SPANISH BROADCASTING SYSTEM INC - Quarter Report: 2011 June (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

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

Commission file number 000-27823

Spanish Broadcasting System, Inc.

(Exact name of registrant as specified in its charter)

Delaware		13-3827791
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2601 South Bayshore Drive, PH 2
Coconut Grove, Florida 33133
(Address of principal executive offices) (Zip Code)

(305) 441-6901
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

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

As of August 9, 2011, 4,166,991 shares of Class A common stock, par value $0.0001 per share, 2,340,353 shares of Class B common stock, par value $0.0001 per share and 380,000 shares of Series C convertible preferred stock, $0.01 par value per share, which are convertible into 760,000 shares of Class A common stock, were outstanding. The number of Class A and Class B common stock shares reflects a 1-for-10 reverse stock split effectuated by the Registrant at 11:59p.m., Eastern Standard time on July 11, 2011.

 

 

SPANISH BROADCASTING SYSTEM, INC.
INDEX

		Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements — Unaudited			4
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010			4
Unaudited Condensed Consolidated Statements of Operations for the Three- and Six-Months Ended June 30, 2011 and 2010			5
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit and Comprehensive Income for the Six-Months Ended June 30, 2011			6
Unaudited Condensed Consolidated Statements of Cash Flows for the Six-Months Ended June 30, 2011 and 2010			7
Notes to Unaudited Condensed Consolidated Financial Statements			8
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
ITEM 4. Controls and Procedures			26
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings			26
ITEM 6. Exhibits			27
Exhibit 10.1
Exhibit 10.3
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These forward-looking statements are not based on historical facts, but rather reflect our current expectations concerning future results and events. These forward-looking statements generally can be identified by the use of statements that include phrases such as “believe”, “expect”, “anticipate”, “intend”, “estimate”, “plan”, “project”, “foresee”, “likely”, “will” or other words or phrases with similar meanings. Similarly, statements that describe our objectives, plans or goals are, or may be, forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be different from any future results, performance and anticipated achievements expressed or implied by these statements. We do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to those described in this report, in Part II, “Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2010, and those described from time to time in our future reports filed with the Securities and Exchange Commission (the SEC).

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements — Unaudited

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

		June 30,				December 31,
		2011				2010
		(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents		$	64,984				55,140
Receivables, net of allowance for doubtful accounts of $941 in 2011 and $813 in 2010			23,767				26,160
Prepaid expenses and other current assets			2,303				3,219
Total current assets			91,054				84,519
Property and equipment, net of accumulated depreciation of $55,360 in 2011 and $52,819 in 2010			39,426				40,006
FCC broadcasting licenses			312,623				312,623
Goodwill			32,806				32,806
Other intangible assets, net of accumulated amortization of $268 in 2011 and $250 in 2010			1,166				1,184
Deferred financing costs, net of accumulated amortization of $6,613 in 2011 and $6,088 in 2010			988				1,514
Other assets			3,711				2,167
Total assets		$	481,774				474,819
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable and accrued expenses		$	19,416				17,980
Accrued interest			2,055				4,057
Unearned revenue			1,103				745
Other liabilities			680				750
Current portion of the senior credit facility term loan due 2012			304,688				3,250
Current portion of other long-term debt			425				416
Series B cumulative exchangeable redeemable preferred stock dividends payable			16,959				14,478
Total current liabilities			345,326				41,676
Other liabilities, less current portion			702				985
Derivative instruments			813				829
Senior credit facility term loan due 2012, less current portion			—				303,063
Other long-term debt, less current portion			6,107				6,180
Deferred income taxes			81,136				78,247
Total liabilities			434,084				430,980
Commitments and contingencies (note 7)
Cumulative exchangeable redeemable preferred stock:
103/4% Series B cumulative exchangeable redeemable preferred stock, $0.01 par value, liquidation value $1,000 per share. Authorized 280,000 shares; 92,349 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			92,349				92,349
Stockholders’ deficit:
Series C convertible preferred stock, $0.01 par value and liquidation value. Authorized 600,000 shares; 380,000 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			4				4
Class A common stock, $0.0001 par value. Authorized 100,000,000 shares; 4,166,991 and 4,163,991 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			—				—
Class B common stock, $0.0001 par value. Authorized 50,000,000 shares; 2,340,353 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			—				—
Additional paid-in capital			525,250				525,205
Accumulated other comprehensive loss			(813	)			(829	)
Accumulated deficit			(569,100	)			(572,890	)
Total stockholders’ deficit			(44,659	)			(48,510	)
Total liabilities and stockholders’ deficit		$	481,774				474,819

