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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 SEPTEMBER 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 November 9, 2001, there were 66,144,109 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 SEPTEMBER 30, 2001
(UNAUDITED) AND DECEMBER 31, 2000............................. 3
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND
SEPTEMBER 30, 2000............................................ 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30,
2000.......................................................... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)........ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.... 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................. 21
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..................... 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................... 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 21
ITEM 5. OTHER INFORMATION............................................. 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 21
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)
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents.......................... $ 16,969 $ 69,224
Receivables:
Trade, net of allowance for doubtful accounts of
2001 $4,501; 2000 $5,966 (including amounts due
from Univision of 2001 $663; 2000 $0)............. 43,276 38,274
Prepaid expenses and other current assets
(including amounts from related parties of 2001
$550; 2000 $273).................................. 5,318 3,311
Deferred taxes..................................... 3,589 11,244
----------- ----------
Total current assets.............................. 69,152 122,053
Property and equipment, net......................... 179,296 169,289
Intangible assets, net.............................. 1,297,069 1,257,348
Other assets, including amounts due from related
parties of 2001 $318; 2000 $562 and deposits on
acquisitions of 2001 $416; 2000 $2,689............. 11,778 11,803
----------- ----------
$ 1,557,295 $1,560,493
=========== ==========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of notes and advances payable,
related parties................................... $ 118 $ 201
Current maturities of long-term debt............... 10,806 2,452
Accounts payable and accrued expenses (including
related parties of 2001 $445; 2000 $711 which
includes amounts due to Univision of 2001 $398;
2000 $362)........................................ 25,271 30,274
----------- ----------
Total current liabilities......................... 36,195 32,927
Notes payable, less current maturities.............. 242,548 252,495
Other long-term liabilities......................... 6,474 6,672
Deferred taxes...................................... 173,575 132,419
----------- ----------
Total liabilities................................. 458,792 424,513
----------- ----------
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.......................................... 85,133 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 2001
66,147,794; 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......................... 1,097,362 1,092,865
Deferred compensation.............................. (3,752) (5,745)
Accumulated deficit................................ (79,625) (31,147)
----------- ----------
1,013,997 1,055,985
----------- ----------
Less: Stock subscription notes receivable.......... (627) (608)
Treasury stock, Class A common stock, $.0001 par
value, 2001, 3,684 shares......................... -- --
----------- ----------
1,013,370 1,055,377
----------- ----------
$ 1,557,295 $1,560,493
=========== ==========
See Notes to Consolidated Financial Statements
3
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share, per share and per L.L.C. membership unit data)
Three Month Period Ended Nine Month Period Ended
September 30, September 30,
------------------------- -------------------------
2001 2000 2001 2000
------------ ----------- ------------ -----------
Net revenue (including
amounts from Univision
of $161, $855, $947 and
$4,159)................ $ 54,468 $ 45,049 $ 155,286 $ 98,358
------------ ----------- ------------ -----------
Expenses:
Direct operating
expenses (including
Univision national
representation fees of
$1,138, $1,075, $3,340
and $2,989)............ 26,164 17,138 74,715 39,764
Selling, general and
administrative expenses
(excluding non-cash
stock-based
compensation of $664,
$1,027, $2,418 and
$4,590)................ 11,072 10,247 32,112 20,835
Corporate expenses
(including related
parties of $53, $161,
$210 and $340)......... 4,530 4,790 11,673 9,267
Non-cash stock-based
compensation........... 664 1,027 2,418 4,590
Depreciation and
amortization........... 28,184 21,721 87,964 36,857
------------ ----------- ------------ -----------
70,614 54,923 208,882 111,313
------------ ----------- ------------ -----------
Operating loss........ (16,146) (9,874) (53,596) (12,955)
Interest expense
(including amounts to
Univision of $0, $724,
$0 and $3,645)......... (5,267) (9,047) (18,034) (23,186)
Non-cash interest
expense relating to
related-party
beneficial conversion
options................ -- (2,615) -- (39,677)
Gain on sale of media
property............... -- -- 1,668 --
Interest income......... 153 3,807 1,192 4,252
------------ ----------- ------------ -----------
Loss before income
taxes................ (21,260) (17,729) (68,770) (71,566)
Income tax benefit
(expense).............. 7,695 (7,317) 24,757 (7,475)
------------ ----------- ------------ -----------
Net loss before equity
in earnings of
nonconsolidated
affiliates........... (13,565) (25,046) (44,013) (79,041)
Equity in net income
(loss) of
nonconsolidated
affiliates........... 67 (166) 67 (166)
------------ ----------- ------------ -----------
Net loss............ $ (13,498) $ (25,212) $ (43,946) $ (79,207)
Accretion of preferred
stock redemption
value.................. 1,570 -- 4,532 --
------------ ----------- ------------ -----------
Net loss applicable to
common stock........... $ (15,068) $ (25,212) $ (48,478) $ (79,207)
============ =========== ============ ===========
Pro forma provision for
income tax benefit..... 3,297 5,904
=========== ===========
Pro forma net loss...... $ (6,234) $ (57,638)
=========== ===========
Per share data:
Net loss per share
Basic and diluted,
2000 pro forma..... $ (0.13) $ (0.30) $ (0.42) $ (1.59)
============ =========== ============ ===========
Weighted average common
shares outstanding:
Basic and diluted,
2000 pro forma..... 115,447,705 85,817,163 115,144,366 50,321,985
============ =========== ============ ===========
Loss per L.L.C.
