ITEM 1. BUSINESS
GENERAL
Radio Unica is the only national Spanish-language AM radio network in the U.S., broadcasting 24-hours a day, 7-days a week. We began broadcasting our network programming on January 5, 1998, producing 19 hours of live and first-run celebrity-based news/talk, sports and information programming each weekday and 20 hours of such programming each weekend. With 16 Company-owned and/or operated stations and our affiliated stations, our network reaches approximately 80% of the U.S. Hispanic population. The Company-operated stations are located in 14 of the top 25 U.S. markets in terms of Hispanic population. The markets in which we maintain stations collectively account for approximately 63% of the total U.S. Hispanic population.
Our uniform delivery of national programming to our stations 24 hours a day differentiates us from other Spanish-language radio groups. Importantly, our nationwide distribution allows us to produce high quality programming and spread the cost of that programming over our large base of stations. Our network offers advertisers the only Hispanic radio platform capable of delivering a consistent and controlled message to a national audience. Additionally, our network allows national advertisers to reach a large portion of the Hispanic population more effectively and at a lower cost than would be the case if they had to purchase advertising separately in each market.
We believe that our high quality, original programming gives us a competitive advantage over other Spanish-language radio broadcasters in marketing to the Hispanic audience. Popular Hispanic television and other well-known personalities host our programs and their broad appeal extends beyond any particular Hispanic cultural or geographical boundaries. These national personalities include Dr. Isabel Gomez-Bassols, Jorge Ramos, Ricardo Brown, Hugo Cadelago, Paul Bouche and Mauricio Zeilic. Our programming includes contemporary talk, entertainment and information programs, news segments, hourly local and national newscasts, sports talk programs, sports broadcasting, and other programming relevant to our national Hispanic audience. Many of our radio programs are fully-interactive talk shows that allow listeners nationwide to call in as active participants in the on-air dialogue.
Live sporting events are an integral part of Radio Unica's network programming, and we have acquired the broadcast rights in the United States to numerous marquee sporting events. We have acquired the exclusive Spanish-language radio rights for several of the most popular sporting events among Hispanics, including Copa America 2003, Copa Oro 2004 and 2006, the Summer Olympics in 2004, the World Cup 2002 qualifying matches and Mexican National Team and Mexican soccer league games. In addition to being an important part of our programming, major sporting events are an important means of attracting first-time listeners. To capture these first-time listeners, we sponsor major promotional events in conjunction with our sports programming which serve to solidify listener loyalty and raise awareness of the Radio Unica network.
On April 30, 2001, the Company completed the acquisition of MASS Promotions, Inc. ("MASS"). MASS provides integrated promotional and merchandising services to the Hispanic market. We believe that MASS complements our radio operations by offering our radio clients expanded promotional services. Some of MASS' blue chip client base includes, General Mills, Unilever Best Foods, Gerber, and Kimberly Clark.
THE HISPANIC MARKET OPPORTUNITY
We believe that Spanish-language radio targeting the Hispanic market will continue to benefit from the following:
STRONG PROJECTED GROWTH AND GEOGRAPHIC CONCENTRATION OF THE HISPANIC POPULATION. Hispanics represent the most rapidly growing segment of the U.S. population. From 1989 to 2001, the Hispanic population increased from 23.7 million to 38.6 million, a 63% increase. The strong growth of the Hispanic population is expected to continue, increasing approximately 50% by 2010, five times the growth rate of the U.S. population as a whole. Hispanics represent 12.5% of the population and by the year 2020 one out of every five U.S. residents is expected to be Hispanic. Additionally, the Hispanic population is highly concentrated, with approximately 56% of all Hispanics located in the top ten Hispanic markets. This concentration allows us to cost effectively reach the majority of Hispanics through our existing network platform.
USE OF SPANISH AMONG HISPANICS. Spanish is the language spoken at home by the majority of Hispanics, regardless of income or education. The number of Hispanics who speak Spanish at home is expected to increase substantially from over 28.6 million today. We believe that the continued use of Spanish among Hispanics indicates that Spanish-language media has been and will continue to be an important source of news, sports, information, advice and entertainment for Hispanics.
ATTRACTIVE PROFILE OF HISPANIC CONSUMERS. The demographic profile of the Hispanic audience makes it attractive to advertisers. We believe the larger size of 3.5 persons per household compared to the general public's average of 2.7 persons per household and younger age of Hispanic households leads Hispanics to spend more per household on many categories of consumer goods and services. For example, Hispanic households spend more each year on food to be eaten at home, children's clothing, footwear, phone services, and laundry and household cleaning products than the average U.S. household.
INCREASING HISPANIC BUYING POWER. U.S. Hispanic buying power is estimated at $500 billion in 2001, an increase of 131% since 1990. Hispanics are expected to spend $965 billion by 2010, an increase of 93%. This increase is five times the expected growth rate in expenditures by all consumers in the United States.
GROWING USE OF SPANISH-LANGUAGE MEDIA BY ADVERTISERS. Advertising expenditures to Hispanics grew from $730 million in 1992 to $2.2 billion in 2001, a compound annual growth rate of 13%. Although Hispanic consumers represent approximately 7% of U.S. consumer spending, advertising targeting Hispanics represents only 1% of total advertising expenditures. We believe that the lack of Spanish-language media outlets relative to the size of the Hispanic population has historically caused the differential between Hispanic consumer spending and Spanish-language advertising expenditures. With the increasing media access to this population, we believe advertising expenditures will move closer towards parity with Hispanic consumer spending. We also believe that advertisers who re-direct a portion of their English-language budgets to Spanish-language media are able to increase overall audience reach without incurring additional cost.
Furthermore, we believe that advertisers have found Spanish-language radio advertising to be a particularly effective means to reach the growing Hispanic audience. As a result, approximately 26% of Hispanic advertising expenditures in 2001 were directed to radio, a substantially higher percentage than radio's overall share of national advertising expenditures.
OUR BUSINESS STRATEGY
Our strategy is to provide a leading national Spanish-language broadcast network alternative to the major Spanish-language television networks. To this end, our business strategy is to:
CREATE POPULAR, NATIONAL, HIGH-IMPACT PROGRAMMING. Radio Unica's programming is differentiated from other radio groups by its focus on topics and issues relevant to today's Hispanic audience, its strong line-up of top Hispanic personalities and its national reach. Radio Unica takes advantage of its management's established relationships with talent, built over numerous years of industry experience, to secure top personalities and to create high-impact programming. In addition, management draws upon its expertise and established track record of having created some of the well-received Spanish-language television programs, including the Univision programs SABADO GIGANTE and CRISTINA. We believe that our access to talent and the programming expertise of our senior management will continue to serve as a strong competitive advantage in attracting advertisers and listeners.
FOSTER STRONG BRAND IDENTITY. We continue to build a strong brand identity for our radio stations and network by promoting the Radio Unica name on-air, using music that listeners associate with our radio stations and programs and by engaging in a wide array of marketing and promotional activities. Our marketing strategy includes personal appearances by on-air personalities, promotional tie-ins with sporting events covered on our network and advertising on Spanish-language television and billboards and in Spanish-language print media. We believe a strong brand identity will allow us to retain and increase our listening audience, continue to grow our advertiser base, and attract and retain top talent.
FOCUS ON THE NEWS/TALK RADIO FORMAT. We will continue to focus on the news/talk radio format, which has broad listener appeal. News/talk programming typically allows twice as many minutes of commercials per hour as music-based formats. As a result, the news/talk format permits stations to capture a larger share of advertising revenue relative to audience share. We believe that a news/talk format is a more effective advertising medium than a music based format, since the audience is actively listening and more attentive to the programming. The news/talk format also enables on-air personalities to mention the names of their station, program and network more frequently, which promotes a high degree of name recognition and listener loyalty leading to higher ratings and higher advertising revenue.
SELL ADVERTISING TO THE TOP 50 SPANISH-LANGUAGE ADVERTISERS. Our sales strategy is to target the top 50 national Spanish-language advertisers who collectively purchase the majority of Spanish-language network and national advertising in the United States. We employ 14 in-house national sales people in eight sales offices nationwide, as well as approximately 100 local sales people situated throughout the markets where we own and/or operate stations. Our large, in-house sales force allows us to maintain better control and accountability over the sales process. We also believe that our sales force is important in maintaining relationships with key advertisers and agencies and identifying new advertisers. The combination of our commitment to pursue the largest Spanish-language advertisers and our captive sales force has enabled us to secure many premier national advertisers, including Sears, Wal-Mart, Home Depot, Chevrolet, Johnson & Johnson, Honda, Miller, Procter & Gamble Moneygram and Western Union.
MAINTAIN MODERN TECHNOLOGY AND REDUCE OPERATING COSTS. We operate technologically advanced and automated nationwide production and delivery systems which provide live programming via satellite to our owned and/or operated and affiliate stations. At our modern production studios in Miami, we produce substantially all of our radio programs, commercials and promotional recordings. We deliver this programming to stations 24 hours a day via satellite and our computer-based wide-area network. By employing modern technology and producing and coordinating our programming from a centralized location, we are able to operate with minimal staffing at our stations, thereby reducing operating costs and increasing both quality of delivery and efficiency.
OUR EXPANSION STRATEGY
MAXIMIZE NETWORK REACH THROUGH OWNED/OPERATED AND AFFILIATE STATIONS. We currently own and/or operate radio stations in the top 10 Hispanic markets and in 4 other top 25 Hispanic markets. Our owned and operated stations reach markets where approximately 63% of the Hispanic audience resides and our network (including affiliates) reaches markets where approximately 80% of the Hispanic audience resides. We seek to enter into agreements with affiliate stations in smaller, less concentrated Hispanic markets so as to broaden the reach of our network and increase its appeal to national advertisers while reducing the amount of capital required to do so.
PURSUE STRATEGIC INFRASTRUCTURE UPGRADES. We continue to pursue signal and other operational upgrades at our existing stations that will allow us to enhance our market coverage. We are currently pursuing or in the process of upgrading our radio stations in New York, Dallas, San Francisco, and Sacramento. By expanding our market coverage at existing and acquired stations, we believe we can further increase the Radio Unica audience and enhance the value of our radio stations.
PROGRAMMING
Radio Unica's network programming is broadcast 24 hours a day, seven days a week and is designed to appeal to the general Hispanic audience, including Hispanics located in different geographic regions of the United States and from varying cultural backgrounds. The news/talk radio format is a proven format used by several major networks, including ABC Radio Networks, Westwood One and Premiere Radio Networks. The share of the audience listening to stations with this format has increased over the last several years and news/talk is one of the most popular formats in the United States.
Radio Unica currently produces 19 hours per day of live and first-run programming, Monday through Friday, at our network production studios in Miami. Our daily schedule features programs hosted by celebrities, many of whom also host or appear on popular shows on the Univision and Telemundo networks. These on-air personalities create radio shows exclusively for Radio Unica.
Our programming includes:
ARRIBA CON PAUL. Hosted by Paul Bouche, this show is a one-of-a-kind fun and interactive talk show providing listeners with sharp wit, lively topics, laughter, interviews with celebrities, and much more. Paul Bouche is a 10-year veteran of Spanish-language radio and television, show host, producer and TV executive. Besides his on-air experience, Paul Bouche has performed as a stand-up comedian in numerous clubs throughout the United States and Latin America.
BUENOS DIAS PAIS. Hosted by Hugo "El Gordo" Cadelago, this talk show is a daily, interactive variety program devoted to news, daily topic discussions, comedy segments, celebrity gossip and interviews. The show also features extensive news coverage with Radio Unica's News Director and veteran television reporter Ricardo Brown.
DRA. ISABEL. This advice program hosted by Dr. Isabel Gomez-Bassols focuses on such topics as family issues and personal relationships. Dr. Isabel Gomez-Bassols is a noted psychologist and educator and makes frequent appearances on such popular television shows as THE BOLD AND THE BEAUTIFUL.
UNICA EN DEPORTES. This sports talk show hosted by Jorge Ramos features sports, talk, news and interviews appealing to Hispanic audiences. Jorge Ramos served as sports anchor for Telemundo from 1994 to 2000 and in his career has broadcast four World Cups. Joining Jorge is an experienced, well-known team of sports personalities. We have recently added Hugo Sanchez to our sports team. Mr. Sanchez was the top ranked Mexican soccer player for 20 years and is well regarded by Mexican soccer fans.
SPORTING EVENTS. During our major sporting events, we broadcast live, play-by-play coverage and daily programs and interviews with players and participants. We have obtained the exclusive United States Spanish-language radio broadcasting rights for a number of popular sporting events including the following:
SUMMER OLYMPICS 2004 AND 2008. Radio Unica has acquired the Spanish-language radio broadcast rights in the United States for the 2004 Summer Olympics and has a right of first refusal for the 2008 games. The Olympic games are the highest profile sporting event in the world. Radio Unica's broadcasts highlight soccer, boxing and other events and athletes of interest to Hispanics. We also utilized the universal awareness of the Olympics to promote our brand and attract new listeners.
COPA AMERICA 2001 AND 2003. Copa America is the most popular international soccer event for Hispanics after the World Cup and is held every other year. This event is the oldest international soccer tournament and is a forum for Latin Americans to listen to their teams compete against neighboring countries. With South America
and Mexico participating, this event offers the soccer fan the opportunity to listen to some of the best soccer stars playing for their national teams.
COPA ORO 2002, 2004 AND 2006. Copa Oro tournaments are held in the alternate years from Copa America. Similar to Copa America, Copa Oro is an international soccer event with countries in North and Central America participating.
WORLD CUP 2002 QUALIFYING MATCHES. The World Cup is the most popular soccer event in the world. These matches are of interest to the Hispanic audience since they pit Latin American countries against each other in the qualifying rounds in their quest for a World Cup trophy.
MEXICAN SOCCER. Radio Unica has the U.S. Spanish-language radio rights to some of the most popular Mexican soccer league team games and the Mexican national team games.
ADVERTISING REVENUE
Substantially all of our revenue is generated from the sale of network, national and local advertising on our radio stations. The classes of advertising are described in the following table:
CLASSES OF RADIO ADVERTISING
Sales of network and national advertising are made by our in-house national sales force located in eight regional sales offices. Sales of local advertising are made by our sales staffs located at each of our stations. We do not use third party national representatives or "rep" firms. As a result, we have more control over and greater accountability from our sales force. We also believe that our sales force is important in maintaining relationships with key advertisers and agencies and identifying new advertisers. We do not pass along any of our network advertising revenue or pay cash compensation to our affiliates.
