UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-27823
Spanish Broadcasting System, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction or
incorporation of organization)
13-3827791
(I.R.S. Employer
Identification No.)
7007 NW 77th Avenue
Miami, Florida 33166
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (305) 441-6901
Former name, former address and former fiscal year, if changed since last report: None
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock, par value $0.0001 per share
Title of Each Class
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act Yes No
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 No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a small reporting company)
Emerging growth company
Accelerated filer
Small reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of June 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, the registrant had 4,166,991 shares of Class A common stock,
par value $0.0001 per share (“Class A common stock”), and 2,340,353 shares of Class B common stock, par value $0.0001 per share (“Class B common stock”), outstanding. As
of June 30, 2016, the aggregate market value of the Class A common stock held by nonaffiliates of the registrant was approximately $14.7 million and the aggregate market value
of the Class B common stock held by nonaffiliates of the registrant was approximately $1,246. We calculated the aggregate market value based upon the closing price of our
Class A common stock reported on the NASDAQ Global Market on June 30, 2016 (the exchange on which our Class A common stock then traded) of $3.56 per share, and we
have assumed that our shares of Class B common stock would trade at the same price per share as our shares of Class A common stock. (For purposes of this paragraph, directors
and executive officers have been deemed affiliates.)
As of April 5, 2017, 4,166,991 shares of Class A common stock, 2,340,353 shares of Class B common stock and 380,000 shares of Series C convertible preferred stock,
$0.01 par value per share (“Series C preferred stock”), which are convertible into 760,000 shares of Class A common stock, were outstanding.
Documents Incorporated by Reference:
Certain information required by Part III of this Annual Report on Form 10-K is incorporated by reference from the registrant’s definitive proxy statement (the “Proxy
Statement”) to be filed pursuant to Regulation 14A with respect to the registrant’s 2017 annual meeting of stockholders. Except with respect to information specifically
incorporated by reference in this Annual Report on Form 10-K, the Proxy Statement is not deemed to be filed as part hereof.
Table of Contents
Page
Business ............................................................................................................................................................................
PART I
Item 1.
Item 1A. Risk Factors ......................................................................................................................................................................
Item 1B. Unresolved Staff Comments.............................................................................................................................................
Item 2.
Item 3.
Item 4.
2
24
35
Properties .......................................................................................................................................................................... 36
Legal Proceedings............................................................................................................................................................. 36
Mine Safety Disclosures ................................................................................................................................................... 37
PART II
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .........................................................................................
Item 8.
Item 9.
Item 9A. Controls and Procedures ...................................................................................................................................................
Item 9B. Other Information .............................................................................................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...... 37
Selected Financial Data .................................................................................................................................................... 38
Management’s Discussion and Analysis of Financial Condition and Results of Operations........................................... 38
52
Financial Statements and Supplementary Data ................................................................................................................ 52
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .......................................... 52
53
53
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance ............................................................................................... 54
Executive Compensation .................................................................................................................................................. 54
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........................ 54
Certain Relationships and Related Transactions, and Director Independence ................................................................. 54
Principal Accountant Fees and Services........................................................................................................................... 54
PART IV
Item 15.
Exhibits and Financial Statement Schedules .................................................................................................................... 55
Special Note Regarding Forward-Looking Statements
This annual report on Form 10-K contains both historical and forward-looking statements. All statements other than statements
of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Spanish Broadcasting System, Inc. intends such forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and includes this statement for purposes
of such safe harbor provisions.
“Forward-looking” statements, as such term is defined by the Securities Exchange Commission (the “Commission”) in its rules,
regulations and releases, represent our expectations or beliefs, including, but not limited to, statements concerning our operations,
economic performance, financial condition, our recapitalization plan, growth and acquisition strategies, investments and future
operational plans. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,”
“intend,” “forecast,” “seek,” “plan,” “predict,” “project,” “could,” “estimate,” “might,” “continue,” “seeking” or the negative or other
variations thereof or comparable terminology are intended to identify forward-looking statements. These statements, by their nature,
involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending
on a variety of important factors, including, but not limited to, those identified in “Item 1A. Risk Factors” in this annual report on
Form 10-K. All forward-looking statements made herein are qualified by these cautionary statements and risk factors and there can be
no assurance that the actual results, events or developments referenced herein will occur or be realized. These risks and uncertainties
include the following factors:
The failure to repay our Notes;
Risks relating to the existence of the Voting Rights Triggering Event;
The maturity of our Notes and our obligations under our Series B preferred stock adversely affects our financial condition
and raises substantial doubt about our ability to continue as a going concern;
Our ability to repurchase all of the Notes and our Series B preferred stock upon a change in control;
Our ability to generate sufficient cash from operations or the sale of assets to repay our Notes and our liabilities under
our Series B preferred stock, which may force us to take other actions to satisfy our obligations under our Notes and
Series B preferred stock;
Our high leverage and substantial level of indebtedness;
Restrictions on our current and future operations pursuant to the terms of the Indenture governing the Notes and the
terms of the Series B preferred stock;
We have experienced net losses in the past and, to the extent that we experience net losses in the future, our ability to
raise capital may be adversely affected;
Our industry is highly competitive, and we compete for advertising revenue with other broadcast stations, as well as other
media, many operators of which have greater resources than we do;
The large portion of our net revenue and operating income that currently comes from our New York, Los Angeles and
Miami markets;
Possible cancellations, reductions, delays and seasonality in advertising could adversely affect our net revenues;
Our inability to pursue and successfully execute our expansion strategy which may impact our growth;
Our cost-cutting measures may impact our ability to pursue our expansion strategy;
The success of our radio stations depends on the popularity and appeal of our content, which is difficult to predict;
The success of our television operation depends upon our ability to attract viewers and advertisers to our broadcast
television operation;
The loss of distribution agreements could materially adversely affect our results of operations;
The failure or destruction of satellites and transmitter facilities that we depend upon to distribute our programming could
materially adversely affect our business and results of operation;
Our ability to respond to rapidly changing technology, services and standards which characterize our industry in order to
remain competitive;
Our ability to retain key employees, on-air talent and program hosts;
Impairment of our goodwill and other intangible assets deemed to have indefinite useful lives can cause our net income or
net loss to fluctuate significantly;
Piracy of our programming and other content, including digital and internet piracy, may decrease revenue received from
the exploitation of our programming and other content and adversely affect our business and profitability;
Damage to our brands or reputation;
Our business may be adversely affected by legal or governmental proceedings brought by or on behalf of our employees;
Raúl Alarcón, the Chairman of our Board of Directors, Chief Executive Officer and President, has majority voting control
of our common stock and 100% voting control of our Series C preferred stock and this control may discourage or
influence certain types of transactions or strategic initiatives; Changes in government regulation; and
Other risk factors discussed under “Item 1A. Risk Factors.”.
We do not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances.
Item 1. Business
PART I
Our Company
All references to “we”, “us”, “our”, “SBS”, “our company” or “the Company” in this annual report on Form 10-K mean Spanish
Broadcasting System, Inc., a Delaware corporation formed in 1994, and all entities owned or controlled by Spanish Broadcasting
System, Inc. and, if prior to 1994, mean our predecessor parent company Spanish Broadcasting System, Inc., a New Jersey
corporation, and its subsidiaries. Our executive offices are located at 7007 N.W. 77th Avenue, Miami, Florida 33166, our telephone
number is (305) 441-6901, and our corporate website is www.spanishbroadcasting.com.
We are a leading Spanish-language media and entertainment company with radio and/or television stations in the top
U.S. Hispanic markets, including Puerto Rico. Our owned and operated radio stations serve markets representing approximately 35%
of the U.S. Hispanic population, and our television operations serve markets representing over 3.5 million Hispanic households. We
produce and distribute Spanish-language content, including radio programs, television shows, music and live entertainment through
our radio stations and our television group, MegaTV, which produces over 70 hours of original programming per week. MegaTV
broadcasts via our owned and operated stations in South Florida, Houston, and Puerto Rico and through programming and/or
distribution agreements with other stations, as well as various cable and satellite providers.
We operate WSKQ in New York City which is the top Spanish-language radio station in the United States based on the average
number of listeners per quarter-hour. WSKQ delivered the highest listenership among all Spanish-language radio stations in the
United States, according to the 2016 Hispanic Fact Pack. Our other radio stations are located in Los Angeles, New York, Puerto Rico,
Miami, Chicago and San Francisco. In addition to our owned and operated radio stations, we operate AIRE Radio Networks, with over
250 affiliate radio stations servicing over 75 of the top U.S. Hispanic markets, including all of the top 30 Hispanic markets. AIRE
Radio Networks currently covers 93% of the coveted U.S. Hispanic market and reaches over 14.0 million listeners in an average week.
As part of our operating business, we also maintain multiple Spanish and bilingual websites that provide content related to Latin
music, entertainment, news and culture, as well as the LaMusica mobile app. The LaMusica mobile app is a music and entertainment
video and audio app that programs an extensive series of short form videos, simultaneous live streams our radio stations, hundreds of
curated playlists and has tools that enable users to personalize their mobile radio streaming experience. The new video additions to
our mobile app significantly enhance the audience’s engagement level and increase the reach of our mobile offering. In addition, we
produce live concerts and events in the United States and Puerto Rico. Concerts generate revenue from ticket sales, sponsorship and
promotions, raise awareness of our brands in the surrounding communities and provide our advertising partners additional
opportunities to reach their target audience.
Our Strategy
We focus on maximizing the revenue and profitability of our broadcast portfolio by strengthening the performance of our
existing broadcast stations. Historically, we have evaluated strategic media acquisitions and/or dispositions and strived to expand our
media content through distribution and affiliations in order to achieve a significant presence with clusters of stations in the top
U.S. Hispanic markets. Historically, we have considered acquisitions and the expansion of the number of broadcast stations in markets
where we can maximize our revenue through aggressive sales and programming efforts directed at U.S. Hispanic and general market
advertisers. The potential acquisitions and expansion may include broadcast stations which do not currently target the U.S. Hispanic
market, but which we believe can successfully be reformatted and programmed. From time to time, we have explored investment
opportunities in related media outlets targeting the U.S. Hispanic market. Our acquisition and investment strategy is subject to having
sufficient cash consistent with our recapitalization plan, which we summarize below under “—Recent Developments” and “Part II,
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.
Our operating strategy focuses on maximizing our broadcast stations’ appeal to our targeted audiences and advertisers in order
to increase revenue and cash flow, while simultaneously controlling operating expenses. To achieve these goals, we focus on a number
of key factors.
Develop Market Leading Station Clusters in High Growth Hispanic Markets. We believe Hispanic media will gain revenue
share as a result of the growing U.S. Hispanic population and its growing buying power. Given our knowledge of, and experience
with, the U.S. Hispanic marketplace and our established position in the top U.S. Hispanic markets, including Puerto Rico, we will
continue to focus on reaching and maximizing revenue in high growth Hispanic markets. We believe that operating multiple stations
in the same markets enables us to achieve operating efficiencies and cost savings. We pursue a strategy of creating broadcast station
2
clusters that reach a critical mass of our target audience and marketing resources necessary to aggressively pursue incremental
advertising revenue.
Leverage Our Proprietary Content Across Our Media Platforms. We will continue to monetize our content across multiple
platforms, including radio, broadcast and pay television and live events, as well as emerging media technologies. We use our media
platforms and relationships with Hispanic celebrities and talent to produce unique programming and content for our television and
radio stations. Concerts and special promotional appearances form an important part of our marketing strategy and provide us with
significant local market exposure. We also develop content from these events and create opportunities to sell, market and distribute
that content through our websites and other media, providing our advertising partners with attractive advertising solutions. In addition,
the events allow us to promote our brands to increase our radio audience and advertising revenue. As the media landscape evolves, we
are developing our key broadcast programs, on-air personalities and brands for consumption as downloadable video and interactive
content.
Maintain Cost Discipline and Reduce Our Costs. We employ a regimented managerial approach to operating our media outlets.
We emphasize control of our operating costs through detailed budgeting, continuous review of staffing levels and expenses and
vendor analysis. We are highly focused on reducing our costs and believe we have streamlined our cost structure to provide a
foundation for growth.
Maintain Strong Community Involvement. We have been, and will continue to be, actively involved in the local communities
that we serve. Our broadcast stations participate in numerous community programs, fundraisers and activities benefiting the local
community and Hispanics abroad. Examples of our community involvement include free public service announcements, free events
designed to promote family values within the local Hispanic communities, extensive coverage of world events that have an impact on
the U.S. Hispanic population as well as charitable contributions to organizations that benefit the local Hispanic communities in which
we operate. Our community involvement also allows us to keep abreast of shifting audience preferences, to further tailor our content
and to enhance broadcast station loyalty.
Sell Non-Core Assets and Recapitalization Plan. We have been pursuing the sale of certain non-core assets, including certain
of our television stations and real estate assets. We expect to use the net proceeds of these asset sales to repay a portion of our 12.5%
Senior Secured Notes due 2017 (the “Notes”) and, thereby to deleverage our balance sheet. The strategy to sell these assets is part of
our broader recapitalization plan. For more information about our recapitalization plan, see below under “Recent Developments” and
“Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources.”
Hispanic Market Opportunity
The U.S. Hispanic population is the largest ethnic minority group and is projected to be the fastest growing segment of the
population. We believe that we are well positioned to benefit from the projected growth in population and buying power of the
U.S. Hispanic population and the expected shift of advertising dollars to Hispanic media. We believe that targeting the Hispanic
market is attractive for the following reasons:
Hispanic Population Growth. Between the years 2000 and 2016, the U.S. Hispanic population increased by 62.3% compared to
7.9% for the non-Hispanic population. In 2016, Hispanics comprised 17.9% of the U.S. population and more than one out of
every six individuals living in the United States was of Hispanic origin, according to the Selig Center for Economic Growth, The
Multicultural Economy, 2016. The U.S. Hispanic population grew at more than seven times the rate of the general population
from 2000 to 2015 and is projected to grow to 31% of the U.S. population by 2060, according to the U.S. Census Bureau.
Hispanics have accounted for nearly half of the U.S. population growth since the 2010 Census.
Growth in Hispanic Buying Power. The U.S. Hispanic population accounted for over $1.4 trillion of total buying power in 2016,
up from $1.0 trillion in 2010 and is estimated to grow to $1.8 trillion by 2021, according to the Selig Center for Economic
Growth, The Multicultural Economy, 2016. U.S. Hispanic buying power accounted for 10% of all U.S. buying power in 2016.
By 2021, Hispanics will account for 10.9% of total U.S. buying power.
Spanish-Language Advertising Spending. Advertisers spent an estimated $7.8 billion on Spanish-language media advertising in
2015, according to the 2016 Hispanic Fact Pack. This amount has almost quadrupled since 2000 when Hispanic advertising
expenditures totaled $2.1 billion according to Hispanic Business Magazine, December 2001. As advertisers increasingly
recognize the buying power of the U.S. Hispanic population, especially in markets with high Hispanic concentration, we believe
that Spanish-language advertising will continue to increase.
3
The above market opportunity information is based on data provided by the 2016 Hispanic Fact Pack, the BIA/Kelsey’s
Investing in Television/Radio Market Report 2016 and the Selig Center for Economic Growth publication, The Multicultural
Economy, 2016.
Our Strengths
Strong Presence in Largest U.S. Hispanic Markets. We operate in six of the eight largest U.S. Hispanic markets: Los Angeles,
New York, Miami, San Francisco, Chicago and Houston, as well as also operating in Puerto Rico. We operate three of the top six
Spanish-language radio stations in the United States. Our New York station (WSKQ-FM) ranks first among Spanish-language radio
stations in terms of highest listenership. The Los Angeles and New York markets, where we consistently have a top-three-rated
Spanish-language radio station, have the largest and second largest U.S. Hispanic populations, respectively. New York and Los
Angeles are also the largest and second largest overall radio markets in the United States as measured by advertising revenue. In
addition, MegaTV serves markets representing over 3.5 million Hispanic households.
Strong Portfolio of Branded Media Franchises. Because of our history with Hispanic-focused media, we believe that we have
been able to develop strong relationships with the Hispanic audiences in our markets and create strong brand loyalty. Our listeners
enjoy music from popular and emerging artists as well as updated local information on weather, news and general entertainment. Our
live concerts and events provide our advertisers additional opportunities to reach their target audiences as well as allow us to cross-
promote our brands and diversify our revenue base.
Diversification across Media Platforms, Geography and Customers. Our programming reaches audiences across U.S. Hispanic
communities and across various media distribution platforms. We sell our advertising time both nationally and locally and generate
substantially all of our revenue from the sale of advertising time to a broad and geographically diverse customer base. The
diversification of our stations across several local markets helps to mitigate any revenue decline in a specific geographic area.
Additionally, in 2016, no single advertiser generated more than 5% of our consolidated revenue. Our customer base includes
advertisers in the automotive, retail, telecommunications and healthcare industries, among others. In addition to advertising revenue,
we also generate subscription and retransmission fee revenue from MegaTV.
Attractive Business Model. Our strong margins and low levels of capital expenditures enable us to generate high levels of
station operating cash flows. We also benefit from an attractive operating cost structure that provides significant operating leverage
while allowing us ongoing operating flexibility in light of the limits to our financial flexibility.
Experienced Management Team. Led by Raúl Alarcón, our Chairman, Chief Executive Officer and President, our senior
management team has, on average, over 20 years of experience in the broadcasting sector. Importantly, the Alarcón family has been
involved in Spanish-language radio broadcasting since the 1950s, when the late Mr. Pablo Raúl Alarcón, our former Chairman
Emeritus, established his first radio station in Camagüey, Cuba. We believe that our experienced management team gives us a unique
understanding of the various Hispanic ethnic and cultural subgroups and allows us to effectively tailor our broadcast programming,
websites and concerts accordingly.
4
Recent Developments
Recapitalization
We are working with a team of financial and legal advisors in evaluating all options available to us in executing on a
comprehensive recapitalization plan. These options include, but are not limited to, selling certain non-core assets (whose net proceeds
would be used to repay a portion of outstanding Notes) as summarized above under “—Our Strategy—Sell Non-Core Assets and
Recapitalization Plan,” new financings (including debt, equity-linked securities and equity offerings), an exchange offer with the
holders of our Notes (the “Noteholders”), with or without exit consents to amend the terms of the indenture under which the Notes
were issued (the “Indenture”), use of cash on hand, and a combination of these options. In connection with our recapitalization plan,
we have initiated conversations with representatives of the Noteholders and holders of our 10¾% Series B Cumulative Exchangeable
Redeemable Preferred Stock (the “Series B preferred stock”) regarding these matters. We cannot assure you that we will be successful
in our recapitalization efforts. We did not repay the Notes at their maturity, as a result of which there was an event of default under the
Indenture on April 17, 2017 (April 17, 2017 being the payment date following the Saturday, April 15, 2017 maturity date). In addition,
we are in default under the Indenture for the reasons described under “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Notes.” The Notes will continue to earn interest after the maturity date. We face various risks
regarding these matters. See “Special Note Regarding Forward-Looking Statements” and “Risk Factors—Risks Related to Our
Indebtedness and Preferred Stock.”
FCC Broadcast Incentive Auction
In January 2016, we filed applications to participate in the Federal Communications Commission (the “FCC”) Broadcast TV
spectrum auction (the “Broadcast Incentive Auction”) with respect to our television stations in Miami, Houston, and Puerto Rico to
potentially generate cash proceeds. As part of our strategy, we also entered into a channel sharing agreement for one of our television
stations in Puerto Rico. Due to below market pricing levels in the Broadcast Incentive Auction that concluded in January 2017 we will
relinquish our spectrum for one of our Puerto Rico stations and will retain our other television stations in Miami, Houston and our
other two stations in Puerto Rico. The net cash proceeds from the Puerto Rico station sale will not be material. See “Special Note
Regarding Forward-Looking Statements” and “Risk Factors—Risks Related to Our Indebtedness and Preferred Stock.”
NASDAQ Delisting – OTCQX® Best Market Trading
Trading in our Class A Common Stock on NASDAQ was suspended on January 19, 2017, and trading in our Class A Common
Stock on the OTCQX® Best Market (U.S. Tier) (“OTCQX”) began on the same day. Our Class A Common Stock currently trades on
the OTCQX under the stock ticker “SBSAA”.
On April 3, 2017, we received a written notice from OTC Markets ("OTC"), advising us that our market capitalization had
stayed below $5 million for more than 30 consecutive calendar days and that it no longer met the Standards for Continued
Qualification for the OTCQX as per the OTCQX Rules for U.S. Companies. OTC further notified us that a cure period of 180
calendar days to regain compliance had begun, during which the minimum criteria must be met for 10 consecutive trading days.
The 180-calendar day grace period expires September 30, 2017. If our market capitalization has not been at or above $5 million
for 10 consecutive trading days by that time, our Class A common stock will be moved from OTCQX to OTC Pink, which may result
in further reduced liquidity for our Class A common stock. See Part II, Item 7. “Management's Discussion and Analysis of Financial
Condition and Results of Operations—Recent Developments— NASDAQ Delisting – OTCQX® Best Market Trading.”
For more information regarding Recent Developments, see Part II, Item 7. “Management's Discussion and Analysis of Financial
Condition and Results of Operations—Recent Developments.”
5
Operating Segments
We report two operating segments: radio and television.
See Part II, Item 8. Financial Statements and Supplementary Data below.
Radio Overview
We operate radio stations in some of the top Hispanic markets in the United States, including Puerto Rico. We own and operate
radio stations in Los Angeles, New York, Puerto Rico, Chicago, Miami and San Francisco. The following table sets forth certain
statistical and demographic information relating to our radio markets:
Radio
market
revenue
rank
1
2
3
6
11
31
Our radio
Designated Market
Area (DMA)
Los Angeles
New York
Chicago
San Francisco
Miami-Ft. Lauderdale
Puerto Rico
Total in our markets
$
2016
market radio
over-the-air
estimated
gross revenues
(in millions)
2015 Hispanic
population
in market
(in millions)
2015 total
population in
radio market
(in millions)
Percentage of
total market
population
that is
Hispanic
Percentage of
total U.S.
Hispanic
population
$
711.9
551.0
421.5
273.0
214.9
75.8
2,248.1
6.1
4.7
2.1
1.8
2.3
3.4
20.5
13.3
18.9
9.5
7.5
4.5
3.5
57.2
45.7%
25.1%
22.1%
24.4%
50.4%
99.0%
35.8%
10.1%
7.9%
3.5%
3.1%
3.8%
5.7%
34.1%
Source: BIA/Kelsey’s Investing in Radio Market Report 2016, 4th edition
In addition to our owned and operated radio stations, we have our AIRE Radio Networks with over 250 affiliate radio stations
serving over 75 of the top U.S. Hispanic markets, including all the top 30 Hispanic markets. AIRE Radio Networks currently covers
93% of the coveted U.S. Hispanic market. Our AIRE Radio Networks reach over 14.0 million listeners in an average week with our
targeted networks.
Owned and Operated Radio Station Market Information
The following is a general description of each of our markets. The market revenue information is based on data provided by
BIA/Kelsey’s Investing in Radio Market Report 2016, 4th edition, and covers only over-the-air estimated gross revenues.
Los Angeles. In 2015, the Los Angeles market was the largest U.S. radio market in terms of advertising revenue. In 2016,
advertising revenues were projected to be approximately $711.9 million. The Los Angeles market experienced an annual radio
revenue decrease of 2.0% between 2014 and 2015 and is expected to increase at an annual rate of 0.8% between 2015 and 2020.
New York. In 2015, the New York market was the second largest U.S. radio market in terms of advertising revenue. In 2016,
advertising revenues were projected to be approximately $551.0 million. The New York market experienced an annual decrease of
4.6% in annual radio revenue between 2014 and 2015 and is expected to decrease at an annual rate of 0.6% between 2015 and 2020.
Chicago. In 2015, the Chicago market was the third largest U.S. radio market in terms of advertising revenue. In 2016,
advertising revenues were projected to be approximately $421.5 million. The Chicago market experienced an annual radio revenue
decrease of 0.9% between 2014 and 2015 and is expected to increase at an annual rate of 0.6% between 2015 and 2020.
San Francisco. In 2015, the San Francisco market was the sixth largest U.S. radio market in terms of advertising revenue. In
2016, advertising revenues were projected to be approximately $273.0 million. The San Francisco market experienced an annual radio
revenue decrease of 4.0% between 2014 and 2015 and is expected to increase at an annual rate of 0.9% between 2015 and 2020.
Miami-Ft. Lauderdale. In 2015, the Miami-Ft. Lauderdale market was the eleventh largest U.S. radio market in terms of
advertising revenue. In 2016, advertising revenues were projected to be approximately $214.9 million. The Miami market
experienced an annual radio revenue decrease of 4.0% between 2014 and 2015 and is expected to increase at an annual rate of 1.3%
between 2015 and 2020.
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Puerto Rico. In 2015, the Puerto Rico market was the thirty-first largest U.S. radio market in terms of advertising revenue. In
2016, advertising revenues were projected to be approximately $75.8 million. The Puerto Rico market experienced an annual radio
revenue increase of 0.5% between 2014 and 2015 and is expected to increase at an annual rate of 0.3% between 2015 and 2020.
Owned and Operated Radio Station Programming
We format the programming of each of our radio stations to target a substantial share of the U.S. Hispanic audience in its
respective market. 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 become very familiar 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.
By employing listener study groups and surveys, we can respond immediately, if necessary, to any changing preferences of listeners
and/or trends by refining our programming to reflect the results of our research and testing. Each of our programming formats is
described below.
Spanish Tropical. The Spanish Tropical format primarily consists of salsa, merengue, bachata and Latin Rhythmic music. Salsa
is dance music combining Latin Caribbean rhythms with jazz originating from Puerto Rico, Cuba and the Dominican Republic,
which is popular with the Hispanics whom we target in New York, Miami and Puerto Rico. Merengue music is up-tempo dance
music originating in the Dominican Republic. Bachata is a softer tempo dance music also originating in the Dominican
Republic. Latin Rhythmic is a modern dance genre that has evolved into a mix of Spanish- and English-language dance hall,
traditional reggae, Latin pop and Spanish hip-hop and Cubaton.
Regional Mexican. The Regional Mexican format consists of various types of music played in different regions of Mexico such
as ranchera, norteña, banda and cumbia. Ranchera music, originating from Jalisco, Mexico, is a traditional folkloric sound
commonly referred to as mariachi music. Mariachi music features acoustical instruments and is considered the music indigenous
to Mexicans who live in country towns. Norteña means northern, and is representative of Northern Mexico. Featuring an
accordion, norteña has a polka sound with a distinct Mexican flavor. Banda is a regional format from the state of Sinalóa,
Mexico and is popular in California. Banda resembles up-tempo marching band music with synthesizers.
Spanish Adult Contemporary. The Spanish Adult Contemporary format includes soft romantic ballads and Spanish pop music
as well as international hits from Puerto Rico, Mexico, Latin America and Spain.
Top 40. The Top 40 format consists of the most popular current Latin and English chart hits.
Latin Rhythmic. The Latin Rhythmic format consists of Tropi-Pop, which is a mix of upbeat pop and tropical music.
7
The following table lists the programming formats of our radio stations and the target demographic group of each station:
Owned and Operated
# of
# of
Market
Los Angeles
stations
2
formats FM Station ID Frequency
97.9
96.3
KLAX
KXOL
2
Station Name
La Raza
Mega
Format
Regional Mexican
Latin Rhythmic
New York
2
2
WSKQ
WPAT
97.9
93.1
Mega
Amor
Spanish Tropical
Spanish Adult Contemporary
Puerto Rico
8
4 WMEG
WEGM
WRXD
WIOB
WZNT
WZMT
WODA
WNOD
Mega
Mega
Top 40
106.9
95.1
Top 40
96.5 Esterotempo Spanish Adult Contemporary
97.5 Esterotempo Spanish Adult Contemporary
93.7
93.3
94.7 La Nueva 94 Latin Rhythmic
94.1 La Nueva 94 Latin Rhythmic
Spanish Tropical
Spanish Tropical
Zeta 93
Zeta 93
Chicago
Miami
1
1
WLEY
107.9
La Ley
Regional Mexican
3
3
WXDJ
WCMQ
WRMA
106.7
92.3
95.7
El Zol
Z 92.3
I-95
Spanish Tropical
Spanish Adult Contemporary
Spanish Tropical
San Francisco
1
1
KRZZ
93.3
La Raza
Regional Mexican
Target buying
demographic
group by age
18 – 49
18 – 34
18 – 49
25 – 54
18 – 49
18 – 49
25 – 54
25 – 54
25 – 54
25 – 54
18 – 34
18 – 34
18 – 49
18 – 49
25 – 54
18 – 34
18 – 49
Operated but not Owned
Puerto Rico
1
1
WZET
92.1
Zeta 93
Spanish Tropical
25 – 54
Our radio programming capabilities benefit from the integration and synergies of production of programming across the
Company. For example, successful programming in one market can be syndicated to another market.
AIRE Radio Networks Programming
AIRE Radio Networks is comprised of top-rated stations and shows attracting a broad range of quality listeners allowing
advertisers to efficiently reach their target audience. AIRE Radio Networks currently covers 93% of the coveted U.S. Hispanic market
with over 250 affiliate radio stations, which serve over 75 of the top U.S. Hispanic markets, including all the top 30 Hispanic markets.
Each of our targeted networks and syndicated network shows are described below:
Advantage Radio Network (Hispanic Men 25-54, M-F 6am-7pm). The Advantage Radio Network is a full service music
network with strong national coverage and an impressive station lineup delivering high-quality programming of the most
popular regional bands and artists. The Advantage Network features a variety of music styles like Regional Mexican,
TropiBanda, Ranchera, Mariachi, Grupero and Norteña reaching Hispanic Americans.
AIRE Select Network (Hispanic Adults 18-49, M-Sun 6am-12mid). The AIRE Select Network targets active young Hispanic
adults in fast growing Hispanic metro markets. Its concentrated coverage in the Top 10 Hispanic demographic market areas
provide advertisers with a multicultural outreach effort targeting the young and growing Hispanic population. Hispanic Select is
a day specific, as well as a daypartable network.
Young Adult Network (Hispanic Adults 18-49, M-F 6am-12mid). The Young Adult Network consists of highly-rated Spanish-
language radio stations in major markets and provides flexible scheduling options to reach the fastest growing population in the
U.S. The Young Adult Network is the ideal vehicle with music, entertainment, sports and news formats in Los Angeles, New
York, Miami, Houston and Chicago to reach advertisers’ business goals.
8
Millennial Network (Hispanic Adults 18-34, M-F 6am-3pm). The Millennial Network is a complete lineup of young-adult
stations with creative customized options for advertisers to reach this highly desirable demographic: affluent and professional
singles and families. The Millennial Network consists of Spanish CHR and Hits, Tropical/AC and Regional Mexican formats,
attractive to a wide range of advertisers.
Prime Family Weekend Network (Hispanic Adults 18-49, Sat & Sun 6am-12mid). The Prime Family Weekend Network
targets Hispanic families in the top markets with disposable incomes and a full range of programming services including hourly
news, sports and entertainment features. The Prime Family Weekend Network dominates with Tropical/AC, Regional Mexican,
Spanish CHR/Hits formats, and is concentrated in top markets reaching families during the busy weekend.
Entertainment Weekend Network (Hispanic Adults 18-49, Sat & Sun 6am-12mid). The Entertainment Weekend Network
delivers the coveted 18-49 Demographic, reaching Hispanic Adults through entertainment features, celebrity interviews, music
countdowns and specialty segments, which include fitness and financial tips amongst others. The Entertainment Weekend
Network dominates with Regional Mexican, Spanish CHR/Hits formats, and is concentrated in top markets.
Por El Placer De Vivir con Cesar Lozano Show. The “Por El Placer De Vivir con Cesar Lozano Show” (The Joy of Living) is
our daily syndicated show with celebrated self-renovation expert Dr. Cesar Lozano who specializes in helping and training
people to find and enjoy life’s balance. As the host of Por El Placer De Vivir, Dr. Lozano puts to practice years of experience
and provides advice on how to live better, learn life-changing habits, and be surrounded by positive thinking.
La Mezcla con DJ Alex Sensation Show. The “La Mezcla con DJ Alex Sensation Show”(The Mix) is a seamless mix of our
listeners’ favorite songs including the Top 40 Latin tracks of the moment.
In addition to these networks and shows, we offer broadcasters two 24 hours / 7 days a week programming formats: our
Regional Mexican and Tropical formats. Each of our programming formats produce a music format that is simultaneously distributed
via XDS with a High Definition quality sound to our affiliate stations. Technology allows our affiliate stations to offer the necessary
local feel and to be responsive to local clients and community needs. The audience gets the benefit of a national radio station sound
along with local content.
Television Overview and Programming
On March 1, 2006, we launched MegaTV, our general entertainment Spanish-language television operation. We created a
unique television format which focuses on entertainment, events and variety with high-quality production. Our programming is
formatted to capture shares of the Hispanic audience by focusing on our core strengths as an entertainment company, thus offering a
new alternative compared to the traditional Latino channels. The following table sets forth demographic and statistical information
with respect to our television markets, excluding cable and satellite providers, such as DirecTV, DirecTV Puerto Rico, AT&T U-
Verse and Verizon Fios:
2016
market TV
over-the-air
estimated
gross
revenues
(in millions)
2015 Hispanic
population
in market
(in millions)
2015 total
population in
TV market
(in millions)
Percentage of
total market
population
that is
Hispanic
Percentage of
total U.S.
Hispanic
population
Our TV
Designated Market
Area (DMA)
$
Houston
Miami-Ft. Lauderdale
Orlando-Daytona Beach-Melbourne
Tampa-St. Petersburg-Sarasota
San Juan, Puerto Rico
Fresno-Visalia
Total in our markets
$
554.0
555.9
338.5
297.0
171.4
85.3
2,002.1
2.5
2.3
0.8
0.8
3.4
1.1
10.9
6.9
4.6
4.0
4.6
3.5
2.0
25.6
36.5%
49.9%
21.0%
17.1%
99.0%
55.4%
43.0%
4.2%
3.8%
1.4%
1.3%
5.7%
1.9%
18.3%
TV
market
revenue
rank
5
6
14
16
25
56
Source: BIA/Kelsey’s Investing in Television Market Report 2016, 4th edition
9
Television Station Portfolio
The following is a general description of each of our markets. The market revenue information is based on data provided by
BIA/Kelsey’s Investing in Television 2016, 4th edition.
Houston. In 2015, the Houston market was the fifth largest U.S. television market in terms of advertising revenue. In 2016,
advertising revenues were projected to be approximately $554.0 million. The Houston market experienced an annual television
revenue increase of 3.0% between 2014 and 2015. Television revenue in the Houston market is expected to increase at an annual rate
of 3.7% between 2015 and 2020.
Miami. In 2015, the Miami-Ft. Lauderdale market was the sixth largest U.S. television market in terms of advertising revenue.
In 2016, advertising revenues were projected to be approximately $555.9 million. The Miami-Ft. Lauderdale market experienced an
annual television revenue decrease of 2.0% between 2014 and 2015. Television revenue in the Miami-Ft. Lauderdale market is
expected to increase at an annual rate of 4.3% between 2015 and 2020.
Orlando. In 2015, the Orlando-Daytona Beach-Melbourne market was the fourteenth largest U.S. television market in terms of
advertising revenue. In 2016, advertising revenues were projected to be approximately $338.5million. The Orlando-Daytona Beach-
Melbourne market experienced an annual television revenue decrease of 4.2% between 2014 and 2015. Television revenue in this
market is expected to increase at an annual rate of 5.9% between 2015 and 2020.
Tampa. In 2015, the Tampa-St. Petersburg-Sarasota market was the sixteenth largest U.S. television market in terms of
advertising revenue. In 2016, advertising revenues were projected to be approximately $297.0 million. The Tampa-St. Petersburg-
Sarasota market experienced an annual television revenue decrease of 13.4% between 2014 and 2015. Television revenue in this
market is expected to increase at an annual rate of 5.0% between 2015 and 2020.
San Juan, Puerto Rico. In 2015, the San Juan, Puerto Rico market was the twenty-fifth largest U.S. television market in terms
of advertising revenue. In 2016, advertising revenues were projected to be approximately $171.4 million. The San Juan, Puerto Rico
market experienced an annual television revenue increase of 1.0% between 2014 and 2015. Television revenue in this market is
expected to increase at an annual rate of 2.6% between 2015 and 2020.
Fresno. In 2015, the Fresno-Visalia market was the fifty-sixth largest U.S. television market in terms of advertising revenue. In
2016, advertising revenues were projected to be approximately $85.3 million. The Fresno-Visalia market experienced an annual
television revenue decrease of 7.2% between 2014 and 2015. Television revenue in the Fresno-Visalia market is expected to increase
at an annual rate of 3.4% between 2015 and 2020.
The following table lists the distribution outlets of our MegaTV programming:
Market
Houston, Texas
Miami, Florida
San Juan, Puerto Rico
Ponce, Puerto Rico
Aguadilla, Puerto Rico
Orlando, Florida
Tampa, Florida
Fresno, California
DIRECTV
DIRECTV-Puerto Rico
AT&T U-Verse-Nationwide
Frontier Communications
Verizon Fios
Station ID
KTBU
WSBS
WTCV
WVOZ
WVEO
WATV
WTAM
KSDI
Satellite
Satellite
ADS/Cable
ADS/Cable
ADS/Cable
Virtual Channel
Programming type
55 Owned & Operated
22 Owned & Operated
18 Owned & Operated
48 Owned & Operated
44 Owned & Operated
47 Affiliation Agreement
30 Affiliation Agreement
44 Affiliation Agreement
405 Distribution Agreement
169 Distribution Agreement
3008 Distribution Agreement
See Footnote (1)Distribution Agreement
See Footnote (2)Distribution Agreement
(1) MegaTV is distributed by Frontier Communications in Connecticut (on channel 3008).
(2) MegaTV is distributed by Verizon Fios in Dallas/Fort Worth, TX (on channel 25), in Tampa, FL (on channel 466), in New York
(on channel 466) and in Los Angeles, CA (on channel 473).
10
Television Strategy
Mega TV’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. On the
forefront of digital platforms, we were the first Spanish-language programmer to broadcast in 100% native High Definition (HD) in
the United States and one of the first Spanish-language programmers in the United States to launch content on Video On Demand,
known as VOD.
As part of our strategy, we have incorporated certain of our radio on-air personalities into our television programming, as well
as including interactive elements to complement our Internet websites. We produce over 70 hours of original programming per week.
Our television revenue is generated primarily from the sale of local advertising and paid programming. Advertising rates depend
primarily on our ability to attract an audience in the demographic groups targeted by our advertisers, the number of stations in the
market we compete with for the same audience, and the supply of and demand for television advertising time, as well as other
qualitative factors. We also generate revenue from the sale of integrated sponsorships and program syndication.
Our Miami facility for our media broadcast programming and production is nearly 70,000 square feet and houses the bulk of
MegaTV’s national and local market operations. With over 14,000 square feet of high definition (HD) TV-Studio production space,
the building was remodeled to handle the majority of MegaTV’s diverse original HD programming, while also accommodating
outside production clients with its wide range of production capabilities, which can include anything from news to late-night variety
shows with live band and studio audiences. MegaTV’s long-term technical design criteria for this facility placed an emphasis on
streamlined production workflows and digital media management. Key technical features of this facility include:
integrated HD/standard definition (SD) file-based content capabilities throughout our studio, post production and master control
areas;
three HD studio production spaces that can be operated independently or combined;
two fully equipped HD control rooms with server, editing and mastering capabilities;
14 HD/SD post production editing suites that include advanced technology in networked solutions;
satellite downlink antenna farm and extensive fiber connectivity for content contribution and distribution; and
multi-path, redundant HD server-based master control system responsible for our distribution feeds.
The Miami facility also includes office space for production and back-office personnel, as well as dressing rooms, make-up
rooms and green rooms for our on-air talent and studio guests.
We also have 3,500 square feet of HD TV-Studio production space in Puerto Rico with a fully equipped HD control room and
six edit suites.
Special Events and On-Line Properties
As part of our media operating business, we also operate SBS Entertainment and SBS Interactive. SBS Entertainment is a
premier producer of unique entertainment, concerts and special events. We generate special events revenue from ticket sales and event
sponsorships, as well as profit-sharing arrangements by producing or co-producing live concerts and live experience events with
popular artists, which are promoted by our radio, television and digital media assets. SBS Interactive manages LaMusica.com,
Mega.tv, various radio station websites, and the LaMusica Mobile App. All of the digital properties offer bilingual (Spanish-English)
content related to Latin music, entertainment, cultural & market trends, lifestyle, and news. LaMusica and our multiple social media
networks generate revenue primarily from advertising and sponsorships. In addition, the majority of our social media networks and
station websites simultaneously stream our radio stations content which has broadened our audience reach. We are developing brand
specific digital content strategies for various broadcast programs, on-air personalities and brands, and intend to generate revenue from
such strategies. We also leverage many of our special events produced by SBS Entertainment, to produce music based digital content
for live streaming and/or taped, on-demand streaming, which can also be developed to generate revenue.
We believe that SBS Entertainment and SBS Interactive, together with our broadcast portfolio, enables our audience to enjoy
targeted and culturally relevant entertainment, which include, but are not limited to concert specials, artist interviews, music editorial
content, music reviews, and local entertainment calendars, among others. At the same time, our online properties enable our
advertisers to reach their targeted Hispanic consumers through an additional, targeted and dynamic medium.
11
Advertising Revenue
The vast majority of our revenue is derived from cash advertising sales. Advertising revenue has historically been classified into
three categories – “national”, “network” and” local”. “National” generally refers to advertising that is solicited by a representative
firm for advertisers out of the Designated Market Area (DMA). Our national sales representative for our radio stations is McGavern
Guild Media,LLC. “Network” advertising revenue is advertising revenue sold to network advertisers expecting to reach 70% plus of
the U.S. national radio audience in a specific demographic group. The network advertising buys are sold by our AIRE Radio Networks
group. “Local” refers to advertising purchased by advertisers and agencies in the local market served by a particular station.
Current trends in the media advertising market have changed the long-established model for categorizing advertising revenue.
We have expanded the conventional model by offering “integrated sponsorship” or “branded entertainment” opportunities, which are
highly sought after and command a higher investment from clients, in order to maximize our advertisers’ opportunities. We expect
that our primary source of revenue from our broadcast stations will be generated from the sale of national, local and integrated
sponsorship advertising. In addition, we are anticipating that our television, radio and interactive offerings will generate more
advertising opportunities by offering multi-media packages.
We believe that the broadcasting industry is one of the most efficient and cost-effective means for advertisers to reach targeted
demographic groups, primarily Adults 18-49. Advertising rates charged by a station are based primarily on the station’s ability to
attract an audience in a given market and on the attractiveness to advertisers of the station’s audience demographics, as well as the
demand on available advertising inventory. Rates also vary depending upon a program’s ratings among the listeners/viewers an
advertiser is seeking to attract and the availability of alternative media in the market. Radio advertising rates generally are highest
during the morning drive-time hours, which are the peak hours for radio audience listening. Television advertising rates are higher
during prime time evening viewing periods. A broadcaster that has multiple stations in a market appeals to national advertisers
because these advertisers can reach more listeners and viewers, thus enabling the broadcaster to attract a greater share of the
advertising revenue in a given market. In light of these factors, we seek to grow our revenue by taking advantage of our presence in
major Hispanic markets as new and existing advertisers recognize the increasing desirability of targeting the growing U.S. Hispanic
population.
