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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 MARCH 31, 2002
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 (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
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)
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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 May 10, 2002, there were 70,062,449 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 MARCH 31, 2002 (UNAUDITED) AND
DECEMBER 31, 2001............................................... 3
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE
MONTH PERIODS ENDED MARCH 31, 2002 AND MARCH 31, 2001........... 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE
MONTH PERIODS ENDED MARCH 31, 2002 AND MARCH 31, 2001........... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).......... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 12
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 document contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements other than statements of historical fact are
"forward-looking statements" for purposes of federal and state securities laws,
including any projections of earnings, revenue or other financial items; any
statements of the plans, strategies and objectives of management for future
operation; any statements concerning proposed new services or developments; any
statements regarding future economic conditions or performance; any statements
of belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words "may," "will," "estimate,"
"intend," "continue," "believe," "expect" or "anticipate" and other similar
words. Such forward-looking statements may be contained in Item 1, "Business"
(including the "Risk Factors" section of that Item) in our Annual Report on
Form 10-K for the year ended December 31, 2001 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" herein, among other
places.
Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking
statements. Our future financial condition and results of operations, as well
as any forward-looking statements, are subject to change and to inherent risks
and uncertainties, such as those disclosed in this document. We do not intend,
and undertake no obligation, to update any forward-looking statement.
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
March 31, December 31,
2002 2001
----------- ------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents............................................................................ $ 19,265 $ 19,013
Receivables:
Trade, net of allowance for doubtful accounts of 2002 $4,528; 2001 $4,851 (including amounts due
from Univision of 2002 $1,133; 2001 $599).......................................................... 38,274 44,143
Prepaid expenses and other current assets (including amounts due from related parties of 2002 $561;
2001 $1,189)........................................................................................ 6,131 6,308
Deferred taxes....................................................................................... 4,733 4,487
---------- ----------
Total current assets............................................................................. 68,403 73,951
Property and equipment, net............................................................................ 184,109 181,135
Intangible assets subject to amortization, net......................................................... 152,084 59,805
Intangible assets not subject to amortization, net..................................................... 869,540 851,935
Goodwill, net.......................................................................................... 211,316 361,679
Other assets, including amounts due from related parties of 2002 $337; 2001 $322; and deposits on
acquisitions of 2002 $6,611; 2001 $431................................................................ 12,193 7,012
---------- ----------
$1,497,645 $1,535,517
========== ==========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt................................................................. $ 1,360 $ 3,341
Advances payable, related parties.................................................................... 118 118
Accounts payable and accrued expenses (including related parties of 2002 $1,661; 2001 $1,699 which
includes amounts due to Univision of 2002 $1,082; 2001 $1,145)...................................... 22,098 25,210
---------- ----------
Total current liabilities........................................................................ 23,576 28,669
Notes payable, less current maturities................................................................. 239,853 249,428
Other long-term liabilities............................................................................ 2,139 2,313
Deferred taxes......................................................................................... 161,031 176,992
---------- ----------
Total liabilities................................................................................ 426,599 457,402
---------- ----------
Commitments and contingencies
Series A mandatorily redeemable convertible preferred stock, $0.0001 par value, 11,000,000 shares
authorized; shares issued and outstanding 2002 and 2001 5,865,102..................................... 93,169 90,720
---------- ----------
Stockholders' equity
Preferred stock, $0.0001 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 2002
70,026,015; 2001 66,147,794......................................................................... 7 7
Class B common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding
2002 and 2001 27,678,533............................................................................ 3 3
Class C common stock, $0.0001 par value, 25,000,000 shares authorized; shares issued and outstanding
2002 and 2001 21,983,392............................................................................ 2 2
Additional paid-in capital........................................................................... 1,140,725 1,097,617
Deferred compensation................................................................................ (2,577) (3,175)
Accumulated deficit.................................................................................. (160,283) (107,059)
---------- ----------
977,877 987,395
Treasury stock, Class A common stock, $0.0001 par value, 2002 5,101; 2001, 3,684 shares.............. -- --
---------- ----------
Total stockholders' equity....................................................................... 977,877 987,395
---------- ----------
$1,497,645 $1,535,517
========== ==========
See Notes to Consolidated Financial Statements