Advertising rates charged by a radio station or network are based primarily on the station's or network's ability to attract listeners and on the attractiveness to advertisers of the station's or the network's listener demographics. Rates vary depending upon a program's ability to increase sales and popularity among an advertiser's target audience, the number of advertisers seeking similar time slots, and the availability of alternative media in the market. Radio advertising rates are generally highest during the morning and afternoon drive-time hours.
RADIO UNICA NETWORK
Radio Unica's 16 owned and/or operated AM stations in 14 markets and affiliate stations comprise a network that reaches approximately 80% of the Hispanic population. We are the only national Spanish-language AM radio network available to advertisers targeting the fast growing Hispanic market. Radio Unica's network is differentiated from other Spanish-language radio broadcasters by its ability to deliver uniform programming to the national Hispanic audience over a 24 hour period. We believe that advertisers benefit from this delivery as it allows them to reach a national audience in a consistent and controlled manner. With one contract, advertisers can reach a large portion of the Hispanic population at a cost lower than if they had to purchase advertising separately in each market. Radio Unica offers advertisers the opportunity to associate their advertising message with a particular national program that will consistently be aired at a specific time. No other Spanish-language radio broadcasters have this capability on a national level.
ADVANTAGES TO RADIO UNICA. Although our owned and/or operated stations reach markets where approximately 63% of Hispanics reside, through our affiliates we are able to increase our reach to approximately 80%. Our affiliates have allowed us to cost-effectively expand our reach and appeal to advertisers. Affiliates allow us to enter a market without the capital expenditures that would be required in buying or building a station. Many of our affiliates have branded themselves as Radio Unica stations which helps build brand awareness and listener loyalty. Additionally, the network enables us to share the cost of programming over our owned and operated stations. We believe that this sharing of expenses allows us to invest a larger amount in programming compared to our competitors.
ADVANTAGES TO AFFILIATES. Affiliate stations benefit by gaining access to Radio Unica's high-impact programming, including programs hosted by some of the most popular Hispanic personalities and live sporting events, which would be prohibitively expensive to create or purchase on their own. In addition, affiliates benefit from our national advertising campaigns and promotional materials and access to our sales, marketing and operating expertise.
RADIO STATIONS
The following table sets forth certain information concerning the stations owned and/or operated by the Company and their respective markets:
OWNED STATIONS
LOS ANGELES. Radio Unica's radio station KBLA(AM), broadcasting on 1580 kHz, serves the Los Angeles market, which has a population of approximately 16.9 million, of which approximately 7.0 million or 41.4% are Hispanic. In July 1998, Radio Unica acquired substantially all of the assets used in the operation of KBLA for a purchase price of approximately $21 million. The purchase of KBLA was financed primarily through the proceeds from our senior discount notes. KBLA is licensed at 50,000 watts during the daytime. KBLA's transmitter site is located in Los Angeles and enables this station to reach substantially all of the Los Angeles market.
NEW YORK. Radio Unica's radio station WWRU(AM), broadcasting on 1660 kHz in the expanded band, serves the New York City market. The New York City market has a population of approximately 20.1 million, of which approximately 4.0 million or 19.2% are Hispanic. In January 1999, Radio Unica acquired WWRU, along with WJDM, KAHZ, Dallas/Fort Worth, and KIDR, Phoenix for a purchase price of approximately $30 million. The purchase of WWRU and WJDM, KAHZ and KIDR were financed primarily through the proceeds from our senior discount notes. WWRU is licensed at 10,000 watts during the daytime. WWRU's transmitter is located in Carlstadt, New Jersey and enables this station to reach substantially all of the New York City market during the day. We have received Federal Communications Commission ("FCC") approval to upgrade our night signal in
New York City, which will provide us with significantly improved market coverage at night. We expect to complete the upgrade before June 2002.
In connection with the acquisition of WWRU, Radio Unica also acquired substantially all the assets used in the operation of WJDM(AM), broadcasting on 1530 kHz. WJDM is licensed at 1,000 watts during the daytime. Broadcast time on this station is currently sold to a third party. WJDM's transmitter is located in Elizabeth, New Jersey. The Company currently operates WWRU pursuant to special temporary authority ("STA") pending the submission by the Company of an application for license to cover its outstanding construction permit. The FCC first granted the STA on April 28, 1995 for a period of six months and has granted successive six months extensions. The Company's permit to construct WWRU, which was modified in 1999 to authorize improvement of the station's nighttime operations, expires December 6, 2003. Upon completion of the new nighttime facilities of WWRU, the Company will file a license application with the Commission. The Company cannot predict when the FCC will grant the license application, once it is filed. The license, when granted will contain a condition that will require the Company too relinquish within five years the license for either WWRU or WJDM.
MIAMI. Radio Unica's radio station WNMA(AM), broadcasting on 1210 kHz, serves the Miami market. This market has a population of approximately 4.2 million, of which approximately 1.7 million or 41.1% are Hispanic. In May 1998, Radio Unica acquired WNMA for approximately $9 million. The purchase of WNMA was financed primarily through the proceeds from the issuance of preferred stock as well as the issuance of notes payable to one of our stockholders, Warburg, Pincus Ventures. WNMA is licensed at 47,000 watts during the daytime. WNMA's transmitter site is located in Miami Springs, Florida and enables this station to reach substantially all of the Miami market. During 2001 we completed a signal upgrade that extended the signal beyond the Miami market to Broward County and increased our coverage of South Florida's Hispanic population by approximately 10%.
In connection with the acquisition of WNMA, the Company acquired WJCC(AM), broadcasting on 1700 kHz. Broadcast time on this station has been sold to a third party. Based on the terms of the license for WJCC, Radio Unica must relinquish the license of either WNMA or WJCC by May 13, 2003.
CHICAGO. Radio Unica's radio station WNTD(AM), broadcasting on 950 kHz, serves the Chicago market. This market has a population of approximately 9.4 million, of which approximately 1.6 million or 17.1% are Hispanic. In May 1999, Radio Unica acquired WNTD for approximately $16.8 million. The purchase of WNTD was financed through the proceeds from our senior discount notes as well as proceeds from borrowings under our revolving credit facility. WNTD is licensed at 1,000 watts during the daytime. WNTD's transmitter is located in Chicago, Illinois and enables this station to reach substantially all of the Chicago market.
HOUSTON. Radio Unica's station KXYZ(AM), broadcasting on 1320 kHz, serves the Houston market. This market has a population of approximately 5.3 million, of which approximately 1.6 million or 29.7% are Hispanic. The purchase of KXYZ was financed primarily through the proceeds from our senior discount notes. Prior to the acquisition, the station was operated for approximately 13 years with a Spanish-language format. KXYZ is licensed at 5,000 watts during the daytime. KXYZ's transmitter is located in Pasadena, Texas and enables this station to reach substantially all of the Houston market.
SAN FRANCISCO/SAN JOSE. Radio Unica's station KIQI(AM), broadcasting on 1010 kHz, serves the San Francisco/San Jose market. This market has a population of approximately 6.9 million, of which approximately 1.4 million or 19.6% are Hispanic. In April 1998, Radio Unica acquired Oro Spanish Broadcasting, Inc., the parent of the licensee of KIQI, for approximately $12 million. The purchase of KIQI was financed primarily through the proceeds from the issuance of preferred stock, the issuance of notes payable to the former owners of KIQI and the issuance of notes payable to one of our stockholders, Warburg, Pincus Ventures. Prior to the acquisition, Oro Spanish Broadcasting, Inc. operated the station for approximately 17 years with a Spanish-language format. KIQI is licensed at 10,000 watts during the daytime. KIQI's transmitter is located in Oakland, California and enables this station to reach substantially all of the San Francisco/San Jose market during the day. We are pursuing an upgrade to improve the signal of the station by moving our Sacramento station to the northeast.
DALLAS/FORT WORTH. Radio Unica's station KAHZ(AM), broadcasting on 1360 kHz, serves the Dallas/Fort Worth market. This market has a population of approximately 6.0 million, of which approximately 1.3 million or 22.0% are Hispanic. KAHZ is licensed at 5,000 watts during the daytime. KAHZ's transmitter is located in Fort Worth, Texas and enables this station to reach a significant portion of the Dallas/Forth Worth market. We
are in the process of completing a signal upgrade that will provide us with significantly improved market coverage. We expect to complete the upgrade before June 2002.
SAN ANTONIO. Radio Unica's station KZDC(AM), broadcasting on 1250 kHz, serves the San Antonio market. This market has a population of approximately 2.1 million, of which approximately 1.2 million or 55.4% are Hispanic. In June 2000, Radio Unica acquired KZDC from Lotus Texas Ltd for approximately $1.8 million. The purchase of KZDC was financed through the net proceeds from the initial public offering. Prior to the acquisition, Radio Unica operated the station under a local marketing agreement with Texas Lotus Ltd. KZDC is licensed at 5,000 watts during the daytime. KZDC's transmitter site is located in San Antonio, Texas and enables this station to reach substantially all of the San Antonio market.
PHOENIX. Radio Unica's station KIDR(AM), broadcasting on 740 kHz, serves the Phoenix market. This market has a population of approximately 4.1 million, of which approximately 1.0 million or 25.0% are Hispanic. KIDR is licensed at 1,000 watts during the daytime. KIDR's transmitter is located in Phoenix, Arizona and enables this station to reach substantially all of the Phoenix market.
McALLEN/BROWNSVILLE. Radio Unica's station KVJY(AM) broadcasting on 840 kHz, serves the McAllen market. This market has a population of approximately 1.0 million, of which approximately 983,000 or 94.8% are Hispanic. In June 2000, Radio Unica acquired KVJY from El Pistolon Investments, L.P. for approximately $2.5 million. The purchase of KVJY was financed through the net proceeds from the initial public offering. From February through May 2000, Radio Unica operated the station under a local marketing agreement with El Pistolon Investments, L.P. KVJY is licensed at 5,000 watts during the daytime. KVJY's transmitter is located in Edinburg, Texas and enables the station to reach substantially all of the McAllen/Brownsville market.
FRESNO. Radio Unica's station KWRU(AM) broadcasting on 940 kHz, serves the Fresno market. This market has a population of approximately 1.7 million, of which approximately 812,000 or 47.6% are Hispanic. In June 2000, Radio Unica acquired KWRU from Harry Pappas for approximately $7.5 million. The purchase of KWRU was financed through the net proceeds from the initial public offering as well as through the issuance of shares of the Company's stock. From December 1999 through June 2000, Radio Unica operated the station under a local marketing agreement with Harry Pappas. KWRU is licensed at 50,000 watts during the daytime. KWRU's transmitter is located in Fresno, California and enables the station to reach substantially all of the Fresno market.
SACRAMENTO. Radio Unica's station KATD(AM) broadcasting on 990 kHz, serves the Sacramento market. This market has a population of approximately 3.7 million, of which approximately 794,000 or 21.7% are Hispanic. In October 2000, Radio Unica acquired KATD from Peoples Radio, Inc. for approximately $5.0 million. The purchase of KATD was financed through the net proceeds from the initial public offering as well as through the issuance of shares of the Company's stock. KATD is licensed at 5,000 watts during the daytime. KATD's transmitter is located in Pittsburg, California and enables the station to reach a significant portion of the Sacramento market. We are pursuing an upgrade to improve the signal of the station by moving the transmitter site closer to Sacramento.
DENVER. Radio Unica's station KCUV(AM) broadcasting on 1150 kHz, serves the Denver market. This market has a population of approximately 3.7 million, of which approximately 652,000 or 17.7% are Hispanic. In January 2000, Radio Unica acquired KCUV from Den-Mex LLC for approximately $2.8 million. The purchase of KCUV was financed through the net proceeds from the initial public offering. During 1999, Radio Unica operated the station under a local marketing agreement with Den-Mex LLC. KCUV is licensed at 5,000 watts during the daytime. KCUV's transmitter is located in Englewood, Colorado and enables the station to reach substantially all of the Denver market. We have received FCC approval to upgrade the signal of the station.
TUCSON. Radio Unica's station KQTL(AM) broadcasting on 1210 kHz, serves the Tucson market. This market has a population of approximately 1.1 million, of which approximately 347,000 or 31.8% are Hispanic. In August 2000, Radio Unica acquired KQTL from Cima Broadcasting LLC for approximately $3.3 million. The purchase of KQTL was financed through the net proceeds from the initial public offering. From April through July 2000, Radio Unica operated the station under a local marketing agreement with Cima Broadcasting. KQTL is licensed at 10,000 watts during the daytime. KQTL's transmitter is located in Sahuarita, Arizona and enables the station to reach substantially all of the Tucson market.
LOCAL MARKETING AGREEMENTS (OPERATED STATIONS)
SAN DIEGO. From January 1, 2000 through December 31, 2001 the Company operated station KURS(AM), broadcasting on 1040 kHz, in San Diego pursuant to a Local Marketing Agreement ("LMA") with Quetzal Bilingual Comm., Inc. Pursuant to this LMA, the Company operated, and supplied all programming for, this station. At December 31, 2001 the Company elected not to exercise its option to acquire the station or extend the LMA.
AFFILIATE STATIONS
Radio Unica has several affiliate radio stations. Under our arrangements with these stations, they are generally required to carry a minimum of eight hours per day of our network programming. Currently, our affiliates are substantially exceeding this minimum, broadcasting an average of 13 hours of our programming each weekday. Our arrangements typically provide that our programming will include a certain number of minutes per hour of network advertising to be sold by us. We do not pass along any of our network advertising revenue or pay cash compensation to our affiliates. We also provide our affiliates with marketing, sales and promotional support. The terms of these arrangements are generally one to two years, but may be terminated earlier for certain reasons. Some of these arrangements give us a right of first refusal to buy the station if the station owner offers to sell it.
