of our Series B preferred stock requested that we repurchase 92,223 shares of Series B preferred stock for an aggregate repurchase price of $126.9 million, which included accumulated and unpaid dividends on these shares as of October 15, 2013. We did not have sufficient funds legally available to repurchase all of the Series B preferred stock for which we received requests and instead used the limited funds legally available to us to repurchase 1,800 shares for a purchase price of approximately $2.5 million, which included accrued and unpaid dividends. Consequently, a “voting rights triggering event” occurred (the “Voting Rights Triggering Event”).

Following the occurrence, and during the continuation, of the Voting Rights Triggering Event, holders of the outstanding Series B preferred stock are entitled to elect two directors to newly created positions on our Board of Directors, and we have been subject to more restrictive operating covenants, including a prohibition on our ability to incur any additional indebtedness and restrictions on our ability to pay dividends or make distributions, redeem or repurchase securities, make investments, enter into transactions with affiliates or merge or consolidate with (or sell substantially all of our assets to) any other person.  At our Annual Meeting of Stockholders in 2014, the holders of the Series B preferred stock nominated and elected Alan Miller and Gary Stone to serve as the Series B preferred stock directors who have remained on the board since then.

The Voting Rights Triggering Event shall continue until (i) all dividends in arrears shall have been paid in full and (ii) all other failures, breaches or defaults giving rise to such Voting Rights Triggering Event are remedied or waived by the holders of at least a majority of the shares of the then outstanding Series B preferred stock.  We do not currently have sufficient funds legally available to be able to satisfy the conditions for terminating the Voting Rights Triggering Event. During the continuation of the Voting Rights Triggering Event, the Indenture governing our Notes prohibits us from paying dividends or from repurchasing the Series B preferred stock.

Quarterly Dividends

Under the terms of our Series B preferred stock, the holders of the outstanding shares of the Series B preferred stock are entitled to receive, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor, dividends on the Series B preferred stock at a rate of 10 ¾% per year, of the $1,000 liquidation preference per share. All dividends are cumulative, whether or not earned or declared, and are payable quarterly in arrears on specified dividend payment dates. While the Voting Rights Triggering Event continues, we cannot pay dividends on the Series B preferred stock without causing a breach of covenants under the Indenture governing our Notes.  

As of March 31, 2016, the aggregate cumulative unpaid dividends on the outstanding shares of the Series B preferred stock was approximately $58.0 million, which is accrued on our condensed consolidated balance sheet as 10 ¾% Series B cumulative exchangeable redeemable preferred stock.

Redemption Date and Subsequent Accounting Treatment of the Preferred Stock

Prior to October 15, 2013, the Series B preferred stock was considered “conditionally redeemable” because the redemption of the shares of Series B preferred stock was contingent on the Series B preferred stockholders requesting that their Series B preferred stock be repurchased on October 15, 2013. On October 15, 2013, almost all of the holders of the Series B preferred stock requested that we repurchase their shares of Series B preferred stock. As a result of their request, we assessed and determined that, under applicable accounting principles, the contingency had occurred, and the Series B preferred stock now met the definition of a “mandatorily redeemable” instrument under Accounting Standards Codification 480 “Distinguishing Liabilities from Equity” (“ASC 480”).  Although under Delaware law the Series B preferred stock is deemed equity, under ASC 480, if an instrument changes from being “conditionally redeemable” to “mandatorily redeemable,” then the financial instrument should be reclassified as a liability.  

In addition, the Series B preferred stock will be measured at each reporting date as the amount of cash that would be paid pursuant to the contract, had settlement occurred on the reporting date, recognizing the resulting change in that amount from the previous reporting date as interest expense. Therefore, the accruing quarterly dividends of the Series B preferred stock will be recorded as interest expense (i.e. “Dividends on Series B preferred stock classified as interest expense”).

 

 

11. Asset Exchange

On January 4, 2016, the Company completed an asset exchange with International Broadcasting Corp. under which the Company agreed to exchange certain assets used or useful in the operations of WIOA-FM, WIOC-FM, and WZET-FM in Puerto Rico

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for certain assets used or useful in the operations of WTCV (DT), WVEO (DT), and WVOZ (TV) in Puerto Rico previously owned and operated by International Broadcasting Corp.

The asset exchange is being accounted for as a non-monetary exchange in accordance with ASC-845 Nonmonetary Transactions, as the Company did not acquire any significant processes to meet the definition of a business in accordance with ASC 805 Business Combinations. As the transaction involved significant monetary consideration, the Company recorded the exchange at fair value. The fair value of the assets received in the asset exchange was $2.9 million, as determined by an independent third party valuation. In addition, the Company paid $1.9 million in cash which we attribute to the value of the acquired television spectrum. Subsequently, we have filed an application to participate in the FCC’s Broadcast Incentive Auction with our Puerto Rico television stations to potentially generate cash proceeds that are expected to be created by the auction process.

 


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General Overview

We are a leading Spanish-language media and entertainment company with radio and television operations, together with live concerts and events, mobile, digital and interactive media platforms, which reach the growing U.S. Hispanic population, including Puerto Rico.  We produce and distribute original Spanish-language content, including radio programs, television shows, music and live entertainment through our multi-media platforms. We operate in two reportable segments: radio and television.  

We own and operate radio stations located in six of the eight most populous Hispanic markets in the United States: Los Angeles, New York, Puerto Rico, Chicago, Miami and San Francisco. The Los Angeles and New York markets have the largest and second largest Hispanic populations and are also the largest and second largest radio markets in the United States measured by advertising revenue, respectively. We format the programming of each of our radio stations to capture a substantial share of the Hispanic audience in their respective markets. The U.S. Hispanic population is diverse, consisting of numerous identifiable ethnic groups from many different countries of origin, and each ethnic group has its own musical and cultural heritage. Since the music, culture, customs and Spanish dialects vary from one radio market to another, we strive to maintain familiarity with the musical tastes and preferences of each of the various Hispanic ethnic groups. To accommodate and monetize such diversity, we customize our programming to match the local preferences of our target demographic audience in each market we serve. In addition to our owned and operated radio stations, we have our AIRE Radio Networks with over 100 affiliate radio stations serving over 53 of the top U.S. Hispanic markets, including all the top 30 Hispanic markets.  AIRE Radio Networks currently covers 90% of the coveted U.S. Hispanic market.  Our AIRE Radio Networks reach over 11.0 million listeners in an average week with our targeted networks.  For the three-months ended March 31, 2016 and 2015, our radio revenue was generated primarily from the sale of local, national and network advertising, and our radio segment generated 90% and 91% of our consolidated net revenue, respectively.

Our television stations and related affiliates operate under the “MegaTV” brand.  We broadcast via our owned and operated television stations in South Florida, Houston and Puerto Rico through programming and/or distribution agreements, including nationally on a subscriber basis, which allow us to serve markets representing over 3.5 million Hispanic households. We have created a unique television format which focuses on entertainment, current events and variety with high-quality content. Our programming is formatted to capture a larger share of the U.S. Hispanic audience by focusing on our core strengths as an “entertainment” company, thus offering a new alternative compared to the traditional Hispanic television channels. MegaTV’s programming is based on a strategy designed to showcase a combination of programs, ranging from televised radio-branded shows to general entertainment programs, such as music, celebrity, debate, interviews and personality based shows. As part of our strategy, we have incorporated certain of our radio on-air personalities into our television programming. In addition, we have included interactive elements in our programming to complement our Internet websites. We produce over 70 hours of original programming per week.  For the three-months ended March 31, 2016 and 2015, our television revenue was generated primarily from the sale of local advertising and paid programming and generated 10% and 9% of our consolidated net revenues, respectively.

As part of our operating business, we also maintain multiple bilingual websites, including www.lamusica.com, Mega.tv and various station websites that provide content related to Latin music, entertainment, news and culture, as well as the LaMusica mobile app.  LaMusica simultaneously streams our stations’ content, which has broadened the audience reach of our radio stations.  In addition, we produce live concerts and events in the United States and Puerto Rico. Concerts generate revenue from ticket sales, sponsorship and promotions, raise awareness of our brands in the surrounding communities and provide our advertising partners additional opportunities to reach their target audience.

Business Drivers and Financial Statement Presentation

The following discussion provides a brief description of certain key items that appear in our consolidated financial statements and general business factors that impact these items.

Net Revenue Description and Factors

Our net revenue is primarily derived from the sale of advertising airtime to local, national and network advertisers. Net revenue is gross revenue less agency commissions, which are generally 15% of gross revenue.

 

Local revenue generally consists of advertising airtime sold in a station’s local market either directly to the advertiser or through an advertiser’s agency. Local revenue includes local spot sales, integrated sales, sponsorship sales and paid-programming (or infomercials). For the three-months ended March 31, 2016 and 2015, local revenue comprised 66% and 62% of our gross revenues, respectively.

 

National and network revenue generally consists of advertising airtime sold to agencies purchasing advertising for multiple markets. National sales are generally facilitated by our outside national representation firm, which serves as our agent in these transactions. For the three-months ended March 31, 2016 and 2015, national revenue comprised 13% and

20


 

10% of our gross revenues, respectively. Network sales consist of advertising airtime sold on our AIRE Radio Network platform by our network sales staff.  For the three-months ended March 31, 2016 and 2015, network revenue comprised 7% and 9% of our gross revenues, respectively.

Our net revenue is generally determined by the advertising rates that we are able to charge and the number of advertisements that we can broadcast without jeopardizing listenership/viewership levels. Each station broadcasts a predetermined number of advertisements per hour with the actual number depending upon the format of a particular station and any programming strategy we are utilizing to attract an audience. The number of advertisements we decide to broadcast hourly is intended to maximize the station’s revenue without negatively impacting its audience listener/viewer levels. While there may be shifts from time to time in the number of advertisements broadcast during a particular time of the day, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year.

Our advertising rates are primarily based on the following factors:

 

a station’s audience share in the demographic groups targeted by advertisers which are measured by ratings agencies, primarily Nielsen;

 

the number of stations, as well as other forms of media, in the market competing for the attention of the same demographic groups;

 

the supply of, and demand for, advertising time; and

 

the size of the market.

Our net revenue is also affected by general economic conditions, competition and our ability to improve operations at our market clusters. Seasonal revenue fluctuations are also common in the broadcasting industry and are primarily due to variations in advertising expenditures by local and national advertisers. Our net revenue is typically lowest in the first calendar quarter of the year.

In addition to advertising revenue, we also generate revenue from barter sales, special events revenue, interactive revenue, syndication revenue, subscriber revenue and other revenue. For the three-months ended March 31, 2016 and 2015, these revenues combined comprised approximately 14% and 18% of our gross revenues, respectively.

 

Barter sales. We use barter sales agreements to reduce cash paid for operating costs and expenses by exchanging advertising airtime for goods or services. However, we endeavor to minimize barter revenue in order to maximize cash revenue from our available airtime.

 

Special events revenue. We generate special events revenue from ticket sales and event sponsorships, as well as profit-sharing arrangements by producing or co-producing live concerts and events promoted by our radio and television stations.

 

Interactive revenue. We derive internet revenue from our websites through the sale of advertiser promotions and advertising on our websites and the sale of advertising airtime during audio streaming of our radio stations over the internet.

 

Syndication revenue. We receive syndication revenue from licensing various MegaTV content.

 

Subscriber revenue. We receive subscriber revenue in the form of a per subscriber based fee, which is paid to us by cable and satellite providers.

 

Other revenue. We receive other ancillary revenue such as rental income from renting available tower space or sub-channels.

Operating Expenses Description and Factors

Our operating expenses consist primarily of (1) engineering and programming expenses, (2) selling, general and administrative expenses and (3) corporate expenses.

 

Engineering and programming expenses. Engineering and programming expenses are related to the delivery and creation of our programming content on the air. These expenses include compensation and benefits for employees involved in engineering and programming, transmitter-related expenses, originally produced content, on-air promotions, acquired programming, music license fees, and other expenses.

 

Selling, general and administrative expenses. Selling, general and administrative expenses are related to the costs of selling our programming content and administrative costs associated with operating and managing our stations. These expenses include compensation and benefits for employees involved in selling and administrative functions, commissions, rating services, advertising, barter expenses, facilities expenses, special events expenses, professional fees, insurance, allowance for doubtful accounts, affiliate station compensation and other expenses.

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Corporate expenses. Corporate expenses are related to the operations of our corporate offices and matters. These expenses include compensation and benefits for our corporate employees, professional fees, insurance, corporate facilities expenses and other expenses.

We strive to control our operating expenses by centralizing certain functions at our corporate offices and consolidating certain functions in each of our market clusters. In our pursuit to control our operating expenses, we work closely with our local station management and vendors.

 

 

Comparison Analysis of the Operating Results for the Three-Months Ended March 31, 2016 and 2015

The following summary table presents financial data for each of our operating segments (in thousands):

 

 

Three-Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net revenue:

 

 

 

 

 

 

 

Radio

$

28,525

 

 

 

29,227

 

Television

 

3,088

 

 

 

2,915

 

Consolidated

$

31,613

 

 

 

32,142

 

Engineering and programming expenses:

 

 

 

 

 

 

 

Radio

$

6,032

 

 

 

5,399

 

Television

 

2,130

 

 

 

2,265

 

Consolidated

$

8,162

 

 

 

7,664

 

Selling, general and administrative expenses:

 

 

 

 

 

 

 

Radio

$

13,476

 

 

 

13,648

 

Television

 

1,979

 

 

 

1,614

 

Consolidated

$

15,455

 

 

 

15,262

 

 

Corporate expenses:

$

2,993

 

 

 

2,148

 

Depreciation and amortization:

 

 

 

 

 

 

 

Radio

$

488

 

 

 

507

 

Television

 

663

 

 

 

684

 

Corporate

 

99

 

 

 

96

 

Consolidated

$

1,250

 

 

 

1,287

 

(Gain) loss on the disposal of assets, net:

 

 

 

 

 

 

 

Radio

$

(3

)

 

 

(6

)

Television

 

 

 

 

 

Corporate

 

 

 

 

 

Consolidated

$

(3

)

 

 

(6

)

Operating income (loss):

 

 

 

 

 

 

 

Radio

$

8,532

 

 

 

9,679

 

Television

 

(1,684

)

 

 

(1,648

)

Corporate

 

(3,092

)

 

 

(2,244

)

Consolidated

$

3,756

 

 

 

5,787

 

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The following summary table presents a comparison of our results of operations for the three-months ended March 31, 2016 and 2015 (in thousands). Various fluctuations in our results are discussed below. This section should be read in conjunction with our unaudited condensed consolidated financial statements and notes.