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

		Three-Months Ended								Six-Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
		(In thousands, except per share data)
Net revenue		$	35,627				35,837				66,402				66,683
Operating expenses:
Engineering and programming			9,569				9,991				19,775				19,865
Selling, general and administrative			10,957				10,832				24,136				23,621
Corporate expenses			2,012				2,254				3,943				4,475
Depreciation and amortization			1,257				1,446				2,596				3,002
			23,795				24,523				50,450				50,963
(Gain) loss on the disposal of assets, net			(2	)			8				(9	)			8
Impairment charges and restructuring costs			207				—				207				—
Operating income			11,627				11,306				15,754				15,712
Other (expense) income:
Interest expense, net			(2,024	)			(3,123	)			(4,060	)			(9,426	)
Change in fair value of derivative instrument			—				3,016				—				5,863
Income before income taxes			9,603				11,199				11,694				12,149
Income tax expense			1,159				1,768				2,940				3,546
Net income			8,444				9,431				8,754				8,603
Dividends on Series B preferred stock			(2,482	)			(2,482	)			(4,964	)			(4,964	)
Net income applicable to common stockholders		$	5,962				6,949				3,790				3,639
Basic net income per common share		$	0.82				0.96				0.52				0.50
Diluted net income per common share		$	0.82				0.95				0.52				0.50
Weighted average common shares outstanding:
Basic			7,267				7,260				7,267				7,260
Diluted			7,280				7,287				7,283				7,282

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit
and Comprehensive Income for the Six-Months Ended June 30, 2011

		Class C								Class A								Class B												Accumulated
		preferred stock								common stock								common stock								Additional				other								Total
		Number of				Par				Number of				Par				Number of				Par				paid-in				comprehensive				Accumulated				stockholders’
		shares				value				shares				value				shares				value				capital				loss				deficit				deficit
		(In thousands, except share data)
Balance at December 31, 2010			380,000			$	4				4,163,991			$	—				2,340,353			$	—			$	525,205			$	(829	)		$	(572,890	)		$	(48,510	)
Issuance of Class A common stock from vesting of restricted stock			—				—				3,000				—				—				—				—				—				—				—
Stock-based compensation			—				—				—				—				—				—				45				—				—				45
Series B preferred stock dividends			—				—				—				—				—				—				—				—				(4,964	)			(4,964	)
Comprehensive income:
Net income			—				—				—				—				—				—				—				—				8,754				8,754
Unrealized gain on derivative instruments			—				—				—				—				—				—				—				16				—				16
Comprehensive income																																							8,770
Balance at June 30, 2011			380,000			$	4				4,166,991			$	—				2,340,353			$	—			$	525,250			$	(813	)		$	(569,100	)		$	(44,659	)

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

		Six-Months Ended
		June 30,
		2011				2010
		(In thousands)
Cash flows from operating activities:
Net income		$	8,754				8,603
Adjustments to reconcile net income to net cash provided by operating activities:
(Gain) loss on the sale of assets			(9	)			8
Impairment charges			207				—
Stock-based compensation			45				116
Depreciation and amortization			2,596				3,002
Net barter income			107				(216	)
Provision for trade doubtful accounts			391				202
Amortization of deferred financing costs			526				531
Deferred income taxes			2,889				3,487
Unearned revenue			382				99
Change in fair value of derivative instrument			—				(3,962	)
Changes in operating assets and liabilities:
Trade receivables			1,871				(1,208	)
Prepaid expenses and other current assets			916				138
Other assets			(1,544	)			64
Accounts payable and accrued expenses			1,809				376
Accrued interest			(2,002	)			(1,542	)
Other liabilities			(560	)			1,508
Net cash provided by operating activities			16,378				11,206
Cash flows from investing activities:
Purchases of property and equipment			(2,207	)			(807	)
Proceeds from the sale of property and equipment and insurance recoveries			15				—
Net cash used in investing activities			(2,192	)			(807	)
Cash flows from financing activities:
Payment of senior credit facility revolver due 2010			—				(15,000	)
Payment of senior secured credit facility term loan 2012			(1,625	)			(1,626	)
Payment of Series B preferred stock cash dividends			(2,483	)			(2,482	)
Payments of other long-term debt			(234	)			(223	)
Net cash used in financing activities			(4,342	)			(19,331	)
Net increase (decrease) in cash and cash equivalents			9,844				(8,932	)
Cash and cash equivalents at beginning of period			55,140				53,580
Cash and cash equivalents at end of period		$	64,984				44,648
Supplemental cash flows information:
Interest paid		$	3,515				6,539
Income taxes paid, net		$	8				8
Noncash investing and financing activities:
Accrual of Series B preferred stock cash dividends not declared		$	2,482				2,482
Unrealized loss on derivative instruments		$	16				(226	)

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Spanish Broadcasting System, Inc. and its subsidiaries (the Company, we, us, our or SBS). All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements as of June 30, 2011 and December 31, 2010 and for the three- and six-month periods ended June 30, 2011 and 2010 have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. They do not include all information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements as of, and for the fiscal year ended December 31, 2010, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are all of a normal and recurring nature, necessary for a fair presentation of the results of the interim periods. Additionally, we evaluated subsequent events after the balance sheet date of June 30, 2011 through the financial statements issuance date. The results of operations for the three- and six-month periods ended June 30, 2011 are not necessarily indicative of the results for a full year.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. Significant items subject to such estimates and assumptions include: the useful lives of fixed assets, allowance for doubtful accounts, the valuation of derivatives, deferred tax assets, fixed assets, intangible assets, stock-based compensation, contingencies and litigation. These estimates and assumptions are based on management’s best judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions as facts and circumstances dictate. Illiquid credit markets, volatile equity markets and reductions in advertising spending have combined to increase the uncertainty inherent in such estimates and assumptions. Actual results could differ from these estimates.

