** **

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**FORM 10-Q**

 

| **ý** | **Quarterly Report pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**  |
|------------|-----------------------------------------------------------------------------------------------|
|       | **For the Quarterly Period Ended June 30,  2003**                                             |
|       |
| **OR**     |
|       |
| **o**      | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |

 

**Commission File No.333-61211**

 

**Radio Unica Corp.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                    |   | **65-0776004**                           |
|-------------------------------------------------|--------|------------------------------------------|
| (State of Incorporation)                        |   | (I.R.S. Employer  Identification Number) |
|                                            |   |                                     |
| **8400 N.W. 52nd Street, Suite 100  Miami, FL** |   | **33166**                                |
| (Address of principal executive offices)        |   | (Zip Code)                               |

** **

**305-463-5000**

(Registrant’s telephone number, including area code)

 

**N/A**

(Former name, former address and former fiscal year, if changed sincelast report)

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  YES ý   NO o

 

Indicate bycheck mark whether the registrant is an accelerated filer (as defined inExchange Act Rule 12b-2) YES o   NO ý

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date.

 

As of August13, 2003, 100 shares of Common Stock, $.01 par value were outstanding.

 

 

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**RADIO UNICA CORP.**

 

**TABLE OF CONTENTS**

 
| **PART I.     FINANCIAL  INFORMATION**            |
|----------------------------------------------------------------------------|
|                                                                       |
| Item 1.  Consolidated  Financial Statements                           |
| Item 2.   Management’s Discussion and Analysis                   |
| Item  3.  Quantitative and Qualitative  Disclosures about Market Risk |
| Item 4.  Controls and Procedures                                      |
|                                                                       |
| **PART  II.     OTHER INFORMATION**               |
|                                                                       |
| Item 6.   Exhibits and Reports on Form 8-K                            |

 

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**RADIO UNICA CORP.**

** **

**CONSOLIDATEDBALANCE SHEETS**

 
|                                                                                                    |   | **June 30,  2003** |        | **December 31,  2002** |   |
|---------------------------------------------------------------------------------------------------------|--------|--------------------|-------------|------------------------|--------|
|                                                                                                    |   | **(Unaudited)**    |        |                   |   |
| **ASSETS**                                                                                              |   |               |        |                   |   |
| Current assets:                                                                                         |   |               |        |                   |   |
| Cash and cash equivalents                                                                               |   | $                  | 2,925,439   |                   | $      | 2,805,775 |   |
| Accounts receivable, net of  allowance for doubtful accounts of $1,022,391 and $1,148,228, respectively |   | 8,256,498          |        | 9,494,925              |   |
| Prepaid expenses and other  current assets                                                              |   | 4,015,148          |        | 2,251,029              |   |
| Assets held for sale                                                                                    |   | —             |        | 2,925,554              |   |
| Total current assets                                                                                    |   | 15,197,085         |        | 17,477,283             |   |
|                                                                                                    |   |               |        |                   |   |
| Property and equipment, net                                                                             |   | 21,927,423         |        | 23,071,043             |   |
| Broadcast licenses, net of  accumulated amortization of $10,210,423                                     |   | 96,433,935         |        | 96,433,935             |   |
| Other intangible assets,  net                                                                           |   | 8,404,017          |        | 8,971,849              |   |
| Other assets                                                                                            |   | 375,894            |        | 318,954                |   |
|                                                                                                    |   | $                  | 142,338,354 |                   | $      | 146,273,064 |   |
|                                                                                                    |   |               |        |                   |   |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIT**                                                         |   |               |        |                   |   |
| Current liabilities:                                                                                    |   |               |        |                   |   |
| Accounts payable                                                                                        |   | $                  | 719,722     |                   | $      | 1,295,971 |   |
| Accrued expenses                                                                                        |   | 2,636,116          |        | 2,827,704              |   |
| Interest payable                                                                                        |   | 7,746,391          |        | 7,784,537              |   |
| Deferred revenue                                                                                        |   | 445,553            |        | 608,218                |   |
| Current portion of notes  payable                                                                       |   | 503,663            |        | 641,741                |   |
| Total current liabilities                                                                               |   | 12,051,445         |        | 13,158,171             |   |
|                                                                                                    |   |               |        |                   |   |
| Other liabilities                                                                                       |   | 75,500             |        | 75,000                 |   |
| Notes payable                                                                                           |   | —             |        | 500,810                |   |
| Deferred taxes                                                                                          |   | 988,460            |        | 988,460                |   |
| Due to parent, net                                                                                      |   | 93,776,517         |        | 95,656,430             |   |
| Revolving credit facility                                                                               |   | 12,000,000         |        | —                 |   |
| Senior discount notes                                                                                   |   | 158,088,000        |        | 158,088,000            |   |
|                                                                                                    |   |               |        |                   |   |
| Commitments and  contingencies                                                                          |   |               |        |                   |   |
|                                                                                                    |   |               |        |                   |   |
| Stockholders’ deficit:                                                                             |   |               |        |                   |   |
| Common stock; $.01 par  value; 1,000 shares authorized, 100 shares issued and outstanding               |   | 1                  |        | 1                      |   |
| Additional paid-in-capital                                                                              |   | 59,612,074         |        | 59,612,074             |   |
| Deferred compensation  expense                                                                          |   | (31,282            | )           | (96,226                | )      |
| Accumulated deficit                                                                                     |   | (194,222,361       | )           | (181,709,656           | )      |
| Total stockholders’ deficit                                                                        |   | (134,641,568       | )           | (122,193,807           | )      |
|                                                                                                    |   | $                  | 142,338,354 |                   | $      | 146,273,064 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements.*

 