 

 

Three-Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net revenue

$

31,613

 

 

 

32,142

 

Engineering and programming expenses

 

8,162

 

 

 

7,664

 

Selling, general and administrative expenses

 

15,455

 

 

 

15,262

 

Corporate expenses

 

2,993

 

 

 

2,148

 

Depreciation and amortization

 

1,250

 

 

 

1,287

 

(Gain) loss on disposal of assets, net of disposal costs

 

(3

)

 

 

(6

)

Impairment charges and restructuring costs

 

 

 

 

 

Operating income

 

3,756

 

 

 

5,787

 

Interest expense, net

 

(10,036

)

 

 

(9,933

)

Dividends on Series B preferred stock classified as interest expense

 

(2,433

)

 

 

(2,433

)

Income tax expense

 

2,603

 

 

 

2,036

 

Net loss

$

(11,316

)

 

 

(8,615

)

 

Net Revenue

The decrease in our consolidated net revenues of $0.5 million or 2% was due to a decreases in our radio segment offset by an increase in our television segments’ net revenues.  Our radio segment net revenues decreased $0.7 million or 2%, due to decreases in special events and network revenue, which were partially offset by an increase in national, local, interactive and barter sales.  Our national sales increased in our Los Angeles, New York and Puerto Rico markets, while our local sales increased in our Los Angeles, Miami and New York markets.  Our special events revenue decreased in our New York and Puerto Rico markets due to a decrease in scheduled events.  Our television segment net revenues increased $0.2 million or 6%, due to the increases in local and national sales.

Engineering and Programming Expenses

The increase in our consolidated engineering and programming expenses of $0.5 million was primarily due to the increase in our radio segments’ expenses.  Our radio segment expenses increased $0.6 million or 12%, mainly due to an increase in personnel compensation and benefits, programming bonuses and transmission facility related taxes.  This increase was offset by a decrease in our television segment expenses of $0.1 million or 6% related to a reduction in transmitter line charges and acquired programming cost.

Selling, General and Administrative Expenses

The increase in our consolidated selling, general and administrative expenses of $0.2 million or 1% was due to the decreases in our radio segment expenses offset by increases in our television segment expenses.  Our radio segment expenses decreased $0.2 million or 1%, mainly due to decreases in special events expenses, which were offset by increases in professional fees, compensation and benefits associated with the development of our digital platform, and ratings services.  Our television segment expenses increased $0.4 million or 23%, primarily due to increases in professional fees and barter expenses.

Corporate Expenses

The increase in corporate expenses of $0.8 million or 39% was mostly due to an increase in compensation and benefits, stock-based compensation and professional fees.

Operating Income

The decrease in operating income of $2.0 million or 35% was due to the decrease in net revenues and increased operating and corporate expenses.

Income Tax Expense

The increase in income tax expense of $0.6 million was primarily a result of the tax amortization on some of our indefinite-lived intangible assets that do not have any valuation allowances and the tax impact of the swap transaction entered into between WZET Licensing Inc. and SBS Holdings Company.

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Net Loss

 

The increase in net loss was primarily due to the decreased operating income and increase in income tax expense.

 

 

Liquidity and Capital Resources

On October 15, 2013, as a result of a failure by us to repurchase all of the shares of Series B preferred stock that were requested to be repurchased by the holders thereof, a Voting Rights Triggering Event occurred. Following the occurrence, and during the continuation, of the Voting Rights Triggering Event, we are subject to more restrictive operating covenants, including a prohibition on our ability to incur any additional indebtedness and restrictions on our ability to pay dividends or make distributions, redeem or repurchase securities, make investments, enter into transactions with affiliates or merge or consolidate with (or sell substantially all of our assets to) any other person. The Voting Rights Triggering Event shall continue until (i) all dividends in arrears shall have been paid in full and (ii) all other failures, breaches or defaults giving rise to such Voting Rights Triggering Event are remedied or waived by the holders of at least a majority of the shares of the then outstanding Series B preferred stock. We do not currently have sufficient funds legally available to be able to satisfy the conditions for terminating the Voting Rights Triggering Event.

Our consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 2016, we had a working capital deficit due to the reclassification of our Series B preferred stock as a current liability, although under Delaware law, our state of incorporation, the Series B preferred stock is deemed equity. Because the holders of the Series B preferred stock are not creditors, they do not have rights of, or remedies available to, creditors. Delaware law does not recognize a right of preferred stockholders to force redemptions or repurchases where the corporation does not have funds legally available. Currently, we do not have sufficient funds legally available to be able to repurchase the Series B preferred stock and its accumulated unpaid dividends and management does not expect to be required to make any such repurchases during the next twelve months.  Management does not believe that the Series B preferred stockholders, based on provisions in the 12.5% Senior Secured Notes Indenture and Delaware law, have legal remedies that would require such repurchases. Additionally, the 12.5% Senior Secured Notes (the “Notes”) have a maturity date of April 15, 2017.  During the first quarter of 2016, we have engaged financial advisors to assist us in developing a comprehensive refinancing strategy that considers all of the Company’s obligations under its debt and capital structure.  Additionally, we are participating in the Broadcast Incentive Auction and evaluating the potential monetization of our spectrum and other assets to generate cash proceeds that would be used to repay our outstanding notes in accordance with the Indenture. The inability of the Company to repay or refinance its obligations so as to restructure its capital structure in a manner that ensures its short and long term liquidity could result in significant liquidity requirements on the Company. As there can be no assurance, at this time, that we will be able to successfully implement our strategy, the conditions or events raise substantial doubt about the Company’s ability to continue as a going-concern. The financial statements do not include adjustments, if any, that might arise from the outcome of this uncertainty.

Our primary sources of liquidity are our current cash and cash equivalents and the cash expected to be provided by operations. We do not currently have a revolving credit facility or other working capital lines of credit.  Our cash flows from operations are subject to factors impacting our customers and target audience, such as overall advertising demand, shifts in population, station listenership and viewership, demographics, audience tastes and fluctuations in preferred advertising media. Our ability to raise funds by increasing our indebtedness is currently precluded by the occurrence and continuation of the Voting Rights Triggering Event. The occurrence and continuation of the Voting Rights Triggering Event, our Certificate of Designations and the Indenture governing the Notes place other restrictions on us with respect to the sale of assets, liens, investments, dividends, debt repayments, transactions with affiliates, and consolidations and mergers, among other things.

Our strategy is to primarily utilize cash flows from operations to meet our capital needs and contractual obligations. Management continually projects anticipated cash requirements and believes that cash from operating activities, together with cash on hand, should be sufficient to permit us to meet our operating obligations over the next twelve-month period, including, among other things, required semi-annual interest payments pursuant to the Notes and capital expenditures. Cash from operating activities will not be sufficient to repay the Notes.

Assumptions (none of which can be assured) which underlie management’s beliefs with respect to operating activities, include the following:

 

the demand for advertising within the broadcasting industry and economic conditions in general will not deteriorate in any material respect;

 

despite the consequences resulting from the occurrence of the Voting Rights Triggering Event, we will continue to successfully implement our business strategy;

24


 

we will not use cash flows from operating activities to repurchase the Series B preferred stock; and

 

we will not incur any material unforeseen liabilities, including but not limited to taxes, environmental liabilities, regulatory matters or legal judgments.

We evaluate strategic media acquisitions and/or dispositions and strive to expand our media content through distribution, programming and affiliation agreements in order to achieve a significant presence with clusters of stations in the top U.S. Hispanic markets. We engage in discussions regarding potential acquisitions and/or dispositions and expansion of our content through media outlets from time to time in the ordinary course of business. We anticipate that any future acquisitions would be financed through funds generated from equity financing, operations, asset sales or a combination of these or other available and/or permitted sources. As a result of the consequences resulting from the occurrence of the Voting Rights Triggering Event, we are currently not able to finance acquisitions through the incurrence of additional debt and are subject to additional restrictions which may preclude us from being able to execute this strategy.

 

12.5% senior secured notes due 2017

On February 7, 2012 we closed our offering of $275 million in aggregate principal amount of our Notes, at an issue price of 97% of the principal amount. The Notes were offered solely by means of a private placement either to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act, or to certain persons outside the United States pursuant to Regulation S under the Securities Act. We used the net proceeds from the offering, together with some cash on hand, to repay and terminate the senior credit facility term loan, and to pay the transaction costs related to the offering The Notes mature in April of 2017.  Cash from operating activities will not be sufficient to repay the Notes. During the first quarter of 2016, we have engaged financial advisors to assist us in developing a refinancing strategy. Additionally, we are participating in the Broadcast Incentive Auction and evaluating the potential monetization of our spectrum assets and other assets to generate cash proceeds that would be used to repay our outstanding notes in accordance with the Indenture. There can be no assurance that we will be able to successfully implement our strategy. The inability of the Company to repay or refinance these notes at least on comparable terms could result in significant liquidity requirements on the Company. As there can be no assurance that we will be able to successfully implement our strategy, this condition raises substantial doubt about the Company’s ability to continue as a going-concern.

Interest

The Notes accrue interest at a rate of 12.5% per year. Interest on the Notes is paid semi-annually on each April 15 and October 15 (the “Interest Payment Date”), commencing on April 15, 2012. After April 15, 2013, interest will accrue at a rate of 12.5% per annum on (i) the original amount of the Notes plus (ii) any Additional Interest (as defined below) payable but unpaid in any prior interest period, payable in cash on each Interest Payment Date. Further, beginning on the Interest Payment Date occurring on April 15, 2013, additional interest will be payable at a rate of 2.00% per annum (the “Additional Interest”) on (i) the original principal amount of the Notes plus (ii) any amount of Additional Interest payable but unpaid in any prior interest period, to be paid in cash, at our election, (x) on the applicable Interest Payment Date or (y) on the earliest of the maturity date of the Notes, any acceleration of the Notes and any redemption of the Notes; provided that no Additional Interest will be payable on any Interest Payment Date if, for the applicable fiscal period, either (a) we record positive consolidated station operating income for our television segment or (b) our secured leverage ratio on a consolidated basis is less than 4.75 to 1.00.

The measurement periods that determine if Additional Interest is applicable for the respective Interest Payment Dates are as follows:

(1)

Six-months ended December 31, 2012 or as of December 31, 2012 for the Interest Payment Date of April 15, 2013

(2)

Last twelve months ended June 30, 2013 or as of June 30, 2013 for the Interest Payment Date of October 15, 2013

(3)

Last twelve months ended December 31, 2013 or as of December 31, 2013 for the Interest Payment Date of April 15, 2014

(4)

Last twelve months ended June 30, 2014 or as of June 30, 2014 for the Interest Payment Date of October 15, 2014

(5)

Last twelve months ended December 31, 2014 or as of December 31, 2014 for the Interest Payment Date of April 15, 2015

(6)

Last twelve months ended June 30, 2015 or as of June 30, 2015 for the Interest Payment Date of October 15, 2015

(7)

Last twelve months ended December 31, 2015 or as of December 31, 2015 for the Interest Payment Date of April 15, 2016

(8)

Last twelve months ended June 30, 2016 or as of June 30, 2016 for the Interest Payment Date of October 15, 2016

(9)

Last twelve months ended December 31, 2016 or as of December 31, 2016 for the Interest Payment Date of April 15, 2017

25


Additional Interest during any given interest period, shall not be deemed to “accrue”.  Rather, Additional Interest becomes payable on a given Interest Payment Date (April 15 or October 15) unless the condition in either clause (a) or (b) above has been met as of that Interest Payment Date or unless the Television Segment has been divested or the Notes redeemed prior to that Interest Payment Date.

Although for the Additional Interest applicable periods (1), (2), (3), (4), (5), (6) and (7) our secured leverage ratio was greater than 4.75 to 1.00, we recorded positive consolidated station operating income for our television segment for those respective periods (as defined in the Indenture). Therefore, no Additional Interest was incurred and/or payable for those respective Interest Payment Dates.

Collateral and Ranking

The Notes and the guarantees are secured on a first-priority basis by a security interest in certain of the Company’s and the guarantors’ existing and future tangible and intangible assets (other than Excluded Assets (as defined in the Indenture)). The Notes and the guarantees are structurally subordinated to the obligations of our non-guarantor subsidiaries. The Notes and guarantees are senior to all of the Company’s and the guarantors’ existing and future unsecured indebtedness to the extent of the value of the collateral.

The Indenture permits us, under specified circumstances, to incur additional debt; however, the occurrence and continuance of the Voting Rights Triggering Event (as defined in note 10 to the audited consolidated financial statements) currently prevents us from incurring any such additional debt.

The Notes are senior secured obligations of the Company that rank equally with all of our existing and future senior indebtedness and senior to all of our existing and future subordinated indebtedness. Subject to certain exceptions, the Notes are fully and unconditionally guaranteed by each of our existing wholly owned domestic subsidiaries (which excludes (i) our existing and future subsidiaries formed in Puerto Rico (the “Puerto Rican Subsidiaries”), (ii) our future subsidiaries formed under the laws of foreign jurisdictions and (iii) our existing and future subsidiaries, whether domestic or foreign, of the Puerto Rican Subsidiaries or foreign subsidiaries) and our other domestic subsidiaries that guarantee certain of our other debt. The Notes and guarantees are structurally subordinated to all existing and future liabilities (including trade payables) of our nonguarantor subsidiaries.

Covenants and Other Matters

The Indenture governing the Notes contains covenants that, among other things, limit our ability and the ability of the guarantors to:

 

·

incur or guarantee additional indebtedness;

 

·

pay dividends and make other restricted payments;

 

·

incur restrictions on the payment of dividends or other distributions from our restricted subsidiaries;

 

·

engage in sale-lease back transactions;

 

·

enter into new lines of business;

 

·

make certain payments to holders of Notes that consent to amendments to the Indenture governing the Notes without paying such amounts to all holders of Notes;

 

·

create or incur certain liens;

 

·

make certain investments and acquisitions;

 

·

transfer or sell assets;

 

·

engage in transactions with affiliates; and

 

·

merge or consolidate with other companies or transfer all or substantially all of our assets.

The Indenture contains certain customary representations and warranties, affirmative covenants and events of default which could, subject to certain conditions, cause the Notes to become immediately due and payable, including, but not limited to, the failure to make premium, principal or interest payments; failure by us to accept and pay for Notes tendered when and as required by the change of control and asset sale provisions of the Indenture; failure to comply with certain covenants in the Indenture; failure to comply with certain agreements in the Indenture for a period of 60 days following notice by the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding; failure to pay any debt within any applicable grace period after the final maturity or acceleration of such debt by the holders thereof because of a default, if the total amount of such debt unpaid or

26


accelerated exceeds $15 million; failure to pay final judgments entered by a court or courts of competent jurisdiction aggregating $15 million or more (excluding amounts covered by insurance), which judgments are not paid, discharged or stayed, for a period of 60 days; and certain events of bankruptcy or insolvency.