On July 5, 2011, we filed with the Secretary of State of the State of Delaware, a Certificate of Amendment to our Certificate of Incorporation to effect a 1-for-10 reverse stock split of the shares of our Class A and Class B common stock. The reverse stock split became effective at 11:59p.m., Eastern Standard time on July 11, 2011. The condensed consolidated financial statements for current and prior periods have been adjusted to reflect the change in number of shares.

2. Stockholders’ Deficit

(a) Reverse Stock Split of our Class A and Class B Common Stock

On July 5, 2011, we filed a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Amendment”). The Amendment effected a one-for-ten (1-for-10) reverse stock split of our outstanding Class A common stock, par value $0.0001 per share and Class B common stock, par value $0.0001 per share. The reverse stock split became effective at 11:59p.m., Eastern Standard time on July 11, 2011 (the “Effective Date”).

The reverse stock split was approved by our stockholders at the annual meeting held on June 1, 2011. The trading of our common stock on the NASDAQ Global Market on a split-adjusted basis began at the opening of trading on July 12, 2011, at which time the symbol changed to SBSAD to indicate that the reverse stock split had occurred. The symbol returned to the normal SBSA at the open of the market on August 9, 2011.

As a result of the reverse stock split, each ten (10) outstanding shares of pre-split common stock automatically combined into one (1) share of post-split common stock. No fractional shares were issued. Proportional adjustments were made to our outstanding stock, stock options and other equity awards and to our equity compensation plans to reflect the reverse stock split. The condensed consolidated financial statements for current and prior periods have been adjusted to reflect the change in number of shares.

(b) Series C Convertible Preferred Stock

On December 23, 2004, in connection with the closing of the merger agreement, dated October 5, 2004, with CBS Radio (formerly known as Infinity Media Corporation, CBS Radio), a division of CBS Corporation, Infinity Broadcasting Corporation of San Francisco (Infinity SF) and SBS Bay Area, LLC, a wholly-owned subsidiary of SBS (SBS Bay Area), we issued to CBS Radio (i) an aggregate of 380,000 shares of Series C convertible preferred stock, $0.01 par value per share (the Series C preferred stock), each of which is convertible at the option of the holder two fully paid and non-assessable shares of our Class A common stock, $0.0001 par value per share (the Class A common stock). The shares of Series C preferred stock issued at the closing of the merger are convertible into 760,000 shares of our Class A common stock, subject to adjustment. The number of Class A common stock shares reflects a 1-for-10 reverse stock split effectuated by the Registrant at 11:59p.m., Eastern Standard time on July 11, 2011. In connection with the closing of the merger transaction, we also entered into a registration rights agreement with CBS Radio, pursuant to which CBS Radio may instruct us to file up to three registration statements, on a best efforts basis, with the SEC providing for the registration for resale of the Class A common stock issuable upon conversion of the Series C preferred stock.

We are required to pay holders of Series C preferred stock dividends on parity with our Class A common stock and Class B common stock, $0.0001 par value per share (the Class B common stock), and each other class or series of our capital stock, if created, after December 23, 2004.

(c) Class A and B Common Stock

The rights of the holders of shares of Class A common stock and Class B common stock are identical, except for voting rights and conversion provisions. The Class A common stock is entitled to one vote per share and the Class B common stock is entitled to ten votes per share. The Class B common stock is convertible to Class A common stock on a share-for-share basis at the option of the holder at any time, or automatically upon the transfer to a person or entity which is not a permitted transferee. Holders of each class of common stock are entitled to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders. The holders of each class have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. Each class of common stock is subordinate to our 10 ³/4% Series B cumulative exchangeable redeemable preferred stock, par value $0.01 per share and liquidation preference of $1,000 per share (the Series B preferred stock) and on parity with the Series C preferred stock with respect to dividend rights and rights upon liquidation, winding up and dissolution of SBS.

