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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
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 1-15997
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ENTRAVISION COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-4783236
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2425 Olympic Boulevard, Suite 6000 West
Santa Monica, California 90404
(Address of principal executive offices) (Zip Code)
(310) 447-3870
(Registrant's telephone number, including area code)
______________
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [_]
As of August 7, 2001, there were 66,132,620 shares, $0.0001 par value
per share, of the registrant's Class A common stock outstanding, 27,678,533
shares, $0.0001 par value per share, of the registrant's Class B common stock
outstanding and 21,983,392 shares, $0.0001 par value per share, of the
registrant's Class C common stock outstanding.
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ENTRAVISION COMMUNICATIONS CORPORATION
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2001 (Unaudited)
and December 31, 2000.................................................. 3
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2001 (Unaudited) and June 30, 2000 (Unaudited).......... 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2001 (Unaudited) and June 30, 2000 (Unaudited).......... 6
Notes to Consolidated Financial Statements (Unaudited)................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation................................................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk............. 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 26
Item 2. Changes in Securities and Use of Proceeds.............................. 26
Item 3. Defaults Upon Senior Securities........................................ 26
Item 4. Submission of Matters to a Vote of Security Holders.................... 27
Item 5. Other Information...................................................... 28
Item 6. Exhibits and Reports on Form 8-K....................................... 28
Forward Looking Statements
This Form 10-Q contains forward-looking statements, including statements
concerning our expectations of future revenue, expenses, the outcome of our
growth and acquisition strategy and the projected growth of the Hispanic
population in the United States. Forward-looking statements often include words
or phrases such as "will likely result," "expect," "will continue,"
"anticipate," "may," "estimate," "intend," "plan," "project," "outlook," "seek"
or similar expressions. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and other factors,
some of which are beyond our control, are difficult to predict and could cause
actual results to differ materially from those expressed in the forward-looking
statements. Factors which could cause actual results to differ from expectations
include those under the heading "Factors that May Affect Future Results" in our
Form 10-Q for the quarter ended June 30, 2000. Our results of operations may be
adversely affected by one or more of these factors. We caution you not to place
undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this Form 10-Q.
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
June 30, December 31,
2001 2000
-------------- --------------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 24,603 $ 69,224
Receivables:
Trade, net of allowance for doubtful accounts of
2001 $5,686; 2000 $5,966 (including amounts due from
Univision of 2001 $367; 2000 $0) 45,326 38,274
Related parties 273 273
Prepaid expenses and other current assets 5,208 3,038
Deferred taxes 3,551 11,244
-------------- --------------
Total current assets 78,961 122,053
Property and equipment, net 178,075 169,289
Intangible assets, net 1,308,547 1,257,348
Other assets, including amounts due from related parties of 2001 $581; 2000
$562 and deposits on acquisitions of 2001 $402; 2000 $2,689 11,220 11,803
-------------- --------------
$ 1,576,803 $ 1,560,493
============== ==============
3
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of notes and advances payable, related parties $ 196 $ 201
Current maturities of long-term debt 10,858 2,452
Accounts payable and accrued expenses (including related parties of 2001
$504; 2000 $711 which includes amounts due to Univision of 2001
$412; 2000 $362) 23,796 30,274
-------------- --------------
Total current liabilities 34,850 32,927
-------------- --------------
Notes payable, less current maturities 243,133 252,495
Other long-term liabilities 6,367 6,672
Deferred taxes 181,264 132,419
-------------- --------------
Total liabilities 465,614 424,513
-------------- --------------
Commitments and contingencies
Series A mandatorily redeemable convertible preferred stock, $0.0001 par value,
11,000,000 shares authorized; shares issued and outstanding 5,865,102 83,564 80,603
--------------- --------------
Stockholders' equity
Preferred stock, $.0001 par value, 39,000,000 shares authorized; none
issued and outstanding -- --
Class A common stock, $0.0001 par value, 260,000,000 shares authorized;
shares issued and outstanding 2001 66,131,698; 2000 65,626,063 7 7
Class B common stock, $0.0001 par value, 40,000,000 shares authorized;
shares issued and outstanding 27,678,533 3 3
Class C common stock, $0.0001 par value, 25,000,000 shares authorized;
shares issued and outstanding 21,983,392 2 2
Additional paid-in capital 1,097,171 1,092,865
Deferred compensation (4,381) (5,745)
Accumulated deficit (64,557) (31,147)
-------------- --------------
1,028,245 1,055,985
-------------- --------------
Less: Stock subscription notes receivable (620) (608)
-------------- --------------
1,027,625 1,055,377
-------------- --------------
$ 1,576,803 $ 1,560,493
============== ==============
See Notes to Consolidated Financial Statements
4
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share, per share and per L.L.C. membership unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------------- -------------- --------------- -------------
Net revenue (including amounts from Univision
of $610, $2,258, $786 and $3,304) $ 56,864 $ 35,660 $ 100,818 $ 52,924
--------------- -------------- --------------- -------------
Expenses:
Direct operating expenses (including
Univision national representation fees of
$1,255, $1,028, $2,202 and $1,950) 25,486 13,073 48,551 20,956
Selling, general and administrative expenses
(excluding non-cash stock-based compensation
of $795, $3,563, $1,754 and $3,563) 10,901 8,588 21,040 12,337
Corporate expenses (including related parties
of $95, $114, $157 and $183) 3,603 2,180 7,143 4,028
Non-cash stock-based compensation 795 3,563 1,754 3,563
Depreciation and amortization 29,193 10,260 59,780 15,137
--------------- -------------- --------------- -------------
69,978 37,664 138,268 56,021
--------------- -------------- --------------- -------------
Operating loss (13,114) (2,004) (37,450) (3,097)
Interest expense (including amounts to
Univision of $0, $2,103, $0 and $2,919) (5,952) (10,034) (12,767) (14,140)
Non-cash interest expense relating to
related-party beneficial conversion options - (5,461) - (37,061)
Gain on sale of media property 1,596 - 1,668 -
Interest income 388 237 1,039 446
--------------- -------------- --------------- -------------
Loss before income taxes (17,082) (17,262) (47,510) (53,852)
Income tax benefit (expense) 6,181 (165) 17,062 (159)
--------------- -------------- --------------- -------------
Net loss $ (10,901) $ (17,427) $ (30,448) $ (54,011)
Accretion of preferred stock redemption value 1,541 - 2,962 -
--------------- -------------- --------------- -------------
Net loss applicable to common stock $ (12,442) $ (17,427) $ (33,410) $ (54,011)
=============== ============== =============== =============
Pro forma provision for income tax benefit 2,676 4,454
============== =============
Pro forma net loss $ (14,586) $ (49,398)
============== =============
Per share data:
Net loss per share
Basic and diluted, 2000 pro forma $ (0.11) $ (0.45) $ (0.29) $ (1.52)