As of March 31, 2016, we were in compliance with all of our covenants under our Indenture.

Summary of Capital Resources

The following summary table presents a comparison of our capital resources for the three-months ended March 31, 2016 and 2015, with respect to certain key measures affecting our liquidity (in thousands). The changes set forth in the table are discussed below. This section should be read in conjunction with the unaudited condensed consolidated financial statements and notes.

 

 

Three-Months Ended

 

 

 

 

 

 

March 31,

 

 

Change

 

 

2016

 

 

2015

 

 

$

 

Capital expenditures:

 

 

 

 

 

 

 

 

 

 

 

Radio

$

382

 

 

 

173

 

 

 

209

 

Television

 

94

 

 

 

84

 

 

 

10

 

Corporate

 

101

 

 

 

28

 

 

 

73

 

Consolidated

$

577

 

 

$

285

 

 

 

292

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows provided by operating activities

$

10,513

 

 

 

8,276

 

 

 

2,237

 

Net cash flows used in investing activities

 

(2,474

)

 

 

(279

)

 

 

(2,195

)

Net cash flows used in financing activities

 

(77

)

 

 

(85

)

 

 

8

 

Net (decrease) increase in cash and cash equivalents

$

7,962

 

 

 

7,912

 

 

 

 

 

Capital Expenditures

The increase in our capital expenditures was primarily due to on-going development of the LaMusica digital application.  

Net Cash Flows (Used In) Provided by Operating Activities

Changes in our net cash flows from operating activities were primarily a result of increased receivable collections.

Net Cash Flows (Used in) Provided by Investing Activities

Changes in our net cash used in investing activities were primarily a result of the cash used to acquire spectrum related assets in Puerto Rico.

Net Cash Flows (Used in) Provided by Financing Activities

Changes in our net cash used in from financing activities were a result of having eliminated certain leases that were present in the prior year.

Recent Developments

 

NASDAQ Listing

 

On January 28, 2016, we received a written deficiency notice (the “Notice”) from the NASDAQ Stock Market (“NASDAQ”) advising us that the market value of our Class A Common Stock for the previous 30 consecutive business days had been below the minimum $15,000,000 required for continued listing on the NASDAQ Global Market pursuant to NASDAQ Listing Rule 5450 (b)(3)(C) (the “Rule”).

 

Pursuant to NASDAQ Listing Rule 5810(c)(3)(D) (the “Listing Rule”), we are provided an initial grace period of 180 calendar days, or until July 26, 2016, to regain compliance with the Rule. The Notice further provided that NASDAQ would provide written confirmation stating that SBS had achieved compliance with the rule if at any time before July 26, 2016, the market value of its publicly held shares closed at $15,000,000 or more for a minimum of 10 consecutive business days.

 

27


If we do not regain compliance with the Rule by July 26, 2016, NASDAQ will provide written notification to us that our Class A Common Stock is subject to delisting from NASDAQ at which time we will have an opportunity to appeal the determination to a NASDAQ Hearing Panel.  

FCC Broadcast Incentive Auction

 

We have filed applications to participate in the FCC’s television spectrum incentive auction with television stations in Miami, Houston, and Puerto Rico to potentially generate cash proceeds that are expected to be created by the auction process.  There can be no assurance that the FCC’s television spectrum incentive auction will be successfully completed and any potential cash proceeds will be subsequently realized.

Exchange of Stations in Puerto Rico

 

On January 4, 2016, the Company completed an asset exchange with International Broadcasting Corp. under which the Company agreed to exchange certain assets used or useful in the operations of WIOA-FM, WIOC-FM, and WZET-FM in Puerto Rico for certain assets used or useful in the operations of WTCV (DT), WVEO (DT), and WVOZ (TV) in Puerto Rico previously owned and operated by International Broadcasting Corp. The asset exchange is further discussed in note 11 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

 

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Recently Issued Accounting Pronouncements

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718).  This new standard’s objective is to simplify certain aspects of the accounting for share-based payment award transactions, including (i) income tax consequences, (ii) classification of awards as either equity or liabilities, and (iii) classification on the statement of cash flows. This update is effective on a prospective, retrospective, and modified retrospective basis for annual and interim periods beginning after December 15, 2016 with early adoption permitted.  We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).  This new standard requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases and disclose key information about the leasing agreements.  The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption is permitted as of the beginning of an interim or annual reporting period. We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

In January 2016, the FASB issued ASU No. 2016-01, Accounting for Financial Instruments – Recognition and Measurement. The new guidance changes how entities measure equity investments and present changes in the fair value of financial liabilities. The new guidance requires entities to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception.  A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value and as such these investments may be measured at cost.  The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes.  This new standard provides guidance to simplify the presentation of deferred taxes in a classified statement of financial position. The guidance requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. The new guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company elected to retroactively adopt the accounting standard in the beginning of the fourth quarter of 2015, and the adoption had no material impact on the consolidated financial position of the Company.

 

28


In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, and not recorded as separate assets. This update is effective for reporting periods beginning after December 15, 2015, and is to be applied on a retrospective basis. The Company has adopted the accounting standard and presented its debt issuance costs as a deduction from the long-term debt in the balance sheet. Debt issuance costs totaled $3.7 million and $4.5 million at March 31, 2016 and December 31, 2015, respectively.

 

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements- Going Concern.  This new standard defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.  The standard is effective for annual reporting periods ending after December 15, 2016 and interim periods thereafter. The Company has elected to early adopt the accounting standard during the first quarter of 2016.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).  This new standard provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under U.S. GAAP.  In July 2015, the FASB postponed the effective date of this standard.  The standard is now effective for the first interim period within annual reporting periods beginning after December 15, 2017.  We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if:

 

·

it requires assumptions to be made that were uncertain at the time the estimate was made; and

 

·

changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.

Our critical accounting policies are described in Item 7 of our annual report on Form 10-K for the year ended December 31, 2015. There have been no material changes to our critical accounting policies during the three-months ended March 31, 2016.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are a “smaller reporting company” as defined by Regulation S-K and as such, we are not required to provide the information contained in this item pursuant to Regulation S-K.

 

Item 4. Controls and Procedures

Evaluation Of Disclosure Controls And Procedures. Our management, including our principal executive and financial officers, have conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and financial officers concluded, as a result of the material weakness in internal control over financial reporting discussed below, that our disclosure controls and procedures were not effective as of the end of the period covered by this report. However, we believe that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

In November 2015, management concluded that a control deficiency with respect to the precision of the review of the calculation of the provision for income taxes constituted a material weakness in internal control over financial reporting.

 

Since such time, management has implemented the following remedial measures: the Company has engaged an independent third party tax expert to perform an additional review of the provision and developed a detailed checklist to more clearly identify the specific review procedures.  The checklist has also strengthened the Company’s documentation process and the communication between management, the independent income tax provision preparer, and the independent third party tax specialist assisting with the

29


review, resulting in an improved evaluation of the provision. The deficiency will not be considered remediated until internal controls are operational for a period of time and tested, and management concludes that the controls are operating effectively.

Based on our assessment, we consider that the material weakness related to the precision of the review of the calculation of the provision for income taxes has not been remediated as of March 31, 2016, as the implemented remedial measures have not operated effectively for a sufficient period of time for management to conclude, through testing, that the applicable controls have operated effectively for a sufficient period of time.

 

Changes In Internal Control Over Financial Reporting. As previously discussed, management revised its policies and procedures with respect to controls over the precision of the review of the calculation of the provision for income taxes.  Except for the material weakness and remedial measures described above, there has been no change in our internal control over financial reporting during the quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

Litigation - Brevan Howard and Others Complaint

On December 27, 2013, River Birch Master Fund, L.P., P River Birch Ltd. (together, “River Birch”) and Visium Catalyst Credit Master Fund, Ltd. (collectively with River Birch, “Initial Plaintiffs”) brought a claim against us in the Delaware Court of Chancery (the “Court”) seeking a declaratory judgment that a “Voting Rights Triggering Event” had occurred (as of April 15, 2010) under our certificate of designations for the Series B preferred stock (the “Certificate of Designations”) as a result of our non-payment of dividends. The claim alleges that as a result of such Voting Rights Triggering Event, the incurrence of indebtedness for the purpose of purchasing our Houston television station and the issuance of our 12.5% Senior Secured Notes due 2017 (the “Notes”) under the Indenture governing the Notes, among other things, were prohibited incurrences of indebtedness under the Certificate of Designations.

The Initial Plaintiffs further claim that we violated the Certificate of Designations by failing to take any actions or explore any options that would have given us legally available funds with which to repurchase the outstanding Series B preferred stock on October 15, 2013. In connection with their claims, Initial Plaintiffs also seek an injunction requiring us to repurchase the Series B preferred stock and an award of contract damages.

On January 17, 2014, we filed a motion to dismiss the complaint. On March 3, 2014, the complaint was amended to remove River Birch and add Brevan Howard Credit Catalyst Master Fund Ltd., Brevan Howard Master Fund, ALJ Capital I, LP, ALJ Capital II, LP, LJR Capital, LP, and Cedarview Opportunities Master Fund, LP (collectively with Visium Catalyst Credit Master Fund, Ltd., “Plaintiffs”) as additional plaintiffs. We filed an Opening Brief in support of our Motion to Dismiss on March 31, 2014. Plaintiffs filed an answering brief to our Motion to Dismiss on April 30, 2014.  Our reply brief was filed on May 16, 2014, and a hearing was held on our Motion to Dismiss on June 10, 2014. Following the hearing, the parties agreed to stay all proceedings relating to Count I (which seeks a declaration that a Voting Rights Triggering Event was in effect at all times after April 15, 2010), Count II (which alleges that SBS breached the Certificate of Designations by incurring indebtedness in 2011 and 2012) and Count IV (which alleges that SBS breached the implied covenant of good faith and fair dealing by deferring certain dividends) of the amended complaint.  The stay has since been lifted.  On June 27, 2014, the Court denied our motion to dismiss Count III (which alleges that SBS breached the Certificate of Designations by failing to redeem all of the Series B Preferred Stock on October 15, 2013) of the amended complaint.  A hearing on our motion to dismiss Counts I, II and IV of the amended complaint was held on February 10, 2015. On May 19, 2015, the Court of Chancery granted our motion to dismiss Counts I, II and IV of the amended complaint. An order dismissing those Counts with prejudice was entered on May 22, 2015.

At present, Count III of the amended complaint remains outstanding. Court of Chancery Rule 41 (e) permits any party (or the Court sua sponte) to move for a dismissal for failure to prosecute in any case wherein no action has been taken for a period of one year. Given that the last action in this case was taken on May 22, 2015, such a motion may be filed on or after May 22, 2016. We note, however, that such a motion could be denied if “good reason for the inaction is given”, as provided by Court of Chancery Rule 41 (e). In addition, on April 21, 2016, the Court requested a status update from the parties regarding proceedings on Count III of the amended complaint.

We deny the allegations contained in the amended complaint and, to the contrary, assert that we have been and continue to be in full and complete compliance with all of our obligations under the Certificate of Designations, as fully disclosed in our public filings dating back to 2009. Accordingly, we believe that the complaint’s allegations are frivolous and wholly without merit and intend to contest such allegations vigorously.

30


Item 1A. Risk Factors

Impeding Maturity of our Notes

Our Notes mature on April 15, 2017.  We do not currently have sufficient cash on hand and we do not expect to generate sufficient cash from operations to repay the Notes at maturity.  During the first quarter of 2016, we have engaged financial advisors to assist us in developing a comprehensive refinancing strategy that considers all of the Company’s obligations under its debt and capital structure.  Additionally, we are participating in the Broadcast Incentive Auction and evaluating the potential monetization of our spectrum and other assets to generate cash proceeds that would be used to repay our outstanding notes in accordance with the Indenture. There can be no assurance that we will be able to successfully implement our strategy. Our failure to do so could result in a default under the Notes and could have a material adverse effect on our business.

 

 


31


 

Item 6. Exhibits

The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, furnished herewith or incorporated by reference herein:

 

Exhibit

Number

  

Exhibit Description

 

 

 

 

 

 

  31.1*

  

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2*

  

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1**

  

Certification of Periodic Financial Report by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.2**

  

Certification of Periodic Financial Report by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

  

XBRL Instance Document

 

 

 

101.SCH*

  

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL*

  

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF*

  

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB*

  

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE*

  

XBRL Taxonomy Extension Presentation Linkbase Document

*

Filed herewith

**

Furnished herewith

 

 

 

32


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.

 

SPANISH BROADCASTING SYSTEM, INC.