membership unit........ $ (4.30) $ (31.04)
=========== ===========
See Notes to Consolidated Financial Statements
4
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine Month
Period Ended
September 30,
--------------------
2001 2000
-------- ----------
Cash Flows from Operating Activities:
Net (Loss).............................................. $(43,946) $ (79,207)
Adjustments to Reconcile Net (Loss) to Net Cash Provided
by Operating Activities:
Depreciation and amortization........................... 87,964 36,857
Deferred income taxes (benefit)......................... (24,743) 7,188
Amortization of debt issue costs........................ 963 2,237
Amortization of syndication contracts................... 811 --
Intrinsic value of subordinated note exchange option.... -- 39,677
Net (income) loss in equity method investee............. (67) 166
Non-cash stock-based compensation....................... 2,418 4,590
(Gain) loss on sale of media property and other
assets................................................. (1,667) 15
Changes in assets and liabilities, net of effect of
business combinations and dispositions:
(Increase) in accounts receivable...................... (5,159) (4,757)
(Increase) decrease in prepaid expenses and other
assets................................................ (2,927) 1,616
Increase (decrease) in accounts payable, accrued
expenses and other.................................... (6,240) 679
-------- ----------
Net cash provided by operating activities............. 7,407 9,061
-------- ----------
Cash Flows from Investing Activities:
Proceeds from disposal of media properties and other
assets................................................. 2,739 1,023
Purchases of property and equipment..................... (21,135) (10,802)
Cash deposits and purchase price on acquisitions........ (43,378) (769,008)
-------- ----------
Net cash (used in) investing activities............... (61,774) (778,787)
-------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock.................. 4,048 813,977
Principal payments on notes payable..................... (1,936) (325,241)
Proceeds from borrowing on notes payable................ -- 573,655
Payments of deferred debt costs......................... -- (3,414)
-------- ----------
Net cash provided by financing activities............. 2,112 1,058,977
-------- ----------
Net increase (decrease) in cash and cash equivalents.. (52,255) 289,251
Cash and Cash Equivalents:
Beginning............................................... 69,224 2,357
-------- ----------
Ending.................................................. $ 16,969 $ 291,608
======== ==========
Supplemental Disclosures of Cash Flow Information:
Cash Payments for:
Interest................................................ $ 14,469 $ 19,204
======== ==========
Income taxes............................................ $ 363 $ 695
======== ==========
Supplemental Disclosures of Non-Cash Investing and
Financing Activities:
Deferred stock compensation............................. $ -- $ 6,969
======== ==========
Property and equipment acquired under capital lease
obligations............................................ $ 531 $ --
======== ==========
Assets Acquired and Debt Issued In Business Combinations
and Asset Acquisitions:
Current assets, net of cash acquired.................... $ -- $ 31,646
Broadcast equipment and furniture and fixtures.......... 2,253 69,455
Intangible assets....................................... 131,955 979,716
Other assets............................................ -- 7,866
Current liabilities..................................... (576) (18,244)
Deferred taxes.......................................... (73,498) (167,569)
Other liabilities....................................... -- (5,150)
Issuance of Common Stock................................ -- (118,600)
Estimated fair value allocated to option agreement...... -- (3,015)
Estimated fair market value of properties exchanged..... (14,528) (2,788)
Less cash deposits from prior year...................... (2,476) (8,500)
-------- ----------
Net cash paid......................................... $ 43,130 $ 764,817
======== ==========
Exercises of exchange stock options granted in business
combinations........................................... $ 1,036 $ --
======== ==========
See Notes to Consolidated Financial Statements
5
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 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. Certain items in the 2000 statement
of operations have been reclassified in order to conform with the current year
presentation, with no effect on net loss or net loss per share. 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, as amended, 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, as amended. The Series A mandatorily redeemable
convertible preferred stock has limited voting rights and accrues an 8.5%
dividend.
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.
6
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
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 redemption value 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 nine month periods ended September 30, 2001, all dilutive
securities have been excluded because their inclusion would have had an
antidilutive effect on earnings per share. As of September 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: 5,287,826 stock options, 353,361 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 period up to the date of the Exchange Transaction included
in the three and nine month periods ended September 30, 2000, all dilutive
securities have been excluded because their inclusion would have had an
antidilutive effect on earnings per membership unit.
The following table sets forth the calculation of loss per membership unit:
July 1-August 2, January 1-August 2,
2000 2000
---------------- -------------------
(In thousands, except membership
units)
Net loss................ $ (9,531) $ (63,542)
Less: Net loss of member
corporations........... (1,129) (2,886)
---------- ----------
Net loss applicable to
L.L.C. members......... $ (8,402) $ (60,656)
========== ==========
L.L.C. membership units
outstanding............ 1,953,924 1,953,924
========== ==========
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 nine month periods ended September 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 nine month
periods ended September 30, 2000.
The weighted average number of shares of common stock outstanding during
the three and nine month periods ended September 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.