3
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
Three Month Period
Ended March 31,
--------------------------
2002 2001
------------ ------------
Net revenue (including amounts from Univision of $224 and $176).................. $ 49,128 $ 43,954
------------ ------------
Expenses:
Direct operating expenses (including related parties representation fees of
$1,619 and $947)............................................................ 25,766 22,993
Selling, general and administrative expenses (excluding non-cash stock-based
compensation of $981 and $959).............................................. 11,139 10,139
Corporate expenses (including related parties of $0 and $62).................. 3,715 3,540
Non-cash stock-based compensation............................................. 981 959
Depreciation and amortization................................................. 6,616 30,587
------------ ------------
48,217 68,218
------------ ------------
Operating income (loss)................................................... 911 (24,264)
Interest expense................................................................. (6,655) (6,815)
Interest income.................................................................. 58 651
------------ ------------
Loss before income taxes.................................................. (5,686) (30,428)
Income tax benefit............................................................... 1,100 10,881
------------ ------------
Net loss before equity in earnings of nonconsolidated affiliates.......... (4,586) (19,547)
Equity in net loss of nonconsolidated affiliates................................. (18) --
------------ ------------
Net loss before cumulative effect of a change in accounting principle..... (4,604) (19,547)
Cumulative effect of a change in accounting principle, net of taxes of
$13,420........................................................................ (46,171) --
------------ ------------
Net loss.................................................................. (50,775) (19,547)
Accretion of preferred stock redemption value.................................... 2,449 1,421
------------ ------------
Net loss applicable to common stock.............................................. $ (53,224) $ (20,968)
============ ============
Net loss per share, basic and diluted............................................ $ (0.45) $ (0.18)
============ ============
Weighted average common shares outstanding, basic and diluted.................... 117,653,254 114,806,925
============ ============
See Notes to Consolidated Financial Statements
4
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Month Period
Ended March 31,
-------------------
2002 2001
--------- --------
Cash Flows from Operating Activities:
Net (Loss).................................... $ (50,775) $(19,547)
Adjustments to reconcile net (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization............... 6,616 30,587
Deferred income taxes....................... (1,313) (10,903)
Cumulative effect of write-down of
intangibles due to impairment.............. 46,171 --
Amortization of debt issue costs............ 3,261 321
Amortization of syndication contracts....... 182 263
Net loss in equity method investee.......... 18 --
Non-cash stock-based compensation........... 981 959
(Gain) loss on sale of equipment............ 99 (98)
Changes in assets and liabilities, net of
effect of business combinations:
Decrease in accounts receivable............ 4,748 6,986
(Increase) decrease in prepaid expenses
and other assets.......................... 227 (1,144)
Decrease in accounts payable, accrued
expenses and other........................ (629) (8,652)
--------- --------
Net cash provided by (used in)
operating activities.................... 9,586 (1,228)
--------- --------
Cash Flows from Investing Activities:
Proceeds from disposal of equipment........... 13 128
Purchases of property and equipment........... (5,688) (7,999)
Cash deposits and purchase price on
acquisitions................................ (25,328) (22,507)
--------- --------
Net cash used in investing activities..... (31,003) (30,378)
--------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock........ 2,082 1,183
Principal payments on notes payable........... (199,090) (117)
Proceeds from borrowing on notes payable...... 225,000 --
Payments of deferred debt and offering costs.. (6,323) --
--------- --------
Net cash provided by financing
activities.............................. 21,669 1,066
--------- --------
Net increase (decrease) in cash and
cash equivalents........................ 252 (30,540)
Cash and Cash Equivalents:
Beginning..................................... 19,013 69,224
--------- --------
Ending........................................ $ 19,265 $ 38,684
========= ========
Supplemental Disclosures of Cash Flow
Information:
Cash Payments for:
Interest.................................... $ 3,798 $ 5,633
========= ========
Income taxes................................ $ 466 $ 308
========= ========
Supplemental Disclosures of Non-Cash
Investing and Financing Activities:
Property and equipment acquired under
capital lease obligations and included in
accounts payable............................ $ 216 $ 275
========= ========
Repayment of note payable and related
accrued interest payable with the
issuance of Class A common shares........... $ 40,641 $ --
========= ========
Assets Acquired in Business Combinations
and Asset Acquisitions:
Property and equipment...................... $ 1,926 $ 1,603
Intangible assets........................... 17,503 37,215
Estimated fair value of properties
exchanged.................................. -- (14,528)
Less cash deposits from prior year.......... (711) (1,976)
--------- --------
Net cash paid............................. $ 18,718 $ 22,314
========= ========
Exercise of options granted in business
combinations................................ $ 720 $ 208
========= ========
See Notes to Consolidated Financial Statements
5
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2002
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Entravision Communications Corporation (the "Company"), 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, 2001 included in the Company's Form 10-K for the
fiscal year ended December 31, 2001. Certain items in the 2001 balance sheet
and statement of operations have been reclassified in order to conform with the
current year presentation, with no effect on equity, net loss or net loss per
share. Except for the effects of the adoption of Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets," 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, 2002 or any other future period.