Each station broadcasts a predetermined number of advertisements per hour with the actual number depending upon the format
of a particular station and any programming strategy we are utilizing to attract an audience. We also determine the number of
advertisements broadcast hourly that can maximize the station’s revenue without negatively impacting its audience listener/viewer
levels. While there may be shifts from time to time in the number of advertisements broadcast during a particular time of the day, the
total number of advertisements broadcast on a particular station generally does not vary significantly from year to year.
We have short- and long-term contracts with our advertisers, although it is customary in the radio, television, and interactive
industry that the majority of advertising contracts are short-term and generally run for less than three months. This affords
broadcasters the opportunity to modify advertising rates as dictated by changes in audience ratings, changes in competitive dynamics
and changes in the business climate within a particular market. In each of our broadcasting markets, we employ sales personnel to
obtain local advertising revenue. Our local sales force is responsible for maintaining relationships with key local advertisers and
agencies and identifying new advertisers. We pay commissions to our local sales staff upon receipt of payment for their respective
billings which assist in our collection efforts.
Seasonal broadcasting revenue fluctuations are common in the broadcasting industry and are primarily due to fluctuations in
advertising expenditures by local, national, and network advertisers. Our net broadcasting revenues vary throughout the year.
Historically, our first calendar quarter (January through March) has generally produced the lowest net broadcasting revenue for the
year because of routine post-holiday decreases in advertising expenditures.
Seasonality
Competition
The success of our broadcast stations depends significantly upon their audience ratings and their share of the overall advertising
revenue within their markets. The radio and television broadcasting industries are highly competitive businesses. Each of our radio
stations compete with both Spanish-language and English-language radio stations in their market, as well as other media, such as
newspapers, broadcast television, cable television, interactive, magazines, outdoor advertising, satellite radio, and transit advertising.
Our television operations compete for viewers and revenue with both Spanish-language and English-language television stations in
our local markets, as well as nationally broadcast television operations, cable television, interactive and other video media.
12
Several of the broadcast stations with which we compete are subsidiaries of larger national or regional companies that have
substantially greater financial resources than we do and may not be undergoing a recapitalization strategy, such as the one we are
pursuing. Factors which are material to our competitive position include:
management experience;
talent and popularity of on-air personalities and television show hosts and actors;
audience ratings, impressions, and our broadcast stations’ rank in their markets;
sales talent and experience;
signal strength and frequency; and
audience demographics, including the nature of the Spanish-language market targeted by a particular station.
Although the broadcast industry is highly competitive, some barriers to entry do exist. These barriers can be mitigated to some
extent by changing existing broadcast station formats and programming and upgrading power, among other actions. The operation of a
broadcast station requires a license or other authorization from the FCC. The number of AM radio stations that can operate in a given
market is limited by the availability of AM radio spectrum in the market. The number of FM radio stations and television stations that
can operate in a given market is limited by the availability of those frequencies allotted by the FCC to communities in such market. In
addition, the FCC’s multiple ownership rules regulate the number of stations that may be owned and controlled by a single entity in a
given market. For a discussion of FCC regulation, see “Federal Regulation of Radio and Television Broadcasting” below.
The radio industry is also subject to competition from new media technologies that are being developed or introduced, such as
the delivery of audio programming by satellite, cable television systems and Internet-based music streaming services. Some radio
broadcast stations, including ours, are utilizing digital technology on their existing terrestrial frequencies to deliver audio
programming. The FCC also has begun granting licenses for a new “low power” radio or “microbroadcasting” service to provide low-
cost noncommercial neighborhood service on frequencies which would not interfere with existing stations.
The FCC has authorized HD Radio ® technology which permits a station to transmit radio programming in digital formats using
the bandwidth that the radio station is currently licensed to use. HD Radio ® technology is used to (1) improve sound quality,
(2) provide spectrum for enhanced data services and multiple program streams and (3) allow radio stations to time broker unused
digital bandwidth to third parties, thereby providing new business opportunities for radio broadcasters. We currently utilize HD Radio
® digital technology on some of our stations and will evaluate additional installations over the next few years.
The delivery of information through the presently minimally regulated Internet has also created a new form of competition for
both radio and television. Internet broadcasts have no geographic limitations and can provide listeners with programming from around
the country and the world. We expect that improvements from higher bandwidths, faster download speeds and wider programming
selection may make Internet radio a more significant competitor in the future. The radio broadcasting industry historically has grown
despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable
television, audio tapes, compact discs and portable digital music players.
Recent developments by many companies, including Internet service providers, are expanding the variety and quality of
broadcast content on the internet. Internet companies have developed business relationships with companies that have traditionally
provided syndicated programming, network television and other content. As a result, additional programming is becoming available
through nontraditional methods, which can directly impact the number of TV viewers and thus indirectly impact station rankings,
popularity and revenue possibilities from our stations. Like radio, the television broadcasting industry has grown, notwithstanding the
increasing popularity of entertainment and media content delivered through personal computers, smartphones, tablets and other
portable wireless devices. We cannot assure you, however, that the development or introduction of any new media technology will not
have an adverse effect on the radio and television broadcasting industries.
We cannot predict what other matters may be considered in the future by the FCC, nor can we assess in advance what impact, if
any, the implementation of any of these proposals or changes may have on our business. See “Federal Regulation of Radio and
Television Broadcasting” below.
13
Trademarks, Copyrights and Licenses
In the course of our business, we use various trademarks, copyrights, trade names, domain names and service marks, including
logos, with our products and services in our programming, advertising and promotions. Trademarks and copyrights are of material
importance to our business and are protected by registration or otherwise in the United States, including Puerto Rico. We believe our
trademarks, copyrights, trade names, domain names and service marks are important to our business, and we intend to continue to
protect and promote them where appropriate and to protect the registration of new trademarks and copyrights, including through legal
action. We do not hold or depend upon any material government license, franchise or concession, except that we hold and depend
upon the broadcast licenses granted by the FCC and hold certain trademarks granted by the United States Patent and Trademark
Office.
Environmental Matters
As the owner, lessee or operator of various real properties and facilities, we are subject to various federal, state and local
environmental laws and regulations. Historically, compliance with these laws and regulations has not had a material adverse effect on
our business. We cannot assure you; however, that compliance with existing or new environmental laws and regulations will not
require us to make significant expenditures of funds.
Employees
As of December 31, 2016, we had 386 full-time employees and 98 part-time employees. In July 2016, SAG-AFTRA was
certified as the exclusive bargaining agent solely for 31 on-air talent employees of our Los Angeles-based stations KXOL and KLAX.
We have been negotiating with representatives of SAG-AFTRA for an initial collective bargaining agreement which would cover
those 31 employees. To date, we have not yet reached an agreement with SAG-AFTRA, and at this juncture, it is too early to state
with certainty whether the parties will ever enter into such an agreement.
Our business depends upon the efforts, abilities and expertise of our executive officers and other key employees, including on-
air talent, as well as our ability to hire and retain qualified personnel. The loss of any of our executive officers and key employees,
particularly Raúl Alarcón, Chairman of our Board of Directors, Chief Executive Officer and President, could have a material adverse
effect on our business.
Legal Proceedings
From time to time, we are involved in various routine legal and administrative proceedings and litigation incidental to the
conduct of our business, such as contractual matters and employee-related matters. In recent years, we have been subject to
administrative proceedings and lawsuits, including class action lawsuits, alleging violations of federal and state law regarding
workplace, wage-hour and employment discrimination matters. In the opinion of management, such litigation is not likely to have a
material adverse effect on our business, operating results or financial condition.
Antitrust
We have completed, and in the future may complete, strategic acquisitions and divestitures in order to achieve a significant
presence with clusters of stations in the top U.S. Hispanic markets. As a result of the industry consolidation resulting from the passage
of the Telecommunications Act of 1996 (the “Act”), the Federal Trade Commission (the “FTC”) and the Department of Justice
(the “DOJ”), the federal agencies responsible for enforcing the federal antitrust laws, have reviewed certain proposed acquisitions of
broadcast stations and station networks. The DOJ can be particularly aggressive when the proposed buyer already owns one or more
broadcast stations in the market of the station it is seeking to buy and, following a proposed acquisition, would garner a substantial
portion of the advertising revenues in a market. The DOJ has challenged a number of broadcasting transactions. Some of those
challenges ultimately resulted in consent decrees requiring, among other things, divestitures of certain stations. As part of its scrutiny
of station acquisitions, the DOJ has stated publicly that it believes that commencement of operations under time brokerage
agreements, local marketing agreements and other similar agreements customarily entered into in connection with station transfers
prior to the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR
Act”), could violate the HSR Act. In connection with acquisitions, subject to the waiting period under the HSR Act, so long as the
DOJ policy on the issue remains unchanged, we would not expect to commence operation of any affected station under a time
brokerage agreement, local marketing agreement or similar agreement until the waiting period has expired or been terminated.
14
Federal Regulation of Radio and Television Broadcasting
General
The radio and television broadcasting industry is subject to extensive and changing regulation by the FCC with regard to
programming, technical operations, employment, ownership and other business practices. The FCC regulates broadcast stations
pursuant to the Communications Act. The Communications Act permits the operation of broadcast stations only in accordance with a
license issued by the FCC upon a finding that the grant of a license would serve the public interest, convenience and necessity. The
Communications Act provides for the FCC to exercise its licensing authority to provide a fair, efficient and equitable distribution of
broadcast service throughout the United States. Among other things, the FCC:
assigns frequency bands for radio and television broadcasting;
determines the particular frequencies, locations and operating power of radio and television broadcast stations;
issues, renews, revokes and modifies radio and television broadcast station licenses;
establishes technical requirements for certain transmitting equipment used by radio and television broadcast stations;
adopts and implements regulations and policies that directly or indirectly affect the ownership, operation, program content and
employment and business practices of radio and television broadcast stations;
has the power to impose penalties, including monetary forfeitures and license revocations, for violations of its rules and the
Communications Act; and
regulates certain aspects of the operation of cable and direct broadcast satellite systems and certain other electronic media that
compete with broadcast stations.
The following is a brief summary of certain provisions of the Communications Act and specific FCC rules and policies. This
summary does not purport to be complete and is subject to the text of the Communications Act, the FCC’s rules and regulations, and
the rulings of the FCC. You should refer to the Communications Act and these FCC rules, regulations and rulings for further
information concerning the nature and extent of federal regulation of broadcast stations. A licensee’s failure to observe the
requirements of the Communications Act or FCC rules and policies may result in the imposition of various sanctions, including
admonishment, fines, the grant of renewal terms of less than eight years, the grant of a license with conditions or, for particularly
egregious violations, the denial of a license renewal application, the revocation of an FCC broadcast license or the denial of FCC
consent to acquire additional broadcast properties, all of which could have a material adverse impact on our operations.
FCC Licenses
The Communications Act provides that a broadcast station license may be granted to any applicant if the granting of the
application would serve the public interest, convenience and necessity, subject to certain limitations. In making licensing
determinations, the FCC considers an applicant’s legal, technical, financial and other qualifications. The FCC grants radio and
television broadcast station licenses for specific periods of time and, upon application, may renew them for additional terms. Under
the Communications Act, radio and television broadcast station licenses may be granted for a maximum term of eight years.
The FCC classifies each AM and FM radio station. The minimum and maximum facilities requirements for an FM station are
determined by its class. Some FM class designations depend upon the geographic zone in which the transmitter of the FM station is
located. In general, commercial FM stations are classified as Class A, B1, C3, B, C2, C1, C0 and C, in order of increasing power and
antenna height. Class C FM stations are subject to involuntary downgrades to Class C0 in various circumstances if they do not meet
certain antenna height specifications. We do not operate any AM radio stations.
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The following table sets forth the technical information and license expiration dates of each of our radio and television stations:
Broadcast station
Market
Date of
acquisition
Date of
license
expiration
Operation
frequency
FCC
class
HAAT
(In meters)
KLAX-FM
KXOL-FM
WSKQ-FM
WPAT-FM
WMEG-FM
WEGM-FM
WRXD-FM
WIOB-FM
WZNT-FM
WZMT-FM
WODA-FM
WNOD-FM
WLEY-FM
WRMA-FM
WCMQ-FM
WXDJ-FM
KRZZ-FM
WSBS-DT
WSBS-CD
KTBU-DT
WTCV-DT
WVEO-DT
WVOZ-DT
Los Angeles, CA
Los Angeles, CA
New York, NY
New York, NY
Puerto Rico
Puerto Rico
Puerto Rico
Puerto Rico
Puerto Rico
Puerto Rico
Puerto Rico
Puerto Rico
Chicago, IL
Miami, FL
Miami, FL
Miami, FL
San Francisco, CA
Miami, FL(2)
Miami, FL
Houston, TX(3)
San Juan, PR
Aguadilla, PR(4)
Ponce, PR(4)
2/24/1988
10/30/2003
1/26/1989
3/25/1996
5/13/1999
1/14/2000
12/1/1998
1/14/2000
1/14/2000
1/14/2000
1/14/2000
1/14/2000
3/27/1997
3/28/1997
12/22/1986
3/28/1997
12/23/2004
3/1/2006
3/1/2006
8/1/2011
1/4/2016
1/4/2016
1/4/2016
12/1/2021
12/1/2021
6/1/2022
6/1/2022
2/1/2020
2/1/2020
2/1/2020
2/1/2020
2/1/2020
2/1/2020
2/1/2020
2/1/2020
12/1/2020
2/1/2020
2/1/2020
2/1/2020
12/1/2021
2/1/2021
2/1/2021
8/1/2022
2/1/2021
2/1/2021
2/1/2021
97.9 MHz
96.3 MHz
(1) 97.9 MHz
93.1 MHz
106.9 MHz
95.1 MHz
96.5 MHz
97.5 MHz
93.7 MHz
93.3 MHz
94.7 MHz
94.1 MHz
107.9 MHz
95.7 MHz
92.3 MHz
106.7 MHz
93.3 MHz
CH. 3
CH. 50
CH. 42
CH. 32
CH. 17
CH. 47
B
B
B
B
B
B
B
B
B
B1
B
B
B
C2
C2
C0
B
DTV
CA
DTV
DTV
DTV
DTV
184
398
415
433
594
600
852
302
560
(69)
560
597
232
167
188
300
415
54
236
597
290
372
247
Power
(In kilowatts)
33
7
6
5
25
25
12
50
28
15
31
25
21
40
31
100
6
1
150
1,000
4
42
50
(1) Applications to renew the FCC broadcast license for WSKQ-FM were filed on January 31, 2006 and February 3, 2014.
Petitions to deny the applications were filed alleging that WSKQ-FM had broadcast indecent material during the license term.
We filed opposition pleadings categorically stating that the allegations made did not raise sufficient questions to warrant
nonrenewal of the license. The FCC released a decision on March 9, 2016 denying the allegations and granting the license
renewal applications. On April 14, 2016, a Petition for Reconsideration of the grant of the license renewal applications was
filed. We filed opposition pleadings and the matter remains pending.
TV Station WSBS-DT is licensed to Key West and is part of the Miami DMA (designated market area, as defined by Nielsen
Media Research).
TV Station KTBU-DT is licensed to Conroe, Texas and is part of the Houston DMA.
TV Stations WVEO-DT and WVOZ-DT are operated as satellites of TV Station WTCV-DT pursuant to a satellite waiver.
(2)
(3)
(4)
License Grant and Renewal
Pursuant to the Communications Act, the FCC renews broadcast licenses without a hearing upon a finding that:
the station has served the public interest, convenience and necessity;
there have been no serious violations by the licensee of the Communications Act or FCC rules and regulations; and
there have been no other violations by the licensee of the Communications Act or FCC rules and regulations which, taken
together, indicate a pattern of abuse.
After considering these factors, the FCC may grant the license renewal application with or without conditions, including
renewal for a term less than the maximum term otherwise permitted by law, or hold an evidentiary hearing.
The Communications Act authorizes the filing of petitions to deny a license renewal application during specific periods of time
after a renewal application has been filed. Interested parties, including members of the public, may use these petitions to raise issues
concerning a renewal applicant’s qualifications. If a substantial and material question of fact concerning a renewal application is
raised by the FCC or other interested parties, or if for any reason the FCC cannot determine that granting a renewal application would
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serve the public interest, convenience and necessity, the FCC will hold an evidentiary hearing on the application. If, as a result of an
evidentiary hearing, the FCC determines that the licensee has failed to meet the requirements specified above and that no mitigating
factors justify the imposition of a lesser sanction, then the FCC may deny a license renewal application. Generally, our licenses have
been renewed without any material conditions or sanctions being imposed, but we cannot assure you that the licenses of each of our
stations will continue to be renewed or will continue to be renewed without conditions or sanctions.
Transfers and Assignments of License
The Communications Act requires prior approval by the FCC for the assignment of a broadcast license or the transfer of control
of a corporation or other entity holding a license. In determining whether to approve an assignment of a radio broadcast license or a
transfer of control of a broadcast licensee, the FCC considers, among other things:
the financial and legal qualifications of the prospective assignee or transferee, including compliance with FCC restrictions on
non-U.S. citizens or entity ownership and control;
compliance with FCC rules limiting the common ownership of attributable interests in broadcast and newspaper properties;
the history of compliance with FCC operating rules; and
the character qualifications of the transferee or assignee and the individuals or entities holding attributable interests in them.
To obtain the FCC’s prior consent to assign or transfer a broadcast license, appropriate applications must be filed with the FCC.
If the assignment or transfer results in a substantial change in ownership or control, the application must be placed on public notice for
a period of 30 days during which petitions to deny the application may be filed by interested parties, including members of the public.
Informal objections may be filed any time up until the FCC acts upon the application. If the FCC grants an assignment or transfer
application, interested parties have 30 days from public notice of the grant to seek reconsideration of that grant. The FCC has an
additional ten days to set aside such grant on its own motion. When ruling on an assignment or transfer application, the FCC is
prohibited from considering whether the public interest might be served by an assignment or transfer to any party other than the
assignee or transferee specified in the application.
Alien Ownership
Under the Communications Act, a broadcast license may not be granted to or held by any corporation that has more than 20% of
its capital stock owned or voted by non-U.S. citizens, whom the FCC refers to as “aliens,” or entities or their representatives, by
foreign governments or their representatives, or by non-U.S. corporations. Furthermore, the Communications Act provides that no
FCC broadcast license may be granted to or held by any corporation directly or indirectly controlled by any other corporation of which
more than 25% of the capital stock is owned or voted by non-U.S. citizens or entities or their representatives, by foreign governments
or their representatives, or by non-U.S. corporations, if the FCC finds the public interest will be served by the refusal or revocation of
such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding
before a broadcast license may be granted to or held by any such entity, and in the past the FCC has made such an affirmative finding
in the broadcast context only in limited circumstances. These restrictions apply in modified form to other forms of business
organizations, including partnerships and limited liability companies. Thus, the licenses for our stations could be revoked if more than
25% of our outstanding capital stock is issued to or for the benefit of non-U.S. citizens. In November 2013, the FCC confirmed that it
will consider on a case-by-case basis petitions for approval of foreign ownership that exceeds the 25% threshold and, in September
2016, the FCC adopted specific rules and procedures for the filing and review of such requests. In the September 2016 decision, the
FCC confirmed that it will allow companies to seek approval of up to 100% foreign ownership. The FCC also adopted a methodology
for determining the citizenship of the beneficial owners of publicly held shares that companies may use to ascertain compliance with
the foreign ownership rules. Our certificate of incorporation provides that the transfer or conversion of our capital stock, whether
voluntary or involuntary, shall not be permitted, and shall be ineffective, if such transfer or conversion would violate (or would result
in violation of) the Communications Act or any of the rules or regulations promulgated thereunder or require the prior approval of the
FCC, unless such prior approval has been obtained.
Ownership Attribution
The FCC generally applies its broadcast ownership limits to “attributable” interests held by an individual, corporation,
partnership or other association or entity, including limited liability companies. In the case of a corporation holding broadcast licenses,
the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the stock of a licensee
corporation are generally deemed attributable interests, as are officer positions and directors of a corporate parent of a broadcast
licensee. The FCC treats all partnership interests as attributable, except for those limited partnership interests that under FCC policies
are considered insulated from material involvement in the management or operation of the media-related activities of the partnership.
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The FCC currently treats limited liability companies like limited partnerships for purposes of attribution. Stock interests held by
insurance companies, mutual funds, bank trust departments and certain other passive investors that hold stock for investment purposes
only become attributable with the ownership of 20% or more of the voting stock of the corporation holding broadcast licenses.
To assess whether a voting stock interest in a direct or an indirect parent corporation of a broadcast licensee is attributable, the
FCC uses a “multiplier” analysis in which noncontrolling voting stock interests are deemed proportionally reduced at each
noncontrolling link in a multi-corporation ownership chain. A time brokerage agreement with another radio or television station in the
same market creates an attributable interest in the brokered radio or television station, as well as for purposes of the FCC’s local radio
and television station ownership rules, if the agreement affects more than 15% of the brokered radio or television station’s weekly
broadcast hours. Similarly, a radio station licensee’s right under a joint sales agreement (JSA) to sell more than 15% per week of the
advertising time on another radio station in the same market constitutes an attributable ownership interest in such station for purposes
of the FCC’s ownership rules. In addition, the FCC adopted an Order in March 2014 that makes a television station licensee’s right
under a JSA to sell more than 15% per week of the advertising time on another television station in the same market an attributable
interest. An appeal of this Order is pending in Federal circuit court. We are not currently a party to any JSAs, so the FCC’s Order
does not affect us at this time.
Debt instruments, nonvoting stock, stock options or other nonvoting interests with rights of conversion to voting interests that
have not yet been exercised, insulated limited partnership interests where the limited partner is not materially involved in the media-
related activities of the partnership, and minority voting stock interests in corporations where there is a single holder of more than 50%
of the outstanding voting stock whose vote is sufficient to affirmatively direct the affairs of the corporation generally do not subject
their holders to attribution, unless such interests implicate the FCC’s equity-debt-plus (or “EDP”) rule. Under the EDP rule, a major
programming supplier or a same-market media entity will have an attributable interest in a station if the supplier or same-market
media entity also holds debt or equity, or both, in the station that is greater than 33% of the value of the station’s total debt plus equity.
For purposes of the EDP rule, equity includes all stock, whether voting or nonvoting, and interests held by limited partners or limited
liability company members that are not materially involved. A major programming supplier is any supplier that provides more than
15% of the station’s weekly programming hours.
Multiple Ownership
The Communications Act and FCC rules generally restrict ownership, operation or control of, or the common holding of
attributable interests in (i) broadcast stations above certain limits serving the same local market, and (ii) broadcast stations and a daily
newspaper serving the same local market. The FCC is required to review quadrennially the following media ownership rules and to
modify, repeal or retain any rules as it determines to be in the public interest: the newspaper-broadcast cross-ownership rule; the local
radio ownership rule; the radio-television cross-ownership rule; the dual network rule; and the local television ownership rule.
The FCC’s currently effective multiple ownership rules are briefly summarized below.
Local Radio Ownership
Although current FCC rules allow one entity to own, control or hold attributable interests in an unlimited number of AM and
FM radio stations nationwide, the Communications Act and the FCC’s rules limit the number of radio broadcast stations in local
markets (generally defined as those counties in the Nielsen® Metro Survey Area, where they exist) in which a single entity may own
an attributable interest as follows:
In a radio market with 45 or more full-power commercial and noncommercial radio stations, a party may own, operate or control
up to eight commercial radio stations, not more than five of which are in the same service (AM or FM).
In a radio market with between 30 and 44 (inclusive) full-power commercial and noncommercial radio stations, a party may
own, operate or control up to seven commercial radio stations, not more than four of which are in the same service (AM or FM).
In a radio market with between 15 and 29 (inclusive) full-power commercial and noncommercial radio stations, a party may
own, operate or control up to six commercial radio stations, not more than four of which are in the same service (AM or FM).
In a radio market with 14 or fewer full-power commercial and noncommercial radio stations, a party may own, operate or
control up to five commercial radio stations, not more than three of which are in the same service (AM or FM), except that a
party may not own, operate, or control more than 50% of the radio stations in such market.
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To apply these tiers, the FCC currently relies on Nielsen Metro Survey Areas, where they exist. In other areas, the FCC relies on
an interim contour-overlap methodology. For radio stations located outside Nielsen® Metro Survey Areas, the FCC is undertaking a
rulemaking to determine how to define such local radio markets. The market definition used by the FCC in applying its ownership
rules may not be the same as that used for purposes of the HSR Act.
Local Television Ownership
Under the ownership rules currently in place, the FCC generally permits an owner to have only one television station per
market. A single owner is permitted to have two stations with overlapping signals only if (i) one of the two commonly owned stations
is not ranked in the top four based upon audience share, and (ii) there will remain after the transaction eight independently owned, full
power noncommercial or commercial operating television stations in the market. The rules also permit the ownership, operation or
control of two television stations in a market as long as the stations’ Noise Limited Service contours do not overlap. The FCC will
consider waiving these ownership restrictions in certain cases involving failing or failed stations or stations which are not yet built.
The FCC also grants satellite waivers when one or more television stations operate as satellites of another station. We currently
operate WTCV as a parent station and WVEO and WVOZ-TV as satellite stations in the Puerto Rico designated market area
pursuant to a satellite waiver. Under the rule, the licensee of a television station that provides more than 15% of another in-market
station’s weekly programming will be deemed to have an attributable interest in the other station. Based on an Order adopted by the
FCC in March 2014, a television station that is a party to a Joint sales Agreement (‘JSA”) to which it sells more than 15% of the
advertising time of another television station in the same market will be deemed to have an attributable interest in the station for which
it sells advertising time. This ruling became effective on June 19, 2014. Parties to JSA agreements in effect as of June 19, 2014 that
do not comply with the FCC’s Local Television Ownership Rule were given two years to bring the JSA into compliance, seek a
waiver or eliminate the JSA. Congressional action extended this deadline to October 1, 2025. We are not currently a party to any
JSAs, so the FCC’s Order does not affect us at this time.
Television National Audience Reach Limitation
Under the Communications Act, one party may not own TV stations which collectively reach more than 39% of all U.S. TV
households. For purposes of calculating the total number of TV households reached by a station, the FCC previously applied a “UHF
discount” pursuant to which a UHF TV station was attributed with only 50% of the TV households in its market. In September 2016
the FCC eliminated the UHF discount. The FCC provided limited grandfathering for TV station owners that exceed the 39% cap
without the UHF discount. Grandfathering will expire if combinations are assigned or transferred to a third party. A joint petition for
reconsideration has been filed at the FCC of the decision and comments were due in December 2016. Other parties have filed for
judicial review.
Radio-Television Cross-Ownership
The radio-television cross-ownership rule generally allows common ownership of one or two television stations and up to six
radio stations, or, in certain circumstances, (i) one television station and seven radio stations, in any market where at least 20
independent voices would remain after the combination; (ii) two television stations and up to four radio stations in a market where at
least 10 independent voices would remain after the combination; and (iii) one television and one radio station notwithstanding the
number of independent voices in the market. A “voice” includes each independently owned and operated full-power television and
radio station and each daily newspaper that has a circulation exceeding 5% of the households in the market, plus one voice for all
cable television systems operating in the market.
Newspaper-Broadcast Cross-Ownership
Under the currently effective newspaper broadcast cross-ownership rule, unless grandfathered or subject to waiver, no party can
have an attributable interest in both a daily English-language newspaper and either a television or radio station in the same market if
specified signal contours of the television station or the radio station encompass the entire community in which the newspaper is
published. The FCC’s recent Quadrennial Review Order adopted a waiver standard that would permit a combination if a proponent
demonstrates that either the newspaper or broadcast station is failed or failing based on specific criteria the FCC has identified. The
FCC will also consider waivers on a case-by-case basis if the proponent demonstrates that the proposed combination will not unduly
harm viewpoint diversity in the market.
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Programming and Operations
The Communications Act requires broadcasters to serve the public interest. A broadcast license is required to present
programming in response to community problems, needs and interests and to maintain certain records demonstrating its
responsiveness. The FCC will consider complaints from listeners about a broadcast station’s programming when it evaluates the
licensee’s renewal application, but listeners’ complaints also may be filed and considered at any time. Stations also must pay
regulatory and application fees, and follow various FCC rules that regulate, among other things, political advertising, equal
employment opportunity, technical operation, the broadcast of obscene, indecent or profane programming, sponsorship identification,
the broadcast of contest and lottery information and the conduct of contests.
The FCC requires that licensees not discriminate in hiring practices on the basis of race, color, religion, national origin or
gender. It also requires stations with at least five full-time employees to disseminate information about all fulltime job openings and
undertake outreach initiatives from an FCC list of activities such as participation in job fairs, internships or scholarship programs.
Stations must retain records of their outreach efforts and keep an annual Equal Employment Opportunity (“EEO”) report in their
public inspection files and post an electronic version on their websites.
Certain FCC rules affecting programming and operations are briefly summarized below.
Indecency and Profanity
Provisions of federal law regulate the broadcast of obscene, indecent, or profane material. The FCC’s rules prohibit the
broadcast of obscene material at any time and indecent or profane material between the hours of 6 a.m. and 10 p.m. Broadcasters risk
violating the prohibition against broadcasting indecent or profane material because the vagueness of the FCC’s indecency/profanity
definition makes it difficult to apply, particularly with regard to spontaneous, live programming. In recent years, the FCC has
increased its enforcement efforts of these indecency and profanity regulations, and has threatened to initiate license revocation
proceedings against broadcast licenses for “serious” indecency or profanity violations. The FCC has substantially increased its
monetary penalties for violations of these regulations. Legislation enacted in 2006 provides the FCC with authority to impose fines of
up to $389,305 per indecent or profane utterance with a maximum forfeiture exposure of $3.0 million for any continuing violation
arising from a single act or failure to act. In the ordinary course of business, we have received complaints or the FCC has initiated
inquiries about whether a limited number of our radio stations have broadcast indecent programming. We also have a few outstanding
indecency proceedings against our stations.
In July 2010, the United States Court of Appeals for the Second Circuit (“Second Circuit”) issued a decision in which it vacated
the FCC’s indecency policy as unconstitutional. In June 2012, the Supreme Court issued a decision which held that the FCC could not
fine ABC and FOX for the specific broadcasts at issue in the case because the FCC had not provided them with sufficient notice of its
intent to issue fines for the use of fleeting expletives. The Court also held that the FCC’s indecency standards did not violate the First
Amendment. In April 2013, the FCC requested comments on its indecency policy, including whether it should ban the use of fleeting
expletives or whether it should only impose fines for broadcasts that involve repeated and deliberate use of expletives. The FCC has
advised that it will continue to pursue enforcement actions in egregious cases while it conducts its review of its indecency policies
generally and issued a Notice of Apparent Liability in 2015 for the maximum forfeiture amount of $389,305 against a television
station for violation of its indecency policy. We cannot predict whether Congress will consider or adopt further legislation in this area.
Simulcasting
The FCC rules prohibit a licensee from simulcasting more than 25% of its programming on another radio station in the same
broadcast service (that is, AM/AM or FM/FM). The simulcasting restriction applies if the licensee owns both radio broadcast stations
or owns one and programs the other through a local marketing agreement, provided that the contours of the radio stations overlap in a
certain manner.
Time Brokerage and Joint Sales Agreements
Occasionally, stations enter into time brokerage agreements or local marketing agreements. Separately owned and licensed
stations may agree to function cooperatively in programming, advertising sales and other matters, subject to compliance with the
antitrust laws and the FCC’s rules and policies, including the requirement that the licensee of each station maintain independent
control over the programming and other operations of its own station. Over the past few years, a number of stations have entered into
cooperative arrangements commonly known as JSAs. The FCC has determined that where two radio stations are both located in the
same market and a party with a cognizable interest in one such station sells more than 15% of the advertising per week of the other
station, that party shall be treated as if it has an attributable interest in that brokered station. As noted in the Section entitled “Local
Television Ownership,” above, the FCC adopted an Order in 2014 ruling that a television station that is a party to a JSA to which it
sells more than 15% of the advertising time of another television station in the same market also has an attributable interest in the
station for which it sells advertising time. We are not currently a party to any JSAs, so the FCC’s Order does not affect us at this time.
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RF Radiation
In 1985, the FCC adopted rules based on a 1982 American National Standards Institute, or “ANSI,” standard regarding human
exposure to levels of radio frequency, or “RF,” radiation. These rules require applicants for renewal of broadcast licenses or
modification of existing licenses to inform the FCC at the time of filing such applications whether an existing broadcast facility would
expose people to RF radiation in excess of certain limits. In 1992, ANSI adopted a new standard for RF radiation exposure that, in
some respects, was more restrictive in the amount of environmental RF radiation exposure permitted. The FCC has since adopted
more restrictive radiation limits which became effective October 15, 1997 and which are based in part on the revised ANSI standard.
Terrestrial Digital Radio
The FCC has approved a technical standard for the provision of “in band, on channel” terrestrial digital radio broadcasting by
existing radio broadcasters and has allowed radio broadcasters to convert to a hybrid mode of digital/analog operation on their existing
frequencies. Digital radio provides additional spectrum segmentation for enhanced data services and additional program streams to
complement the existing programming service, which permits new business and multicasting opportunities for radio broadcasters. In
January 2010, the FCC adopted procedures that allow FM radio stations to significantly increase their digital power levels above those
originally permitted in order to improve the digital service these stations provide.
Low Power Radio Broadcast Service
The FCC has adopted rules establishing two classes of a low power radio service, both of which operate in the existing FM radio
band: a primary class with a maximum operating power of 100 watts and a secondary class with a maximum power of 10 watts. These
low power radio stations have limited service areas of 3.5 miles and 1 to 2 miles, respectively. Implementation of a low power radio
service provides an additional audio programming service that could compete with our radio stations for listeners, but we cannot
predict the effect upon us.
Change of Community
The FCC has adopted rules concerning the FM Table of Allotments to allow radio broadcasters to change their community of
license more easily. We have evaluated our current licenses to see if a community of license change would be beneficial. We are
aware that competitors may use this rule revision to improve their facilities, and other radio operators may use this rule in a way that
would make them newly attractive acquisition targets for us.
Cable and Satellite Carriage of Television Broadcast Stations
The Communications Act and implementing FCC regulations govern the retransmission of commercial television stations by
cable television systems and direct broadcast satellite, or “DBS,” operators. Every three years, each station must elect, with respect to
cable systems and DBS operators within its designated market area, or “DMA,” either “must carry” status, pursuant to which the cable
system’s or DBS operator’s carriage of the station is mandatory, or “retransmission consent,” pursuant to which the station gives up its
right to mandatory carriage in order to negotiate consideration in return for consenting to carriage. We have elected “must carry” with
respect to our full power television stations. These “must carry” rights are not absolute, and under some circumstances, a cable system
or DBS operator may be entitled not to carry a given station. For example, DBS operators are required to carry the signals of all local
television broadcast stations requesting carriage only in local markets in which the DBS operator carries at least one signal pursuant to
the statutory local-to-local compulsory copyright license.
Neither cable systems nor DBS operators are required to carry more than a station’s primary video programming channel.
Consequently, the multicast programming streams provided by our Houston television station are not entitled to mandatory carriage
pursuant to the digital must-carry rules. In 2011, the FCC released a rulemaking seeking comment on a series of proposals to
streamline and clarify the rules concerning retransmission consent negotiations. This proceeding ended without the adoption of
additional rules. In a separate proceeding, the FCC has requested comment on whether the definition of MVPD should be expanded
to include entities that make available multiple channels of video programming to subscribers through Internet connections. This
proceeding remains pending.
Digital Television Services
As of June 12, 2009, all full-power broadcast television stations were required to cease broadcasting analog programming and
convert to all digital broadcasts. The transition to digital television has improved the technical quality of television signals and
provides broadcasters the flexibility to offer new services, including high-definition television, broadband data transmission and
additional video streams. Our full-power television and Class A television stations have completed construction of their DTV facilities
21
and are currently broadcasting solely on their digital channels. Our full-power television station in Houston also broadcasts several
additional video streams. Under current FCC rules, when “must carry” rights apply, cable systems and DBS operators are required to
carry only one channel of the digital signal of our television stations, despite the capability of digital broadcasters to broadcast
multiple program streams within one station’s digital allotment.
Children’s Television Programming
The FCC has adopted rules on children’s television programming pursuant to the Children’s Television Act of 1990. The rules
limit the amount and content of commercial matter that may be shown on television stations during programming designed for
children 12 years of age and younger and require stations to broadcast on their main program stream three hours per week of
educational and informational programming (“E/I programming”) designed for children 16 years of age and younger. FCC rules also
impose E/I programming requirements on each additional digital multicast program stream transmitted by television stations, with the
requirement increasing in proportion to the additional hours of free programming offered on multicast channels. These rules also limit
the display during children’s programming of Internet addresses of websites that contain or link to commercial material or that use
program characters to sell products.
Sponsorship Identification
Both the Communications Act and the FCC rules generally require that, when payment or other consideration has been received
or promised to a broadcast licensee for the airing of program material, the station must disclose that fact and identify who paid or
promised to provide the consideration at the time of the airing. In the past, the FCC has initiated inquiries against several media
companies, including our company, concerning sponsorship identification practices with respect to the music recording industry. The
FCC has also initiated inquiries against several dozen television stations seeking to determine whether their broadcast of “video news
releases” (each, a “VNR”) violated the sponsorship identification rules by failing to disclose the source and sponsorship of the VNR
materials. At least two television broadcast licensees were issued fines by the FCC for violations of the sponsorship ID rules related to
VNRs. VNRs are news stories and feature materials produced by government agencies and commercial entities, among others, for use
by broadcasters. The FCC also has a long-pending rule-making proceeding concerning sponsorship identification issues, such as
product placement. Whether any new regulations are ultimately adopted and, if so, the effect of such rules on our operations cannot
currently be determined.
Closed Captioning and Video Description Rules
FCC rules require the majority of programming broadcast by television stations to contain closed captions. The rules allow a
video programming owner to file a petition for exemption from the rules. We have filed a petition for exemption from the rules based
upon a showing of undue burden. During the pendency of an undue burden determination, the video programming subject to the
request for exemption is considered exempt from the closed captioning requirement. In January 2012, the FCC adopted rules to
require that television programming broadcast or transmitted with captioning include captioning if subsequently made available
online, for example, by streaming content on broadcasters’ websites. In 2014, the FCC adopted an Order expanding the IP captioning
rules to brief segments or clips of video programs that are carried on the Internet. The new rules will phase in between January 1,
2016 and July 1, 2017. In 2016, the FCC adopted additional rules with respect to the provision and quality of closed captions.
FCC rules also require, in part, that affiliates of the top-four national broadcast networks in the top 60 markets provide a
minimum of 50 hours of video-described primetime and/or children’s programming each calendar quarter.
Commercial Advertisement Loudness Mitigation
Rules enacted by the FCC that require our television broadcast stations to transmit commercials and adjacent programming at
the same volume went into effect in December 2012.
Recordkeeping
The FCC rules require broadcast stations to maintain various records regarding operations, including equipment performance
records and a log of a station’s operating parameters. Broadcast stations must also maintain a public inspection file. Portions of the
public inspection files maintained by television stations and radio stations located in the top 50 markets are hosted on an FCC-
maintained website.
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Regulation of the Internet
Internet services including websites of our broadcast stations are subject to regulation relating to the privacy and security of
personally identifiable user information and acquisition of personal information from children under 13, including the federal Child
Online Privacy Protection Act (“COPPA”) and the federal Controlling the Assault of Non-Solicited Pornography and Marketing Act
(“CAN-SPAM”). In addition, a majority of states have enacted laws that impose data security and security breach obligations.
Additional federal, state, territorial laws and regulations may be adopted with respect to the Internet or other online services, covering
such issues as user privacy, child safety, data security, advertising, pricing, content, copyrights and trademarks, access by persons with
disabilities, distribution, taxation and characteristics and quality of products and services.
Repurposing of Broadcast Spectrum for Other Uses by the FCC
Federal legislation was enacted in February 2012 that, among other things, authorized the FCC to conduct voluntary “broadcast
incentive auctions” in order to reallocate certain spectrum currently occupied by television broadcast stations to mobile wireless
broadband services, to “repack” television stations into a smaller portion of the existing television spectrum band, and to require
television stations that do not participate or are not selected in the reverse auction to modify their transmission facilities, subject to
reimbursement for reasonable relocation costs up to a nationwide total of $1.75 billion.
The FCC has adopted rules concerning the incentive auction and the repacking of the television band and is concluding its
Broadcast Incentive Auction. Under the auction rules implemented by the FCC, television stations were given an opportunity to offer
spectrum for sale to the government in a “reverse” auction while wireless providers could bid to acquire spectrum from the
government in a related “forward” auction. Applications from television stations to participate in the reverse auction were due on
January 12, 2016 and the reverse auction began on March 29, 2016. We filed applications to participate in the auction for stations in
Miami, Houston, and multiple stations in Puerto Rico.
Following completion of the incentive auction, the FCC is “repacking” the remaining television broadcast spectrum, which may
require certain television stations that did not participate or were not selected in the reverse auction to modify their transmission
facilities, including requiring such stations to operate on other channels. We have been notified by the FCC that our Miami, Houston,
and one of our Puerto Rico TV Stations will have their channel designation reassigned. The FCC will reimburse stations for
reasonable relocation costs up to a nationwide total of $1.75 billion. We are currently preparing cost estimates related to the repacking
of our TV stations and our channel reassignment. When repacking, the FCC will make reasonable efforts to preserve a station’s
coverage area and population served. In addition, the FCC is prohibited from requiring a station to move involuntarily from the UHF
band, the band in which most of our television broadcast licenses operate, to the VHF band or from the high VHF band to the low
VHF band. The impact of the repacking of our broadcast television spectrum on our business cannot be predicted at this time.
Laws Affecting Intellectual Property
Laws affecting intellectual property are of significant importance to us to protect our brands and copyrights. Protection of
brands requires the vigilance and action by the brand owner. We seek trademark registrations for significant brand assets and enforce
our brand rights against infringing parties through legal actions, including enforcement actions in the United States Patent and
Trademark Office. Unauthorized distribution or reproduction of content, especially in digital formats such as unlicensed live
simultaneous or stored streaming of audio recordings and peer-to-peer file “sharing,” are threats to a copyright owner’s ability to
protect and exploit its property. We monitor legal changes that might impact the exclusive rights we have in broadcasts, streams and
recorded content. Our digital delivery services and commercial arrangements with digital content providers help reduce the risks
associated with unauthorized access to our content. We are also engaged in enforcement and other activities to protect our intellectual
property.