2

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**RADIO UNICA CORP.**

** **

**CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)**

 
|                                                                 |   | **Three  months ended  June 30,** |       | **Six months  ended  June 30,** |   |
|----------------------------------------------------------------------|--------|-----------------------------------|------------|---------------------------------|--------|
|                                                                 |   | **2003**                          |       | **2002**                        |   | **2003** |   | **2002** |   |
|                                                                 |   |                              |       |                            |   |   |   |   |   |
| Net revenue                                                          |   | $                                 | 12,306,411 |                            | $      | 12,178,532 |   | $ | 21,903,805 |   | $ | 20,340,268 |   |
|                                                                 |   |                              |       |                            |   |   |   |   |   |   |   |   |   |
| Operating expenses:                                                  |   |                              |       |                            |   |   |   |   |   |
| Direct operating (exclusive of depreciation shown seperately  below) |   | 1,493,303                         |       | 1,302,953                       |   | 2,505,838 |   | 2,498,426 |   |
| Selling, general and  administrative                                 |   | 4,249,151                         |       | 4,397,813                       |   | 8,391,911 |   | 8,368,505 |   |
| Network (exclusive of depreciation shown seperately  below)          |   | 3,103,316                         |       | 3,712,702                       |   | 5,903,595 |   | 7,473,748 |   |
| Corporate                                                            |   | 772,247                           |       | 874,900                         |   | 1,520,618 |   | 1,722,142 |   |
| Cost of promotion services                                           |   | 2,172,897                         |       | 1,478,502                       |   | 4,681,488 |   | 2,490,858 |   |
| Depreciation and  amortization                                       |   | 822,179                           |       | 752,700                         |   | 1,620,879 |   | 1,491,950 |   |
| Stock option compensation                                            |   | 43,202                            |       | 151,321                         |   | 64,945 |   | 311,466 |   |
|                                                                 |   | 12,656,295                        |       | 12,670,891                      |   | 24,689,274 |   | 24,357,095 |   |
| Loss from operations                                                 |   | (349,884                          | )          | (492,359                        | )      | (2,785,469 | ) | (4,016,827 | ) |
|                                                                 |   |                              |       |                            |   |   |   |   |   |
| Other income (expense):                                              |   |                              |       |                            |   |   |   |   |   |
| Interest expense                                                     |   | (5,021,367                        | )          | (4,600,358                      | )      | (9,982,450 | ) | (9,111,780 | ) |
| Interest income                                                      |   | 1,823                             |       | 1,615                           |   | 5,291 |   | 4,719 |   |
| Other                                                                |   | 7,003                             |       | (4,440                          | )      | 249,923 |   | (52,920 | ) |
|                                                                 |   | (5,012,541                        | )          | (4,603,183                      | )      | (9,727,236 | ) | (9,159,981 | ) |
| Loss before income taxes                                             |   | (5,362,425                        | )          | (5,095,542                      | )      | (12,512,705 | ) | (13,176,808 | ) |
| Income tax benefit                                                   |   | —                            |       | 39,018                          |   | — |   | 78,036 |   |
| Net loss                                                             |   | $                                 | (5,362,425 | )                               | $      | (5,056,524 | ) | $ | (12,512,705 | ) | $ | (13,098,772 | ) |
|                                                                 |   |                              |       |                            |   |   |   |   |   |
| Net loss per common share -  basic and diluted                       |   | $                                 | (53,624    | )                               | $      | (50,565 | ) | $ | (125,127 | ) | $ | (130,988 | ) |
|                                                                 |   |                              |       |                            |   |   |   |   |   |
| Weighted average common  shares outstanding - basic and diluted      |   | 100                               |       | 100                             |   | 100 |   | 100 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements.*

 

3

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**RADIO UNICA CORP.**

** **

**CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)**

 
|                                                                         |   | **Six months  ended June 30,** |        |
|------------------------------------------------------------------------------|--------|--------------------------------|-------------|
|                                                                         |   | **2003**                       |        | **2002** |   |
|                                                                         |   |                           |        |   |   |
| **Operating  activities**                                                    |   |                           |        |   |   |
| Net loss                                                                     |   | $                              | (12,512,705 | ) | $ | (13,098,772 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities: |   |                           |        |   |   |
| Depreciation and  amortization                                               |   | 1,620,879                      |        | 1,491,950 |   |
| Provision for bad debts                                                      |   | (126,013                       | )           | 31,939 |   |
| Accretion of interest on  senior discount notes                              |   | —                         |        | 8,691,171 |   |
| Amortization of deferred  financing costs                                    |   | 453,342                        |        | 319,962 |   |
| Stock option compensation  expense                                           |   | 64,945                         |        | 311,466 |   |
| Deferred income taxes                                                        |   | —                         |        | (78,036 | ) |
| Gain on sale of radio  station assets                                        |   | (225,616                       | )           | — |   |
| Other                                                                        |   | (18,006                        | )           | (118,835 | ) |
| Changes in assets and  liabilities, net of effects of acquisitions:          |   |                           |        |   |   |
| Accounts receivable                                                          |   | 1,364,440                      |        | (193,093 | ) |
| Prepaid expenses and other  current assets                                   |   | (1,865,964                     | )           | (257,725 | ) |
| Other assets                                                                 |   | (58,756                        | )           | (198,317 | ) |
| Accounts payable                                                             |   | (576,250                       | )           | (1,719,982 | ) |
| Accrued expenses                                                             |   | (231,588                       | )           | 376,948 |   |
| Interest payable                                                             |   | (38,146                        | )           | — |   |
| Deferred revenue                                                             |   | (144,659                       | )           | 107,442 |   |
| Other liabilities                                                            |   | 500                            |        | 20,000 |   |
| Net cash used in operating  activities                                       |   | (12,293,597                    | )           | (4,313,882 | ) |
|                                                                         |   |                           |        |   |   |
| **Investing  activities**                                                    |   |                           |        |   |   |
| Acquisition of property and  equipment                                       |   | (479,664                       | )           | (2,157,440 | ) |
| Proceeds from sale of radio  station assets                                  |   | 3,411,726                      |        | — |   |
| Net cash provided by (used  in) investing activities                         |   | 2,932,062                      |        | (2,157,440 | ) |
|                                                                         |   |                           |        |   |   |
| **Financing  activities**                                                    |   |                           |        |   |   |
| Intercompany payable, net                                                    |   | (1,879,913                     | )           | 7,739,164 |   |
| Repayment of notes payable                                                   |   | (638,888                       | )           | (17,878 | ) |
| Deferred financing costs                                                     |   | —                         |        | (828,307 | ) |
| Borrowings under revolving  credit facility                                  |   | 12,000,000                     |        | — |   |
| Net cash provided by  financing activities                                   |   | 9,481,199                      |        | 6,892,979 |   |
|                                                                         |   |                           |        |   |   |
| Net increase in cash and  cash equivalents                                   |   | 119,664                        |        | 421,657 |   |
| Cash and cash equivalents  at beginning of period                            |   | 2,805,775                      |        | 964,042 |   |
| Cash and cash equivalents  at end of period                                  |   | $                              | 2,925,439   |   | $ | 1,385,699 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements.*