7
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
4. BUSINESS ACQUISITIONS AND DISPOSITIONS
During the nine month period ended September 30, 2001, the Company acquired
radio station KXGM-FM in Dallas, Texas in exchange for approximately $19.2
million in cash and two of the Company's 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 acquired radio station KDVA-FM in Phoenix, Arizona for
approximately $10.1 million. The Company also acquired television station
WJAL-TV in Hagerstown, Maryland for approximately $10.3 million. Additionally,
the Company acquired a construction permit for television station KPMR-TV in
Santa Barbara, California for approximately $4.8 million.
In June 2001, the Company sold two of its radio stations, KEWE-AM and KHHZ-
FM in Oroville, California, for an aggregate amount of approximately $2.6
million. The gain on the sale of these radio stations was approximately
$1.6 million.
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.
Nine Month Period
Three Month Period Ended
Ended September 30, September 30,
-------------------- -------------------
2001 2000 2001 2000
--------- --------- -------- ---------
(In millions, except per share data)
Net revenue..................... $ 54.5 $ 51.6 $ 155.3 $ 147.2
Net loss........................ (15.2) (40.3) (48.8) (139.0)
Basic and diluted net loss per
share.......................... $ (0.13) $ (0.51) $ (0.42) $ (1.22)
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 787,458 stock options in the first nine
months of 2001 to various employees, consultants and non-employee directors of
the Company under the Plan.
8
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 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 owns and/or operates 38 television stations located primarily
in the southwestern United States, consisting primarily of Univision
affiliates.
Radio Broadcasting
The Company owns and/or operates 56 radio stations (38 FM and 18 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.
7. SUBSEQUENT EVENTS
The Company acquired television stations KNRV-LP in Reno, Nevada and KNCV-
LP in Carson City, Nevada, for an aggregate amount of approximately $1.3
million and, in a separate transaction, has entered into an agreement to
acquire KKWB-TV in El Paso, Texas for approximately $18 million.
The Company has entered into separate agreements to sell three radio
stations for an aggregate amount of approximately $9 million. The Company does
not anticipate a loss on any of these sales.
The Company has entered into a joint marketing and programming agreement
with Grupo Televisa with respect to two television stations serving the San
Diego, California market.
9
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
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 nine month periods ended September 30, 2001 and 2000. The Company
evaluates the performance of its operating segments based on the following (in
thousands):
Three Month Period Nine Month Period
Ended Ended
September 30, September 30,
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net Revenue
Television.................... $ 22,916 $ 21,165 $ 67,163 $ 60,111
Radio......................... 17,826 15,437 48,936 25,590
Outdoor....................... 8,797 3,139 24,560 3,139
Print......................... 4,929 5,308 14,627 9,518
---------- ---------- ---------- ----------
Consolidated.................. $ 54,468 $ 45,049 $ 155,286 $ 98,358
========== ========== ========== ==========
Direct Expenses
Television.................... $ 9,816 $ 8,765 $ 28,771 $ 24,740
Radio......................... 7,077 3,841 19,845 7,038
Outdoor....................... 5,611 870 15,541 870
Print......................... 3,660 3,662 10,558 7,116
---------- ---------- ---------- ----------
Consolidated.................. $ 26,164 $ 17,138 $ 74,715 $ 39,764
========== ========== ========== ==========
Selling, General and
Administrative Expenses
Television.................... $ 4,556 $ 3,384 $ 13,663 $ 11,002
Radio......................... 4,602 5,459 12,614 8,512
Outdoor....................... 1,018 457 3,087 457
Print......................... 896 947 2,748 864
---------- ---------- ---------- ----------
Consolidated.................. $ 11,072 $ 10,247 $ 32,112 $ 20,835
========== ========== ========== ==========
Depreciation and Amortization
Television.................... $ 7,583 $ 4,997 $ 22,028 $ 15,004
Radio......................... 15,623 14,139 50,405 19,170
Outdoor....................... 4,843 1,806 14,484 1,806
Print......................... 135 779 1,047 877
---------- ---------- ---------- ----------
Consolidated.................. $ 28,184 $ 21,721 $ 87,964 $ 36,857
========== ========== ========== ==========
Segment Operating Profit (Loss)
Television.................... $ 961 $ 4,019 $ 2,701 $ 9,365
Radio......................... (9,476) (8,002) (33,928) (9,130)
Outdoor....................... (2,675) 6 (8,552) 6
Print......................... 238 (80) 274 661
---------- ---------- ---------- ----------
Consolidated.................. $ (10,952) $ (4,057) $ (39,505) $ 902
========== ========== ========== ==========
Corporate Expenses............. $ 4,530 $ 4,790 $ 11,673 $ 9,267
Non-Cash Stock-Based
Compensation.................. 664 1,027 2,418 4,590
---------- ---------- ---------- ----------
Consolidated Operating (Loss).. $ (16,146) $ (9,874) $ (53,596) $ (12,955)
========== ========== ========== ==========
Total Assets
Television.................... $ 438,999 $ 519,068 $ 438,999 $ 519,068
Radio......................... 835,053 981,602 835,053 981,602
Outdoor....................... 275,680 60,970 275,680 60,970
Print......................... 7,563 4,573 7,563 4,573
---------- ---------- ---------- ----------
Consolidated.................. $1,557,295 $1,566,213 $1,557,295 $1,566,213
========== ========== ========== ==========
Capital Expenditures
Television.................... $ 5,171 $ 5,116 $ 19,651 $ 9,666
Radio......................... 573 550 1,715 1,054
Outdoor....................... 46 70 241 70
Print......................... -- -- 59 12
---------- ---------- ---------- ----------
Consolidated.................. $ 5,790 $ 5,736 $ 21,666 $ 10,802
========== ========== ========== ==========
10
ENTRAVISION COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We own and/or operate 38 television stations and 56 radio stations located
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 22 of the top 50
U.S. Hispanic markets. Our radio stations consist of 38 FM and 18 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 on our billboards and in our
publication. 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, outdoor services
are provided and publishing 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 and our national representative firm, 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 September 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 September 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") being allocated to non-tax deductible goodwill.