 

 

By:

/s/ JOSEPH A. GARCÍA

 

JOSEPH A. GARCÍA

 

 

 

Chief Financial Officer,

Chief Administrative Officer, Senior

Executive Vice President and Secretary

(principal financial and accounting officer

and duly authorized officer of the registrant)

Date: May 16, 2016

 

 

 

33


EXHIBIT INDEX

 

Exhibit

Number

  

Exhibit Description

 

 

 

 

 

 

  31.1*

  

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2*

  

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1**

  

Certification of Periodic Financial Report by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.2**

  

Certification of Periodic Financial Report by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

  

XBRL Instance Document

 

 

 

101.SCH*

  

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL*

  

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF*

  

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB*

  

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE*

  

XBRL Taxonomy Extension Presentation Linkbase Document

*

Filed herewith

**

Furnished herewith

 

 

34

Exhibit 31.1

CERTIFICATION

I, Raúl Alarcón, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Spanish Broadcasting System, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

By:

/s/ RAÚL ALARCÓN

 

Name:

Raúl Alarcón

   

Title:

Chairman of the Board of Directors, Chief Executive Officer and President

Date: May 16, 2016

Exhibit 31.2

CERTIFICATION

I, Joseph A. García, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Spanish Broadcasting System, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

   

By:

/s/ JOSEPH A. GARCÍA

   

Name:

Joseph A. García

   

Title:

Chief Financial Officer, Chief Administrative Officer, Senior Executive Vice President and Secretary

Date: May 16, 2016

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Spanish Broadcasting System, Inc. (the “Company”) for the quarterly period ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Raúl Alarcón, Jr., Chairman of the Board of Directors, President and Chief Executive Officer of the Company, certify, as of the dates hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

 

/s/ RAÚL ALARCÓN

 

Name:

Raúl Alarcón

 

Title:

Chairman of the Board of Directors,

President and Chief Executive Officer

 

 

Date: May 16, 2016  

 

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Spanish Broadcasting System, Inc. (the “Company”) for the quarterly period ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph A. García, Chief Financial Officer, Executive Vice President and Secretary of the Company, certify, as of the dates hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

 

/s/ JOSEPH A. GARCÍA

 

Name:

Joseph A. García

 

Title:

Chief Financial Officer, Chief Administrative

Officer, Senior Executive

Vice President and Secretary

 

Date: May 16, 2016

v3.4.0.3
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2016
May. 09, 2016
Entity Registrant Name SPANISH BROADCASTING SYSTEM INC  
Entity Central Index Key 0000927720  
Document Type 10-Q  
Document Period End Date Mar. 31, 2016  
Amendment Flag false  
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q1  
Trading Symbol SBSA  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Class A common stock    
Entity Common Stock, Shares Outstanding   4,166,991
Class B common stock    
Entity Common Stock, Shares Outstanding   2,340,353
v3.4.0.3
Unaudited Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Current assets:    
Cash and cash equivalents $ 27,405 $ 19,443
Receivables:    
Trade 28,230 34,415
Barter 233 231
Total Receivables 28,463 34,646
Less allowance for doubtful accounts 1,402 1,431
Net receivables 27,061 33,215
Prepaid expenses and other current assets 6,961 5,318
Total current assets 61,427 57,976
Property and equipment, net of accumulated depreciation of $72,719 in 2016 and $71,590 in 2015 29,605 30,460
FCC broadcasting licenses 323,957 319,356
Goodwill 32,806 32,806
Other intangible assets, net of accumulated amortization of $1,044 in 2016 and $1,020 in 2015 1,504 1,528
Assets held for exchange   2,794
Deferred tax assets 1,727 1,758
Other assets 496 531
Total assets 451,522 447,209
Current liabilities:    
Accounts payable and accrued expenses 17,223 16,552
Accrued interest 15,836 7,194
Unearned revenue 818 796
Other liabilities 30 30
Current portion of other long-term debt 4,845 306
10 3/4% Series B cumulative exchangeable redeemable preferred stock outstanding and dividends outstanding, $0.01 par value, liquidation value $1,000 per share. Authorized 280,000 shares: 90,549 shares issued and outstanding at March 31, 2016 and December 31, 2015 and $57,998 and $55,565 of dividends payable as of March 31, 2016 and December 31, 2015, respectively. 148,547 146,114
Total current liabilities 187,299 170,992
Other liabilities, less current portion 3,057 3,007
Derivative instruments 175 220
12.5% senior secured notes due 2017, net of unamortized discount of $2,138 in 2016 and $2,609 in 2015 and net of deferred financing costs of $3,688 in 2016 and $4,535 in 2015 269,174 267,856
Other long-term debt, less current portion   4,616
Deferred income taxes 101,253 99,066
Total liabilities $ 560,958 $ 545,757
Commitments and contingencies (note 6)
Stockholders’ deficit:    
Additional paid-in capital $ 525,727 $ 525,344
Accumulated other comprehensive loss, net (175) (220)
Accumulated deficit (634,992) (623,676)
Total stockholders’ deficit (109,436) (98,548)
Total liabilities and stockholders’ deficit 451,522 447,209
Series C convertible preferred stock    
Stockholders’ deficit:    
Series C convertible preferred stock, $0.01 par value and liquidation value. Authorized 600,000 shares; 380,000 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively $ 4 $ 4
v3.4.0.3
Unaudited Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Property and equipment, accumulated depreciation $ 72,719 $ 71,590
Other intangible assets, accumulated amortization $ 1,044 $ 1,020
Cumulative exchangeable redeemable preferred stock dividend rate 10.75% 10.75%
Series B Preferred Stock    
Cumulative exchangeable redeemable preferred stock dividend rate 10.75%  
Preferred stock par value per share $ 0.01 $ 0.01
Preferred stock, liquidation value per share $ 1,000 $ 1,000
Preferred stock, shares authorized 280,000 280,000
Preferred stock, shares issued 90,549 90,549
Preferred stock, shares outstanding 90,549 90,549
Preferred Stock, dividends outstanding $ 57,998 $ 55,565
Series C convertible preferred stock    
Convertible preferred stock, par value $ 0.01 $ 0.01
Convertible preferred stock, liquidation value per share $ 0.01 $ 0.01
Convertible preferred stock, shares authorized 600,000 600,000
Convertible preferred stock, shares issued 380,000 380,000
Convertible preferred stock, shares outstanding 380,000 380,000
Class A common stock    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 4,166,991 4,166,991
Common stock, shares outstanding 4,166,991 4,166,991
Class B common stock    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 50,000,000 50,000,000
Common stock, shares issued 2,340,353 2,340,353
Common stock, shares outstanding 2,340,353 2,340,353
12.5% Senior Secured Notes Due 2017    
Interest rate on Senior secured notes due 2017 12.50% 12.50%
Senior secured notes due 2017, unamortized discount $ 2,138 $ 2,609
Deferred financing costs $ 3,688 $ 4,535
v3.4.0.3
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Income Statement [Abstract]    
Net revenue $ 31,613 $ 32,142
Operating expenses:    
Engineering and programming 8,162 7,664
Selling, general and administrative 15,455 15,262
Corporate expenses 2,993 2,148
Depreciation and amortization 1,250 1,287
Total operating expenses 27,860 26,361
(Gain) loss on the disposal of assets (3) (6)
Operating income 3,756 5,787
Other (expense) income:    
Interest expense, net (10,036) (9,933)
Dividends on Series B preferred stock classified as interest expense (2,433) (2,433)
Loss before income taxes (8,713) (6,579)
Income tax expense 2,603 2,036
Net loss $ (11,316) $ (8,615)
Basic and Diluted net loss per common share $ (1.56) $ (1.19)
Weighted average common shares outstanding:    
Basic and Diluted 7,267 7,267
Net loss $ (11,316) $ (8,615)
Other comprehensive income, net of taxes- unrealized gain on derivative instrument 45 32
Total comprehensive loss $ (11,271) $ (8,583)
v3.4.0.3
Unaudited Condensed Consolidated Statement of Changes in Stockholders' Deficit - 3 months ended Mar. 31, 2016 - USD ($)
$ in Thousands
Total
Preferred Stock
Series C convertible preferred stock
Common Stock
Class A common stock
Common Stock
Class B common stock
Additional paid-in capital
Accumulated other comprehensive loss, net
Accumulated deficit
Beginning Balance at Dec. 31, 2015 $ (98,548) $ 4     $ 525,344 $ (220) $ (623,676)
Beginning Balance, Shares at Dec. 31, 2015   380,000 4,166,991 2,340,353      
Net loss (11,316)           (11,316)
Stock-based compensation 383       383    
Unrealized gain on derivative instrument 45         45  
Ending Balance at Mar. 31, 2016 $ (109,436) $ 4     $ 525,727 $ (175) $ (634,992)
Ending Balance, Shares at Mar. 31, 2016   380,000 4,166,991 2,340,353      
v3.4.0.3
Unaudited Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash flows from operating activities:    
Net loss $ (11,316) $ (8,615)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Dividends on Series B preferred stock classified as interest expense 2,433 2,433
(Gain) loss on the disposal of assets (3) (6)
Stock-based compensation 383  
Depreciation and amortization 1,250 1,287
Net barter (income) loss (76) (75)
Provision for trade doubtful accounts 3 (258)
Amortization of deferred financing costs 847 842
Amortization of original issued discount 471 412
Deferred income taxes 2,218 1,963
Unearned revenue-barter 139 11
Changes in operating assets and liabilities:    
Trade receivables 5,800 2,388
Prepaid expenses and other current assets (1,328) (1,029)
Other assets 35  
Accounts payable and accrued expenses 965 342
Accrued interest 8,642 8,596
Other liabilities 50 (15)
Net cash provided by operating activities 10,513 8,276
Cash flows from investing activities:    
Purchases of property and equipment (577) (285)
Proceeds from the sale of property and equipment   6
Cash payment related to station exchange (1,897)  
Net cash used in investing activities (2,474) (279)
Cash flows from financing activities:    
Payments of other debt (77) (85)
Net cash used in financing activities (77) (85)
Net increase in cash and cash equivalents 7,962 7,912
Cash and cash equivalents at beginning of period 19,443 23,991
Cash and cash equivalents at end of period 27,405 31,903
Supplemental cash flows information:    
Interest paid 79 86
Income tax paid   34
Noncash investing and financing activities:    
Nonmonetary asset exchange 2,794  
Unrealized gain on derivative instrument $ 45 $ 32
v3.4.0.3
Basis of Presentation
3 Months Ended
Mar. 31, 2016
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Basis of Presentation

1. Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Spanish Broadcasting System, Inc. and its subsidiaries (the Company, we, us, our or SBS). All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements as of March 31, 2016 and December 31, 2015 and for the three-month periods ended March 31, 2016 and 2015 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. They do not include all information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements as of, and for the fiscal year ended December 31, 2015, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. In the opinion of 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. Additionally, we evaluated subsequent events after the balance sheet date of March 31, 2016 through the financial statements issuance date. The results of operations for the three-months ended March 31, 2016 are not necessarily indicative of the results for the entire year ending December 31, 2016, or for any other future interim or annual periods.

Our consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As of March 31, 2016, we had a working capital deficit due to the reclassification of our Series B preferred stock as a current liability, although under Delaware law, our state of incorporation, the Series B preferred stock is deemed equity. Because the holders of the Series B preferred stock are not creditors, they do not have rights of, or remedies available to, creditors. Delaware law does not recognize a right of preferred stockholders to force redemptions or repurchases where the corporation does not have funds legally available. Currently, we do not have sufficient funds legally available to be able to repurchase the Series B preferred stock and its accumulated unpaid dividends and management does not expect to be required to make any such repurchases during the next twelve months.  Management does not believe that the Series B preferred stockholders, based on provisions in the 12.5% Senior Secured Notes Indenture and Delaware law, have legal remedies that would require such repurchases (see note 10).

As discussed in Note 9, the 12.5% Senior Secured Notes have a maturity date of April 15, 2017.  During the first quarter of 2016, we have engaged financial advisors to assist us in developing a comprehensive refinancing strategy that considers all of the Company’s obligations under its debt and capital structure.  Additionally, we are participating in the Broadcast Incentive Auction and evaluating the potential monetization of our spectrum and other assets to generate cash proceeds that would be used to repay our outstanding notes in accordance with the Indenture. The inability of the Company to repay or refinance its obligations so as to restructure its capital structure in a manner that ensures its short and long term liquidity could result in significant liquidity requirements on the Company. As there can be no assurance that we will be able to successfully implement our strategy, this condition raises substantial doubt about the Company’s ability to continue as a going-concern. The financial statements do not include adjustments, if any, that might arise from the outcome of this uncertainty.  

 

Recently Issued Accounting Pronouncements

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718).  This new standard’s objective is to simplify certain aspects of the accounting for share-based payment award transactions, including (i) income tax consequences, (ii) classification of awards as either equity or liabilities, and (iii) classification on the statement of cash flows. This update is effective on a prospective, retrospective, and modified retrospective basis for annual and interim periods beginning after December 15, 2016 with early adoption permitted.  We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).  This new standard requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases and disclose key information about the leasing agreements.  The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption is permitted as of the beginning of an interim or annual reporting period. We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

In January 2016, the FASB issued ASU No. 2016-01, Accounting for Financial Instruments – Recognition and Measurement. The new guidance changes how entities measure equity investments and present changes in the fair value of financial liabilities. The new guidance requires entities to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception.  A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value and as such these investments may be measured at cost.  The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes.  This new standard provides guidance to simplify the presentation of deferred taxes in a classified statement of financial position. The guidance requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. The new guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company elected to retroactively adopt the accounting standard in the beginning of the fourth quarter of 2015, and the adoption had no material impact on the consolidated financial position of the Company.

 

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, and not recorded as separate assets. This update is effective for reporting periods beginning after December 15, 2015, and is to be applied on a retrospective basis. The Company has adopted the accounting standard and presented its debt issuance costs as a deduction from the long-term debt in the balance sheet. Debt issuance costs totaled $3.7 million and $4.5 million at March 31, 2016 and December 31, 2015, respectively.

 

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements- Going Concern.  This new standard defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.  The standard is effective for annual reporting periods ending after December 15, 2016 and interim periods thereafter. The Company has elected to early adopt the accounting standard during the first quarter of 2016.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).  This new standard provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under U.S. GAAP.  In July 2015, the FASB postponed the effective date of this standard.  The standard is now effective for the first interim period within annual reporting periods beginning after December 15, 2017.  We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

v3.4.0.3
Stockholders' Deficit
3 Months Ended
Mar. 31, 2016
Equity [Abstract]  
Stockholders' Deficit

2. Stockholders’ Deficit

(a) Series C Convertible Preferred Stock

On December 23, 2004, in connection with the closing of the merger agreement, dated October 5, 2004, with CBS Radio (formerly known as Infinity Media Corporation, CBS Radio), a division of CBS Corporation, Infinity Broadcasting Corporation of San Francisco (“Infinity SF”) and SBS Bay Area, LLC, a wholly-owned subsidiary of SBS, pursuant to which SBS acquired the FCC license of Infinity SF (the “CBS Radio Merger”), we issued to CBS Radio an aggregate of 380,000 shares of Series C convertible preferred stock, $0.01 par value per share (the “Series C preferred stock”). Each share of Series C preferred stock is convertible at the option of the holder into two fully paid and non-assessable shares of the Class A common stock. The shares of Series C preferred stock issued at the closing of the CBS Radio Merger are convertible into 760,000 shares of Class A common stock, subject to certain adjustments. In connection with the CBS Radio Merger, we also entered into a registration rights agreement with CBS Radio, pursuant to which CBS Radio may instruct us to file up to three registration statements, on a best efforts basis, with the SEC, providing for the registration for resale of the Class A common stock issuable upon conversion of the Series C preferred stock.

We are required to pay holders of Series C preferred stock dividends on parity with our Class A common stock and Class B common stock, and each other class or series of our capital stock created after December 23, 2004.