 

4

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**RADIO UNICACORP.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)**

 

**1.****              Basisof Presentation**

 

The accompanying unaudited consolidated condensedfinancial statements of Radio Unica Corp. and subsidiaries (the “Company”) forthe periods indicated herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission and in accordance withgenerally accepted accounting principles (“GAAP”) for interim financialinformation.  Accordingly, the financialstatements do not include all of the information and notes required by GAAP forcomplete financial statements.  In theopinion of management, all adjustments (consisting of normal recurringadjustments) considered necessary for a fair presentation have been included.  Operating results for the three and sixmonths ended June 30, 2003 are not necessarily indicative of the results thatmay be expected for the year ending December 31, 2003.  The consolidated condensed financialstatements include the accounts of the Company and all majority ownedsubsidiaries over which the Company has control.  All significant intercompany accounts and transactions have beeneliminated in consolidation.  Forfurther information, refer to the Company’s 2002 consolidated financialstatements and notes thereto.

 

The Company’s revenue and cash flows are typicallylowest in the first calendar quarter. Seasonal fluctuations are common in theradio broadcasting industry and are due primarily to fluctuations in consumerspending.

 

**2.****              Segment OperatingResults**

 

Pursuant to the provisions of Financial AccountingStandards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”)No. 131, “Disclosure About Segments of a Business Enterprise and RelatedInformation”, the Company is required to report segment information. TheCompany classified its businesses into two reporting segments: radiobroadcasting and promotion services. The radio broadcasting segment includes the operations of the Company’sradio network, the operations of all owned and operated radio stations andcorporate expenses.  The promotionservices segment includes the operations of the Company’s marketing andpromotions business.  The Companyevaluates performance based on several factors, of which the primary financialmeasures are business segment net revenue, operating income (loss) and earnings(loss) before interest, taxes, depreciation and amortization (“EBITDA”).

 

The Company utilizes afinancial measure that is not calculated in accordance with GAAP to assess itsfinancial performance. A non-GAAP financial measure is defined as a numericalmeasure of a company’s financial performance that (i) excludes amounts, or issubject to adjustments that have the effect of excluding amounts, that areincluded in the comparable measure calculated and presented in accordance withGAAP in the statement of operations or statement of cash flows; or (ii)includes amounts, or is subject to adjustments that have the effect ofincluding amounts, that are excluded from the comparable measure so calculatedand presented. The Company believes that the presentation of EBITDA providesuseful information to investors regarding the Company’s financial conditionbecause it is a commonly used financial analysis tool for measuring andcomparing media companies. EBITDA should not be considered as an alternative tonet cash provided by (used in) operating activities as a measure of liquidity.This non-GAAP financial measure may not be comparable to similarly titledmeasures used by other companies. 

 

5

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Results by segment are asfollows:

 
|                    |   | **Three  months ended  June 30,** |       | **Six months  ended  June 30,** |   |
|-------------------------|--------|-----------------------------------|------------|---------------------------------|--------|
|                    |   | **2003**                          |       | **2002**                        |   | **2003** |   | **2002** |   |
|                    |   | **(Unaudited)**                   |       | **(Unaudited)**                 |   |
| Net revenue             |   |                              |       |                            |   |   |   |   |   |
| Radio broadcasting      |   | $                                 | 9,732,797  |                            | $      | 9,978,077 |   | $ | 16,571,620 |   | $ | 16,626,974 |   |
| Promotion services      |   | 2,573,614                         |       | 2,200,455                       |   | 5,332,185 |   | 3,713,294 |   |
| Consolidated            |   | $                                 | 12,306,411 |                            | $      | 12,178,532 |   | $ | 21,903,805 |   | $ | 20,340,268 |   |
|                    |   |                              |       |                            |   |   |   |   |   |
| Operating income (loss) |   |                              |       |                            |   |   |   |   |   |
| Radio broadcasting      |   | $                                 | (416,479   | )                               | $      | (758,775 | ) | $ | (2,738,875 | ) | $ | (4,414,412 | ) |
| Promotion services      |   | 66,595                            |       | 266,416                         |   | (46,594 | ) | 397,585 |   |
| Consolidated            |   | $                                 | (349,884   | )                               | $      | (492,359 | ) | $ | (2,785,469 | ) | $ | (4,016,827 | ) |
|                    |   |                              |       |                            |   |   |   |   |   |
| EBITDA                  |   |                              |       |                            |   |   |   |   |   |
| Radio broadcasting      |   | $                                 | 348,846    |                            | $      | (59,866 | ) | $ | (994,756 | ) | $ | (3,080,783 | ) |
| Promotion services      |   | 130,452                           |       | 315,767                         |   | 80,089 |   | 502,986 |   |
| Consolidated            |   | $                                 | 479,298    |                            | $      | 255,901 |   | $ | (914,667 | ) | $ | (2,577,797 | ) |
|                    |   |                              |       |                            |   |   |   |   |   |
| Total assets            |   |                              |       |                            |   |   |   |   |   |
| Radio broadcasting      |   |                              |       |                            |   | 137,269,679 |   | $ | 140,530,997 |   |
| Promotion services      |   |                              |       |                            |   | 5,068,675 |   | 6,011,573 |   |
| Consolidated            |   |                              |       |                            |   | $ | 142,338,354 |   | $ | 146,542,570 |   |