(d) Share-Based Compensation Plans

2006 Omnibus Equity Compensation Plan

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

1999 Stock Option Plans

In September 1999, we adopted an employee incentive stock option plan (the 1999 ISO Plan) and a non-employee director stock option plan (the 1999 NQ Plan, and together with the 1999 ISO Plan, the 1999 Stock Option Plans). Options granted under the 1999 ISO Plan vest according to the terms determined by the compensation committee of our board of directors, and have a contractual life of up to ten years from the date of grant. Options granted under the 1999 NQ Plan vest 20% upon grant and 20% each year for the first four years from the date of grant. All options granted under the 1999 ISO Plan and the 1999 NQ Plan vest immediately upon a change in control of SBS, as defined therein. A total of 300,000 shares and 30,000 shares of Class A common stock were reserved for issuance under the 1999 ISO Plan and the 1999 NQ Plan, respectively. In September 2009, our 1999 Stock Option Plans expired; therefore, no more options can be granted under these plans.

Stock Options and Nonvested Shares Activity

Stock options have only been granted to employees and directors. Our stock options have various vesting schedules and are subject to the employees and directors continuing their service to SBS. We recognize compensation expense based on the estimated grant date fair value using the Black-Scholes option pricing model and recognize the compensation expense using a straight-line amortization method. When estimating forfeitures, we consider voluntary termination behaviors, as well as trends of actual option forfeitures. Ultimately, our stock-based compensation expense is based on awards that vest. Our stock-based compensation has been reduced for estimated forfeitures.

A summary of the status of our stock options, as of December 31, 2010 and June 30, 2011, and changes during the six-months ended June 30, 2011, is presented below (in thousands, except per share data):

														Weighted
						Weighted								Average
						Average				Aggregate				Remaining
						Exercise				Intrinsic				Contractual
		Shares				Price				Value				Life (Years)
Outstanding at December 31, 2010			192			$	59.04
Granted			—				—
Exercised			—				—
Forfeited			(4	)			64.33
Outstanding at June 30, 2011			188			$	58.94			$	79				4.3
Exercisable at June 30, 2011			184			$	59.79			$	79				4.2

During the six-months ended June 30, 2011 and 2010, no stock options were exercised; therefore, no cash payments were received. In addition, we did not recognize a tax benefit on our stock-based compensation expense due to our valuation allowance on substantially all of our deferred tax assets.

The following table summarizes information about stock options outstanding and exercisable at June 30, 2011 (in thousands, except per share data):

														Weighted
		Outstanding												Average				Exercisable
										Weighted				Remaining								Weighted
										Average				Contractual								Average
						Unvested				Exercise				Life				Number				Exercise
Range of Exercise Prices		Vested Options				Options				Price				(Years)				Exercisable				Price
$2.00 – 49.99			68				4			$	16.36				7.3				68			$	16.15
50.00 – 99.99			96				—				81.02				2.2				96				81.02
100.00 – 117.80			20				—				107.87				3.3				20				107.87
			184				4			$	58.94				4.3				184			$	59.79

Nonvested shares (restricted stock or restricted stock units) are awarded to employees under our Omnibus Plan. In general, nonvested shares will vest over three to five years and are subject to the employees continuing their service to us. The cost of nonvested shares is determined using the fair value of our common stock on the date of grant. The compensation expense is recognized over the vesting period.

A summary of the status of our nonvested shares, as of December 31, 2010 and June 30, 2011, and changes during the six-months ended June 30, 2011, is presented below (in thousands, except per share data):

						Weighted
						Average Grant-
						Date Fair Value
		Shares				(per Share)
Nonvested at December 31, 2010			3			$	15.70
Awarded			—				—
Vested			(3	)			15.70
Forfeited			—				—
Nonvested at June 30, 2011			—			$	—

3. Basic and Diluted Net Income Per Common Share

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

On July 5, 2011, we filed with the Secretary of State of the State of Delaware, a Certificate of Amendment to our Certificate of Incorporation to effect a 1-for-10 reverse stock split of the our Class A and Class B common stock shares. The reverse stock split became effective at 11:59p.m., Eastern Standard time on July 11, 2011. The condensed consolidated financial statements for current and prior periods have been adjusted to reflect the change in number of shares.

The following is a reconciliation of the shares used in the computation of basic and diluted net income per share for the three- and six-month periods ended June 30, 2011 and 2010 (in thousands):

		Three-Months Ended								Six-Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Basic weighted average shares outstanding			7,267				7,260				7,267				7,260
Effect of dilutive equity instruments			13				27				16				22
Dilutive weighted average shares outstanding			7,280				7,287				7,283				7,282
Options to purchase shares of common stock and other stock-based awards outstanding which are not included in the calculation of diluted net income per share because their impact is anti-dilutive			156				176				146				179

4. Operating Segments

We have two reportable segments: radio and television. The following summary table presents separate financial data for each of our operating segments (in thousands):