Proposed and Recent Changes
Congress and the FCC continually consider new laws, regulations and policies regarding a wide variety of matters that could,
directly or indirectly, affect our operations, ownership and profitability; result in the loss of audience share and advertising revenue; or
affect our ability to acquire additional broadcast stations or to finance such acquisitions. We can neither predict what matters might be
considered nor judge in advance what impact, if any, the implementation of any of these proposals or changes might have on our
business. Such matters may include:
changes to the license authorization and renewal process;
proposals to improve record keeping, including enhanced disclosures of stations’ efforts to serve the public interest;
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changes to the FCC’s equal employment opportunity regulations and other matters relating to the involvement of minorities and
women in the broadcasting industry;
changes to rules relating to political broadcasting including proposals to grant free air time to candidates, and other changes
regarding political and nonpolitical program content, funding, political advertising rates, and sponsorship disclosures;
proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages;
proposals to restrict or prohibit the advertising of on-line casinos or on-line sports-betting services;
proposals regarding the regulation of the broadcast of indecent or violent content;
proposals to require broadcast stations to operate studios in the communities to which they are licensed, which would require
construction of new studios, to provide staffing on a 24 hour per day basis, and to increase and/or quantify locally oriented
program content and diversity;
technical and frequency allocation matters, including increased protection of low power FM stations from interference by full-
service stations and changes to the method used to allot FM radio frequencies; changes in broadcast, multiple ownership, foreign
ownership, cross-ownership and ownership attribution policies;
proposals to alter provisions of the tax laws affecting broadcast operations and acquisitions;
proposals to regulate or prohibit payments to stations by independent record promoters, record labels and others for the
inclusion of specific content in broadcast programming;
proposals to impose spectrum use fees or other fees on FCC licensees;
changes to allow satellite radio operators to insert local content into their programming service;
service and technical rules for digital radio, including possible additional public interest requirements for terrestrial digital audio
broadcasters; and
proposals to require radio broadcasters to pay royalties to musicians and record labels for the performance of music played on
the stations.
Available Information
We are subject to the reporting and other information requirements of the Exchange Act. We file reports and other information
with the SEC. Such reports and other information filed by us pursuant to the Exchange Act may be inspected and copied at the public
reference facility maintained by the SEC at 100 F Street, N.E., Washington D.C. 20549, on official business days during the hours of
10:00 am to 3:00 pm. If interested, please call 1-800-SEC-0330 for further information on the public reference room. The SEC
maintains a website on the Internet containing reports, proxy materials, information statements and other items. The Internet website
address is http://www.sec.gov.
You can find more information about us at our Internet website located at www.spanishbroadcasting.com and the investor
relations section of our website is located at www.spanishbroadcasting.com. Our annual report on Form 10-K, our quarterly reports on
Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act are available free of charge on our Internet website as soon as reasonably practicable after we electronically
file such material with, or furnish such material to, the SEC.
The information on our Internet website is not, and shall not be deemed to be part of this annual report on Form 10-K or
incorporated by reference into any other filings we make with the SEC.
Item 1A. Risk Factors
The following discussion of risk factors contains “forward-looking statements,” as discussed in “Special Note Regarding
Forward-Looking Statements.” These risk factors are important to understanding this annual report on Form 10-K, our business and
our other filings with the Commission. You should carefully consider the risks and uncertainties described below and the other
information in connection with evaluating our business and the forward-looking statements in this annual report on Form 10-K and
our other filings with the Commission. These are not the only risks we face. Additional risks and uncertainties that we are not aware of
or that we currently deem immaterial also may impair our business. If any of the following risks actually occur, our business, financial
condition and operating results could be materially adversely affected and the trading price of our common stock, preferred stock and
debt could decline.
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The following information should be read in conjunction with Part II, Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (“MD&A”), and the consolidated financial statements and related notes in Part II,
Item 8. Financial Statements and Supplementary Data of this annual report on Form 10-K.
Our business routinely encounters and addresses risks, some of which will cause our future results to be different – sometimes
materially different – than we presently anticipate. A discussion about important operational risks that our business encounters can be
found in the MD&A section and in the business descriptions in Part I, Item 1. “Business” of this annual report on Form 10-K. Below,
we describe certain important operational and strategic risks. Our reactions to material future developments as well as our
competitors’ reactions to those developments will affect our future results.
Risks Related to Our Indebtedness and Preferred Stock
Failure to repay our Notes
The Notes matured on Saturday, April 15, 2017, and were payable on the next business day on April 17, 2017. Because we did
not have sufficient cash on hand and did not generate sufficient cash from operations or asset sales, we did not repay the Notes at their
maturity. We are considering a range of options to address the repayment of the Notes as part of our strategy regarding a
comprehensive recapitalization of our balance sheet, as we have summarized under Part I, Item 1. “Business—Recent Developments.”
We face various risks in our efforts to address the repayment of the Notes, including the inherent difficulty and uncertainty in
negotiations with the Noteholders, the availability of the capital markets to allow us access to fresh capital to repay the Notes on
attractive terms or at all, and the potential attempt by the Series B preferred stockholders to block our refinancing efforts, among
others. We cannot assure you that we will be successful in our recapitalization efforts. Our failure to repay the Notes at their maturity
resulted in an event of default under the Indenture under which the Notes were issued and the Noteholders are able to exercise various
remedies against us, including foreclosing on our assets that constitute collateral under the Indenture. The collateral constitutes
substantially all of our assets and includes the equity of our subsidiaries that own our FCC Licenses, our contractual rights and
economic interests in such FCC licenses, and a significant portion of our operating cash. In addition, we are in default under the
Indenture for the reasons described under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Notes.” In the event we are unsuccessful in these efforts and one or more Noteholders seek to exercise remedies against
us or our assets, we may be required to seek protection under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”),
among other things, in order to maximize the value of our company for all of our constituents. While we believe that a Chapter 11
filing may create an avenue to successfully execute on our recapitalization strategy, such a filing may also have several negative
consequences to our business, including the costs and negative publicity that surrounds such a filing, reduced advertising revenue due
to the uncertainty surrounding the filing, the potential need to sell assets (including the equity of our subsidiaries that own our FCC
licenses) under distressed circumstances and the risk that we are unable to execute on a successful plan of reorganization.
We face several risks relating to the existence of the Voting Rights Triggering Event.
As a result of our not having sufficient funds legally available to repurchase our Series B preferred stock upon request on
October 15, 2013, a “Voting Rights Triggering Event” occurred (the “Voting Rights Triggering Event”) under the Certificate of
Designations under which the Series B preferred stock was issued. For more information regarding the Voting Rights Triggering
Event, see Note 12 to our 2016 financial statements that are included elsewhere in this annual report on Form 10-K. As a result, the
holders of the Series B preferred stock have the right to elect two members to our Board of Directors until that event is remedied or
the Series B preferred stock is redeemed, waived or amended. These directors were elected to the Board at our Annual Meeting held
on June 6, 2014. These two directors have fiduciary duties to both us and our common stockholders as well as the Series B preferred
stockholders that elected them to our Board of Directors, and may or may not act primarily in the interests of the Series B preferred
stockholders as opposed to the interest of all stockholders. If these directors act primarily in the interests of the Series B preferred
stockholders, this could have a material adverse effect on us and our common stockholders.
Until the Voting Rights Triggering Event is remedied, our business is subject to significant restrictions, unless such restrictions
are waived or amended or our Series B preferred stock is refinanced on different terms. Waiving or amending the restrictions
described below would require the consent of each holder of Series B preferred stock affected. Under these restrictions, among other
things:
we are unable to incur any indebtedness, including indebtedness to refinance the Notes; and
our ability to make investments or make restricted payments is significantly limited.
Our ability to undertake certain mergers and consolidations requires the approval of a majority of the shares of the then
outstanding Series B preferred stock, provided that, after such merger or consolidation no Voting Rights Triggering has occurred or is
continuing.
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These restrictions could have a material adverse effect on our ability to refinance the Notes and our business, financial condition
and results of operations.
The Voting Rights Triggering Event continues until (i) all dividends in arrears shall have been paid in full and (ii) all other
failures, breaches or defaults giving rise to such Voting Rights Triggering Event are remedied or waived by the holders of at least a
majority of the shares of the then outstanding Series B preferred stock. We do not currently have sufficient funds legally available to
be able to satisfy the conditions for terminating the Voting Rights Triggering Event.
In addition, we face the risk of litigation with the holders of our Series B preferred stock, for example, if they seek to block our
refinancing of the Notes. If we are involved in this kind of litigation, we will likely incur significant legal costs in defending any such
claim.
The failure to repay our Notes and our obligations under our Series B preferred stock adversely affects our financial condition and
raises substantial doubt about our ability to continue as a going concern.
Our consolidated debt is substantial and we are highly leveraged, which adversely affects our financial condition and limits our
ability to grow and compete. In addition, the existence of the Voting Rights Triggering Event hampers our operations, and may give
the Series B preferred stockholders a basis to block our ability to refinance the Notes. These factors, as well as the risks summarized in
the two preceding risk factors, are considerations that lead to our conclusion that, as an accounting matter, there is substantial doubt
about our ability to continue as a going concern.
Upon a change of control, we must offer to repurchase all of the Notes and our Series B preferred stock.
The terms of our Notes and Series B preferred stock require us, in the event of a change of control, to offer to repurchase all or a
portion of a holder’s (i) Notes at an offer price in cash equal to 101% of the principal amount plus accrued and unpaid dividends to but
excluding the purchase date and (ii) shares at an offer price in cash equal to 101% of the liquidation preference of the shares, plus an
amount in cash equal to all accumulated and unpaid dividends on those shares up to but excluding the date of repurchase. We do not
currently have cash to purchase the Notes or the Series B preferred stock and we will not likely have in the future sufficient funds
legally available to make Series B preferred stock purchases. If we are required to purchase Notes in a change of control purchase
offer and we do not do so, then we would be in default under the indenture, which could lead, after a 30 day grace period, to an event
of default under the Indenture and then the right of Noteholders to exercise various remedies against us, including a foreclosure on our
assets that constitutes collateral for the Notes.
We have not generated sufficient cash to repay our Notes and our liabilities under our Series B preferred stock, and we may be
forced to take other actions to satisfy our obligations under our Notes and Series B preferred stock, which may not be successful.
Our cash flows, capital resources and cash raised from asset sales were insufficient to repay our Notes at their maturity and
satisfy our obligations under our Series B preferred stock. As a result, we will need to refinance the Notes or seek their repayment
from a combination of sources, which will occur after their maturity if we are successful in doing so. One consequence of this is that
we have been forced to reduce or delay investments, acquisitions, the growth of our business generally and capital expenditures and
will continue to be in that position until we address the Notes’ maturity. We are also seeking to sell non-core assets. We face various
risks relating to our attempt to sell these assets, including whether we will be able to effect any such sales on attractive terms or at all,
the timing of any such sales, their impact on our cash flow and the risks of receiving FCC approval, which we may not be able to
obtain. We may not be able to effect any such measures, if necessary, on commercially reasonable terms or at all, and, even if
successful, those actions may not allow us to repay our Notes or satisfy our obligations with respect to our Series B preferred stock.
An additional potential consequence is that, if we refinance the Notes, holders of the Series B preferred stock may at the time
claim that such refinancing conflicts with the Certificate of Designations under which the Series B preferred stock was issued, unless
each holder of the Series B preferred stock waives or consents to that or we redeem the Series B preferred stock. We cannot assure
you that we will be able to find sources of cash to pay the Notes, or that, if we had that cash, that we would be able to do so in light of
the rights of the holders of the Series B preferred stock or that we would have enough cash to pay the Notes and also redeem the Series
B preferred stock. See “—Failure to repay our Notes.”
In addition, we conduct a substantial portion of our operations and own substantive assets through our subsidiaries. Accordingly,
repayment of our Notes and satisfying our obligations under our Series B preferred stock is dependent on the generation of cash flow
by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries may
not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our Notes. Each subsidiary
is a distinct legal entity, and under certain circumstances, legal, tax and contractual restrictions may limit our ability to obtain cash
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from our subsidiaries. While the indenture that governs the Notes limits the ability of our subsidiaries to incur consensual restrictions
on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to qualifications and
exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required repayment of
the Notes.
Our inability to generate sufficient cash flows or sell assets to repay our Notes, or to refinance our Notes and satisfy our
obligations under the Series B preferred stock on commercially reasonable terms or at all, would materially and adversely affect our
financial condition and results of operations.
We are highly leveraged and our substantial level of indebtedness adversely affects our financial condition and prevents us from
fulfilling our financial obligations.
As of December 31, 2016, we had $279.6 million of total debt outstanding which does not include the $155.8 million
outstanding under the Series B preferred stock (comprised of approximately $90.5 million in liquidation preference and $65.3 million
in accrued dividends). Such amount outstanding under our Series B preferred stock is accounted for as a liability under GAAP. Our
high indebtedness has had and will continue to have significant effect on our business. Our indebtedness, the terms of the Indenture
and the existence of a Voting Rights Triggering Event have had and will continue to have several negative effects on us and creates
several risks, including the following:
we did not repay the Notes at their maturity, as a result of which there was an event of default under the Indenture;
requires us to use a substantial portion of our cash flow from operations to pay interest at a rate of 12.5% per year and principal
on our Notes, which reduces the funds available for the implementation of our strategy, particularly regarding acquisitions and
investments and more generally for working capital, capital expenditures and other general corporate purposes;
limits our ability to obtain additional financing for acquisitions and investments, working capital, capital expenditures, or
general corporate purposes, which may limit the ability to execute our business strategy;
prevents us from raising the funds necessary to repurchase Notes tendered to us if there is a change of control or other event
requiring such a repurchase, and any failure to repurchase Notes tendered for repurchase would constitute a default under the
Indenture;
heightens our vulnerability to downturns in our business, our industry or in the general economy and restrict us from exploiting
business opportunities or making acquisitions;
places us at a competitive disadvantage compared to those of our competitors that may have proportionately less debt and are
not facing an impending debt maturity as we are;
limits management’s discretion in operating our business; and
limits our flexibility in planning for, or reacting to, changes in our business, the industry in which we operate or the general
economy; and
Each of these factors may have a material adverse effect on our business, financial condition and results of operations. We do
not currently have sufficient cash on hand and we do not expect to generate sufficient cash from operations or the sale of assets or as a
result of the Broadcast Incentive Auction to pay the Notes at maturity. See “—Failure to repay our Notes”.
The terms of the Indenture and the Certificate of Designations for the Series B preferred stock restrict our current and future
operations.
The terms of the Indenture and the Certificate of Designations for the Series B preferred stock contain restrictive covenants that
impose significant restrictions on us and may limit, or prevent, our ability to engage in acts that may be in our long-term best interest,
including restrictions or prohibitions on our ability to:
incur additional indebtedness, including indebtedness to refinance the Notes;
pay dividends or make other distributions, repurchase or redeem our capital stock and make certain restricted investments and
make other restricted payments;
sell assets;
incur liens;
enter into transactions with affiliates;
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enter into sale and leaseback transactions;
alter the businesses we conduct;
enter into agreements restricting our subsidiaries’ ability to pay dividends, make loans and sell assets to the Company and other
restricted subsidiaries;
enter into change of control transactions;
manage our FCC licenses and broadcast license subsidiaries; and
consolidate, merge or sell all or substantially all of our assets.
As a result of these restrictions, we are:
limited in how we conduct our business;
unable to satisfy our current obligations;
unable to raise additional debt or equity financing; or
unable to compete effectively or to take advantage of new business opportunities, including acquisition opportunities.
These restrictions negatively affect our ability to grow in accordance with our plans, which could have an adverse effect on our
business, financial condition, results of operations and cash flow.
Risks Related to Our Business
We have experienced net losses in the past and, to the extent that we experience net losses in the future, our ability to raise capital
may be adversely affected.
We have experienced net losses in the past and in the year ended December 31, 2016, we recorded a net loss available to
common stockholders of $16.3 million. Failure to achieve sustained profitability may adversely affect our ability to raise additional
capital and our ability to meet our obligations. Our inability to obtain financing in adequate amounts and on acceptable terms
necessary to operate our business, repay our Notes, redeem or refinance our Series B preferred stock or finance future acquisitions
negatively impacts our business, financial condition, results of operations and cash flows and raises substantial doubts about our
ability to continue as a going concern.
Our industry is highly competitive, and we compete for advertising revenue with other broadcast stations, as well as other media,
many operators of which have greater resources than we do.
Our industry is highly competitive, and the success of our stations is primarily dependent upon their share of overall advertising
revenues within their markets, especially in New York, Los Angeles and Miami. Our broadcast stations compete in their respective
markets for audiences and advertising revenues with other broadcast stations of all formats, as well as with other media, such as
newspapers, magazines, television, satellite radio, cable services, outdoor advertising, direct mail, Internet radio, smart phones, tablets
and other wireless media, the Internet and social media such as Facebook and Twitter. In addition, any changes in the methods used to
determine ratings could result in a downward adjustment in our ratings, which could adversely affect our advertising sales in the
markets in which we operate.
Although we believe that each of our broadcast stations is able to compete effectively in its respective market, our stations may
be unable to maintain or increase their current audience ratings and advertising revenues. Specifically, radio stations can change
formats quickly. Any other radio station currently broadcasting could shift its format to duplicate the format of, or develop a format
which is more popular than, any of our stations. If a station converts its programming to a format similar to that of one of our stations,
or if one of our competitors strengthens its operations, the ratings and station operating income of our station in that market could be
adversely affected. Further, we could also lose some of our on-air personalities, which may adversely affect our competitive position
in those markets. In addition, other radio companies which are larger and have greater financial and other resources than we have may
also enter markets in which we operate. A bankruptcy filing could also have an adverse impact on our advertising revenue as
advertisers may decide to advertise with our competitors due to any ongoing business uncertainty that may result from such
bankruptcy filing. See “—Failure to repay our Notes.”
Any of these events could cause our stations’ audience ratings, market shares and advertising revenues to decline and any
adverse change in a particular market could have a material adverse effect on the financial condition of our business as a whole.
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A large portion of our net revenue and operating income currently comes from our New York, Los Angeles and Miami markets.
Our New York, Los Angeles and Miami markets accounted for more than 60% of our net revenue for the year ended
December 31, 2016. Therefore, any volatility in our revenues or operating income attributable to stations in these markets could have
a significant adverse effect on our consolidated net revenue or operating income. A significant decline in net revenue or operating
income from our stations in any of these markets could have a material adverse effect on our financial condition and results of
operations.
Since our revenues are concentrated in these markets, an economic downturn, increased competition or another significant
negative event in any of these markets could reduce our revenues and results of operations more dramatically than other companies
that do not depend as much on these markets.
Cancellations, reductions, delays and seasonality in advertising could adversely affect our net revenues.
We do not generally obtain long-term commitments from our advertisers. As a result, our advertisers may cancel, reduce or
postpone orders. Cancellations, reductions or delays in purchases of advertising time could adversely affect our net revenue, especially
if we are unable to replace these purchases. Our expense levels are based, in part, on expected future net revenues and are relatively
fixed once set. Therefore, unforeseen decreases in advertising sales could have a material adverse impact on our net revenues and
operating income.
In addition, we experience fluctuations in our broadcasting revenue primarily due to seasonal variations in advertising
expenditures by local, regional and national advertisers, causing our net broadcasting revenues to vary throughout the year.
Historically, our first calendar quarter (January through March) has generally produced the lowest net broadcasting revenue for the
year because of routine post-holiday decreases in advertising expenditures.
The effects of such seasonality, combined with any other changes in our broadcasting revenue, make it difficult to estimate
future operating results based on the previous results of any specific quarter and may adversely affect operating results.
We may be unable to successfully execute our expansion strategy, which may impact our growth.
We have pursued, and will continue to pursue subject to having sufficient cash consistent with our recapitalization plan, as a
growth strategy the expansion of our media business through selective acquisitions and affiliations, primarily in the largest U.S.
Hispanic markets, such as our exchange of radio stations for television stations in Puerto Rico in early 2016. We cannot assure you
that our growth strategy will be successful. Our growth strategy is subject to a number of risks, including, but not limited to:
the limits on our ability to acquire additional stations due to our current inability to incur additional indebtedness (including to
refinance our Notes) resulting from the occurrence of the Voting Rights Triggering Event and our not repaying the Notes at their
maturity which resulted in an event of default under the Indenture;
the need to raise additional financing, which is currently precluded by the occurrence of the Voting Rights Triggering Event;
our stock price and market conditions in the financial markets;
the need for required regulatory approvals, including FCC and antitrust approvals;
the challenges of managing any rapid growth;
the difficulties of programming newly acquired stations to attract listenership or viewership; and
general economic conditions affecting the media industry.
Additionally, our competitors, who are not subject to such financial restrictions and who have greater resources than we do or
existing business in certain markets, have an advantage over us in pursuing and completing strategic acquisitions that we target.
Our cost-cutting measures may impact our ability to pursue our expansion strategy.
In recent years, we have focused on reducing our operating expenses. This has included restructuring our existing businesses,
where we have reduced our workforce and eliminated redundant facilities. Although our cost-cutting measures have successfully
reduced expenses, our reduced programming expenses and workforce may make it more difficult to take advantage of opportunities
for growth in the future.
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The success of our radio stations depends on the popularity and appeal of our content, which is difficult to predict.
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. Various factors could impact the popularity of our content, including
shifts in population, station listenership, demographics, audience tastes and fluctuations in preferred advertising media. The success of
our radio stations depends on our ability to consistently create, acquire, market and broadcast content that meets the changing
preferences of this broad consumer market. If we are not successful at maintaining and growing the popularity of our content, our
operating results may be adversely affected.
The success of our television operation depends upon our ability to attract viewers and advertisers to our broadcast television
operation.
Although we recorded positive consolidated operating income for our television segment in 2016 under our indenture governing
our Notes, our television segment was not profitable per GAAP and may not achieve profitability in the future. We cannot assure you
that we will be able to attract viewers and advertisers to our broadcast television operation. If we cannot attract viewers, our television
operation may suffer from low ratings, which in turn may deter potential advertisers. The inability to successfully attract viewers and
advertisers may adversely affect our revenue and operating results for our television operation. Television programming is a highly
competitive business. Television stations compete in their respective markets for audiences and advertising revenues with other
stations and larger, more established networks. As a result of this competition, our rating share may not grow, and an adverse change
in our local markets could have a material adverse impact on the revenue of our television operation.
The success of the television operation is largely dependent on certain factors, such as the extent of distribution of the developed
programming, the ability to attract viewers and advertisers, the ability to acquire programming, and the market and advertiser
acceptance of our programming. We may not be successful in our initiatives, and our initiatives may fail to generate revenues and may
ultimately be unprofitable.
The loss of distribution agreements could materially adversely affect our results of operations.
Our MegaTV television operation has entered into station distribution agreements that allow us to serve markets representing
over 3.5 million Hispanic households. If our distribution agreements are terminated or not extended, our ability to reach our viewers
and receive licensing fees may be adversely affected, which could adversely affect our business, financial condition and results of
operations. Although we expect to renew these agreements or make other arrangements to reach viewers, there is no assurance that we
will be able to do so. We receive advertising inventory from our affiliated stations, either in the form of stand-alone advertising time
within a specified time period or commercials inserted by MegaTV into its programming. In addition, primarily with respect to
Multichannel Video Programming Distributors, we receive a fee for providing such programming. The loss of distribution agreements
of our MegaTV television operation could adversely affect our results of operations by reducing the reach of our network
programming and, therefore, its attractiveness to advertisers. Renewal on less favorable terms may also adversely affect our results of
operations through the reduction of advertising revenue and fees.
The failure or destruction of satellites and transmitter facilities that we depend upon to distribute our programming could
materially adversely affect our business and results of operation.
We use studios, satellite systems, transmitter facilities and the Internet to originate and/or distribute our station and network
programs and commercials to affiliates. We rely on third-party contracts and services to operate our origination and distribution
facilities. These third-party contracts and services include, but are not limited to, electrical power, satellite transponders, uplinks and
downlinks and telecom circuits. Distribution may be disrupted due to one or more third parties losing their ability to provide particular
services to us, which could adversely affect our distribution capabilities. A disruption can be caused as a result of any number of
events such as local disasters (accidental or environmental), various acts of terrorism, power outages, major telecom connectivity
failures or satellite failures. Our ability to distribute programming to station audiences and/or network affiliates may be disrupted for
an undetermined period of time until alternate facilities are engaged and put on-line. Furthermore, until third-party services resume,
the inability to originate or distribute programming could have a material adverse effect on our business, results of operations and cash
flows.
We Must Respond to Rapid Changes in Technology, Content Creation, Services and Standards in Order to Remain Competitive.
Video, telecommunications, radio and data services technologies used in the entertainment industry are changing rapidly.
Advances in technologies or alternative methods of product delivery or storage, or certain changes in consumer behavior driven by
these or other technologies and methods of delivery and storage, could have a negative effect on our businesses. Examples of the
foregoing include the convergence of television broadcasts and online delivery of programming to televisions and other devices,
video-on-demand platforms, tablets, satellite radio, user-generated content sites, Internet and mobile distribution of video content via
30
streaming and downloading, and place-shifting of content from the home to portable devices on which content is viewable outside the
home. For example, devices that allow users to view or listen to television or radio programs on a time-delayed basis; technologies,
such as DVRs, that enable users to fast-forward or skip advertisements or increase the sharing of subscription content; systems that
allow users to access our copyrighted product over the Internet or other media; and portable digital devices and systems that enable
users to view programming or store or make portable copies of programming, may cause changes in consumer behavior that could
affect the attractiveness our offerings to advertisers and adversely affect our revenues. Also, the growing uses of user-generated
content sites and live and stored video streaming sites, which deliver unauthorized copies of copyrighted content, including those
emanating from other countries in various languages, may adversely impact our businesses. In addition, further increases in the use of
Internet-connected television or other digital devices, which allow users to consume content of their own choosing, in their own time
and remote locations while avoiding traditional commercial advertisements or subscription payments, could adversely affect our radio
and television broadcasting advertising and subscription revenues. Users who reduce, cancel or never had cable television subscription
services are also known as “cord-cutters” or “cord-nevers”. Cable providers and DBS operators are developing new techniques that
allow them to transmit more channels on their existing equipment to highly targeted audiences, reducing the cost of creating channels
and potentially leading to the division of the television marketplace into more specialized niche audiences. More television and video
programming options increase competition for viewers and competitors targeting programming to narrowly defined audiences may
gain an advantage over us for television advertising and subscription revenues. Television manufacturers, cable providers and others
are developing and offering technology to enable viewers to locate digital copies of programming from the Internet to view on
television monitors or other devices, which could diminish viewership of our programming. Generally, changing consumer behavior
may impact our traditional distribution methods, for example, by reducing viewership of our programming, which could have an
adverse impact on our revenues and profitability. Anticipating and adapting to changes in technology on a timely basis and exploiting
new sources of revenue from these changes will affect our ability to continue to increase our revenue. Our inability to successfully
implement our recapitalization strategy may adversely affect our ability to respond and adapt to changes in technology on a timely
basis or at all.
Our business is dependent upon the performance of key employees, on-air talent and program hosts. Cost increases in the
retention of such employees may adversely affect our profits.
Our business depends upon the efforts, abilities and expertise of our executive officers and other key employees, including on-
air talent, and our ability to hire and retain qualified personnel. We employ or independently contract with several on-air personalities
and hosts with significant loyal audiences in their respective markets. Although we have entered into long-term agreements with some
of our key on-air talent and program hosts to protect our interests in those relationships, these key on-air personalities and program
hosts may not remain with us or may not retain their audiences. Competition for these individuals is intense, and many of our key
employees are at-will employees who are under no legal obligation to remain with us. Our competitors may choose to extend offers to
any of these individuals on terms which we may be unwilling to meet. In addition, any or all of our key employees may decide to
leave for a variety of personal or other reasons beyond our control. Furthermore, the popularity and audience loyalty of our key on-air
talent and program hosts is highly sensitive to rapidly changing public tastes. A loss of such popularity or audience loyalty is beyond
our control and could limit our ability to generate ratings and revenues.
The loss of any of our executive officers and key employees, particularly Raúl Alarcón, Chairman of our Board of Directors,
Chief Executive Officer and President, could have a material adverse effect on our business. We do not maintain key man life
insurance on any of our personnel.
We produce and acquire programming and content and incur costs for all types of creative talent, including on-air talent,
programming and production personnel. An increase in the costs of such programming and content or in the costs for creative talent
may lead to decreased profitability.
Impairment of our goodwill and other intangible assets deemed to have indefinite useful lives can cause our net income or net loss
to fluctuate significantly.
As of December 31, 2016, we had approximately $356.8 million of unamortized intangible assets, including goodwill of $32.8
million and FCC broadcast licenses of $324.0 million on our consolidated balance sheet. These unamortized intangible assets
represented approximately 79% of our total assets. Accounting standards require that goodwill and other intangible assets deemed to
have indefinite useful lives, such as FCC broadcast licenses, are not amortized. Accounting standards require that goodwill and certain
intangible assets be tested at least annually for impairment. If we find that the carrying value of goodwill or FCC broadcast licenses
exceeds their fair value, we will reduce the carrying value of the goodwill or intangible asset to the fair value and will recognize an
impairment loss in our results of operations.
31
We currently account for our FCC broadcast licenses as indefinite-lived assets. In the event we are no longer able to conclude
that our FCC broadcast licenses have indefinite lives, we may be required to amortize such licenses. The amortization of our FCC
broadcast licenses would affect our earnings and earnings per share.
The impairment tests require us to make estimates of the fair value of our intangible assets, which is determined by using a
discounted cash flow methodology. Since a number of factors may influence the fair value of our intangible assets, we are unable to
predict whether impairments of goodwill or other indefinite lived intangibles will occur in the future. From time to time in the past, we
have incurred significant impairment charges, which have materially adversely affected our results of operations.
Any future impairments would result in our recognizing a corresponding operating loss, which could have an adverse effect on
our business, financial condition and results of operations.
Piracy of our programming and other content, including digital and internet piracy, may decrease revenue received from the
exploitation of our programming and other content and adversely affect our business and profitability.
Piracy of programming is prevalent in many parts of the world and is made easier by technological advances allowing
conversion of programming and other content into digital formats, which facilitates the creation, transmission and sharing of high
quality unauthorized copies of our content. We believe that the proliferation of unauthorized copies and piracy of these products has
an adverse effect on our business and profitability because these products reduce the revenue that we potentially could receive from
the legitimate sale and distribution of our media content.
Damage to our brands or reputation could adversely affect our company.
Our brands and our reputation are among our most important assets. Our ability to attract and retain advertisers for our broadcast
stations depends, in part, upon the external perceptions of our company, our ability to produce attractive programming, the strength of
our audience and our integrity. Damage to our brands or reputation or negative publicity or perceptions about us, either through
infringement of our brands, intellectual property or otherwise, could cause a loss of consumer or advertiser confidence in our company
and may adversely affect our financial condition.
Our business may be adversely affected by legal or governmental proceedings brought by or on behalf of our employees.
In recent years, a number of employers, including us, have been subject to lawsuits, including alleging violations of federal and
state law regarding workplace, wage-hour and employment discrimination matters, class action lawsuits, and a number of these
lawsuits have resulted in the payment of substantial damages by the defendants. We could also face potential liability if we are found
to have misclassified certain employees as exempt from the overtime requirements of the federal Fair Labor Standards Act and state
labor laws, or for having classified certain personnel as contractors and not as employees under applicable law. We have had and now
have some employment-related administrative proceedings and lawsuits pending against us, although none involving class allegations
and none that we believe to be material.
Raúl Alarcón, the Chairman of our Board of Directors, Chief Executive Officer and President, has majority voting control of our
common stock and 100% voting control of our Series C preferred stock and this control may discourage or influence certain types
of transactions or strategic initiatives.
Raúl Alarcón, Chairman of our Board of Directors, Chief Executive Officer and President, beneficially owns shares of common
stock representing approximately 85% of the combined voting power of our outstanding shares of common stock as of December 31,
2016. Such combined voting power includes Mr. Alarcón’s voting control over 380,000 shares of Series C preferred stock (convertible
into 760,000 shares of Class A common stock) pursuant to his capacity as trustee for the AAA Trust. As a result, Mr. Alarcón
generally has the ability to control the outcome of all matters requiring stockholder approval, including the election of our entire
Board of Directors, mergers and acquisitions and sales of all or substantially all of our assets, and our recapitalization strategy. Mr.
Alarcón’s voting power may allow him to have a greater influence on our corporate strategy than other equity holders.
32
We cannot assure you that Mr. Alarcón will maintain all or any portion of his ownership or that he would continue as an officer
or director if he sells a significant part of his stock. Further, the disposition by Mr. Alarcón of a sufficient number of shares could
result in a change in control of our company, which could trigger a variety of federal, state and local regulatory consent requirements
and potentially limit our utilization of net operating losses for income tax purposes, any of which could have a material adverse effect
on our business, financial condition, results of operations and cash flows and the secondary market prices of our securities.
The liquidity of our common stock could be adversely affected if we are no longer allowed to trade on the OTCQX® Best Market.
We are currently out of compliance with the OTCQX rules relating to the minimum market capitalization of our publicly held
shares for continued trading on the OTCQX. We have until September 30, 2017 to regain compliance. There is no assurance that we
will be able to regain compliance by that date.
Our inability to qualify for trading on the OTCQX would make trading our common stock more difficult for investors,
potentially leading to further declines in our share price. Without the ability to trade on the OTCQX, stockholders may have a difficult
time getting a quote for the sale or purchase of our stock, the sale or purchase of our stock would likely be made more difficult and the
trading volume and liquidity of our stock would likely further decline. In addition to having an adverse effect on the liquidity of our
Class A common stock, our inability to meet the Standards for Continued Qualification for the OTCQX would also result in negative
publicity and would also make it more difficult for us to raise additional capital or successfully implement our recapitalization strategy.
The absence of such continued qualification may further adversely affect the acceptance of our Class A common stock as currency or
the value accorded by other parties. Any further impact on our ability to successfully implement our recapitalization strategy will
likely continue to adversely affect our ability to execute our long-term business strategy, including any efforts to use equity capital to
finance selective acquisitions, reduce our indebtedness or fund our operations.
Risks Related to Legislative and Regulatory Matters
Changes in U.S. communications laws or other regulations may have an adverse effect on our business.
The television and radio broadcasting and distribution industries in the United States are highly regulated by U.S. federal laws
and regulations issued and administered by various federal agencies, including the FCC. The television and radio broadcasting
industry is subject to extensive regulation by the FCC under the Communications Act. For example, we are required to obtain, and
periodically renew, licenses from the FCC to operate our radio and television stations. The FCC may not approve our future renewal
applications, or it may approve them for less than the full term or subject to conditions or qualifications. FCC license renewal
applications for our flagship WSKQ-FM station, which accounts for a material portion of our net revenue, were filed on January 31,
2006 and February 3, 2014. Petitions to deny the applications were filed alleging that WSKQ-FM had broadcast indecent material
during the license term. We filed opposition pleadings categorically stating that the allegations made did not raise sufficient questions
to warrant nonrenewal of the license. On March 9, 2016, the FCC released a decision denying the allegations and granting the license
renewal applications. On April 14, 2016, a Petition for Reconsideration of the grant of the license renewal applications was filed. We
filed opposition pleadings and the reconsideration remains pending. Although a station can continue to operate under its expired
license pursuant to FCC rules until the FCC takes action on its renewal application and the FCC grants renewal of broadcast licenses
in the great majority of cases, we cannot be assured that our licenses will be renewed on favorable terms or at all in future renewal
cycles. The non-renewal, or renewal with substantial conditions or modifications, of one or more of our licenses could have a material
adverse effect on our business, financial condition, results of operations and cash flows.
We must also comply with extensive FCC regulations and policies in the ownership and operation of our television and radio
stations and our television network. FCC regulations limit the number of television and radio stations that a licensee can own in a
market and the household reach of television stations nationwide. Under the Communications Act, every three years each television
broadcast station is required to elect to exercise the right, either to require cable television system and DBS operators in its local
market to carry its signal (must carry), or to prohibit carriage or condition it upon payment of a fee or other consideration. These
“must carry” rights are not absolute, and under some circumstances, a cable system or DBS operator may be entitled not to carry a
given station. The FCC’s current rules require cable and DBS operators to carry only one channel of the digital signal of our television
stations, despite the capability of digital broadcasters to broadcast multiple program streams within one station’s digital allotment.
Cable systems and DBS operators may not continue to carry our owned or affiliated television broadcast stations. The failure of a
cable system or DBS operator to carry one of our owned or affiliated television stations could have a material adverse effect on our
revenues.
The U.S. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and
policies regarding a wide variety of matters that could, directly or indirectly, affect the operation and ownership of our radio and
television properties. For example, from time to time, proposals have been advanced in the U.S. Congress and at the FCC to require
radio and television broadcast stations to provide advertising time to political candidates for free or at a reduced charge. Any
33
restrictions or reductions in rates on political advertising may adversely affect our advertising revenues. The FCC has initiated a
proceeding to examine and potentially regulate more closely embedded advertising, such as product placement and product
integration. Enhanced restrictions affecting these means of delivering advertising messages may adversely affect our advertising
revenues. The FCC is currently engaged in a review of its media ownership rules. Changes to the media ownership and other FCC
rules may affect the competitive landscape in ways that could increase the competition faced by us. We are unable to predict the effect
that any such laws, regulations or policies may have on our operations.
Proposed legislation would require radio broadcasters to pay royalties to record labels and recording artists.
Legislation has been previously introduced in Congress that would require radio broadcasters to pay a royalty to record labels
and performing artists for use of their recorded songs. Thus far, the legislation has failed to pass, but it may be reintroduced in the
future. Currently, we pay royalties to song composers and publishers through Broadcast Music, Inc., the American Society of
Composers, Authors and Publishers and SESAC, Inc. The proposed legislation would add an additional layer of royalties to be paid
directly to the record labels and artists. In addition, radio and recording industry representatives have entered into negotiations in the
past that could result in an agreement to resolve the performance fee issue. It is currently unknown what proposed legislation, if any,
will become law, whether industry groups will enter into an agreement with respect to fees, and what significance this royalty would
have on our results from operations, cash flows or financial condition.
The FCC vigorously enforces its indecency and other program content rules against the broadcast industry, which could have a
material adverse effect on our business.
The FCC’s rules and regulations prohibit the broadcast of obscene material at any time and indecent or profane material
between the hours of 6:00 a.m. and 10:00 p.m. Broadcasters risk violating the prohibition against broadcasting indecent/profane
material because of the vagueness of the FCC’s indecency/profanity definition, coupled with the spontaneity of live programming.
The FCC vigorously pursues its enforcement activities as they apply to indecency and has threatened on more than one occasion to
initiate license revocation or license renewal proceedings against a broadcast licensee who commits a “serious” indecency violation.
The FCC has substantially increased its monetary penalties for violations of these regulations pursuant to law enacted in 2006 that
provides the FCC with authority to impose fines of up to $389,305 per incident or profane utterance with a maximum forfeiture
exposure of approximately $3.6 million for any continuing violation arising from a single act or failure to act. Moreover, the FCC has
in some instances imposed separate fines for each allegedly indecent “utterance,” in contrast with its previous policy, which generally
considered all indecent words or phrases within a given program as constituting a single violation.
In July 2010, the Second Circuit issued a decision in which it vacated the FCC’s indecency policy as unconstitutional. In June
2012, the Supreme Court issued a decision which held that the FCC could not fine ABC and Fox for the specific broadcasts at issue in
that case because the FCC had not provided them with sufficient notice of its intent to issue fines for the use of fleeting expletives.
However, the Court did not make any substantive ruling regarding the FCC’s indecency standards. In April 2013, the FCC requested
comments on its indecency policy, including whether it should ban the use of fleeting expletives or whether it should only impose
fines for broadcasts that involve repeated and deliberate use of expletives. The FCC has advised that it will continue to pursue
enforcement actions in egregious cases while it conducts its review of its indecency policies generally and in 2015 issued a Notice of
Apparent Liability for the maximum forfeiture amount of $325,000 against a television station for violation of its indecency policy.
We cannot predict whether Congress will consider or adopt further legislation in this area.
In addition, the FCC’s heightened focus on the indecency regulatory scheme against the broadcast industry generally may
encourage third parties to oppose our license renewal applications or applications for consent to acquire broadcast stations. A number
of inquiries or proceedings regarding alleged violations of the FCC’s indecency policy by our stations are currently pending, including
a petition to reconsider the renewal of one of our material broadcast licenses. In addition, we have in the past been the subject and may
in the future become subject to additional inquiries or proceedings related to our stations’ broadcast of allegedly indecent or obscene
material. To the extent that these pending inquiries or other proceedings result in the imposition of fines, revocation of any of our
station licenses or denials of license renewal applications, our results of operations and business could be materially adversely
affected. We also face increased potential costs in the form of fines for indecency violations, and we cannot predict whether Congress
will consider or adopt further legislation in this area.
34
Our businesses depend upon licenses issued by the FCC, and if any of those licenses were not renewed or we were to be out of
compliance with FCC regulations and policies, our business may be materially impaired.
Our businesses depend upon maintaining their broadcasting licenses issued by the FCC, which are issued currently for a
maximum term of eight years and are subject to renewal thereafter. Interested parties may challenge a renewal application. On rare
occasions, the FCC has revoked licenses, not renewed them, or renewed them with significant qualifications, including renewals for
less than a full term of eight years. In the past, a few of our stations have operated on expired licenses while their applications for
renewal remain pending. We cannot be certain that our future renewal applications will be approved or that the renewals will not
include conditions or qualifications that could adversely affect our operations or result in material impairments, which could adversely
affect our business, financial condition, results of operations and cash flows. If any of our FCC licenses are not renewed, we could be
prevented from operating the affected station and generating revenue from it.
Further, the FCC has a general policy restricting the transferability of a station license while a renewal application for that
station is pending, and we must comply with extensive FCC regulations and policies governing the ownership and operation of our
stations. FCC regulations limit the number of radio and television stations that a licensee can own in a market, which could restrict our
ability to consummate future transactions. The FCC’s rules governing our radio station operations impose costs on their operations,
and changes in those rules could have an adverse effect on our business, financial condition, results of operations and cash flows. The
FCC also requires radio stations to comply with certain technical requirements to limit interference between two or more radio
stations. If the FCC relaxes these technical requirements, it could impair the signals transmitted by our radio stations and could have a
material adverse effect on our business, financial condition, results of operations and cash flows. Moreover, governmental regulations
and policies may change over time, and the changes may have a material adverse impact upon our business, financial condition and
results of operations.
There is significant uncertainty regarding the FCC’s media ownership rules, and any changes to such rules could restrict our
ability to acquire broadcast stations.
The Communications Act and FCC rules and policies limit the number of broadcasting properties that any person or entity may
own (directly or by attribution) in any market and require FCC approval for transfers of control and assignments of licenses. The
FCC’s media ownership rules remain in flux and subject to further agency and court proceedings. The FCC is required to review
quadrennially the following media ownership rules and to modify, repeal or retain any rules as it determines to be in the public
interest: the newspaper-broadcast cross-ownership rule; the local radio ownership rule; the radio-television cross-ownership rule; the
dual network rule; and the local television ownership rule. In addition to the FCC media ownership rules, the outside media interests
of our officers and directors could limit our ability to acquire stations. The filing of petitions or complaints against us or any of our
license-holding subsidiaries, or any FCC licenses from which we are acquiring a station, could result in the FCC delaying the grant of,
or refusing to grant or imposing conditions on, its consent to the assignment or transfer of control of licenses. The Communications
Act and FCC rules and policies also impose limitations on non-U.S. ownership and voting of our capital stock. In November 2013,
the FCC confirmed that it will consider on a case-by-case basis petitions for approval of foreign ownership that exceeds the 25%
threshold and, in September 2016, the FCC adopted specific rules and procedures for the filing and review of such requests. In this
decision, the FCC confirmed that it will allow companies to seek approval of up to 100% foreign ownership. In addition, where
proposed acquisitions might result in local radio advertising revenue concentration, the Department of Justice and/or the Federal Trade
Commission could undertake their own reviews and could attempt to block or place restrictions or conditions on such transactions.