=============== ============== =============== =============
Weighted average common shares outstanding:
Basic and diluted, 2000 pro forma 115,144,312 32,635,302 114,990,182 32,501,900
=============== ============== =============== =============
Loss per L.L.C. membership unit $ (8.55) $ (26.77)
============== =============
See Notes to Consolidated Financial Statements
5
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
June 30,
--------------------------------
2001 2000
--------------- ---------------
Cash Flows from Operating Activities:
Net (Loss) $ (30,448) $ (54,011)
Adjustments to Reconcile Net (Loss) to Net Cash (Used In) Provided by
Operating Activities:
Depreciation and amortization 59,780 14,484
Deferred income taxes (benefit) (17,276) -
Amortization of debt issue costs 643 653
Amortization of syndication contracts 536 -
Intrinsic value of subordinated note exchange option - 37,061
Non-cash stock-based compensation 1,754 3,563
Gain on sale of media property and other assets (1,668) -
Changes in assets and liabilities, net of effect of business
combinations and dispositions:
(Increase) in accounts receivable (7,134) (3,705)
(Increase) in prepaid expenses and other assets (2,732) (3,059)
Increase (decrease) in accounts payable, accrued expenses and other (6,584) 9,772
--------------- ---------------
Net cash (used in) provided by operating activities (3,129) 4,758
--------------- ---------------
Cash Flows from Investing Activities:
Proceeds from disposal of media properties and other assets 2,743 25
Purchases of property and equipment (14,998) (5,066)
Cash deposits and purchase price on acquisitions (31,942) (313,860)
--------------- ---------------
Net cash (used in) investing activities (44,197) (318,901)
--------------- ---------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 3,897 -
Principal payments on notes payable (1,192) (61,796)
Proceeds from borrowing on notes payable - 381,602
Payments of deferred debt costs - (3,414)
--------------- ---------------
Net cash provided by financing activities 2,705 316,392
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (44,621) 2,249
Cash and Cash Equivalents:
Beginning 69,224 2,357
--------------- ---------------
Ending $ 24,603 $ 4,606
=============== ===============
See Notes to Consolidated Financial Statements
6
Supplemental Disclosures of Cash Flow Information:
Cash Payments for:
Interest $ 10,458 $ 7,785
=============== ===============
Income taxes $ 338 $ 327
=============== ===============
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Property and equipment acquired under capital lease obligations $ 878 $ -
=============== ===============
Assets Acquired and Debt Issued In Business Combinations:
Current assets, net of cash acquired $ - $ 19,621
Broadcast equipment and furniture and fixtures 2,053 11,816
Intangible assets 120,316 343,386
Other assets - 959
Current liabilities - (5,730)
Deferred taxes (73,498) (63,090)
Other liabilities - (1,545)
Estimated fair value allocated to option agreement - (3,015)
Estimated fair market value of properties exchanged (14,528) -
Less cash deposits from prior year (2,476) (8,500)
--------------- ---------------
Net cash paid $ 31,867 $ 293,902
=============== ===============
Exercises of exchange stock options granted in business combinations $ 1,014 $ -
=============== ===============
See Notes to Consolidated Financial Statements
7
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2001
1. Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by Entravision Communications Corporation (the "Company" or "ECC"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. These condensed
consolidated financial statements and notes thereto should be read in
conjunction with the Company's audited consolidated financial statements for the
year ended December 31, 2000 included in the Company's Form 10-K for the fiscal
year ended December 31, 2000. The unaudited information contained herein has
been prepared on the same basis as the Company's audited consolidated financial
statements and, in the opinion of the Company's management, includes all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information for the periods presented. The interim
results presented herein are not necessarily indicative of the results of
operations that may be expected for the full fiscal year ending December 31,
2001 or any other future period.
2. Initial Public Offering
On August 2, 2000, the Company completed an underwritten initial public
offering ("IPO") of 46,435,458 shares of its Class A common stock at a price of
$16.50 per share. The Company also sold 6,464,542 shares of its Class A common
stock directly to Univision Communications Inc. ("Univision") at a price of
$15.47 per share. The net proceeds to the Company, after deducting underwriting
discounts and commissions and offering expenses, were approximately $814
million.
3. The Company and Significant Accounting Policies
On February 11, 2000, ECC was formed. The First Restated Certificate of
Incorporation of ECC authorizes both common and preferred stock. The common
stock has three classes identified as A, B and C which have similar rights and
privileges, except the Class B common stock provides ten votes per share as
compared to one vote per share for all other classes of common stock. Univision,
as the holder of all Class C common stock, is entitled to vote as a separate
class to elect two directors, and has the right to vote as a separate class on
certain material transactions. Class B and C common stock is convertible at the
holder's option into one fully-paid and nonassessable share of Class A common
stock and is required to be converted into one share of Class A common stock
upon certain events as defined in the First Restated Certificate of
Incorporation. The Series A mandatorily redeemable convertible preferred stock
has limited voting rights, and accrues an 8.5% dividend.
8
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(Continued)
June 30, 2001
Effective August 2, 2000, an exchange transaction (the "Exchange
Transaction") was consummated whereby the direct and indirect ownership
interests in Entravision Communications Company, L.L.C. ("ECC LLC") were
exchanged for Class A or Class B common stock of ECC. In addition, the
stockholders of Cabrillo Broadcasting Corporation, Golden Hills Broadcasting
Corporation, Las Tres Palmas Corporation, Tierra Alta Broadcasting, Inc., KSMS-
TV, Inc., Valley Channel 48, Inc. and Telecorpus, Inc. (collectively, the
"Affiliates") exchanged their common shares of the respective corporations for
Class A common stock of ECC. Accordingly, the Affiliates became wholly-owned
subsidiaries of ECC. Additionally, Univision exchanged its subordinated note for
Class C common stock. The number of shares of common stock of ECC issued to the
members of ECC LLC and the stockholders of the Affiliates was determined in such
a manner that the ownership interest in ECC equaled the direct and indirect
ownership interest in ECC LLC immediately prior to the exchange.
ECC LLC and the Affiliates were considered to be under common control and,
as such, the exchange was accounted for in a manner similar to a pooling of
interests.
Earnings Per Share
Basic earnings per share is computed as net income (loss) less accretion of
the discount on Series A mandatorily redeemable convertible preferred stock,
divided by the weighted average number of shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur from
shares issuable through options and convertible securities.
For the three and six months ended June 30, 2001, all dilutive securities
have been excluded because their inclusion would have had an antidilutive effect
on earnings per share. As of June 30, 2001, the securities whose conversion
would result in an incremental number of shares that would be included in
determining the weighted average shares outstanding for diluted earnings per
share if their effect was not antidilutive are as follows: 5,258,158 stock
options, 357,045 unvested stock grants subject to repurchase and 5,865,102
shares of Series A mandatorily redeemable convertible preferred stock.