		Three-Months Ended								Six-Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
		(In thousands)								(In thousands)
Net revenue:
Radio		$	31,222				31,823				57,663				58,903
Television			4,405				4,014				8,739				7,780
Consolidated		$	35,627				35,837				66,402				66,683
Engineering and programming expenses:
Radio		$	5,279				5,684				11,688				11,474
Television			4,290				4,307				8,087				8,391
Consolidated		$	9,569				9,991				19,775				19,865
Selling, general and administrative expenses:
Radio		$	8,936				9,084				19,772				19,955
Television			2,021				1,748				4,364				3,666
Consolidated		$	10,957				10,832				24,136				23,621
Corporate expenses:		$	2,012				2,254				3,943				4,475
Depreciation and amortization:
Radio		$	545				653				1,163				1,386
Television			575				564				1,150				1,126
Corporate			137				229				283				490
Consolidated		$	1,257				1,446				2,596				3,002
(Gain) loss on the disposal of assets, net:
Radio		$	(2	)			—				(9	)			—
Television			—				8				—				8
Corporate			—				—				—				—
Consolidated		$	(2	)			8				(9	)			8
Impairment charges and restructuring costs:
Radio		$	—				—				—				—
Television			—				—				—				—
Corporate			207				—				207				—
Consolidated		$	207				—				207				—
Operating income (loss):
Radio		$	16,464				16,402				25,049				26,088
Television			(2,481	)			(2,613	)			(4,862	)			(5,411	)
Corporate			(2,356	)			(2,483	)			(4,433	)			(4,965	)
Consolidated		$	11,627				11,306				15,754				15,712
Capital expenditures:
Radio		$	190				342				453				401
Television			211				15				1,634				310
Corporate			69				65				120				96
Consolidated		$	470				422				2,207				807

		June 30,				December 31,
		2011				2010
		(In thousands)
Total Assets:
Radio		$	431,766				425,106
Television			46,408				45,707
Corporate			3,600				4,006
Consolidated		$	481,774				474,819

5. Comprehensive Income

Our total comprehensive income, comprised of net income, amounts reclassified to earnings during the period, and unrealized (loss) gain on derivative instruments, for the three- and six-months ended June 30, 2011 and 2010, respectively, was as follows (in thousands):

		Three-Months Ended								Six-Months ended
		June 30,								June 30,
		2011				2010				2011				2010
Net income		$	8,444				9,431			$	8,754				8,603
Other comprehensive income:
Amounts reclassified to earnings during the period			—				873				—				1,901
Unrealized (loss) gain on derivative instruments			(50	)			(142	)			16				(226	)
Total comprehensive income		$	8,394				10,162			$	8,770				10,278

6. Income Taxes

We have determined that due to a variety of reasons, we are currently unable to estimate our annual effective tax rate during our interim periods, which would be applied to our pre-tax ordinary income. We are calculating our effective income tax rate using a year-to-date income tax calculation. Our income tax expense differs from the statutory federal tax rate of 35% and related statutory state tax rates, primarily as a result of the reversal of our deferred tax liabilities related to the tax amortization of our FCC broadcasting licenses, which could no longer be assured over our net operating loss carry forward period. Therefore, our effective tax rate is impacted by the establishment of a valuation allowance on substantially all of our deferred tax assets.

We file federal, state and local income tax returns in the United States and Puerto Rico. The tax years that remain subject to assessment of additional liabilities by the United States federal, state, and local tax authorities are 2007 through 2009. The tax years that remain subject to assessment of additional liabilities by the Puerto Rico tax authority are 2006 through 2011.

Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our consolidated financial statements as of June 30, 2011 and December 31, 2010.

7. Litigation

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

8. Fair Value Measurement Disclosures

Fair Value of Financial Instruments

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

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

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

		June 30, 2011								December 31, 2010
		Gross								Gross
		Carrying								Carrying
Description		Amount				Fair Value				Amount				Fair Value
Senior credit facility term loan		$	304.7				291.2				306.3				291.2
103/4% Series B cumulative exchangeable redeemable preferred stock			92.3				69.8				92.3				69.3
Promissory note payable, included in other long-term debt			6.3				6.3				6.5				6.4

The fair value estimates of these financial instruments were based upon either: (a) market quotes from a major financial institution taking into consideration the most recent market activity, or (b) a discounted cash flow analysis taking into consideration current rates.

Fair Value of Derivative Instruments

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

Fair value measurements at June 30, 2011

Liabilities

June 30, 2011

Quoted prices in

Significant

carrying value and

active markets

other

Significant

balance sheet

for identical

observable

unobservable

location of derivative

instruments

inputs

inputs

Description

instruments

(Level 1)

(Level 2)

(Level 3)

Derivative designated as a cash flow hedging instrument:

Interest rate swap

$

813

—

813

—

Fair value measurements at December 31, 2010

Liabilities

December 31, 2010

Quoted prices in

Significant

carrying value and

active markets

other

Significant

balance sheet

for identical

observable

unobservable

location of derivative

instruments

inputs

inputs

Description

instruments

(Level 1)

(Level 2)

(Level 3)

Derivative designated as a cash flow hedging instrument:

Interest rate swap

$

829

—

829

—

The interest rate swap fair value is derived from the present value of the difference in cash flows based on the forward-looking LIBOR yield curve rates, as compared to our fixed rate applied to the hedged amount through the term of the agreement, less adjustments for credit risk.