11
Three Months and Nine Month Periods Ended September 30, 2001
Compared to the Three Months and Nine Month Periods Ended September 30, 2000
The following table sets forth selected data from our operating results for
the three and nine month periods ended September 30, 2001 and 2000 (dollars in
thousands):
Three Month Period Ended Nine Month Period Ended
September 30, September 30, September 30, September 30,
------------- ------------- % ------------- ------------- %
2001 2000 Change 2001 2000 Change
------------- ------------- ------ ------------- ------------- ------
Statement of Operations
Data:
Net revenue............ $ 54,468 $ 45,049 21% $155,286 $ 98,358 58%
Direct operating
expenses.............. 26,164 17,138 53% 74,715 39,764 88%
Selling, general and
administrative
expenses.............. 11,072 10,247 8% 32,112 20,835 54%
Corporate expenses..... 4,530 4,790 -5% 11,673 9,267 26%
Depreciation and
amortization.......... 28,184 21,721 30% 87,964 36,857 139%
Non-cash stock-based
compensation.......... 664 1,027 -35% 2,418 4,590 -47%
-------- --------- -------- ----------
Operating loss......... (16,146) (9,874) 64% (53,596) (12,955) -314%
Interest expense, net.. (5,114) (5,240) -2% (16,842) (18,934) -11%
Gain on sale of media
property.............. -- -- N/M 1,668 -- N/M
Non-cash interest
expense relating to
beneficial conversion
options............... -- (2,615) N/M -- (39,677) N/M
-------- --------- -------- ----------
Loss before income
tax................... (21,260) (17,729) 20% (68,770) (71,566) -4%
Income tax benefit
(expense)............. 7,695 (7,317) -205% 24,757 (7,475) -431%
-------- --------- -------- ----------
Net loss before equity
in earnings of
nonconsolidated
affiliates............ (13,565) (25,046) -46% (44,013) (79,041) -44%
Equity in net income
(loss) of
nonconsolidated
affiliates............ 67 (166) -140% 67 (166) -140%
-------- --------- -------- ----------
Net loss............... $(13,498) $ (25,212) -46% $(43,946) $ (79,207) -45%
======== ========= ======== ==========
Other Data:
Broadcast cash flow.... $ 17,232 $ 17,664 -2% $ 48,459 $ 37,759 28%
EBITDA (adjusted for
non-cash stock-based
compensation)......... $ 12,702 $ 12,874 -1% $ 36,786 $ 28,492 29%
Cash flows from
operating activities.. $ 10,536 $ 4,333 143% $ 7,407 $ 9,061 -18%
Cash flows (used in)
investing activities.. $(17,577) $(459,886) -96% $(61,774) $ (778,787) -92%
Cash flows from (used
in) financing
activities............ $ (593) $ 742,585 -100% $ 2,112 $1,058,977 -100%
Capital expenditures... $ 5,790 $ 5,736 1% $ 21,666 $ 10,802 101%
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.
12
Consolidated Operations
Net Revenue. Net revenue increased to $54.5 million for the three month
period ended September 30, 2001 from $45.0 million for the three month period
ended September 30, 2000, an increase of $9.5 million. This increase was
primarily attributable to acquisitions and startup stations, which accounted
for $9.2 million of the increase. Same station results for the stations we
owned or operated during the three month period ended September 30, 2001,
resulted in an increase of net revenue of $1.0 million. This increase was
primarily attributable to increased inventory sold and increased rates. These
increases were partially offset by a $0.7 million decrease in network
compensation from Univision.
Net revenue increased to $155.3 million for the nine month period ended
September 30, 2001 from $98.4 million for the nine month period ended
September 30, 2000, an increase of $56.9 million. This increase was primarily
attributable to acquisitions and startup stations, which accounted for $52.9
million of the increase. Same station results for the stations we owned or
operated during the nine month period ended September 30, 2001, resulted in an
increase of net revenue of $7.2 million. This increase was primarily
attributable to increased inventory sold and increased rates. These increases
were partially offset by a $3.2 million decrease in network compensation from
Univision.