Earnings Per Membership Unit
Basic earnings per membership unit is computed as net income (loss) divided
by the number of membership units outstanding as of the last day of the period.
Diluted earnings per unit reflects the potential dilution that could occur from
membership units issuable through options and convertible securities. For the
three and six months ended June 30, 2000, all dilutive securities have been
excluded because their inclusion would have had an antidilutive effect on
earnings per membership unit.
9
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(Continued)
June 30, 2001
The following table sets forth the calculation of loss per membership unit:
Three months ended Six months ended
June 30, 2000 June 30, 2000
(In thousands, except membership units)
Net loss $ (17,427) $ (54,011)
Less: Net loss of member corporations (736) (1,757)
------------- -------------
Net loss applicable to L.L.C. members $ (16,691) $ (52,254)
============= =============
L.L.C. membership units outstanding 1,952,035 1,952,035
============= =============
Pro Forma Income Tax Adjustments and Pro Forma Earnings Per Share
Pro forma income tax information is included in these financial
statements for the three and six months ended June 30, 2000 to show what the
significant effects might have been on the historical statements of operations
had the Company and its affiliates not been treated as flow-through entities not
subject to income taxes. The pro forma information reflects a benefit for income
taxes at the assumed effective rate for the three and six months ended June 30,
2000.
The weighted average number of shares of common stock outstanding during
the three and six month periods ended June 30, 2000 used to compute pro forma
basic and diluted net loss per share is based on the conversion ratio used to
exchange ECC LLC membership units and member corporation shares for shares of
ECC's common stock in the Exchange Transaction.
4. Business Acquisitions and Dispositions
During the six months ended June 30, 2001, the Company acquired radio
station KXGM-FM in Dallas, Texas in exchange for approximately $19.2 million in
cash and two of its radio stations with a fair market value of approximately
$14.5 million. This exchange transaction was accounted for at fair value with no
gain or loss recognized. In a separate transaction, the Company also acquired
radio station KDVA-FM in Phoenix, Arizona for approximately $10.1 million in
cash. Additionally the Company acquired a construction permit for television
station KPMR-TV in Santa Barbara, California for approximately $4.8 million in
cash.
In June 2001, the Company sold two of its radio stations, KEWE-AM and
KHHZ-FM in Oroville, California, for approximately $2.6 million. The gain on the
sale of these radio stations was approximately $1.6 million.
10
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(Continued)
June 30, 2001
Pro Forma Results
The following pro forma results of continuing operations give effect to the
Company's 2001 and 2000 acquisitions as if they had occurred on January 1, 2000
and 1999, respectively. The unaudited pro forma results have been prepared using
the historical financial statements of the Company and each acquired entity if
considered a business. The unaudited pro forma results give effect to certain
adjustments including amortization of goodwill, depreciation of property and
equipment, interest expense and the related tax effects as if the Company had
been a tax paying entity since January 1, 2000. Additionally, pro forma basic
and diluted net loss per share has been calculated as if our reorganization had
occurred as of January 1, 2000.
Three months ended Six months ended
June 30 June 30
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
(In millions, except per share data)
Net revenue............................ $ 56.9 $ 53.5 $ 100.8 $ 92.0
Net loss............................... (12.6) (25.2) (33.6) (75.6)
Basic and diluted net loss per share... $ (0.11) $ (0.42) $ (0.29) $ (1.25)
The above pro forma financial information does not purport to be indicative
of the results of operations had the 2001 and 2000 acquisitions actually taken
place on January 1, 2000 and 1999, respectively, nor is it intended to be a
projection of future results or trends.
5. Stock Options and Grants
2000 Omnibus Equity Incentive Plan
In June 2000, the Company adopted a 2000 Omnibus Equity Incentive Plan (the
"Plan") that allows for the award of up to 11,500,000 shares of Class A common
stock. Awards under the Plan may be in the form of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock or stock
units. The Plan is administered by a committee which is appointed by the
Company's Board of Directors. This committee determines the type, number,
vesting requirements and other features and conditions of such awards.
The Company issued a total of 639,958 stock options in the first six months
of 2001 to various employees and non-employee directors of the Company under the
Plan.
11
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(Continued)
June 30, 2001
6. Segment Information
Upon completion of the business and asset acquisitions during 2000,
management determined that the Company operates in four reportable segments
based upon the type of advertising medium, which consist of television
broadcasting, radio broadcasting, outdoor advertising and newspaper publishing.
As a result of the redetermination of reportable segments in 2000, all
previously reported information has been retroactively restated to be consistent
with the presentation management currently utilizes to determine its reportable
segments. Information about each of the operating segments follows:
Television Broadcasting
The Company operates 37 television stations primarily in the southwestern
United States, consisting primarily of Univision affiliates.
Radio Broadcasting
The Company operates 54 radio stations (39 FM and 15 AM) located primarily
in Arizona, California, Colorado, Florida, Illinois, Nevada, New Mexico and
Texas.
Outdoor Advertising
The Company owns approximately 11,200 billboards in Los Angeles and New
York.
Newspaper Publishing (Print)
The Company's newspaper publishing operation consists of a publication in
New York.