 

Below is a reconciliation of net (loss) income toEBITDA for the Company’s radio broadcasting and promotion services segments:

 
|                           |   | **Three Months Ended  June 30,** |       | **Six months  ended  June 30,** |   |
|--------------------------------|--------|----------------------------------|------------|---------------------------------|--------|
|                           |   | **2003**                         |       | **2002**                        |   | **2003** |   | **2002** |   |
| **Radio  broadcasting:**       |   |                             |       |                            |   |   |   |   |   |
| Net loss                       |   | $                                | (5,414,345 | )                               | $      | (5,267,139 | ) | $ | (12,426,573 | ) | $ | (13,401,867 | ) |
| Adjustments:                   |   |                             |       |                            |   |   |   |   |   |
| Interest expense, net          |   | 5,004,655                        |       | 4,549,240                       |   | 9,938,223 |   | 9,017,299 |   |
| Income taxes                   |   | —                           |       | (39,018                         | )      | — |   | (78,036 | ) |
| Depreciation and  amortization |   | 758,536                          |       | 697,051                         |   | 1,493,594 |   | 1,381,821 |   |
| EBITDA                         |   | $                                | 348,846    |                            | $      | (59,866 | ) | $ | (994,756 | ) | $ | (3,080,783 | ) |
|                           |   |                             |       |                            |   |   |   |   |   |
| **Promotion  services:**       |   |                             |       |                            |   |   |   |   |   |
| Net income (loss)              |   | $                                | 51,920     |                            | $      | 210,615 |   | $ | (86,132 | ) | $ | 303,095 |   |
| Adjustments:                   |   |                             |       |                            |   |   |   |   |   |
| Interest expense, net          |   | 14,889                           |       | $                               | 49,503 |   | 38,936 |   | 89,762 |   |
| Income taxes                   |   | —                           |       | —                          |   | — |   | — |   |
| Depreciation and  amortization |   | 63,643                           |       | 55,649                          |   | 127,285 |   | 110,129 |   |
| EBITDA                         |   | $                                | 130,452    |                            | $      | 315,767 |   | $ | 80,089 |   | $ | 502,986 |   |

 

6

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**3.****              StockOption Plan**

 

As permissible under SFAS No. 123, “Accounting forStock-Based Compensation”, the Company accounts for all stock-basedcompensation arrangements using the intrinsic value method prescribed byAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees”, as interpreted by FASB Interpretation No. 44, “Accounting forCertain Transactions Involving Stock Compensation”, and discloses pro forma netloss and loss per share amounts as if the fair value method had been adopted. Accordingly, no compensation cost is recognized for stock option awardsgranted to employees at or above fair market value.

 

The Company’s pro forma net loss, pro forma net lossper common share and pro forma weighted average fair value of options granted,with related assumptions, assuming the Company had adopted the fair valuemethod of accounting for all stock-based compensation arrangements consistentwith the provisions of SFAS No. 123, using the Black-Scholes option pricingmodel for all options granted, are indicated below:

 
|                                                                 |   | **Three months ended  June 30,** |       | **Six months ended  June 30,** |       |
|----------------------------------------------------------------------|--------|----------------------------------|------------|--------------------------------|------------|
|                                                                 |   | **2003**                         |       | **2002**                       |       | **2003** |   | **2002** |   |
|                                                                 |   |                             | ** ** |                           | ** ** |   | ** ** |   | ** ** |
| Net loss, as reported                                                |   | $                                | (5,362,425 | )                              | $          | (5,056,524 | ) | $ | (12,512,705 | ) | $ | (13,098,772 | ) |
| Deduct:                                                              |   |                             |       |                           |       |   |   |   |   |
| Stock-based compensation  expense determined under fair value method |   | 618,028                          |       | 699,105                        |       | 1,375,715 |   | 1,347,228 |   |
| Net loss, pro forma                                                  |   | $                                | (5,980,453 | )                              | $          | (5,755,629 | ) | $ | (13,888,420 | ) | $ | (14,446,000 | ) |
| Net loss per share, basic  and diluted                               |   |                             |       |                           |       |   |   |   |   |
| As reported                                                          |   | $                                | (53,624    | )                              | $          | (50,565 | ) | $ | (125,127 | ) | $ | (130,988 | ) |
| Pro forma                                                            |   | $                                | (59,805    | )                              | $          | (57,556 | ) | $ | (138,884 | ) | $ | (144,460 | ) |
|                                                                 |   |                             |       |                           |       |   |   |   |   |
| Weighted average fair value                                          |   | $                                | —     |                           | $          | — |   | $ | — |   | $ | 1.09 |   |
| Expected life (in years)                                             |   | 8                                |       | 10                             |       | 8 |   | 10 |   |
| Risk free interest rate                                              |   | 4.0                              | %          | 5.0                            | %          | 4.0 | % | 5.0 | % |
| Expected volatility                                                  |   | 154                              | %          | 136                            | %          | 186 | % | 124 | % |
| Dividend yield                                                       |   | —                           |       | —                         |       | — |   | — |   |

 

7

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**4.****              Revolving CreditFacility**

 

At June 30, 2003, the Company was in breach of itsMinimum Senior Interest Coverage Ratio covenant (as defined).  The Company has received a waiver for thisbreach from the lender.  In addition,the Company has received a waiver for the Minimum Senior Interest CoverageRatio and the Maximum Senior Secured Debt covenants through December 31,2004.  In connection with the waiver ofthese covenants, effective August 12, 2003 the Company's borrowing rateincreases to the Index Rate (as defined) plus 3.75% or libor plus 4.75%.  Also, in connection with the waiver, theCompany's cash or availability under the Revolving Credit Facility (minuscertain accounts payable, as defined) must exceed $2.5 million immediatelyfollowing interest payments on its Senior Discount Notes.  The Company will incur fees of approximately$125,000 associated with the above mentioned waivers.  As of June 20, 2003, the company had approximately $8.0 millionof availability under the Revolving Credit Facility.