On January 1, 2002, the Company entered into a three year affiliation agreement with Uniradio Corp Broadcasting Baja California S.A. de C.V. ("BBC"), a Mexican company broadcasting on radio station XERCN in Tijuana, Mexico. The agreement provides the Company with an affiliate serving the San Diego, California market, the 10th ranked market in the United States in terms of Hispanic population. The agreement requires BBC to air the Company's network programming on station XERCN, which reaches substantially all of the San Diego market. The Company has sought and received permission from the FCC to allow it to supply programming to station XERCN. The agreement requires the Company to sell time for national advertising on station XERCN (for the which the Company is entitled to a sales commission), and to guarantee BBC a minimum of $250,000 per year in national advertising sales for the station.
COMPETITION
Radio broadcasting is a highly competitive business. The financial success of each of our radio stations depends, to a significant degree, upon our audience ratings, our share of the overall radio advertising revenue within each geographic market and the economic health of the market. In addition, our advertising revenue depends upon the desire of marketers to reach our audience demographic. Our radio stations compete for audience share and advertising revenue directly with other FM and AM radio stations and with other media within their respective markets, such as newspapers, broadcast and cable television, magazines, billboard advertising, transit advertising, and direct mail advertising. Some of these radio stations and networks also broadcast Spanish-language talk radio. Our primary competitors are Univision, Telemundo, Hispanic Broadcasting Corporation, Entravision Communications Corp. and Spanish Broadcasting Systems Inc. Many of these entities are larger and have significantly greater resources than Radio Unica. Additionally, our Arbitron ratings for many of our stations are below the ratings of our competitors. If a competing station converts to a format similar to that of one of our stations, or if one of our competitors strengthens its operations, our stations could suffer a reduction in ratings and advertising revenue. The audience ratings and advertising revenue of our individual stations are subject to change and any adverse change in a particular market could have a material adverse effect on our operations. There is no ranking of Spanish-language radio networks.
The Telecommunications Act of 1996 facilitates the entry of other radio broadcasting companies into the markets in which we operate or may operate in the future, some of which may be larger and have more financial resources than Radio Unica. In addition, certain of our stations compete, and in the future other stations of Radio Unica may compete, with combinations of stations operated by a single operator. There can be no assurance that our radio stations will be able to develop, maintain or increase their current audience ratings and radio advertising revenue.
In addition to the competition faced by our radio stations, we face competition from other providers of radio programs, including other radio groups that offer Spanish-language programming. Our network also competes with other radio networks and individual radio stations for the services of talk show personalities. Competition from existing and new radio networks may limit the growth and profitability of our network.
SEASONALITY
The Company's revenues and cash flow are expected to be typically lowest in the first calendar quarter. Seasonal fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in consumer spending.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
In the course of its business, the Company uses various trademarks, names and service marks, including its logos, in its advertising and promotions. The Company believes the strength of its trademarks, trade names and service marks are important to its business and intends to continue to protect and promote its marks as appropriate. The Company does not hold or depend upon any material patent, government license, franchise or concession, except the broadcast licenses granted by the FCC.
FEDERAL REGULATION OF RADIO BROADCASTING
The ownership, operation and sale of radio stations are subject to regulation by the FCC. The FCC regulates radio broadcast stations under authority granted by the Communications Act of 1934, as amended (the "Communications Act"). Among other things, the FCC:
- assigns frequency bands for broadcasting;
- determines the particular frequencies, locations and power of stations;
- issues, renews, revokes and modifies station licenses;
- determines whether to approve changes in ownership or control of station licenses;
- regulates equipment used by stations;
- imposes regulations and takes other action to prevent harmful interference between stations;
- adopts and implements regulations and policies that directly or indirectly affect the ownership, management, programming, operation and employment practices of stations; and
- has the power to impose penalties for violations of its rules or the Communications Act.
In February 1996, Congress enacted the Telecommunications Act of 1996 to amend the Communications Act.
The Telecommunications Act, among other measures, directed the FCC to:
- eliminate the national radio ownership limits;
- liberalize the local radio ownership limits as specified in the Telecommunications Act;
- issue broadcast licenses for periods of up to eight years; and
- eliminate the opportunity for the filing of competing applications against broadcast license renewal applications.
In the Balanced Budget Act of 1997, Congress authorized the FCC for the first time to conduct auctions for the awarding of construction permits for commercial radio and television stations. To settle already pending mutually exclusive applications without auctions, Congress directed the FCC to waive existing rules as necessary. The FCC has begun to implement these provisions. While Radio Unica is not a participant in any implementation proceeding, this recent action should result in the awarding of construction permits for additional radio stations, some of which might compete with Radio Unica's radio stations.
LICENSE GRANTS AND RENEWALS. The Communications Act provides that a broadcast license may be granted to an applicant if the grant would serve the public interest, convenience and necessity, subject to limitations referred to below. In deciding whether to grant a license, the FCC considers the legal, technical, financial and other qualifications of the applicant, including compliance with the Communications Act's limitations on alien ownership, compliance with various rules limiting common ownership of broadcast, cable and newspaper properties, and the "character" of the licensee and those persons holding "attributable" interests in the licensee. Broadcast licenses are granted for specific periods of time and, upon application, are renewable for additional periods of time. The Telecommunications Act amended the Communications Act to provide that broadcast licenses be granted, and thereafter renewed, for successive terms of up to eight years each, if the FCC finds that the public interest, convenience, and necessity would be served by the renewal .
Generally, the FCC renews broadcast licenses without a hearing. The Telecommunications Act requires the FCC to grant an application for renewal of a broadcast license if:
- the station has served the public interest, convenience and necessity;
- there have been no serious violations by the licensee of the Communications Act or the rules and regulations of the FCC; and
- there have been no other violations by the licensee of the Communications Act or the rules and regulations of the FCC which, taken together, would constitute a pattern of abuse.
Accordingly, the FCC does not entertain competing applications against broadcast license renewal applications. The Telecommunications Act provides that if the FCC, after notice and an opportunity for a hearing, decides that the requirements for renewal have not been met and that no mitigating factors warrant lesser sanctions, it may deny a renewal application. Only after denying an application for renewal may the FCC accept applications by third parties to operate on the frequency of the former licensee. The Communications Act continues to authorize the filing of petitions to deny against the renewal of broadcast license applications during particular periods of time following the filing of renewal applications. Petitions to deny can be used by interested parties, including members of the public, to raise issues concerning the qualifications of the renewal applicant.
There are no renewal applications currently pending for any of Radio Unica's broadcast licenses. Although Radio Unica does not anticipate any material difficulty in obtaining license renewals for full terms in the future, however, there can be no assurance that the licenses of each of our stations will be renewed or will be renewed without conditions or sanctions.
The FCC or its staff may reconsider its renewal of an application during specified time periods on their own motion or by request of the petitioner, and the petitioner may also appeal within a certain period actions by the FCC to the U.S. Court of Appeals. If the FCC does not, on its own motion, or upon a request by an interested party for reconsideration or review, review a staff grant or its own action within the applicable time periods, and if no further reconsideration, review or appeals are sought within the applicable time periods, an action by the FCC or its staff becomes a "Final Order."
LICENSE ASSIGNMENTS AND TRANSFERS OF CONTROL. The Communications Act prohibits the assignment of an FCC license or the transfer of control of a corporation holding such a license without the prior approval of the FCC. Applications to the FCC for such assignments or transfers are subject to petitions to deny by interested parties and must satisfy requirements similar to those for renewal and new station applications, such as the various FCC rules limiting common ownership of media properties in a given market. Many transactions involving radio stations provide, as a waivable pre-condition to closing, that the FCC consent to the transaction has become a "Final Order."
OWNERSHIP RULES. Rules of the FCC limit the number and location of broadcast stations in which one licensee may have an attributable interest. "Attributable interests" are discussed in greater detail below. The FCC, pursuant to the Telecommunications Act, eliminated the previously existing "national radio ownership rule." Consequently, there now is no limit imposed by the FCC on the number of radio stations one party may own nationally.
The "local radio ownership rule" limits the number of stations in a radio market in which any one individual or entity may have a control position or attributable ownership interest. Under the Telecommunications Act, the FCC revised its rules to set the local radio ownership limits as follows:
- in markets with 45 or more commercial radio stations, a party may own up to eight commercial radio stations, no more than five of which are in the same service (AM or FM);
- in markets with 30-44 commercial radio stations, a party may own up to seven commercial radio stations, no more than four of which are in the same service;
- in markets with 15-29 commercial radio stations, a party may own up to six commercial radio stations, no more than four of which are in the same service; and
- in markets with 14 or fewer commercial radio stations, a party may own up to five commercial radio stations, no more than three of which are in the same service, provided that no party may own more than 50% of the commercial stations in the market.
FCC cross-ownership rules also prohibit one party from having attributable interests in a radio station and a daily newspaper in the same market and restrict the number of radio and television stations a party may own in the same geographic area, although such limits may be waived by the FCC. The "radio television cross-ownership rule", permits common ownership of up to two television stations and up to six radio stations or one television station and seven radio stations in any market where at least 20 independently owned media voices remain in the market. A party is permitted to own up to two television stations and up to four radio stations in any market where at least 10 voices remain after the combination is effected and to own up to two television stations and one radio station regardless of the number of voices in the market. Media voices include other radio stations, television stations, daily newspapers and cable systems but do not include low power radio or low power television stations. The FCC is presently evaluating its radio/ newspaper cross-ownership rule. Radio Unica cannot predict whether the FCC will adopt any change in this rule.
On December 6, 2000, the FCC adopted a Notice of Proposed Rulemaking seeking comment on whether and how to modify the methods used in counting radio stations for purposes of applying the multiple and cross-ownership rules. Under the current rule, the FCC defines a radio market based on overlapping signal contours. The FCC has requested comment on a number of alternative methods for defining a radio market, including but not limited to: relying on a commercially determined market definition service such as Arbitron; counting only those stations that overlap a certain percentage of the contour of one or more mutually overlapping stations; and counting only those stations whose contours overlap or intersect the overlap area of the principal city contours of the stations whose ownership is being merged. On November 9, 2001, the FCC adopted an additional Notice of Proposed Rulemaking to examine whether its local radio ownership rules and policies are adequately protecting the public interest, as well as to continue consideration of the still-outstanding issues related to defining the radio market. The FCC has not proposed to apply any changes retroactively to existing ownership combinations. Radio Unica, however, cannot predict what, if any, changes will be made by the FCC and cannot predict whether any such changes will affect Radio Unica's ability to acquire additional radio stations in the future.
ATTRIBUTION RULES. All holders of attributable interests must comply with, or obtain waivers of, the FCC's multiple and cross-ownership rules. Under the current FCC rules, an individual or other entity owning or having voting control of 5% or more of a corporation's voting stock is considered to have an attributable interest in the corporation and its stations, except that banks holding such stock in their trust accounts, investment companies, and certain other passive interests are not considered to have an attributable interest unless they own or have voting control over 20% or more of such stock. An officer or director of a corporation or any general partner of a partnership also is deemed to hold an attributable interest in the media entity. Since 1984, whenever a single shareholder holds a majority of the voting stock of a corporate licensee, the FCC has considered other shareholders of the licensee, unless they are also officers or directors of the licensee, exempt from attribution. The FCC repealed this single-majority-shareholder exception to the attribution of broadcast interests last year, but grandfathered minority shareholdings acquired before December 14, 2000. Recently, however, the FCC suspended the repeal of this exception, pending further review. As a result, the FCC again will consider minority shareholders exempt from its attribution rules, as long as they are not officers or directors of the licensee, if a single shareholder holds a majority of the voting stock.
Holders of non-voting stock generally will not be attributed an interest in the issuing entity, and holders of bona fide debt and instruments such as warrants, convertible debentures, options, or other non-voting interests with rights to conversion to voting interests generally will not be attributed such an interest unless and until the conversion is effected.
Under the "Equity/Debt Plus" attribution rule, however, if the holder of an otherwise non-attributable interest is either (1) a "major program supplier" or (2) a same-market media entity subject to the broadcast multiple ownership rules, its interest in a licensee or other media entity will be attributed if the total interest (aggregating both debt and equity) exceeds 33 percent of the total asset value of the licensee or media entity. A "major program supplier" is defined as any entity that provides more than 15 percent of a station's total weekly broadcast programming hours.
Under current FCC rules, any stockholder of Radio Unica with 5% or more of the outstanding votes (except for qualified institutional investors, for which the 20% threshold is applicable), will be considered to hold attributable interests in Radio Unica. Such holders of attributable interests must comply with or obtain waivers of the FCC's multiple and cross-ownership rules. Currently, none of the attributable stockholders, officers or directors of Radio Unica have any other media interests besides those of Radio Unica that implicate the FCC's multiple ownership limits except that affiliates of Warburg, Pincus Ventures hold interests in several daily newspapers none of which is published in communities served by Radio Unica stations.
The FCC will consider a radio station providing programming and sales on another local radio station pursuant to a local marketing agreement to have an attributable ownership interest in the other station for purposes of the FCC's radio multiple ownership rules. In particular, a radio station is not permitted to enter into a local marketing agreement giving it the right to program more than 15% of the broadcast time, on a weekly basis, of another local radio station which it could not own under the FCC's local radio ownership rules. Same-market local marketing agreements are also subject to the FCC's prohibition against common ownership of a radio station and a local daily newspaper.
ALIEN OWNERSHIP LIMITS. Under the Communications Act, broadcast licenses may not be granted, transferred or assigned to any corporation of which more than one-fifth of the capital stock is owned of record or voted by aliens, who consist of non-U.S. citizens or entities or their representatives or foreign governments or their representatives or by foreign corporations. Where the corporation owning the license is controlled by another corporation, the parent corporation cannot have more than one-fourth of its capital stock owned of record or voted by aliens, if the FCC finds it in the public interest to refuse or revoke the license. The FCC has issued interpretations of existing law under which these ownership restrictions in slightly modified form apply to other forms of business organizations, including general and limited partnerships. The FCC also prohibits a licensee from continuing to control broadcast licenses if the licensee otherwise falls under alien influence or control in a manner determined by the FCC to be in violation of the Communications Act or contrary to the public interest.