12
Separate financial data for each of the Company's operating segments is
provided below. Segment operating loss is defined as operating loss before
corporate expenses and non-cash stock-based compensation. There have been no
significant sources of revenue generated outside the United States during the
three and six month periods ended June 30, 2001 and 2000. The Company evaluates
the performance of its operating segments based on the following (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Net Revenue
Television................................. $ 24,418 $ 22,678 $ 44,247 $ 38,917
Radio...................................... 18,134 8,772 31,110 9,797
Outdoor.................................... 9,265 - 15,763 -
Print...................................... 5,047 4,210 9,698 4,210
-------------- -------------- -------------- --------------
Consolidated............................... $ 56,864 $ 35,660 $ 100,818 $ 52,924
============== ============== ============== ==============
Direct Expenses
Television................................. $ 9,969 $ 8,720 $ 18,955 $ 15,956
Radio...................................... 6,844 2,199 12,768 2,846
Outdoor.................................... 5,201 - 9,930 -
Print...................................... 3,472 2,154 6,898 2,154
-------------- -------------- -------------- --------------
Consolidated............................... $ 25,486 $ 13,073 $ 48,551 $ 20,956
============== ============== ============== ==============
Selling, General and Administrative Expenses
Television................................. $ 4,693 $ 4,101 $ 9,107 $ 7,618
Radio...................................... 4,065 3,271 8,012 3,503
Outdoor.................................... 1,198 - 2,069 -
Print...................................... 945 1,216 1,852 1,216
-------------- -------------- -------------- --------------
Consolidated............................... $ 10,901 $ 8,588 $ 21,040 $ 12,337
============== ============== ============== ==============
Depreciation and Amortization
Television................................. $ 7,302 $ 5,547 $ 14,445 $ 10,008
Radio...................................... 16,760 4,614 34,782 5,030
Outdoor.................................... 4,836 - 9,641 -
Print...................................... 295 99 912 99
-------------- -------------- -------------- --------------
Consolidated............................... $ 29,193 $ 10,260 $ 59,780 $ 15,137
============== ============== ============== ==============
Segment Operating Profit (Loss)
Television................................. $ 2,454 $ 4,310 $ 1,740 $ 5,335
Radio...................................... (9,535) (1,312) (24,452) (1,582)
Outdoor.................................... (1,970) - (5,877) -
Print...................................... 335 741 36 741
-------------- -------------- -------------- --------------
Consolidated............................... $ (8,716) $ 3,739 $ (28,553) $ 4,494
============== ============== ============== ==============
Corporate Expenses............................ 3,603 2,180 7,143 4,028
Non-Cash Stock-Based Compensation............. 795 3,563 1,754 3,563
-------------- -------------- -------------- --------------
Consolidated Operating (Loss)................. $ (13,114) $ (2,004) $ (37,450) $ (3,097)
============== ============== ============== ==============
13
Total Assets
Television................................. $ 439,779 $ 515,698 $ 439,779 $ 515,698
Radio...................................... 846,635 84,258 846,635 84,258
Outdoor.................................... 282,651 - 282,651 -
Print...................................... 7,738 4,345 7,738 4,345
-------------- -------------- -------------- --------------
Consolidated............................... $ 1,576,803 $ 604,301 $ 1,576,803 $ 604,301
============== ============== ============== ==============
Capital Expenditures
Television.................................. $ 6,996 $ 1,857 $ 14,480 $ 4,550
Radio....................................... 560 504 1,142 504
Outdoor..................................... 1 - 195 -
Print....................................... 45 12 59 12
-------------- -------------- -------------- --------------
Consolidated................................ $ 7,602 $ 2,373 $ 15,876 $ 5,066
============== ============== ============== ==============
14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Overview
We operate 37 television stations and 54 radio stations primarily in
the Southwestern United States where the majority of U.S. Hispanics live,
including the U.S./Mexican border markets. Our television stations consist
primarily of Univision affiliates serving 21 of the top 50 U.S. Hispanic
markets. Our radio stations consist of 39 FM and 15 AM stations serving portions
of the Arizona, California, Colorado, Florida, Illinois, Nevada, New Mexico and
Texas markets.
We were organized as a Delaware limited liability company in January 1996
to combine the operations of our predecessor entities. On August 2, 2000 we
completed a reorganization in which all of the outstanding direct and indirect
membership interests of our predecessor were exchanged for shares of our Class A
and Class B common stock and a $120 million subordinated note and option held by
Univision was exchanged for shares of our Class C common stock.
We generate revenue from sales of national and local advertising time on
television and radio stations and advertising in our publication and on our
billboards. Advertising rates are, in large part, based on each media's ability
to attract audiences in demographic groups targeted by advertisers. We recognize
advertising revenue when commercials are broadcast, publishing services are
provided and outdoor services are provided. We incur commissions from agencies
on local, regional and national advertising. Our revenue reflects deductions
from gross revenue for commissions to these agencies.
Our primary expenses are employee compensation, including commissions paid
to our sales staffs, marketing, promotion and selling, technical, local
programming, engineering and general and administrative. Our local programming
costs for television consist of costs related to producing a local newscast in
most of our markets.
Prior to our August 2, 2000 IPO, we had historically not had material
income tax expense or benefit reflected in our statement of operations as the
majority of our subsidiaries have been non-taxpaying entities. Federal and state
income taxes attributable to income during such periods were incurred and paid
directly by the members of our predecessor. However, we are now a taxpaying
entity. We have included in our June 30, 2000 financial statements a pro forma
provision for income taxes and a pro forma net loss to show what our net income
or loss would have been if we were a taxpaying entity at such time. Our
effective tax rate for the quarter ended June 30, 2001 was 36% which varies from
40% due to a portion of our acquisitions of Latin Communications Group Inc.
("LCG") and Z-Spanish Media Corporation ("Z-Spanish Media") being allocated to
non-tax deductible goodwill.
15
Three Months and Six Months Ended June 30, 2001
Compared to the Three Months and Six Months Ended June 30, 2000
The following table sets forth selected data from our operating results
for the three and six months ended June 30, 2001 and 2000 (dollars in
thousands):
Three Months Ended Six Months Ended
------------------ % ---------------- %
June 30, 2001 June 30, 2000 Change June 30, 2001 June 30, 2000 Change
-----------------------------------------------------------------------------
Statement of Operations Data:
Net revenue $ 56,864 $ 35,660 59% $ 100,818 $ 52,924 90%
Direct operating expenses 25,486 13,073 95% 48,551 20,956 132%
Selling, general and
administrative expenses 10,901 8,588 27% 21,040 12,337 71%
Corporate expenses 3,603 2,180 65% 7,143 4,028 77%
Depreciation and amortization 29,193 10,260 185% 59,780 15,137 295%
Non-cash stock-based compensation 795 3,563 -78% 1,754 3,563 -51%
-------------------------- ---------------------------
Operating loss (13,114) (2,004) 554% (37,450) (3,097) 1109%
Interest expense, net (5,564) (9,797) -43% (11,728) (13,694) -14%
Gain on sale of media property 1,596 - N/M 1,668 - N/M
Non-cash interest expense
relating to beneficial
conversion options - (5,461) -100% - (37,061) 100%
-------------------------- ---------------------------
Loss before income tax (17,082) (17,262) -2% (47,510) (53,852) -12%
Income tax benefit (expense) 6,181 (165) N/M 17,062 (159) N/M
-------------------------- ---------------------------
Net loss $ (10,901) $ (17,427) -37% $ (30,448) $ (54,011) -44%
============ ============ ===========================
Other Data:
Broadcast cash flow $ 20,477 $ 13,999 46% $ 31,227 $ 19,631 59%
EBITDA (adjusted for non-cash
stock-based compensation) $ 16,874 $ 11,819 43% $ 24,084 $ 15,603 54%
Cash flows from (used in)
operating activities $ (1,901) $ 3,730 -151% $ (3,129) $ 4,758 -166%
Cash flows (used in) investing
activities $ (13,819) $ (255,075) - 95% $ (44,197) $ (318,901) -86%
Cash flows from financing
activities $ 1,639 $ 252,438 - 99% $ 2,705 $ 316,392 -99%
Capital expenditures $ 7,602 $ 2,373 220% $ 15,876 $ 5,066 213%
16
Broadcast cash flow means operating income (loss) before corporate
expenses, depreciation and amortization, non-cash stock-based compensation and
gain on sale of media property. We have presented broadcast cash flow which we
believe is comparable to the data provided by other companies in the broadcast
industry, because such data is commonly used as a measure of performance for
companies in our industry. However, broadcast cash flow should not be construed
as an alternative to operating income (as determined in accordance with
accounting principles generally accepted in the United States of America) as an
indicator of operating performance or to cash flows from operating activities
(as determined in accordance with accounting principles generally accepted in
the United States of America) as a measure of liquidity.