(b) Class A and B Common Stock

The rights of the Class A common stockholders and Class B common stockholders are identical except with respect to their voting rights and conversion provisions. The Class A common stock is entitled to one vote per share and the Class B common stock is entitled to ten votes per share. The Class B common stock is convertible to Class A common stock on a share-for-share basis at the option of the holder at any time, or automatically upon a transfer of the Class B common stock to a person or entity which is not a permitted transferee (as described in our Certificate of Incorporation). Holders of each class of common stock are entitled to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders. Neither the holders of the Class A common stock nor the holders of the Class B common stock have preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to such shares. Each class of common stock is subordinate to our 10 3/4% Series B cumulative exchangeable redeemable preferred stock, par value $0.01 per share (the “Series B preferred stock”). The Series B preferred stock has a liquidation preference of $1,000 per share and is on parity with the Series C preferred stock with respect to dividend rights and rights upon liquidation, winding up and dissolution of SBS.

 (c) 2006 Omnibus Equity Compensation Plan

In July 2006, we adopted an omnibus equity compensation plan (the “Omnibus Plan”) in which grants of Class A common stock can be made to participants in any of the following forms: (i) incentive stock options, (ii) nonqualified stock options, (iii) stock appreciation rights, (iv) stock units, (v) stock awards, (vi) dividend equivalents, and (vii) other stock-based awards. The Omnibus Plan authorizes up to 350,000 shares of our Class A common stock for issuance, subject to adjustment in certain circumstances. The Omnibus Plan provides that the maximum aggregate number of shares of Class A common stock units, stock awards and other stock-based awards that may be granted, other than dividend equivalents, to any individual during any calendar year is 100,000 shares, subject to adjustments.

(d) Stock Options and Nonvested Share Activity

Stock options have only been granted to employees or directors. Our stock options have various vesting schedules and are subject to the employees’ continuing service. A summary of the status of our stock options, as of March 31, 2016 and December 31, 2015, and changes during the quarter ended March 31, 2016, is presented below (in thousands, except per share data and contractual life):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Average

 

 

Aggregate

 

 

Remaining

 

 

 

 

 

 

Exercise

 

 

Intrinsic

 

 

Contractual

 

 

Shares

 

 

Price

 

 

Value

 

 

Life (Years)

 

Outstanding at December 31, 2015

 

128

 

 

$

11.25

 

 

 

 

 

 

 

 

 

Granted

 

315

 

 

 

3.07

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2016

 

443

 

 

$

5.42

 

 

$

126,100

 

 

 

8.8

 

Exercisable at March 31, 2016

 

223

 

 

$

7.38

 

 

$

67,900

 

 

 

7.1

 

 

The following table summarizes information about our stock options outstanding and exercisable at March 31, 2016 (in thousands, except per share data and contractual life):

 

 

Outstanding

 

 

 

 

 

 

Exercisable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

 

 

 

 

Average

 

 

Vested

 

 

Unvested

 

 

Exercise

 

 

Contractual

 

 

Number

 

 

Exercise

 

Range of Exercise Prices

Options

 

 

Options

 

 

Price

 

 

Life (Years)

 

 

Exercisable

 

 

Price

 

$1.03 - 49.99

 

223

 

 

 

220

 

 

$

5.42

 

 

 

8.8

 

 

 

223

 

 

$

7.38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

223

 

 

 

220

 

 

 

5.42

 

 

 

8.8

 

 

 

223

 

 

 

7.38

 

 

As of March 31, 2016, there was $0.6 million of total unrecognized compensation costs related to nonvested stock-based compensation arrangements granted under all of our plans.  The cost is expected to be recognized over a weighted average period of approximately 1.9 years.

 

(e) Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss is comprised of accumulated gains and losses on a derivative instrument (interest rate swap) that qualifies for cash flow hedge treatment. Our total comprehensive loss consists of our net loss and a gain on our interest rate swap for the respective periods. The gain on the interest rate swap is shown net of taxes; however, there is no tax effect as a result of a full deferred tax asset valuation allowance related to the interest rate swap.

For the three-months ended March 31, 2016 and 2015, we reclassified from other comprehensive loss to interest expense $0.1 million.  During the three-months ended March 31, 2016 and 2015, we recognized in other comprehensive income, net of taxes- an unrealized gain on derivative instrument of approximately $45 thousand and $32 thousand, respectively.  

 

v3.4.0.3
Basic and Diluted Net Loss Per Common Share
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Basic and Diluted Net Loss Per Common Share

3. Basic and Diluted Net Loss Per Common Share

 

Basic net loss per common share was computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock and convertible preferred stock outstanding for each period presented, using the “if converted” method. Diluted net loss per common share is computed by giving effect to common stock equivalents as if they were outstanding for the entire period.

The following is a reconciliation of the shares used in the computation of basic and diluted net loss per share for the three-month periods ended March 31, 2016 and 2015 (in thousands):

 

 

Three-Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Basic weighted average shares outstanding

 

7,267

 

 

 

7,267

 

Effect of dilutive equity instruments

 

 

 

 

 

Dilutive weighted average shares outstanding

 

7,267

 

 

 

7,267

 

Options to purchase shares of common stock and other stock-based

    awards outstanding which are not included in the calculation of

    diluted net income per share because their impact is anti-dilutive

 

433

 

 

 

104

 

 

v3.4.0.3
Operating Segments
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Operating Segments

 

4. Operating Segments

We have two reportable segments: radio and television.

The following summary table presents separate financial data for each of our operating segments (in thousands):  

 

 

Three-Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net revenue:

 

 

 

 

 

 

 

Radio

$

28,525

 

 

 

29,227

 

Television

 

3,088

 

 

 

2,915

 

Consolidated

$

31,613

 

 

 

32,142

 

Engineering and programming expenses:

 

 

 

 

 

 

 

Radio

$

6,032

 

 

 

5,399

 

Television

 

2,130

 

 

 

2,265

 

Consolidated

$

8,162

 

 

 

7,664

 

Selling, general and administrative expenses:

 

 

 

 

 

 

 

Radio

$

13,476

 

 

 

13,648

 

Television

 

1,979

 

 

 

1,614

 

Consolidated

$

15,455

 

 

 

15,262

 

 

Corporate expenses:

$

2,993

 

 

 

2,148

 

Depreciation and amortization:

 

 

 

 

 

 

 

Radio

$

488

 

 

 

507

 

Television

 

663

 

 

 

684

 

Corporate

 

99

 

 

 

96

 

Consolidated

$

1,250

 

 

 

1,287

 

(Gain) loss on the disposal of assets, net:

 

 

 

 

 

 

 

Radio

$

(3

)

 

 

(6

)

Television

 

 

 

 

 

Corporate

 

 

 

 

 

Consolidated

$

(3

)

 

 

(6

)

Operating income (loss):

 

 

 

 

 

 

 

Radio

$

8,532

 

 

 

9,679

 

Television

 

(1,684

)

 

 

(1,648

)

Corporate

 

(3,092

)

 

 

(2,244

)

Consolidated

$

3,756

 

 

 

5,787

 

Capital expenditures:

 

 

 

 

 

 

 

Radio

$

382

 

 

 

173

 

Television

 

94

 

 

 

84

 

Corporate

 

101

 

 

 

28

 

Consolidated

$

577

 

 

 

285

 

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

Total Assets:

 

 

 

 

 

 

 

Radio

$

392,341

 

 

$

392,926

 

Television

 

55,433

 

 

 

51,388

 

Corporate

 

3,748

 

 

 

2,895

 

Consolidated

$

451,522

 

 

$

447,209

 

 

 

v3.4.0.3
Income Taxes
3 Months Ended
Mar. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

5. Income Taxes

We are calculating our effective income tax rate using a year-to-date income tax calculation, due to the full valuation allowance on the SBS companies, other than the U.S. Licensing companies and the U.S. AMT tax credits. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or the entire deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependant upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. Due to the continued operating losses reported through Q1 2016, management has not changed its position on valuation allowance as of March 31, 2016.

Our income tax expense differs from the statutory federal tax rate of 35% and related statutory state tax rates primarily due to the tax amortization on some of our indefinite-lived intangible assets that do not have any valuation allowance and the currently generated losses that cannot be benefited due to the full valuation allowance.

We file federal, state and local income tax returns in the United States and Puerto Rico. The tax years that remain subject to assessment of additional liabilities by the United States federal tax authorities are 2012 through 2015.   The tax years that remain subject to assessment of additional liabilities by state, local, and Puerto Rico tax authorities are 2010 through 2015.

From time to time, we continue to be subject to state income tax audits, including an audit by a State tax authority (the “State”) for the income tax years from December 31, 2010 through 2013.  The audit is in the preliminary stages; however, based on the company’s history of audits with the state, we do not anticipate any material tax impact, and thus have not set up a reserve.

Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our consolidated financial statements as of March 31, 2016 and December 31, 2015.

v3.4.0.3
Commitments and Contingencies
3 Months Ended
Mar. 31, 2016
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

6. Commitments and Contingencies

We are subject to certain legal proceedings and claims that have arisen in the ordinary course of business and have not been fully adjudicated. In our opinion, we do not have a potential liability related to any current legal proceedings and claims that would individually or in the aggregate have a material adverse effect on our financial condition or operating results. However, the results of legal proceedings cannot be predicted with certainty. Should we fail to prevail in any of these legal matters or should all of these legal matters be resolved against us in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.

Litigation- Brevan Howard and Others Complaint

On December 27, 2013, River Birch Master Fund, L.P., P River Birch Ltd. (together, “River Birch”) and Visium Catalyst Credit Master Fund, Ltd. (collectively with River Birch, “Initial Plaintiffs”) brought a claim against us in the Delaware Court of Chancery (the “Court”) seeking a declaratory judgment that a “Voting Rights Triggering Event” had occurred (as of April 15, 2010) under our certificate of designations for the Series B preferred stock (the “Certificate of Designations”) as a result of our non-payment of dividends. The claim alleges that as a result of such Voting Rights Triggering Event, the incurrence of indebtedness for the purpose of purchasing our Houston television station and the issuance of our 12.5% Senior Secured Notes due 2017 (the “Notes”) under the Indenture governing the Notes, among other things, were prohibited incurrences of indebtedness under the Certificate of Designations.

The Initial Plaintiffs further claim that we violated the Certificate of Designations by failing to take any actions or explore any options that would have given us legally available funds with which to repurchase the outstanding Series B preferred stock on October 15, 2013. In connection with their claims, Initial Plaintiffs also seek an injunction requiring us to repurchase the Series B preferred stock and an award of contract damages.

On January 17, 2014, we filed a motion to dismiss the complaint. On March 3, 2014, the complaint was amended to remove River Birch and add Brevan Howard Credit Catalyst Master Fund Ltd., Brevan Howard Master Fund, ALJ Capital I, LP, ALJ Capital II, LP, LJR Capital, LP, and Cedarview Opportunities Master Fund, LP (collectively with Visium Catalyst Credit Master Fund, Ltd., “Plaintiffs”) as additional plaintiffs. We filed an Opening Brief in support of our Motion to Dismiss on March 31, 2014. Plaintiffs filed an answering brief to our Motion to Dismiss on April 30, 2014.  Our reply brief was filed on May 16, 2014, and a hearing was held on our Motion to Dismiss on June 10, 2014. Following the hearing, the parties agreed to stay all proceedings relating to Count I (which seeks a declaration that a Voting Rights Triggering Event was in effect at all times after April 15, 2010), Count II (which alleges that SBS breached the Certificate of Designations by incurring indebtedness in 2011 and 2012) and Count IV (which alleges that SBS breached the implied covenant of good faith and fair dealing by deferring certain dividends) of the amended complaint.  The stay has since been lifted.  On June 27, 2014, the Court denied our motion to dismiss Count III (which alleges that SBS breached the Certificate of Designations by failing to redeem all of the Series B Preferred Stock on October 15, 2013) of the amended complaint.  A hearing on our motion to dismiss Counts I, II and IV of the amended complaint was held on February 10, 2015. On May 19, 2015, the Court of Chancery granted our motion to dismiss Counts I, II and IV of the amended complaint. An order dismissing those Counts with prejudice was entered on May 22, 2015.

At present, Count III of the amended complaint remains outstanding. Court of Chancery Rule 41 (e) permits any party (or the Court sua sponte) to move for a dismissal for failure to prosecute in any case wherein no action has been taken for a period of one year. Given that the last action in this case was taken on May 22, 2015, such a motion may be filed on or after May 22, 2016. We note, however, that such a motion could be denied if “good reason for the inaction is given”, as provided by Court of Chancery Rule 41 (e). In addition, on April 21, 2016, the Court requested a status update from the parties regarding proceedings on Count III of the amended complaint.

We deny the allegations contained in the amended complaint and, to the contrary, assert that we have been and continue to be in full and complete compliance with all of our obligations under the Certificate of Designations, as fully disclosed in our public filings dating back to 2009. Accordingly, we believe that the complaint’s allegations are frivolous and wholly without merit and intend to contest such allegations vigorously.

 

 

v3.4.0.3
Fair Value Measurement Disclosures
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurement Disclosures

7. Fair Value Measurement Disclosures

Fair Value of Financial Instruments

Cash and cash equivalents, receivables, as well as accounts payable and accrued expenses, and other current liabilities, as reflected in the consolidated financial statements, approximate fair value because of the short-term maturity of these instruments. The estimated fair value of our other long-term debt instruments, approximate their carrying amounts as the interest rates approximate our current borrowing rate for similar debt instruments of comparable maturity, or have variable interest rates.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The fair value of the senior secured notes are estimated using market quotes from a major financial institution taking into consideration the most recent activity and are considered Level 2 measurements within the fair value hierarchy.  The fair value of the Series B cumulative exchangeable redeemable preferred stock and the promissory notes payable were based upon either: (a)  unobservable market quotes from a major financial institution taking into consideration the most recent activity or (b) discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

The estimated fair values of our financial instruments are as follows (in millions):

 

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

Fair Value

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

Description

Hierarchy

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

12.5% senior secured notes due 2017

Level 2

 

$

275.0

 

 

 

276.4

 

 

$

275.0

 

 

 

281.2

 

10 3/4% Series B cumulative exchangeable

     redeemable preferred stock

Level 3

 

 

148.5

 

 

 

57.3

 

 

 

146.1

 

 

 

60.1

 

Promissory note payable, included in other long-

     term debt

Level 3

 

 

4.8

 

 

 

4.3

 

 

 

4.9

 

 

 

4.2

 

 

Fair Value of Derivative Instruments

The following table represents required quantitative disclosures regarding fair values of our derivative instruments (in thousands).