PROGRAMMING REQUIREMENTS. While the FCC has relaxed or eliminated many of its regulatory requirements related to programming and content, radio stations are still required to broadcast programming responsive to the problems, needs and interests of the stations' service areas and must comply with various rules promulgated under the Communications Act that regulate political broadcasts and advertisements, sponsorship identifications, indecent programming and other matters. Failure to observe these or other FCC rules can result in the imposition of monetary forfeitures, in the grant of a "short" (less than full term) license term or, where there have been serious or a pattern of violations, license revocation. The FCC also has imposed equal employment opportunity rules on licensees. Under recently revised equal employment opportunity rules, broadcast licensees, such as Radio Unica were required to not discriminate in hiring practices, to file certain employment reports annually and at other times, to certify compliance with the rules, and to conduct "broad outreach" in their recruiting efforts by widely disseminating information regarding job openings. On January 16, 2001, the United States Court of Appeals for the D.C. Circuit found unconstitutional and vacated the revised equal employment opportunity rules. In light of the court's opinion, the FCC suspended its equal employment opportunity outreach program rules while it considers proposed new outreach rules designed to comply with the court's decision. Broadcast licensees, such as Radio Unica, however, still must afford equal opportunity in employment to all qualified persons.
AGREEMENTS WITH OTHER BROADCASTERS. Over the past several years a significant number of broadcast licensees, including Radio Unica, have entered into cooperative agreements with other stations in their markets. One typical example is a local marketing agreement between two separately or co-owned stations, whereby the licensee of one station programs substantial portions or all of the broadcast day on the other licensee's station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during such program segments for its own account. The FCC has held that local marketing agreements do not per se constitute a transfer of control and are not contrary to the Communications Act provided that the licensee of the station maintains ultimate responsibility for and control over of its broadcast station. As is the case with Radio Unica in certain circumstances the local marketing agreement is entered into in anticipation of the sale of the station, with the proposed acquirer providing programming for the station while the parties are awaiting the necessary regulatory approvals to the transaction.
FCC rules also prohibit a radio licensee from simulcasting more than 25% of its programming on other radio stations in the same broadcast service (i.e., AM-AM), whether it owns both stations or operates one or both through a LMA, where such stations serve substantially the same geographic area as defined by the stations' principal community contours. One exception to the simulcast rule permits unlimited simulcasting on an expanded band AM station of the programming of a corresponding commonly owned non-expanded band AM station in the same market. Radio Unica formerly took advantage of the FCC's exception to the general rule for simulcasting on an expanded band station (WJCC) in order to simulcast in Miami.
LOW POWER RADIO BROADCAST SERVICE. On January 20, 2000, the FCC adopted rules creating a new, low power FM radio service. These rules became effective on April 17, 2000. This new radio service consists of two classes of low power FM stations: one class with a maximum power of 100 watts that could reach an area with a radius of approximately three and a half miles; and another with a maximum power level of 10 watts that could reach an area with a radius of one to two miles. This new service will be exclusively noncommercial, and the stations will operate throughout the FM band. Existing licensees, like Radio Unica, are prohibited from owning or having a relationship with these new low power FM radio stations. In December 2000, the FCC announced the first group of noncommercial educational applicants that are eligible for new low power FM radio licenses. Pursuant to legislation enacted by the 106th Congress, these applicants currently are only eligible for licenses if the low power FM stations fully protect full service FM and FM translator stations authorized on third-adjacent channels. Implementation of this low power radio service will provide an additional audio programming service that could compete with Radio Unica's stations for listeners.
PROPOSED REGULATORY CHANGES. The Congress and the FCC have under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly:
- affect the operation, programming, technical requirements, ownership and profitability of Radio Unica and its radio broadcast stations;
- result in the loss of audience share and advertising revenues of Radio Unica's radio broadcast stations;
- affect the ability of Radio Unica to acquire additional radio broadcast stations or finance such acquisitions;
- affect cooperative agreements and/or financing arrangements with other radio broadcast licensees; or
- affect Radio Unica's competitive position in relationship to other advertising media in its markets.
Such matters include, for example:
- changes to the license, authorization and renewal process;
- proposals to revise the FCC's equal employment opportunity rules in response to the recent action by the United States Court of Appeals for the D.C. Circuit and other matters relating to minority and female involvement in broadcasting;
- proposals to alter the benchmark or thresholds for attributing ownership interest in broadcast media;
- proposals to change rules or policies relating to political broadcasting;
- changes to technical and frequency allocation matters, including those relative to the implementation of digital audio broadcasting on both a satellite and terrestrial basis;
- proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on radio;
- changes in the FCC's multiple ownership, alien ownership and cross-ownership policies; and
- proposals to limit the tax deductibility of advertising expenses by advertisers.
Although Radio Unica believes the foregoing discussion is sufficient to provide the reader with a general understanding of all material aspects of FCC regulations that affect Radio Unica, it does not purport to be a complete summary of all provisions of the Communications Act or FCC rules and policies. Reference is made to the Communications Act, FCC rules, and the public notices and rulings of the FCC for further information.
EMPLOYEES
As of December 31, 2001, the Company employed approximately 340 full-time employees. As of such date, none of the Company's employees were represented by unions. Management believes that its relations with its employees are good.
ITEM 2.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in Miami, Florida. The types of properties required to support each of the Company's owned and operated stations include land, office space, broadcasting studios and towers where broadcasting transmitters and antenna equipment are located. The Company leases space in the building housing its corporate headquarters under a lease expiring in 2008. The land, broadcasting studios and office space of the Company's owned and operated stations are located in leased facilities with lease terms expiring at various dates through December 2023.
The Company owns the transmitter, building and equipment and, in certain markets, the building and land for each of its owned and operated stations. The transmitter sites for the Company's stations are material to the Company's overall operations. Management believes that the Company's properties are in good condition and are suitable for its operations, however, the Company continually seeks opportunities to upgrade its properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and other claims which have arisen in the ordinary course of its business and have not been fully adjudicated. These actions, when ultimately concluded, will not, in the opinion of management, have a material adverse effect upon the financial position, results of operations or liquidity of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors and executive officers of the Company and certain key employees of Radio Unica Network, Inc.
JOAQUIN F. BLAYA. Mr. Blaya has been Chairman of the Board of Directors and Chief Executive Officer of the Company since August 1997. From 1995 through 1996, Mr. Blaya served as the President of Solomon International Latino, the Latin American division of Solomon International Enterprises, an international telecommunications company. From 1992 through 1995, Mr. Blaya was the President, Chief Executive Officer and a member of the Board of Directors of Telemundo, the second largest U.S. Spanish-language television network. Prior to that, Mr. Blaya was employed by Univision since 1971 in various positions, the latest being President and a member of Univision's Board of Directors.
JOSE C. CANCELA. Mr. Cancela has been President of the Company since September 1998. He initially joined the Company in July 1998 serving as President, Network. From 1992 through 1998, Mr. Cancela served as Executive Vice President of Telemundo, responsible for the overall management of Telemundo's owned and operated television stations in Puerto Rico and Miami. From 1990 to 1992, Mr. Cancela was the Vice President of the Univision Southwest Station Group.
STEVEN E. DAWSON. Mr. Dawson has been Chief Financial Officer, Executive Vice President, Secretary and a Director of the Company since August 1997. From 1991 through 1997, Mr. Dawson was employed by Telemundo in several positions, the most recent being Vice President, Finance and Controller. Prior to that, Mr. Dawson was employed at Coopers & Lybrand since 1986. Mr. Dawson is a Certified Public Accountant.
ANDREW C. GOLDMAN. Mr. Goldman has been a Director and Executive Vice President, Business Affairs of the Company since August 1997. Mr. Goldman served in different capacities for Univision from 1981 to 1993 including as Executive Vice President and President of Galavision. Prior to joining Univision, Mr. Goldman was the Senior Vice President of Marketing at Teleprompter Corporation. Mr. Goldman has served as President and Director of Cable Television Administration and Marketing Society (CTAM), and as Founder and Director of the Cable Advertising Bureau (CAB).
BLAINE R. DECKER. Mr. Decker has served as the Company's Executive Vice President, Network Sales since October 1997. He was previously employed by KWHY-TV Los Angeles as General Sales Manager from November 1995 through October 1997. From February 1984 through February 1995, Mr. Decker was employed by Univision as Senior Vice President, Network Sales and in other management positions. Prior to joining Univision, Mr. Decker was employed by Arbitron Ratings Company as Vice President of Sales and Marketing from January 1980 through February 1984.
OMAR MARCHANT. Mr. Marchant has served as Radio Unica Network, Inc.'s Vice President, Programming and as Creative Director since September 1997. Mr. Marchant has been employed in various media-related capacities including TV host, radio disc jockey, radio director, producer and creator of jingles and producer of TV specials for the Latin and general market. Additionally, Mr. Marchant served as Senior Vice President and Creative Director for Telemundo from June 1992 through July 1994 and as Vice President and Director of Promotions and Special Events or in other capacities for Univision from September 1972 through July 1994.
ADRIANA GRILLET. Ms. Grillet has served as Radio Unica Network, Inc's Vice President of Promotions, Affilliate Relations and Community Affairs since January 2001. From August 1997 through December 2000 Ms. Grillet served as Radio Unica Network, Inc.'s Vice President, Affiliate Relations. Ms. Grillet had previously served as Director of Affiliate Relations for Caracol (Latino Broadcasting Company) from April 1996 through July 1997 and CBS Americas from February 1992 through April 1996. From 1992 through 1996 Ms. Grillet also served as a program production consultant at WADO-NY and from 1988 through 1992 as Senior Program Producer.
ROY PRESSMAN. Mr. Pressman has served as Radio Unica Network, Inc.'s Vice President, Engineering since December 1997. Mr. Pressman has over 20 years of experience in building and managing radio station facilities. From August 1997 to December 1997, Mr. Pressman served as Director of Engineering at Clear Channel Communications, Inc. ("Clear Channel"). He was employed as Vice President, Engineering at Paxson Communications Corp., since acquired by Clear Channel, from August 1993 to July 1997. Prior to that, Mr. Pressman was employed as Director of Engineering at Gilmore Broadcasting, Inc.
MANUEL BORGES. Mr. Borges has served as Vice President of Finance since February 2000. From July 1998 through January 2000, Mr. Borges served as Director of Finance. From October 1992 through July 1998, Mr. Borges was employed at PriceWaterhouseCoopers LLP where he held several positions, the most recent being Manager in the Business Assurance practice. Mr. Borges is a Certified Public Accountant.
LEONARD S. COLEMAN JR. Mr. Coleman, a Director of the Company since November 18, 1999, has served as Senior Advisor of Major League Baseball since 1999. From 1994 to 1999, Mr. Coleman was president of the National League of Major League Baseball. He previously served in the New Jersey government cabinet as Commissioner of Energy and as Commissioner of the New Jersey Department of Community Affairs. Mr. Coleman also currently serves on the Board of Directors of the Omnicom Group, H.J. Heinz Company, Cendant Corporation, Owens Corning and New Jersey Resources. He is also a director of the Advisory Board of the Martin Luther King, Jr. Center for Non-Violent Social Change; The Metropolitan Opera; The Schumann Fund; the Children's Defense Fund and Seton Hall University. Mr. Coleman is also Chairman of the Jackie Robinson Foundation.
THOMAS P. MARTIN. Mr. Martin, a Director of the Company since November 2001, is President of Circle Advisors, Inc. a 25 year old firm specializing in executive compensation and benefits where he has been employed since 1982.
SIDNEY LAPIDUS. Mr. Lapidus, a Director of the Company since September 1998, is a General Partner of Warburg Pincus & Co.("WP") and a Managing Director and Member of E.M. Warburg Pincus & Co. LLC ("EMLLC"), where he has been employed since 1967. Mr. Lapidus is also a director of Lennar Corp., Knoll, Inc., Information Holdings Inc. and several private companies.
DAVID E. LIBOWITZ. Mr. Libowitz, a Director of the Company since December 2000, is a General Partner at WP and a Member and Managing Director of EMLLC, where he has been employed since July 1991. He is currently a director of Information Holdings Inc. and several privately held companies.
JUSTIN SADRIAN. Mr. Sadrian, a Director of the Company since December 2001 is an Associate with Warburg Pincus LLC, where he has been employed since 2000. Prior to joining Warburg, he was employed at J.P. Morgan & Co. from 1995 to 1999 in their Investment Banking and Merchant Banking Groups. Mr. Sadrian is also a director of Imark Communications, LLC, and American Show Management, Inc.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE FOR COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the symbol "UNCA". The following table sets forth for the past two years the high and low closing prices per share as reported by the Nasdaq National Market.
As of March 27, 2002 there were approximately 19 stockholders of record. The Company believes it has more than 2,000 beneficial owners of its common stock.
DIVIDEND POLICY
The Company has never paid or declared any cash dividends on its common stock and has no plans to do so in the foreseeable future. The Company currently intends to retain future earnings, if any, to finance the expansion of its business. Future dividends, if any, will depend on, among other things, the Company's results of operations, capital requirements and on such other factors as the Board of Directors of the Company may, in its discretion, consider relevant. The Company's 11 3/4% Senior Discount Notes due 2006 have covenants restricting among other things, the payment of dividends. For the year ended December 31, 2001, the Company did not declare nor pay any dividends.
INITIAL PUBLIC OFFERING
On October 19, 1999, the Company's first registration statement under the Securities Act of 1933 was declared effective by the Securities and Exchange Commission (File No. 333-82561). The offering commenced October 19, 1999 and was consummated on October 22, 1999. Pursuant to this offering, the Company sold an aggregate of 6,840,000 shares of its common stock at a price of $16.00 per share. Pursuant to exercise of an over-allotment option, Warburg, Pincus Ventures, L.P. ("WPV"), the majority stockholder of the Company, sold 1,026,000 shares of common stock at a price of $16.00 per share. The Company did not receive any of the proceeds from the sale by WPV. The managing underwriters were Salomon Smith Barney, Bear Stearns & Co. Inc., Donaldson, Lufkin & Jenrette and CIBC World Markets. All the shares registered were sold resulting in aggregate proceeds to the Company of $109,440,000 before the underwriting discount. The underwriting discount was $1.12 per share for an aggregate of $7,660,800.
The net proceeds received by the Company from the offering were approximately $99,450,000. In connection with the offering, the Company incurred an estimated $9,990,000 of expenses, including underwriting discounts of $7,660,800, and other expenses of the offering of approximately $2,329,200. The payments were all made to persons who were not directors, officers, 10% stockholders or affiliates.