New or changing federal, state or international privacy legislation or regulation could hinder the growth of our internet business.
A variety of federal and state laws govern the collection, use, retention, sharing and security of consumer data that our internet
business uses to operate its services and to deliver certain advertisements to its customers, as well as the technologies used to collect
such data. Not only are existing privacy-related laws in these jurisdictions evolving and subject to potentially disparate interpretation
by governmental entities, new legislative proposals affecting privacy are also now pending at both the federal and state level in the
United States. Changes to the interpretation of existing law or the adoption of new privacy-related requirements could hinder the
growth of our internet business. Also, a failure or perceived failure to comply with such laws or requirements or with our own policies
and procedures could result in significant liabilities, including a possible loss of consumer or investor confidence or a loss of
customers or advertisers.
Item 1B. Unresolved Staff Comments
None.
35
Item 2. Properties
Each of our media segments requires offices, broadcasting studios, and transmission facilities to support our operations. Our
properties are primarily located in owned facilities, as summarized below:
Location
New York, NY (2)
Los Angeles, CA (3)
Miami, FL (4)
Guaynabo, PR (5)
San Jose, CA (6)
Aggregate size
of property in
square feet
(approximate) (1)
12,100
31,000
70,000
29,000
13,000
Owned or
leased
Owned
Owned
Owned
Owned
Leased
Lease
expiration
date
N/A
N/A
N/A
N/A
6/30/2018
(1)
(2)
(3)
(4)
(5)
(6)
Excludes properties owned or leased that are less than 12,000 square feet.
Facility is used for the offices and studios for our New York radio stations and certain internet and television operations.
Facility is used for the offices and studios for our Los Angeles radio stations and certain internet and television operations.
Facility is used as the principal site for our television, internet and Miami radio studios, production, operation, and sales offices.
Our corporate offices are also in this facility.
Facility is used for the offices, operations and studios of our Puerto Rico broadcast stations and television operations.
Facility is used for the offices and studios for our San Francisco radio station and certain internet operations.
In addition, we own the transmitter sites for five of our eleven radio stations in Puerto Rico. We lease (i) all of our other
transmitter sites, with lease terms that expire between 2016 and 2082, assuming all renewal options are exercised, and (ii) the office
and studio facilities for our radio station in Chicago. We lease backup transmitter facilities for our stations WSKQ-FM and WPAT-
FM in New York, KLAX-FM and KXOL-FM in Los Angeles, WLEY-FM in Chicago, WRMA-FM, WCMQ-FM and WXDJ-FM in
Miami, and KRZZ-FM in San Francisco. We own a back-up transmitter site in San Juan, Puerto Rico for any of our five radio stations
covering the San Juan metropolitan area. These backup transmitter facilities are a significant part of our disaster recovery plan to
continue broadcasting to the public and to maintain our stations’ revenue streams in the event of an emergency.
We own most of the properties used for the operations of our television stations. These properties include offices, studios,
master control and production facilities located in Miami, New York, Los Angeles and Puerto Rico. We lease a combined studio and
tower site in Key West, Florida for WSBS-TV, a transmitter site for WSBS-CD, in Pembroke Park, Florida, and two separate
transmitter sites for WTCV-DT and WVEO-DT, in San Juan and Aguadilla, Puerto Rico, respectively. In addition, we lease office
space in Houston, Texas for KTBU-TV, which houses our sales offices and operations.
The studio, office, and transmitter sites of our media stations are vital to our overall operation. Management believes that our
properties are in good condition and are suitable for our operations. We, however, continually assess the need to upgrade and to
improve our properties and facilities.
Item 3. Legal Proceedings
From time to time we are involved in various routine legal and administrative proceedings and litigation incidental to the
conduct of our business, such as contractual matters and employee-related matters. In recent years, we have been subject to
administrative proceedings and lawsuits, including class action lawsuits, alleging violations of federal and state law regarding
workplace, wage-hour and employment discrimination matters. In the opinion of management, such litigation is not likely to have a
material adverse effect on our business, operating results or financial condition.
Gutierrez-Ortiz Lawsuit
We are a defendant in Aida Ivette Gutiérrez Ortiz et al. v. Municipio Autónomo de Bayamón, et al., a lawsuit involving the
death of a man who was shot and killed at a concert co-promoted by us. Plaintiffs allege that we were negligent because we did not
provide the necessary security to prevent the entry of firearms in the concert venue or its surrounding areas. Plaintiffs also allege we
did not provide the necessary measures to control allege that we were negligent because we failed to provide the necessary medical
assistance to aid the victim. Plaintiffs are seeking an estimated $3.5 million as indemnity. We intend to defend our self vigorously
against this claim. At this stage, an estimate of loss cannot be made, however, we believe we have good defenses and it is not probable
that the outcome of the litigation will result in a material loss or liability to us.
36
Item 4. Mine Safety Disclosures
None.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a) Market Information
During 2015 and 2016, Class A common stock traded on the NASDAQ Global Market under the symbol “SBSA”. On January
19, 2017, our Class A common stock was suspended from trading on the NASDAQ Global Market, pending delisting, and began
trading on the OTCQX® Best Market (U.S. Tier). The tables below show, for the quarters indicated, the reported high and low bid
quotes for our Class A common stock on the NASDAQ Global Market.
First quarter
Second quarter
Third quarter
Fourth quarter
(b) Record Holders
2016
2015
High
Low
High
Low
$
4.31
4.06
4.35
4.90
2.56 $
3.13
3.12
3.00
4.44
6.99
7.30
6.35
2.20
3.68
4.26
2.91
As of April 5, 2017, there were approximately 91 record holders of our Class A common stock, three record holders of our
Class B common stock and one record holder of our Series C preferred stock. These figures do not include an estimate of the
indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies. There is no
established public trading market for our Class B common stock or our Series C preferred stock. Our Class B common stock is
convertible into our Class A common stock on a share-for-share basis, and each share of the Series C preferred stock is convertible
into two shares of Class A common stock.
(c) Dividends
We have not declared or paid any cash or stock dividends on any class of our common stock in the last two years and we do not
expect to pay dividends for the foreseeable future. We intend to retain future earnings for use in our business and due to the Voting
Rights Triggering Event, we are not permitted to declare or pay any cash or stock dividends on shares of our Class A or Class B
common stock until the Voting Rights Triggering Event is remedied or waived. If the Voting Rights Triggering Event were no longer
in effect, any determination to declare and pay dividends would be made by our Board of Directors based upon our earnings, financial
position, capital requirements and other factors that our Board of Directors deem relevant. Furthermore, our Indenture contains
restrictions on our ability to pay dividends.
Under the terms of our Series C preferred stock, we are required to pay dividends on parity with our Class A common stock and
Class B common stock and any other class or series of capital stock we create after December 23, 2004.
Under the terms of our Series B preferred stock, the holders of the outstanding shares of the Series B preferred stock are entitled
to receive, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor, dividends on the
Series B preferred stock at a rate of 10 3/4% per year, of the $1,000 liquidation preference per share. All dividends are cumulative,
whether or not earned or declared, and are payable quarterly in arrears on specified dividend payment dates.
On October 15, 2013, holders of shares of our Series B preferred stock requested that we repurchase 92,223 shares of Series B
preferred stock for an aggregate repurchase price of $126.9 million, which included accumulated and unpaid dividends on these shares
as of October 15, 2013. We did not have sufficient funds legally available to repurchase all of the Series B preferred stock for which
we received requests and instead used the limited funds legally available to us to repurchase 1,800 shares for a purchase price of
approximately $2.5 million, which included accrued and unpaid dividends. Consequently, a Voting Rights Triggering Event occurred.
Following the occurrence, and during the continuation of the Voting Rights Triggering Event, we became and are subject to
restrictive operating covenants, including a prohibition on our ability to pay dividends, make distributions, or redeem or repurchase
securities. The Voting Rights Triggering Event shall continue until (i) all dividends in arrears shall have been paid in full and (ii) all
other failures, breaches or defaults giving rise to such Voting Rights Triggering Event are remedied or waived by the holders of at
37
least a majority of the shares of the then outstanding Series B preferred stock. We do not currently have sufficient funds legally
available to be able to satisfy the conditions for terminating the Voting Rights Triggering Event. The Indenture governing our Notes
currently prohibits us from paying dividends or from repurchasing the Series B preferred stock.
See Part I, Item 1A. Risk Factors of this annual report on Form 10-K for a further discussion of our Series B preferred stock,
including the consequences of the occurrence of the Voting Rights Triggering Event.
See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources below for additional information regarding liquidity restrictions on our ability to pay dividends on our common
stock.
(d) Equity Compensation Plans and Other Equity Compensation
The following table sets forth, as of December 31, 2016, the number of securities outstanding under our equity compensation
plans, the weighted-average exercise price of such securities and the number of securities available for grant under these plans:
Number of Shares
to be Issued
Upon
Exercise of
Outstanding
Options,
Warrants
and Rights
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(excluding
Column (a))
$
295,000
32,500
5,000
75,000
407,500
3.62
10.41
25.80
2.99
—
—
—
—
—
Category
Equity Compensation Plans Approved by
Stockholders:
2006 Omnibus Equity Compensation Plan
1999 Stock Option Plan
Non-Employee Directors Stock Option Plan
Equity Compensation Not Approved by
Stockholders:
Non-Qualified Employee Inducement Award
Total
Recent Sales of Unregistered Securities
We have not made any sales of unregistered equity securities for the period covered by this annual report on Form 10-K.
Issuer Purchases of Equity Securities
We did not repurchase any of our outstanding equity securities for the period covered by this annual report on Form 10-K.
Item 6. Selected Financial Data
Not required for smaller reporting companies.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General Overview
We are a leading Spanish-language media and entertainment company with radio and television operations, together with live
concerts and events, mobile, digital and interactive media platforms, which reach the growing U.S. Hispanic population, including
Puerto Rico. We produce and distribute original Spanish-language content, including radio programs, television shows, music and
live entertainment through our multi-media platforms. We operate in two reportable segments: radio and television.
38
We own and operate radio stations located in six of the eight most populous Hispanic markets in the United States: Los Angeles,
New York, Puerto Rico, Chicago, Miami and San Francisco. The Los Angeles and New York markets have the largest and second
largest Hispanic populations and are also the largest and second largest radio markets in the United States measured by advertising
revenue, respectively. We format the programming of each of our radio stations to capture a substantial share of the Hispanic audience in
their respective markets. The U.S. Hispanic population is diverse, consisting of numerous identifiable ethnic groups from many
different countries of origin, and each ethnic group has its own musical and cultural heritage. Since the music, culture, customs and
Spanish dialects vary from one radio market to another, we strive to maintain familiarity with the musical tastes and preferences of
each of the various Hispanic ethnic groups. To accommodate and monetize such diversity, we customize our programming to match
the local preferences of our target demographic audience in each market we serve. In addition to our owned and operated radio
stations, we have our AIRE Radio Networks with over 250 affiliate radio stations serving over 75 of the top U.S. Hispanic markets,
including all the top 30 Hispanic markets. AIRE Radio Networks currently covers 93% of the coveted U.S. Hispanic market. Our
AIRE Radio Networks reach over 14.0 million listeners in an average week with our targeted networks. For the years ended 2016 and
2015, our radio revenue was generated primarily from the sale of local, national and network advertising, and our radio segment
generated 90% and 91% of our consolidated net revenue, respectively.
Our television stations and related affiliates operate under the “MegaTV” brand. We broadcast via our owned and operated
television stations in South Florida, Houston and Puerto Rico and through programming and/or distribution agreements, including
nationally on a subscriber basis, which allow us to serve markets representing over 3.5 million Hispanic households. We have created
a unique television format which focuses on entertainment, current events and variety with high-quality content. Our programming is
formatted to capture a larger share of the U.S. Hispanic audience by focusing on our core strengths as an “entertainment” company,
thus offering a new alternative compared to the traditional Hispanic television channels. MegaTV’s programming is based on a
strategy designed to showcase a combination of programs, ranging from televised radio-branded shows to general entertainment
programs, such as music, celebrity, debate, interviews and personality based shows. As part of our strategy, we have incorporated
certain of our radio on-air personalities into our television programming. In addition, we have included interactive elements in our
programming to complement our Internet websites. We produce over 70 hours of original programming per week. For the years
ended 2016 and 2015, our television revenue was generated primarily from the sale of local advertising and paid programming and
generated 10% and 9% of our consolidated net revenues, respectively.
As part of our operating business, we also maintain multiple Spanish and bilingual websites, including www.lamusica.com,
Mega.tv and various station websites that provide content related to Latin music, entertainment, news and culture, as well as the
LaMusica mobile app. The LaMusica mobile app is a music and entertainment video and audio app, that programs an extensive series
of short form videos, simultaneously live streams our radio stations’, includes hundreds of curated playlists and has tools that enable
users to personalize their mobile radio streaming experience. The new video enhancements to our mobile app significantly enhance
the audience’s engagement level and increases the reach of our mobile offering. In addition, we produce live concerts and events in
the United States and Puerto Rico. Concerts generate revenue from ticket sales, sponsorship and promotions, raise awareness of our
brands in the surrounding communities and provide our advertising partners additional opportunities to reach their target audience.
We are currently pursuing a comprehensive recapitalization plan as described under “Part I, Item 1. Business—Recent
Developments” pursuant to which we are considering a range of options to recapitalize our balance sheet. See below under “—
Liquidity and Capital Resources" for more information.
Business Drivers and Financial Statement Presentation
The following discussion provides a brief description of certain key items that appear in our consolidated financial statements
and general business factors that impact these items.
Net Revenue Description and Factors
Our net revenue is primarily derived from the sale of advertising airtime to local and national advertisers. Net revenue is gross
revenue less agency commissions, which are generally 15% of gross revenue.
Local revenue generally consists of advertising airtime sold in a station’s local market either directly to the advertiser or through
an advertiser’s agency. Local revenue includes local spot sales, integrated sales, sponsorship sales and paid-programming (or
infomercials). For the years ended 2016 and 2015, local revenue comprised 67% and 63% of our gross revenue, respectively.
National and network revenue generally consists of advertising airtime sold to agencies purchasing advertising for multiple
markets. National sales are generally facilitated by our outside national representation firm, which serves as our agent in these
transactions. For the years ended 2016 and 2015, national revenue comprised 13% and 13% of our gross revenue, respectively.
Network sales consist of advertising airtime sold on our AIRE Radio Networks platform by our network sales staff. For the
years ended 2016 and 2015, network revenue comprised 6% and 8% of our gross revenue.
39
Our net revenue is generally determined by the advertising rates that we are able to charge and the number of advertisements
that we can broadcast without jeopardizing listenership/viewership levels. Each station broadcasts a predetermined number of
advertisements per hour with the actual number depending upon the format of a particular station and any programming strategy we
are utilizing to attract an audience. The number of advertisements we decide to broadcast hourly is intended to maximize the station’s
revenue without negatively impacting its audience listener/viewer levels. While there may be shifts from time to time in the number of
advertisements broadcast during a particular time of the day, the total number of advertisements broadcast on a particular station
generally does not vary significantly from year to year.
Our advertising rates are primarily based on the following factors:
a station’s audience share in the demographic groups targeted by advertisers which are measured by ratings agencies, primarily
Nielsen;
the number of stations, as well as other forms of media, in the market competing for the attention of the same demographic
groups;
the supply of, and demand for, advertising time; and
the size of the market.
Our net revenue is also affected by general economic conditions, competition and our ability to improve operations at our
market clusters. Seasonal revenue fluctuations are also common in the broadcasting industry and are primarily due to variations in
advertising expenditures by local and national advertisers. Our net revenue is typically lowest in the first calendar quarter of the year.
In addition to cash advertising revenue, we also generate revenue from barter sales, special events revenue, interactive revenue,
syndication revenue, subscriber revenue and other revenue. For the years ended 2016 and 2015, these revenues combined comprised
approximately 14% and 15% of our gross revenue, respectively.
Barter sales. We use barter sales agreements to reduce cash paid for operating costs and expenses by exchanging advertising
airtime for goods or services. However, we endeavor to minimize barter revenue in order to maximize cash revenue from our
available airtime.
Special events revenue. We generate special events revenue from ticket sales and event sponsorships, as well as profit-sharing
arrangements by producing or co-producing live concerts and events promoted by our radio and television stations.
Interactive revenue. We derive internet revenue from our websites through the sale of advertiser promotions and advertising on
our websites and the sale of advertising airtime during audio streaming of our radio stations over the internet.
Syndication revenue. We receive syndication revenue from licensing various MegaTV content.
Subscriber revenue. We receive subscriber revenue in the form of a per subscriber based fee, which is paid to us by cable and
satellite providers.
Other revenue. We receive other ancillary revenue such as rental income from renting available tower space or sub-channels and
product endorsements.
Operating Expenses Description and Factors
Our operating expenses consist primarily of (1) engineering and programming expenses, (2) selling, general and administrative
and (3) corporate expenses.
Engineering and programming expenses. Engineering and programming expenses are related to the delivery and creation of our
programming content on the air. These expenses include compensation and benefits for employees involved in engineering and
programming, transmitter-related expenses, originally produced content, on-air promotions, acquired programming, music
license fees, and other expenses.
40
Selling, general and administrative expenses. Selling, general and administrative expenses are related to the costs of selling our
programming content and administrative costs associated with operating and managing our stations. These expenses include
compensation and benefits for employees involved in selling and administrative functions, commissions, rating services,
advertising, barter expenses, facilities expenses, special events expenses, professional fees, insurance, allowance for doubtful
accounts, affiliate station compensation and other expenses.
Corporate expenses. Corporate expenses are related to the operations of our corporate offices and matters. These expenses
include compensation and benefits for our corporate employees, professional fees, insurance, corporate facilities expenses and
other expenses.
We strive to control our operating expenses by centralizing certain functions at our corporate offices and consolidating certain
functions in each of our market clusters. In our pursuit to control our operating expenses, we work closely with our local station
management and vendors.
Year Ended 2016 Compared to Year Ended 2015
The following summary table presents separate financial data for each of our operating segments (in thousands).
Year Ended
December 31,
2016
2015
Net revenue:
Radio
Television
Consolidated
Engineering and programming expenses:
Radio
Television
Consolidated
Selling, general and administrative expenses:
Radio
Television
Consolidated
Corporate expenses:
Depreciation and amortization:
Radio
Television
Corporate
Consolidated
(Gain) loss on the disposal of assets, net:
Radio
Television
Corporate
Consolidated
Impairment charges and restructuring costs:
Radio
Television
Corporate
Consolidated
Operating income (loss):
Radio
Television
Corporate
Consolidated
41
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
129,544
15,075
144,619
23,514
7,598
31,112
49,418
6,688
56,106
10,588
1,905
2,378
409
4,692
(11)
—
—
(11)
—
—
(37)
(37)
54,718
(1,589)
(10,960)
42,169
133,624
13,275
146,899
23,101
7,660
30,761
60,706
5,868
66,574
10,462
1,813
2,621
368
4,802
(78)
2
(11)
(87)
925
—
(389)
536
47,157
(2,876)
(10,430)
33,851
The following summary table presents a comparison of our operating results of operations for the years ended December 31,
2016 and 2015. Various fluctuations illustrated in the table are discussed below. This section should be read in conjunction with our
consolidated financial statements and related notes.
Net revenue
Engineering and programming expenses
Selling, general and administrative expenses
Corporate expenses
Depreciation and amortization
(Gain) loss on disposal of assets, net of disposal costs
Impairment charges and restructuring costs
Operating income
Interest expense, net
Dividends on Series B preferred stock classified as interest expense
Income tax expense
Net loss
Net Revenue
Year Ended
December 31,
2016
2015
$
$
$
144,619
31,112
56,106
10,588
4,692
(11)
(37)
42,169
(40,149)
(9,734)
8,628
(16,342)
146,899
30,761
66,574
10,462
4,802
(87)
536
33,851
(39,847)
(9,734)
11,225
(26,955)
The decrease in our consolidated net revenues of $2.3 million or 2% was due to decreases in our radio segment offset by
increases in our television segment net revenues. Our television segment net revenues increased $1.8 million or 14%, due to the
increases in local, national, and barter sales offset by decreases in digital sales and special events revenues. Our radio segment net
revenues decreased $4.1 million or 3%, due to decreases in network and national sales, and special events revenues, which were offset
by increases in local and digital sales and product endorsements. Our special events revenue decrease occurred primarily in our Los
Angeles, Miami, New York, and Puerto Rico markets.
Engineering and Programming Expenses
The increase in our consolidated engineering and programming expenses of $0.4 million or 1% was due to the increase in our
radio segment offset by decreases in our television segment’s expenses. Our radio segment expenses increased $0.4 million or 2%,
mainly due to an increase in content production and technical costs associated with the new LaMusica App which offset by decreases
in compensation and benefits, and talent fees. Our television segment expenses decreased less than $0.1 million or less than 1%,
primarily due to an increase in production tax credits which offset originally produced content production costs in Puerto Rico.
Selling, General, and Administrative Expenses
The decrease in our consolidated selling, general and administrative expenses of $10.5 million or 16% was due to decreased
expenses in our radio segment offset by increases in the television segment. Our television segment expenses increased $0.8 million
or 14%, primarily due to increases in compensation and benefits, bonuses, commission, barter, and rating service expenses. Our radio
segment expenses decreased $11.3 million or 19%, primarily due to decreases from managing special events through thirds parties to
mitigate related exposure, reductions in compensation and benefits from decreased headcounts and overall lower staffing costs,
reduced marketing and promotions efforts, renegotiated commissions rates, and overall decreases in bonuses, AIRE network-affiliate
station compensation, taxes and licenses, and facilities expenses which were offset by increases in rating services and professional
fees.
Corporate Expenses
Corporate expenses increased $0.1 million or 1% primarily due to increases in compensation and benefits, including non-cash
stock-based compensation which were offset by decreases in professional fees.
(Gain) loss on the disposal of assets
The decrease in gains from the disposal of assets of $0.1 million or 87% was primarily related to having recognized gains on the
disposal of certain furniture in the prior year for which monies were received.
42
Impairment Charges and Restructuring Costs
The decrease in impairment charges of $0.6 million or 107% was primarily due to the recognition of an impairment of an FCC
broadcasting license in our San Francisco market in the prior year.
Operating Income
The increase in operating income of $8.3 million or 25% was mainly due to the decrease in selling, general and administrative
expenses offset by the decrease in net revenue.
Dividends on Series B preferred stock classified as interest expense
As of December 31, 2016, we accounted for the Series B preferred stock as a current liability and the accrued dividends as
interest expense. Prior to October 15, 2013, the Series B preferred stock was considered “conditionally redeemable” because the
redemption of the shares of Series B preferred stock was contingent on the Series B preferred stockholders requesting that their Series
B preferred stock be repurchased on October 15, 2013. On October 15, 2013, almost all of the holders of the Series B preferred stock
requested that we repurchase their shares of Series B preferred stock pursuant to the Certificate of Designations for the Series B
preferred stock. As a result of their request, we assessed and determined that, under applicable accounting principles, the contingency
had occurred, and the Series B preferred stock now met the definition of a “mandatorily redeemable” instrument under Accounting
Standards Codification 480 “Distinguishing Liabilities from Equity” (“ASC 480”). Under ASC 480, if an instrument qualifies as
being “mandatorily redeemable,” then the financial instrument should be classified as a liability.
In addition, the Series B preferred stock is measured at each reporting date as the amount of cash that would be paid pursuant to
the Certificate of Designations, had settlement occurred on the reporting date, recognizing the resulting change in that amount from
the previous reporting date as interest expense. Therefore, the accruing of quarterly dividends of the Series B preferred stock was and
will continue to be recorded as an interest expense.
Income Tax (Benefit) Expense
The decrease in income tax expense of $2.6 million was primarily a result of the valuation allowance set up in Puerto Rico
during 2015.
Net Loss
The decrease in net loss of $10.6 million was primarily due to the increase in operating income and decrease in income tax
expense.
Liquidity and Capital Resources
The most important aspects of our liquidity and capital resources as of December 31, 2016 and, as of the date of this annual
report on Form 10-K, are as follows:
Our Notes, of which there are $275 million principal amount outstanding, matured on April 15, 2017 and were payable on the
next business day, which was April 17, 2017. Because we did not have sufficient cash on hand and did not generate sufficient
cash from operations or asset sales, we did not repay the Notes at their maturity.
Holders of our Series B preferred stock, of which there were $155.8 million outstanding (comprised of approximately $90.5
million in liquidation preference and $65.3 million in accrued dividends), requested the redemption of these shares on October
15, 2013, which we did not satisfy and which has resulted in the existence and continuation of a Voting Rights Triggering Event
under the Certificate of Designations under which these shares were issued. One consequence of the existence of a Voting
Rights Triggering Event is that the Certificate of Designations for the Series B preferred stock prohibits our incurring additional
indebtedness, including indebtedness incurred to refinance outstanding indebtedness, among other things. Every quarter, we
accrued additional dividends on the Series B preferred stock at a rate of 10 3/4% per year on the outstanding liquidation
preference of the shares (or about $9.7 million per year) and, because we do not make these dividend payments in cash, the
amount outstanding of these shares increases by the dividend amount.
Our current sources of liquidity are our cash, cash equivalents and cash flow from operations. Based on current estimates and
assumptions, we expect to generate a sufficient amount of cash flow from operations to meet our ordinary course operating
obligations over the next twelve month period.
43
We had a working capital deficit of $392.1 million, primarily due to the classification of our Notes and Series B preferred stock
as current liabilities.
In addition, our inability to repay the Notes at maturity has caused us to conclude there is a substantial doubt about our ability to
continue as a going concern for purposes of the determination we are required to make in connection with our evaluation of our
financial statements for 2016, as described below under “—Going Concern.”
We are working with a team of financial and legal advisors in evaluating all options available to us in executing on a
comprehensive recapitalization plan. These options include, but are not limited to, selling certain non-core assets (whose net proceeds
would be used to repay a portion of outstanding Notes) as summarized under “Our Strategy—Sell Non-Core Assets and debt
Recapitalization Plan,” new financings (including, equity-linked securities and equity offerings), an exchange offer with the
Noteholders, with or without exit consents to amend the terms of the Indenture, use of cash on hand, and a combination of these
options. In connection with our recapitalization plan, we have initiated conversations with representatives of the Noteholders and
holders of our Series B preferred stock regarding these matters. We cannot assure you that we will be successful in our recapitalization
efforts. We did not repay the Notes at their maturity, as a result of which there was an event of default under the Indenture on April
17, 2017 (April 17, 2017 being the payment date following the Saturday, April 15, 2017 maturity date). The Notes will continue to
earn interest after the maturity date. We face various risks regarding these matters. See “Special Note Regarding Forward-Looking
Statements” and “Part I, Item 1A. Risk Factors—Risks Related to Our Indebtedness and Preferred Stock.”
Further detail regarding some of the items summarized above follows below:
On October 15, 2013, as a result of a failure by us to repurchase all of the shares of Series B preferred stock that were requested
to be repurchased by the holders thereof, a Voting Rights Triggering Event occurred. Following the occurrence, and during the
continuation, of the Voting Rights Triggering Event, we are subject to restrictive operating covenants, as summarized below under
“Our Series B Preferred Stock.” The Voting Rights Triggering Event continues until (i) all dividends in arrears shall have been paid in
full and (ii) all other failures, breaches or defaults giving rise to such Voting Rights Triggering Event are remedied or waived by the
holders of at least a majority of the shares of the then outstanding Series B preferred stock. We do not currently have sufficient funds
legally available to be able to satisfy the conditions for terminating the Voting Rights Triggering Event.
Our primary sources of liquidity are our current cash and cash equivalents and the cash provided by operations. We do not
currently have a revolving credit facility or other working capital lines of credit. Our cash flows from operations are subject to factors
impacting our customers and target audience, such as overall advertising demand, shifts in population, station listenership and
viewership, demographics, audience tastes and fluctuations in preferred advertising media. We do not expect to raise cash by
increasing our indebtedness for several reasons, including the need to repay the Notes, the existence of an event of default under the
Indenture that arose on April 17, 2017 and the existence of the Voting Rights Triggering Event. The Certificate of Designations and
the Indenture place other restrictions on us as summarized under “Risk Factors—Risks Related to Our Indebtedness and Preferred
Stock—The terms of the Indenture and Certificate of Designations restrict our current and future operations.”
Our consolidated financial statements have been prepared assuming we will continue as a going-concern and do not include any
adjustments that might result if we were unable to do so, and contemplate the realization of assets and the satisfaction of liabilities in
the normal course of business. However, we have concluded that there is substantial doubt about our ability to continue as a going
concern as discussed under “Critical Accounting Policies - Going Concern.” As of December 31, 2016 and 2015, we had a working
capital deficit due primarily to the classification of our Series B preferred stock as a current liability and the classification of our Notes
as a current liability. Under Delaware law, our state of incorporation, the Series B preferred stock is deemed equity. Because the
holders of the Series B preferred stock are not creditors, they do not have rights of, or remedies available to, creditors. Delaware law
does not recognize a right of preferred stockholders to force redemptions or repurchases where the corporation does not have funds
legally available. Currently, we do not have sufficient funds legally available to be able to redeem or repurchase the Series B preferred
stock and its accumulated unpaid dividends. If we are successful in repaying or refinancing our Notes, and are able to generate legally
available funds under Delaware law, we may be required to pay all or a portion of the accumulated preferred dividends and redeem all
or a portion of the Series B preferred stock, to extent of the funds legally available.
Our strategy is to primarily utilize cash flows from operations to meet our ordinary course operating 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 ordinary course operating obligations over the next twelve-month period. Cash from operating
activities will not be sufficient to repay the Notes or to redeem the Series B preferred stock.
44
Assumptions which underlie management’s beliefs with respect to operating activities, include the following:
the demand for advertising within the broadcasting industry and economic conditions in general will not deteriorate in any
material respect;
despite the consequences resulting from the occurrence of the Voting Rights Triggering Event, we will continue to successfully
implement our business strategy, other than with respect to acquisitions and investments requiring proceeds from debt
financings;
we will use cash flows from operating activities to fund our operations and pay our expenses (including interest on the Notes),
but not to repay the Notes or redeem the Series B preferred stock; and
we will not incur any material unforeseen liabilities, including but not limited to taxes, environmental liabilities, regulatory
matters or legal judgments.
We cannot assure you that these assumptions will be realized.
Historically, we have evaluated strategic media acquisitions and/or dispositions and strived to expand our media content through
distribution, programming and affiliation agreements in order to achieve a significant presence with clusters of stations in the top U.S.
Hispanic markets. Historically, we have engaged in discussions regarding potential acquisitions and/or dispositions and expansion of
our content through media outlets from time to time in the ordinary course of business. As a result of the consequences resulting from
the occurrence of the Voting Rights Triggering Event and the need to repay the Notes, we are currently not able to finance acquisitions
through the incurrence of additional debt and are subject to additional restrictions which will preclude us from being able to execute
this strategy.
Notes
As of December 31, 2016, we had outstanding $275 million principal amount of our Notes and were in compliance with the
financial covenants under the Indenture. As of the date of the filing of this annual report on Form 10-K, we are in default of the
covenant to repay the Notes at their maturity (which constitutes an event of default of the Indenture as we describe elsewhere), and we
are in default of the security agreement covenant relating to deposit account control agreements and the related Indenture covenant
regarding compliance with the security agreement due to the Company initiated transfer of cash balances from controlled accounts to
non-controlled accounts. In addition, one of our subsidiaries had not become a guarantor when formed in 2013 as required by the
Future Guarantor covenant of the Indenture and therefore we were in default of the indenture from the formation of the subsidiary
until we subsequently submitted documentation to the Trustee to have the subsidiary become an additional guarantor in April 2017.
The Notes will continue to earn interest after the maturity date. For more information regarding the Notes, see Note 10 to our 2016
financial statements that are included elsewhere in this annual report on Form 10-K.
Series B Preferred Stock
On October 28, 2003, our Board of Directors approved the issuance of 280,000 shares of 10 ¾% Series B Cumulative
Exchangeable Redeemable Preferred Stock, par value $.01 per share, with a liquidation preference of $1,000.00 per share. Holders of
the Series B preferred stock have customary voting rights and provisions. As of December 31, 2016, we had outstanding $90.5 million
of Series B preferred stock due to the liquidation preference and accrued dividends of $65.3 million.
The Certificate of Designations entitles the holders of the Series B preferred stock to receive dividends when, and if, declared by
the Board of Directors.
Holders of the Series B preferred stock have customary protective provisions. The Certificate of Designations contains
covenants that, among other things, limit our ability to: (i) pay dividends, purchase junior securities and make restricted investments
other restricted payments; (ii) incur indebtedness, including refinancing indebtedness; (iii) merge or consolidate with other companies
or transfer all or substantially all of our assets; and (iv) engage in transactions with affiliates. Upon a change of control, we will be
required to make an offer to purchase these shares at a price of 101% of the aggregate liquidation preference of these shares plus
accumulated and unpaid dividends to, but excluding the purchase date.
The Certificate of Designations provided holders the right, on October 15, 2013, to require us to repurchase their shares, subject
to the legal availability of funds. At the option of the holder, we were required to repurchase the Series B preferred stock at a purchase
price equal to 100% of the liquidation preference, or $1,000.00 per share. The holders of the Series B preferred stock exercised their
option, but we were unable to fully repurchase the Series B preferred stock, resulting in a Voting Rights Triggering Event. During the
continuation of a Voting Rights Triggering Event, certain of the covenants summarized above become more restrictive by their terms
45
including (i) a prohibition on our ability to incur additional indebtedness, (ii) restrictions on our ability to make restricted payments
and (iii) restrictions on our ability to merge or consolidate with other companies or transfer all or substantially all of our assets. In
addition, the holders of the Series B preferred stock have the right to elect two members to our Board of Directors. A Voting Rights
Triggering Event shall continue until (i) all dividends in arrears shall have been paid in full and (ii) all other failures, breaches or
defaults giving rise to such Voting Rights Triggering Event are remedied or waived by the holders of at least a majority of the shares
of the then outstanding Series B preferred stock.
As noted above under “—Dividends on Series B preferred stock classified as interest expense”, we report dividends on the
Series B preferred stock as interest expense.
For more information regarding the Series B preferred stock, see Note 12 to our 2016 financial statements that are included
elsewhere in this annual report on Form 10-K.
Series C 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”), we issued to CBS Radio an aggregate of 380,000 shares of Series C convertible preferred stock, $0.01
par value per share in exchange for the acquisition of all the rights and obligations of Infinity SF, including the FCC license of Infinity
SF for radio station 93.3 FM, serving the San Francisco, California market. The shares of Series C preferred stock issued at the closing
of the CBS Radio Merger are convertible into 760,000 shares of Class A common stock, subject to certain adjustments. In connection
with the CBS Radio Merger, we also entered into a registration rights agreement with CBS Radio, pursuant to which CBS Radio may
instruct us to file up to three registration statements, on a best efforts basis, with the SEC, providing for the registration for resale of
the Class A common stock issuable upon conversion of the Series C preferred stock.
In connection with the issuance of the Series C preferred stock, we entered into a Stockholder Agreement, dated October 5,
2004, with CBS Radio and Mr. Alarcón. Pursuant to the terms of the Stockholder Agreement, CBS Radio was given a right of first
negotiation with respect to any radio station that we control in the New York and Miami markets after the date of such agreement. The
negotiation right is required to stay open for a period of ten (10) business days. In addition, CBS Radio was also given a right to match
any offer received by us with respect to any Miami radio station. Such matching right expired one year after the date of the
Stockholder Agreement.
We are required to pay holders of Series C preferred stock dividends on parity with our Class A common stock and Class B
common stock, and each other class or series of our capital stock created after December 23, 2004. The Series C preferred stock
holders have the same voting rights and powers as our Class A common stock on an as-converted basis, subject to certain adjustments.
The Certificate of Designations for the Series C preferred stock does not contain a voting rights triggering event provision like the one
found in the Certificate of Designations for the Series B preferred stock. Each holder of Series C preferred stock (i) has preemptive
rights to purchase its pro rata share of any equity securities we may offer, subject to certain conditions, and (ii) may, at their option,
convert each share of Series C preferred stock into two (2) shares of Class A common stock, subject to certain adjustments.
The terms of the Certificate of Designations for our Series C preferred stock limits our ability to (i) enter into transactions with
affiliates and certain merger transactions and (ii) create or adopt any shareholders rights plan.
On August 8, 2016 CBS Radio entered into a Stock Purchase Agreement with us, AAA Trust and Mr. Alarcón (the “Stock
Purchase Agreement”) to sell and assign its rights related to its 380,000 shares of Series C preferred stock to the AAA Trust for $3.8
million. AAA Trust is a Florida trust, of which Mr. Alarcón is the trustee. Mr. Alarcón is also the beneficial owner of all the shares of
Series C preferred stock held in the AAA Trust. Pursuant to the Stock Purchase Agreement, CBS Radio agreed to assign the rights
under the registration rights agreement and Stockholder Agreement to the AAA Trust, which now holds such registration rights. The
parties closed on the Stock Purchase Agreement on August 18, 2016.
For more information regarding the Series C preferred stock, see Note 13 to our 2016 financial statements that are included
elsewhere in this annual report on Form 10-K.
46
Class A Common Stock
As of December 31, 2016, we had 4,166,991 shares of Class A common stock outstanding.
Class B Common Stock
As of December 31, 2016, 2,340,353 shares of Class B common stock were outstanding, which have ten votes per share. Raúl
Alarcón, our Chief Executive Officer and the Chairman of our Board of Directors, has voting control over all but 350 shares of the
Class B common stock.
Summary of Capital Resources
The following summary table presents a comparison of our capital resources for the years ended December 31, 2016 and 2015,
with respect to certain of our key measures affecting our liquidity. The changes set forth in the table are discussed below. This section
should be read in conjunction with the consolidated financial statements and accompanying notes.
Capital expenditures:
Radio
Television
Corporate
Consolidated
Net cash flows provided by (used in) operating activities
Net cash flows used in investing activities
Net cash flows used in financing activities
Net increase (decrease) in cash and cash equivalents
Year Ended
December 31,
2016
2015
Change
$
$
$
$
$
1,421
539
242
2,202
8,797
(4,099)
(306)
4,392
1,316
805
351
2,472
(1,830)
(2,382)
(336)
(4,548)
105
(266)
(109)
(270)
10,627
(1,717)
30
We repaid the promissory note relating to the acquisition of the Miami studio building on January 3, 2017.
Capital Expenditures
The decrease in our capital expenditures was primarily due to completed upgrades to television related studio and technical
equipment and computer hardware at SBS Miami Broadcast Center in the prior year.
Net Cash Flows Provided by (Used in) Operating Activities
Changes in our net cash flows from operating activities were primarily a result of improved results from operations and an
increase in cash receipts from our trade receivables offset by an increase in cash payments paid to vendors within accounts payable
and accrued expenses.
Net Cash Flows Provided by (Used in) Investing Activities
Changes in our net cash flows from investing activities were a primarily a result of the cash used to acquire spectrum related
assets in Puerto Rico.
Net Cash Flows Provided by (Used in) Financing Activities
Changes in our net cash flows from financing activities were a result of the elimination of a previously recorded operating lease
liability of less than $0.1 million, in 2016. Current cash flows used in financing activities are related to the principal payments of the
SBS Miami Broadcast Center promissory note.
47
Recent Developments
NASDAQ Delisting – OTCQX® Best Market Trading
On January 28, 2016, we received a written deficiency notice (the “Notice”) from the NASDAQ Stock Market (“NASDAQ”)
advising us that the market value of our Class A Common Stock for the previous 30 consecutive business days had been below the
minimum $15,000,000 required for continued listing on the NASDAQ Global Market pursuant to NASDAQ Listing Rule 5450
(b)(3)(C) (the “Rule”).
Pursuant to NASDAQ Listing Rule 5810(c)(3)(D) (the “Listing Rule”), we are provided an initial grace period of 180 calendar
days, or until July 26, 2016, to regain compliance with the Rule. The Notice further provided that NASDAQ would provide written
confirmation stating that SBS had achieved compliance with the rule if at any time before July 26, 2016, the market value of its
publicly held shares closed at $15,000,000 or more for a minimum of 10 consecutive business days.
We did not regain compliance with the rule by July 26, 2016 and received a letter from NASDAQ stating that unless we request
an appeal, our Class A Common Stock will be scheduled for delisting at the opening of business on August 5, 2016. On August 3,
2016, we filed a request for a hearing to appeal the delisting. The hearing occurred on September 8, 2016.
On September 17, 2016, we received written notification from NASDAQ, dated September 12, 2016, granting our request to
continue the listing of its shares on the NASDAQ Global Market until January 23, 2017. NASDAQ required that, during this
exception period, we provide prompt notification of any significant events that occurred during this time which called into question
our ability to demonstrate compliance with the Rule.
In January 2017, we determined that we were not likely to regain compliance with the Rule by January 23, 2017, and notified
NASDAQ of our determination on January 13, 2017. On January 17, 2017, we received notice from NASDAQ that the Class A
Common Stock would be suspended from trading as of the opening of business on January 19, 2017, pending ultimate delisting. In
connection with our potential delisting, we applied to have our Class A Common Stock qualified to trade on the OTCQX. As a result,
trading in our Class A Common Stock on NASDAQ was suspended on January 19, 2017, and trading in our Class A Common Stock
on the OTCQX began on the same day. Our Class A Common Stock currently trades on the OTCQX under the stock ticker “SBSAA”.
On April 3, 2017, we received a written notice from the OTC, advising us that our market capitalization had stayed below $5
million for more than 30 consecutive calendar days and that it no longer met the Standards for Continued Qualification for the
OTCQX as per the OTCQX Rules for U.S. Companies. OTC further notified us that a cure period of 180 calendar days to regain
compliance had begun, during which the minimum criteria must be met for 10 consecutive trading days.
The 180-calendar day grace period expires September 30, 2017. If our market capitalization has not been at or above $5 million
for 10 consecutive trading days by that time, then our Class A Common Stock will be moved from OTCQX to OTC Pink, which may
result in further reduced liquidity for our Class A common stock.
Employees
In July 2016, SAG-AFTRA was certified as the exclusive bargaining agent solely for 31 on-air talent employees of our Los
Angeles-based stations KXOL and KLAX. We have been negotiating with representatives of SAG-AFTRA for an initial collective
bargaining agreement which would cover those 31 employees. To date, we have not yet reached an agreement with SAG-AFTRA,
and at this juncture, it is too early to state with certainty whether the parties will ever enter into such an agreement.
Local Tax Assessment
We have received an audit assessment (the “Assessment”) wherein it was proposed that we underpaid a local tax for the tax
periods between June 1, 2005 and May 31, 2015 totaling $1,439,452 in underpaid tax, applicable interest and penalties. We disagree
with the assessment and related calculations and has developed a settlement strategy to discuss and pursue with the taxing jurisdiction
with the hope of avoiding a lengthy litigation process. While we are uncertain as to whether the jurisdiction will accept this offer, an
accrual of $391,000, based upon our current best estimate of probable loss, was charged to operations in the accompanying financial
statements. However, if the settlement offer is not accepted by the jurisdiction, the amount of the ultimate loss to us, if any, may equal
the entire amount of the Assessment sought by the taxing jurisdiction.