EBITDA means broadcast cash flow less corporate expenses (adjusted for non-
cash stock-based compensation) and is commonly used in the broadcast industry to
analyze and compare broadcast companies on the basis of operating performance,
leverage and liquidity. EBITDA, as presented above, may not be comparable to
similarly titled measures of other companies unless such measures are calculated
in substantially the same fashion. EBITDA should not be construed as an
alternative to operating income (as determined in accordance with accounting
principles generally accepted in the United States of America) as an indicator
of operating performance or to cash flows from operating activities (as
determined in accordance with accounting principles generally accepted in the
United States of America) as a measure of liquidity.
Consolidated Operations
Net Revenue. Net revenue increased to $56.9 million for the quarter ended
June 30, 2001 from $35.7 million for the quarter ended June 30, 2000, an
increase of $21.2 million. The increase was primarily attributable to
acquisitions, which accounted for of $20.1 million of the increase. Same station
results for the stations we owned or operated during the three month period
ended June 30, 2001, resulted in an increase of net revenue of $3.9 million.
This increase was primarily attributable to increased inventory sold and
increased rates. These increases were partially offset by a $2.8 million
decrease in network compensation from Univision.
Net revenue increased to $100.8 million for the six month period ended June
30, 2001, from $52.9 million for the six month period ended June 30, 2000, an
increase of $47.9 million. This increase was primarily attributable to
acquisitions, which accounted for $45.3 million of the increase. Same station
results for the stations we owned or operated during the six month period ended
June 30, 2001, resulted in an increase of net revenue of $6.3 million, or 18%.
This increase was primarily attributable to increased inventory sold and
increased rates. These increases were partially offset by a $3.7 million
decrease in network compensation from Univision.
Direct Operating Expenses. Direct operating expenses increased to $25.5
million for the quarter ended June 30, 2001 from $13.1 million for the quarter
ended June 30, 2000, an increase of $12.4 million. The increase was primarily
attributable to acquisitions, such as LCG, Z-Spanish Media and the acquisition
of certain outdoor advertising assets from Infinity Broadcasting Corporation
(the "Infinity Assets"), which accounted for $11.6 million of the increase. On a
same station basis for the stations we owned or operated during the three month
periods ended June 30, 2001 and 2000, direct operating expenses increased by
$0.8 million, or 9%.
17
Direct operating expenses increased to $48.6 million for the six month
period ended June 30, 2001, from $21.0 million for the six month period ended
June 30, 2000, an increase of $27.6 million. This increase was primarily
attributable to acquisitions, such as LCG, Z-Spanish Media and the Infinity
Assets, which accounted for $25.9 million of the increase. On a same station
basis for the stations we owned or operated during the six month periods ended
June 30, 2001 and 2000, direct operating expenses increased by $1.7 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $10.9 million for the quarter ended June
30, 2001 from $8.6 million for the quarter ended June 30, 2000, an increase of
$2.3 million. This increase was primarily attributable to acquisitions, such as
Z-Spanish Media and the Infinity Assets, which accounted for $2.2 million of the
increase. On a same station basis for the stations we owned or operated during
the three month periods ended June 30, 2001 and 2000, selling, general and
administrative expenses increased by $0.1 million.
Selling general and administrative expenses increased to $21.0 million for
the six month period ended June 30, 2001 from $12.3 million, an increase of
$8.7 million. This increase was primarily attributable to acquisitions, which
accounted for $8.5 million of the increase. On a same station basis for the
stations we owned or operated during the six month periods ended June 30, 2001
and 2000, selling, general and administrative expenses increased by $0.2
million.
Corporate Expenses. Corporate expenses increased to $3.6 million for the
quarter ended June 30, 2001 from $2.2 million for the quarter ended June 30,
2000, an increase of $1.4 million. Corporate expenses increased to $7.1 million
for the six months ended June 30, 2001 from $4.0 million for the six months
ended June 30, 2001, an increase of $3.1 million. Both increases were primarily
attributable to increased costs from the addition of radio and outdoor corporate
expenses as well as costs associated with being a public company.
Depreciation and Amortization. Depreciation and amortization increased to
$29.2 million for the quarter ended June 30, 2001 from $10.3 million for the
quarter ended June 30, 2000, an increase of $18.9 million. This increase was
primarily attributable to acquisitions and the addition of our startup stations.
Deprecation and amortization increased to $59.8 million for the six month
period ended June 30, 2001 from $15.1 million for the six month period ended
June 30, 2000, an increase of $44.7 million. This increase was primarily
attributable to acquisitions and the addition of our startup stations.
Non-Cash Stock-Based Compensation. Non-cash stock-based compensation
decreased to $0.8 million for the quarter ended June 30, 2001 from $3.6 million
for the quarter ended June 30, 2000, a decrease of $2.8 million. Non-cash stock-
based compensation consists primarily of compensation expense relating to
restricted and unrestricted stock awards granted to our employees during the
second quarter of 2000.
Non-cash stock-based compensation decreased to $1.8 million for the six
month period ended June 30, 2001 from $3.6 million for the six month period
ended June 30, 2000, a decrease of $1.8 million.
18
Operating Loss. As a result of the above factors, we recognized an
operating loss of $13.1 million for the quarter ended June 30, 2001 compared to
an operating loss of $2.0 million for the quarter ended June 30, 2000. We
recognized an operating loss of $37.5 million for the six month period ended
June 30, 2001 compared to an operating loss of $3.1 million for the six month
period ended June 30, 2000.
Interest Expense, Net. Interest expense decreased to $5.6 million for the
quarter ended June 30, 2001 from $9.8 million for the quarter ended June 30,
2000, a decrease of $4.2 million. In the prior year, the Company had notes
payable to Univision and a 364-day credit facility with our bank group for the
acquisition of LCG.
Interest expense decreased to $11.7 million for the six month period ended
June 30, 2001, from $13.7 million for the six month period ended June 30, 2000,
a decrease of $2.0 million. In the prior year, the Company had notes payable to
Univision and a 364-day credit facility with our bank group for the acquisition
of LCG.
Net Loss. We recognized a net loss of $10.9 million for the quarter ended
June 30, 2001 compared to a net loss of $17.4 million for the quarter ended June
30, 2000.
We recognized a net loss of $30.4 million for the six month period ended
June 30, 2001 compared to a net loss of $54.0 million for the six month period
ended June 30, 2000.