From the effective date of the registration statement through December 31, 2001, the net proceeds from the offering have been used for the following purposes; none of which was paid to persons who were officers, directors, 10% stockholders or affiliates.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below as of and for the years ended December 31, 2001, 2000, 1999, 1998 and 1997, have been derived from the consolidated financial statements of the Company, which were audited by Ernst & Young LLP, independent certified public accountants. The selected historical financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements, including the notes thereto, appearing elsewhere in this annual report.
(1) EBITDA is defined as loss from operations plus depreciation and amortization. (2) Adjusted EBITDA is defined as loss from operations plus depreciation and amortization, stock option compensation expense and LMA termination fee.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements, the notes thereto and the supplemental data included in this annual report.
GENERAL
The Company, incorporated on September 12, 1996 (inception), was organized for the purpose of producing, broadcasting and distributing Spanish-language radio programming in the United States. The Company's strategy is to develop its radio network as a national advertising platform that is attractive to national advertisers. The network is comprised of owned and operated stations and affiliated stations. The Company launched its network on January 5, 1998 with 30 affiliated stations and three stations operated under LMAs.
The Company generates revenue from sales of network advertising time and sales of advertising time on the Company-owned and operated stations ("O&Os"). Advertising rates are, in large part, based upon the network's and each station's ability to attract audiences in demographic groups targeted by advertisers. All revenues are stated net of any agency commissions. The Company also generates revenue from its promotional and merchandising services company, MASS Promotions, Inc. ("MASS"). The Company recognizes revenue generated by MASS when the promotional and/or merchandising services are performed.
The Company's operating expenses consist of programming expenses, marketing and selling costs, including commissions paid to our sales staff, technical and engineering costs, cost of promotion services and general and administrative expenses.
The Company's performance is customarily measured by its earnings (loss) from operations plus depreciation and amortization ("EBITDA"). EBITDA is presented not as an alternative measure of operating results or cash flow from operations (as determined in accordance with generally accepted accounting principles ("GAAP")), but because it is a widely accepted supplemental financial measure of a company's ability to service debt. The Company's calculation of EBITDA may not be comparable to similarly titled measures reported by other companies since all companies do not calculate this non-GAAP measure in the same fashion. The Company's EBITDA calculation is not intended to represent cash used in operating activities, since it does not include interest and taxes and changes in operating assets and liabilities, nor is it intended to represent the net increase or decrease in cash, since it does not include cash provided by (used in) investing and financing activities.
On October 19, 1999, the Company completed an initial public offering ("IPO") of 6,840,000 shares of its common stock at an IPO price of $16.00 per share. The Company received net proceeds from the IPO of approximately $99.4 million on October 22, 1999. The net proceeds from the IPO were used to repay the indebtedness under the revolving credit facility, to acquire radio stations, upgrade existing stations and for general corporate purposes.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
NET REVENUE. Net revenue increased by approximately $7.4 million or 25% to approximately $37.5 million for the year ended December 31, 2001 from approximately $30.1 million for the year ended December 31, 2000. The increase in net revenue relates to increased network and O&Os sales and revenue generated by promotional and merchandising services associated with MASS.
OPERATING EXPENSES. Operating expenses increased by approximately $10.9 million or 22% to approximately $59.6 million for the year ended December 31, 2001 from approximately $48.7 million for the year ended December 31, 2000. The increase in operating expenses is due to increased direct operating expenses of approximately $0.4 million, increased selling, general and administrative expenses of approximately $3.2 million, increased network expenses of approximately $5.6 million, increased depreciation and amortization of approximately $0.7 million and costs associated with the operations of MASS of approximately $3.6 million, offset in part by a decrease in stock option compensation expense of $2.6 million.
Direct operating expenses increased by approximately $0.4 million or 7% to approximately $7.3 million for the year ended December 31, 2001 from approximately $6.9 million for the year ended December 31, 2000. The increase in direct operating expenses is primarily due to increased spending associated with the promotion and marketing of the O&Os as well as the increase in the number of O&Os.
Selling, general and administrative expenses increased by approximately $3.2 million or 21% to approximately $18.7 million for the year ended December 31, 2001 from approximately $15.5 million for the year ended December 31, 2000. The increase in selling, general and administrative expenses primarily relates to the increase in the number of O&Os, increased sales costs associated with the increase in revenue, an increase in the allowance for doubtful accounts, as well as administrative costs associated with MASS.
Network expenses increased by approximately $5.6 million or 43% to approximately $18.6 million for the year ended December 31, 2001 from approximately $13.0 million for the year ended December 31, 2000. The increase in network expenses is mainly due to an increase in the cost of network programming, including sporting events, increased sales costs associated with the increase in network revenue, increased spending associated with the promotion and marketing of the network as well as costs related to the termination of an employment contract.
Corporate expenses remained constant at approximately $4.0 million for the years ended December 31, 2001 and 2000. Corporate expenses are comprised of the cost of corporate management as well as legal and professional fees.
Cost of promotion services of approximately $3.6 million for the year ended December 31, 2001 relates to the cost of promotional and merchandising services incurred by MASS for its clients.
Depreciation and amortization increased by approximately $0.7 million or 11% to approximately $6.8 million for the year ended December 31, 2001 from approximately $6.1 million for the year ended December 31, 2000. The increase in depreciation and amortization is due to additions of fixed and intangible assets arising from the acquisition of new O&Os as well as the addition of fixed assets relating to the buildout and upgrades of existing O&Os.
Stock option compensation expense decreased by approximately $2.6 million or 81% to approximately $0.6 million for the year ended December 31, 2001 from approximately $3.2 million for the year ended December 31, 2000. Stock option compensation expense represents a non-cash charge relating to the vesting of variable options granted to employees of the Company. The decrease in stock option compensation expense is due to a large portion of the stock options granted becoming fully vested during 2000.
OTHER INCOME (EXPENSE). Other income (expense) decreased by approximately $6.1 million or 42% to approximately $(20.7) million for the year ended December 31, 2001 from approximately $(14.6) million for the year ended December 31, 2000. Other income (expense) for the year ended December 31, 2001 included interest income of approximately $1.4 million, interest expense of approximately $17.1 million and the loss on an investment in an unconsolidated company of approximately $5.0 million. Interest expense primarily relates to the interest on the outstanding balance of the Senior Discount Notes. The Company had approximately $3.6 million in interest income and $15.1 million in interest expense as well as a loss in an unconsolidated company of approximately $3.0 million during the year ended December 31, 2000.
INCOME TAX BENEFIT (EXPENSE). The Company recorded an income tax benefit in 2001 of approximately $0.2 million as compared to approximately $0.8 million for the year ended December 31, 2000.
The benefit in 2001 and 2000 results from the Company's ability to utilize a portion of its net operating tax loss carryforwards to offset existing deferred tax liabilities.
NET LOSS. Net loss increased by approximately $10.3 million or 32% to approximately $42.6 million for the year ended December 31, 2001 as compared to a net loss of approximately $32.3 million for the year ended December 31, 2000. The increase in net loss is mainly the result of the loss on the investment in an unconsolidated company, increased costs of network programming, including sporting events, increased costs associated with the promotion and marketing of the Company's network and O&Os, costs related to the termination of an employment contract, increased depreciation and amortization resulting from the increase in the number of and buildout of O&Os, increased interest on the outstanding balance of the Senior Discount Notes and decreased interest income partially offset by the increase in net revenue and the reduction of non-cash stock option compensation expense.
EBITDA. EBITDA, less the non-cash charge relating to the stock option compensation expense of approximately $0.6 million and $3.2 million for the years ended December 31, 2001 and 2000, respectively, decreased by approximately $5.4 million or 58% to approximately $(14.7) million for the year ended December 31, 2001 as compared to approximately $(9.3) million for the year ended December 31, 2000. EBITDA decreased by approximately $2.8 million or 23% to approximately $(15.2) million for the year ended December 31, 2001 as compared to approximately $(12.4) million for the comparable period in the prior year. The decrease in EBITDA is mainly a result of the increased costs of network programming, including sporting events, increased costs associated with the promotion and marketing of the Company's network and O&Os, and costs related to the termination of an employment contract, partially offset by the increase in net revenue and the reduction in non-cash stock option compensation expense.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
NET REVENUE. Net revenue increased by approximately $13.9 million or 86% to approximately $30.1 million for the year ended December 31, 2000 from approximately $16.2 million for the year ended December 31, 1999. The increase in net revenue relates to an increase in the Company's customer base due to the continued growth of the Company's network and O&Os, and the increase in the number of O&Os.
OPERATING EXPENSES. Operating expenses decreased by approximately $9.0 million or 16% to approximately $48.6 million for the year ended December 31, 2000 from approximately $57.6 million for the year ended December 31, 1999. The decrease in operating expenses is due to the non-cash stock option compensation expense charge of approximately $3.2 million in 2000 as compared to approximately $19.6 million in 1999 and the one-time payment of $2.0 million to terminate the LMA agreement for Los Angeles radio station KVCA-AM in 1999. These decreases were offset in part by increased costs of network programming of approximately $0.8 million, increased depreciation and amortization relating to the increase in the number of O&Os of approximately $0.9 million and cost increases associated with the increase in the number of O&Os.
Direct operating expenses increased by approximately $3.1 million or 83% to approximately $6.8 million for the year ended December 31, 2000 from approximately $3.7 million for the year ended December 31, 1999. The increase in direct operating expenses is primarily due to the increase in the number of O&Os.
Selling, general and administrative expenses increased by approximately $3.7 million or 31% to approximately $15.5 million for the year ended December 31, 2000 from approximately $11.8 million for the year ended December 31, 1999. The increase in selling, general and administrative expenses primarily relates to the variable costs associated with the increase in sales as well as the increase in the number of O&Os.
Network expenses increased by approximately $0.8 million or 6% to approximately $13.0 million for the year ended December 31, 2000 from approximately $12.2 million for the year ended December 31, 1999. The increase in network expenses is mainly due to the increase in cost of network programming.
Corporate expenses increased by approximately $1.0 million or 32% to approximately $4.0 million for the year ended December 31, 2000 from approximately $3.0 million for the year ended December 31, 1999. The increase in corporate expenses is mainly due to increased costs for personnel, professional and other costs associated with the growth of the Company.
Depreciation and amortization increased by approximately $0.9 million or 18% to approximately $6.1 million for the year ended December 31, 2000 from approximately $5.2 million for the year ended December 31, 1999. The increase in depreciation and amortization is due to additions of fixed and intangible assets arising from the acquisition of new O&Os as well as the addition of fixed assets relating to the buildout of existing O&Os.
Stock option compensation expense decreased by approximately $16.4 million or 84% to approximately $3.2 million for the year ended December 31, 2000 from approximately $19.6 million for the year ended December 31, 1999. Stock option compensation expense represents a non-cash charge relating to the vesting of variable options granted to employees of the Company. The decrease in stock option compensation expense is due to a large portion of the stock options granted becoming fully vested during 1999.
OTHER INCOME (EXPENSE). Other income (expense) decreased by approximately $2.2 million or 18% to approximately $(14.6) million for the year ended December 31, 2000 from approximately $(12.4) million for the year ended December 31, 1999. Other income (expense) for the year ended December 31, 2000 included interest income of approximately $3.6 million, interest expense of approximately $15.1 million and loss on an investment in an unconsolidated company of approximately $3.0 million. Interest expense primarily relates to the interest on the outstanding balance of the Senior Discount Notes. The Company had approximately $1.7 million in interest income and $14.1 million in interest expense during the year ended December 31, 1999.
INCOME TAX BENEFIT (EXPENSE). The Company recorded an income tax benefit in 2000 of approximately $0.8 million as compared to an income tax expense of approximately $0.3 million for the year ended December 31, 1999. The benefit in 2000 results from the Company's ability to utilize a portion of its net operating tax loss carryfowards to offset existing deferred tax liabilities.
NET LOSS. Net loss decreased by approximately $21.8 million or 40% to approximately $32.3 million for the year ended December 31, 2000 as compared to a net loss of approximately $54.1 million for the year ended December 31, 1999. The decrease in net loss is primarily the result of increased revenue, the decrease of approximately $16.4 million in non-cash stock option compensation and the one-time payment of $2.0 million made during 1999 to terminate the LMA agreement for Los Angeles radio station KVCA-AM.
EBITDA. EBITDA, less the non-cash charge relating to the stock option compensation expense of approximately $3.2 million and $19.6 million during December 31, 2000 and 1999, respectively and the one-time payment of $2.0 million, during 1999, to terminate the LMA agreement for Los Angeles radio station KVCA-AM, increased by approximately $5.4 million or 37% to approximately $(9.2) million for the year ended December 31, 2000 as compared to approximately $(14.6) million for the year ended December 31, 1999. EBITDA increased by approximately $23.8 million or 66% to approximately $(12.4) million for the year ended December 31, 2000 as compared to approximately $(36.2) million for the comparable period in the prior year. The increase in EBITDA is mainly the result of the increase in revenue, the decrease in stock option compensation expense in 2000 and other charge occurring during 1999 as mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has had negative cash flows from operations since inception. Working capital and financing for the Company's acquisitions to date have been provided primarily by the proceeds from the IPO, the issuance of the 11 3/4% Senior Discount Notes due August 1, 2006 and the issuance of promissory notes, common stock and preferred stock to the Company's stockholders.
Net cash used in operating activities decreased by approximately $2.8 million to approximately $9.8 million for the year ended December 31, 2001 as compared to approximately $12.6 million for the year ended December 31, 2000. Net cash used in investing activities was approximately $9.1 million and $23.2 million for the years ended December 31, 2001 and 2000, respectively. The decrease of $14.1 million from 2000 to 2001 is primarily due to the lack of radio station acquisitions during 2001. Net cash used in financing activities was $(0.4) million and $(1.7) million for the years ended December 31, 2001 and 2000, respectively. The decrease of approximately $(1.3) million primarily relates to the acquisition of treasury stock during 2000.
Capital expenditures primarily relate to the purchase of broadcast equipment for the network and O&Os, leasehold improvements, computer equipment and telecommunications equipment. Capital expenditures were approximately $3.9 million and $3.6 million for the years ended December 31, 2001 and 2000, respectively.