		Three-Months Ended								Six-Months Ended
		June 30,								June 30,
Interest rate swaps		2011				2010				2011				2010
(Loss) gain recognized in other comprehensive loss (effective portion)		$	(50	)			(142	)		$	16				(226	)
Loss reclassified from accumulated other comprehensive loss into interest expense			—				873				—				1,901
Gain recognized in change in fair value of derivative instrument			—				3,016				—				5,863

9. Acquisition of Houston Television Station

On August 1, 2011, we, through our wholly-owned subsidiaries, Mega Media Holdings, Inc. (“Mega Media Holdings”) and KTBU Licensing, Inc. (“KTBU-Sub,” and, together with Mega Media Holdings, “Mega Media”), completed the acquisition of certain assets, including licenses, permits and authorizations issued by the Federal Communications Commission (the “FCC”) used in or related to the operation of television station KTBU-TV (Digital 42 (Virtual Channel 55)) in Conroe, Texas, pursuant to that certain asset purchase agreement (the “Purchase Agreement”), dated May 2, 2011, as amended on July 19, 2011, with Channel 55/42 Operating, LP, a Texas limited partnership, USFR Tower Operating, LP, a Texas limited partnership, Humanity Interested Media, L.P., a Texas limited partnership, USFR Equity Drive Property LLC, a Texas limited partnership, and US Farm & Ranch Supply Company, Inc., a Texas corporation (“USFR”). On August 1, 2011, MegaTV programming debuted on KTBU-TV, which serves the Houston area.

In connection with the closing, we paid an aggregate purchase price equal to $16 million, consisting of: (i) cash in the amount of $8.0 million; and (ii) a thirty-six month, secured promissory note in the principal amount of $8.0 million, bearing a fixed interest rate of 6%.

In addition, as part of the television station acquisition, we entered into a lease agreement with USFR Equity Drive Property LLC. The lease agreement covers approximately 30,000 square feet of space in Houston, Texas, and specified furnishings and broadcasting equipment. The lease has an initial term of 10 years, subject to two 5-year extensions at our option, and is terminable at any time by us on not less than 180 days prior notice. The lease also provides us with an option to purchase the property and the furnishings and equipment for a purchase price of $4 million if the purchase occurs during the first 12 months of the lease term, increasing by 2.5% annually during each successive 12-month period of the lease term.

10. Refinancing of our First Lien Credit Facility due 2012

Our strategy is to primarily utilize cash flows from operations to meet our capital needs and contractual obligations. Management continually projects anticipated cash requirements and believes that cash from operating activities, together with cash on hand, should be sufficient to permit us to meet our operating obligations over the next twelve month period.

We are seeking refinancing of our First Lien Credit Facility and believe that we will be able to do so on terms that are satisfactory to us. We expect to complete this process no later than April 2012. No assurance can be given that we will successfully refinance the First Lien Credit Facility before it becomes due and we lack sufficient existing capital resources to repay it.

On January 21, 2011, we entered into an engagement letter agreement (the “Engagement Letter”) with Lazard Frères & Co. LLC (“Lazard”), to act as our investment banker in connection with exploring potential strategic transactions, including the refinancing of our existing First Lien Credit Facility due June 2012. The term of the Engagement Letter is from the date thereof until it expires or is earlier terminated pursuant to the terms thereof. Pursuant to the terms of the Engagement Letter, Lazard will be entitled to certain fees upon the consummation of certain strategic transactions, as well as other fees in connection with services rendered under the Engagement Letter and reimbursement for expenses incurred in connection with its performance thereunder.

11. Subsequent Events

Reverse Stock Split of our Class A and Class B Common Stock

On July 5, 2011, we filed a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Amendment”). The Amendment effected a one-for-ten (1-for-10) reverse stock split of our outstanding Class A common stock, par value $0.0001 per share and Class B common stock, par value $0.0001 per share . The reverse stock split became effective at 11:59p.m., Eastern Standard time on July 11, 2011 (the “Effective Date”).

The reverse stock split was approved by our stockholders at the annual meeting held on June 1, 2011. The trading of our common stock on the NASDAQ Global Market on a split-adjusted basis began at the opening of trading on July 12, 2011, at which time the symbol changed to SBSAD to indicate that the reverse stock split had occurred. The symbol returned to the normal SBSA at the open of the market on August 9, 2011.

As a result of the reverse stock split, each ten (10) outstanding shares of pre-split common stock automatically combined into one (1) share of post-split common stock. No fractional shares were issued. Proportional adjustments were made to our outstanding stock, stock options and other equity awards and to our equity compensation plans to reflect the reverse stock split. The condensed consolidated financial statements for current and prior periods have been adjusted to reflect the change in number of shares.