Broadcast Cash Flow. Broadcast cash flow increased to $20.5 million for
the quarter ended June 30, 2001 from $14.0 million for the quarter ended June
30, 2000, an increase of $6.5 million. As a percent of net revenue, broadcast
cash flow decreased to 36% for the quarter ended June 30, 2001 from 39% for the
quarter ended June 30, 2000. The decrease in broadcast cash flow ratio is
primarily attributable to the change in our business as a result of our
diversification into radio, outdoor advertising and print media and to the
slowdown of advertising expenditures in the United States. We expect broadcast
cash flow to increase as a percentage of revenue as we continue to integrate our
stations and outdoor operations.
Broadcast cash flow increased to $31.2 million for the six month period
ended June 30, 2001 from $19.6 million for the six month period ended June 30,
2000, an increase of $11.6 million. As a percentage of net revenue, broadcast
cash flow decreased to 31% for the six month period ended June 30, 2001 from
37% for the six months ended June 30, 2000. The decrease in broadcast cash
flow ratio is primarily attributable to the change in our business as a result
of our diversification into radio, outdoor advertising and print media and to
the slowdown of advertising expenditures in the United States. We expect
broadcast cash flow to increase as a percentage of revenue as we continue to
integrate our stations and outdoor operations.
EBITDA. EBITDA increased to $16.9 million for the quarter ended June 30,
2001 from $11.8 million for the quarter ended June 30, 2000, an increase of $5.1
million. As a percentage of net revenue, EBITDA decreased to 30% for the quarter
ended June 30, 2001 from 33% for the quarter ended June 30, 2000.
19
EBITDA increased to $24.1 million for the six month period ended June
30, 2001 from $15.6 for the six month period ended June 30, 2000, an increase of
$8.5 million. As a percentage of net revenue, EBITDA decreased to 24% for the
six months ended June 30, 2001 from 29% for the six month period ended June 30,
2000.
Segment Operations
Television
Net Revenue. Net revenue in our television segment increased to $24.4
million for the quarter ended June 30, 2001 from $22.7 million for the quarter
ended June 30, 2000, an increase of $1.7 million. Same station results for the
stations we owned or operated during the three month periods ended June 30, 2001
and 2000, resulted in an increase of net revenue of $3.6 million, or 20%. This
increase was primarily attributable to increased inventory sold and increased
rates. Additionally, our acquisitions of television stations in the Boston, San
Diego, Hartford and Orlando markets accounted for approximately $0.9 million of
the increase. These increases were partially offset by a $2.8 million decrease
in network compensation from Univision.
Net revenue increased to $44.2 million for the six month period ended
June 30, 2001, from $38.9 million for the six months ended June 30, 2000, an
increase of $5.3 million. Same station results for the stations we owned or
operated during the six month period ended June 30, 2001 and 2000, resulted in
an increase of net revenue of $5.9 million, or 18%. This increase is primarily
attributed to increased inventory sold and increased rates. The addition of our
startup stations and acquisitions of television stations in the Boston, San
Diego, Hartford and Orlando markets accounted for approximately $3.1 million of
the increase. These increases were partially offset by a $3.7 million decrease
in network compensation from Univision.
Direct Operating Expenses. Direct operating expenses in our television
segment increased to $10.0 million for the quarter ended June 30, 2001 from $8.7
million for the quarter ended June 30, 2000, an increase of $1.3 million. This
increase is primarily attributable to sales commissions on the net revenue
increase. Acquisitions and startup stations accounted for $0.5 million of the
increase. Same station results for the stations we owned or operated during the
three month periods ended June 30, 2001 and 2000, resulted in an increase of
$0.8 million, or 10%.
Direct operating expenses in our television segment increased to $19.0
million for the six month period ended June 30, 2001 from $16.0 million for the
six month period ended June 30, 2000, an increase of $3.0 million. This increase
is primarily attributable to sales commissions on the net revenue increase.
Acquisitions and startup stations accounted for $1.2 million of the increase.
Same station results for the stations we owned or operated during the six month
periods ended June 30, 2001 and 2000, resulted in an increase of $1.8 million,
or 12%.
20
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our television segment increased to $4.7 million for
the quarter ended June 30, 2001 from $4.1 million for the quarter ended June 30,
2000, an increase of $0.6 million. The increase was primarily attributable to
acquisitions and the addition of our startup stations, which accounted for $0.5
million of the increase. Same station results for the stations we owned or
operated during the three month periods ended June 30, 2001 and 2000, resulted
in an increase of $0.1 million.
Selling, general and administrative expenses in our television segment
increased to $9.1 million for the six month period ended June 30, 2001 from $7.6
million for the six month period ended June 30, 2000, an increase of $1.5
million. The increase was primarily attributable to acquisitions and the
addition of our startup stations, which accounted for $1.3 million of the
increase. Same station results for the stations we owned or operated during the
six month periods ended June 30, 2001 and 2000, resulted in an increase of
$0.2 million.
Radio
Net Revenue. Net revenue in our radio segment increased to $18.1
million for the quarter ended June 30, 2001 from $8.8 million for the quarter
ended June 30, 2000, an increase of $9.3 million. The acquisitions of Z-Spanish
Media and LCG accounted for approximately $7.4 million of the increase. Our
acquisition of radio stations in the McAllen market accounted for
approximately $1.7 million of the increase. Same station results for the
stations we owned or operated during the three month periods ended June
30, 2001 and 2000, resulted in an increase in net revenue of $0.2 million.
Net revenue increased to $31.1 million for the six month period ended
June 30, 2001, from $9.8 million, an increase of $21.3 million. The acquisitions
of Z-Spanish Media and LCG accounted for approximately $17.8 million of the
increase. Our acquisition of radio stations in the McAllen and El Paso markets
accounted for approximately $3.3 million of the increase. Same station results
for the stations we owned or operated during the six month periods ended June
30, 2001 and 2000, resulted in an increase of net revenue of $0.2 million.
Direct Operating Expenses. Direct operating expenses in our radio
segment increased to $6.8 million for the quarter ended June 30, 2001 from $2.2
million for the quarter ended June 30, 2000, an increase of $4.6 million. The
increase was primarily attributable to acquisitions, including LCG and Z-
Spanish. Same station results for the stations we owned or operated during the
three month periods ended June 30, 2001 and 2000, resulted in no increase of
expenses.
Direct operating expenses in our radio segment increased to $12.8
million for the six month period ended June 30, 2001 from $2.8 million for the
six month period ended June 30, 2000, an increase of $10.0 million. Same station
results for the stations we owned or operated during the six month periods ended
June 30, 2001 and 2000, resulted in a decrease of $0.1 million. This decrease
was offset by an increase in expenses attributed to acquisitions, including LCG
and Z-Spanish.
21
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our radio segment increased to $4.1 million for the
quarter ended June 30, 2001 from $3.3 million for the quarter ended June 30,
2000, an increase of $0.8 million. The increase was primarily attributable to
acquisitions, including LCG and Z-Spanish. Same station results for the stations
we owned or operated during the three month periods ended June 30, 2001 and
2000, resulted in no increase.