The Company believes that the remaining proceeds from the IPO, and to the extent it is able to enter into a revolving credit facility, will provide adequate resources to fund the Company's operating expenses, working capital requirements, capital expenditures and acquisitions until its business strategy provides the Company with sufficient operating cash flow. There can be no assurance that such business strategy will be successfully implemented or that the future cash flows of the Company will be sufficient to meet all of the Company's obligations and commitments. The failure to generate such sufficient cash flow could significantly adversely affect the market value of the Company's common stock and Senior Discount Notes, and the Company's ability to pay the principal of and interest on the Senior Discount Notes. There is also no assurance that the Company will be able to enter into a revolving credit facility on acceptable terms, if at all.
The known impact on future operating results related to the Senior Discount Notes will be annual interest expense through August 1, 2006 as follows:
Expected interest payments under the terms of the Senior Discount Notes are as follows:
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations". The statement discontinues the use of the pooling of interests method of accounting for business combinations. The statement is effective for all business combinations after June 30, 2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". The statement requires discontinuing the amortization of goodwill and other intangible assets with indefinite useful lives. Instead, these assets will be tested periodically for impairment and written down to their fair market value as necessary. The Company adopted this statement effective January 1, 2002. Application of the non-amortization provisions of SFAS 142 for goodwill and intangible assets with indefinite useful lives is expected to result in an increase in operating income of approximately $3.8 million in 2002. At December 31, 2001, the Company had goodwill of approximately $5.8 million and intangible assets with indefinite useful lives of approximately $98.2 million.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for the fiscal year beginning November 1, 2002. SFAS 144 establishes a single model to account for impairment of assets to be held or disposed, incorporating guidelines for accounting and disclosure of discontinued operations. We believe the impact on our financial position and results of operations from the adoption of SFAS 144 will not be material.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company was subject to interest rate risk on the interest on borrowings under the Revolving Credit Facility. However, as of November 23, 2001 the credit facility was terminated.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders Radio Unica Communications Corp.
We have audited the accompanying consolidated balance sheets of Radio Unica Communications Corp. (formerly Radio Unica Holdings Corp.) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, changes in Series A redeemable cumulative preferred stock and stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedules listed in the Index of Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Radio Unica Communications Corp. and subsidiaries at December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Miami, Florida March 5, 2002
RADIO UNICA COMMUNICATIONS CORP. CONSOLIDATED BALANCE SHEETS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
RADIO UNICA COMMUNICATIONS CORP CONSOLIDATED STATEMENTS OF OPERATIONS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
RADIO UNICA COMMUNICATIONS CORP
CONSOLIDATED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE CUMULATIVE PREFERRED STOCK AND STOCK HOLDERS' EQUITY (DEFICIT)
RADIO UNICA COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
RADIO UNICA COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRESENTATION
Radio Unica Communications Corp. (the "Company") through its subsidiaries owns and/or operates 16 spanish-language radio stations serving 14 markets throughout the United States. The Company was formed for the purpose of producing, broadcasting and distributing Spanish language radio programming in the United States. The Company launched its network on January 5, 1998 and began broadcasting programming to radio broadcast stations that it operates and to affiliated stations in the United States and abroad.
On October 19, 1999, the Company completed an initial public offering ("IPO") of 6,840,000 shares of its common stock at an IPO price of $16.00 per share. The Company received net proceeds from the IPO of approximately $99.4 million on October 22, 1999. The net proceeds from the IPO were used to repay the indebtedness under the revolving credit facility, to acquire radio stations, upgrade existing stations and for general corporate purposes.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company accounts for investments in 20% to 50% owned companies and for investments in over 50% owned companies over which the Company does not have control under the equity method of accounting.
SHARE DIVIDEND
Effective July 6, 1999, the Company changed its name from Radio Unica Holdings Corp. to Radio Unica Communications Corp. Also on that date, the Company's Board of Directors approved a share dividend of 370 common shares payable for each common share, subject to consummation of the Company's proposed IPO. Also on that date, the Company's Board of Directors approved an increase in the authorized common shares from 100,000 common shares to 40,000,000 common shares, and an increase in the authorized preferred shares from 450,000 preferred shares to 5,000,000 preferred shares. Effective September 16, 1999, the Company's Board of Directors rescinded the share dividend of 370 common shares payable for each common share. Also on that date, the Company's Board of Directors approved a share dividend of 310 common shares payable for each common share, subject to consummation of the Company's IPO. As a result, all references in the financial statements to number of shares and per share amounts have been restated to give retroactive recognition to such dividend.
CASH EQUIVALENTS
The Company defines as cash equivalents all highly liquid investments with a maturity of three months or less at the time of purchase.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is recorded on a straight-line basis over the estimated useful lives of the related assets, which range from 3 to 30 years. Leasehold improvements are capitalized and amortized over their estimated useful lives or the remaining life of the lease, whichever is shorter.
RADIO UNICA COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INTANGIBLE ASSETS
Intangible assets are recorded at cost. Amortization of intangible assets is provided in amounts sufficient to relate the asset cost to operations over the estimated useful lives on a straight-line basis. Intangible assets consist primarily of broadcast licenses, goodwill and other identifiable intangible assets. The estimated useful lives are as follows:
The Company evaluates periodically the propriety of the carrying amount of intangible assets as well as the amortization period to determine whether current events or circumstances warrant adjustments to the carrying value and/or revised estimates of useful lives. This evaluation consists of the projection of undiscounted operating income before depreciation, amortization, nonrecurring charges and interest for the Company's radio stations and network over the remaining amortization periods of the related intangible assets. If such projections indicate that undiscounted operating income, as adjusted, is not expected to be adequate to recover the carrying amounts of the related intangible assets, a loss is recognized to the extent the carrying amount of the asset exceeds its fair value. At this time, the Company believes that no impairment of goodwill or other intangible assets has occurred and that no reduction of the estimated useful lives is warranted.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to local, national and network advertisers. Revenue for these activities is recognized as commercials are broadcast. Revenue from promotional and merchandising services is recognized when the promotional and/or merchandising services are performed.
ADVERTISING COSTS
The Company incurs various marketing and promotional costs to increase and maintain listenership. These costs are charged to expense as incurred and for the years ended December 31, 2001, 2000 and 1999 amounted to approximately $4.5 million, $2.5 million and $3.5 million, respectively.
BARTER TRANSACTIONS
Barter transactions represent advertising time exchanged for promotional items, advertising, supplies, equipment and services. Barter transactions are recorded at the estimated fair value of the goods or services received or rendered, if rendered services are deemed to be a better indicator of fair value. Revenues from barter transactions are recognized as income when advertisements are broadcast. Expenses are recognized when goods or services are used.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company evaluates the collectibility of its accounts receivable based on a combination of factors. In circumstances where it is aware of a specific customer's inability to meet its financial obligations, it records a specific reserve to reduce the amounts recorded to what it believes will be collected. For all other customers, it recognizes reserves for bad debt based on historical experience of bad debts as a percent of revenues, adjusted for relative improvements or deteriorations in the agings and changes in current economic conditions.
RADIO UNICA COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities are determined based upon differences between the financial statements and income tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for the impairment of long-lived assets under the provisions of SFAS No. 121, "Accounting For The Impairment Of Long-Lived Assets". SFAS No. 121 requires impairment losses to be recorded on long-lived assets when indications of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. If the carrying value of the assets will not be recoverable, as determined based on the undiscounted cash flows estimated, the carrying value of the assets are reduced to fair value. Generally, fair value will be determined using valuation techniques such as expected discounted cash flows or appraisals, as appropriate. The Company has not recorded any impairment losses on long-lived assets.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of their short duration to maturity. The fair value of the long-term debt is based on quoted market prices. At December 31, 2001, the fair value of the Senior Discount Notes was approximately $75.1 million.
USE OF ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Accordingly, actual results could differ from those reported.
BUSINESS SEGMENTS
Pursuant to SFAS No. 131, "Disclosure About Segments of a Business Enterprise and Related Information", the Company is required to report segment information. The Company classified its businesses into two reporting segments: radio-broadcasting and promotion services. The radio-broadcasting segment includes the operations of the Company's radio network, the operations of all owned and/or operated radio stations and corporate expenses. The promotion services segment includes the operations of the Company's marketing and promotions business. The Company evaluates performance based on several factors, of which the primary financial measures are business segment net revenue, operating income (loss) and operating income (loss) before depreciation and amortization ("EBITDA").
RADIO UNICA COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
LOSS PER SHARE
Basic loss per share is calculated using the weighted average common shares outstanding during the periods. Common equivalent shares from stock options, using the treasury stock method, are also included in the diluted per share calculations unless their effect of inclusion would be antidilutive. The Company did not include any stock options in the calculation of diluted earnings per share for the years ended December 31, 2001, 2000 and 1999, since their inclusion would be antidilutive. For the years ended December 31, 2001, 2000 and 1999 there was no difference between the basic and diluted loss per share calculations.
RECLASSIFICATION
Certain amounts appearing in the 2000 and 1999 consolidated financial statements have been reclassified to conform with the 2001 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations". The statement discontinues the use of the pooling of interests method of accounting for business combinations. The statement is effective for all business combinations after June 30, 2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". The statement requires discontinuing the amortization of goodwill and other intangible assets with indefinite useful lives. Instead, these assets will be tested periodically for impairment and written down to their fair market value as necessary. The Company adopted this statement effective January 1, 2002. Application of the non-amortization provisions of SFAS 142 for goodwill and intangible assets with indefinite useful lives is expected to result in an increase in operating income of approximately $3.8 million in 2002. At December 31, 2001, the Company had goodwill of approximately $5.8 million and intangible assets with indefinite useful lives of approximately $98.2 million.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for the fiscal year beginning November 1, 2002. SFAS 144 establishes a single model to account for impairment of assets to be held or disposed, incorporating guidelines for accounting and disclosure of discontinued operations. We believe the impact on our financial position and results of operations from the adoption of SFAS 144 will not be material.
3. ACQUISITIONS
2001 ACQUISITION
On April 30, 2001, the Company entered into an asset purchase agreement with Marketing Advertising & Sales Services, Inc. and related companies to acquire its marketing and promotions businesses for a purchase price of approximately $4.5 million. In connection with this transaction, the Company acquired approximately $1.5 million in working capital, which included approximately $0.7 million in cash. The purchase price was comprised of cash payments of approximately $2.4 million and a promissory note of approximately $2.1 million. The promissory note bears interest at a rate of 8% per annum. Principal and interest on the promissory note are payable concurrently. Principal payments are scheduled to be made as follows:
The acquisition was accounted for as a purchase and, accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on estimates of their underlying values.
The proforma unaudited results of operations of the Company for the years ended December 31, 2001 and 2000 assuming this acquisition had been consummated as of January 1, 2000 are as follows:
The unaudited pro forma results do not purport to be indicative of the results of operations which actually would have resulted had this acquisition occurred on January 1, 2000, or of future results of operations of the consolidated entities.
RADIO UNICA COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS, CONTINUED
2000 ACQUISITIONS
On October 18, 1999, the Company entered into an asset purchase agreement with Den-Mex LLC to acquire Denver radio station KCUV-AM for a cash purchase price of $2.7 million. On January 3, 2000, after receiving the consent of the Federal Communications Commission (the "FCC") to assign the broadcasting license, the Company completed the acquisition.
On December 23, 1999, the Company entered into an asset purchase agreement with Harry Pappas to acquire Fresno radio station KWRU-AM for a purchase price of $7.5 million. The purchase price was comprised of approximately $5.5 million in cash and 76,555 shares of the Company's common stock valued at $2.0 million. On June 28, 2000, after receiving the consent of the FCC to assign the broadcasting license, the Company completed the acquisition.
On February 11, 2000, the Company entered into an asset purchase agreement with El Pistolon Investments, L.P. to acquire McAllen radio station KVJY-AM for a cash purchase price of $2.5 million. On June 1, 2000, after receiving the consent of the FCC to assign the broadcasting license, the Company completed the acquisition.
On April 12, 2000, the Company entered into an asset purchase agreement with Texas Lotus, Ltd. to acquire San Antonio radio station KZDC-AM for a cash purchase price of $1.8 million. The Company operated the station under a local marketing agreement, for a monthly fee of $62,500 from January 1998 through July 27, 2000, at which time the Company received the consent of the FCC to assign the broadcasting license, and completed the acquisition.
On April 27, 2000, the Company entered into an asset purchase agreement with Cima Broadcasting, L.L.C. to acquire Tucson radio station KQTL-AM for a cash purchase price of approximately $3.3 million. On August 4, 2000, after receiving the consent of the FCC to assign the broadcasting license, the Company completed the acquisition.
On June 8, 2000, the Company entered into an asset purchase agreement with Peoples Radio, Inc. to acquire Pittsburg, California radio station KATD-AM for approximately $5.0 million. The purchase price was comprised of approximately $4.5 million cash and 87,500 shares of the Company's common stock valued at approximately $0.5 million. On October 18, 2000, after receiving the consent of the FCC to assign the broadcasting license, the Company completed the acquisition.
1999 ACQUISITIONS
On October 27, 1998, the Company entered into an asset purchase agreement with Children's Broadcasting Corporation to acquire certain assets of New York City area radio stations WWRU-AM and WJDM-AM, Dallas/Ft. Worth radio station KAHZ-AM and Phoenix radio station KIDR-AM for a purchase price of $29.25 million. In connection with this acquisition, the Company entered into a two-year non-compete agreement with the seller for $750,000. Other costs associated with the transaction were approximately $441,000. The Company operated these stations under a Time Brokerage Agreement (also known as local marketing agreements and referred to herein as "LMAs") for a monthly fee of $200,000 until the transaction closed. An advanced payment of $2.5 million was made to Children's Broadcasting Corporation with the execution of the LMA. On January 14, 1999, after receiving the consent of the FCC to assign the broadcasting licenses, the Company completed the acquisitions. The Company's permit to construct WWRU, which was modified in 1999 to authorize improvement of the station's nighttime operations, expires December 6, 2003. Upon completion of the new nighttime facilities of WWRU, the Company will file a license application with the Commission. The Company cannot predict when the FCC will grant the license application, once it is filed. The license, when granted will contain a condition that will require the Company to relinquish within five years the license for either WWRU or WJDM.