 

 

 

 

 

 

Fair value measurements at March 31, 2016

 

 

 

 

 

 

Liabilities

 

Description

March 31, 2016

carrying value and

balance sheet

location of derivative

instruments

 

 

Quoted prices in

active markets

for identical

instruments

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant

unobservable

inputs

(Level 3)

 

Derivative designated as a cash flow

hedging instrument:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap liability

$

175

 

 

 

 

 

 

175

 

 

 

 

 

 

 

 

 

 

 

Fair value measurements at December 31, 2015

 

 

 

 

 

 

Liabilities

 

Description

December 31, 2015

carrying value  and

balance sheet

location of derivative

instruments

 

 

Quoted prices in

active markets

for identical

instruments

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant

unobservable

inputs

(Level 3)

 

Derivative designated as a cash flow

hedging instrument:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap liability

$

220

 

 

 

 

 

 

220

 

 

 

 

 

 

The interest rate swap fair value is derived from the present value of the difference in cash flows based on the forward-looking LIBOR yield curve rates, as compared to our fixed rate applied to the hedged amount through the term of the agreement, less adjustments for credit risk. There were no transfers between Levels during the three-month periods ended March 31, 2016 and 2015, respectively.

 

 

 

Three-Months Ended

 

 

 

March 31,

 

Interest rate swaps

 

2016

 

 

2015

 

Gain recognized in other comprehensive loss

     (effective portion)

 

 

45

 

 

 

32

 

 

 

v3.4.0.3
Derivative Instrument and Hedging Activity
3 Months Ended
Mar. 31, 2016
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Instrument and Hedging Activity

8. Derivative Instrument and Hedging Activity

On January 4, 2007, in connection with a promissory note issued for the acquisition of a building, we entered into a ten-year interest rate swap agreement for the original notional principal amount of $7.7 million whereby we agreed to pay a fixed interest rate of 6.31%, as compared to interest at a floating rate equal to one-month LIBOR plus 125 basis points. The interest rate swap amortization schedule is identical to the promissory note amortization schedule, which has an effective date of January 4, 2007, monthly notional reductions and an expiration date of January 4, 2017.

Our interest rate swap is governed by a master netting arrangement, which is required to be disclosed as a balance sheet offsetting item as follows (in thousands):

 

 

As of March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross amounts not offset in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the  balance sheet

 

 

 

 

 

 

Gross amounts of

 

 

Gross amounts

 

 

Net amounts of

 

 

 

 

 

 

Cash

 

 

 

 

 

 

recognized

 

 

offset in the

 

 

liabilities presented

 

 

Financial

 

 

collateral

 

 

 

 

 

Description

liabilities

 

 

balance sheet

 

 

in the balance sheet

 

 

Instruments

 

 

received

 

 

Net amount

 

Interest rate swap

$

175

 

 

 

 

 

 

175

 

 

 

175

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross amounts not offset in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the  balance sheet

 

 

 

 

 

 

Gross amounts of

 

 

Gross amounts

 

 

Net amounts of

 

 

 

 

 

 

Cash

 

 

 

 

 

 

recognized

 

 

offset in the

 

 

liabilities presented

 

 

Financial

 

 

collateral

 

 

 

 

 

Description

liabilities

 

 

balance sheet

 

 

in the balance sheet

 

 

Instruments

 

 

received

 

 

Net amount

 

Interest rate swap

$

220

 

 

 

 

 

 

220

 

 

 

220

 

 

 

 

 

 

 

 

 

 

v3.4.0.3
Twelve Point Five Percent Senior Secured Notes due Twenty Seventeen
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
12.5% Senior Secured Notes due 2017

9. 12.5% Senior Secured Notes due 2017

On February 7, 2012 we closed our offering of $275 million in aggregate principal amount of 12.5% senior secured notes due 2017 (the “Notes”), due April 15, 2017, at an issue price of 97% of the principal amount. The Notes were offered solely by means of a private placement either to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act, or to certain persons outside the United States pursuant to Regulation S under the Securities Act. We used the net proceeds from the offering, together with some cash on hand, to repay and terminate the senior credit facility term loan, and to pay the transaction costs related to the offering. The Notes mature in April of 2017. Cash from operating activities will not be sufficient to repay the Notes. During the first quarter of 2016, we have engaged financial advisors to assist us in developing a comprehensive refinancing strategy that considers all of the Company’s obligations under its debt and capital structure.  Additionally, we are participating in the Broadcast Incentive Auction and evaluating the potential monetization of our spectrum and other assets to generate cash proceeds that would be used to repay our outstanding notes in accordance with the Indenture. The inability of the Company to repay or refinance its obligations so as to restructure its capital structure in a manner that ensures its short and long term liquidity could result in significant liquidity requirements on the Company. As there can be no assurance that we will be able to successfully implement our strategy, this condition raises substantial doubt about the Company’s ability to continue as a going-concern.          

Interest

The Notes accrue interest at a rate of 12.5% per year. Interest on the Notes is paid semi-annually on each April 15 and October 15 (the “Interest Payment Date”), commencing on April 15, 2012. After April 15, 2013, interest will accrue at a rate of 12.5% per annum on (i) the original amount of the Notes plus (ii) any Additional Interest (as defined below) payable but unpaid in any prior interest period, payable in cash on each Interest Payment Date. Further, beginning on the Interest Payment Date occurring on April 15, 2013, additional interest will be payable at a rate of 2.00% per annum (the “Additional Interest”) on (i) the original principal amount of the Notes plus (ii) any amount of Additional Interest payable but unpaid in any prior interest period, to be paid in cash, at our election, (x) on the applicable Interest Payment Date or (y) on the earliest of the maturity date of the Notes, any acceleration of the Notes and any redemption of the Notes; provided that no Additional Interest will be payable on any Interest Payment Date if, for the applicable fiscal period, either (a) we record positive consolidated station operating income for our television segment or (b) our secured leverage ratio on a consolidated basis is less than 4.75 to 1.00.

The measurement periods that determine if Additional Interest is applicable for the respective Interest Payment Dates are as follows:

(1)

Six-months ended December 31, 2012 or as of December 31, 2012 for the Interest Payment Date of April 15, 2013

(2)

Last twelve months ended June 30, 2013 or as of June 30, 2013 for the Interest Payment Date of October 15, 2013

(3)

Last twelve months ended December 31, 2013 or as of December 31, 2013 for the Interest Payment Date of April 15, 2014

(4)

Last twelve months ended June 30, 2014 or as of June 30, 2014 for the Interest Payment Date of October 15, 2014

(5)

Last twelve months ended December 31, 2014 or as of December 31, 2014 for the Interest Payment Date of April 15, 2015

(6)

Last twelve months ended June 30, 2015 or as of June 30, 2015 for the Interest Payment Date of October 15, 2015

(7)

Last twelve months ended December 31, 2015 or as of December 31, 2015 for the Interest Payment Date of April 15, 2016

(8)

Last twelve months ended June 30, 2016 or as of June 30, 2016 for the Interest Payment Date of October 15, 2016

(9)

Last twelve months ended December 31, 2016 or as of December 31, 2016 for the Interest Payment Date of April 15, 2017

Additional Interest during any given interest period, shall not be deemed to “accrue”.  Rather, Additional Interest becomes payable on a given Interest Payment Date (April 15 or October 15) unless the condition in either clause (a) or (b) above has been met as of that Interest Payment Date or unless the Television Segment has been divested or the Notes redeemed prior to that Interest Payment Date.

Although for the Additional Interest applicable periods (1), (2), (3), (4), (5), (6) and (7) our secured leverage ratio was greater than 4.75 to 1.00, we recorded positive consolidated station operating income for our television segment for those respective periods (as defined in the Indenture). Therefore, no Additional Interest was incurred and/or payable for those respective Interest Payment Dates.

     Collateral and Ranking

The Notes and the guarantees are secured on a first-priority basis by a security interest in certain of the Company’s and the guarantors’ existing and future tangible and intangible assets (other than Excluded Assets (as defined in the Indenture)). The Notes and the guarantees are structurally subordinated to the obligations of our non-guarantor subsidiaries. The Notes and guarantees are senior to all of the Company’s and the guarantors’ existing and future unsecured indebtedness to the extent of the value of the collateral.

The Indenture permits us, under specified circumstances, to incur additional debt; however, the occurrence and continuance of the Voting Rights Triggering Event (as defined in note 10) currently prevents us from incurring any such additional debt.

The Notes are senior secured obligations of the Company that rank equally with all of our existing and future senior indebtedness and senior to all of our existing and future subordinated indebtedness. Subject to certain exceptions, the Notes are fully and unconditionally guaranteed by each of our existing and future wholly owned domestic subsidiaries (which excludes (i) our existing and future subsidiaries formed in Puerto Rico (the “Puerto Rican Subsidiaries”), (ii) our future subsidiaries formed under the laws of foreign jurisdictions and (iii) our existing and future subsidiaries, whether domestic or foreign, of the Puerto Rican Subsidiaries or foreign subsidiaries) and our other domestic subsidiaries that guarantee certain of our other debt. The Notes and guarantees are structurally subordinated to all existing and future liabilities (including trade payables) of our nonguarantor subsidiaries.

Covenants and Other Matters

The Indenture governing the Notes contains covenants that, among other things, limit our ability and the ability of the guarantors to:

 

·

incur or guarantee additional indebtedness;

 

·

pay dividends and make other restricted payments;

 

·

incur restrictions on the payment of dividends or other distributions from our restricted subsidiaries;

 

·

engage in sale-lease back transactions;

 

·

enter into new lines of business;

 

·

make certain payments to holders of Notes that consent to amendments to the Indenture governing the Notes without paying such amounts to all holders of Notes;

 

·

create or incur certain liens;

 

·

make certain investments and acquisitions;

 

·

transfer or sell assets;

 

·

engage in transactions with affiliates; and

 

·

merge or consolidate with other companies or transfer all or substantially all of our assets.

The Indenture contains certain customary representations and warranties, affirmative covenants and events of default which could, subject to certain conditions, cause the Notes to become immediately due and payable, including, but not limited to, the failure to make premium, principal or interest payments; failure by us to accept and pay for Notes tendered when and as required by the change of control and asset sale provisions of the Indenture; failure to comply with certain covenants in the Indenture; failure to comply with certain agreements in the Indenture for a period of 60 days following notice by the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding; failure to pay any debt within any applicable grace period after the final maturity or acceleration of such debt by the holders thereof because of a default, if the total amount of such debt unpaid or accelerated exceeds $15 million; failure to pay final judgments entered by a court or courts of competent jurisdiction aggregating $15 million or more (excluding amounts covered by insurance), which judgments are not paid, discharged or stayed, for a period of 60 days; and certain events of bankruptcy or insolvency.

As of March 31, 2016, we were in compliance with all of our covenants under our Indenture.

v3.4.0.3
Ten Point Seven Five Percent Series B Cumulative Exchangeable Redeemable Preferred Stock
3 Months Ended
Mar. 31, 2016
Equity [Abstract]  
10 3/4% Series B Cumulative Exchangeable Redeemable Preferred Stock

10. 10 3/4% Series B Cumulative Exchangeable Redeemable Preferred Stock

Voting Rights Triggering Event

On October 30, 2003, we partially financed the purchase of a radio station with proceeds from the sale, through a private placement, of 75,000 shares of our 10 3/4% Series A cumulative exchangeable redeemable preferred stock, par value $0.01 per share, with a liquidation preference of $1,000 per share (the “Series A preferred stock”), without a specified maturity date. The gross proceeds from the issuance of the Series A preferred stock amounted to $75.0 million.

On February 18, 2004, we commenced an offer to exchange registered shares of our 10 3/4% Series B cumulative exchangeable redeemable preferred stock, par value $0.01 per share and liquidation preference of $1,000 per share for any and all shares of our outstanding unregistered Series A preferred stock. On April 5, 2004, we completed the exchange offer and exchanged 76,702 shares of our Series B preferred stock for all of our then outstanding shares of Series A preferred stock.

We had the option to redeem all or some of the registered Series B preferred stock for cash on or after October 15, 2009 at 103.583%, October 15, 2010 at 101.792% and October 15, 2011 and thereafter at 100%, plus accumulated and unpaid dividends to the redemption date. On October 15, 2013, each holder of Series B preferred stock had the right to request that we repurchase (subject to the legal availability of funds under Delaware General Corporate Law) all or a portion of such holder’s shares of Series B preferred stock at a purchase price equal to 100% of the liquidation preference of such shares, plus all accumulated and unpaid dividends (as described in more detail below) on those shares to the date of repurchase. Under the terms of our Series B preferred stock, we are required to pay dividends at a rate of 10 3/4% per year of the $1,000 liquidation preference per share of Series B preferred stock. From October 30, 2003 to October 15, 2008, we had the option to pay these dividends in either cash or additional shares of Series B preferred stock. During October 15, 2003 to October 30, 2008, we increased the carrying amount of the Series B preferred stock by approximately $17.3 million for stock dividends, which were accreted using the effective interest method. Since October 15, 2008, we have been required to pay the dividends on our Series B preferred stock in cash.

On October 15, 2013, holders of shares of our Series B preferred stock requested that we repurchase 92,223 shares of Series B preferred stock for an aggregate repurchase price of $126.9 million, which included accumulated and unpaid dividends on these shares as of October 15, 2013. We did not have sufficient funds legally available to repurchase all of the Series B preferred stock for which we received requests and instead used the limited funds legally available to us to repurchase 1,800 shares for a purchase price of approximately $2.5 million, which included accrued and unpaid dividends. Consequently, a “voting rights triggering event” occurred (the “Voting Rights Triggering Event”).

Following the occurrence, and during the continuation, of the Voting Rights Triggering Event, holders of the outstanding Series B preferred stock are entitled to elect two directors to newly created positions on our Board of Directors, and we have been subject to more restrictive operating covenants, including a prohibition on our ability to incur any additional indebtedness and restrictions on our ability to pay dividends or make distributions, redeem or repurchase securities, make investments, enter into transactions with affiliates or merge or consolidate with (or sell substantially all of our assets to) any other person.  At our Annual Meeting of Stockholders in 2014, the holders of the Series B preferred stock nominated and elected Alan Miller and Gary Stone to serve as the Series B preferred stock directors who have remained on the board since then.

The Voting Rights Triggering Event shall continue until (i) all dividends in arrears shall have been paid in full and (ii) all other failures, breaches or defaults giving rise to such Voting Rights Triggering Event are remedied or waived by the holders of at least a majority of the shares of the then outstanding Series B preferred stock.  We do not currently have sufficient funds legally available to be able to satisfy the conditions for terminating the Voting Rights Triggering Event. During the continuation of the Voting Rights Triggering Event, the Indenture governing our Notes prohibits us from paying dividends or from repurchasing the Series B preferred stock.