 

The Company is subject to other financialcovenants.  There is no assurance thatthe Company will be able to comply with its other financial covenants or thatany future covenant breaches will be waived. Any breach that is not waivedcould result in an event of default, permitting the lenders to suspendcommitments to make any advance, and to declare amounts outstanding andinterest thereon due and payable, which could have a material adverse effect onour business, financial condition and results of operations.

 

**5.     New AccountingStandards**

** **

**       **In January2003, the FASB issued Financial Interpretation No. ("FIN") 46,Consolidation of Variable Interest Entities, which addresses the consolidationof variable interest entities in which an enterprise absorbs a majority of theentity's expected losses, receives a majority of the entity's expected residualreturns, or both, as a result of ownership, contractual or other financialinterests in the entity. FIN No. 46 was effective upon issuance for certaindisclosure requirements and for variable interest entities created afterJanuary 1, 2003, and in the first fiscal year or interim period beginning afterJune 15, 2003 for all other variable interest entities. The Company does notexpect any impact on its consolidated financial position, results of operationsor cash flows from adoption.

 

        In May 2003, the FASB issued SFAS No.150, "Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity," effective for financial instruments enteredinto or modified after May 31, 2003, and otherwise is effective at thebeginning of the first interim period beginning after June 15, 2003. Thisstatement establishes standards for how an issuer classifies and measurescertain financial instruments with characteristics of both liabilities andequity. It requires that an issuer classify a freestanding financial instrumentthat is within its scope as a liability (or an asset in some circumstances).The adoption of SFAS No. 150 will not have an impact on the Company'sconsolidated financial position, results of operations or cash flows.

 

**6.**                    SubsequentEvents

** **

On August 1, 2003, the Company elected not to pay theinterest payment due on such date in the amount of $9,287,670 with respect toits 11 3/4% Senior Discount Notes due 2006 issued under an Indenture dated July27, 1998.  The Company is presently indiscussions with representatives of the holders of the notes.  Under the Indenture pursuant to which thenotes were issued, the Company has until September 2, 2003 to make suchinterest payment before the occurrence of an event of default exists under theIndenture.  If the Company fails to makethe payment on or before that date, then the entire approximately $158 millionprincipal amount of notes, and accrued interest, may be declared immediatelydue and payable.  Subject to the resultsof the discussions with representatives of the holders of the notes, theCompany intends to make the interest payment on or prior to September 2, 2003.

 

8

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**Management'sDiscussion and Analysis of Results of Operations and Financial Condition**

** **

This report contains forward-looking statements withinthe meaning of Section 21E of the Securities Exchange Act of 1934, as amended.These forward-looking statements include, among others, statements concerningthe Company’s outlook for 2003 and beyond, the Company’s expectations, beliefs,future plans and strategies, anticipated events or trends, and similarexpressions concerning matters that are not historical facts.  The forward-looking statements in thisreport are subject to risks and uncertainties that could cause actual resultsto differ materially from those expressed in or implied by the statements.

 

**Overview**

 

We generate radio broadcasting revenue from sales ofnetwork advertising time, and sales of local and national advertising time onradio stations that we own and those that we operate under local marketingagreements (collectively “O&Os”). Advertising rates are, in large part,based upon the network’s and each station’s ability to attract audiences indemographic groups targeted by advertisers. All radio broadcasting revenue isstated net of any agency commissions. We recognize radio broadcasting revenuewhen the commercials are broadcast.   Wealso generate revenue from our promotional and merchandising services company,MASS Promotions, Inc. (“MASS”).  Werecognize revenue generated by MASS when the promotion services are performed.

 

Our operating expenses consist of programmingexpenses, marketing and selling costs, including commissions paid to our salesstaff, technical and engineering costs, cost of promotion services and generaland administrative expenses.

 

**CriticalAccounting Policies and Estimates**

 

The discussion and analysis of our financial conditionand results of operations are based on our consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States of America. The preparation of these financialstatements requires us to make estimates and judgments that affect the reportedamount of assets and liabilities, revenues and expenses, and related disclosureof contingent assets and liabilities at the date of our financial statements.In general, we base our estimates on historical experience, on information fromthird party professionals and on various other assumptions that we believe arereasonable under the facts and circumstances. We continually evaluate ouraccounting policies and estimates we use to prepare our consolidated financialstatements. Actual results may differ from these estimates under differentassumptions or conditions.

 

During the three and sixmonths ended June 30, 2003, our critical accounting policies and the nature ofour estimates have not changed from those disclosed in our annual report onForm 10-K for the year ended December 31, 2002.

 

**Results of Operations**

 

**Three Months EndedJune 30, 2003 Compared to the Three Months Ended June 30, 2002**

 

NET REVENUE. Net revenue increased by approximately $0.1 million or 1% toapproximately $12.3 million for the three months ended June 30, 2003 fromapproximately $12.2 million for the comparable period in the prior year.  The increase in net revenue related toincreased revenue generated by promotional and merchandising servicesassociated with MASS of approximately $0.4 million, increased local spot andnetwork revenue of approximately $0.4 million, offset by a decrease in nationalspot revenue of approximately $0.5 million and decreased barter revenue ofapproximately $0.2 million.

 

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Direct operating expenses increased by approximately$0.2 million or 15% to approximately $1.5 million for the three months endedJune 30, 2003 from approximately $1.3 million for the comparable period in theprior year.  The increase in directoperating expenses was primarily due to increased barter expense, primarilyrelated to advertising and increased costs associated with promotional events,offset in part by the sale of assets and termination of operations at theDenver station as of February 11, 2003.