RADIO UNICA COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS, CONTINUED
1999 ACQUISITIONS, CONTINUED
On February 22, 1999, the Company entered into an asset purchase agreement with One-on-One to acquire certain assets of Chicago radio station WNTD-AM for a cash purchase price of approximately $16.7 million. Other costs associated with the transaction were approximately $60,000. On May 14, 1999, after receiving the consent of the FCC to assign the broadcasting license, the Company completed the acquisition.
The acquisitions of the assets of WWRU-AM and WJDM-AM, New York, KAHZ-AM, Dallas/Ft.Worth, KIDR-AM, Phoenix, WNTD-AM, Chicago, KCUV-AM, Denver, KVJY-AM, McAllen, KWRU-AM, Fresno, KZDC-AM, San Antonio, KQTL-AM, Tucson and KATD-AM, Pittsburg were not the purchases of businesses, as the format and language of the stations were changed and the Company did not assume responsibility for any employees. The acquisitions were accounted for as purchases and, accordingly, the purchase prices were allocated to the assets acquired and liabilities assumed based on appraisals and other estimates of their underlying values.
4. SENIOR DISCOUNT NOTES AND SENIOR SECURED REVOLVING CREDIT FACILITY
SENIOR DISCOUNT NOTES
On July 27, 1998, Radio Unica Corp. ("Corp") sold in an unregistered offering to qualified institutional buyers and accredited institutional investors $158,088,000 aggregate principal amount at maturity of Corp's 11 3/4% Senior Discount Notes due August 1, 2006 (the "Old Notes"). Cash interest on the Old Notes would not accrue or be payable prior to August 1, 2002. Thereafter, cash interest would accrue at a rate of 11 3/4% per annum on the principal amount at maturity of the Old Notes through and including the maturity date and would be payable semi-annually on August 1 and February 1 of each year. In connection with this transaction, Corp received net proceeds of approximately $94.4 million after deducting issuance expenses of approximately $5.6 million.
The Old Notes were general senior unsecured obligations of Corp and ranked pari-passu in right of payment with all existing and future unsecured and unsubordinated indebtedness of Corp and senior in right of payment to any subordinated indebtedness of Corp. The Old Notes were guaranteed on a senior unsecured basis, as to payment of principal, premium if any, and interest, by the Guarantors, which consist of Corp's Domestic Restricted Subsidiaries (as defined in the Indenture, dated July 27, 1998 between Corp, Wilmington Trust as trustee and the Guarantors named therein (the "Indenture")), on a full, unconditional, joint and several basis. The Old Notes were redeemable at any time and from time to time at the option of Corp, in whole or in part on or after August 1, 2002, plus accrued and unpaid interest thereon to the date of redemption.
In addition, on or prior to August 1, 2001, Corp could redeem, at its option, up to 35% of the aggregate principal amount at maturity of the Old Notes with the net proceeds of one or more Equity Offerings, as defined, at 111.75% of the Accreted Value thereof, as defined in the Indenture, as long as Old Notes representing at least $65.0 million of the aggregate initial Accreted Value of the Old Notes originally issued remained outstanding after each such redemption and that such redemption occurred within 90 days of the closing of any such Equity Offering.
Upon a Change of Control as defined in the Indenture, Corp would be required to offer to repurchase the Old Notes at a purchase price equal to (i) 101% of the Accreted Value thereof, if the purchase date was on or prior to August 1, 2002, or (ii) 101% of the principal amount at maturity thereof, plus accrued and unpaid interest thereon, if any, to the purchase date, if such date was after August 1, 2002.
The Old Notes restricted, among other things, Corp's ability to incur additional indebtedness, pay dividends or make certain other restricted payments, consummate certain asset sales, create liens on assets, enter into transactions with affiliates, make investments, loans or advances, consolidate or merge with or into any other person or convey, transfer or lease all or substantially all of its assets or change the business conducted by Corp.
RADIO UNICA COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SENIOR DISCOUNT NOTES AND SENIOR SECURED REVOLVING CREDIT FACILITY, CONTINUED
On December 17, 1998, in order to satisfy certain obligations of Corp under a Registration Rights Agreement, dated July 22, 1998, between Corp, CIBC Oppenheimer Corp. and Bear, Stearns & Co. Inc., Corp completed the registration of the Old Notes and exchanged the Old Notes for newly issued 11 3/4% Senior Discount Notes Series B due 2006 (the "New Notes").
The form and terms of the New Notes are substantially the same as the Old Notes, except that the New Notes have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and hence are not subject to certain transfer restrictions, registration rights and related liquidated damages provisions applicable to the Old Notes. The New Notes evidence the same debt as the Old Notes and are entitled to the benefits of the Indenture. The Indenture provides for the issuance of both the Old Notes and the New Notes.
SENIOR SECURED REVOLVING CREDIT FACILITY
On July 8, 1998, Corp entered into a credit agreement with a bank for a senior secured revolving credit facility (the "Revolving Credit Facility") providing for up to $20.0 million of availability. The revolving credit facility would have matured in May 2002. However, on November 23, 2001, the Company terminated its revolving credit facility at which time no amounts were outstanding. Amounts outstanding under the revolving credit facility bore interest at the higher of the (i) bank's prime rate plus 1.25% or (ii) LIBOR plus 2.50%. The obligations under the revolving credit facility were guaranteed by the Company and secured by substantially all the assets of Company and its subsidiaries.
5. INVESTMENTS
On July 18, 2000, the Company acquired approximately 13.5% of Estrellamundo, LLC for $1.5 million in cash. As of February 9, 2001, Estrellamundo, LLC completed construction and commenced operations of its Latin-themed restaurant and club, "Y Arriba Y Arriba", which is located within Disneyland in Anaheim, California.
In 2001, the Company guaranteed a $3.5 million loan for Estrellamundo, LLC. The loan was guaranteed through the issuance of a letter of credit and reduced the Company's borrowing capacity under its revolving credit facility. In exchange for this guarantee, the Company received an additional 10.5% equity interest in Estrellamundo, LLC valued at approximately $1.2 million. In connection with this transaction, the Company recorded $1.2 million in deferred income which was being amortized over the life of the guarantee. On September 28, 2001 due to financial difficulties encountered by Estrellamundo, LLC, the loan, which was guaranteed through the letter of credit, was called by the issuing bank. The letter of credit was subsequently drawn upon and on October 5, 2001, the Company repaid the $3.5 million outstanding under the letter of credit.
In October 2001, Estrellamundo, LLC filed for relief under Chapter 11 of the Bankruptcy code. Accordingly, the Company evaluated the recoverability of its investment, including the $3.5 million associated with the loan guaranteee, in Estrellamundo, LLC and determined that the carrying value of its investment was impaired. Therefore, at September 30, 2001, based on the information available, the Company wrote off the entire carrying value in its investment in Estrellamundo, LLC. The loss on this investment is reflected in the accompanying statement of operations for the year ended December 31, 2001, in loss on investments in unconsolidated companies.
On June 26, 2000, the Company acquired approximately 3% of a Spanish and Portuguese language sports portal ("SportsYa"), through the purchase of preferred stock, in exchange for $2.0 million in cash and $1.0 million in advertising on the Company's network. At December 31, 2000, the Company evaluated the carrying value of its investment in SportsYa and noted that due to the financial condition of SportsYa, there existed an impairment in the carrying value of its investment. Accordingly, at December 31, 2000, based on the information available, the Company wrote off the entire carrying value in its investment in SportsYa. The loss on this investment is reflected in the accompanying statement of operations for the year ended December 31, 2000 in loss on investments in unconsolidated companies.
RADIO UNICA COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Depreciation expense for the years ended December 31, 2001, 2000 and 1999 was $2,577,152, $2,156,544 and $1,614,554, respectively.
7. OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following:
Amortization expense for other intangible assets for the years ended December 31, 2001, 2000 and 1999 was $1,214,964, $1,382,124 and, $1,550,994, respectively. Amortization expense relating to the deferred financing costs of $815,277 for the year ended December 31, 2001 and $770,832 for each of the years ended December 31, 2001 and 2000, was classified as interest expense.
RADIO UNICA COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
HISTORICAL
The components of the income tax benefit (expense) are as follows:
The differences between the federal statutory income tax and the effective income tax rate are summarized below:
Deferred income taxes reflect the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's net deferred income taxes are as follows:
SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets reported if based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a $49,437,267 valuation allowance at December 31, 2001 is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. The change in the valuation allowance in 2001 is approximately $16,793,000. At December 31, 2001, the Company has available net operating loss carryforwards of approximately $141,345,000, a portion of which will begin to expire in the year 2011.
RADIO UNICA COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. PREFERRED STOCK
The Company has 5,000,000 authorized shares of Preferred Stock (the "Preferred Stock"), $.01 par value, of which no shares were issued and outstanding at December 31, 2001 and 2000.
Prior to October 19, 1999, the Company had 5,000,000 authorized shares of redeemable, 10% cumulative, nonconvertible, voting, Series A Preferred Stock, $.01 par value. In connection with the IPO, all the outstanding shares of Series A redeemable cumulative preferred stock were exchanged for an aggregate of 2,974,909 shares of common stock. The total liquidation value of the Series A redeemable cumulative preferred stock on the date of the IPO was $41,499,977 which included accrued dividends of $6,119,487.
10. STOCK OPTION PLAN
On June 30, 1998, the Company adopted the 1998 Stock Option Plan ("the Plan') which provides for the granting of stock options to purchase shares of the Company's common stock to officers, directors, and key employees responsible for the direction and management of the Company and to non-employee consultants and independent contractors. At that time the Company reserved 6,200,000 shares of its common stock for issuance under the Plan. On July 6, 1999, the Company amended the plan to reduce the number of shares to be reserved for issuance under the Plan to 5,000,000 shares. The vesting period and the terms of the stock options granted are established by a Committee of the Board of Directors (the Committee). The stock options expire no later than ten years from the date of grant.
The Company accounts for stock options issued to employees and directors using the intrinsic-value method as outlined under Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees and related interpretations. Stock options issued to non-employees for services, are accounted for using the fair value method in accordance with the provisions of Emerging Issues Task Force No. 96-18 ("EITF 96-18") "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services".
In 1998, the Company granted options to its employees to purchase 2,844,870 shares of the Company's common stock. Of the 2,844,870 options granted, 678,280 vested immediately, 407,650 vest ratably over time and 635,500 vest upon the attainment of certain performance goals as determined by the Committee. Of the 635,500 options, 130,888 vested on December 31, 1998. The exercise price of the 678,280 options which vested immediately, the 407,650 options which vest ratably over time and the 130,888 options which vested on December 31, 1998 is $0.03 per share, which was determined by the Committee to be the fair market value at the date of grant, or, in the case of the 130,888 options, on the date they vested. As a result, no compensation expense has been recognized on these options under the provisions of APB Opinion No. 25. The remaining 1,123,440 options have an exercise price of $1.10 to $1.72 per share and vest upon (i) the sale of the Company or substantially all of its assets, (ii) an IPO, or (iii) an issuance of capital stock of the Company that would result in Warburg Pincus Ventures ("WPV") and/or its affiliates in the aggregate ceasing to control more common stock of the Company than any other single stockholder. Compensation expense for the 1,123,440 options is recognized to the extent that the market value of the shares exceeds the option price when vesting for these options becomes probable. Vesting for these options was not deemed probable as of December 31, 1998 and no compensation expense was recorded for these options as of December 31, 1998.
RADIO UNICA COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN, CONTINUED
During 1999, the Company granted options to its employees to purchase 1,914,667 shares of the Company's common stock. Of the 1,914,667 options granted, 1,821,357 vest ratably over time and 31,620 vest upon the attainment of certain performance goals as determined by the Committee. The exercise price of the 1,821,357 options which vest ratably over time range from $0.03 to $32.00 per share, which was determined by the Committee to be the fair market value at the date of grant. As a result, no compensation expense has been recognized on these options under the provisions of APB Opinion No. 25. The remaining 61,690 options have an exercise price of $1.10 to $1.72 per share and vest upon (i) the sale of the Company or substantially all of its assets, (ii) an IPO, or (iii) an issuance of capital stock of the Company that would result in WPV and/or its affiliates in the aggregate ceasing to control more common stock of the Company than any other single stockholder.
During 1999, the 31,620 and 61,690 options granted in 1999 and the 635,500 and 1,123,400 options granted in 1998, which were variable options, were valued at the IPO price of $16.00 per share. Compensation expense of approximately $19,591,000, representing the extent that the market value of the shares exceeded the option price, was charged to operations immediately and approximately $4.3 million is being charged to operations over the remaining vesting period. Approximately $0.5 million and $3.2 million was charged to operations in 2001 and 2000, respectively.
During 2000, the Company granted options to purchase 528,600 shares of the Company's common stock. All the options granted during 2000 vest ratably over time. Of these options 497,600 were granted to employees and 31,000 were granted to non-employees. The exercise price of the 528,600 options range from $3.44 to $30.63 per share, the fair market value at the date of grant. As a result, no compensation expense has been recognized on the options granted to employees under the provisions of APB Opinion No. 25.
During 2001 the Board of Directors of the Company amended the Plan (subject to shareholder approval) to increase the number of shares of common stock available for issuance under the Plan to 6,500,000. In addition, the Company granted options to purchase 1,219,933 shares of the Company's common stock. Of these options 1,144,433 were granted to employees and 75,500 were granted to non-employees. All the options granted during 2001 vest ratably over time. The exercise price of the 1,219,933 options range from $0.90 to $3.60 per share, the fair market value at the date of grant. As a result, no compensation expense has been recognized on the options issued to officers, directors and employees under the provisions of APB Opinion No. 25.
Pursuant to EITF 96-18, the Company recognized compensation expense for all non-employee options, in the of amount of approximately $33,000, $129,000 and $0 in 2001, 2000 and 1999, respectively, which is included in stock option compensation expense in the accompanying statement of operations.
Plan activity for 2001, 2000 and 1999 is as follows:
RADIO UNICA COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN, CONTINUED
The following table summarizes information about stock options outstanding at December 31, 2001:
The weighted average per share fair values of options granted under the stock option plan during 2001, 2000 and 1999, based on the Black-Scholes option valuation model, were $2.84, $6.56 and $6.20, respectively. Had compensation expense for the stock option grants been determined based on the fair value at the grant date for awards consistent with the methods of SFAS No. 123, the Company's pro forma net loss would have increased for
each year as indicated below:
The following weighted average assumptions were used in the Black-Scholes model:
The Black-Scholes options valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models, in management's opinion, do not necessarily provide a reliable single measure of the fair value of the Company's stock options.