48
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect
on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or
capital resources.
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could ultimately differ from those estimates. The following accounting policies require significant
management judgments, assumptions and estimates.
Going Concern
We adopted FASB ASU No. 2014-15, Presentation of Financial Statements- Going Concern, during the first quarter of 2016.
This standard defines management’s responsibility to evaluate conditions or events as related to uncertainties that raise substantial
doubt about our ability to continue as a going concern and to provide related footnote disclosures, as applicable. Management’s
estimates and assumptions, used in the evaluation of our ability to meet our obligations as they become due within one year after the
date our financial statements are issued, are based on the facts and circumstances at such date and are subject to a material and high
level of subjectivity and uncertainty due to the matters themselves being uncertain and subject to modification. The effect of any
individual or aggregate changes in the estimates and assumptions, or the facts and circumstances, could be material to the financial
statements. The accompanying financial statements have been prepared assuming we will continue as a going concern, do not include
any adjustments that might result if we were unable to do so but, as we have stated under “Risk Factors—Risks Related to Our
Indebtedness and Preferred Stock,” we have concluded that there is substantial doubt about our ability to continue as a going concern.
Accounting for Indefinite-Lived Intangible Assets and Goodwill
Our indefinite-lived intangible assets consist of FCC broadcasting licenses. FCC broadcasting licenses are granted to stations for
up to eight years under the Act. The Act requires the FCC to renew a broadcast license if: (i) it finds that the station has served the
public interest, convenience and necessity; (ii) there have been no serious violations of either the Communications Act of 1934 or the
FCC’s rules and regulations by the licensee; and (iii) there have been no other serious violations, which taken together, constitute a
pattern of abuse. We intend to renew our licenses indefinitely and evidence supports our ability to do so. Historically, there has been
no material challenge to our license renewals. In addition, the technology used in broadcasting is not expected to be replaced by
another technology any time in the foreseeable future.
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 350, Intangibles – Goodwill and Other (ASC 350), we do not amortize our FCC broadcasting licenses. We must conduct
impairment testing at least annually or more frequently if events or changes in circumstances indicate that the assets might be
impaired, and charge to operations an impairment expense only in the periods in which the recorded value of these assets is more than
their fair value. We test our FCC broadcasting licenses for impairment at the market cluster level. We apply the guidance of
FASB ASC Topic 350-30-35, Unit of Accounting for Purposes of Testing for Impairment of Intangible Assets Not Subject to
Amortization, to certain of our FCC broadcasting licenses, if their market operations are consolidated.
During 2016, we initiated a change in accounting principle and changed the date of our annual impairment test for indefinite-
lived intangible assets, including goodwill, from December 31 to November 30. The change from year-end to such earlier date was
preferable to Management to facilitate interactions with third party valuation specialists and in order to complete the year-end closing
process in a more timely fashion. Management has assessed that the change had no impact on the results of operations in 2016. Were
this change in date implemented during 2015, it would have had no impact on the results of the 2015 impairment analysis.
Our valuations principally use the discounted cash flow methodology. This income approach consists of a quantitative model,
which assumes the FCC broadcasting licenses are acquired and operated by a third-party. The valuation method used is based on the
premise that the only asset that the unbuilt start-up station would possess is the FCC broadcasting license. The valuation method
isolates the income attributable to a FCC broadcasting license by modeling a hypothetical greenfield build-up to a normalized
enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for as part of the build-up
process. Consequently, the resulting accretion in value is solely attributed to the FCC broadcasting license.
49
In the discounted cash flow projections, a period of ten years was determined to be an appropriate time horizon for the analysis.
The yearly streams of cash flows are adjusted to present value using an after-tax discount rate calculated for the broadcast industry as
of November 30 of each year. Additionally, it is necessary to project the terminal value at the end of the ten-year projection period.
The terminal value represents the hypothetical value of the licenses at the end of a ten-year period. An estimated amount of taxes are
deducted from the assumed terminal value, which accordingly is discounted to net present value.
The key assumptions incorporated in the discounted cash flow model are market revenue projections, market revenue share
projections, anticipated operating profit margins and risk adjusted discount rates. These assumptions vary based on the market size,
type of broadcast signal, media competition and audience share. These assumptions primarily reflect industry norms for similar
stations/broadcast signals, as well as historical performance and trends of the markets. In the preparation of the FCC broadcasting
license appraisals, estimates and assumptions are made that affect the valuation of the intangible asset. These estimates and
assumptions could differ from actual results and could have a material impact on our financial statements in the future.
The key assumptions for the respective markets are further described as follows:
Market Revenue Projections. Revenues are based on estimates of market revenues gathered from various third-party sources.
Total market revenues for 2016 were determined based on this data and market revenues were forecast over the 10-year projection
period to reflect the expected long-term growth rates for the broadcast industry and each market. Over the 10-year projection period,
revenue growth rates have been projected to return to growth rates equal to the expected long-term growth rate in each market. The
long-term growth rates have been estimated based on historical and expected performance in each market. In determining revenue
growth rates in each market, revenue growth forecasts from various industry analysts are reviewed and analyzed.
Market Revenue Share Projections. Market revenue share projections are based upon the most recent average adjusted
audience share for comparable stations operating in each market. This assumption is not specific to the performance of our stations
and is predicated on the expectation that a new entrant into the market could reasonably be expected to perform at a level similar to the
average competitor, assuming that competitor had similar technical facilities.
Anticipated Operating Profit Margins. Operating profits are defined as profit before interest, depreciation and amortization,
income tax, and corporate allocation charges. Operating profits are then divided by broadcast revenues, net of agency and
representative commissions, to compute the operating profit margin. Operating profit margins for each station are projected based
upon industry operating margin norms, which reflect market size and station type. In determining operating profit margins in each
market, third-party information is utilized. This assumption is not specific to the performance of our stations and is predicated on the
expectation that a new entrant into the market could reasonably be expected to perform at a level similar to a typical competitor.
Risk Adjusted Discount Rates. Discount rates of 9.5% for radio licenses and 11.5% for television licenses were used to
calculate the present value of the net after-tax cash flows. The discount rates are based on an after-tax rate determined using the
weighted average cost of capital model as of November 30, 2016. The discount rates are not specific to us or to the stations, but are
based upon the expected rates that would be used by a typical market participant, which include a risk premium.
These key assumptions are subject to such factors as: overall advertising demand, station listenership and viewership, audience
tastes, technology, fluctuation in preferred advertising media and the estimated cost of capital. Since a number of factors may
influence the determination of the fair value of our FCC broadcasting licenses, we are unable to predict whether impairments will
occur in the future. Any significant change in these factors will result in a modification of the key assumptions, which may result in an
impairment.
For example, changes in the discount rates will significantly impact our impairment testing. We note that a 100 basis point
increase in the discount rates would result in an impairment of $4.8 million.
The table below presents the percentage within which the fair values of our broadcasting licenses fall relative to their carrying
value as of November 30, 2016 for 9 units of accounting (i.e. markets).
Number of units of accounting
Carrying value (in thousands)
$
50
Percentage Range by which the Fair Value
Exceeds the Carrying Value for the
Units of Accounting as of November 30, 2016
Greater than
5% to 15%
2
115,169
0% to 5%
1 (a)
4,606
$
$
Greater than
15%
6
204,186
(a)
In addition to the hypothetical greenfield approach, we also considered additional market valuation approaches in assessing
whether any impairment may exist at the subject reporting unit. Based on consideration of these factors, during the year ended
December 31, 2016, we determined that there were no impairments for this subject reporting unit.
As a result of the annual fourth quarter 2016 impairment test of our broadcasting licenses, there was one unit of accounting
where the fair value was less than 5% of its carrying value as of November 30, 2016. In aggregate, this unit of accounting has a
carrying value of $4.6 million and represents 1% of our total assets.
In addition to conducting our annual impairment testing, at each interim reporting period we performed a qualitative assessment
for each unit of accounting for triggering events that could have indicated impairment to our FCC broadcasting licenses. In this
assessment, we considered the qualitative factors that are outlined in FASB ASC 350-30-35-18B, which include, but are not limited
to, the state of the economy, advertising demand, market conditions, broadcasting industry future growth rates, regulatory matters and
technology. During the year ended December 31, 2016, we determined that there were no impairments of our FCC broadcasting
licenses as tested for impairment as of November 30, 2016.
Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible net assets
acquired in business combinations. ASC 350 requires us to test goodwill for impairment at least annually at the reporting unit level in
lieu of being amortized. We have determined that we have two reporting units under ASC 350, Radio and Television. We currently
only have goodwill in our radio reporting unit. We have aggregated our operating components (radio stations) into a single radio
reporting unit based upon the similarity of their economic characteristics, including consideration of the requirements in
FASB ASC 280, Segment Reporting, as required by ASC 350. Our evaluation included consideration of factors such as regulatory
environment, business model, gross margins, nature of services and the process for delivering these services.
The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its
carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill
impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). If the fair
value of the reporting unit exceeds its carrying value, step two does not need to be performed. Under step two, an impairment loss is
recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The
implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price
allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the
reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value,
step two does not need to be performed.
During the years ended December 31, 2016 and 2015, we performed interim and/or annual impairment reviews of our goodwill
and determined that there was no impairment of goodwill. The estimated enterprise value of our radio reporting unit exceeded its
carrying value during our impairment testing. In addition, there is currently a net accumulated deficit in our radio reporting unit and
we have a net overall accumulated deficit; therefore we considered whether there were any adverse qualitative factors that would
indicate that an impairment existed. When evaluating our estimated enterprise value, we utilized an income approach which uses
assumptions and estimates which among others include the aggregated expected revenues and operating margins generated by our
FCC broadcasting licenses (i.e. our stations) and use of a risk adjusted discount rate. We did not find reconciliation to our current
market capitalization meaningful in the determination of our enterprise value given current factors that impact our market
capitalization, including but not limited to: (1) limited trading volume; (2) the impact of our television segment operating losses; and
(3) the significant voting control of our Chairman and CEO.
Accounting for Income Taxes
The preparation of our consolidated financial statements requires us to estimate our actual current tax exposure together with our
temporary differences resulting from differing treatment of items for financial statement and tax reporting purposes. These temporary
differences result in the recognition of deferred tax assets and liabilities, which are included in our consolidated balance sheets.
FASB ASC 740, Income Taxes, requires the establishment of a valuation allowance to reflect the likelihood of the realization of
deferred tax assets. Significant management judgment is required in determining our provision for income taxes, our deferred tax
assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We evaluate the weight of all available
evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized.
As a result of adopting FASB ASC Topic 350, Intangibles – Goodwill and Other, amortization of intangible assets and goodwill
ceased for financial statement purposes. As a result, we could not be assured that the reversals of the deferred tax liabilities relating to
those intangible assets and goodwill would occur within our net operating loss carry-forward period. Therefore, on the date of
adoption, we established a valuation allowance for substantially all of our deferred tax assets due to uncertainties surrounding our
51
ability to utilize some or all of our deferred tax assets, primarily consisting of net operating losses, as well as other temporary
differences between financial statement and tax reporting purposes. We expect to continue to reserve for any increase in our deferred
tax assets in the foreseeable future with the exception of certain deferred tax assets of a U.S. licensing entity and AMT credits in the
U.S., which can be used to offset the indefinite lived intangible DTLs in the U.S. If the realization of deferred tax assets in the future
is considered more likely than not, an adjustment to the deferred tax assets would increase net income in the period such determination
is made. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to
adjust our valuation allowance, which could materially affect our financial position and results of operations.
Valuation of Accounts Receivable
We review accounts receivable to determine which accounts are doubtful of collection. In making the determination of the
appropriate allowance for doubtful accounts, we consider our history of write-offs, relationships with our customers, age of the
invoices and the overall creditworthiness of our customers. Changes in the creditworthiness of customers, general economic
conditions and other factors may impact the level of future write-offs.
Revenue Recognition
We recognize broadcasting revenue as advertisements are aired on our stations, subject to meeting certain conditions such as
persuasive evidence that an agreement exists, a fixed and determinable price, and reasonable assurance of collection. Our revenue is
presented net of agency commissions. Agency commissions, where applicable, are calculated based on a stated percentage applied to
gross billing revenue. Advertisers remit the gross billing amount to the agency and the agency remits gross billings, less their
commission, to us when the advertisement is not placed directly by the advertiser. Payments received in advance of being earned are
recorded as customer advances.
Contingencies and Litigations
We are currently involved in certain legal proceedings and, as required, have accrued our estimate of the probable costs for the
resolution of these claims. These estimates have been developed in consultation with counsel and are based upon an analysis of
potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of
operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies
related to these proceedings.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are described in Note 2 to the accompanying financial statements.
Impact of Inflation
We believe that inflation has not had a material impact on our results of operations for each of the years ended December 31,
2016 and 2015, respectively. However, there can be no assurance that inflation will not have an adverse impact on our future operating
results and financial condition.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 8. Financial Statements and Supplementary Data
The information called for by this Item 8 is included in Item 15, under “Financial Statements” and “Financial Statement
Schedule” appearing at the end of this annual report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
52
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Control and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in our periodic reports or
filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required
time periods.. As of December 31, 2016, the end of the period covered by this annual report on Form 10-K, we carried out an
evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the
effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures were effective. We review our disclosure controls and procedures
on an ongoing basis and may, from time to time, make changes aimed at enhancing their effectiveness to ensure that they evolve with
our business.
Management’s Report on Internal Control over Financial Reporting
As members of management of the Company, we are responsible for establishing and maintaining adequate internal control over
the Company’s financial reporting. Internal control over financial reporting is a process designed by, and performed under the
supervision of, management and effected by our Board of Directors, management and other personnel. Our internal controls provide
management and the Board of Directors reasonable assurance that our financial reporting and preparation of financial statements for
external purposes are in accordance with generally accepted accounting principles. Internal control over financial reporting includes
those policies and procedures that pertain to the maintenance of records that (i) accurately and fairly reflect the transactions and
dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being
made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting, no matter how well designed, may not prevent or
detect misstatements and can only provide reasonable assurance with respect to financial statement preparation and presentation even
when those systems are determined to be effective. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that such controls may become inadequate because of changes in conditions. In addition, the degree of compliance with the
policies and procedures may deteriorate. These inherent limitations are an intrinsic part of the financial reporting process. Therefore,
although we are unable to eliminate this risk, it is possible to develop safeguards to reduce it. We are responsible for establishing and
maintaining adequate internal control over financial reporting for the Company.
Under the supervision of and with the participation of our management, we assessed the effectiveness of our internal control
over financial reporting, as of December 31, 2016 using the framework specified in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, we concluded
that our internal control over financial reporting was effective as of December 31, 2016.
Attestation Report of the Registered Public Accounting Firm
Not required for smaller reporting companies.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the fourth quarter of the year ended December 31,
2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
53
Item 10. Directors, Executive Officers and Corporate Governance
Information called for by Item 10 will be set forth in our Proxy Statement, which information is incorporated herein by this
PART III
reference.
Item 11. Executive Compensation
Information called for by Item 11 will be set forth in our Proxy Statement, which information is incorporated herein by this
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information called for by Item 12 will be set forth in our Proxy Statement, which information is incorporated herein by this
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information called for by Item 13 will be set forth in our Proxy Statement, which information is incorporated herein by this
reference.
Item 14. Principal Accountant Fees and Services
Information called for by Item 14 will be set forth in our Proxy Statement, which information is incorporated herein by this
reference.
54
Item 15. Exhibits and Financial Statement Schedules
1.
Financial Statements
PART IV
The following financial statements have been filed as required by Item 8 of this annual report on Form 10-K:
Report of Independent Registered Public Accounting Firm;
Consolidated Balance Sheets as of December 31, 2016 and 2015;
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2016 and 2015;
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2016 and 2015;
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015; and
Notes to Consolidated Financial Statements.
2.
Financial Statement Schedule
The following financial statement schedule has been filed as required by Item 8 of this annual report on Form 10-K:
Financial Statement Schedule – Valuation and Qualifying Accounts.
3.
Exhibits Required by Item 601 of Regulation S-K
The information required by this Item is set forth on the exhibit index that follows the signature page of this annual report on
Form 10-K.
55
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Spanish Broadcasting System, Inc. and Subsidiaries
Miami, Florida
We have audited the accompanying consolidated balance sheets of Spanish Broadcasting System, Inc. and Subsidiaries (the
“Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations and comprehensive loss,
changes in stockholders' deficit, and cash flows for the years then ended. In connection with our audits of the consolidated financial
statements, we have also audited the consolidated financial statement schedule listed in the accompanying index at Item 8. These
consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our audit
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial
reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Accordingly, we
express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Spanish Broadcasting System, Inc. and Subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their
cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related
consolidated financial statement schedule for the years ended December 31, 2016 and 2015, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 2 to the consolidated financial statements, in 2016 the Company adopted ASU No. 2014-15 Presentation of
Financial Statements – Going Concern. As also discussed in Note 2 to the consolidated financial statements, the 12.5% Senior
Secured Notes had a maturity date of April 15, 2017. Cash from operations or the sale of assets was not sufficient to repay the notes
and other short term obligations when they became due, which resulted in significant liquidity requirements on the Company that raise
substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/s/ Crowe Horwath LLP
Fort Lauderdale, Florida
April 19, 2017
56
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2016 and 2015
(In thousands, except share data)
Assets
December 31,
2016
December 31,
2015
$
23,835
$
19,443
Current assets:
Cash and cash equivalents
Receivables:
Trade
Barter
Less allowance for doubtful accounts
Net receivables
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
FCC broadcasting licenses
Goodwill
Other intangible assets, net of accumulated amortization of $1,116 in 2016 and $1,020 in 2015
Assets held for sale
Assets held for exchange
Deferred tax assets
Other assets
Total assets
Current liabilities:
Liabilities and Stockholders’ Deficit
Accounts payable and accrued expenses
Accrued interest
Unearned revenue
Other liabilities
12.5% senior secured notes due 2017, net of unamortized discount of $629 in
2016 and net of deferred financing costs of $1,138 in 2016
Current portion of other long-term debt
10 3/4% Series B cumulative exchangeable redeemable preferred stock outstanding and dividends
outstanding, $0.01 par value, liquidation value $1,000 per share. Authorized 280,000 shares: 90,549
shares issued and outstanding at December 31, 2016 and 2015 and $65,299 and $55,565 of
dividends payable as of December 31, 2016 and 2015, respectively.
Total current liabilities
Other liabilities, less current portion
Derivative instruments
12.5% senior secured notes due 2017, net of unamortized discount of $2,609 in 2015 and net of
deferred financing cost of $4,535 in 2015
Other long-term debt, less current portion
Deferred tax liabilities
Total liabilities
Commitments and contingencies (note 14 and 16)
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 December 31, 2016 and 2015, respectively
Class A common stock, $0.0001 par value. Authorized 100,000,000 shares; 4,166,991 shares
issued and outstanding at December 31, 2016 and 2015, respectively
Class B common stock, $0.0001 par value. Authorized 50,000,000 shares; 2,340,353 shares
issued and outstanding at December 31, 2016 and 2015, respectively
Additional paid-in capital
Accumulated other comprehensive loss, net
Accumulated deficit
Total stockholders’ deficit
Total liabilities and stockholders’ deficit
See accompanying notes to consolidated financial statements.
$
$
$
57
$
$
32,952
270
33,222
745
32,477
6,597
62,909
26,406
323,961
32,806
1,432
1,377
—
1,615
384
450,890
12,733
7,290
1,325
4
273,233
4,616
155,848
455,049
2,955
17
—
—
106,986
565,007
4
—
—
525,999
(102)
(640,018)
(114,117)
450,890
$
34,415
231
34,646
1,431
33,215
5,318
57,976
30,460
319,356
32,806
1,528
—
2,794
1,758
531
447,209
16,552
7,194
796
30
—
306
146,114
170,992
3,007
220
267,856
4,616
99,066
545,757
4
—
—
525,344
(220)
(623,676)
(98,548)
447,209
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
Years Ended December 31, 2016 and 2015
(In thousands, except per share data)
Net revenue
Operating expenses:
Engineering and programming
Selling, general and administrative
Corporate expenses
Depreciation and amortization
Total operating expenses
(Gain) loss on the disposal of assets
Impairment charges and restructuring costs
Operating income
Other (expense) income:
Interest expense
Dividends on Series B preferred stock classified as interest expense
Interest income
Loss before income taxes
Income tax expense
Net loss
Basic and Diluted net loss per common share
Weighted average common shares outstanding:
Basic and Diluted
Net loss
Other comprehensive income, net of taxes- unrealized gain on
derivative instrument
Total comprehensive loss
See accompanying notes to consolidated financial statements.
Year Ended
December 31,
2016
2015
$
144,619
$
146,899
31,112
56,106
10,588
4,692
102,498
(11)
(37)
42,169
(40,162)
(9,734)
13
(7,714)
8,628
(16,342)
(2.25)
7,267
(16,342)
118
(16,224)
$
$
$
$
30,761
66,574
10,462
4,802
112,599
(87)
536
33,851
(39,885)
(9,734)
38
(15,730)
11,225
(26,955)
(3.71)
7,267
(26,955)
188
(26,767)
$
$
$
$
58
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Deficit
Years Ended December 31, 2016 and 2015
(In thousands, except share data)
Balance at December 31, 2014
Stock-based compensation
Net loss
Unrealized gain on derivative
instrument
Balance at December 31, 2015
Stock-based compensation
Net loss
Unrealized gain on derivative
instrument
Balance at December 31, 2016
Series C
convertible
preferred stock
Class A
common stock
Class B
common stock
Number of
shares
380,000
—
—
Par value
$
Number of
shares
4 4,166,991
—
—
—
—
Par value
$
Number of
shares
— 2,340,353
—
—
—
—
Accumulated
other
comprehensive
loss, net
Par value
$
Additional
paid-in
capital
— $ 525,335 $
9
—
—
—
—
380,000
—
—
—
—
4 4,166,991
—
—
—
—
—
—
— 2,340,353
—
—
—
—
—
—
—
—
—
525,344
655
—
Accumulated
deficit
Total
stockholders’
deficit
(408) $ (596,721) $
—
(26,955)
—
—
188
(220)
—
—
—
(623,676)
—
(16,342)
(71,790)
9
(26,955)
188
(98,548)
655
(16,342)
—
$
380,000
—
4 4,166,991
—
$
—
— 2,340,353
—
$
—
—
— $ 525,999 $
118
—
(102) $ (640,018) $
118
(114,117)
See accompanying notes to consolidated financial statements.
59
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2016 and 2015
(In thousands)
Year Ended
December 31,
2016
2015
$
(16,342)
$
(26,955)
9,734
(11)
(37)
655
4,692
(482)
(51)
3,397
1,980
7,992
972
627
(1,078)
147
(3,454)
96
(40)
8,797
(2,202)
—
(1,897)
(4,099)
(306)
(306)
4,392
19,443
23,835
34,668
395
2,794
118
$
$
$
$
$
9,734
(87)
536
9
4,802
(385)
(343)
3,375
1,734
10,917
706
(7,783)
(1,064)
197
2,659
(8)
126
(1,830)
(2,472)
90
—
(2,382)
(336)
(336)
(4,548)
23,991
19,443
34,773
452
—
188
$
$
$
$
$
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Dividends on Series B preferred stock classified as interest expense
(Gain) on the disposal of assets
Impairment charges
Stock-based compensation
Depreciation and amortization
Net barter (income) loss
(Benefit) provision for trade doubtful accounts
Amortization of deferred financing costs
Amortization of original issued discount
Deferred income taxes
Unearned revenue-barter
Changes in operating assets and liabilities:
Trade receivables
Prepaid expenses and other current assets
Other assets
Accounts payable and accrued expenses
Accrued interest
Other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from the sale of property and equipment
Cash payment related to station exchange
Net cash used in investing activities
Cash flows from financing activities:
Payments of other long-term debt
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flows information:
Interest paid
Income tax paid, net
Noncash investing and financing activities:
Nonmonetary asset exchange
Unrealized gain on derivative instruments
See accompanying notes to consolidated financial statements.
60
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(1) Organization and Nature of Business
Spanish Broadcasting System, Inc., a Delaware corporation, and its subsidiaries owns 17 radio stations in the Los Angeles, New
York, Puerto Rico, Chicago, Miami and San Francisco markets. In addition, we own and operate six television stations, which operate
as one television operation, branded as “MegaTV.” We also have various MegaTV broadcasting outlets under affiliation or
programming agreements. As part of our operating business, we produce live concerts and events and maintain multiple bilingual
websites, including www.LaMusica.com, Mega.tv, various station websites, as well as the LaMusica mobile app providing content
related to Latin music, entertainment, news and culture.
Our primary source of revenue is the sale of advertising time on our stations to local and national advertisers. Our 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 due to
fluctuations in advertising expenditures by local and national advertisers. Typically for the broadcasting industry, the first calendar
quarter generally produces the lowest revenue.
The broadcasting industry is subject to extensive federal regulation which, among other things, requires approval by the Federal
Communications Commission (“FCC”) for the issuance, renewal, transfer and assignment of broadcasting station operating licenses
and limits the number of broadcasting properties we may acquire.
(2)
Summary of Significant Accounting Policies and Related Matters
(a) Basis of Presentation
The Company adopted FASB ASU No. 2014-15, Presentation of Financial Statements- Going Concern, during the first quarter
of 2016. This standard defines management’s responsibility to evaluate conditions or events as related to uncertainties that raise
substantial doubt about the Company’s ability to continue as a going concern and to provide related footnote disclosures, as
applicable. The consolidated financial statements include the accounts of Spanish Broadcasting System, Inc. and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in consolidation. In addition, we evaluated subsequent events
after the balance sheet date and through the financial statements issuance date.
Our consolidated financial statements have been prepared assuming we will continue as a going-concern, and do not include any
adjustments that might result if we were unable to do so, and contemplate the realization of assets and the satisfaction of liabilities in
the normal course of business. As of December 31, 2016 and 2015, we had a working capital deficit due primarily to the classification
of our 10¾ %Series B Cumulative Exchangeable Redeemable Preferred Stock (the “Series B preferred stock”) as a current liability
and the classification of our 12.5% Senior Secured Notes due 2017 (the “Notes”) as a current liability. Under Delaware law, our state
of incorporation, the Series B preferred stock is deemed equity. Because the holders of the Series B preferred stock are not creditors,
they do not have rights of, or remedies available to, creditors. Delaware law does not recognize a right of preferred stockholders to
force redemptions or repurchases where the corporation does not have funds legally available. Currently, we do not have sufficient
funds legally available to be able to redeem or repurchase the Series B preferred stock and its accumulated unpaid dividends. If we are
successful in repaying or refinancing our Notes, and are able to generate legally available funds under Delaware law, we may be
required to pay all or a portion of the accumulated preferred dividends and redeem all or a portion of the Series B preferred stock, to
extent of the funds legally available.
As discussed in Note 10, the Notes matured on April 15, 2017. Cash from operations or the sale of assets were not sufficient to
repay the Notes when they became due. We are working with a team of financial and legal advisors in evaluating all options available
to us in executing a comprehensive capitalization plan. These options, include, but are not limited to, selling certain non-core assets
(whose net proceeds would be used to repay a portion of outstanding Notes), new financings (including debt, equity-linked securities
and equity offerings), an exchange offer with the holders of our Notes (the “Noteholders”), with or without exit consents to amend the
terms of the indenture under which the Notes were issued (the “Indenture”), use of cash on hand and a combination of these options.
We have been pursuing the sale of certain non-core assets, including certain of our television stations and real estate assets. We
expect to use the net proceeds of these asset sales to repay a portion of the Notes and, thereby deleverage our balance sheet. In
connection with our recapitalization plan, we have initiated conversations with representatives of the Noteholders and the holders of
the Series B preferred stock regarding these matters. However, we cannot assure you that we will be successful in our recapitalization
61
efforts. We did not repay the Notes at their maturity, as a result of which there was an event of default under the Indenture on April
17, 2017 (April 17, 2017 being the payment date following the Saturday, April 15, 2017 maturity date). In addition, as of the date of
the filing of our annual report on Form 10-K for the year ended December 31, 2016, we are in default of the security agreement
covenant relating to deposit account control agreements and the related Indenture covenant regarding compliance with the security
agreement due to the Company initiated transfer of cash balances from controlled accounts to non-controlled accounts, and we are in
default under the Future Guarantors covenant of the Indenture (though we have delivered documentation to the Trustee to have the
subsidiary become an additional guarantor of the Notes). The Notes will continue to earn interest after the maturity date.
In the event we are unsuccessful in these efforts and one or more Noteholders seek to exercise remedies against us or our assets,
we may be required to seek protection under Chapter 11 of the Bankruptcy Code, among other things, in order to maximize the value
of our company for all of our constituents. While we believe that a Chapter 11 filing may create an avenue to successfully execute on
our strategy, such a filing may also have several negative consequences to our business, including the costs and negative publicity that
surrounds such a filing, reduced advertising revenue due to the uncertainty surrounding the filing, the potential need to sell assets
(including the equity of our subsidiaries that own our FCC licenses) under distressed circumstances and the risk that we are unable to
execute on a successful plan of reorganization.
The promissory note relating to the acquisition of the Miami studio building was paid on January 3, 2017
Management is responsible for evaluating whether there is substantial doubt about the organization’s ability to continue as a
going concern and to provide related footnote disclosures, in accordance with the going concern accounting standard adopted in 2016.
Our inability to obtain financing in adequate amounts and on acceptable terms necessary to operate our business, repay our Notes,
redeem or refinance our Series B preferred stock or finance future acquisitions negatively impacts our business, financial condition,
results of operations and cash flows and raises substantial doubt about our ability to continue as a going concern. The financial
statements do not include adjustments, if any, that might arise from the outcome of this uncertainty.
(b) Revenue Recognition
We recognize broadcasting revenue as advertisements are aired on our stations, subject to meeting certain conditions, such as
persuasive evidence that an agreement exists, a fixed or determinable price and reasonable assurance of collection. Our revenue is
presented net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross billing
revenue. Advertisers remit the gross billing amount to the agency, and then the agency remits gross billings less their commission to
us when the advertisement is not placed directly by the advertiser. Payments received in advance of being earned are recorded as
customer advances, which are included in accounts payable and accrued expenses.
(c)
Valuation of Accounts Receivable
We review accounts receivable to determine which accounts are doubtful of collection. In making the determination of the
appropriate allowance for doubtful accounts, we consider our history of write-offs, relationships with our customers, age of the
invoices and the overall creditworthiness of our customers. For each of the years ended December 31, 2016 and 2015, we generated
income from the recovery of previously recognized bad debt expense of $0.1 million and $0.3 million, respectively. Changes in the
credit worthiness of customers, general economic conditions and other factors may impact the level of future write-offs.
(d)
Property and Equipment
Property and equipment, including capital leases, are stated at historical cost, less accumulated depreciation and amortization.
We depreciate the cost of our property and equipment using the straight-line method over the respective estimated useful lives (see
note 8). Leasehold improvements are amortized on a straight-line basis over the shorter of the remaining life of the lease or the useful
life of the improvements.
Maintenance and repairs are charged to expense as incurred; improvements are capitalized. When items are retired or are
otherwise disposed of, the related costs and accumulated depreciation and amortization are removed from the accounts and any
resulting gains or losses are credited or charged to operating income.
(e)
Assets Held for Sale and for Exchange
Long lived assets or asset groups that have met the initial criteria to be classified as held for sale or exchange (disposal group)
and have not yet been sold are measured at the lower of their carrying amount or fair value less cost to sell. Long-lived asset classified
as held for sale or exchange shall not be depreciated (amortized) while classified as held for sale or exchange. Interest and other
expenses attributable to the liabilities of a disposal group classified as held for sale shall continue to be accrued.
62
(f)
Impairment or Disposal of Long-Lived Assets
Accounting for impairment or disposal of long-lived assets requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by
which the carrying amount of the asset exceeds the estimated fair value of the asset.
(g) FCC Broadcasting Licenses
Our indefinite-lived intangible assets consist of FCC broadcasting licenses. FCC broadcasting licenses are granted to stations for
up to eight years under the Telecommunications Act of 1996 (“the Act”). The Act requires the FCC to renew a broadcast license if:
(i) it finds that the station has served the public interest, convenience and necessity; (ii) there have been no serious violations of either
the Communications Act of 1934 or the FCC’s rules and regulations by the licensee; and (iii) there have been no other serious
violations, which taken together, constitute a pattern of abuse. We intend to renew our licenses indefinitely and evidence supports our
ability to do so. Historically, there has been no material challenge to our license renewals. In addition, the technology used in
broadcasting is not expected to be replaced by another technology any time in the foreseeable future. The weighted-average period
before the next renewal of our FCC broadcasting licenses is 3.9 years.
We do not amortize our FCC broadcasting licenses. We test these indefinite-lived intangible assets for impairment at least
annually or when an event occurs that may indicate that impairment may have occurred. We test our FCC broadcasting licenses for
impairment at the market cluster level. We apply the guidance of Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Topic 350-30-35, Unit of Accounting for Purposes of Testing for Impairment of Intangible Assets Not
Subject to Amortization , to certain of our FCC broadcasting licenses, if their market operations are consolidated.
During 2016, we initiated a change in accounting principle and changed the date of our annual impairment test for indefinite-
lived intangible assets from December 31 to November 30. The change from year-end to such earlier date was preferable to
Management to facilitate interactions with third party valuation specialists and in order to complete the year-end closing process in a
more timely fashion. Management has assessed that the change had no impact on the results of operations in 2016. Were this change
in date implemented during 2015, it would have had no impact on the results of the 2015 impairment analysis.
Our valuations principally use the discounted cash flow methodology. This income approach consists of a quantitative model,
which assumes the FCC broadcasting licenses are acquired and operated by a third-party. The valuation method used is based on the
premise that the only asset that the unbuilt start-up station would possess is the FCC broadcasting license. The valuation method
isolates the income attributable to a FCC broadcasting license by modeling a hypothetical greenfield build-up to a normalized
enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for as part of the build-up
process. Consequently, the resulting accretion in value is solely attributed to the FCC broadcasting license.
In the discounted cash flow projections, a period of ten years was determined to be an appropriate time horizon for the analysis.
The yearly streams of cash flows are adjusted to present value using an after-tax discount rate calculated for the broadcast industry as
of December 31 of each year. Additionally, it is necessary to project the terminal value at the end of the ten-year projection period.
The terminal value represents the hypothetical value of the licenses at the end of a ten-year period. An estimated amount of taxes are
deducted from the assumed terminal value, which accordingly is discounted to net present value.
The key assumptions incorporated in the discounted cash flow model are market revenue projections, market revenue share
projections, anticipated operating profit margins and risk adjusted discount rates. These assumptions vary based on the market size,
type of broadcast of signal, media competition and audience share. These assumptions primarily reflect industry norms for similar
stations/broadcast signals, as well as historical performance and trends of the markets. In the preparation of the FCC broadcasting
license appraisals, estimates and assumptions are made that affect the valuation of the intangible asset. These estimates and
assumptions could differ from actual results and could have a material impact on our consolidated financial statements in the future.
These key assumptions are subject to such factors as: overall advertising demand, station listenership and viewership, audience
tastes, technology, fluctuation in preferred advertising media and the estimated cost of capital. Since a number of factors may
influence the determination of the fair value of our FCC broadcasting licenses, we are unable to predict whether impairments will
occur in the future.
We also consider additional market valuation approaches in assessing whether any impairment may exist at reporting units.
63
Based on consideration of these factors, during the year ended December 31, 2016, we determined that there were no
impairments for this subject reporting unit. Any significant change in these factors will result in a modification of the key
assumptions, which may result in an additional impairment.
(h) Goodwill
Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible net assets
acquired in business combinations. We test goodwill for impairment at least annually at the reporting unit level. We have determined
that we have two reporting units, Radio and Television. We currently only have goodwill in our radio reporting unit. We have
aggregated our operating components (radio stations) into a single radio reporting unit based upon the similarity of their economic
characteristics. Our evaluation included consideration of factors, such as regulatory environment, business model, gross margins,
nature of services and the process for delivering these services.
The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its
carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill
impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). If the fair
value of the reporting unit exceeds its carrying value, step two does not need to be performed. Under step two, an impairment loss is
recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The
implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price
allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the
reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value,
step two does not need to be performed.
During the years-ended December 31, 2016 and 2015, we performed interim and/or annual impairment reviews of our goodwill
and determined that there was no impairment of goodwill. The estimated enterprise value of our radio reporting unit exceeded its
carrying value during our impairment testing. When evaluating our estimated enterprise value, we utilized an income approach which
uses assumptions and estimates which among others include the aggregated expected revenues and operating margins generated by
our FCC broadcasting licenses (i.e. our stations) and use of a risk adjusted discount rate. We did not find reconciliation to our current
market capitalization meaningful in the determination of our enterprise value given current factors that impact our market
capitalization, including but not limited to: limited trading volume; the impact of our television segment operating losses; and the
significant voting control of our Chairman and Chief Executive Officer.
During 2016, we initiated a change in accounting principle and changed the date of our annual goodwill impairment test from
December 31 to November 30. The change from year-end to such earlier date was preferable to Management to facilitate interactions
with third party valuation specialists and in order to complete the year-end closing process in a more timely fashion. Management has
assessed that the change had no impact on the results of operations in 2016. Were this change in date implemented during 2015, it
would have had no impact on the results of the 2015 impairment analysis.
(i)
Other Intangible Assets, Net
Other intangible assets, net, consist of favorable leases and agreements acquired. Gross other intangible assets total $2.5 million
as of December 31, 2016 and 2015, respectively. These assets are being amortized over the lives of the leases; however, not to exceed
40 years.
Amortization expense amounted to $0.1 million and $0.1 million for the years ended December 31, 2016 and 2015, respectively.
Estimated amortization expense for the five years subsequent to December 31, 2016 is as follows (in thousands):
Year ending December 31:
2017
2018
2019
2020
2021
$
96
96
96
96
96
(j)
Deferred Financing Costs
Deferred financing costs relates to our Notes (see note 10). Deferred financing costs are being amortized to interest expense over
the term of the related debt using the effective interest method. During the first quarter of 2016, we adopted an accounting standard
64
related to simplifying the presentation of debt issuance costs, which we have applied retrospectively. This new standard requires that
debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying
amount of that debt liability, consistent with debt discounts, and not recorded as separate assets. As a result of the adoption of this
accounting standard, we have reclassified $4.5 million, previously included under the non-current asset caption deferred financing
costs, net of accumulated amortization, to the non-current liability caption, 12.5% senior secured notes due 2017 as of December 31,
2015. In 2016, the deferred financing costs of $1.1 million were presented as a reduction to the current liability caption, 12.5% senior
secured notes due 2017, in accordance with the adopted standard.
(k) Barter Transactions
Barter transactions represent advertising time exchanged for noncash goods and/or services, such as promotional items,
advertising, supplies, equipment and services. Revenue from barter transactions are recognized as income when advertisements are
broadcasted. Expenses are recognized when goods or services are received or used. We record barter transactions at the fair value of
goods or services received or advertising surrendered, whichever is more readily determinable. Barter revenue amounted to
$7.4 million and $7.6 million for the years ended December 31, 2016 and 2015, respectively. Barter expense amounted to $6.9 million
and $7.2 million for the years ended December 31, 2016 and 2015, respectively.
Unearned revenue consists of the excess of the aggregate fair value of goods or services received by us, over the aggregate fair
value of advertising time delivered by us on certain barter customers.
(l)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market accounts at various commercial banks. All cash equivalents have
original maturities of 90 days or less.
(m)
Income Taxes
We file a consolidated federal income tax return for substantially all of our domestic operations. We are also subject to foreign
taxes on our Puerto Rico operations. We account for income taxes under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled and are respectively classified as noncurrent assets or noncurrent liabilities. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. If
the realization of deferred tax assets in the future is considered more likely than not, an adjustment to the deferred tax assets would
increase net income in the period such determination is made. Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets are deductible, at this time, management believes it is more likely
than not that we will not realize the benefits of the majority of these deductible differences. As a result, we have established and
maintained a valuation allowance for that portion of the deferred tax assets we believe will not be realized. We account for uncertain
tax positions which require that a position taken or expected to be taken in a tax return be recognized in the financial statements when
it is more likely than not (a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities. A
recognized tax position is then measured at the largest amount of benefit that is greater than 50% likely of being realized upon
ultimate settlement. Interest and penalties on tax liabilities, if any, would be recorded in interest expense and other noninterest
expense, respectively (see note 15).
(n) Advertising Costs
We incur advertising costs to add and maintain listeners. These costs are charged to expense in the period incurred. Cash
advertising costs amounted to $0.2 million and $0.9 million in the years ended December 31, 2016 and 2015, respectively.
65
(o) Contingent Liabilities
Accounting standards require that an estimated loss from a loss contingency shall be accrued when information available prior
to the issuance of the financial statements indicate that it is probable that an asset has been impaired or a liability has been incurred at
the date of the financial statements and when the amount of the loss can be reasonably estimated. Accounting for contingencies such
as legal and income tax matters requires us to use our judgment. We believe that our accruals for these matters are adequate.
(p) Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period. Significant items subject to such estimates and assumptions include the allowance for doubtful accounts, the
realization of deferred tax assets, the useful lives and future cash flows used for testing the recoverability of property and equipment,
the recoverability of FCC broadcasting licenses, goodwill and other intangible assets, the fair value of Level 2 and Level 3 financial
instruments, production tax credits, 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.
(q) Concentration of Business and Credit Risks
Financial instruments that potentially subject us to concentrations of risk include primarily cash, trade receivables and financial
instruments used in hedging activities (see notes 2(w) and 7). We place our cash with highly rated credit institutions. Although we try
to limit the amount of credit exposure with any one financial institution, we do in the normal course of business maintain cash
balances in excess of federally insured limits.
Our operations are conducted in several markets across the United States, including Puerto Rico. Our New York, Los Angeles,
and Miami markets accounted for more than 60% of net revenue for the years ended December 31, 2016 and 2015. Our credit risk is
spread across a large number of diverse customers in a number of different industries, thus spreading the trade credit risk. We do not
normally require collateral on credit sales; however, a credit analysis is performed before extending substantial credit to any customer
and occasionally we request payment in advance. We establish an allowance for doubtful accounts based on customers’ payment
history and perceived credit risks.
(r)
Basic and Diluted Net Loss Per Common Share
Basic net loss per common share was computed by dividing net loss available to common stockholders by the weighted average
number of shares of common stock and convertible preferred stock outstanding for each period presented. Diluted net loss per
common share is computed by giving effect to common stock equivalents as if they were outstanding for the entire period. The
following table summarizes the net loss applicable to common stockholders and the net loss per common share for the years ended
December 31, 2016 and 2015 (in thousands, except per share data):
Net loss
Basic and Diluted net loss per common stock
Weighted average common shares outstanding:
Basic and Diluted
2016
2015
$ (16,342) $ (26,955)
(3.71)
$
(2.25) $
7,267
7,267
66
The following is a reconciliation of the shares used in the computation of basic and diluted net loss per share for the years ended
December 31, 2016 and 2015 (in thousands, except per share data):
Basic weighted average shares outstanding
Effect of dilutive equity instruments
Dilutive weighted average shares outstanding
Options to purchase shares of common stock and other
stock-based awards outstanding which are not included
in the calculation of diluted net loss per share because
their impact is anti-dilutive
2016
2015
$
$
7,267 $
—
7,267 $
7,267
—
7,267
389
95
(s)
Fair Value Measurement
We determine the fair value of assets and liabilities using a fair value hierarchy that distinguishes between market participant
assumptions developed based on market data obtained from sources independent of the reporting entity, and the reporting entity’s own
assumptions about market participant assumptions developed based on the best information available in the circumstances.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, essentially an exit price (see note 18). The levels of the fair value hierarchy are:
Level 1: inputs are quoted prices, unadjusted, in active markets for identical assets or liabilities that the reporting entity has the
ability to access at the measurement date.