Direct Operating Expenses. Direct operating expenses increased to $26.2
million for the three month period ended September 30, 2001 from $17.1 million
for the three month period ended September 30, 2000, an increase of $9.1
million. This increase was primarily attributable to acquisitions and startup
stations, which accounted for $8.5 million of the increase. On a same station
basis for the stations we owned or operated during the three month periods
ended September 30, 2001 and 2000, direct operating expenses increased by $0.6
million. This increase was primarily attributable to sales commissions on the
net revenue increase.
Direct operating expenses increased to $74.7 million for the nine month
period ended September 30, 2001 from $39.8 million for the nine month period
ended September 30, 2000, an increase of $34.9 million. This increase was
primarily attributable to acquisitions and startups, which accounted for $32.9
million of the increase. On a same station basis for the stations we owned or
operated during the nine month periods ended September 30, 2001 and 2000,
direct operating expenses increased by $2.0 million. This increase was
primarily attributable to sales commissions on the net revenue increase.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $11.1 million for the three month period
ended September 30, 2001 from $10.2 million for the three month period ended
September 30, 2000, an increase of $0.9 million. On a same station basis for
the stations we owned or operated during the three month periods ended
September 30, 2001 and 2000, selling, general and administrative expenses
increased by $0.8 million. This increase was primarily attributable to
increased rent, insurance and utility costs.
Selling general and administrative expenses increased to $32.1 million for
the nine month period ended September 30, 2001 from $20.8 million for the nine
month period ended September 30, 2000, an increase of $11.3 million. This
increase was primarily attributable to acquisitions and startups, which
accounted for $10.5 million of the increase. On a same station basis for the
stations we owned or operated during the nine month periods ended September
30, 2001 and 2000, selling, general and administrative expenses increased by
$0.8 million. This increase was primarily attributable to increased rent,
insurance and utility costs.
Corporate Expenses. Corporate expenses decreased to $4.5 million for the
three month period ended September 30, 2001 from $4.8 million for the three
month period ended September 30, 2000, a decrease of $0.3 million. This
decrease was primarily attributable to reduced expenses as a result of
consolidating our radio division, which was offset by higher legal expenses
associated with settlement of an arbitration.
Corporate expenses increased to $11.7 million for the nine month period
ended September 30, 2001 from $9.3 million for the nine month period ended
September 30, 2001, an increase of $2.4 million. This increase was primarily
attributable to increased costs from the addition of radio and outdoor
corporate expenses, higher legal expenses associated with settlement of an
arbitration and costs associated with being a publicly traded company.
13
Depreciation and Amortization. Depreciation and amortization increased to
$28.2 million for the three month period ended September 30, 2001 from $21.7
million for the three month period ended September 30, 2000, an increase of
$6.5 million. This increase was primarily attributable to acquisitions and the
addition of our four startup stations.
Deprecation and amortization increased to $88.0 million for the nine month
period ended September 30, 2001 from $36.9 million for the nine month period
ended September 30, 2000, an increase of $51.1 million. This increase was
primarily attributable to acquisitions and the addition of our four startup
stations.
Non-Cash Stock-Based Compensation. Non-cash stock-based compensation
decreased to $0.7 million for the three month period ended September 30, 2001
from $1.0 million for the three month period ended September 30, 2000, a
decrease of $0.3 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 $2.4 million for the nine
month period ended September 30, 2001 from $4.6 million for the nine month
period ended September 30, 2000, a decrease of $2.2 million.
Operating Loss. As a result of the above factors, we recognized an
operating loss of $16.1 million for the three month period ended September 30,
2001 compared to an operating loss of $9.9 million for the three month period
ended September 30, 2000. We recognized an operating loss of $53.6 million for
the nine month period ended September 30, 2001 compared to an operating loss
of $13.0 million for the nine month period ended September 30, 2000.
Net Interest Expense. Interest expense decreased to $5.1 million for the
three month period ended September 30, 2001 from $5.2 million for the three
month period ended September 30, 2000, a decrease of $0.1 million.
Net interest expense decreased to $16.8 million for the nine month period
ended September 30, 2001 from $18.9 million for the nine month period ended
September 30, 2000, a decrease of $2.1 million. In the prior year, we had
higher borrowings due to the note payable to Univision and the 364-day credit
facility with our bank group at higher interest rates.
Net Loss. We recognized a net loss of $13.5 million for the three month
period ended September 30, 2001 compared to a net loss of $25.2 million for
the three month period ended September 30, 2000. We recognized a net loss of
$43.9 million for the nine month period ended September 30, 2001 compared to a
net loss of $79.2 million for the nine month period ended September 30, 2000.
Broadcast Cash Flow. Broadcast cash flow decreased to $17.2 million for the
three month period ended September 30, 2001 from $17.7 million for the three
month period ended September 30, 2000, a decrease of $0.5 million. As a
percent of net revenue, broadcast cash flow decreased to 32% for the three
month period ended September 30, 2001 from 39% for the three month period
ended September 30, 2000. The decrease in broadcast cash flow ratio is
primarily attributable to the unanticipated sales reduction after the events
of September 11, 2001 and the increase in direct operating expenses due to our
start-up television stations. We anticipate the broadcast cash flow ratio to
return to historical levels as markets recover from the events of September
11, 2001 and the economic slowdown and our startup television stations become
fully integrated.