RADIO UNICA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
RADIO BROADCASTING RIGHTS
The Company has entered into Radio Broadcasting Rights Agreements ("Rights Agreements") with Inter/Forever Sports, Inc. for several large soccer events including Copa America 2003, and Copa Oro 2002, 2004 and 2006 (collectively the "Soccer Events"). The Rights Agreements grant the Company exclusive Spanish-language radio broadcast rights in the United States of America for the Soccer Events.
At December 31, 2001, future minimum obligations under the Rights Agreements are as follows:
LEASES
The Company leases office space, land, broadcasting studios and certain equipment under operating leases, which expire at various dates through December 2023. Certain leases contain renewal options and provide for base rental payments plus escalation charges for real estate taxes and operating expenses.
At December 31, 2001, future minimum lease payments under such leases are as follows:
Total rent expense for the years ended December 31, 2001, 2000 and 1999 was approximately $1,580,000, $1,450,000, and $943,000, respectively.
On November 8, 2001, a securities class action suit was filed against the Company and/or the following executive officers and directors: Joaquin F. Blaya, Steven E. Dawson, and Manuel A. Borges, and the following underwriters of our initial public offering: Salomon Smith Barney Holdings; The Bear Stearns Companies Inc.; Credit Suisse First Boston Corp.; CIBC World Markets; FleetBoston Robertson Stephens, Inc; Deutsche Banc Alex Brown Incorporated; Merrill Lynch, Pierce, Fenner & Smith Inc.; Morgan Stanley Dean Witter & Co.; and Prudential Securities Incorporated (collectively the "Underwriters"). The suit was filed in the United States District Court for the Southern District of New York on behalf of all persons who acquired our common stock between October 19, 1999 and December 6, 2000, The complaint charges defendants with violations of Sections 11, 12 and 15 of the Securities Act of 1933 and Section 10(b) and 20(a) of the Securities Exchange Act of 1934 ( and Rules 10b-3 and 10b-5 promulgated thereunder), for issuing a registration statement and prospectus that contained material misrepresentations and/or omissions. The complaint alleges that the prospectus was false and misleading because it failed to disclose (i) the agreements between the Underwriters and certain investors to provide them with significant amounts of restricted Radio Unica Communications Corp. shares in the IPO in exchange for excessive and undisclosed commissions; and (ii) the agreements between the Underwriters and certain customers under which the underwriters would allocate shares in the IPO to those customers in exchange for the customers' agreement to purchase Radio Unica Communications Corp's shares in the after-market at pre-determined prices. The complaint seeks an undisclosed amount of damages, as well as attorney fees. We consider this claim, as it relates to the Company to be wholly without merit and we will vigorously defend against such claim. Pursuant to the underwriting agreement between the Company and the Underwriters, the Underwriters have agreed to indemnify the Company with respect to all written information relating to the Underwriters and furnished by them to the Company. Accordingly, the ultimate loss, if any, that may result cannot be reasonably determined and, accordingly, no accrual for this matter has been recorded as of December 31, 2001.
The Company is subject to legal proceedings and other claims which have arisen in the ordinary course of its business and have not been fully adjudicated. These actions, when ultimately concluded, will not, in the opinion of management, have a material adverse effect upon the financial position, results of operations or liquidity of the Company.
RADIO UNICA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years ended December 31, 2001 and 2000:
Basic and diluted loss per common share are computed independently for each of the periods presented, accordingly, the sum of the quarterly loss per share amounts may not agree to the total for the year.
13. STOCKHOLDER NOTES RECEIVABLE
On November 1, 2000, the Company's Board of Directors authorized loans to the Company's Chairman and Chief Executive Officer ("CEO") and the Company's Chief Financial Officer ("CFO") of up to $550,000 and $200,000, respectively. The proceeds of these notes were used by the CEO and CFO to purchase shares of the Company's common stock. The full recourse notes bear interest at a rate of 8% per year and mature on November 13, 2005. The notes have been classified in the accompanying balance sheets as a decrease to stockholders' equity. At December 31, 2001, the amounts outstanding under these notes totaled $749,657. Interest receivable of $56,105 at December 31, 2001 is included in other assets.
14. SEGMENT OPERATING RESULTS
Pursuant to SFAS No. 131, "Disclosure About Segments of a Business Enterprise and Related Information", the Company is required to report segment information. The Company classified its businesses into two reporting segments: radio-broadcasting and promotion services. The radio-broadcasting segment includes the operations of the Company's radio network, the operations of all owned and/or operated radio stations and corporate expenses. The promotion services segment includes the operations of the Company's marketing and promotions business. The Company evaluates performance based on several factors, of which the primary financial measures are business segment net revenue, operating income (loss) and EBITDA.
Prior to the acquisition of the promotion services business in 2001, as described in Note 3, the company operated in one segment.
RADIO UNICA COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT OPERATING RESULTS, CONTINUED
Results by segment are as follows:
The Company's performance is customarily measured by its earnings (loss) from operations plus depreciation and amortization ("EBITDA"). EBITDA is presented not as an alternative measure of operating results or cash flow from operations (as determined in accordance with generally accepted accounting principles ("GAAP")), but because it is a widely accepted supplemental financial measure of a company's ability to service debt. The Company's calculation of EBITDA may not be comparable to similarly titled measures reported by other companies since all companies do not calculate this non-GAAP measure in the same fashion. The Company's EBITDA calculation is not intended to represent cash used in operating activities, since it does not include interest and taxes and changes in operating assets and liabilities, nor is it intended to represent the net increase or decrease in cash, since it does not include cash provided by (used in) investing and financing activities.
15. SUBSEQUENT EVENTS
AFFILIATION AGREEMENT
On January 1, 2002, the Company entered into a three year affiliation agreement with Uniradio Corp Broadcasting Baja California S.A. de C.V. ("BBC"), a Mexican company broadcasting on radio station XERCN in Tijuana, Mexico. The agreement provides the Company with an affiliate serving the San Diego, California market, the 10th ranked market in the United States in terms of Hispanic population. The agreement requires BBC to air the Company's network programming on station XERCN, which reaches substantially all of the San Diego market. The Company has sought and received permission from the FCC to allow it to supply programming to station XERCN. The agreement requires the Company to sell time for national advertising on station XERCN (for the which the Company is entitled to a sales commission), and to guarantee BBC a minimum of $250,000 per year in national advertising sales for the station.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by Item 10 with respect to directors, nominees and executive officers of the Company is incorporated by reference to the information set forth in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year end.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the information set forth in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The information required by Item 12 is incorporated by reference to the information set forth in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the information set forth in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements have been filed under Item 8 of this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999
Consolidated Statements of Changes in Series A Redeemable Cumulative Preferred Stock and Stockholders' Equity (Deficit) for the Years Ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
(a) 2. FINANCIAL STATEMENT SCHEDULES
Schedule I - Condensed Financial Information of Radio Unica Communications Corp.
Schedule II - Valuation and Qualifying Accounts
(b) REPORTS ON FORM 8-K
None
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF RADIO UNICA COMMUNICATIONS CORP.
CONDENSED BALANCE SHEETS
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF RADIO UNICA COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF OPERATIONS
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF RADIO UNICA COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF CASH FLOWS
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF RADIO UNICA COMMUNICATIONS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the parent company-only financial statements of Radio Unica Communications Corp. (formerly Radio Unica Holdings Corp.) (the Company), the investment in the wholly owned subsidiary is stated at cost plus intercompany receivables, less equity in the net loss of subsidiary since inception. The parent company-only financial statements should be read in conjunction with Radio Unica Communications Corp.'s consolidated financial statements which are included herein.
2. INITIAL PUBLIC OFFERING
On October 19, 1999, the Company completed an initial public offering ("IPO") of 6,840,000 shares of its common stock at an IPO price of $16.00 per share. The Company received net proceeds from the IPO of approximately $99.4 million on October 22, 1999. The net proceeds from the IPO were and will be used to repay the indebtedness under the revolving credit facility, to acquire radio stations, upgrade existing stations and for general corporate purposes.
3. PREFERRED STOCK
In connection with the IPO, all the outstanding shares of Series A redeemable cumulative preferred stock were exchanged for an aggregate of 2,974,909 shares of common stock. The total liquidation value of the Series A redeemable cumulative preferred stock on the date of the IPO was $41,499,977, which included accrued dividends of $6,119,487.
4. STOCK OPTION PLAN
On June 30, 1998, the Company adopted the 1998 Stock Option Plan ("the Plan') which provides for the granting of stock options to purchase shares of the Company's common stock to officers, directors, and key employees responsible for the direction and management of the Company and to non-employee consultants and independent contractors. At that time the Company reserved 6,200,000 shares of its common stock for issuance under the Plan. At July 6, 1999, the Company amended the plan to reduce the number of shares to be reserved for issuance under the Plan to 5,000,000 shares. The vesting period and the terms of the stock options granted are established by a Committee of the Board of Directors (the Committee). The stock options expire no later than ten years from the date of grant.
The Company accounts for stock options issued to employees and directors using the intrinsic-value method as outlined under Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees and related interpretations. Stock options issued to non-employees for services, are accounted for using the fair value method in accordance with the provisions of Emerging Issues Task Force No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services".
In 1998, the Company granted options to its employees to purchase 2,844,870 shares of the Company's common stock. Of the 2,844,870 options granted, 678,280 vested immediately, 407,650 vest ratably over time and 635,500 vest upon the attainment of certain performance goals as determined by the Committee. Of the 635,500 options, 130,888 vested on December 31, 1998. The exercise price of the 678,280 options which vested immediately, the 407,650 options which vest ratably over time and the 130,888 options which vested on December 31, 1998 is $0.03 per share, which was determined by the Committee to be the fair market value at the date of grant, or, in the case of the 130,888 options, on the date they vested. As a result, no compensation expense has been recognized on these options under the provisions of APB Opinion No. 25. The remaining 1,123,440 options have an exercise price of $1.10 to $1.72 per share and vest upon (i) the sale of the Company or substantially all of its assets, (ii) an IPO, or (iii) an issuance of capital stock of the Company that would result in Warburg Pincus Ventures and/or its affiliates in the aggregate ceasing to control more common stock of the Company than any other single stockholder. Compensation expense for the 1,123,440 options is recognized to the extent that the market value of the shares exceeds the option price when vesting for these options becomes probable. Vesting for these options was not deemed probable as of December 31, 1998 and no compensation expense was recorded for these options as of December 31, 1998.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF RADIO UNICA COMMUNICATIONS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
4. STOCK OPTION PLAN
During 1999, the Company granted options to its employees to purchase 1,914,667 shares of the Company's common stock. Of the 1,914,667 options granted, 1,821,357 vest ratably over time and 31,620 vest upon the attainment of certain performance goals as determined by the Committee. The exercise price of the 1,821,357 options which vest ratably over time range from $0.03 to $32.00 per share, which was determined by the Committee to be the fair market value at the date of grant. As a result, no compensation expense has been recognized on these options under the provisions of APB Opinion No. 25. The remaining 61,690 options have an exercise price of $1.10 to $1.72 per share and vest upon (i) the sale of the Company or substantially all of its assets, (ii) an IPO, or (iii) an issuance of capital stock of the Company that would result in WPV and/or its affiliates in the aggregate ceasing to control more common stock of the Company than any other single stockholder.
During 1999, the 31,620 and 61,690 options granted in 1999 and the 635,500 and 1,123,400 options granted in 1998, which were variable options, were valued at the IPO price of $16.00 per share. Compensation expense of approximately $19,591,000, representing the extent that the market value of the shares exceeded the option price, was charged to operations immediately and approximately $4.3 million is being charged to operations over the remaining vesting period. Approximately $0.5 million and $3.2 million was charged to operations in 2001 and 2000, respectively.
During 2000, the Company granted options to its employees to purchase 528,600 shares of the Company's common stock. All the options granted during 2000 vest ratably over time. The exercise price of the 528,600 options range from $3.44 to $30.63 per share, the fair market value at the date of grant. As a result, no compensation expense has been recognized on these options under the provisions of APE Opinion No. 25.
During 2001 the Board of Directors of the Company amended the Plan (subject to shareholder approval) to increase the number of shares of common stock available for issuance under the Plan to 6,500,000. In addition, the Company granted options to purchase 1,219,933 shares of the Company's common stock. Of these options 1,144,433 were granted to employees and 75,500 were granted to non-employees. All the options granted during 2001 vest ratably over time. The exercise price of the 1,219,933 options range from $0.90 to $3.60 per share, the fair market value at the date of grant. As a result, no compensation expense has been recognized on the opitons issued to officers, directors and employees under the provisions of APB Opinion No. 25.
Pursuant to EITF 96-18, the Company recognized compensation expense for all non-employee opitons, in the of amount of approximately $33,000, $129,000 and $0 in 2001, 2000 and 1999, respectively, which is included in stock option compensation expense in the accompanying statement of operations.
5. STOCKHOLDER NOTES RECEIVABLE
On November 1, 2000, the Company's Board of Directors authorized loans to the Company's Chairman and Chief Executive Officer ("CEO") as well as the Company's Chief Financial Officer ("CFO") of up to $550,000 and $200,000, respectively. The proceeds of these notes may only be used by the CEO and CFO to purchase shares of the Company's common stock. The full recourse notes bear interest at a rate of 8% per year and mature on November 13, 2005. The notes have been classified in the accompanying balance sheet as a decrease to stockholders' equity. At December 31, 2001, the amounts outstanding under these notes totaled $749,657. Interest receivable of $56,105 at December 31, 2001 is included in other assets.
RADIO UNICA COMMUNICATION CORP. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
- ---------- * Incorporated by reference from Registration Statement on Form S-4 (No. 333-61211) of Radio Unica Corp. as amended, as declared effective by the Securities and Exchange Commission on December 18,1998.
** Incorporated by reference from Registration Statement on Form S-1 (No 333-82561) of Radio Unica Communications Corp, as amended, as declared effective by the Securities and Exchange Commission on October 19, 1999.
**** Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 28, 2002.
Radio Unica Communications Corp.
By: /s/ Joaquin F. Blaya -------------------- Joaquin F. Blaya Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.