Level 2: inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly. A Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3: inputs are unobservable and reflect the reporting entity’s own assumptions about the assumptions that market
participants would use in pricing the asset or liability.
(t)
Share-Based Compensation Expense
We account for our share-based compensation expense based on the estimated grant date fair value method using the Black-
Scholes option pricing model. For these awards, we have recognized compensation expense using a straight-line amortization method
(prorated). Share-based compensation expense is based on awards that are ultimately expected to vest. Share-based compensation for
the years ended December 31, 2016 and 2015 were reduced for estimated forfeitures. When estimating forfeitures, we consider
voluntary termination behaviors, as well as trends of actual option forfeitures.
(u)
Leasing (Operating Leases)
We recognize rent expense for operating leases with periods of free rent (including construction periods), step rent provisions
and escalation clauses on a straight line basis over the applicable lease term. We consider lease renewals in the useful life of related
leasehold improvements when such renewals are reasonably assured. We take these provisions into account when calculating
minimum aggregate rental commitments under noncancelable operating leases (see note 14). From time to time, we receive capital
improvement funding from our lessors. These amounts are recorded as deferred liabilities and amortized over the remaining lease term
as a reduction of rent expense.
(v)
Segment Reporting
Accounting standards establish the way public business enterprises report information about operating segments in annual
financial statements and require those enterprises to report selected information about operating segments in interim financial reports
issued to stockholders. Operating segments are defined as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing
performance. We have two reportable segments: radio and television (see note 19).
67
(w) Derivative Instrument
We only enter into derivative contracts to hedge against the potential impact of increases in interest rates on our debt
instruments. We also only enter into derivative contracts that we intend to designate as a hedge of the variability of cash flows to be
paid related to a recognized asset or liability (cash flow hedge).
By using derivative financial instruments to hedge exposures to changes in interest rates, we expose ourselves to credit risk and
market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. We attempt to minimize
the credit risk in derivative instruments by entering into transactions with high-quality counterparties whose credit rating is higher than
Aa.
Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market
risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of
market risk that may be undertaken.
For all hedging relationships, we formally document the hedging relationship and its risk-management objective and strategy for
undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s
effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of
measuring ineffectiveness. We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting cash flows of hedged items.
We are accounting for our interest rate swap as cash flow hedge, which requires us to recognize our derivative instrument on the
consolidated balance sheet at fair value. The related gain or loss on this instrument is deferred in stockholders’ deficit as a component
of accumulated other comprehensive (loss) income. The deferred gain or loss on this transaction is recognized in income in the period
in which the related item is being hedged and recognized in expense. However, to the extent that the change in value of the derivative
contracts does not offset the change in the value of the underlying transaction being hedged, that ineffective portion is immediately
recognized into income. We recognize gains and losses immediately when the underlying transaction settles. For cash flow hedges in
which hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective cash flow
hedge, we continue to carry the derivative instrument at its fair value on the consolidated balance sheet and recognize any subsequent
changes in its fair value in earnings (change in fair value of derivative instrument). The interest rate swap expired in January 2017,
subsequent to year end.
(x) Comprehensive Loss
Our comprehensive loss consists of net loss and other items recorded directly to the equity accounts. The objective is to report a
measure of all changes in equity of an enterprise that result from transactions and other economic events during the period. Our
comprehensive loss consists of net loss and gains (losses) on our derivative instrument that qualifies for cash flow hedge treatment.
(y)
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments
- Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September
22, 2016 and November 17, 2016 EITF Meetings. This new standard adds and amends SEC paragraphs pursuant to the SEC Staff
Announcements which include the disclosure requirement of the impact that recently issued accounting standards will have on the
financial statements when such standards are adopted in a future period. This update is effective immediately and its adoption will not
have a material impact on our financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805). This new standard clarifies the
definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be
accounted for as acquisitions (or disposals) of assets or businesses. This update is effective prospectively for annual periods beginning
after December 15, 2017, and interim periods within those fiscal years. Upon adoption, we will evaluate the accounting implications
for any acquisitions we may enter into.
In October 2016, the FASB issued ASU No. 2016-16, —Income Taxes (Topic 740). This new standard improves the accounting
for the income tax consequences of intra-entity transfers of assets other than inventory. The update is effective retrospectively for
annual periods beginning after December 15, 2017 and in interim periods in that reporting period, with early adoption permitted. The
Company is currently evaluating the effect the update will have on its financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statements of Cash Flows (Topic 230). This new standard’s objective is to
clarify how companies present and classify certain cash receipts and cash payments in the statement of cash flows. In November 2016,
the FASB issued ASU 2016-18, Statements of Cash Flows (Topic 230) which requires that a statement of cash flows explain the
68
change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash
equivalents. This update is effective on a retrospective basis for annual and interim periods beginning after December 15, 2017 with
early adoption permitted. We are currently evaluating the impact, if any, that these new standards will have on our consolidated
financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718). This new standard’s
objective is to simplify certain aspects of the accounting for share-based payment award transactions, including (i) income tax
consequences, (ii) classification of awards as either equity or liabilities, and (iii) classification on the statement of cash flows. This
update is effective on a prospective, retrospective, and modified retrospective basis for annual and interim periods beginning after
December 15, 2016 with early adoption permitted. The Company adopted this accounting standard update, effective January 1, 2017,
and determined that there would not be a material impact on our consolidated financial statements as the Company does not have any
off balance sheet NOLs to recognize upon adoption and continues to maintain a full valuation allowance against the deferred tax assets.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This new standard requires organizations that lease
assets to recognize on the balance sheet the lease assets and lease liabilities for the rights and obligations created by those leases and
disclose key information about the leasing agreements. Leases will be classified as either finance or operating, with classification
affecting the pattern of expense recognition in the income statement. The new guidance is effective for financial statements issued for
fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted as of the
beginning of an interim or annual reporting period and must be adopted using a modified retrospective approach for leases that exist or
are entered into after the beginning of the earliest comparative period in the financial statements. We are currently evaluating the
impact that this new standard will have on our financial position and related disclosures and expect the impact on our assets and
liabilities will be material due to the addition of right-of-use assets and lease liabilities; however the impact cannot currently be
quantified.
In January 2016, the FASB issued ASU No. 2016-01, Accounting for Financial Instruments – Recognition and Measurement.
The new guidance changes how entities measure equity investments and present changes in the fair value of financial liabilities. The
new guidance requires entities to measure equity investments that do not result in consolidation and are not accounted under the equity
method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality
exception. A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do
not qualify for the practical expedient to estimate fair value and as such these investments may be measured at cost. The new
guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are
currently evaluating the impact, if any; however, we do not expect this update to have a material impact on our financial position and
results of operations.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This new standard
provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will
supersede virtually all of the current revenue recognition guidance under U.S. GAAP. In July 2015, the FASB postponed the effective
date of this standard. The standard is now effective for the first interim period within annual reporting periods beginning after
December 15, 2017. In May 2016, the FASB issued accounting standards updates to address implementation issues and to clarify the
guidance for identifying performance obligations, licenses, and determining if a company is the principal or agent in a revenue
arrangement. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, which is
intended to make minor corrections and to improve and clarify the implementation guidance of Topic 606. The Company currently
expects to adopt the new revenue standard in its first quarter of 2018 and continues to evaluate the method of adoption and the impact
of the provisions on our financial position and results of operations, if any. The company has since implemented an evaluation tool to
assist it in clearly determining the risks, materiality and complexities associated with its multiple revenue streams. Based on the
Company’s on-going review, we continue to not expect this update to have a material impact on our financial position or results of
operations; however, our initial assessment is subject to change.
(3) Related Party Transaction – CEO Waiver of Performance Bonus
Pursuant to his Employment Agreement, our Chief Executive Officer (CEO) was entitled to receive a bonus for 2016 if the
Company met certain performance metrics for the year. Based on the Company’s performance, our CEO would have been entitled to
receive a bonus in the amount of $750,000 for 2016 which was recorded as part of our corporate expenses. Our CEO decided to waive
his right to receive the bonus during the fourth quarter of 2016 and notified the Compensation Committee of such decision. The
Compensation Committee accepted our CEO’s waiver and the Company recognized a gain on forgiveness of related party liability of
$750,000 which was recorded as a benefit to corporate expenses.
69
(4) Asset Held for Sale
During 2016, the Company entered into listing agreements with brokers to sell two buildings and related improvements in New
York City and Los Angeles. The two properties have been reclassified from land, building and building improvements, as well as
furniture and fixtures to assets held for sale as these assets were approved for immediate sale in their present condition, are expected to
be sold within one year and management is actively working to locate buyers for these buildings and related improvements . As of
December 31, 2016, the land, buildings and related improvements had a net book value of $1.4 million.
(5) Asset Exchange
On January 4, 2016, the Company completed an asset exchange with International Broadcasting Corp. under which the
Company agreed to exchange certain assets used or useful in the operations of WIOA-FM, WIOC-FM, and WZET-FM in Puerto Rico
for certain assets used or useful in the operations of WTCV (DT), WVEO (DT), and WVOZ (TV) in Puerto Rico previously owned
and operated by International Broadcasting Corp.
The asset exchange was accounted for as a non-monetary exchange in accordance with ASC-845 Nonmonetary Transactions, as
the Company did not acquire any significant processes to meet the definition of a business in accordance with ASC 805 Business
Combinations. As the transaction involved significant monetary consideration, the Company recorded the exchange at fair value. The
fair value of the assets received in the asset exchange was $2.9 million, as determined by an independent third party valuation. In
addition, the Company paid $1.9 million in cash which we attribute to the value of the acquired television spectrum. Subsequently,
we filed an application to participate and participated in the FCC’s Broadcast Television Spectrum Auction (the “Broadcast Incentive
Auction”) with our Puerto Rico television stations to potentially generate cash proceeds. As a result of the fair value assessment of the
assets exchanged, the difference in exchanged fair values of $1.8 million was deemed attributable to the acquired television spectrum
and was recorded on the balance sheet under FCC broadcasting licenses. Based on the results of the Broadcast Incentive Auction we
expect to realize the value of the acquired television spectrum. See our Annual Report on Form 10-K under the caption “Recent
Developments—FCC Broadcast Incentive Auction” for additional detail regarding the results of the Broadcast Incentive Auction.
The assets of WIOA-FM, WIOC-FM, and WZET-FM were classified as held for exchange at the carrying amount of the assets
as of December 31, 2015 and were subsequently exchanged in 2016.
A summary of assets held for exchange as of December 31, 2015 is as follows (in thousands):
Property and equipment, net
FCC broadcasting licenses
Assets held for exchange
$
$
19
2,775
2,794
(6)
Impairment Charges and Restructuring Costs
During the years 2016 and 2015, we incurred impairment charges and restructuring costs of less than $(0.1) million and $0.5
million, respectively. In 2015, we recorded a non-cash impairment loss of approximately $0.9 million that reduced the carrying
amount of the San Francisco market FCC broadcasting license, while in 2016 we reversed the remaining portion, of less than $0.1
million, of the impairment charges and restructuring costs accrual related to the abandonment of previously leased office space and
losses.
(7) Derivative and Hedging Activity
At December 31, 2016 and 2015, our derivative financial instrument comprised of the following (in thousands):
Agreement
Interest rate swap
Fixed
interest rate
Expiration
date
2016
Notional
amounts
2015
Notional
amounts
2016
Fair value
6.31%
January 2017 $
4,616 $
4,922
17
2015
Fair value
220
On January 4, 2007, we entered into a ten-year interest rate swap agreement for the original notional principal amount of
$7.7 million whereby we will pay a fixed interest rate of 6.31%, as compared to interest at a floating rate equal to one-month LIBOR
plus 125 basis points. The interest rate swap amortization schedule is identical to the promissory note amortization schedule, which
has an effective date of January 4, 2007, monthly notional reductions and an expiration date of January 4, 2017 (see note 11).
70
For each of the years ended December 31, 2016 and 2015, we reclassified from other comprehensive income to interest expense
$0.2 and $0.3 million, respectively. During the years ended December 31, 2016 and 2015, we recognized in other comprehensive
income (loss), net of taxes- an unrealized gain on derivative instrument of $0.2 million.
(8)
Property and Equipment, Net
Property and equipment, net consists of the following at December 31, 2016 and 2015 (in thousands):
Land
Building and building improvements
Tower and antenna systems
Studio and technical equipment
Furniture and fixtures
Transmitter equipment
Leasehold improvements
Computer equipment and software
Other
Less accumulated depreciation
2016
2015
6,456 $
22,161
5,986
25,416
4,819
9,108
2,781
9,362
2,052
88,141
(61,735)
26,406 $
7,306
36,721
5,978
24,938
4,946
9,062
2,772
8,382
1,945
102,050
(71,590)
30,460
$
$
Estimated
useful lives
—
7–20 years
10 years
5–10 years
5–10 years
10 years
1–20 years
3–5 years
3–5 years
During the years ended December 31, 2016 and 2015, depreciation of property and equipment totaled $4.6 and $4.7 million,
respectively.
(9) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at December 31, 2016 and 2015 consist of the following (in thousands):
Accounts payable – trade
Accrued compensation and commissions
Accrued professional fees
Accrued step-up leases
Accrued income taxes
Other accrued expenses
2016
2015
1,774 $
5,962
1,038
284
97
3,578
12,733 $
2,779
7,899
1,622
213
—
4,039
16,552
$
$
(10) 12.5% Senior Secured Notes Due 2017
On February 7, 2012 we closed our offering of $275 million in aggregate principal amount of our Notes, at an issue price of
97% of the principal amount. The Notes were offered solely by means of a private placement either to qualified institutional buyers in
the United States pursuant to Rule 144A under the Securities Act, or to certain persons outside the United States pursuant to
Regulation S under the Securities Act. We used the net proceeds from the offering, together with some cash on hand, to repay and
terminate the senior credit facility term loan, and to pay the transaction costs related to the offering. The Notes matured on April 15,
2017. Because we did not have sufficient cash on hand and did not generate sufficient cash from operations or asset sales, we did not
repay the Notes at their maturity, as a result of which there was an event of default under the Indenture on April 17, 2017 (being the
payment date following the Saturday, April 15, 2017 maturity date). See note 2 elsewhere in these financial statements for additional
detail regarding our recapitalization efforts and our failure to repay the Notes at maturity.
(a)
Interest
The Notes accrue interest at a rate of 12.5% per year. Interest on the Notes is paid semi-annually on each April 15 and October
15, commencing on April 15, 2012. After April 15, 2013, interest will accrue at a rate of 12.5% per annum on (i) the original amount
of the Notes plus (ii) any Additional Interest (as defined below) payable but unpaid in any prior interest period, payable in cash on
71
each interest payment date. Further, beginning on the interest payment date occurring on April 15, 2013, additional interest will be
payable at a rate of 2.00% per annum (the “Additional Interest”) on (i) the original principal amount of the Notes plus (ii) any amount
of Additional Interest payable but unpaid in any prior interest period, to be paid in cash, at our election, (x) on the applicable interest
payment date or (y) on the earliest of the maturity date of the Notes, any acceleration of the Notes and any redemption of the Notes;
provided that no Additional Interest will be payable on any interest payment date if, for the applicable fiscal period, either (a) we
record positive consolidated station operating income for our television segment or (b) our secured leverage ratio on a consolidated
basis is less than 4.75 to 1.00.
The Additional Interest applicable fiscal periods were as follows:
Six-months ended December 31, 2012 or as of December 31, 2012
Last twelve months ended June 30, 2013 or as of June 30, 2013
Last twelve months ended December 31, 2013 or as of December 31, 2013
Last twelve months ended June 30, 2014 or as of June 30, 2014
Last twelve months ended December 31, 2014 or as of December 31, 2014
Last twelve months ended June 30, 2015 or as of June 30, 2015
Last twelve months ended December 31, 2015 or as of December 31, 2015
Last twelve months ended June 30, 2016 or as of June 30, 2016
Last twelve months ended December 31, 2016 or as of December 31, 2016
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Although for the Additional Interest applicable periods (1), (2), (3), (4), (5), (6), (7), (8) and (9) our secured leverage ratio was
greater than 4.75 to 1.00, we recorded positive consolidated station operating income for our television segment for those respective
periods (as defined in the Indenture). The final applicable period ended December 31, 2016 and the Company did not incur any
Additional Interest.
(b) Collateral and Ranking
The Notes and the guarantees are secured on a first-priority basis by a security interest in certain of the Company’s and the
guarantors’ existing and future tangible and intangible assets (other than Excluded Assets (as defined in the Indenture)), which
constitutes substantially all of the Company’s assets. The Notes and the guarantees are structurally subordinated to the obligations of
our non-guarantor subsidiaries. The Notes and guarantees are senior to all of the Company’s and the guarantors’ existing and future
unsecured indebtedness to the extent of the value of the collateral.
The Indenture permits us, under specified circumstances, to incur additional debt; however, the occurrence and continuance of
the Voting Rights Triggering Event (as defined in note 12 to the audited consolidated financial statements) currently prevents us from
incurring any such additional debt.
The Notes are senior secured obligations of the Company that rank equally with all of our existing and future senior
indebtedness and senior to all of our existing and future subordinated indebtedness. Subject to certain exceptions, the Notes are fully
and unconditionally guaranteed by each of our existing wholly owned domestic subsidiaries (which excludes (i) our existing and
future subsidiaries formed in Puerto Rico (the “Puerto Rican Subsidiaries”), (ii) our future subsidiaries formed under the laws of
foreign jurisdictions and (iii) our existing and future subsidiaries, whether domestic or foreign, of the Puerto Rican Subsidiaries or
foreign subsidiaries) and our other domestic subsidiaries that guarantee certain of our other debt. The Notes and guarantees are
structurally subordinated to all existing and future liabilities (including trade payables) of our nonguarantor subsidiaries.
(c)
Covenants and Other Matters
The Indenture governing the Notes contains covenants that, among other things, limit our ability and the ability of the
guarantors to:
incur or guarantee additional indebtedness;
pay dividends and make other restricted payments;
incur restrictions on the payment of dividends or other distributions from our restricted subsidiaries;
72
engage in sale-lease back transactions;
enter into new lines of business;
make certain payments to holders of Notes that consent to amendments to the Indenture governing the Notes without
paying such amounts to all holders of Notes;
create or incur certain liens;
make certain investments and acquisitions;
transfer or sell assets;
engage in transactions with affiliates; and
merge or consolidate with other companies or transfer all or substantially all of our assets.
The Indenture contains certain customary representations and warranties, affirmative covenants and events of default which
could, subject to certain conditions, cause the Notes to become immediately due and payable, including, but not limited to, the failure
to make premium, principal or interest payments; failure by us to accept and pay for Notes tendered when and as required by the
change of control and asset sale provisions of the Indenture; failure to comply with certain covenants in the Indenture; failure to
comply with certain agreements in the Indenture for a period of 60 days following notice by the Trustee or the holders of not less than
25% in aggregate principal amount of the Notes then outstanding; failure to pay any debt within any applicable grace period after the
final maturity or acceleration of such debt by the holders thereof because of a default, if the total amount of such debt unpaid or
accelerated exceeds $15 million; failure to pay final judgments entered by a court or courts of competent jurisdiction aggregating
$15 million or more (excluding amounts covered by insurance), which judgments are not paid, discharged or stayed, for a period of 60
days; and certain events of bankruptcy or insolvency.
As of December 31, 2016 and 2015, we were in compliance with all of our financial covenants under our Indenture. As of the
date of the filing of our annual report on Form 10-K, we are in default of the covenant to repay the Notes at their maturity (which
constitutes an event of default of the Indenture as we describe elsewhere), and we are in default of the security agreement covenant
relating to deposit account control agreements and the related Indenture covenant regarding compliance with the security agreement
due to the Company initiated transfer of cash balances from controlled accounts to non-controlled accounts. In addition, one of our
subsidiaries had not become a guarantor when formed in 2013 as required by the Future Guarantor covenant of the Indenture and
therefore we were in default of the indenture from the formation of the subsidiary until we subsequently submitted documentation to
the Trustee to have the subsidiary become an additional guarantor in April 2017. The Notes will continue to earn interest after the
maturity date.
(11) Other Long-Term Debt
Other long-term debt consists of the following at December 31, 2016 and 2015 (in thousands):
Promissory note payable, due in monthly principal installments
of $26, plus interest at 6.31%, commencing January 2007,
with balance due on January 2017
Less current portion
2016
2015
4,616
(4,616)
$
— $
4,922
(306)
4,616
On January 4, 2007, SBS, through its wholly owned subsidiary, SBS Miami Broadcast Center, Inc. (“SBS Miami Broadcast
Center”), completed the acquisition of certain real property located in Miami-Dade County, Florida pursuant to the purchase and sale
agreement, dated August 24, 2006, as amended on September 25, 2006, as further amended on October 25, 2006. In connection with
the acquisition of the real property, on January 4, 2007, SBS Miami Broadcast Center, entered into a loan agreement (the “Loan
Agreement”), a ten-year promissory note in the original principal amount of $7.7 million (the “Promissory Note”), and a Mortgage,
Assignment of Rents and Security Agreement (the “Mortgage”) in favor of Wells Fargo (formerly Wachovia Bank). The Promissory
Note carried an interest rate equal to one-month LIBOR plus 125 basis points and required monthly principal payments of
$0.03 million with any unpaid balance due on its maturity date of January 4, 2017. The Promissory Note was secured by the real
property and any related collateral. The Promissory Note was repaid on January 3, 2017.
Additionally, on January 4, 2007, SBS Miami Broadcast Center entered into an interest rate swap arrangement (the “Swap
Agreement”) for the original notional principal amount of $7.7 million whereby it paid a fixed interest rate of 6.31% as compared to
73
interest at a floating rate equal to one-month LIBOR plus 125 basis points on the Promissory Note. The interest rate swap amortization
schedule was identical to the Promissory Note amortization schedule and expired on January 4, 2017.
(12) 10 3/4% Series A and B Cumulative Exchangeable Redeemable Preferred Stock
On October 30, 2003, we partially financed the purchase of a radio station with proceeds from the sale, through a private
placement, of 75,000 shares of our 10 3/4% Series A cumulative exchangeable redeemable preferred stock, par value $0.01 per share,
with a liquidation preference of $1,000 per share (the “Series A preferred stock”), without a specified maturity date. The gross
proceeds from the issuance of the Series A preferred stock amounted to $75.0 million.
On February 18, 2004, we commenced an offer to exchange registered shares of our 10 3/4% Series B cumulative exchangeable
redeemable preferred stock, par value $0.01 per share and liquidation preference of $1,000 per share for any and all shares of our
outstanding unregistered Series A preferred stock. On April 5, 2004, we completed the exchange offer and exchanged 76,702 shares of
our Series B preferred stock for all of our then outstanding shares of Series A preferred stock.
Holders of the Series B preferred stock have customary protective provisions. The Certificate of Designations contains
covenants that, among other things, limit our ability to: (i) pay dividends, purchase junior securities and make restricted investments
other restricted payments; (ii) incur indebtedness, including refinancing indebtedness; (iii) merge or consolidate with other companies
or transfer all or substantially all of our assets; and (iv) engage in transactions with affiliates. Upon a change of control, we will be
required to make an offer to purchase these shares at a price of 101% of the aggregate liquidation preference of these shares plus
accumulated and unpaid dividends to, but excluding the purchase date.
We had the option to redeem all or some of the registered Series B preferred stock for cash on or after October 15, 2009 at
103.583%, October 15, 2010 at 101.792% and October 15, 2011 and thereafter at 100%, plus accumulated and unpaid dividends to the
redemption date. On October 15, 2013, each holder of Series B preferred stock had the right to request that we repurchase (subject to
the legal availability of funds under Delaware General Corporate Law) all or a portion of such holder’s shares of Series B preferred
stock at a purchase price equal to 100% of the liquidation preference of such shares, plus all accumulated and unpaid dividends (as
described in more detail below) on those shares to the date of repurchase. Under the terms of our Series B preferred stock, we are
required to pay dividends at a rate of 10 3/4% per year of the $1,000 liquidation preference per share of Series B preferred stock. From
October 30, 2003 to October 15, 2008, we had the option to pay these dividends in either cash or additional shares of Series B
preferred stock. During October 15, 2003 to October 30, 2008, we increased the carrying amount of the Series B preferred stock by
approximately $17.3 million for stock dividends, which were accreted using the effective interest method. Since October 15, 2008, we
have been required to pay the dividends on our Series B preferred stock in cash.
On October 15, 2013, holders of shares of our Series B preferred stock requested that we repurchase 92,223 shares of Series B
preferred stock for an aggregate repurchase price of $126.9 million, which included accumulated and unpaid dividends on these shares
as of October 15, 2013. We did not have sufficient funds legally available to repurchase all of the Series B preferred stock for which
we received requests and instead used the limited funds legally available to us to repurchase 1,800 shares for a purchase price of
approximately $2.5 million, which included accrued and unpaid dividends. Consequently, a “Voting Rights Triggering Event”
occurred (the “Voting Rights Triggering Event”).
During the continuation of a Voting Rights Triggering Event, certain of the covenants summarized above become more
restrictive by their terms including (i) a prohibition on our ability to incur additional indebtedness, (ii) restrictions on our ability to
make restricted payments and (iii) restrictions on our ability to merge or consolidate with other companies or transfer all or
substantially all of our assets. In addition, the holders of the Series B preferred stock have the right to elect two members to our Board
of Directors. At our Annual Meeting of Stockholders in 2014, the holders of the Series B preferred stock nominated and elected Alan
Miller and Gary Stone to serve as the Series B preferred stock directors who have remained on the board since then.
The Voting Rights Triggering Event shall continue until (i) all dividends in arrears shall have been paid in full and (ii) all other
failures, breaches or defaults giving rise to such Voting Rights Triggering Event are remedied or waived by the holders of at least a
majority of the shares of the then outstanding Series B preferred stock. The terms of our Series B preferred stock require us, in the
event of a change of control, to offer to repurchase all or a portion of a holder’s shares at an offer price in cash equal to 101% of the
liquidation preference of the shares, plus an amount in cash equal to all accumulated and unpaid dividends on those shares up to but
excluding the date of repurchase. We do not currently have sufficient funds legally available to be able to satisfy the conditions for
terminating the Voting Rights Triggering Event or for repurchasing the shares in the event of a change of control. During the
continuation of the Voting Rights Triggering Event, the Indenture governing our Notes prohibits us from paying dividends or from
repurchasing the Series B preferred stock.
74
Quarterly Dividends
Under the terms of our Series B preferred stock, the holders of the outstanding shares of the Series B preferred stock are entitled
to receive, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor, dividends on the
Series B preferred stock at a rate of 10 3/4% per year, of the $1,000 liquidation preference per share. All dividends are cumulative,
whether or not earned or declared, and are payable quarterly in arrears on specified dividend payment dates. While the Voting Rights
Triggering Event continues, we cannot pay dividends on the Series B preferred stock without causing a breach of covenants under the
Indenture governing our Notes.
As of December 31, 2016, the aggregate cumulative unpaid dividends on the outstanding shares of the Series B preferred stock
was approximately $65.3 million, which is accrued on our consolidated balance sheet as 10 ¾% Series B cumulative exchangeable
redeemable preferred stock.
Accounting Treatment of the Preferred Stock
In accordance with ASC 480, the Series B preferred stock was re-measured subsequently from the initial measurement date as
the amount of cash that would be paid under the conditions specified in the contract, as if the settlement occurred at December 31,
2013, because the final settlement amount to be paid on the Series B preferred stock was uncertain due to its continual accruing
quarterly dividends and its uncertain settlement date. The resulting change in that amount from the previous reporting date (i.e. initial
measurement date) was recognized as interest expense. Therefore, we recorded an $87.6 million adjustment to increase the Series B
preferred stock liability to the contract settlement value as of December 31, 2013.
Going forward, the Series B preferred stock will be measured at subsequent reporting dates at the amount of cash that would be
paid under the conditions specified in the contract, as if the settlement occurred at the reporting date, recognizing the resulting change
in that amount from the previous reporting date as interest expense. Therefore, the 10 ¾% accruing quarterly dividends will be
recorded as interest expense (i.e. “Dividends on Series B preferred stock classified as interest expense”) as required by ASC 480.
During the years 2016 and 2015, we recorded $9.7 million as dividends on Series B preferred stock classified as interest expense.
(13) Stockholders’ Equity
(a)
Series C Convertible Preferred Stock
On December 23, 2004, in connection with the closing of the merger agreement, dated October 5, 2004, with CBS Radio
(formerly known as Infinity Media Corporation, CBS Radio), a division of CBS Corporation, Infinity Broadcasting Corporation of
San Francisco (“Infinity SF”) and SBS Bay Area, LLC, a wholly owned subsidiary of SBS, pursuant to which SBS acquired the FCC
license of Infinity SF (the “CBS Radio Merger”), we issued to CBS Radio an aggregate of 380,000 shares of Series C convertible
preferred stock, $0.01 par value per share (the “Series C preferred stock”). Each share of Series C preferred Stock is convertible at the
option of the holder into two fully paid and non-assessable shares of the Class A common stock. The shares of Series C preferred
stock issued at the closing of the CBS Radio Merger are convertible into 760,000 shares of Class A common stock, subject to certain
adjustments. In connection with the CBS Radio Merger, we also entered into a registration rights agreement with CBS Radio, pursuant
to which CBS Radio may instruct us to file up to three registration statements, on a best efforts basis, with the SEC, providing for the
registration for resale of the Class A common stock issuable upon conversion of the Series C preferred stock.
In connection with the issuance of the Series C preferred stock, we entered into a Stockholder Agreement, dated October 5,
2004, with CBS Radio and Mr. Alarcón. Pursuant to the terms of the Stockholder Agreement, CBS Radio was given a right of first
negotiation with respect to any radio station that we control in the New York and Miami markets after the date of such agreement. The
negotiation right is required to stay open for a period of ten (10) business days. In addition, CBS Radio was also given a right to match
any offer received by us with respect to any Miami radio station. Such matching right expired one year after the date of the
Stockholder Agreement.
We are required to pay holders of Series C preferred stock dividends on parity with our Class A common stock and Class B
common stock, and each other class or series of our capital stock created after December 23, 2004. The Series C preferred stock
holders have the same voting rights and powers as our Class A common stock on an as-converted basis, subject to certain adjustments.
The Certificate of Designations for the Series C preferred stock does not contain a voting rights triggering event provision like the one
found in the Certificate of Designations for the Series B preferred stock. Each holder of Series C preferred stock (i) has preemptive
rights to purchase its pro rata share of any equity securities we may offer, subject to certain conditions, and (ii) may, at their option,
convert each share of Series C preferred stock into two (2) shares of Class A common stock, subject to certain adjustments.
75
The terms of the Certificate of Designations for our Series C preferred stock limits our ability to (i) enter into transactions with
affiliates and certain merger transactions and (ii) create or adopt any shareholders rights plan.
On August 8, 2016 CBS Radio entered into a Stock Purchase Agreement with us, AAA Trust and Mr. Alarcón (the “Stock
Purchase Agreement”) to sell and assign its rights related to its 380,000 shares of Series C preferred stock to the AAA Trust for $3.8
million. AAA Trust is a Florida trust, of which Mr. Alarcón is the trustee. Mr. Alarcón is also the beneficial owner of all the shares of
Series C preferred stock held in the AAA Trust. Pursuant to the Stock Purchase Agreement, CBS Radio agreed to assign the rights
under the registration rights agreement and Stockholder Agreement to the AAA Trust, which now holds such registration rights The
parties closed on the Stock Purchase Agreement on August 18, 2016.
(b) Class A and B Common Stock
The rights of the Class A common stockholders and Class B common stockholders are identical except with respect to their
voting rights and conversion provisions. The Class A common stock is entitled to one vote per share and the Class B common stock is
entitled to ten votes per share. The Class B common stock is convertible to Class A common stock on a share-for-share basis at the
option of the holder at any time, or automatically upon a transfer of the Class B common stock to a person or entity which is not a
permitted transferee (as described in our Certificate of Incorporation). Holders of each class of common stock are entitled to receive
dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders. Neither the
holders of the Class A common stock nor the holders of the Class B common stock have preemptive or other subscription rights, and
there are no redemption or sinking fund provisions with respect to such shares. Each class of common stock is subordinate to our
Series B preferred stock. The Series B preferred stock has a liquidation preference of $1,000 per share and is on parity with the
Series C preferred stock with respect to dividend rights and rights upon liquidation, winding up and dissolution of SBS.
(c)
Share-Based Compensation Plans and Other Share Based Compensation
2006 Omnibus Equity Compensation Plan
In July 2006, we adopted an omnibus equity compensation plan (the “Omnibus Plan”) in which grants of Class A common stock
can be made to participants in any of the following forms: (i) incentive stock options, (ii) nonqualified stock options, (iii) stock
appreciation rights, (iv) stock units, (v) stock awards, (vi) dividend equivalents, and (vii) other stock-based awards. The Omnibus Plan
authorizes up to 350,000 shares of our Class A common stock for issuance, subject to adjustment in certain circumstances. The
Omnibus Plan provides that the maximum aggregate number of shares of Class A common stock units, stock awards and other stock-
based awards that may be granted, other than dividend equivalents, to any individual during any calendar year is 100,000 shares,
subject to adjustments. The Omnibus Plan expired on July 17, 2016 and no further options can be granted under this plan.
1999 Stock Option Plans
In September 1999, we adopted an employee incentive stock option plan (the “1999 ISO Plan”) and a nonemployee 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.
76
Other Share-Based Compensation
In February 2016, the Company issued options to purchase 75,000 shares of the Company’s Class A Common Stock to an
individual as an inducement to his taking a position with the Company. The options vest over a three-year period and have a ten-year
term commencing on their vesting dates. If the employee is terminated without cause or resigns after a change in control, the options
automatically vest. The grant was outside of the Company’s 2006 Omnibus Equity Compensation Plan in accordance the then
applicable NASDAQ Stock Market rules.
Accounting for Share-Based Compensation
We recognize share-based compensation expense based on the estimated grant date fair value method using the Black-Scholes
option pricing model. For these awards, we have recognized compensation expense using a straight-line amortization method
(prorated). Share-based compensation expense is based on awards that are ultimately expected to vest. Share-based compensation for
the years ended December 31, 2016 and 2015 was reduced for estimated forfeitures. When estimating forfeitures, we consider
voluntary termination behaviors, as well as trends of actual option forfeitures. For the years ended December 31, 2016 and 2015,
share-based compensation totaled $655 thousand and $9 thousand, respectively.
As of December 31, 2016, there was $0.2 million of total unrecognized compensation costs related to nonvested stock-based
compensation arrangements granted under all of our plans. The cost is expected to be recognized over a weighted average period of
approximately 0.8 years.
Accounting standards require that cash flows resulting from excess tax benefits be classified as a part of cash flows from
financing activities. Excess tax benefits are realized tax benefits related to tax deductions for exercised options in excess of the
deferred tax asset attributable to stock compensation costs for such options.
During the years ended December 31, 2016 and 2015, no stock options were exercised; therefore, no cash payments were
received. In addition, during the years ended December 31, 2016 and 2015, 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.
Valuation Assumptions
We calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The per
share weighted average fair value of the stock options granted to employees during 2016 was $2.63. The following weighted average
assumptions were used for each respective period:
Expected term
Dividends to common stockholders
Risk-free interest rate
Expected volatility
2016
7
None
1.45%
115.39
2015
4
None
1.39%
97.96
Our computation of expected volatility for the year ended December 31, 2016 was based on a combination of historical and
market-based implied volatility from traded options on our stock. Our computation of expected term in 2016 was determined based on
historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and
expectations of future employee behavior. The information provided above results from the behavior patterns of separate groups of
employees that have similar historical experience. The interest rate for periods within the contractual life of the award is based on the
U.S. Treasury yield curve in effect at the time of grant.
77
Stock Options and Nonvested Shares Activity
Stock options have only been granted to employees or directors. Our stock options have various vesting schedules and are
subject to the employees’ continuing service. A summary of the status of our stock options, as of December 31, 2016 and 2015, and
changes during the years ended December 31, 2016 and 2015, is presented below (in thousands, except per share data and contractual
life):
Outstanding at December 31, 2014
Granted
Exercised
Forfeited
Outstanding at December 31, 2015
Granted
Exercised
Forfeited
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
Shares
Weighted
Average
Remaining
Contractual
Life (Years)
121
25
—
(18)
128 $
315
—
(35)
408 $
213 $
22.74
6.48
—
81.59
11.25
3.06
—
18.31
4.32 $
5.48 $
42,350
32,900
8.2
6.6
During the years 2016 and 2015, no stock options were exercised.
The following table summarizes information about our stock options outstanding and exercisable at December 31, 2016 (in
thousands, except per share data and contractual life):
Range of Exercise Prices
$1.03 - 2.99
3.00 - 4.99
5.00 - 9.99
10.00 - 47.90
Vested
Options
Unvested
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
Options
Exercisable
20
153
20
20
213
75 $
120
—
—
195
2.68 $
3.21
7.50
24.03
—
9.38
8.60
3.32
1.45
—
20 $
153
20
20
213
1.52
3.30
7.50
24.03
—
Nonvested shares (restricted stock) are awarded to employees under our Omnibus Plan. In general, nonvested shares vest over
two to five years and are subject to the employees’ continuing service. 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. As of December 31, 2016
and 2015, there were no nonvested shares outstanding, respectively.
(14) Commitments
(a)
Leases
We lease office space and facilities and certain equipment under operating leases that expire at various dates through 2082.
Certain leases provide for base rental payments plus escalation charges for real estate taxes and operating expenses.
78
At December 31, 2016, future minimum lease payments under such leases are as follows (in thousands):
Year ending December 31:
2017
2018
2019
2020
2021
Thereafter
Total minimum lease payments
$
Operating
leases
2,967
1,644
1,271
1,062
951
5,475
13,370
Subsequent to year end, December 31, 2016, the company entered in to additional lease commitments of $8.9 million for the
years ended December 31, 2017 through 2032. The total minimum lease payments will increase by $8.3 million, from $13.4 million
to $21.7 million, as $0.6 million of previously disclosed 2017 future minimum lease payments will be cancelled as part of entering
into a new agreement.
In connection with an operating lease, we have a standby letter of credit of $0.1 million, which was required under the lease
terms.
Total rent expense for each of the years ended December 31, 2016 and 2015 amounted to $3.3 million.
We have agreements to sublease our radio frequencies and portions of our tower sites and buildings. Such agreements provide
for payments through 2038. The future minimum rental income to be received under these agreements as of December 31, 2016 is as
follows (in thousands):
Year ending December 31:
2017
2018
2019
2020
2021
Thereafter
$
$
1,081
811
422
162
131
695
3,302
(b) Employment and Service Agreements
At December 31, 2016, we are committed to employment and service contracts for certain executives, on-air talent, general
managers, and others expiring through 2021. Future payments under such contracts are as follows (in thousands):
Year ending December 31:
2017
2018
2019
2020
2021
Thereafter
$
$
9,412
6,623
1,168
519
204
—
17,926
79
Included in the future payments schedule is our Chief Executive Officer’s (“CEO”) employment agreement, which may expire
on December 31, 2018. Our CEO’s annual base salary is $1.75 million, and he is eligible to receive a performance bonus of $750
thousand if the performance criteria are achieved for the year. In addition, the Board of Directors may also award a discretionary
bonus, as it deems appropriate. During the year ended December 31, 2014, our CEO was awarded a retention bonus totaling $1.6
million, which was recorded in corporate expenses. The retention bonus was paid monthly over time of which $0.6 million was paid in
2015 and the remaining $0.5 million was paid in 2016.
Certain employees’ contracts provide for additional amounts to be paid if station ratings or cash flow targets are met.
(c)
401(k) Profit-Sharing Plan
In September 1999, we adopted a tax-qualified employee savings and retirement plan (the “401(k) Plan”). We can make
matching and/or profit-sharing contributions to the 401(k) Plan on behalf of all participants at our sole discretion. All full-time
employees are eligible to voluntarily participate in the 401(k) Plan after their 90 day introductory period. To date, we have not made
contributions to this plan.
(d) Other Commitments
At December 31, 2016, we have commitments to vendors that provide us with goods or services. These commitments included
services for rating services, programming contracts, software contracts and others.
Future payments under such commitments are as follows (in thousands):
Year ending December 31:
2017
2018
2019
2020
2021
Thereafter
$
$
10,096
7,362
6,252
5,848
589
235
30,382
(15)
Income Taxes
Total income tax expense (benefit), from continuing operations, for the years ended December 31, 2016 and 2015 were as
follows (in thousands):
Income tax expense (benefit)
2016
2015
$
8,628 $
11,225
For the years ended December 31, 2016 and 2015, (loss) income before income tax expense consists of the following (in
thousands):
U.S. operations
Foreign operations
2016
2015
(7,481) $
(233)
(7,714) $
(14,078)
(1,652)
(15,730)
$
$
80
The components of the provision for income tax (benefit) expense from continuing operations included in the consolidated
statements of operations are as follows for the years ended December 31, 2016 and 2015 (in thousands):
2016
2015
Current:
Federal
State and local, net of federal income tax benefit
Foreign
$
Deferred:
Federal
State and local, net of federal income tax benefit
Foreign
271 $
65
300
636
7,296
696
—
7,992
Total income tax (benefit) expense, from continuing
operations
$
8,628 $
—
10
298
308
6,458
2,126
2,333
10,917
11,225
For the year ended December 31, 2016 and 2015, approximately $3.1 million and $1.1 million of Puerto Rico net operating loss
carry-forwards were utilized. For the year ended December 31, 2016 and 2015, $0.4 million and $0.8 million federal net operating loss
carry-forwards were utilized.
The tax effect of temporary differences and carry-forwards that give rise to deferred tax assets and deferred tax liabilities at
December 31, 2016 and 2015 are as follows (in thousands):
Deferred tax assets:
Federal and state net operating loss carryforwards
Foreign net operating loss carryforwards
FCC licenses
Allowance for doubtful accounts
Unearned revenue
AMT credit
Derivatives and hedging instruments
Property and equipment
Accrued foreign withholding
Straight-line expense adjustments
Accrued restructuring
Production costs
Stock-based compensation
Intercompany expenses
Accrued Vacation/Bonus/Payroll
Other
Total gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
FCC licenses and goodwill
Total gross deferred tax liabilities
Net deferred tax liability
2016
2015
$
$
116,227
11,354
6,396
1,017
373
1,248
7
3,253
2,238
—
—
11,123
345
4,830
950
1,676
161,037
(158,081)
2,956
108,327
108,327
105,371
$
$
109,020
12,506
6,291
1,133
333
1,120
254
2,056
2,136
31
11
11,535
1,649
3,624
1,067
1,620
154,386
(151,273)
3,113
100,421
100,421
97,308
The net change in the total valuation allowance for the years ended December 31, 2016 and 2015 was an increase of $6.8
million and an increase of $8.3 million, respectively. The valuation allowance at 2016 and 2015 was primarily related to domestic and
foreign net operating loss carryforwards and future deductible amounts related to the excess tax basis over the book basis of certain
FCC broadcasting licenses. In 2016, the overall increase in valuation allowance was primarily due to NOLs generated during the
current year.