Broadcast cash flow increased to $48.5 million for the nine month period
ended September 30, 2001 from $37.8 million for the nine month period ended
September 30, 2000, an increase of $10.7 million. As a percentage of net
revenue, broadcast cash flow decreased to 31% for the nine month period ended
September 30, 2001 from 38% for the nine month period ended September 30,
2000. The decrease in broadcast cash flow ratio is primarily attributable to
the diversification into the outdoor and print operations.
EBITDA. EBITDA decreased to $12.7 million for the three month period ended
September 30, 2001 from $12.9 million for the three month period ended
September 30, 2000. As a percentage of net revenue, EBITDA decreased to 23%
for the three month period ended September 30, 2001 from 29% for the three
month period ended September 30, 2000.
14
EBITDA increased to $36.8 million for the nine month period ended September
30, 2001 from $28.5 million for the nine month period ended September 30,
2000, an increase of $8.3 million. As a percentage of net revenue, EBITDA
decreased to 24% for the nine month period ended September 30, 2001 from 29%
for the nine month period ended September 30, 2000.
Segment Operations
Television
Net Revenue. Net revenue in our television segment increased to $22.9
million for the three month period ended September 30, 2001 from $21.2 million
for the three month period ended September 30, 2000, an increase of $1.7
million. Same station results for the stations we owned or operated during the
three month period ended September 30, 2001 and 2000, resulted in an increase
of net revenue of $0.9 million, or 5%. This increase was primarily
attributable to increased inventory sold and increased rates. Additionally,
our acquisitions of television stations in the Boston, Hartford, Orlando and
San Diego markets and startups in the Midland and Santa Barbara markets
accounted for approximately $1.5 million of the increase. These increases were
partially offset by a $0.7 million decrease in network compensation from
Univision.
Net revenue increased to $67.2 million for the nine month period ended
September 30, 2001 from $60.1 million for the nine month period ended
September 30, 2000, an increase of $7.1 million. Same station results for the
stations we owned or operated during the nine month period ended September 30,
2001 and 2000, resulted in an increase of net revenue of $6.7 million, or 13%.
This increase was primarily attributable to increased inventory sold and
increased rates. The addition of our startup stations and acquisitions of
television stations in the Boston, Hartford, Washington, D.C., Orlando and San
Diego markets and startups in the Midland and Santa Barbara markets accounted
for approximately $3.6 million of the increase. These increases were partially
offset by a $3.2 million decrease in network compensation from Univision.
Direct Operating Expenses. Direct operating expenses in our television
segment increased to $9.8 million for the three month period ended September
30, 2001 from $8.8 million for the three month period ended September 30,
2000, an increase of $1.0 million. Acquisitions and startup stations accounted
for $0.7 million of the increase. Same station results for the stations we
owned or operated during the three month periods ended September 30, 2001 and
2000, resulted in an increase of $0.3 million, or 4%. This increase was
primarily attributable to sales commissions on the net revenue increase and
additional sales and research tools.
Direct operating expenses in our television segment increased to $28.8
million for the nine month period ended September 30, 2001 from $24.7 million
for the nine month period ended September 30, 2000, an increase of $4.1
million. Acquisitions and startup stations accounted for $1.9 million of the
increase. Same station results for the stations we owned or operated during
the nine month periods ended September 30, 2001 and 2000, resulted in an
increase of $2.2 million, or 10%. This increase was primarily attributable to
sales commissions on the net revenue increase and additional sales and
research tools.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our television segment increased to $4.6 million
for the three month period ended September 30, 2001 from $3.4 million for the
three month period ended September 30, 2000, an increase of $1.2 million.
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 September 30, 2001 and 2000, resulted in an increase of
$0.7 million. The increase was primarily attributable to increased rent,
insurance and utility expenses.
Selling, general and administrative expenses in our television segment
increased to $13.7 million for the nine month period ended September 30, 2001
from $11.0 million for the nine month period ended September 30, 2000, an
increase of $2.7 million. The increase was primarily attributable to
acquisitions and the addition of our startup stations, which accounted for
$1.9 million of the increase. Same station results for the stations we owned
or operated during the nine month periods ended September 30, 2001 and 2000,
resulted in an increase of $0.8 million.
15
Radio
Net Revenue. Net revenue in our radio segment increased to $17.8 million
for the three month period ended September 30, 2001 from $15.4 million for the
three month period ended September 30, 2000, an increase of $2.4 million. The
increase was primarily attributable to acquisitions, primarily Z-Spanish,
which accounted for $2.0 million of the increase. Same station results for the
stations we owned or operated during the three month periods ended September
30, 2001 and 2000, resulted in an increase in net revenue of $0.4 million.
Net revenue increased to $48.9 million for the nine month period ended
September 30, 2001 from $25.6 million for the nine month period ended
September 30, 2000, an increase of $23.3 million. The increase was primarily
attributable to the acquisitions of Z-Spanish and LCG, which accounted for
$22.8 million of the increase. Same station results for the stations we owned
or operated during the nine month periods ended September 30, 2001 and 2000,
resulted in an increase of net revenue of $0.5 million.