Selling, general and administrative expenses in our radio segment
increased to $8.0 million for the six month period ended June 30, 2001 from $3.5
million for the six month period ended June 30, 2000, an increase of $4.5
million. The increase was primarily attributable to acquisitions, including LCG
and Z-Spanish. Same station results for the stations we owned or operated during
the six month periods ended June 30, 2001 and 2000, resulted in no increase.
Outdoor
Net Revenue. Net revenue increase in our outdoor segment is a result of
our acquisition of Z-Spanish Media's outdoor business in August 2000 and our
acquisition of the Infinity Assets in October 2000.
Direct Operating Expenses. Direct operating expense increase in our
outdoor segment in the amount of $5.2 million for the quarter ended June 30,
2001 and $9.9 million for the six month period ended June 30, 2000, is a result
of our acquisition of Z-Spanish Media's outdoor operations and the Infinity
Assets.
Selling, General and Administrative Expenses. Selling, general and
administrative expense increase in our outdoor segment in the amount of $1.2
million for the quarter ended June 30, 2001 and $2.1 million for the six month
period ended June 30, 2000, is a result of our acquisition of Z-Spanish Media's
outdoor operations and the Infinity Assets.
Print
Net Revenue. Net revenue in our publishing segment increased to $5.0
million for the quarter ended June 30, 2001 from $4.2 million for the quarter
ended June 30, 2000, an increase of $0.8 million. This increase is the result of
a full quarter's operations of LCG's publishing operations.
Net revenue in our publishing segment increased to $9.7 million for the
six months ended June 30, 2001 from $4.2 million for the six months ended June
30, 2000, an increase of $5.5 million. This increase is a result of our
acquisition of LCG's publishing operations.
Direct Operating Expenses. Direct operating expenses in our print
segment increased to $3.5 million for the quarter ended June 30, 2001 from $2.2
million for the quarter ended June 30, 2000, an increase of $1.3 million. This
increase was primarily attributable to a full quarter of activity in 2001
compared to 2000.
Direct operating expenses in our print segment increased to $6.9
million for the six months ended June 30, 2001 from $2.2 million for the six
months ended June 30, 2000, an increase of $4.7 million. This increase is
primarily attributed to a full six months of activity in 2001 compared to 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our print segment decreased to $0.9 million for the
quarter ended June 30, 2001 from $1.2 million for the quarter ended June 30,
2000, a decrease of $0.3 million.
Selling, general and administrative expenses in our print segment
increased to $1.9 million for the six months ended June 30, 2001 from $1.2
million for the six months ended June 30, 2000, an increase of $0.6 million.
This increase is primarily attributed to a full six months of activity in 2001
compared to 2000.
22
Liquidity and Capital Resources
Our primary sources of liquidity are cash provided by operations and
available borrowings under our bank credit facility in the amount of $600.0
million, of which $200.0 million was outstanding as of June 30, 2001. The credit
facility is secured by substantially all of our assets as well as the pledge of
the stock of several of our subsidiaries, including our special purpose
subsidiaries formed to hold our FCC licenses. The credit facility consists of a
$250.0 million revolving credit facility and a $150.0 million Term A loan, both
bearing interest at LIBOR (3.8% at June 30, 2001) plus a margin ranging from
0.875% to 2.75% based on our leverage, and a $200.0 million Term B loan bearing
interest at LIBOR plus 2.75%. The revolving credit facility expires on December
31, 2007. The Term A loan commitment expired on July 31, 2001. Upon the
expiration of the Term A loan commitment, we have a $150.0 million incremental
loan facility under substantially the same terms, expiring on December 31, 2007.
The Term B loan expires on December 31, 2008. The revolving credit facility
contains scheduled quarterly reductions in the amount that is available ranging
from $6.3 million to $18.8 million, commencing September 30, 2002. The Term B
loan contains scheduled quarterly reductions in the amount that is available
ranging from $0.5 million to $42.5 million, commencing September 30, 2001. In
addition, we pay a quarterly loan commitment fee ranging from 0.25% to 0.75% per
annum and levied upon the unused portion of the amount available. All of the
outstanding balance as of June 30, 2001 was under the Term B loan.
The credit facility contains a mandatory prepayment clause in the event
that we should liquidate any assets if the proceeds are not utilized to acquire
assets of the same type within one year, receive insurance or condemnation
proceeds which are not fully utilized toward the replacement of such assets or
have excess cash flows.
The credit facility contains certain financial covenants relating to
maximum total debt ratio, total interest coverage ratio and a fixed charge
coverage ratio. The covenants become increasingly restrictive in the later years
of the credit facility. The credit facility also contains restrictions on the
incurrence of additional debt, the payment of dividends, acquisitions and the
sale of assets over a certain limit. Additionally, we are required to enter into
interest rate agreements if our leverage exceeds certain limits as defined in
our credit agreement.
The credit facility requires us to maintain our FCC licenses for our
broadcast properties and contains other operating covenants, including
restrictions on our ability to incur additional indebtedness and pay dividends.
Acquisitions having an aggregate maximum consideration during the term
of our credit agreement of greater than $25.0 million but less than or equal to
$75.0 million are conditioned on delivery to the agent bank of a covenant
compliance certificate showing pro forma calculations assuming such acquisition
had been consummated and revised projections for those acquisitions. For
acquisitions having an aggregate maximum consideration during the term of our
credit agreement in excess of $75.0 million, majority lender consent of the bank
group is required. We can draw on our revolving credit facility without prior
approval for working capital needs and acquisitions below $25.0 million.
23
Net cash flow used in operating activities was approximately $3.1
million for the six month period June 30, 2001, from cash provided of
approximately $4.8 million for six month period ended June 30, 2000.
Net cash flow used in investing activities was approximately $44.2
million for the six month period ended June 30, 2001, compared to $318.9 million
for six month period ended June 30, 2000. During the six month period ended June
30, 2001, we acquired media properties for a total of approximately $31.9
million, including KXGM-FM for $17.6 million, the construction permit for KPMR-
TV for $4.8 million and the acquisition of KDVA-FM for approximately $10.1
million. We made capital expenditures of approximately $15.0 million, including
$2.3 million for a building in San Diego and $3.5 million for the construction
of new buildings and start-up stations. During the six month period ended June
30, 2000, we acquired broadcast properties for a total of approximately $291.0
million, made a deposit of $23.0 million for acquisitions and made capital
expenditures totaling approximately $5.0 million.
Net cash flow from financing activities was approximately $2.7 million
for the six month period ended June 30, 2001 compared to $316.4 million for the
six month period ended June 30, 2000. During the six month period ended
June 30, 2001, we received proceeds from the exercise of stock options in
the amount of approximately $3.9 million partially offset by a reduction in
our notes payable in the amount of $1.2 million. During the six month period
ended June 30, 2000, we increased our subordinated debt by $110.0 million and
increased our bank debt by $206.0 million.