81
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
As of December 31, 2016, the valuation allowance is comprised of $134.1 million in the US and $24.0 million in Puerto Rico. If the
realization of deferred tax assets in the future is considered more likely than not, an adjustment to the deferred tax assets would
increase net income in the period such determination is made.
Based upon the level of historical taxable income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, at this time, management believes it is more likely than not that we will not realize the benefits of
the majority of these deductible differences. As a result, we have established and maintained a valuation allowance for that portion of
the deferred tax assets we believe will not be realized. At December 31, 2016, we have federal and state net operating loss carry-
forwards of approximately $280.0 million and $273.7 million, respectively. These net operating loss carry-forwards are available to
offset future taxable income and expire from the years 2017 through 2036. In addition, at December 31, 2016, we have foreign net
operating loss carry-forwards of approximately $32.1 million available to offset future taxable income expiring from the years 2017
through 2024.
In November 2015, the Financial Accounting Standards Board issued accounting standard update, ASU 2015-17, Balance Sheet
Classification of Deferred Taxes, requiring all deferred tax assets and liabilities, and any related valuation allowance, to be classified
as non-current on the balance sheet. This standard was required to be adopted for annual periods beginning after December 15, 2016,
including interim periods within that annual period, with early adoption permitted. The Company retroactively adopted the accounting
standard in the beginning of the fourth quarter of 2015, and the adoption had no material impact on the consolidated financial position
of the Company.
Total income tax expense from continuing operations differed from the amounts computed by applying the U.S. federal income
tax rate of 35.0% for the years ended December 31, 2016 and 2015, as a result of the following:
Computed “expected” tax (benefit) expense
State and local income taxes, net of federal benefit
Foreign tax differential
Current year change in valuation allowance
Nondeductible expenses
Nondeductible interest expense
Change in effective rate
Return to provision
Other
2016
2015
(35.0)%
3.0
(1.6)
92.2
10.5
44.2
(9.4)
1.7
6.3
111.9 %
(35.0)%
(1.8)
(1.3)
53.2
2.8
21.7
5.3
23.5
3.0
71.4 %
The return to provision adjustment booked in 2015 relates to non-deductible interest expense, which has no impact on the
operating statement due to a full valuation allowance. The adjustment decreased the NOL DTA and decreased the corresponding
valuation allowance.
U.S. Federal jurisdiction and the jurisdictions of Florida, New York, California, Illinois, Texas and Puerto Rico are the major
tax jurisdictions where we file income tax returns. The tax years that remain subject to assessment of additional liabilities by the
federal, state and local tax authorities are 2010 through 2016. The tax years that remain subject to assessment of additional liabilities
by the Puerto Rico tax authority are 2012 through 2016.
For the years ended December 31, 2016 and 2015, we did not have any unrecognized tax benefits as a result of tax positions
taken during a prior period or during the current period. No interest or penalties have been recorded as a result of tax uncertainties.
Our evaluation was performed for the tax years ended December 31, 2010 through December 31, 2016, which are the tax years that
remain subject to examination by the tax jurisdictions as of December 31, 2016. We do not expect any unrecognized tax benefits to
significantly change over the next twelve months.
82
(16) Contingencies
Local Tax Assessment
The company has received an audit assessment (the “Assessment”) wherein it was proposed that the Company underpaid a local
tax for the tax periods between June 1, 2005 and May 31, 2015 totaling $1,439,452 in underpaid tax, applicable interest and penalties.
The Company disagrees with the assessment and related calculations and has developed a settlement strategy to discuss and pursue
with the taxing jurisdiction with the hope of avoiding a lengthy litigation process. While we are uncertain as to whether the
jurisdiction will accept this offer, an accrual of $391,000, based upon our current best estimate of probable loss, was charged to
operations in the accompanying financial statements. However, if the settlement offer is not accepted by the jurisdiction, the amount
of the ultimate loss to the Company, if any, may equal the entire amount of the Assessment sought by the taxing jurisdiction.
(17) Litigation
From time to time, we are involved in various routine legal and administrative proceedings and litigation incidental to the
conduct of our business, such as contractual matters and employee-related matters. In recent years, we have been subject to
administrative proceedings and lawsuits, including class action lawsuits, alleging violations of federal and state law regarding
workplace, wage-hour and employment discrimination matters. In the opinion of management, such litigation is not likely to have a
material adverse effect on our business, operating results or financial condition.
Gutierrez-Ortiz Lawsuit
We are a defendant in Aida Ivette Gutiérrez Ortiz et al. v. Municipio Autónomo de Bayamón, et al., a lawsuit involving the
death of a man who was shot and killed at a concert co-promoted by us. Plaintiffs allege that we were negligent because we did not
provide the necessary security to prevent the entry of firearms in the concert venue or its surrounding areas. Plaintiffs also allege we
did not provide the necessary measures to control allege that we were negligent because we failed to provide the necessary medical
assistance to aid the victim. Plaintiffs are seeking an estimated $3.5 million as indemnity. We intend to defend our self vigorously
against this claim. At this stage, an estimate of loss cannot be made, however, we believe we have good defenses and it is not probable
that the outcome of the litigation will result in a material loss or liability to us.
(18) Fair Value Measurement Disclosures
(a) Fair Value of Financial Instruments
Cash and cash equivalents, receivables, as well as accounts payable and accrued expenses, and other current liabilities, as
reflected in the consolidated financial statements, approximate fair value because of the short-term maturity of these instruments. The
estimated fair value of our other long-term debt instruments, approximate their carrying amounts as the interest rates approximate our
current borrowing rate for similar debt instruments of comparable maturity, or have variable interest rates.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the
financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The fair value of the Notes is estimated using market quotes from a major financial institution taking into consideration the most
recent activity and are considered Level 2 measurements within the fair value hierarchy. The fair value of the Series B cumulative
exchangeable redeemable preferred stock was based upon a weighted average analysis using the Black-Scholes method, an income
approach, and the yield method resulting in a Level 3 classification. The Black-Scholes method utilized an estimate of the fair value
of the SBS equity, volatility, an estimate of the time to liquidity, and a risk free rate in the determination of the SBS preferred fair
value. Key assumptions for the income and yield methods included the expected yield on preferred stock, accrued dividends, the
principal amount of the Series B preferred stock, and an estimate of the time to liquidity. A discount for lack of marketability of the
preferred stock was also utilized in the analysis. The fair value of the Series B cumulative exchangeable redeemable preferred stock
may be impacted by the Company’s ability to monetize certain non-core assets to generate cash proceeds which we could use to repay,
refinance and/or restructure our short term obligations, as well as its ability to be able to successfully recapitalize its balance sheet.
83
The estimated fair values of our financial instruments are as follows (in millions):
Description
12.5% senior secured notes due 2017
10 3/4% Series B cumulative exchangeable redeemable
preferred stock
Promissory note payable, included in other long-term debt
Fair Value
Hierarchy
Level 2
Level 3
Level 3
December 31,
2016
2015
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
275.0
275.5 $
275.0
281.2
155.8
4.6
60.5
4.7
146.1
4.9
60.1
4.2
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. The Notes traded at approximately 100.19% at year- end 2016 and were trading at 100.04% on March 31, 2017;
however, there can be no guarantees that the Notes will continue trading above their carrying amount.
From time to time, certain assets or liabilities may be recorded at fair value on a non-recurring basis.
During the third quarter 2015, the Company determined there was an impairment of its San Francisco market FCC Broadcasting
license. A non-cash impairment loss of $0.9 million was recorded to reduce the carrying value of this license to its fair value (Level 3
non-recurring fair value measure). Key assumptions used in the discounted cash flow method used to arrive at the fair value were:
1.5% revenue growth rate, 3.9% market revenue shares at maturity, 33.4% operating income margin at maturity, and a 10.0% discount
rate. At December 31, 2015 the fair value of this license exceeded its carrying value There were no FCC Broadcasting license
impairments in 2016..
(b) Fair Value of Derivative Instruments
The following tables represent required quantitative disclosures regarding fair values of our derivative instruments (in thousands).
Description
Derivative designated as a cash flow
hedging instrument:
Interest rate swap liability
Description
Derivative designated as a cash flow
hedging instrument:
Interest rate swap liability
Fair value measurements at December 31, 2016
Liabilities
December 31, 2016
carrying value and
balance sheet
location of
derivative
instruments
Quoted prices in
active markets
for identical
instruments
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$
17
—
17
—
Fair value measurements at December 31, 2015
Liabilities
December 31, 2015
carrying value and
balance sheet
location of
derivative
instruments
Quoted prices in
active markets
for identical
instruments
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$
220
—
220
—
The interest rate swap fair value is derived from the present value of the difference in cash flows based on the forward-looking
LIBOR yield curve rates, as compared to our fixed rate applied to the hedged amount through the term of the agreement, less
adjustments for credit risk. The current period gain was offset by an intra-period allocation of the income tax expense of $85 thousand
between continuing operations and other comprehensive income.
Interest rate swap:
December 31,
2016
2015
Gain recognized in other comprehensive loss (effective portion)
$
118
188
84
(19) Segment Data
The following summary table presents separate financial data for each of our operating segments. The accounting applied to
determine the segment information are generally the same as those described in the summary of significant accounting polices (see
note 2(v)). We evaluate the performance of our operating segments based on separate financial data for each operating segment as
provided below (in thousands):
Year Ended
December 31,
2016
2015
129,544 $
15,075
144,619 $
133,624
13,275
146,899
23,514 $
7,598
31,112 $
49,418 $
6,688
56,106 $
10,588 $
1,905 $
2,378
409
4,692 $
(11) $
—
—
(11) $
— $
—
(37)
(37) $
54,718 $
(1,589)
(10,960)
42,169 $
1,421 $
539
242
2,202 $
23,101
7,660
30,761
60,706
5,868
66,574
10,462
1,813
2,621
368
4,802
(78)
2
(11)
(87)
925
—
(389)
536
47,157
(2,876)
(10,430)
33,851
1,316
805
351
2,472
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Net revenue:
Radio
Television
Consolidated
Engineering and programming expenses:
Radio
Television
Consolidated
Selling, general and administrative expenses:
Radio
Television
Consolidated
Corporate expenses:
Depreciation and amortization:
Radio
Television
Corporate
Consolidated
(Gain) loss on the disposal of assets, net:
Radio
Television
Corporate
Consolidated
Impairment charges and restructuring costs:
Radio
Television
Corporate
Consolidated
Operating income (loss):
Radio
Television
Corporate
Consolidated
Capital expenditures:
Radio
Television
Corporate
Consolidated
85
Total Assets:
Radio
Television
Corporate
Consolidated
December 31,
2016
December 31,
2015
$
$
391,817 $
56,554
2,519
450,890 $
392,926
51,388
2,895
447,209
86
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
Consolidated Financial Statement Schedule – Valuation and Qualifying Accounts
Years Ended December 31, 2016 and 2015
(In thousands)
Description
Year ended December 31, 2015:
Allowance for doubtful accounts
Valuation allowance on deferred taxes
Year ended December 31, 2016:
Allowance for doubtful accounts
Valuation allowance on deferred taxes
Balance at
beginning of
Charged to
cost and
expense
year
Charged
to other
accounts
Deductions (1)
Balance at
end of year
$
$
2,322
142,957
1,431
151,273
(343)
8,316
(51)
4,718
(248) (2)
—
—
85
300
—
635
—
1,431
151,273
745
156,076
(1) Cash write-offs, net of recoveries.
(2) Amount monetized through acquisition of programming assets.
See accompanying report of independent registered public accounting firm.
87
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 19, 2017.
Signatures
Spanish Broadcasting System, Inc.
By: /s/ Raúl Alarcón
Name: Raúl Alarcón
Title: Chief Executive Officer and President
Each person whose signature appears below hereby constitutes and appoints Raúl Alarcón, Jr. and Joseph A. García, and each of
them, his true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all
amendments to this report together with all schedules and exhibits thereto, (ii) act on, sign and file such certificates, instruments,
agreements and other documents as may be necessary or appropriate in connection therewith, and (iii) take any and all actions which
may be necessary or appropriate in connection therewith, granting unto such agent, proxy and attorney-in-fact full power and authority
to do and perform each and every act and thing necessary or appropriate to be done, as fully for all intents and purposes as he might or
could do in person, hereby approving, ratifying and confirming all that such agents, proxies and attorneys-in-fact or any of their
substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on April 19, 2017.
Signature
/s/ Raúl Alarcón
Raúl Alarcón
/s/ Joseph A. García
Joseph A. García
/s/ Manuel E. Machado
Manuel E. Machado
/s/ Alan B. Miller
Alan B. Miller
/s/ Jason L. Shrinsky
Jason L. Shrinsky
/s/ Gary Stone
Gary Stone
/s/ José A. Villamil
José A. Villamil
/s/ Mitchell A. Yelen
Mitchell A. Yelen
Chairman of the Board of Directors, Chief Executive
Officer and President (principal executive officer)
Director, Senior Executive Vice President, Chief Financial Officer,
Chief Administration Officer and Secretary
(principal financial and accounting officer)
Director
Director
Director
Director
Director
Director
88
SPANISH BROADCASTING SYSTEM, INC.
AND SUBSIDIARIES
Exhibit Index
Exhibit description
Incorporated by reference
Filed
herewith Form
Period
ending
Exhibit Filing date
Exhibit
number
3.1
Third Amended and Restated Certificate of Incorporation of Spanish
Broadcasting System, Inc
Spanish Broadcasting System, Inc.
Certificate of Amendment to the Third Amended and Restated
Certificate of Incorporation of the Company.
Certificate of Amendment of Certificate of Incorporation of
Spanish Broadcasting System, Inc.
Amended and Restated By-Laws of the Company.
Article V of the Third Amended and Restated Certificate of
Incorporation of the Company.
Certificate of Designations dated October 29, 2003 Setting Forth
the Voting Power, Preferences and Relative, Participating, Optional
and Other Special Rights and Qualifications, Limitations and
Restrictions of the 10 3/4% Series A Cumulative Exchangeable
Redeemable Preferred Stock of Spanish Broadcasting System, Inc.
Certificate of Designation Setting Forth the Voting Power,
Preferences and Relative, Participating, Optional and Other Special
Rights and Qualifications, Limitations and Restrictions of the
Series C Convertible Preferred Stock of the Company (Certificate
of Designation of Series C Preferred Stock).
Certificate of Correction to Certificate of Designation of Series C
Preferred Stock of the Company.
Senior Secured Notes Indenture, dated as of February 7, 2012,
between Spanish Broadcasting System, Inc. and Wilmington
Trust, National Association, as Trustee and Collateral Agent
Common Stock Registration Rights and Stockholders Agreement
dated as of June 29, 1994 among the Company and certain
Management Stockholders named therein.
Spanish Broadcasting System 1999 Stock Option Plan.
Spanish Broadcasting System 1999 Company Stock Option
Plan for Nonemployee Directors.
Form of Indemnification Agreement
Company’s 1999 Stock Option Plan as amended on May 6, 2002.
Company’s 1999 Stock Option Plan for Non-Employee Directors
as amended on May 6, 2002.
Stock Option Agreement dated as of October 29, 2002 between
the Company and Raúl Alarcón, Jr.
Nonqualified Stock Option Agreement dated October 27, 2003
between the Company and Raúl Alarcón, Jr.
Non-Qualified Stock Option Agreement dated as of March 3, 2004
between the Company and Joseph A. García.
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10* Incentive Stock Option Agreement dated as of March 3, 2004
between the Company and Joseph A. García.
10.11* Stock Option Letter Agreement dated as of July 2, 2004
S-1/A
S-1/A
8-K
10-Q 03/31/05
3.1 10/6/99
3.2 10/6/99
3.1 7/11/11
3.3 5/10/05
S-1/A
4.1 10/6/99
10-Q 9/30/03
4.1 11/14/03
8-K
4.1 12/27/04
10-K 12/31/04
4.1 3/16/05
8-K
99.1 2/13/12
S-4
S-1/A
6/29/94
10.4 10/6/99
10.4 10/6/99
S-1/A
S-1/A
10.35 10/26/99
10-Q 6/30/02 10.3 8/14/02
10-Q 6/30/02 10.4 8/14/02
10-Q 9/30/02 10.2 11/13/02
10-K 12/31/03 10.8 3/15/04
10-Q 3/30/04 10.1 5/10/04
10-Q 3/30/04 10.2 5/10/04
between the Company and Jose Antonio Villamil.
10-Q 6/30/04 10.2 8/9/04
89
10.12
10.13
10.14
Merger Agreement dated as of October 5, 2004 among Infinity
Media Corporation, Infinity Broadcasting Corporation of
San Francisco, Spanish Broadcasting System, Inc. and
SBS Bay Area, LLC.
Stockholder Agreement dated as of October 5, 2004 among Spanish
Broadcasting System, Inc., Infinity Media Corporation and Raúl
Alarcón, Jr.
Registration Rights Agreement dated as of December 23, 2004
between Spanish Broadcasting System, Inc. and
Infinity Media Corporation.
10.15* Nonqualified Stock Option Agreement, dated as of March 15, 2005
8-K
10.1 10/12/04
8-K
10.2 10/12/04
8-K
4.3 12/27/04
between the Company and Jason Shrinsky.
10-Q 3/31/05 10.1 5/10/05
10.16* Nonqualified Stock Option Agreement, dated as of July 11, 2003
between the Company and Joseph A. García.
10.17* Spanish Broadcasting System, Inc. 2006 Omnibus Equity
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
Compensation Plan.
Agreement for Purchase and Sale dated August 24, 2006, by and
between 7007 Palmetto Investments, LLC and the Company.
Amendment to Purchase and Sale dated September 25, 2006, by
and between 7007 Palmetto Investments, LLC and the Company.
Second Amendment dated October 25, 2006, by and between 7007
Palmetto Investments, LLC and the Company.
Assignment and Assumption Agreement dated October 25, 2006, by
and between the Company and SBS Miami Broadcast Center, Inc.
Loan Agreement dated January 4, 2007, by and between Wachovia
Bank, National Association and SBS Miami Broadcast Center.
Promissory Note, dated January 4, 2007, by SBS Miami Broadcast
Center in favor of Wachovia.
Mortgage, Assignment of Rents and Security Agreement dated
January 4, 2007, by and between Wachovia
and SBS Miami Broadcast Center.
Unconditional Guaranty dated January 4, 2007, by Spanish
Broadcasting System, Inc. in favor of Wachovia.
10.26* Restricted Stock Grant, dated as of March 10, 2007 to
Raúl Alarcón, Jr.
10.27* Stock Option Agreement dated as of October 1, 2007 between the
10-Q 3/31/05 10.2 5/10/05
10-Q 6/30/06 10.2 8/8/06
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
10.1 10/30/06
10.2 10/30/06
10.3 10/30/06
10.4 10/30/06
10.1 1/10/07
10.2 1/10/07
10.3 1/10/07
10.4 1/10/07
10-K 12/31/06 10.1 3/16/07
Company and Mitchell A. Yelen.
10-Q 9/30/07 10.2 11/11/07
10.28* Amended and Restated Employment Agreement dated as of August 4,
2008, by and between the Company and Joseph A. García.
8-K
10.1 8/8/08
10.29* Stock Option Agreement dated as of June 3, 2010 between the
Company and Manuel E. Machado.
10-Q 6/30/10 10.1 8/13/10
10.30* Amendment to Employment Agreement dated April 19, 2011 by and
between the Company and Joseph A. Garcia.
10-Q 6/30/11 10.1 8/12/11
10.31* Employment Agreement dated June 5, 2014, by and between the
10.32*
10.33*
10.34*
10.35*
10.36*
Company and Raúl Alarcón, Jr.
Stock Option Agreement dated as of February 24, 2016 between the
Company and Raúl A. Alarcón.
Stock Option Agreement dated as of February 24, 2016 between the
Company and Joseph A. García.
Stock Option Agreement dated as of February 24, 2016 between the
Company and Manuel E. Machado.
Stock Option Agreement dated as of February 24, 2016 between the
Company and Jason L. Shrinsky.
Stock Option Agreement dated as of February 24, 2016 between the
Company and José A. Villamil.
8-K
10.1 6/11/14
10-K 12/31/2016 10.32 4/19/17
10-K 12/31/2016 10.32 4/19/17
10-K 12/31/2016 10.32 4/19/17
10-K 12/31/2016 10.32 4/19/17
10-K 12/31/2016 10.32 4/19/17
90
10.37*
14.1
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Stock Option Agreement dated as of February 24, 2016 between the
Company and Mitchell A. Yelen.
Code of Business Conduct and Ethics.
List of Subsidiaries of the Company.
Consent of Crowe Horwath.
Power of Attorney (included on the signature page of this Annual
Report on Form 10-K).
Chief Executive Officer’s Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Chief Financial Officer’s Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Chief Executive Officer’s Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Chief Financial Officer’s Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
10-K 12/31/2016 10.32 4/19/17
14.1 5/15/09
8-K
X
X
X
X
X
X
X
X
X
X
X
X
X
*
Indicates a management contract or compensatory plan or arrangement, as required by Item 15(a)(3) of Form 10-K.
91
SPANISH BROADCASTING SYSTEM, INC.
2006 OMNIBUS EQUITY COMPENSATION PLAN
STOCK OPTION GRANT AGREEMENT
Exhibit 10.32
This STOCK OPTION GRANT AGREEMENT (the “Agreement”), dated as of February 24, 2016 (the “Date of Grant”), is
delivered by Spanish Broadcasting System, Inc. (the “Company” or “SBS”), to you (the “Grantee”). Capitalized terms used herein but
not defined herein have the meanings given to them in the Spanish Broadcasting System, Inc. 2006 Omnibus Equity Compensation
Plan.
RECITALS
A. The Spanish Broadcasting System, Inc. 2006 Omnibus Equity Compensation Plan (the “Plan”) attached hereto as Exhibit A
provides for the grant of a stock options to purchase shares of Class A common stock, $0.0001 par value per share, of the Company
(the “Common Stock”).
B. The Compensation Committee of the Board of Directors of the Company (the “Committee”) has decided to make a stock
option grant, subject to the terms and conditions set forth in the Agreement and the Plan to align the economic interests of Grantee
with those of the Company’s stockholders.
C. The Board has appointed the Committee to administer the Plan.
NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby, agree as follows:
1. Grant of Options. Subject to the terms and conditions set forth in this Agreement and in the Plan, the Company hereby grants to
Grantee stock options (the “Options”) to purchase the shares of Common Stock of the Company (“Shares”) at a specified exercise
price per Share set forth on Schedule A. The Options shall become exercisable according to Section 2 below.
2. Exercisability of Options. The Options shall be exercisable in such installments and at such times as set forth on Schedule A, if
Grantee is serving as an officer or director on the applicable date. To the extent not exercised, installments shall accumulate and may
be exercised, in whole or in part, at any time after becoming exercisable, but not later than the date the Options expire. The
Committee may accelerate the exercisability of any or all-outstanding Options at any time for any reason. Notwithstanding the
foregoing, any installment of the Options that is not exercisable prior to a Change in Control shall become exercisable on the date of
such Change in Control and shall remain exercisable for the remainder of their term so long as Grantee is serving as an officer or
director immediately prior to the Change of Control.
3. Term of Options. The Options shall be for such term as is specified in Schedule A, unless they are terminated at an earlier date
pursuant to the provisions of this Agreement or the Plan.
4. Exercise of Options After Termination of Service as an Officer or Director. The Options granted under this Agreement are
exercisable by Grantee only while he is serving as an officer or director of the Company, provided that any installment of the Options
that is exercisable preceding Grantee’s termination of service as an officer or director of the Company shall remain exercisable for the
following period:
(i) If Grantee dies while serving as an officer or director of the Company, or if his termination of service is due to
disability, Grantee (or his designated beneficiary or personal representative, as applicable) may exercise the Options no later
than twelve (12) months after such death or termination;
(ii) If Grantee’s termination of service as an officer or director of the Company is for any reason other than those set forth
in (i) above, Grantee may exercise the Options within three (3) months after such termination; or
(iii) If Grantee dies during a period described in (i) or (ii) above, his designated beneficiary may exercise such Options no
later than the expiration of such extended period.
Notwithstanding (i) through (iii) above or anything in this Agreement or the Plan to the contrary, at any time after the grant of
Options, the Committee, in its sole and absolute discretion and subject to whatever terms and conditions it selects, may provide that
Options may be exercised after the relevant extended period set forth above, but in no event later than the date that it would have
expired under this Agreement.
5. Exercise Procedures.
(a) Subject to the provisions of Sections 2 and 3 above, Grantee may exercise part or all of the exercisable Options by giving the
Company written notice (in person or by first class mail to the Secretary of the Company at the Company’s principal executive office)
of Grantee’s intent to exercise the Options in the manner provided in this Agreement, specifying the number of Shares as to which the
Options are to be exercised and is accompanied by full payment therefor. The purchase price for any Shares purchased pursuant to the
exercise of Options shall be paid in full upon such exercise in cash, by check or, at the discretion of the Committee and upon such
terms and conditions as the Committee shall approve, by transferring previously owned Shares to the Company, having Shares
withheld or exercising pursuant to a “cashless exercise” procedure, or any combination thereof. Any Shares transferred to the
Company as payment of the purchase price under such Options shall be valued at their Fair Market Value on the date of exercise of
such Options. If requested by the Committee, Grantee shall deliver the Agreement evidencing the Options to the Secretary of the
Company who shall endorse thereon a notation of such exercise and return such Option Agreement to Grantee. Not less than one
hundred (100) Shares may be purchased at any time upon the exercise of Options unless the number of Shares so purchased
constitutes the total number of Shares then purchasable under the Options or the Committee determines otherwise, in its sole
discretion. The Committee may impose from time to time such limitations as it deems appropriate on the use of Shares of the
Company to exercise the Option.
(b) The obligation of the Company to deliver Shares upon exercise of the Options shall be subject to all applicable laws, rules,
and regulations and such approvals by governmental agencies as may be deemed appropriate by the Committee, including such
actions as Company counsel shall deem necessary or appropriate to comply with relevant securities laws and regulations.
(c) All obligations of the Company under this Agreement shall be subject to the rights of the Company as set forth in the Plan to
withhold amounts required to be withheld for any taxes, if applicable. Subject to Committee approval, Grantee may elect to satisfy
any such tax withholding obligation with respect to the Options by having Shares withheld up to an amount that does not exceed the
minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities.
6. Change of Control. The provisions of the Plan applicable to a Change in Control shall apply to the Options, and, in the event of a
Change in Control, the Options shall automatically become fully exercisable so long as Grantee was serving as an officer or director of
the Company prior to the Change in Control.
7. Restrictions on Exercise. Except as the Committee may otherwise permit pursuant to the Plan, only Grantee may exercise the
Option during Grantee’s lifetime and, after Grantee’s death, the Option shall be exercisable (subject to the limitations specified in the
Plan) solely by the legal representatives of Grantee, or by the person who acquires the right to exercise the Options by will or by the
laws of descent and distribution, to the extent that the Options are exercisable pursuant to this Agreement.
8. Grant Subject to Plan Provisions. This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference,
and in all respects shall be interpreted in accordance with the Plan. The grant and exercise of the Options are subject to
interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with
the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights and obligations with respect to withholding
taxes, (ii) the registration, qualification or listing of the Shares, (iii) changes in capitalization of the Company and (iv) other
requirements of applicable law. The Committee shall have the authority to interpret and construe the Options pursuant to the terms of
the Plan, and its decisions shall be conclusive as to any questions arising hereunder.
9. No Stockholder Rights. Neither Grantee, nor any person entitled to exercise Grantee’s rights in the event of Grantee’s death, shall
have any of the rights and privileges of a stockholder with respect to the Shares subject to the Options, until the Shares have been
issued upon the exercise of the Options.
10. Assignment and Transfers. Except as the Committee may otherwise permit pursuant to the Plan, the rights and interests of Grantee
under this Agreement may not be pledged, sold, assigned, encumbered, hypothecated to or otherwise transferred in favor of any party
other than the Company or a Subsidiary except, in the event of the death of Grantee, by will or by the laws of descent and distribution.
In the event of any attempt by Grantee to alienate, assign, pledge, hypothecate, or otherwise dispose of the Options or any right
hereunder, except as provided for in this Agreement, or in the event of the levy or any attachment, execution or similar process upon
the rights or interests hereby conferred, the Company may terminate the Options by notice to Grantee, and the Options and all rights
hereunder shall thereupon become null and void. The rights and protections of the Company hereunder shall extend to any successors
or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates. This Agreement may be assigned by the
Company without Grantee’s consent.
-2-
11. Tax Consequences and Withholding. The exercise of the Options will result in taxable income to Grantee, subject to withholding,
and Grantee (or Grantee’s legal representative in the event of death) shall be solely responsible for all tax consequences that result
from the exercise of the Options, as well as any subsequent sale of the Shares received upon exercise of the Options. Grantee (or
Grantee’s legal representatives in the event of death) shall pay to the Company, or make other arrangements satisfactory to the
Company to provide for the payment of, any federal, state, local or other taxes that the Company is required to withhold with respect
to the exercise of the Options.
12. Applicable Law. The validity, construction, interpretation and effect of this instrument shall be governed by and construed by and
determined in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof.
13. Notice. Any notice to the Company provided for in this instrument shall be addressed to the Company in care of the Chief
Financial Officer (or his designee), at 7007 N.W. 77th Avenue, Miami, Florida 33166 and any notice to Grantee shall be addressed to
such Grantee at the current address on the Company’s records, to such other address as Grantee may designate to the Company in
writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above,
registered and deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.
[Remainder of page intentionally left blank]
-3-
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute and attest this Agreement, and
Grantee has executed this Agreement, effective as of the Date of Grant.
SPANISH BROADCASTING SYSTEM, INC.
/s/ Joseph A. García
By:
Name: Joseph A. García
Title: Sr. EVP & CFO
I hereby accept the Options described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I
hereby further agree that all the decisions and determinations of the Compensation Committee shall be final and binding.
Grantee: /s/ Raúl A. Alarcón
Address:On File
Date: As of February 24, 2016
-4-
SPANISH BROADCASTING SYSTEM, INC.
2006 EQUITY COMPENSATION PLAN
INCENTIVE STOCK OPTION GRANT
SCHEDULE A
The Compensation Committee of the Board of Directors of Spanish Broadcasting System, Inc. (the “Company”) has determined
to grant to you (the “Grantee”) incentive stock options to purchase shares of common stock of the Company under the Spanish
Broadcasting System, Inc. 2006 Omnibus Equity Compensation Plan (the “Plan”). The terms of the grant are set forth in the Incentive
Stock Option Grant Agreement (the “Grant”) provided to you. The following provides a summary of the key terms of the Grant;
however, you should read the entire Grant, along with the terms of the Plan, to understand the Grant fully.
Grantee:
Date of Grant:
Options Granted:
Option Price per share:
Raúl A. Alarcón
February 24, 2016
70,000
$ 3.09
Total Cost to Exercise:
$216,300
Exercisability Schedule:
35,000 on February 24, 2016
35,000 on May 15, 2017*
Term/Expiration Date:
February 23, 2026 unless terminated earlier.
Transferability:
Not transferable except in accordance with the Plan.
*Grantee must be serving as an officer or director of the Company (as defined in the Plan) on the applicable date for the option to
become exercisable.
-5-
SPANISH BROADCASTING SYSTEM, INC.
2006 OMNIBUS EQUITY COMPENSATION PLAN
STOCK OPTION GRANT AGREEMENT
Exhibit 10.33
This STOCK OPTION GRANT AGREEMENT (the “Agreement”), dated as of February 24, 2016 (the “Date of Grant”), is
delivered by Spanish Broadcasting System, Inc. (the “Company” or “SBS”), to you (the “Grantee”). Capitalized terms used herein but
not defined herein have the meanings given to them in the Spanish Broadcasting System, Inc. 2006 Omnibus Equity Compensation
Plan.
RECITALS
A. The Spanish Broadcasting System, Inc. 2006 Omnibus Equity Compensation Plan (the “Plan”) attached hereto as Exhibit A
provides for the grant of a stock options to purchase shares of Class A common stock, $0.0001 par value per share, of the Company
(the “Common Stock”).
B. The Compensation Committee of the Board of Directors of the Company (the “Committee”) has decided to make a stock
option grant, subject to the terms and conditions set forth in the Agreement and the Plan to align the economic interests of Grantee
with those of the Company’s stockholders.
C. The Board has appointed the Committee to administer the Plan.
NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby, agree as follows:
1. Grant of Options. Subject to the terms and conditions set forth in this Agreement and in the Plan, the Company hereby grants to
Grantee stock options (the “Options”) to purchase the shares of Common Stock of the Company (“Shares”) at a specified exercise
price per Share set forth on Schedule A. The Options shall become exercisable according to Section 2 below.
2. Exercisability of Options. The Options shall be exercisable in such installments and at such times as set forth on Schedule A, if
Grantee is serving as an officer or director on the applicable date. To the extent not exercised, installments shall accumulate and may
be exercised, in whole or in part, at any time after becoming exercisable, but not later than the date the Options expire. The
Committee may accelerate the exercisability of any or all-outstanding Options at any time for any reason. Notwithstanding the
foregoing, any installment of the Options that is not exercisable prior to a Change in Control shall become exercisable on the date of
such Change in Control and shall remain exercisable for the remainder of their term so long as Grantee is serving as an officer or
director immediately prior to the Change of Control.
3. Term of Options. The Options shall be for such term as is specified in Schedule A, unless they are terminated at an earlier date
pursuant to the provisions of this Agreement or the Plan.
4. Exercise of Options After Termination of Service as an Officer or Director. The Options granted under this Agreement are
exercisable by Grantee only while he is serving as an officer or director of the Company, provided that any installment of the Options
that is exercisable preceding Grantee’s termination of service as an officer or director of the Company shall remain exercisable for the
following period:
(i) If Grantee dies while serving as an officer or director of the Company, or if his termination of service is due to
disability, Grantee (or his designated beneficiary or personal representative, as applicable) may exercise the Options no later
than twelve (12) months after such death or termination;
(ii) If Grantee’s termination of service as an officer or director of the Company is for any reason other than those set forth
in (i) above, Grantee may exercise the Options within three (3) months after such termination; or
(iii) If Grantee dies during a period described in (i) or (ii) above, his designated beneficiary may exercise such Options no
later than the expiration of such extended period.
Notwithstanding (i) through (iii) above or anything in this Agreement or the Plan to the contrary, at any time after the grant of
Options, the Committee, in its sole and absolute discretion and subject to whatever terms and conditions it selects, may provide that
Options may be exercised after the relevant extended period set forth above, but in no event later than the date that it would have
expired under this Agreement.
5. Exercise Procedures.
(a) Subject to the provisions of Sections 2 and 3 above, Grantee may exercise part or all of the exercisable Options by giving the
Company written notice (in person or by first class mail to the Secretary of the Company at the Company’s principal executive office)
of Grantee’s intent to exercise the Options in the manner provided in this Agreement, specifying the number of Shares as to which the
Options are to be exercised and is accompanied by full payment therefor. The purchase price for any Shares purchased pursuant to the
exercise of Options shall be paid in full upon such exercise in cash, by check or, at the discretion of the Committee and upon such
terms and conditions as the Committee shall approve, by transferring previously owned Shares to the Company, having Shares
withheld or exercising pursuant to a “cashless exercise” procedure, or any combination thereof. Any Shares transferred to the
Company as payment of the purchase price under such Options shall be valued at their Fair Market Value on the date of exercise of
such Options. If requested by the Committee, Grantee shall deliver the Agreement evidencing the Options to the Secretary of the
Company who shall endorse thereon a notation of such exercise and return such Option Agreement to Grantee. Not less than one
hundred (100) Shares may be purchased at any time upon the exercise of Options unless the number of Shares so purchased
constitutes the total number of Shares then purchasable under the Options or the Committee determines otherwise, in its sole
discretion. The Committee may impose from time to time such limitations as it deems appropriate on the use of Shares of the
Company to exercise the Option.
(b) The obligation of the Company to deliver Shares upon exercise of the Options shall be subject to all applicable laws, rules,
and regulations and such approvals by governmental agencies as may be deemed appropriate by the Committee, including such
actions as Company counsel shall deem necessary or appropriate to comply with relevant securities laws and regulations.
(c) All obligations of the Company under this Agreement shall be subject to the rights of the Company as set forth in the Plan to
withhold amounts required to be withheld for any taxes, if applicable. Subject to Committee approval, Grantee may elect to satisfy
any such tax withholding obligation with respect to the Options by having Shares withheld up to an amount that does not exceed the
minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities.
6. Change of Control. The provisions of the Plan applicable to a Change in Control shall apply to the Options, and, in the event of a
Change in Control, the Options shall automatically become fully exercisable so long as Grantee was serving as an officer or director of
the Company prior to the Change in Control.
7. Restrictions on Exercise. Except as the Committee may otherwise permit pursuant to the Plan, only Grantee may exercise the
Option during Grantee’s lifetime and, after Grantee’s death, the Option shall be exercisable (subject to the limitations specified in the
Plan) solely by the legal representatives of Grantee, or by the person who acquires the right to exercise the Options by will or by the
laws of descent and distribution, to the extent that the Options are exercisable pursuant to this Agreement.
8. Grant Subject to Plan Provisions. This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference,
and in all respects shall be interpreted in accordance with the Plan. The grant and exercise of the Options are subject to
interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with
the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights and obligations with respect to withholding
taxes, (ii) the registration, qualification or listing of the Shares, (iii) changes in capitalization of the Company and (iv) other
requirements of applicable law. The Committee shall have the authority to interpret and construe the Options pursuant to the terms of
the Plan, and its decisions shall be conclusive as to any questions arising hereunder.
9. No Stockholder Rights. Neither Grantee, nor any person entitled to exercise Grantee’s rights in the event of Grantee’s death, shall
have any of the rights and privileges of a stockholder with respect to the Shares subject to the Options, until the Shares have been
issued upon the exercise of the Options.
-2-
10. Assignment and Transfers. Except as the Committee may otherwise permit pursuant to the Plan, the rights and interests of Grantee
under this Agreement may not be pledged, sold, assigned, encumbered, hypothecated to or otherwise transferred in favor of any party
other than the Company or a Subsidiary except, in the event of the death of Grantee, by will or by the laws of descent and distribution.
In the event of any attempt by Grantee to alienate, assign, pledge, hypothecate, or otherwise dispose of the Options or any right
hereunder, except as provided for in this Agreement, or in the event of the levy or any attachment, execution or similar process upon
the rights or interests hereby conferred, the Company may terminate the Options by notice to Grantee, and the Options and all rights
hereunder shall thereupon become null and void. The rights and protections of the Company hereunder shall extend to any successors
or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates. This Agreement may be assigned by the
Company without Grantee’s consent.
11. Tax Consequences and Withholding. The exercise of the Options will result in taxable income to Grantee, subject to withholding,
and Grantee (or Grantee’s legal representative in the event of death) shall be solely responsible for all tax consequences that result
from the exercise of the Options, as well as any subsequent sale of the Shares received upon exercise of the Options. Grantee (or
Grantee’s legal representatives in the event of death) shall pay to the Company, or make other arrangements satisfactory to the
Company to provide for the payment of, any federal, state, local or other taxes that the Company is required to withhold with respect
to the exercise of the Options.
12. Applicable Law. The validity, construction, interpretation and effect of this instrument shall be governed by and construed by and
determined in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof.
13. Notice. Any notice to the Company provided for in this instrument shall be addressed to the Company in care of the Chief
Financial Officer (or his designee), at 7007 N.W. 77th Avenue, Miami, Florida 33166 and any notice to Grantee shall be addressed to
such Grantee at the current address on the Company’s records, to such other address as Grantee may designate to the Company in
writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above,
registered and deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.
[Remainder of page intentionally left blank]
-3-
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute and attest this Agreement, and
Grantee has executed this Agreement, effective as of the Date of Grant.
SPANISH BROADCASTING SYSTEM, INC.
/s/ Raúl Alarcón
By:
Name: Raúl Alarcón
Title: President, CEO & Chairman
I hereby accept the Options described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I
hereby further agree that all the decisions and determinations of the Compensation Committee shall be final and binding.
Grantee: /s/ Joseph A. García
Address:On File
Date: As of February 24, 2016
-4-
SPANISH BROADCASTING SYSTEM, INC.
2006 EQUITY COMPENSATION PLAN
INCENTIVE STOCK OPTION GRANT
SCHEDULE A
The Compensation Committee of the Board of Directors of Spanish Broadcasting System, Inc. (the “Company”) has determined
to grant to you (the “Grantee”) incentive stock options to purchase shares of common stock of the Company under the Spanish
Broadcasting System, Inc. 2006 Omnibus Equity Compensation Plan (the “Plan”). The terms of the grant are set forth in the Incentive
Stock Option Grant Agreement (the “Grant”) provided to you. The following provides a summary of the key terms of the Grant;
however, you should read the entire Grant, along with the terms of the Plan, to understand the Grant fully.
Grantee:
Date of Grant:
Options Granted:
Option Price per share:
Joseph A. García
February 24, 2016
50,000
$ 3.09
Total Cost to Exercise:
$154,500
Exercisability Schedule:
25,000 on February 24, 2016
25,000 on May 15, 2017*
Term/Expiration Date:
February 23, 2026 unless terminated earlier.
Transferability:
Not transferable except in accordance with the Plan.
*Grantee must be serving as an officer or director of the Company (as defined in the Plan) on the applicable date for the option to
become exercisable.
-5-
SPANISH BROADCASTING SYSTEM, INC.
2006 OMNIBUS EQUITY COMPENSATION PLAN
STOCK OPTION GRANT AGREEMENT
Exhibit 10.34
This STOCK OPTION GRANT AGREEMENT (the “Agreement”), dated as of February 24, 2016 (the “Date of Grant”), is
delivered by Spanish Broadcasting System, Inc. (the “Company” or “SBS”), to you (the “Grantee”). Capitalized terms used herein but
not defined herein have the meanings given to them in the Spanish Broadcasting System, Inc. 2006 Omnibus Equity Compensation
Plan.
RECITALS
A. The Spanish Broadcasting System, Inc. 2006 Omnibus Equity Compensation Plan (the “Plan”) attached hereto as Exhibit A
provides for the grant of a stock options to purchase shares of Class A common stock, $0.0001 par value per share, of the Company
(the “Common Stock”).
B. The Compensation Committee of the Board of Directors of the Company (the “Committee”) has decided to make a stock
option grant, subject to the terms and conditions set forth in the Agreement and the Plan to align the economic interests of Grantee
with those of the Company’s stockholders.
C. The Board has appointed the Committee to administer the Plan.
NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby, agree as follows:
1. Grant of Options. Subject to the terms and conditions set forth in this Agreement and in the Plan, the Company hereby grants to
Grantee stock options (the “Options”) to purchase the shares of Common Stock of the Company (“Shares”) at a specified exercise
price per Share set forth on Schedule A. The Options shall become exercisable according to Section 2 below.