Direct Operating Expenses. Direct operating expenses in our radio segment
increased to $7.1 million for the three month period ended September 30, 2001
from $3.8 million for the three month period ended September 30, 2000, an
increase of $3.3 million. The increase was primarily attributable to the
acquisitions of Z-Spanish, which accounted for $3.0 million of the increase.
Same station results for the stations we owned or operated during the three
month periods ended September 30, 2001 and 2000, resulted in an increase in
direct operating expenses of $0.3 million.
Direct operating expenses in our radio segment increased to $19.8 million
for the nine month period ended September 30, 2001 from $7.0 million for the
nine month period ended September 30, 2000, an increase of $12.8 million. This
increase was primarily attributable to the acquisitions of Z-Spanish and LCG,
which accounted for $13.0 million of the increase. The increase was offset by
same station results for the stations we owned or operated during the nine
month periods ended September 30, 2001 and 2000, which resulted in a decrease
of $0.2 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our radio segment decreased to $4.6 million for the
three month period ended September 30, 2001 from $5.5 million for the three
month period ended September 30, 2000, a decrease of $0.9 million. This
decrease was primarily attributable to reduced expenses as a result of
consolidating our radio operations into our San Jose location. Same station
results for the stations we owned or operated during the three month periods
ended September 30, 2001 and 2000 resulted in an increase of $0.2 million.
Selling, general and administrative expenses in our radio segment increased
to $12.6 million for the nine month period ended September 30, 2001 from $8.5
million for the nine month period ended September 30, 2000, an increase of
$4.1 million. This increase was primarily attributable to the acquisitions of
LCG and Z-Spanish, which accounted for $4.1 million of the increase. Same
station results for the stations we owned or operated during the nine month
periods ended September 30, 2001 and 2000 resulted in no change.
Outdoor
Net Revenue. Net revenue in our outdoor segment increased to $8.8 million
for the three month period ended September 30, 2001 from $3.1 million for the
three month period ended September 30, 2000, an increase of $5.7 million. This
increase was a result of our acquisitions of Z-Spanish's outdoor operations in
August 2000 and certain outdoor advertising assets from Infinity Broadcasting
Corporation (the "Infinity Assets") in October 2000.
Based on the events of September 11 and the economic slowdown, particularly
in New York, we anticipate our outdoor operating results for the fourth
quarter will be negatively impacted.
Net revenue in our outdoor segment increased to $24.6 million for the nine
month period ended September 30, 2001 from $3.1 million for the nine months
period ended September 30, 2000, an increase of $21.5 million. This increase
was a result of our acquisitions of Z-Spanish's outdoor operations and the
Infinity Assets.
16
Direct Operating Expenses. Direct operating expenses in our outdoor segment
increased to $5.6 million for the three month period ended September 30, 2001
from $0.9 million for the three month period ended September 30, 2000, an
increase of $4.7 million. This increase was a result of our acquisitions of Z-
Spanish's outdoor operations and the Infinity Assets.
Direct operating expenses in our outdoor segment increased to $15.6 million
for the nine month period ended September 30, 2001 from $0.9 million for the
nine month period ended September 30, 2000, an increase of $14.7 million. This
increase was a result of our acquisitions of Z-Spanish's outdoor operations
and the Infinity Assets.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our outdoor segment increased to $1.0 million for
the three month period ended September 30, 2001 from $0.5 million for the
three month period ended September 30, 2000, an increase of $0.5 million. This
increase was a result of our acquisitions of Z-Spanish's outdoor operations
and the Infinity Assets.
Selling, general and administrative expenses in our outdoor segment
increased to $3.1 million for the nine month period ended September 30, 2001
from $0.5 million for the nine month period ended September 30, 2000, an
increase of $2.6 million. This increase was a result of our acquisitions of Z-
Spanish's outdoor operations and the Infinity Assets.
Print
Net Revenue. Net revenue in our publishing segment decreased to $4.9
million for the three month period ended September 30, 2001 from $5.3 million
for the three month period ended September 30, 2000, a decrease of $0.4
million. This decrease was the result of slowing economic conditions in New
York and the events of September 11.
Net revenue in our publishing segment increased to $14.6 million for the
nine month period ended September 30, 2001 from $9.5 million for the nine
month period ended September 30, 2000, an increase of $5.1 million. This
increase was primarily attributable to a full nine months of activity in 2001
compared to 2000.
Direct Operating Expenses. Direct operating expenses in our print segment
remained flat at $3.7 million for the three month period ended September 30,
2001 compared to the three month period ended September 30, 2000.
Direct operating expenses in our print segment increased to $10.6 million
for the nine month period ended September 30, 2001 from $7.1 million for the
nine month period ended September 30, 2000, an increase of $3.5 million. This
increase was primarily attributable to a full nine months of activity in 2001
compared to 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our print segment remained flat at $0.9 million for
the three month period ended September 30, 2001 compared to the three month
period ended September 30, 2000.
Selling, general and administrative expenses in our print segment increased
to $2.7 million for the nine month period ended September 30, 2001 from $0.9
million for the nine month period ended September 30, 2000, an increase of
$1.8 million. This increase was primarily attributable to a full nine months
of activity in 2001 compared to 2000.