 

Selling, general andadministrative expenses decreased by approximately $0.2 million or 3% toapproximately $4.2 million for the three months ended June 30, 2003 fromapproximately $4.4 million for the comparable period in the prior year. The decrease in selling, general andadministrative expenses primarily relates to a decrease in headcount at MASS,and the sale of assets and termination of operations at the Denverstation as of February 11, 2003.

 

Network expenses decreasedapproximately $0.6 million or 16% to approximately $3.1 million for thethree months ended June 30, 2003 from approximately $3.7 million for thecomparable period in the prior year.  The decrease in network expenses was mainlydue to a decrease in the cost of network programming, decreased personnelcosts, and decreased spending associated with the promotion and marketing ofthe network.

 

Corporate expensesdecreased approximately $0.1 million or 12% to approximately $0.8 million forthe three months ended June 30, 2003 from approximately $0.9 million for thecomparable period in the prior year.  Thedecrease in corporate expense is primarily due to decreased travel and travelrelated costs, decreased legal fees and decreased administrative costs.

 

Cost of promotion services increased by approximately$0.7 million or 47% to $2.2 million for the three months ended June 30, 2003from approximately $1.5 million for the comparable period in the prioryear.  The increase in the cost ofpromotion services was related to the variable costs associated with theincrease in MASS’ revenue, as well as higher out of pocket costs associatedwith certain client’s marketing programs.

 

Depreciation andamortization increased by approximately $0.1 million or 9% toapproximately $0.8 million for the three months ended June 30, 2003 fromapproximately $0.7 million for the comparable period in the prior year.  Theincrease in depreciation and amortization was due to the additions of fixed assetsarising from signal upgrades completed during 2002.

 

Stock option compensation expense decreased byapproximately $0.1 million or 71% to approximately $43,000 for the three monthsended June 30, 2003 from approximately $0.2 million for the comparable periodin the prior year. Stock option compensation expense represents a non-cashcharge relating to the vesting of stock options granted to employees topurchase shares of Radio Unica Communications Corp.’s common stock.  The decrease in stock option compensationexpense is due to stock options granted becoming fully vested during 2002.

 

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OTHER INCOME (EXPENSE). Other income (expense)decreased by approximately $0.4 million or 9% to approximately $(5.0) millionfor the three months ended June 30, 2003 from approximately $(4.6) million forthe comparable period in the prior year. Other income (expense) for the threemonths ended June 30, 2003 included interest expense of approximately $(5.0)million primarily related to the interest on the Senior Discount Notes.

 

NET LOSS.  Netloss increased by approximately $0.3 million or 6% to approximately $(5.4)million for the three months ended June 30, 2003 from approximately $(5.1)million for the comparable period in the prior year.  The increase in net loss was mainly the result of increasedinterest expense of approximately $0.4 million.

 

EBITDA.  EBITDAincreased by approximately $0.2 million or 87% to approximately $0.5 millionfor the three months ended June 30, 2003 from approximately $0.3 million forthe comparable period in the prior year The increase in EBITDA was mainly theresult of a decrease in radio expenses, offset in part by an increase in thecost of promotion services for the three months ended June 30, 2003.

 

**Six Months Ended June30, 2003 Compared to the Six Months Ended June 30, 2002**

 

NET REVENUE. Net revenue increased by approximately $1.6 million or 8% toapproximately $21.9 million for the six months ended June 30, 2003 fromapproximately $20.3 million for the comparable period in the prior year.  The increase in net revenue relates toincreased revenue generated by promotional and merchandising servicesassociated with MASS of approximately $1.6 million, increased local spot andnetwork revenue of approximately $0.8 million, increased barter revenue ofapproximately $0.1 million, offset by a decrease in national spot revenue ofapproximately $0.9 million.

 

Direct operating expenses remained constant atapproximately $2.5 million for the six months ended June 30, 2003 and2002.  Direct operating expenses arecomprised of technical and programming costs at the O&Os.

 

Selling, general and administrative expenses remainedconstant at approximately $8.4 million for the six monthsended June 30, 2003 and 2002. Selling, general andadministrative expenses for the radio broadcasting business increased byapproximately $0.2 million due to increased local sales cost.  This increase was offset by a decrease ingeneral and administrative costs associated with MASS of approximately $0.2million due to a reduction in headcount.

 

Network expenses decreased by approximately $1.6million or 21% to approximately $5.9 million for the six months ended June 30,2003 from approximately $7.5 million for the comparable period in the prioryear.  The decrease in network expensesis primarily due to decreased cost of network programming, including sportsrights for the 2002 Gold Cup soccer event and decreased advertising spending.

 

Corporate expenses decreased approximately $0.2million or 12% to approximately $1.5 million for the six months ended June 30,2003 from approximately $1.7 million for the comparable period in the prioryear.  The decrease in corporate expenseis primarily due to decreased legal and administrative costs.

 

Cost of promotion services increased by approximately$2.2 million or 88% to $4.7 million for the six months ended June 30, 2003 fromapproximately $2.5 million for the comparable period in the prior year.  The increase in the cost of promotion serviceswas related to the variable costs associated with the increase in MASS’revenue, as well as higher out of pocket costs associated with certain client’smarketing programs.

 

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Depreciation and amortizationincreased by approximately $0.1 million or 9% to approximately $1.6million for the six months ended June 30, 2003 from approximately $1.5 millionfor the comparable period in the prior year. The increase in depreciation and amortization was due to the additionsof fixed and intangible assets arising from signal upgrades completedduring 2002.

 

Stock option compensation expense decreased byapproximately $0.2 million or 79% to approximately $0.1 million for the sixmonths ended June 30, 2003 from approximately $0.3 million for the comparableperiod in the prior year.  Stock optioncompensation expense represents a non-cash charge relating to the vesting ofstock options granted to employees to purchase shares of Radio UnicaCommunications Corp.’s common stock. The decrease in stock option compensation expense is due to stockoptions granted becoming fully vested during 2002.