NASDAQ Compliance Letter

As a result of the reverse stock split, on July 26, 2011, we received notification from NASDAQ that we had regained compliance with the $1.00 minimum closing bid price requirement in accordance with NASDAQ listing rules. The NASDAQ Listing Qualifications Panel has determined to continue the listing of our securities on The NASDAQ Stock Market.

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

Overview

We own and/or operate 21 radio stations in markets that reach approximately 42% of the Hispanic population in the U.S., including Puerto Rico. In addition, we own and operate three television stations and have various affiliation, distribution and/or programming agreements, which allow us to reach over 6.0 million households throughout the U.S., including Puerto Rico.

The success of each of our stations depends significantly upon its audience ratings and its share of the overall advertising revenue within its market. The broadcasting industry is a highly competitive business, but some barriers to entry do exist. Each of our stations competes with both Spanish-language and English-language stations in its market, as well as with other advertising media, such as newspapers, cable television, the Internet, magazines, outdoor advertising, satellite radio and television, transit advertising and direct mail marketing. Factors which are material to our competitive position include management experience, our stations’ rank in their markets, signal strength and frequency, and audience demographics, including the nature of the Spanish-language market targeted by a particular station.

Our primary source of revenue is the sale of advertising time on our stations to local and national advertisers. Revenue is affected primarily by the advertising rates that our stations are able to charge, as well as the overall demand for advertising time in each respective market. Seasonal net broadcasting revenue fluctuations are common in the broadcasting industry and are primarily due to fluctuations in advertising demand from local and national advertisers. Typically for the broadcasting industry, the first calendar quarter generally produces the lowest revenue. Our most significant operating expenses are usually compensation expenses, programming expenses, professional fees, and advertising and promotional expenses. Senior management strives to control these expenses, as well as other expenses, by working closely with local station management and others, including vendors.

Our radio stations are located in six of the top-ten Hispanic markets of Los Angeles, New York, Puerto Rico, Chicago, Miami and San Francisco. Los Angeles and New York have the largest and second largest Hispanic populations, and are also the largest and second largest radio markets in the United States in terms of advertising revenue, respectively. We format the programming of each of our radio stations to capture a substantial share of the U.S. Hispanic audience in their respective markets. The U.S. Hispanic population is diverse, consisting of numerous identifiable groups from many different countries of origin and each with its own musical and cultural heritage. The music, culture, customs and Spanish dialects vary from one radio market to another. We strive to maintain familiarity with the musical tastes and preferences of each of the various Hispanic ethnic groups and customize our programming to match the local preferences of our target demographic audience in each market we serve. Our radio revenue is generated primarily from the sale of local and national advertising.

Our television stations and related affiliates operate under the “MegaTV” brand. We have created a unique television format which focuses on entertainment, current events and variety with high-quality production. Our programming is formatted to capture shares of the U.S. Hispanic audience by focusing on our core strengths as an “entertainment” company, thus offering a new alternative compared to the traditional Latino channels. MegaTV’s programming is based on a strategy designed to showcase a combination of programs, ranging from televised radio-branded shows to general entertainment programs, such as music, celebrity, debate, interviews and personality based shows. As part of our strategy, we have incorporated certain of our on-air personalities into our programming, as well as including interactive elements to complement our Internet websites. We develop and produce more than 70% of our programming and obtain other content from Spanish-language production partners. Our television revenue is generated primarily from the sale of local advertising and paid programming.

As part of our operating business, we also operate LaMusica.com, Mega.tv, and our radio station websites which are bilingual (Spanish — English) websites providing content related to Latin music, entertainment, news and culture. LaMusica.com and our network of station websites generate revenue primarily from advertising and sponsorship. In addition, the majority of our station websites simultaneously stream our stations’ content, which has broadened the audience reach of our radio stations. We also occasionally produce live concerts and events throughout the United States, including Puerto Rico.

Comparison Analysis of the Operating Results for the Three-Months Ended June 30, 2011 and 2010

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

		Three-Months Ended
		June 30,
		2011				2010
		(In thousands)
Net revenue:
Radio		$	31,222				31,823
Television			4,405				4,014
Consolidated		$	35,627				35,837
Engineering and programming expenses:
Radio		$	5,279				5,684
Television			4,290				4,307
Consolidated		$	9,569				9,991
Selling, general and administrative expenses:
Radio		$	8,936				9,084
Television			2,021				1,748
Consolidated		$	10,957				10,832
Corporate expenses:		$	2,012				2,254
Depreciation and amortization:
Radio		$	545				653
Television			575				564
Corporate			137				229
Consolidated		$	1,257				1,446
(Gain) loss on the disposal of assets, net:
Radio		$	(2	)			—
Television			—				8
Corporate			—				—
Consolidated		$	(2	)			8
Impairment charges and restructuring costs:
Radio		$	—				—
Television			—				—
Corporate			207				—
Consolidated		$	207				—
Operating income (loss):
Radio		$	16,464				16,402
Television			(2,481	)			(2,613	)
Corporate			(2,356	)			(2,483	)
Consolidated		$	11,627				11,306

The following summary table presents a comparison of our results of operations for the three-months ended June 30, 2011 and 2010. Various fluctuations in the table are discussed below. This section should be read in conjunction with our unaudited condensed consolidated financial statements and notes.