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 $199.5 million was outstanding as of September 30, 2001. The
credit facility is secured by substantially all of our assets as well as the
pledge of the stock of several
17
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 (3.6% at September 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
remaining 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, which is levied upon the unused portion of the
amount available. All of the outstanding balance of our credit facility as of
September 30, 2001 was under the Term B loan.
The credit facility contains a mandatory prepayment clause in the event
that we 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 flow (as defined in our credit agreement), 50% of which shall
be used to reduce our outstanding loan balance.
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 less than $25.0 million.
Net cash flow provided by operating activities was approximately $7.4
million for the nine month period ended September 30, 2001, from cash provided
of approximately $9.1 million for the nine month period ended September 30,
2000.
Net cash flow used in investing activities was approximately $61.8 million
for the nine month period ended September 30, 2001, compared to $778.8 million
for nine month period ended September 30, 2000. During the nine month period
ended September 30, 2001, we acquired media properties for a total of
approximately $43.1 million, consisting primarily of WJAL-TV for approximately
$10.3 million, KXGM-FM for approximately $17.6 million (plus the exchange of
two of our radio stations with a fair value of $14.5 million), the
construction permit for KPMR-TV for approximately $4.8 million and the
acquisition of KDVA-FM for approximately $9.6 million. We sold two radio
stations, KEWE-AM and KHHZ-FM, for approximately $2.6 million. We made capital
expenditures of approximately $21.1 million, including $2.3 million for a
building in San Diego and $7.8 million for the construction of two new
television facilities in Texas and four startup stations.
Net cash flow from financing activities was approximately $2.1 million for
the nine month period ended September 30, 2001 compared to approximately $1.1
billion for the nine month period ended September 30, 2000. During the nine
month period ended September 30, 2001, we received proceeds from the exercise
of stock
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options in the amount of approximately $4.0 million, partially offset by
reductions in our notes payable in the amount of $1.9 million. During the nine
month period ended September 30, 2000, we increased our subordinated debt by
$110.0 million and increased our bank debt by $206.0 million.
We anticipate that our total capital expenditures for the full year 2001
will be approximately $25 million, of which amount we have incurred
approximately $21.7 million of expenditures including assets acquired under
capital leases as of September 30, 2001. These expenditures include building
two television facilities, as well as upgrading and maintaining our
broadcasting equipment and facility improvements to television and 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 possibly 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 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 had been repurchased under the stock repurchase program as of
September 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 commenced on August 15, 2001.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board ("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). The most significant
changes made by SFAS No. 141 are: (i) requiring that the purchase method of
accounting be used for all business combinations initiated after June 30,
2001, and (ii) establishing specific criteria for the recognition of
intangible assets separately from goodwill.
SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets (i.e., post acquisition accounting) and
is effective for fiscal years beginning after December 15, 2001. The most
significant changes made by SFAS No. 142 are: (i) goodwill and indefinite-
lived intangible assets will no longer be amortized; (ii) goodwill and
indefinite-lived intangible assets will be tested for impairment at least
annually; and (iii) the amortization period of intangible assets with finite
lives will no longer be limited to forty years. We
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are in the process of determining the expected impact on earnings and existing
goodwill and other intangibles upon adoption. As of September 30, 2001, the
net book value of goodwill totaled approximately $363.0 million and is being
amortized over 15 years. Management believes that FCC licenses are indefinite-
lived intangible assets. As of September 30, 2001, the net book value of FCC
licenses totaled approximately $614.0 million and is being amortized over 15
years. Total annualized amortization expense for goodwill and FCC licenses as
of September 30, 2001 is approximately $67.0 million.
In August 2001, the FASB issued SFAS No. 144, "Accounting For The
Impairment Or Disposal Of Long-Lived Assets," which addresses accounting and
financial reporting for the impairment or disposal of long-lived assets. This
statement is effective for us on January 1, 2002. We do not expect that
adoption of this standard will have a material effect on our results of
operations or financial position.
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. Periodically, 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 Term B loan bears interest at a variable rate of LIBOR plus 2.75%. As
of September 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 September 30, 2001, a change
of 10% in interest rates would have an impact of approximately $2.0 million on
pre-tax earnings and pre-tax cash flows over a one year period.
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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 Millennium Communications, Inc. The settlement
of this matter provided that the parties would resolve a dispute with respect
to the fair market value of the claimants' 10% ownership interest in
television station WBSV-TV in Sarasota, Florida, pursuant to binding
arbitration. The arbitration hearing was held during June and July 2001 to
determine the fair market value of WBSV-TV as of November 10, 2000. In August
2001, the arbitrator issued a revised arbitration award in which we were
ordered to pay the claimants approximately $937,630 for their 10% interest in
WBSV-TV, subject to the parties' agreeing on whether the claimants were
entitled to pre-award interest. In August 2001, the parties agreed that we
would pay approximately $32,370 in pre-award interest to the claimants, for a
total payment of approximately $970,000. The parties also agreed that the
arbitration award constituted the final and binding determination of the
disputes between the parties. In August 2001, we paid the approximately
$970,000 to the claimants in full satisfaction of the arbitration award.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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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
/s/ Jeanette Tully
By: _________________________________
Jeanette Tully
Executive Vice President,
Treasurer and Chief Financial
Officer
Dated: November 13, 2001
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