 

OTHER INCOME (EXPENSE).Other income (expense) decreased by approximately $0.5 million or 6% toapproximately $(9.7) million for the six months ended June 30, 2003 fromapproximately $(9.2) million for the comparable period in the prior year. Other income (expense) for the sixmonths ended June 30, 2003 is mainlycomprised of interest expense of approximately $(10.0) million and interestincome and other income of approximately $0.3 million primarily related to thegain on the sale of the Denver radio station assets in February 2003.  Interest expense primarily relates to theinterest on the Senior Discount Notes.

 

INCOME TAX BENEFIT. The Company recorded an income taxbenefit of approximately $0.1 million for the six months ended June 30,2002.  The benefit resulted from theCompany’s ability to utilize a portion of its net operating tax losscarryforwards to offset existing deferred tax liabilities.  The Company did not record any benefitduring the six months ended June 30, 2003.

 

NET LOSS.  Netloss decreased by approximately $0.6 million or 4% to approximately $12.5million for the six months ended June 30, 2003 from approximately $13.1 millionfor the comparable period in the prior year. The decrease in net loss is mainly the result of the increase in theCompany’s revenue of approximately $1.5 million offset by an increase inoperating expenses of approximately $0.3 million, increased interest expenserelated to the Senior Discount Notes of approximately $0.9 million anddecreased interest income and other income of approximately $0.3 million.

 

EBITDA.  EBITDAincreased by approximately $1.7 million or 65% to approximately $(0.9) millionfor the six months ended June 30, 2003 from approximately $(2.6) million forthe comparable period in the prior year. The increase in EBITDA was mainly theresult of the increase in revenue, decreased network expenses and the gain onthe sale of the Denver radio station assets, offset by the increase in cost ofpromotion services.

 

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**Use of Non-GAAP Financial Measures**

 

The Company utilizes a financial measure that is notcalculated in accordance with GAAP to assess its financial performance. Anon-GAAP financial measure is defined as a numerical measure of a company’sfinancial performance that (i) excludes amounts, or is subject to adjustmentsthat have the effect of excluding amounts, that are included in the comparablemeasure calculated and presented in accordance with GAAP in the statement ofoperations or statement of cash flows; or (ii) includes amounts, or is subjectto adjustments that have the effect of including amounts, that are excludedfrom the comparable measure so calculated and presented. EBITDA is defined asearnings (loss) before interest, taxes, depreciation and amortization. TheCompany believes that the presentation of EBITDA provides useful information toinvestors regarding the Company’s financial condition because it is a commonlyused financial analysis tool for measuring and comparing media companies.EBITDA should not be considered as an alternative to net cash provided by (usedin) operating activities as a measure of liquidity. This non-GAAP financialmeasure may not be comparable to similarly titled measures used by othercompanies.  Below is a reconciliation ofnet loss to EBITDA for the three and six months ended June 30, 2003 and 2002:

 
|                           |   | **Consolidated**                 |       |
|--------------------------------|--------|----------------------------------|------------|
|                           |   | **Three Months Ended  June 30,** |       | **Six Months Ended  June 30,** |   |
|                           |   | **2003**                         |       | **2002** |   | **2003** |   | **2002** |   |
|                           |   |                             |       |   |   |   |   |   |   |
| Net loss                       |   | $                                | (5,362,425 | ) | $ | (5,056,524 | ) | $ | (12,512,705 | ) | $ | (13,098,772 | ) |
| Adjustments:                   |   |                             |       |   |   |   |   |   |   |
| Interest expense, net          |   | 5,019,544                        |       | 4,598,743 |   | 9,977,159 |   | 9,107,061 |   |
| Income taxes                   |   | —                           |       | (39,018 | ) | — |   | (78,036 | ) |
| Depreciation and  amortization |   | 822,179                          |       | 752,700 |   | 1,620,879 |   | 1,491,950 |   |
| EBITDA                         |   | $                                | 479,298    |   | $ | 255,901 |   | $ | (914,667 | ) | $ | (2,577,797 | ) |

 

**Liquidity and Capital Resources**

** **

The Company has had negative cash flows sinceinception. Working capital and financing for the Company’s acquisitions to datehave been provided primarily by the proceeds from the Company’s initial publicoffering, the issuance of the 113⁄4% Senior Discount Notes due August 1, 2006,the issuance of promissory notes, common stock and preferred stock to theCompany’s shareholders, proceeds from the Revolving Credit Facility andadvances from the Company's parent.

 

Net cash used in operating activities increased byapproximately $8.0 million or 185% to approximately $12.3 million for the sixmonths ended June 30, 2003 from approximately $4.3 million for the comparableperiod in the prior year.  Net cashprovided by (used in) investing activities increased by $5.1 million or 236% to$2.9 million for the six months ended June 30, 2003 from approximately $(2.2)million for the comparable period in the prior year. The increase ofapproximately $5.1 million from 2002 to 2003 was primarily due to the proceedsreceived from the sale of the Denver radio station assets of approximately $3.4million and a decrease in capital expenditures of approximately $1.7million.  Net cash provided by financingactivities increased by approximately $2.6 million to approximately $9.5 millionfor the six months ended June 30, 2003 from approximately $6.9 million for thecomparable period in the prior year. The increase of approximately $2.6 millionwas due to the Company borrowing $12.0 million under its Revolving CreditFacility during the six months ended June 30, 2003 and a decrease in deferredfinancing costs from 2002 to 2003 of approximately $0.8 million, offset by adecrease in intercompany payable of approximately $9.6 million and repayment ofnotes payable of $0.6 million during 2003.

 

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Capital expenditures primarily relate to the purchaseof broadcast equipment for the network and O&Os, leasehold improvements,computer equipment and telecommunications equipment. Capital expenditures wereapproximately $0.5 million and $2.2 million for the six months ended June 30,2003 and 2002, respectively.  Thedecrease in capital expenditures is primarily due to signal upgrades completedduring 2002.