Quarterly Dividends

Under the terms of our Series B preferred stock, the holders of the outstanding shares of the Series B preferred stock are entitled to receive, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor, dividends on the Series B preferred stock at a rate of 10 ¾% per year, of the $1,000 liquidation preference per share. All dividends are cumulative, whether or not earned or declared, and are payable quarterly in arrears on specified dividend payment dates. While the Voting Rights Triggering Event continues, we cannot pay dividends on the Series B preferred stock without causing a breach of covenants under the Indenture governing our Notes.  

As of March 31, 2016, the aggregate cumulative unpaid dividends on the outstanding shares of the Series B preferred stock was approximately $58.0 million, which is accrued on our condensed consolidated balance sheet as 10 ¾% Series B cumulative exchangeable redeemable preferred stock.

Redemption Date and Subsequent Accounting Treatment of the Preferred Stock

Prior to October 15, 2013, the Series B preferred stock was considered “conditionally redeemable” because the redemption of the shares of Series B preferred stock was contingent on the Series B preferred stockholders requesting that their Series B preferred stock be repurchased on October 15, 2013. On October 15, 2013, almost all of the holders of the Series B preferred stock requested that we repurchase their shares of Series B preferred stock. As a result of their request, we assessed and determined that, under applicable accounting principles, the contingency had occurred, and the Series B preferred stock now met the definition of a “mandatorily redeemable” instrument under Accounting Standards Codification 480 “Distinguishing Liabilities from Equity” (“ASC 480”).  Although under Delaware law the Series B preferred stock is deemed equity, under ASC 480, if an instrument changes from being “conditionally redeemable” to “mandatorily redeemable,” then the financial instrument should be reclassified as a liability.  

In addition, the Series B preferred stock will be measured at each reporting date as the amount of cash that would be paid pursuant to the contract, had settlement occurred on the reporting date, recognizing the resulting change in that amount from the previous reporting date as interest expense. Therefore, the accruing quarterly dividends of the Series B preferred stock will be recorded as interest expense (i.e. “Dividends on Series B preferred stock classified as interest expense”).

v3.4.0.3
Asset Exchange
3 Months Ended
Mar. 31, 2016
Asset Exchange [Abstract]  
Asset Exchange

11. Asset Exchange

On January 4, 2016, the Company completed an asset exchange with International Broadcasting Corp. under which the Company agreed to exchange certain assets used or useful in the operations of WIOA-FM, WIOC-FM, and WZET-FM in Puerto Rico for certain assets used or useful in the operations of WTCV (DT), WVEO (DT), and WVOZ (TV) in Puerto Rico previously owned and operated by International Broadcasting Corp.

The asset exchange is being accounted for as a non-monetary exchange in accordance with ASC-845 Nonmonetary Transactions, as the Company did not acquire any significant processes to meet the definition of a business in accordance with ASC 805 Business Combinations. As the transaction involved significant monetary consideration, the Company recorded the exchange at fair value. The fair value of the assets received in the asset exchange was $2.9 million, as determined by an independent third party valuation. In addition, the Company paid $1.9 million in cash which we attribute to the value of the acquired television spectrum. Subsequently, we have filed an application to participate in the FCC’s Broadcast Incentive Auction with our Puerto Rico television stations to potentially generate cash proceeds that are expected to be created by the auction process.

v3.4.0.3
Basis of Presentation (Policies)
3 Months Ended
Mar. 31, 2016
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718).  This new standard’s objective is to simplify certain aspects of the accounting for share-based payment award transactions, including (i) income tax consequences, (ii) classification of awards as either equity or liabilities, and (iii) classification on the statement of cash flows. This update is effective on a prospective, retrospective, and modified retrospective basis for annual and interim periods beginning after December 15, 2016 with early adoption permitted.  We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).  This new standard requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases and disclose key information about the leasing agreements.  The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption is permitted as of the beginning of an interim or annual reporting period. We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

In January 2016, the FASB issued ASU No. 2016-01, Accounting for Financial Instruments – Recognition and Measurement. The new guidance changes how entities measure equity investments and present changes in the fair value of financial liabilities. The new guidance requires entities to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception.  A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value and as such these investments may be measured at cost.  The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes.  This new standard provides guidance to simplify the presentation of deferred taxes in a classified statement of financial position. The guidance requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. The new guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company elected to retroactively adopt the accounting standard in the beginning of the fourth quarter of 2015, and the adoption had no material impact on the consolidated financial position of the Company.

 

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, and not recorded as separate assets. This update is effective for reporting periods beginning after December 15, 2015, and is to be applied on a retrospective basis. The Company has adopted the accounting standard and presented its debt issuance costs as a deduction from the long-term debt in the balance sheet. Debt issuance costs totaled $3.7 million and $4.5 million at March 31, 2016 and December 31, 2015, respectively.

 

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements- Going Concern.  This new standard defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.  The standard is effective for annual reporting periods ending after December 15, 2016 and interim periods thereafter. The Company has elected to early adopt the accounting standard during the first quarter of 2016.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).  This new standard provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under U.S. GAAP.  In July 2015, the FASB postponed the effective date of this standard.  The standard is now effective for the first interim period within annual reporting periods beginning after December 15, 2017.  We are currently evaluating the impact, if any, that this new standard will have on our financial position and results of operations.

v3.4.0.3
Stockholders' Deficit (Tables)
3 Months Ended
Mar. 31, 2016
Equity [Abstract]  
Summary of Stock Options

Stock options have only been granted to employees or directors. Our stock options have various vesting schedules and are subject to the employees’ continuing service. A summary of the status of our stock options, as of March 31, 2016 and December 31, 2015, and changes during the quarter ended March 31, 2016, is presented below (in thousands, except per share data and contractual life):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Average

 

 

Aggregate

 

 

Remaining

 

 

 

 

 

 

Exercise

 

 

Intrinsic

 

 

Contractual

 

 

Shares

 

 

Price

 

 

Value

 

 

Life (Years)

 

Outstanding at December 31, 2015

 

128

 

 

$

11.25

 

 

 

 

 

 

 

 

 

Granted

 

315

 

 

 

3.07

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2016

 

443

 

 

$

5.42

 

 

$

126,100

 

 

 

8.8

 

Exercisable at March 31, 2016

 

223

 

 

$

7.38

 

 

$

67,900

 

 

 

7.1

 

 

Summary of Stock Options Outstanding and Exercisable

The following table summarizes information about our stock options outstanding and exercisable at March 31, 2016 (in thousands, except per share data and contractual life):

 

 

Outstanding

 

 

 

 

 

 

Exercisable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

 

 

 

 

Average

 

 

Vested

 

 

Unvested

 

 

Exercise

 

 

Contractual

 

 

Number

 

 

Exercise

 

Range of Exercise Prices

Options

 

 

Options

 

 

Price

 

 

Life (Years)

 

 

Exercisable

 

 

Price

 

$1.03 - 49.99

 

223

 

 

 

220

 

 

$

5.42

 

 

 

8.8

 

 

 

223

 

 

$

7.38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

223

 

 

 

220

 

 

 

5.42

 

 

 

8.8

 

 

 

223

 

 

 

7.38

 

 

v3.4.0.3
Basic and Diluted Net Loss Per Common Share (Tables)
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Reconciliation of the Shares Used in the Computation of Basic and Diluted Net Loss Per Share

The following is a reconciliation of the shares used in the computation of basic and diluted net loss per share for the three-month periods ended March 31, 2016 and 2015 (in thousands):

 

 

Three-Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Basic weighted average shares outstanding

 

7,267

 

 

 

7,267

 

Effect of dilutive equity instruments

 

 

 

 

 

Dilutive weighted average shares outstanding

 

7,267

 

 

 

7,267

 

Options to purchase shares of common stock and other stock-based

    awards outstanding which are not included in the calculation of

    diluted net income per share because their impact is anti-dilutive

 

433

 

 

 

104

 

 

v3.4.0.3
Operating Segments (Tables)
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Operating Segments

The following summary table presents separate financial data for each of our operating segments (in thousands):  

 

 

Three-Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net revenue:

 

 

 

 

 

 

 

Radio

$

28,525

 

 

 

29,227

 

Television

 

3,088

 

 

 

2,915

 

Consolidated

$

31,613

 

 

 

32,142

 

Engineering and programming expenses:

 

 

 

 

 

 

 

Radio

$

6,032

 

 

 

5,399

 

Television

 

2,130

 

 

 

2,265

 

Consolidated

$

8,162

 

 

 

7,664

 

Selling, general and administrative expenses:

 

 

 

 

 

 

 

Radio

$

13,476

 

 

 

13,648

 

Television

 

1,979

 

 

 

1,614

 

Consolidated

$

15,455

 

 

 

15,262

 

 

Corporate expenses:

$

2,993

 

 

 

2,148

 

Depreciation and amortization:

 

 

 

 

 

 

 

Radio

$

488

 

 

 

507

 

Television

 

663

 

 

 

684

 

Corporate

 

99

 

 

 

96

 

Consolidated

$

1,250

 

 

 

1,287

 

(Gain) loss on the disposal of assets, net:

 

 

 

 

 

 

 

Radio

$

(3

)

 

 

(6

)

Television

 

 

 

 

 

Corporate

 

 

 

 

 

Consolidated

$

(3

)

 

 

(6

)

Operating income (loss):

 

 

 

 

 

 

 

Radio

$

8,532

 

 

 

9,679

 

Television

 

(1,684

)

 

 

(1,648

)

Corporate

 

(3,092

)

 

 

(2,244

)

Consolidated

$

3,756

 

 

 

5,787

 

Capital expenditures:

 

 

 

 

 

 

 

Radio

$

382

 

 

 

173

 

Television

 

94

 

 

 

84

 

Corporate

 

101

 

 

 

28

 

Consolidated

$

577

 

 

 

285

 

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

Total Assets:

 

 

 

 

 

 

 

Radio

$

392,341

 

 

$

392,926

 

Television

 

55,433

 

 

 

51,388

 

Corporate

 

3,748

 

 

 

2,895

 

Consolidated

$

451,522

 

 

$

447,209

 

 

 

v3.4.0.3
Fair Value Measurement Disclosures (Tables)
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Estimated Fair Values of Financial Instrument

The estimated fair values of our financial instruments are as follows (in millions):

 

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

Fair Value

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

Description

Hierarchy

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

12.5% senior secured notes due 2017

Level 2

 

$

275.0

 

 

 

276.4

 

 

$

275.0

 

 

 

281.2

 

10 3/4% Series B cumulative exchangeable

     redeemable preferred stock

Level 3

 

 

148.5

 

 

 

57.3

 

 

 

146.1

 

 

 

60.1

 

Promissory note payable, included in other long-

     term debt

Level 3

 

 

4.8

 

 

 

4.3

 

 

 

4.9

 

 

 

4.2

 

 

Fair Value of Derivative Instruments

The following table represents required quantitative disclosures regarding fair values of our derivative instruments (in thousands).

 

 

 

 

 

 

Fair value measurements at March 31, 2016

 

 

 

 

 

 

Liabilities

 

Description

March 31, 2016

carrying value and

balance sheet

location of derivative

instruments

 

 

Quoted prices in

active markets

for identical

instruments

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant

unobservable

inputs

(Level 3)

 

Derivative designated as a cash flow

hedging instrument:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap liability

$

175

 

 

 

 

 

 

175

 

 

 

 

 

 

 

 

 

 

 

Fair value measurements at December 31, 2015

 

 

 

 

 

 

Liabilities

 

Description

December 31, 2015

carrying value  and

balance sheet

location of derivative

instruments

 

 

Quoted prices in

active markets

for identical

instruments

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant

unobservable

inputs

(Level 3)

 

Derivative designated as a cash flow

hedging instrument:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap liability

$

220

 

 

 

 

 

 

220

 

 

 

 

 

Interest Rate Swaps

The interest rate swap fair value is derived from the present value of the difference in cash flows based on the forward-looking LIBOR yield curve rates, as compared to our fixed rate applied to the hedged amount through the term of the agreement, less adjustments for credit risk. There were no transfers between Levels during the three-month periods ended March 31, 2016 and 2015, respectively.

 

 

 

Three-Months Ended

 

 

 

March 31,

 

Interest rate swaps

 

2016

 

 

2015

 

Gain recognized in other comprehensive loss

     (effective portion)

 

 

45

 

 

 

32

 

 

 

v3.4.0.3
Derivative Instrument and Hedging Activity (Tables)
3 Months Ended
Mar. 31, 2016
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Interest Rate Swap Governed by Master Netting Arrangement

Our interest rate swap is governed by a master netting arrangement, which is required to be disclosed as a balance sheet offsetting item as follows (in thousands):

 

 

As of March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross amounts not offset in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the  balance sheet

 

 

 

 

 

 

Gross amounts of

 

 

Gross amounts

 

 

Net amounts of

 

 

 

 

 

 

Cash

 

 

 

 

 

 

recognized

 

 

offset in the

 

 

liabilities presented

 

 

Financial

 

 

collateral

 

 

 

 

 

Description

liabilities

 

 

balance sheet

 

 

in the balance sheet

 

 

Instruments

 

 

received

 

 

Net amount

 

Interest rate swap

$

175

 

 

 

 

 

 

175

 

 

 

175

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross amounts not offset in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the  balance sheet

 

 

 

 

 

 

Gross amounts of

 

 

Gross amounts

 

 

Net amounts of

 

 

 

 

 

 

Cash

 

 

 

 

 

 

recognized

 

 

offset in the

 

 

liabilities presented

 

 

Financial

 

 

collateral

 

 

 

 

 

Description

liabilities

 

 

balance sheet

 

 

in the balance sheet

 

 

Instruments

 

 

received

 

 

Net amount

 

Interest rate swap

$

220

 

 

 

 

 

 

220

 

 

 

220

 

 

 

 

 

 

 