2. Exercisability of Options. The Options shall be exercisable in such installments and at such times as set forth on Schedule A, if
Grantee is serving as a director on the applicable date. To the extent not exercised, installments shall accumulate and may be
exercised, in whole or in part, at any time after becoming exercisable, but not later than the date the Options expire. The Committee
may accelerate the exercisability of any or all-outstanding Options at any time for any reason. Notwithstanding the foregoing, any
installment of the Options that is not exercisable prior to a Change in Control shall become exercisable on the date of such Change in
Control and shall remain exercisable for the remainder of their term so long as Grantee is serving as a director immediately prior to the
Change of Control.
3. Term of Options. The Options shall be for such term as is specified in Schedule A, unless they are terminated at an earlier date
pursuant to the provisions of this Agreement or the Plan.
4. Exercise of Options After Termination of Service as a Director. The Options granted under this Agreement are exercisable by
Grantee only while he is serving as a director of the Company, provided that any installment of the Options that is exercisable
preceding Grantee’s termination of service as a director of the Company shall remain exercisable for the following period:
(i) If Grantee dies while serving as a director of the Company, or if his termination of service is due to disability, Grantee
(or his designated beneficiary or personal representative, as applicable) may exercise the Options no later than twelve (12)
months after such death or termination;
(ii) If Grantee’s termination of service as a director of the Company is for any reason other than those set forth in (i)
above, Grantee may exercise the Options within three (3) months after such termination; or
(iii) If Grantee dies during a period described in (i) or (ii) above, his designated beneficiary may exercise such Options no
later than the expiration of such extended period.
Notwithstanding (i) through (iii) above or anything in this Agreement or the Plan to the contrary, at any time after the grant of
Options, the Committee, in its sole and absolute discretion and subject to whatever terms and conditions it selects, may provide that
Options may be exercised after the relevant extended period set forth above, but in no event later than the date that it would have
expired under this Agreement.
5. Exercise Procedures.
(a) Subject to the provisions of Sections 2 and 3 above, Grantee may exercise part or all of the exercisable Options by giving the
Company written notice (in person or by first class mail to the Secretary of the Company at the Company’s principal executive office)
of Grantee’s intent to exercise the Options in the manner provided in this Agreement, specifying the number of Shares as to which the
Options are to be exercised and is accompanied by full payment therefor. The purchase price for any Shares purchased pursuant to the
exercise of Options shall be paid in full upon such exercise in cash, by check or, at the discretion of the Committee and upon such
terms and conditions as the Committee shall approve, by transferring previously owned Shares to the Company, having Shares
withheld or exercising pursuant to a “cashless exercise” procedure, or any combination thereof. Any Shares transferred to the
Company as payment of the purchase price under such Options shall be valued at their Fair Market Value on the date of exercise of
such Options. If requested by the Committee, Grantee shall deliver the Agreement evidencing the Options to the Secretary of the
Company who shall endorse thereon a notation of such exercise and return such Option Agreement to Grantee. Not less than one
hundred (100) Shares may be purchased at any time upon the exercise of Options unless the number of Shares so purchased
constitutes the total number of Shares then purchasable under the Options or the Committee determines otherwise, in its sole
discretion. The Committee may impose from time to time such limitations as it deems appropriate on the use of Shares of the
Company to exercise the Option.
(b) The obligation of the Company to deliver Shares upon exercise of the Options shall be subject to all applicable laws, rules,
and regulations and such approvals by governmental agencies as may be deemed appropriate by the Committee, including such
actions as Company counsel shall deem necessary or appropriate to comply with relevant securities laws and regulations.
(c) All obligations of the Company under this Agreement shall be subject to the rights of the Company as set forth in the Plan to
withhold amounts required to be withheld for any taxes, if applicable. Subject to Committee approval, Grantee may elect to satisfy
any such tax withholding obligation with respect to the Options by having Shares withheld up to an amount that does not exceed the
minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities.
6. Change of Control. The provisions of the Plan applicable to a Change in Control shall apply to the Options, and, in the event of a
Change in Control, the Options shall automatically become fully exercisable so long as Grantee was serving as a director of the
Company prior to the Change in Control.
7. Restrictions on Exercise. Except as the Committee may otherwise permit pursuant to the Plan, only Grantee may exercise the
Option during Grantee’s lifetime and, after Grantee’s death, the Option shall be exercisable (subject to the limitations specified in the
Plan) solely by the legal representatives of Grantee, or by the person who acquires the right to exercise the Options by will or by the
laws of descent and distribution, to the extent that the Options are exercisable pursuant to this Agreement.
8. Grant Subject to Plan Provisions. This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference,
and in all respects shall be interpreted in accordance with the Plan. The grant and exercise of the Options are subject to
interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with
the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights and obligations with respect to withholding
taxes, (ii) the registration, qualification or listing of the Shares, (iii) changes in capitalization of the Company and (iv) other
requirements of applicable law. The Committee shall have the authority to interpret and construe the Options pursuant to the terms of
the Plan, and its decisions shall be conclusive as to any questions arising hereunder.
9. No Stockholder Rights. Neither Grantee, nor any person entitled to exercise Grantee’s rights in the event of Grantee’s death, shall
have any of the rights and privileges of a stockholder with respect to the Shares subject to the Options, until the Shares have been
issued upon the exercise of the Options.
10. Assignment and Transfers. Except as the Committee may otherwise permit pursuant to the Plan, the rights and interests of Grantee
under this Agreement may not be pledged, sold, assigned, encumbered, hypothecated to or otherwise transferred in favor of any party
other than the Company or a Subsidiary except, in the event of the death of Grantee, by will or by the laws of descent and distribution.
In the event of any attempt by Grantee to alienate, assign, pledge, hypothecate, or otherwise dispose of the Options or any right
hereunder, except as provided for in this Agreement, or in the event of the levy or any attachment, execution or similar process upon
the rights or interests hereby conferred, the Company may terminate the Options by notice to Grantee, and the Options and all rights
hereunder shall thereupon become null and void. The rights and protections of the Company hereunder shall extend to any successors
or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates. This Agreement may be assigned by the
Company without Grantee’s consent.
-2-
11. Tax Consequences and Withholding. The exercise of the Options will result in taxable income to Grantee, subject to withholding,
and Grantee (or Grantee’s legal representative in the event of death) shall be solely responsible for all tax consequences that result
from the exercise of the Options, as well as any subsequent sale of the Shares received upon exercise of the Options. Grantee (or
Grantee’s legal representatives in the event of death) shall pay to the Company, or make other arrangements satisfactory to the
Company to provide for the payment of, any federal, state, local or other taxes that the Company is required to withhold with respect
to the exercise of the Options.
12. Applicable Law. The validity, construction, interpretation and effect of this instrument shall be governed by and construed by and
determined in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof.
13. Notice. Any notice to the Company provided for in this instrument shall be addressed to the Company in care of the Chief
Financial Officer (or his designee), at 7007 N.W. 77th Avenue, Miami, Florida 33166 and any notice to Grantee shall be addressed to
such Grantee at the current address on the Company’s records, to such other address as Grantee may designate to the Company in
writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above,
registered and deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.
[Remainder of page intentionally left blank]
-3-
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute and attest this Agreement, and
Grantee has executed this Agreement, effective as of the Date of Grant.
SPANISH BROADCASTING SYSTEM, INC.
/s/ Joseph A. García
By:
Name: Joseph A. García
Title: Sr. EVP & CFO
I hereby accept the Options described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I
hereby further agree that all the decisions and determinations of the Compensation Committee shall be final and binding.
Grantee: /s/ Manuel E. Machado
Address:On File
Date: As of February 24, 2016
-4-
SPANISH BROADCASTING SYSTEM, INC.
2006 EQUITY COMPENSATION PLAN
INCENTIVE STOCK OPTION GRANT
SCHEDULE A
The Compensation Committee of the Board of Directors of Spanish Broadcasting System, Inc. (the “Company”) has determined
to grant to you (the “Grantee”) incentive stock options to purchase shares of common stock of the Company under the Spanish
Broadcasting System, Inc. 2006 Omnibus Equity Compensation Plan (the “Plan”). The terms of the grant are set forth in the Incentive
Stock Option Grant Agreement (the “Grant”) provided to you. The following provides a summary of the key terms of the Grant;
however, you should read the entire Grant, along with the terms of the Plan, to understand the Grant fully.
Grantee:
Date of Grant:
Options Granted:
Option Price per share:
Total Cost to Exercise:
Manuel E. Machado
February 24, 2016
30,000
$ 3.09
$92,700
Exercisability Schedule:
15,000 on February 24, 2016
15,000 on May 15, 2017*
Term/Expiration Date:
February 23, 2026 unless terminated earlier.
Transferability:
Not transferable except in accordance with the Plan.
*Grantee must be serving as a director of the Company (as defined in the Plan) on the applicable date for the option to become
exercisable.
-5-
SPANISH BROADCASTING SYSTEM, INC.
2006 OMNIBUS EQUITY COMPENSATION PLAN
STOCK OPTION GRANT AGREEMENT
Exhibit 10.35
This STOCK OPTION GRANT AGREEMENT (the “Agreement”), dated as of February 24, 2016 (the “Date of Grant”), is
delivered by Spanish Broadcasting System, Inc. (the “Company” or “SBS”), to you (the “Grantee”). Capitalized terms used herein but
not defined herein have the meanings given to them in the Spanish Broadcasting System, Inc. 2006 Omnibus Equity Compensation
Plan.
RECITALS
A. The Spanish Broadcasting System, Inc. 2006 Omnibus Equity Compensation Plan (the “Plan”) attached hereto as Exhibit A
provides for the grant of a stock options to purchase shares of Class A common stock, $0.0001 par value per share, of the Company
(the “Common Stock”).
B. The Compensation Committee of the Board of Directors of the Company (the “Committee”) has decided to make a stock
option grant, subject to the terms and conditions set forth in the Agreement and the Plan to align the economic interests of Grantee
with those of the Company’s stockholders.
C. The Board has appointed the Committee to administer the Plan.
NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby, agree as follows:
1. Grant of Options. Subject to the terms and conditions set forth in this Agreement and in the Plan, the Company hereby grants to
Grantee stock options (the “Options”) to purchase the shares of Common Stock of the Company (“Shares”) at a specified exercise
price per Share set forth on Schedule A. The Options shall become exercisable according to Section 2 below.
2. Exercisability of Options. The Options shall be exercisable in such installments and at such times as set forth on Schedule A, if
Grantee is serving as a director on the applicable date. To the extent not exercised, installments shall accumulate and may be
exercised, in whole or in part, at any time after becoming exercisable, but not later than the date the Options expire. The Committee
may accelerate the exercisability of any or all-outstanding Options at any time for any reason. Notwithstanding the foregoing, any
installment of the Options that is not exercisable prior to a Change in Control shall become exercisable on the date of such Change in
Control and shall remain exercisable for the remainder of their term so long as Grantee is serving as a director immediately prior to the
Change of Control.
3. Term of Options. The Options shall be for such term as is specified in Schedule A, unless they are terminated at an earlier date
pursuant to the provisions of this Agreement or the Plan.
4. Exercise of Options After Termination of Service as a Director. The Options granted under this Agreement are exercisable by
Grantee only while he is serving as a director of the Company, provided that any installment of the Options that is exercisable
preceding Grantee’s termination of service as a director of the Company shall remain exercisable for the following period:
(i) If Grantee dies while serving as a director of the Company, or if his termination of service is due to disability, Grantee
(or his designated beneficiary or personal representative, as applicable) may exercise the Options no later than twelve (12)
months after such death or termination;
(ii) If Grantee’s termination of service as a director of the Company is for any reason other than those set forth in (i)
above, Grantee may exercise the Options within three (3) months after such termination; or
(iii) If Grantee dies during a period described in (i) or (ii) above, his designated beneficiary may exercise such Options no
later than the expiration of such extended period.
Notwithstanding (i) through (iii) above or anything in this Agreement or the Plan to the contrary, at any time after the grant of
Options, the Committee, in its sole and absolute discretion and subject to whatever terms and conditions it selects, may provide that
Options may be exercised after the relevant extended period set forth above, but in no event later than the date that it would have
expired under this Agreement.
5. Exercise Procedures.
(a) Subject to the provisions of Sections 2 and 3 above, Grantee may exercise part or all of the exercisable Options by giving the
Company written notice (in person or by first class mail to the Secretary of the Company at the Company’s principal executive office)
of Grantee’s intent to exercise the Options in the manner provided in this Agreement, specifying the number of Shares as to which the
Options are to be exercised and is accompanied by full payment therefor. The purchase price for any Shares purchased pursuant to the
exercise of Options shall be paid in full upon such exercise in cash, by check or, at the discretion of the Committee and upon such
terms and conditions as the Committee shall approve, by transferring previously owned Shares to the Company, having Shares
withheld or exercising pursuant to a “cashless exercise” procedure, or any combination thereof. Any Shares transferred to the
Company as payment of the purchase price under such Options shall be valued at their Fair Market Value on the date of exercise of
such Options. If requested by the Committee, Grantee shall deliver the Agreement evidencing the Options to the Secretary of the
Company who shall endorse thereon a notation of such exercise and return such Option Agreement to Grantee. Not less than one
hundred (100) Shares may be purchased at any time upon the exercise of Options unless the number of Shares so purchased
constitutes the total number of Shares then purchasable under the Options or the Committee determines otherwise, in its sole
discretion. The Committee may impose from time to time such limitations as it deems appropriate on the use of Shares of the
Company to exercise the Option.
(b) The obligation of the Company to deliver Shares upon exercise of the Options shall be subject to all applicable laws, rules,
and regulations and such approvals by governmental agencies as may be deemed appropriate by the Committee, including such
actions as Company counsel shall deem necessary or appropriate to comply with relevant securities laws and regulations.
(c) All obligations of the Company under this Agreement shall be subject to the rights of the Company as set forth in the Plan to
withhold amounts required to be withheld for any taxes, if applicable. Subject to Committee approval, Grantee may elect to satisfy
any such tax withholding obligation with respect to the Options by having Shares withheld up to an amount that does not exceed the
minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities.
6. Change of Control. The provisions of the Plan applicable to a Change in Control shall apply to the Options, and, in the event of a
Change in Control, the Options shall automatically become fully exercisable so long as Grantee was serving as a director of the
Company prior to the Change in Control.
7. Restrictions on Exercise. Except as the Committee may otherwise permit pursuant to the Plan, only Grantee may exercise the
Option during Grantee’s lifetime and, after Grantee’s death, the Option shall be exercisable (subject to the limitations specified in the
Plan) solely by the legal representatives of Grantee, or by the person who acquires the right to exercise the Options by will or by the
laws of descent and distribution, to the extent that the Options are exercisable pursuant to this Agreement.
8. Grant Subject to Plan Provisions. This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference,
and in all respects shall be interpreted in accordance with the Plan. The grant and exercise of the Options are subject to
interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with
the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights and obligations with respect to withholding
taxes, (ii) the registration, qualification or listing of the Shares, (iii) changes in capitalization of the Company and (iv) other
requirements of applicable law. The Committee shall have the authority to interpret and construe the Options pursuant to the terms of
the Plan, and its decisions shall be conclusive as to any questions arising hereunder.
9. No Stockholder Rights. Neither Grantee, nor any person entitled to exercise Grantee’s rights in the event of Grantee’s death, shall
have any of the rights and privileges of a stockholder with respect to the Shares subject to the Options, until the Shares have been
issued upon the exercise of the Options.
10. Assignment and Transfers. Except as the Committee may otherwise permit pursuant to the Plan, the rights and interests of Grantee
under this Agreement may not be pledged, sold, assigned, encumbered, hypothecated to or otherwise transferred in favor of any party
other than the Company or a Subsidiary except, in the event of the death of Grantee, by will or by the laws of descent and distribution.
In the event of any attempt by Grantee to alienate, assign, pledge, hypothecate, or otherwise dispose of the Options or any right
hereunder, except as provided for in this Agreement, or in the event of the levy or any attachment, execution or similar process upon
the rights or interests hereby conferred, the Company may terminate the Options by notice to Grantee, and the Options and all rights
hereunder shall thereupon become null and void. The rights and protections of the Company hereunder shall extend to any successors
or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates. This Agreement may be assigned by the
Company without Grantee’s consent.
-2-
11. Tax Consequences and Withholding. The exercise of the Options will result in taxable income to Grantee, subject to withholding,
and Grantee (or Grantee’s legal representative in the event of death) shall be solely responsible for all tax consequences that result
from the exercise of the Options, as well as any subsequent sale of the Shares received upon exercise of the Options. Grantee (or
Grantee’s legal representatives in the event of death) shall pay to the Company, or make other arrangements satisfactory to the
Company to provide for the payment of, any federal, state, local or other taxes that the Company is required to withhold with respect
to the exercise of the Options.
12. Applicable Law. The validity, construction, interpretation and effect of this instrument shall be governed by and construed by and
determined in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof.
13. Notice. Any notice to the Company provided for in this instrument shall be addressed to the Company in care of the Chief
Financial Officer (or his designee), at 7007 N.W. 77th Avenue, Miami, Florida 33166 and any notice to Grantee shall be addressed to
such Grantee at the current address on the Company’s records, to such other address as Grantee may designate to the Company in
writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above,
registered and deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.
[Remainder of page intentionally left blank]
-3-
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute and attest this Agreement, and
Grantee has executed this Agreement, effective as of the Date of Grant.
SPANISH BROADCASTING SYSTEM, INC.
/s/ Joseph A. García
By:
Name: Joseph A. García
Title: Sr. EVP & CFO
I hereby accept the Options described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I
hereby further agree that all the decisions and determinations of the Compensation Committee shall be final and binding.
Grantee: /s/ Jason L. Shrinsky
Address:On File
Date: As of February 24, 2016
-4-
SPANISH BROADCASTING SYSTEM, INC.
2006 EQUITY COMPENSATION PLAN
INCENTIVE STOCK OPTION GRANT
SCHEDULE A
The Compensation Committee of the Board of Directors of Spanish Broadcasting System, Inc. (the “Company”) has determined
to grant to you (the “Grantee”) incentive stock options to purchase shares of common stock of the Company under the Spanish
Broadcasting System, Inc. 2006 Omnibus Equity Compensation Plan (the “Plan”). The terms of the grant are set forth in the Incentive
Stock Option Grant Agreement (the “Grant”) provided to you. The following provides a summary of the key terms of the Grant;
however, you should read the entire Grant, along with the terms of the Plan, to understand the Grant fully.
Grantee:
Date of Grant:
Options Granted:
Option Price per share:
Total Cost to Exercise:
Jason L. Shrinsky
February 24, 2016
30,000
$ 3.09
$92,700
Exercisability Schedule:
15,000 on February 24, 2016
15,000 on May 15, 2017*
Term/Expiration Date:
February 23, 2026 unless terminated earlier.
Transferability:
Not transferable except in accordance with the Plan.
*Grantee must be serving as a director of the Company (as defined in the Plan) on the applicable date for the option to become
exercisable.
-5-
SPANISH BROADCASTING SYSTEM, INC.
2006 OMNIBUS EQUITY COMPENSATION PLAN
STOCK OPTION GRANT AGREEMENT
Exhibit 10.36
This STOCK OPTION GRANT AGREEMENT (the “Agreement”), dated as of February 24, 2016 (the “Date of Grant”), is
delivered by Spanish Broadcasting System, Inc. (the “Company” or “SBS”), to you (the “Grantee”). Capitalized terms used herein but
not defined herein have the meanings given to them in the Spanish Broadcasting System, Inc. 2006 Omnibus Equity Compensation
Plan.
RECITALS
A. The Spanish Broadcasting System, Inc. 2006 Omnibus Equity Compensation Plan (the “Plan”) attached hereto as Exhibit A
provides for the grant of a stock options to purchase shares of Class A common stock, $0.0001 par value per share, of the Company
(the “Common Stock”).
B. The Compensation Committee of the Board of Directors of the Company (the “Committee”) has decided to make a stock
option grant, subject to the terms and conditions set forth in the Agreement and the Plan to align the economic interests of Grantee
with those of the Company’s stockholders.
C. The Board has appointed the Committee to administer the Plan.
NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby, agree as follows:
1. Grant of Options. Subject to the terms and conditions set forth in this Agreement and in the Plan, the Company hereby grants to
Grantee stock options (the “Options”) to purchase the shares of Common Stock of the Company (“Shares”) at a specified exercise
price per Share set forth on Schedule A. The Options shall become exercisable according to Section 2 below.
2. Exercisability of Options. The Options shall be exercisable in such installments and at such times as set forth on Schedule A, if
Grantee is serving as a director on the applicable date. To the extent not exercised, installments shall accumulate and may be
exercised, in whole or in part, at any time after becoming exercisable, but not later than the date the Options expire. The Committee
may accelerate the exercisability of any or all-outstanding Options at any time for any reason. Notwithstanding the foregoing, any
installment of the Options that is not exercisable prior to a Change in Control shall become exercisable on the date of such Change in
Control and shall remain exercisable for the remainder of their term so long as Grantee is serving as a director immediately prior to the
Change of Control.
3. Term of Options. The Options shall be for such term as is specified in Schedule A, unless they are terminated at an earlier date
pursuant to the provisions of this Agreement or the Plan.
4. Exercise of Options After Termination of Service as a Director. The Options granted under this Agreement are exercisable by
Grantee only while he is serving as a director of the Company, provided that any installment of the Options that is exercisable
preceding Grantee’s termination of service as a director of the Company shall remain exercisable for the following period:
(i) If Grantee dies while serving as a director of the Company, or if his termination of service is due to disability, Grantee
(or his designated beneficiary or personal representative, as applicable) may exercise the Options no later than twelve (12)
months after such death or termination;
(ii) If Grantee’s termination of service as a director of the Company is for any reason other than those set forth in (i)
above, Grantee may exercise the Options within three (3) months after such termination; or
(iii) If Grantee dies during a period described in (i) or (ii) above, his designated beneficiary may exercise such Options no
later than the expiration of such extended period.
Notwithstanding (i) through (iii) above or anything in this Agreement or the Plan to the contrary, at any time after the grant of
Options, the Committee, in its sole and absolute discretion and subject to whatever terms and conditions it selects, may provide that
Options may be exercised after the relevant extended period set forth above, but in no event later than the date that it would have
expired under this Agreement.
5. Exercise Procedures.
(a) Subject to the provisions of Sections 2 and 3 above, Grantee may exercise part or all of the exercisable Options by giving the
Company written notice (in person or by first class mail to the Secretary of the Company at the Company’s principal executive office)
of Grantee’s intent to exercise the Options in the manner provided in this Agreement, specifying the number of Shares as to which the
Options are to be exercised and is accompanied by full payment therefor. The purchase price for any Shares purchased pursuant to the
exercise of Options shall be paid in full upon such exercise in cash, by check or, at the discretion of the Committee and upon such
terms and conditions as the Committee shall approve, by transferring previously owned Shares to the Company, having Shares
withheld or exercising pursuant to a “cashless exercise” procedure, or any combination thereof. Any Shares transferred to the
Company as payment of the purchase price under such Options shall be valued at their Fair Market Value on the date of exercise of
such Options. If requested by the Committee, Grantee shall deliver the Agreement evidencing the Options to the Secretary of the
Company who shall endorse thereon a notation of such exercise and return such Option Agreement to Grantee. Not less than one
hundred (100) Shares may be purchased at any time upon the exercise of Options unless the number of Shares so purchased
constitutes the total number of Shares then purchasable under the Options or the Committee determines otherwise, in its sole
discretion. The Committee may impose from time to time such limitations as it deems appropriate on the use of Shares of the
Company to exercise the Option.
(b) The obligation of the Company to deliver Shares upon exercise of the Options shall be subject to all applicable laws, rules,
and regulations and such approvals by governmental agencies as may be deemed appropriate by the Committee, including such
actions as Company counsel shall deem necessary or appropriate to comply with relevant securities laws and regulations.
(c) All obligations of the Company under this Agreement shall be subject to the rights of the Company as set forth in the Plan to
withhold amounts required to be withheld for any taxes, if applicable. Subject to Committee approval, Grantee may elect to satisfy
any such tax withholding obligation with respect to the Options by having Shares withheld up to an amount that does not exceed the
minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities.
6. Change of Control. The provisions of the Plan applicable to a Change in Control shall apply to the Options, and, in the event of a
Change in Control, the Options shall automatically become fully exercisable so long as Grantee was serving as a director of the
Company prior to the Change in Control.
7. Restrictions on Exercise. Except as the Committee may otherwise permit pursuant to the Plan, only Grantee may exercise the
Option during Grantee’s lifetime and, after Grantee’s death, the Option shall be exercisable (subject to the limitations specified in the
Plan) solely by the legal representatives of Grantee, or by the person who acquires the right to exercise the Options by will or by the
laws of descent and distribution, to the extent that the Options are exercisable pursuant to this Agreement.
8. Grant Subject to Plan Provisions. This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference,
and in all respects shall be interpreted in accordance with the Plan. The grant and exercise of the Options are subject to
interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with
the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights and obligations with respect to withholding
taxes, (ii) the registration, qualification or listing of the Shares, (iii) changes in capitalization of the Company and (iv) other
requirements of applicable law. The Committee shall have the authority to interpret and construe the Options pursuant to the terms of
the Plan, and its decisions shall be conclusive as to any questions arising hereunder.
9. No Stockholder Rights. Neither Grantee, nor any person entitled to exercise Grantee’s rights in the event of Grantee’s death, shall
have any of the rights and privileges of a stockholder with respect to the Shares subject to the Options, until the Shares have been
issued upon the exercise of the Options.
10. Assignment and Transfers. Except as the Committee may otherwise permit pursuant to the Plan, the rights and interests of Grantee
under this Agreement may not be pledged, sold, assigned, encumbered, hypothecated to or otherwise transferred in favor of any party
other than the Company or a Subsidiary except, in the event of the death of Grantee, by will or by the laws of descent and distribution.
In the event of any attempt by Grantee to alienate, assign, pledge, hypothecate, or otherwise dispose of the Options or any right
hereunder, except as provided for in this Agreement, or in the event of the levy or any attachment, execution or similar process upon
the rights or interests hereby conferred, the Company may terminate the Options by notice to Grantee, and the Options and all rights
hereunder shall thereupon become null and void. The rights and protections of the Company hereunder shall extend to any successors
or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates. This Agreement may be assigned by the
Company without Grantee’s consent.
-2-
11. Tax Consequences and Withholding. The exercise of the Options will result in taxable income to Grantee, subject to withholding,
and Grantee (or Grantee’s legal representative in the event of death) shall be solely responsible for all tax consequences that result
from the exercise of the Options, as well as any subsequent sale of the Shares received upon exercise of the Options. Grantee (or
Grantee’s legal representatives in the event of death) shall pay to the Company, or make other arrangements satisfactory to the
Company to provide for the payment of, any federal, state, local or other taxes that the Company is required to withhold with respect
to the exercise of the Options.
12. Applicable Law. The validity, construction, interpretation and effect of this instrument shall be governed by and construed by and
determined in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof.
13. Notice. Any notice to the Company provided for in this instrument shall be addressed to the Company in care of the Chief
Financial Officer (or his designee), at 7007 N.W. 77th Avenue, Miami, Florida 33166 and any notice to Grantee shall be addressed to
such Grantee at the current address on the Company’s records, to such other address as Grantee may designate to the Company in
writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above,
registered and deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.
[Remainder of page intentionally left blank]
-3-
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute and attest this Agreement, and
Grantee has executed this Agreement, effective as of the Date of Grant.
SPANISH BROADCASTING SYSTEM, INC.
/s/ Joseph A. García
By:
Name: Joseph A. García
Title: Sr. EVP & CFO
I hereby accept the Options described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I
hereby further agree that all the decisions and determinations of the Compensation Committee shall be final and binding.
Grantee: /s/ José A. Villamil
Address: On File
Date:
As of February 24, 2016
-4-
SPANISH BROADCASTING SYSTEM, INC.
2006 EQUITY COMPENSATION PLAN
INCENTIVE STOCK OPTION GRANT
SCHEDULE A
The Compensation Committee of the Board of Directors of Spanish Broadcasting System, Inc. (the “Company”) has determined
to grant to you (the “Grantee”) incentive stock options to purchase shares of common stock of the Company under the Spanish
Broadcasting System, Inc. 2006 Omnibus Equity Compensation Plan (the “Plan”). The terms of the grant are set forth in the Incentive
Stock Option Grant Agreement (the “Grant”) provided to you. The following provides a summary of the key terms of the Grant;
however, you should read the entire Grant, along with the terms of the Plan, to understand the Grant fully.
Grantee:
Date of Grant:
Options Granted:
Option Price per share:
Total Cost to Exercise:
José A. Villamil
February 24, 2016
30,000
$ 3.09
$92,700
Exercisability Schedule:
15,000 on February 24, 2016
15,000 on May 15, 2017*
Term/Expiration Date:
February 23, 2026 unless terminated earlier.
Transferability:
Not transferable except in accordance with the Plan.
*Grantee must be serving as a director of the Company (as defined in the Plan) on the applicable date for the option to become
exercisable.
-5-
SPANISH BROADCASTING SYSTEM, INC.
2006 OMNIBUS EQUITY COMPENSATION PLAN
STOCK OPTION GRANT AGREEMENT
Exhibit 10.37
This STOCK OPTION GRANT AGREEMENT (the “Agreement”), dated as of February 24, 2016 (the “Date of Grant”), is
delivered by Spanish Broadcasting System, Inc. (the “Company” or “SBS”), to you (the “Grantee”). Capitalized terms used herein but
not defined herein have the meanings given to them in the Spanish Broadcasting System, Inc. 2006 Omnibus Equity Compensation
Plan.
RECITALS
A. The Spanish Broadcasting System, Inc. 2006 Omnibus Equity Compensation Plan (the “Plan”) attached hereto as Exhibit A
provides for the grant of a stock options to purchase shares of Class A common stock, $0.0001 par value per share, of the Company
(the “Common Stock”).
B. The Compensation Committee of the Board of Directors of the Company (the “Committee”) has decided to make a stock
option grant, subject to the terms and conditions set forth in the Agreement and the Plan to align the economic interests of Grantee
with those of the Company’s stockholders.
C. The Board has appointed the Committee to administer the Plan.
NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby, agree as follows:
1. Grant of Options. Subject to the terms and conditions set forth in this Agreement and in the Plan, the Company hereby grants to
Grantee stock options (the “Options”) to purchase the shares of Common Stock of the Company (“Shares”) at a specified exercise
price per Share set forth on Schedule A. The Options shall become exercisable according to Section 2 below.
2. Exercisability of Options. The Options shall be exercisable in such installments and at such times as set forth on Schedule A, if
Grantee is serving as a director on the applicable date. To the extent not exercised, installments shall accumulate and may be
exercised, in whole or in part, at any time after becoming exercisable, but not later than the date the Options expire. The Committee
may accelerate the exercisability of any or all-outstanding Options at any time for any reason. Notwithstanding the foregoing, any
installment of the Options that is not exercisable prior to a Change in Control shall become exercisable on the date of such Change in
Control and shall remain exercisable for the remainder of their term so long as Grantee is serving as a director immediately prior to the
Change of Control.
3. Term of Options. The Options shall be for such term as is specified in Schedule A, unless they are terminated at an earlier date
pursuant to the provisions of this Agreement or the Plan.
4. Exercise of Options After Termination of Service as a Director. The Options granted under this Agreement are exercisable by
Grantee only while he is serving as a director of the Company, provided that any installment of the Options that is exercisable
preceding Grantee’s termination of service as a director of the Company shall remain exercisable for the following period:
(i) If Grantee dies while serving as a director of the Company, or if his termination of service is due to disability, Grantee
(or his designated beneficiary or personal representative, as applicable) may exercise the Options no later than twelve (12)
months after such death or termination;
(ii) If Grantee’s termination of service as a director of the Company is for any reason other than those set forth in (i)
above, Grantee may exercise the Options within three (3) months after such termination; or
(iii) If Grantee dies during a period described in (i) or (ii) above, his designated beneficiary may exercise such Options no
later than the expiration of such extended period.
Notwithstanding (i) through (iii) above or anything in this Agreement or the Plan to the contrary, at any time after the grant of
Options, the Committee, in its sole and absolute discretion and subject to whatever terms and conditions it selects, may provide that
Options may be exercised after the relevant extended period set forth above, but in no event later than the date that it would have
expired under this Agreement.
5. Exercise Procedures.
(a) Subject to the provisions of Sections 2 and 3 above, Grantee may exercise part or all of the exercisable Options by giving the
Company written notice (in person or by first class mail to the Secretary of the Company at the Company’s principal executive office)
of Grantee’s intent to exercise the Options in the manner provided in this Agreement, specifying the number of Shares as to which the
Options are to be exercised and is accompanied by full payment therefor. The purchase price for any Shares purchased pursuant to the
exercise of Options shall be paid in full upon such exercise in cash, by check or, at the discretion of the Committee and upon such
terms and conditions as the Committee shall approve, by transferring previously owned Shares to the Company, having Shares
withheld or exercising pursuant to a “cashless exercise” procedure, or any combination thereof. Any Shares transferred to the
Company as payment of the purchase price under such Options shall be valued at their Fair Market Value on the date of exercise of
such Options. If requested by the Committee, Grantee shall deliver the Agreement evidencing the Options to the Secretary of the
Company who shall endorse thereon a notation of such exercise and return such Option Agreement to Grantee. Not less than one
hundred (100) Shares may be purchased at any time upon the exercise of Options unless the number of Shares so purchased
constitutes the total number of Shares then purchasable under the Options or the Committee determines otherwise, in its sole
discretion. The Committee may impose from time to time such limitations as it deems appropriate on the use of Shares of the
Company to exercise the Option.
(b) The obligation of the Company to deliver Shares upon exercise of the Options shall be subject to all applicable laws, rules,
and regulations and such approvals by governmental agencies as may be deemed appropriate by the Committee, including such
actions as Company counsel shall deem necessary or appropriate to comply with relevant securities laws and regulations.
(c) All obligations of the Company under this Agreement shall be subject to the rights of the Company as set forth in the Plan to
withhold amounts required to be withheld for any taxes, if applicable. Subject to Committee approval, Grantee may elect to satisfy
any such tax withholding obligation with respect to the Options by having Shares withheld up to an amount that does not exceed the
minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities.
6. Change of Control. The provisions of the Plan applicable to a Change in Control shall apply to the Options, and, in the event of a
Change in Control, the Options shall automatically become fully exercisable so long as Grantee was serving as a director of the
Company prior to the Change in Control.
7. Restrictions on Exercise. Except as the Committee may otherwise permit pursuant to the Plan, only Grantee may exercise the
Option during Grantee’s lifetime and, after Grantee’s death, the Option shall be exercisable (subject to the limitations specified in the
Plan) solely by the legal representatives of Grantee, or by the person who acquires the right to exercise the Options by will or by the
laws of descent and distribution, to the extent that the Options are exercisable pursuant to this Agreement.
8. Grant Subject to Plan Provisions. This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference,
and in all respects shall be interpreted in accordance with the Plan. The grant and exercise of the Options are subject to
interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with
the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights and obligations with respect to withholding
taxes, (ii) the registration, qualification or listing of the Shares, (iii) changes in capitalization of the Company and (iv) other
requirements of applicable law. The Committee shall have the authority to interpret and construe the Options pursuant to the terms of
the Plan, and its decisions shall be conclusive as to any questions arising hereunder.
9. No Stockholder Rights. Neither Grantee, nor any person entitled to exercise Grantee’s rights in the event of Grantee’s death, shall
have any of the rights and privileges of a stockholder with respect to the Shares subject to the Options, until the Shares have been
issued upon the exercise of the Options.
10. Assignment and Transfers. Except as the Committee may otherwise permit pursuant to the Plan, the rights and interests of Grantee
under this Agreement may not be pledged, sold, assigned, encumbered, hypothecated to or otherwise transferred in favor of any party
other than the Company or a Subsidiary except, in the event of the death of Grantee, by will or by the laws of descent and distribution.
In the event of any attempt by Grantee to alienate, assign, pledge, hypothecate, or otherwise dispose of the Options or any right
hereunder, except as provided for in this Agreement, or in the event of the levy or any attachment, execution or similar process upon
the rights or interests hereby conferred, the Company may terminate the Options by notice to Grantee, and the Options and all rights
hereunder shall thereupon become null and void. The rights and protections of the Company hereunder shall extend to any successors
or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates. This Agreement may be assigned by the
Company without Grantee’s consent.
-2-
11. Tax Consequences and Withholding. The exercise of the Options will result in taxable income to Grantee, subject to withholding,
and Grantee (or Grantee’s legal representative in the event of death) shall be solely responsible for all tax consequences that result
from the exercise of the Options, as well as any subsequent sale of the Shares received upon exercise of the Options. Grantee (or
Grantee’s legal representatives in the event of death) shall pay to the Company, or make other arrangements satisfactory to the
Company to provide for the payment of, any federal, state, local or other taxes that the Company is required to withhold with respect
to the exercise of the Options.
12. Applicable Law. The validity, construction, interpretation and effect of this instrument shall be governed by and construed by and
determined in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof.
13. Notice. Any notice to the Company provided for in this instrument shall be addressed to the Company in care of the Chief
Financial Officer (or his designee), at 7007 N.W. 77th Avenue, Miami, Florida 33166 and any notice to Grantee shall be addressed to
such Grantee at the current address on the Company’s records, to such other address as Grantee may designate to the Company in
writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above,
registered and deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.
[Remainder of page intentionally left blank]
-3-
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute and attest this Agreement, and
Grantee has executed this Agreement, effective as of the Date of Grant.
SPANISH BROADCASTING SYSTEM, INC.
/s/ Joseph A. García
By:
Name: Joseph A. García
Title: Sr. EVP & CFO
I hereby accept the Options described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I
hereby further agree that all the decisions and determinations of the Compensation Committee shall be final and binding.
Grantee: /s/ Mitchell A. Yelen
Address:On File
Date: As of February 24, 2016
-4-
SPANISH BROADCASTING SYSTEM, INC.
2006 EQUITY COMPENSATION PLAN
INCENTIVE STOCK OPTION GRANT
SCHEDULE A
The Compensation Committee of the Board of Directors of Spanish Broadcasting System, Inc. (the “Company”) has determined
to grant to you (the “Grantee”) incentive stock options to purchase shares of common stock of the Company under the Spanish
Broadcasting System, Inc. 2006 Omnibus Equity Compensation Plan (the “Plan”). The terms of the grant are set forth in the Incentive
Stock Option Grant Agreement (the “Grant”) provided to you. The following provides a summary of the key terms of the Grant;
however, you should read the entire Grant, along with the terms of the Plan, to understand the Grant fully.
Grantee:
Date of Grant:
Options Granted:
Option Price per share:
Total Cost to Exercise:
Mitchell A. Yelen
February 24, 2016
30,000
$ 3.09
$92,700
Exercisability Schedule:
15,000 on February 24, 2016
15,000 on May 15, 2017*
Term/Expiration Date:
February 23, 2026 unless terminated earlier.
Transferability:
Not transferable except in accordance with the Plan.
*Grantee must be serving as a director of the Company (as defined in the Plan) on the applicable date for the option to become
exercisable.
-5-
List of Subsidiaries of Spanish Broadcasting System, Inc.
Subsidiary name
AIRE Radio Network LLC
Alarcon Holdings, Inc.
Broadspan Music Holdings, Inc.
Broadspan Music, Inc.
Gabriel Productions, LLC
Gabriel Series I, LLC
JuJu Media, Inc.
KLAX Licensing, Inc.
KLEY Licensing, Inc.
KPTI Licensing, Inc.
KRZZ Licensing, LLC
KSAH Licensing, Inc.
KTBU Licensing, Inc.
KXOL Licensing, Inc.
KZAB Licensing, Inc.
KZBA Licensing, Inc.
Mega Media Holdings, Inc.
Megafilms, Inc.
Megaflix, Inc.
Megaholdings, Inc.
Megapics, Inc.
SBS Bay Area, LLC
SBS Funding, Inc.
SBS Miami Broadcast Center, Inc.
SBS of Greater New York, Inc.
SBS Promotions, Inc.
Spanish Broadcasting System Finance Corporation
Spanish Broadcasting System Holding Company, Inc.
Spanish Broadcasting System Inc. (NJ)
Spanish Broadcasting System Network, Inc.
Spanish Broadcasting System of California, Inc.
Spanish Broadcasting System of Florida, Inc.
Spanish Broadcasting System of Greater Miami, Inc.
Spanish Broadcasting System of Illinois, Inc.
Spanish Broadcasting System of Puerto Rico, Inc.
Spanish Broadcasting System of Puerto Rico, Inc.
Spanish Broadcasting System of San Antonio, Inc.
Spanish Broadcasting System SouthWest, Inc.
Spanish Broadcasting System-San Francisco, Inc.
WRXD Licensing, Inc.
WCMQ Licensing, Inc.
WDEK Licensing, Inc.
WKIE Licensing, Inc.
WKIF Licensing, Inc.
WLEY Licensing, Inc.
WMEG Licensing, Inc.
WPAT Licensing, Inc.
WRMA Licensing, Inc.
WSBS Licensing Inc. (f/k/a WDLP Licensing, Inc.)
WSKQ Licensing, Inc.
WXDJ Licensing, Inc.
WZET Licensing, Inc.
Exhibit 21.1
State of incorporation
Delaware
New York
Delaware
Delaware
Delaware
Delaware
New York
Delaware
Delaware
Delaware
Delaware
Delaware
Texas
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
New York
New York
Delaware
Puerto Rico
New Jersey
New York
California
Florida
Delaware
Delaware
Delaware
Puerto Rico
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statement No. 333-144286 on Form S-8 of Spanish Broadcasting
System, Inc. of our report dated April 19, 2017 relating to the consolidated financial statements and schedule, appearing in this Annual
Report on Form 10-K.
Exhibit 23.1
/s/ Crowe Horwath LLP
Fort Lauderdale, Florida
April 19, 2017
Exhibit 31.1
I, Raúl Alarcón, certify that:
Certification
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2016 of Spanish Broadcasting System, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Raúl Alarcón
Name: Raúl Alarcón
Title: Chief Executive Officer and President
April 19, 2017
Exhibit 31.2
I, Joseph A. García, certify that:
Certification
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2016 of Spanish Broadcasting System, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Joseph A. García
Name: Joseph A. García
Title: Chief Financial Officer, Chief Administrative Officer,
Senior Executive Vice President and Secretary
April 19, 2017
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report of Spanish Broadcasting System, Inc. (the ‘‘Company’’) on Form 10-K for the period ended
December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, Raúl Alarcón, as
Chairman of the Board of Directors, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1)
2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m or 78o(d)); and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/ Raúl Alarcón
Name: Raúl Alarcón
Title: Chief Executive Officer and President
April 19, 2017
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
In connection with the Annual Report of Spanish Broadcasting System, Inc. (the ‘‘Company’’) on Form 10-K for the period ended
December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, Joseph A. García, as
Chief Financial Officer, Executive Vice President and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1)
2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m or 78o(d)); and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/ Joseph A. García
Name: Joseph A. García
Title: Chief Financial Officer, Chief Administrative Officer,
Senior Executive Vice President and Secretary
April 19, 2017