 

The Company believes that its current cash on hand andits borrowing availability under its Revolving Credit Facility, will at aminimum provide adequate resources to fund the Company’s operating expenses,debt service, working capital requirements and capital expenditures throughJune 30, 2004.

 

On August 1, 2003, the Company elected not to pay theinterest payment due on such date in the amount of $9,287,670 with respect toits 11 3/4% Senior Discount Notes due 2006 issued under an Indenture dated July27, 1998.  The Company is presently indiscussions with representatives of the holders of the notes.  Under the Indenture pursuant to which thenotes were issued, the Company has until September 2, 2003 to make suchinterest payment before the occurrence of an event of default exists under theIndenture.  If the Company fails to makethe payment on or before that date, then the entire approximately $158 millionprincipal amount of notes, and accrued interest, may be declared immediatelydue and payable.  Subject to the resultsof the discussions with representatives of the holders of the notes, theCompany intends to make the interest payment on or prior to September 2, 2003.

 

The Company through its financial advisor, CIBC WorldMarkets Corp. (“CIBC”) is currently in discussions with representatives of theSenior Discount Notes (the “Notes”) in order to restructure the terms of theNotes. In addition, the Company through CIBC is in discussions with severalpotential investors to secure additional equity financing.  There can be no assurance that the Companywill be able to restructure its Notes or secure additional equity financing. Inconnection with the above mentioned efforts the Company has incurredapproximately $1.6 million in fees through June 30, 2003. These fees areincluded in the balance sheet at June 30, 2003 in prepaid expenses and othercurrents assets.  If the Company issuccessful in its efforts to restructure its Notes, the fees paid will becapitalized and amortized accordingly. If the Company is successful in its efforts to raise equity, the feespaid will be recorded as a reduction of the equity proceeds. If the Company isunsuccessful in its efforts to restructure its Notes or raise equity, the feespaid will be expensed.

 

At June 30, 2003, the Company was in breach of itsMinimum Senior Interest Coverage Ratio covenant (as defined).  The Company has received a waiver for thisbreach from the lender.  In addition,the Company has received a waiver for the Minimum Senior Interest CoverageRatio and the Maximum Senior Secured Debt covenants through December 31,2004.  In connection with the waiver ofthese covenants effective August 12, 2003, the Company's borrowing rateincreases to the Index Rate (as defined) plus 3.75% or LIBOR plus 4.75%.  Also, in connection with the waiver, the Company'scash or availability under the Revolving Credit Facility (minus certainaccounts payable, as defined) must exceed $2.5 million immediately followinginterest payments on its Senior Discount Notes.  The Company will incur fees of approximately $125,000 associatedwith the above mentioned waivers.  As ofJune 30, 2003, the Company had approximately $8.0 million of availability underthe Revolving Credit Facility.

 

The Company is subject to other financial covenantsunder its Revolving Credit Facility. There is no assurance that the Company will be able to comply with itsother financial covenants or that any future covenant breaches will be waived.Any breach that is not waived could result in an event of default, permittingthe lenders to suspend commitments to make any advance, and to declare amountsoutstanding and interest thereon due and payable, which could have a materialadverse effect on our business, financial condition and results of operations.

 

If the Company is unable to generate sufficient cashflow, is unable to restructure its Notes, or is unable to secure additionalequity financing, it may have to adopt one or more alternatives after June 30,2004, such as further reducing or restructuring its operating costs, reducingor delaying planned capital expenditures or selling assets. There can be noassurance that any of these financing strategies could be effected onsatisfactory terms, if at all.

 

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**Item 3.****           Quantitativeand Qualitative Disclosures about Market Risk**

 

Our exposure to interest rate risk arises principallyfrom the variable rates associated with our Revolving Credit Facility. On June30, 2003, we had borrowings of $12.0 million under our Revolving CreditFacility that were subject to variable rates. Based on amounts outstanding asof June 30, 2003, an adverse change of 1.0% in the interest rate on ourRevolving Credit Facility would have caused us to incur an increase in interestexpense of approximately $0.1 million on an annual basis.

 

**Item 4.****           Controlsand Procedures**

 

The Company’s Chief Executive Officer and ChiefFinancial Officer, based on their evaluation of the Company’s disclosurecontrols and procedures at June 30, 2003, have concluded that such disclosurecontrols and procedures were effective to ensure that material informationrelating to the Company and required to be disclosed by the Company has beenmade known to them and has been recorded, processed, summarized and reportedtimely.  During the quarter ended June 30,2003 there have not been any significant changes in the Company’s internalcontrols or in other factors that could significantly affect these controlssubsequent to the date of evaluation.

 

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**PART II - OTHER INFORMATION**

** **

**Item6.****           Exhibits and Reports onForm 8-K.**

 

(a)Exhibits required by Item 601 of Regulation S-K.

 
| **Exhibit  No.** |   | **Description**                                                                                                   |
|------------------|--------|-------------------------------------------------------------------------------------------------------------------|
| 31.1             |   | Certification of Chief  Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.  Filed herewith. |
|             |   |                                                                                                              |
| 31.2             |   | Certification of Chief  Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.  Filed herewith. |
|             |   |                                                                                                              |
| 32.1             |   | Certification of Chief  Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.  Filed herewith. |
|             |   |                                                                                                              |
| 32.2             |   | Certification of Chief  Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.  Filed herewith. |

 

(b)         Reports onForm 8-K

 

None.

 

SIGNATURES

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 

 
|   |   | Radio Unica Corp.                          |
|--------|--------|--------------------------------------------|
|   |   |                                       |
|   | By:    |                                       | /s/ Steven  E. Dawson |   |
|   |   | Steven E.  Dawson  Chief Financial Officer |
|        |        |                                            |  |  |

 

Date:                     August 13,2003

 

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