		Three-Months Ended
		June 30,
		2011				2010
		(In thousands)
Net revenue		$	35,627				35,837
Engineering and programming expenses			9,569				9,991
Selling, general and administrative expenses			10,957				10,832
Corporate expenses			2,012				2,254
Depreciation and amortization			1,257				1,446
(Gain) loss on disposal of assets, net of disposal costs			(2	)			8
Impairment charges and restructuring costs			207				—
Operating income		$	11,627				11,306
Interest expense, net			(2,024	)			(3,123	)
Change in fair value of derivative instrument			—				3,016
Income tax expense			1,159				1,768
Net income		$	8,444				9,431

Net Revenue

The decrease in our consolidated net revenue of $0.2 million or 1% was due to the decrease in our radio segment net revenues. Our radio segment net revenue decreased $0.6 million or 2%, primarily due to local sales, offset by an increase in national and network sales. The decrease in local sales occurred in all of our markets, with the exception of our New York market. The increase in national sales occurred in our New York, Chicago and Puerto Rico markets. The increase in network sales occurred in all of our markets. Our television segment net revenue increased $0.4 million or 10%, primarily due to increases in national spot sales and paid programming sales, offset by a decrease in local spot sales.

Engineering and Programming Expenses

The decrease in our consolidated engineering and programming expenses of $0.4 million or 4% was due to the decrease in our radio segment expenses. Our radio segment expenses decreased $0.4 million or 7%, primarily related to decreases in compensation and benefits for technical and programming personnel due to headcount reductions and music license fees. Our television segment expenses were flat.

Selling, General and Administrative Expenses

The increase in our consolidated selling, general and administrative expenses of $0.1 million or 1% was due to the increase in our television segment expense. Our television segment expenses increased $0.3 million or 16%, primarily due to increases in barter expense, promotions and outside services. Our radio segment expenses decreased $0.2 million or 2%, mainly due to a decrease in national and local commissions, offset by increases in our rating services and allowance for doubtful accounts.

Corporate Expenses

The decrease in corporate expenses was primarily a result of decreases in compensation and benefits for our corporate personnel and rent expense related to the subleases entered in 2010, offset by an increase in professional fees related to our refinancing.

Impairment Charges and Restructuring Costs

The impairment charges and restructuring costs is related to an impairment charge recognized on the lease of corporate office space.

Operating Income

The increase in operating income was mainly due to the decrease in our engineering and programming expenses and corporate expenses.

Interest Expense, Net

In 2008, the counterparty to an interest rate swap related to the First Lien Credit Facility, Lehman Brothers Special Financing Inc., and its parent and credit support provider, Lehman Brothers Holdings Inc., each filed for bankruptcy. As a result of the Lehman bankruptcy filings, a dispute arose with respect to the outstanding payments under the swap agreement. On June 17, 2010, the parties successfully resolved the dispute under mediation and entered into a confidential settlement and release agreement. Under this swap agreement, we were paying a fixed interest rate of 5.98%. We are now paying interest at a floating rate equal to three-month LIBOR plus 175 basis points, resulting in a decrease in interest expense.

Income Taxes

The income tax expense of $1.2 million arose primarily from the income tax expense resulting from the tax amortization of our FCC broadcasting licenses.

Net Income

The decrease in net income was primarily due to the prior year change in the fair value of derivative instrument, offset by decreases in interest expense and income taxes.

Comparison Analysis of the Operating Results for the Six-Months Ended June 30, 2011 and 2010

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

		Six-Months Ended
		June 30,
		2011				2010
		(In thousands)
Net revenue:
Radio			57,663				58,903
Television			8,739				7,780
Consolidated			66,402				66,683
Engineering and programming expenses:
Radio			11,688				11,474
Television			8,087				8,391
Consolidated			19,775				19,865
Selling, general and administrative expenses:
Radio			19,772				19,955
Television			4,364				3,666
Consolidated			24,136				23,621
Corporate expenses:			3,943				4,475
Depreciation and amortization:
Radio			1,163				1,386
Television			1,150				1,126
Corporate			283				490
Consolidated			2,596				3,002
(Gain) loss on the disposal of assets, net:
Radio			(9	)			—
Television			—				8
Corporate			—				—
Consolidated			(9	)			8
Impairment charges and restructuring costs:
Radio			—				—
Television			—				—
Corporate			207				—
Consolidated			207				—
Operating income (loss):
Radio			25,049				26,088
Television			(4,862	)			(5,411	)
Corporate			(4,433	)			(4,965	)
Consolidated			15,754				15,712