 

v3.4.0.3
Basis of Presentation (Details Textual) - USD ($)
$ in Millions
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Feb. 07, 2012
Basis Of Presentation [Line Items]      
Debt Issuance Costs $ 3.7 $ 4.5  
Twelve Point Five Percentage Senior Secured Notes Due Two Thousand Seventeen      
Basis Of Presentation [Line Items]      
Interest rate on Senior secured notes due 2017 12.50%   12.50%
Senior secured notes, maturity date Apr. 15, 2017    
v3.4.0.3
Stockholders' Deficit (Details Textual)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2016
USD ($)
RegistrationStatements
$ / shares
shares
Mar. 31, 2015
USD ($)
Dec. 31, 2015
shares
Jul. 30, 2006
shares
Dec. 23, 2004
$ / shares
shares
Feb. 18, 2004
$ / shares
Stockholders' Equity (Textual) [Abstract]            
Unrecognized compensation costs related to nonvested | $ $ 600          
Weighted average period over which unrecognized compensation is expected to be recognized 1 year 10 months 24 days          
Amounts reclassified from other comprehensive loss to interest expense | $ $ 100 $ 100        
Other comprehensive income, net of taxes- unrealized gain on derivative instrument | $ $ 45 $ 32        
Stockholders' Equity (Additional Textual) [Abstract]            
Number of registration statements filled | RegistrationStatements 3          
2006 Omnibus Equity Compensation Plan            
Stockholders' Equity (Textual) [Abstract]            
Omnibus Plan authorizes shares of Class A common stock for issuance, subject to adjustment in certain circumstances       350,000    
Omnibus Plan provides that the maximum aggregate number of shares of Class A common stock units, stock awards and other stock-based awards that may be granted, other than dividend equivalent       100,000    
Series C convertible preferred stock            
Stockholders' Equity (Textual) [Abstract]            
Preferred stock par value per share | $ / shares         $ 0.01  
Preferred Stock issued to CBS Radio 380,000   380,000      
Common stock shares to be issued to CBS Radio         760,000  
Series B Preferred Stock            
Stockholders' Equity (Textual) [Abstract]            
Preferred stock par value per share | $ / shares $ 0.01         $ 0.01
Temporary equity dividend rate percentage 10.75%          
Liquidation preference per share | $ / shares $ 1,000         $ 1,000
Class A common stock            
Stockholders' Equity (Textual) [Abstract]            
Common stock voting right one vote per share          
Class B common stock            
Stockholders' Equity (Textual) [Abstract]            
Common stock voting right ten votes per share          
CBS Radio | Series C convertible preferred stock            
Stockholders' Equity (Textual) [Abstract]            
Preferred Stock issued to CBS Radio         380,000  
Preferred Stock, shares issuable upon conversion         2  
v3.4.0.3
Stockholders' Deficit (Details)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2016
USD ($)
$ / shares
shares
Summary of stock options  
Options Outstanding, Beginning balance | shares 128
Stock Options Outstanding, Granted | shares 315
Shares Outstanding, Ending balance | shares 443
Stock Options, Shares exercisable at March 31, 2016 | shares 223
Weighted Average Exercise Price, Outstanding, Beginning Balance | $ / shares $ 11.25
Weighted Average Exercise Price, Granted | $ / shares 3.07
Weighted Average Exercise Price, Outstanding, Ending Balance | $ / shares 5.42
Weighted Average Exercise Price, Exercisable at March 31, 2016 | $ / shares $ 7.38
Aggregate Intrinsic Value, Outstanding | $ $ 126,100
Aggregate Intrinsic Value, Exercisable at March 31, 2016 | $ $ 67,900
Weighted Average Remaining Contractual Life, Outstanding 8 years 9 months 18 days
Weighted Average Remaining Contractual Life, Exercisable at March 31, 2016 7 years 1 month 6 days
v3.4.0.3
Stockholders' Deficit (Details 1) - $ / shares
shares in Thousands
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Stock options outstanding and exercisable    
Stock options outstanding, Vested Options 223  
Stock options outstanding, Unvested Options 220  
Stock options outstanding, Weighted Average Exercise Price $ 5.42 $ 11.25
Weighted Average Remaining Contractual Life, Outstanding 8 years 9 months 18 days  
Stock options, Number Exercisable 223  
Stock options, Exercisable, Weighted Average Exercise Price $ 7.38  
1.03 - 49.99    
Stock options outstanding and exercisable    
Range of Exercise Price, Lower Range 1.03  
Range of Exercise Price, Upper Range $ 49.99  
Stock options outstanding, Vested Options 223  
Stock options outstanding, Unvested Options 220  
Stock options outstanding, Weighted Average Exercise Price $ 5.42  
Weighted Average Remaining Contractual Life, Outstanding 8 years 9 months 18 days  
Stock options, Number Exercisable 223  
Stock options, Exercisable, Weighted Average Exercise Price $ 7.38  
v3.4.0.3
Basic and Diluted Net Loss Per Common Share (Details) - shares
shares in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Reconciliation of the shares used in the computation of basic and diluted net income per share    
Basic weighted average shares outstanding 7,267 7,267
Dilutive weighted average shares outstanding 7,267 7,267
Options to purchase shares of common stock and other stock-based awards outstanding which are not included in the calculation of diluted net income per share because their impact is anti-dilutive 433 104
v3.4.0.3
Operating Segments (Details Textual)
3 Months Ended
Mar. 31, 2016
Segment
Operating Segments (Textual) [Abstract]  
Number of Reportable Segments 2
v3.4.0.3
Operating Segments (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Net revenue:      
Net revenue $ 31,613 $ 32,142  
Engineering and programming expenses:      
Engineering and programming expenses 8,162 7,664  
Selling, general and administrative expenses:      
Selling, general and administrative expenses 15,455 15,262  
Corporate expenses 2,993 2,148  
Depreciation and amortization:      
Depreciation and amortization 1,250 1,287  
(Gain) loss on the disposal of assets, net:      
(Gain) loss on the disposal of assets, net (3) (6)  
Operating income (loss):      
Operating income (loss) 3,756 5,787  
Capital expenditures:      
Capital expenditures 577 285  
Assets      
Total Assets 451,522   $ 447,209
Operating Segments | Radio      
Net revenue:      
Net revenue 28,525 29,227  
Engineering and programming expenses:      
Engineering and programming expenses 6,032 5,399  
Selling, general and administrative expenses:      
Selling, general and administrative expenses 13,476 13,648  
Depreciation and amortization:      
Depreciation and amortization 488 507  
(Gain) loss on the disposal of assets, net:      
(Gain) loss on the disposal of assets, net (3) (6)  
Operating income (loss):      
Operating income (loss) 8,532 9,679  
Capital expenditures:      
Capital expenditures 382 173  
Assets      
Total Assets 392,341   392,926
Operating Segments | Television      
Net revenue:      
Net revenue 3,088 2,915  
Engineering and programming expenses:      
Engineering and programming expenses 2,130 2,265  
Selling, general and administrative expenses:      
Selling, general and administrative expenses 1,979 1,614  
Depreciation and amortization:      
Depreciation and amortization 663 684  
Operating income (loss):      
Operating income (loss) (1,684) (1,648)  
Capital expenditures:      
Capital expenditures 94 84  
Assets      
Total Assets 55,433   51,388
Corporate, Non-Segment      
Selling, general and administrative expenses:      
Corporate expenses 2,993 2,148  
Depreciation and amortization:      
Depreciation and amortization 99 96  
Operating income (loss):      
Operating income (loss) (3,092) (2,244)  
Capital expenditures:      
Capital expenditures 101 $ 28  
Assets      
Total Assets $ 3,748   $ 2,895
v3.4.0.3
Income Taxes (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Income Tax Disclosure [Abstract]    
U.S. federal income tax rate 35.00%  
Significant of uncertain tax positions requiring recognition $ 0 $ 0
v3.4.0.3
Commitments and Contingencies (Details Textual)
Mar. 31, 2016
Feb. 07, 2012
Twelve Point Five Percentage Senior Secured Notes Due Two Thousand Seventeen    
Disclosure Commitments And Contingencies Details Textual [Line Items]    
Interest rate on Senior secured notes due 2017 12.50% 12.50%
v3.4.0.3
Fair Value Measurement Disclosures (Details) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Carrying Amount | Significant other observable inputs (Level 2) | Twelve Point Five Percentage Senior Secured Notes Due Two Thousand Seventeen    
Estimated fair values of financial instruments    
12.5% senior secured notes due 2017 $ 275.0 $ 275.0
Carrying Amount | Significant unobservable inputs (Level 3)    
Estimated fair values of financial instruments    
Promissory note payable, included in other long- term debt 4.8 4.9
Carrying Amount | Series B Preferred Stock | Significant unobservable inputs (Level 3)    
Estimated fair values of financial instruments    
10 3/4% Series B cumulative exchangeable redeemable preferred stock 148.5 146.1
Fair Value | Significant other observable inputs (Level 2) | Twelve Point Five Percentage Senior Secured Notes Due Two Thousand Seventeen    
Estimated fair values of financial instruments    
12.5% senior secured notes due 2017 276.4 281.2
Fair Value | Significant unobservable inputs (Level 3)    
Estimated fair values of financial instruments    
Promissory note payable, included in other long- term debt 4.3 4.2
Fair Value | Series B Preferred Stock | Significant unobservable inputs (Level 3)    
Estimated fair values of financial instruments    
10 3/4% Series B cumulative exchangeable redeemable preferred stock $ 57.3 $ 60.1
v3.4.0.3
Fair Value Measurement Disclosures (Details 1) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Derivative designated as a cash flow hedging instrument:    
Derivative instruments $ 175 $ 220
Significant other observable inputs (Level 2)    
Derivative designated as a cash flow hedging instrument:    
Derivative instruments $ 175 $ 220
v3.4.0.3
Fair Value Measurement Disclosures (Details 2) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Interest Rate Swap    
Interest rate swaps    
Gain recognized in other comprehensive loss (effective portion) $ 45 $ 32
v3.4.0.3
Derivative Instrument and Hedging Activity (Details Textual) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Jan. 04, 2007
Derivative Instrument and Hedging Activity (Textual) [Abstract]    
Interest rate swap agreement period 10 years  
Ten Year Interest Rate Swap    
Derivative Instrument and Hedging Activity (Textual) [Abstract]    
Notional amount   $ 7.7
Fixed interest rate 6.31%  
Basis spread on variable rate of interest rate swap 1.25%  
Derivative floating interest rate description Equal to one-month LIBOR plus 125 basis points  
Interest rate swap expiration date Jan. 04, 2017  
v3.4.0.3
Derivative Instrument and Hedging Activity (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Description of Derivative Liabilities    
Derivative instruments $ 175 $ 220
Interest Rate Swap    
Description of Derivative Liabilities    
Gross amounts of recognized liabilities 175 220
Derivative instruments 175 220
Interest Rate Swap | Financial Instruments    
Description of Derivative Liabilities    
Gross amounts not offset in the balance sheet $ 175 $ 220
v3.4.0.3
Twelve Point Five Percent Senior Secured Notes due Twenty Seventeen (Details Textual) - Twelve Point Five Percentage Senior Secured Notes Due Two Thousand Seventeen - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Feb. 07, 2012
12.5% Senior Secured Notes due 2017 (Textual) [Abstract]    
Notes issued principal amount   $ 275
Interest rate on Senior secured notes due 2017 12.50% 12.50%
Issue price percentage of principal amount   97.00%
Senior secured notes, maturity date Apr. 15, 2017  
Frequency of interest payment semi-annually  
Date of first required payment Apr. 15, 2012  
Additional interest rate 2.00%  
Aggregate principal amount of the notes 25.00%  
Covenants, maximum unpaid principal payment $ 15  
Debt instrument payment period 60 days  
Maximum    
12.5% Senior Secured Notes due 2017 (Textual) [Abstract]    
Secured leverage ratio 4.75%  
Maximum | Period One    
12.5% Senior Secured Notes due 2017 (Textual) [Abstract]    
Secured leverage ratio 4.75%  
Maximum | Period Two    
12.5% Senior Secured Notes due 2017 (Textual) [Abstract]    
Secured leverage ratio 4.75%  
Maximum | Period Three    
12.5% Senior Secured Notes due 2017 (Textual) [Abstract]    
Secured leverage ratio 4.75%  
Maximum | Period Four    
12.5% Senior Secured Notes due 2017 (Textual) [Abstract]    
Secured leverage ratio 4.75%  
Maximum | Period Five    
12.5% Senior Secured Notes due 2017 (Textual) [Abstract]    
Secured leverage ratio 4.75%  
Maximum | Period Six    
12.5% Senior Secured Notes due 2017 (Textual) [Abstract]    
Secured leverage ratio 4.75%  
Maximum | Period Seven    
12.5% Senior Secured Notes due 2017 (Textual) [Abstract]    
Secured leverage ratio 4.75%  
v3.4.0.3
Ten Point Seven Five Percent Series B Cumulative Exchangeable Redeemable Preferred Stock (Details Textual) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended 12 Months Ended
Oct. 15, 2013
Oct. 15, 2011
Oct. 15, 2010
Oct. 15, 2009
Apr. 05, 2004
Oct. 30, 2003
Mar. 31, 2016
Dec. 31, 2015
Feb. 18, 2004
Class Of Stock [Line Items]                  
Dividends on the Series B preferred stock             10.75% 10.75%  
Series A Preferred Stock                  
Class Of Stock [Line Items]                  
Preferred stock par value per share           $ 0.01      
Liquidation preference per share           $ 1,000      
Gross proceeds from the issuance of Series A preferred Stock           $ 75.0      
Series A Preferred Stock | Private Placement                  
Class Of Stock [Line Items]                  
Preferred stock, shares issued           75,000      
Series B Preferred Stock                  
Class Of Stock [Line Items]                  
Preferred stock, shares issued             90,549 90,549  
Preferred stock par value per share             $ 0.01   $ 0.01
Liquidation preference per share             $ 1,000   $ 1,000
Shares of Series B preferred stock exchanged for Series A preferred stock         76,702        
Rate of redemption of Preferred stock for cash   100.00% 101.792% 103.583%          
Rate of redemption of Preferred stock at purchase price             100.00%    
Dividends on the Series B preferred stock             10.75%    
Increase in carrying value of preferred stock   $ 17.3              
Stock requested to be repurchased 92,223                
Purchase price of stock requested to be repurchased $ 126.9                
Stock repurchased 1,800                
Purchase price of stock repurchased $ 2.5                
Preferred stock outstanding carrying value             $ 58.0    
v3.4.0.3
Asset Exchange (Details Textual) - USD ($)
$ in Thousands
3 Months Ended
Jan. 04, 2016
Mar. 31, 2016
Asset Exchange [Line Items]    
Fair value of assets received in asset exchange   $ 2,794
Additional cash payments   $ 1,897
International Broadcasting Corp    
Asset Exchange [Line Items]    
Fair value of assets received in asset exchange $ 2,900  
Additional cash payments $ 1,900  
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