During 2001, we anticipate our total capital expenditures will be
approximately $23.0 million, including building a television facility and
upgrading approximately seven television stations to digital, as well as
upgrading and maintaining our broadcasting equipment and facility improvements
to radio stations and to our outdoor division. We anticipate paying for these
capital expenditures out of net cash flow from operating activities. The amount
of these capital expenditures may change based on future changes in business
plans, our financial conditions and general economic conditions.
We currently anticipate that the funds generated from operations and
available borrowings under our credit facility will be sufficient to meet our
anticipated cash requirements for the foreseeable future.
We continuously review, and are currently reviewing, opportunities to
acquire additional television and radio stations as well as billboards and other
opportunities targeting the U.S. Hispanic market. We expect to finance any
future acquisitions through funds generated from operations and borrowings under
our credit facility and through additional debt and equity financing. Any
additional financing, if needed, might not be available to us on reasonable
terms or at all. Failure to raise capital when needed could seriously harm our
business and our acquisition strategy. If additional funds were raised through
the issuance of equity securities, the percentage of ownership of our
stockholders would be reduced. Furthermore, these equity securities might have
rights preferences or privileges senior to our Class A common stock.
On March 19, 2001, our Board of Directors approved a stock repurchase
program. We are authorized to repurchase up to $35.0 million of our outstanding
Class A common stock from time to time in open market transactions at prevailing
market prices, block trades and private
24
repurchases. The extent and timing of any repurchases will depend on market
conditions and other factors. We intend to finance stock repurchases, if and
when made, with our available cash on hand and cash provided by operations. No
shares of Class A common stock were repurchased as of June 30, 2001.
On April 4, 2001, our Board of Directors adopted the 2001 Employee Stock
Purchase Plan (the "Purchase Plan"). The Purchase Plan was approved by our
stockholders on May 10, 2001 at the Annual Meeting of Stockholders. Subject to
adjustments in our capital structure, as defined in the Purchase Plan, the
maximum number of shares of Class A common stock that will be made available for
sale under the Purchase Plan is 600,000, plus an annual increase of 600,000
shares on the first day of each of the next ten calendar years, beginning
January 1, 2002. All of our employees are eligible to participate in the
Purchase Plan, provided that they have completed six months of continuous
service as an employee, as of an offering date. The first offering period under
the Purchase Plan will commence on August 15, 2001.
New Accounting Standards. In June 2001, the FASB issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" (SFAS No. 141)
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142). SFAS No. 141 addresses financial accounting
and reporting for business combinations and is effective for all business
combinations after June 30, 2001. SFAS No. 142 addresses financial accounting
and reporting for acquired goodwill and other intangible assets and is effective
for fiscal years beginning after December 15, 2001. We are in the process of
determining the expected impact on earnings and existing goodwill and other
intangibles upon adoption, which will include the elimination of goodwill
amortization. As of June 30, 2001, goodwill totaled approximately $402.0 million
and is being amortized over 15 years.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
General
Market risk represents the potential loss that may impact our financial
position, results of operations or cash flows due to adverse changes in the
financial markets. We are exposed to market risk from changes in the base rates
on our variable rate debt. We may be required to periodically enter into
derivative financial instrument transactions, such as swaps or interest rate
caps, in order to manage or reduce our exposure to risk from changes in interest
rates. Under no circumstances do we enter into derivatives or other financial
instrument transactions for speculative purposes. Our credit facility requires
us to maintain an interest rate protection agreement if we exceed certain
leverage ratios as defined in our credit agreement.
Interest Rates
Our bank Term B loan bears interest at a variable rate of LIBOR plus
2.75%. As of June 30, 2001, we were not required to hedge any of our outstanding
variable rate debt by using an interest rate cap. Based on our overall interest
rate exposure on our LIBOR loans as of June 30, 2001, a change of 10% in
interest rates would have an impact of approximately $2.0 million on a pre-tax
earnings and pre-tax cash flows over a one year period.
25
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
We currently and from time to time are involved in litigation
incidental to the conduct of our business, but we are not currently a party to
any lawsuit or proceeding which, in the opinion of management, is likely to have
a material adverse effect on us.
We were a defendant to a lawsuit filed in the Superior Court of the
District of Columbia by First Millenium Communications, Inc. to resolve certain
contract disputes arising out of a terminated brokerage-type arrangement. The
litigation primarily concerns the payment of a brokerage fee alleged to be due
in connection with the acquisition of television station WBSV-TV in Sarasota,
Florida for $17 million, after taking into account certain additional capital
expenditures, losses, interest expense and management fees. The parties have
reached a confidential settlement and the lawsuit was dismissed with prejudice
by court order. The settlement provides that the parties will resolve the
dispute with respect to television station WBSV-TV pursuant to binding
arbitration. The arbitration took place in June 2001, and we are presently
awaiting the arbitrator's decision.
Item 2. Changes In Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
26
Item 4. Submission of Matters to a Vote of Security Holders
We held our annual meeting of stockholders on May 10, 2001. At that
meeting, our stockholders:
1. Elected nine directors, consisting of seven directors elected by our
Class A and Class B stockholders and two directors elected by our Class C
stockholders:
Name For Withheld
---- --- --------
Walter F. Ulloa (a) 324,847,434 7,422,868
Philip C. Wilkinson (a) 324,847,434 7,422,868
Paul A. Zevnik (a) 332,255,502 14,800
Darryl B. Thompson (a) 332,270,302 0
Amador S. Bustos (a) 332,270,292 10
Michael S. Rosen (a) 332,270,102 200
Esteban E. Torres (a) 332,267,857 2,445
Andrew W. Hobson (b) 21,983,392 0
Michael D. Wortsman (b) 21,983,392 0
(a) Messrs. Ulloa, Wilkinson, Zevnik, Thompson, Bustos, Rosen and
Torres were elected by our Class A and Class B stockholders, voting together as
a class.
(b) Messrs. Hobson and Wortsman were elected by our Class C
stockholder.
2. Approved our 2001 Employee Stock Purchase Plan:
Votes For 353,656,336
Votes Against 591,331
Abstentions 6,027
Broker Non-Votes 0
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3. Ratified the appointment of McGladrey & Pullen, LLP as our
independent auditors for the current fiscal year:
Votes For 354,109,790
Votes Against 141,797
Abstentions 2,107
Broker Non-Votes 0
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are attached hereto and incorporated herein by
reference.
None.
(b) Reports on Form 8-K
None.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTRAVISION COMMUNICATIONS
CORPORATION
By: /s/ Jeanette Tully
---------------------------------- --
Jeanette Tully
Executive Vice President, Treasurer
and Chief Financial Officer
Dated: August 13, 2001
29