2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
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 month period ended March 31, 2002, all dilutive securities
have been excluded because their inclusion would have had an antidilutive
effect on earnings per share. As of March 31, 2002, 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:
6,925,358 stock options, 323,147 unvested stock grants subject to repurchase
and 5,865,102 shares of Series A mandatorily redeemable convertible preferred
stock.
Business and Asset Acquisitions
During the three month period ended March 31, 2002, the Company acquired
substantially all of the assets of two television stations in El Paso, Texas
and Corpus Christi, Texas for an aggregate purchase price of $18.3 million.
Additionally, the Company acquired substantially all of the assets of a radio
station in Aspen, Colorado for approximately $0.6 million. None of these
acquisitions was considered a business.
On May 1, 2002, the Company acquired substantially all of the assets of
radio station KXPK-FM in Denver, Colorado, for approximately $47.7 million.
6
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 2002
Pro Forma Results
The following pro forma results of continuing operations give effect to the
Company's 2001 acquisitions as if they had occurred on January 1, 2000. 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, if acquired before June 30, 2001, amortization of
intangible assets, 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 (in thousands, except per share amounts).
Three Month
Period Ended
March 31, 2001
--------------
Net revenue......................... $ 44.0
Net loss............................ (21.2)
Basic and diluted net loss per share $(0.18)
The above pro forma financial information does not purport to be indicative
of the results of operations had the 2001 acquisitions actually taken place on
January 1, 2000, nor is it intended to be a projection of future results or
trends.
Other
No accrual has been recorded in the accompanying financial statements
regarding a dispute with our former national radio sales representative firm,
since the amount of the Company's liability, if any, is indeterminable.
3. STOCK OPTIONS AND GRANTS
2000 Omnibus Equity Incentive Plan
The Company's 2000 Omnibus Equity Incentive Plan (the "Plan") 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 1,797,852 stock options in the first quarter
2002 to various employees, consultants and non-employee directors of the
Company under the Plan.
4. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Company adopted SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires that the purchase method of accounting be used for all
business combinations initiated or completed after June 30, 2001, and also
specifies the criteria for recognition of intangible assets separately from
goodwill. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
While amortization of indefinite life intangible assets and goodwill will no
longer be reflected as a charge in the Company's financial statements,
amortization related to certain of these intangibles will continue to be
deductible for income tax purposes. Amortization expense related to the
Company's indefinite life intangible assets and goodwill for the three month
period ended March 31, 2001 was $14.8 million, net of tax.
7
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 2002
Also, in connection with the adoption of SFAS No. 142, the Company is
required to carry out a transitional goodwill impairment evaluation, which
requires an assessment of whether there is an indication that goodwill is
impaired as of the date of adoption. Initially, the Company must identify its
reporting units and determine the carrying value of each reporting unit by
assigning the assets and liabilities (including goodwill) to those reporting
units as of the date of adoption. All existing goodwill at the date that SFAS
No. 142 is adopted is assigned to one or more reporting units in a reasonable
and supportable manner as prescribed by the standard. The Company has until
June 30, 2002, which is the second quarter from the date of adoption date, to
assess the fair value of each reporting unit and compare it to the reporting
unit's carrying value. If the fair value of a reporting unit is below the
unit's carrying amount, as computed in step one, the Company must complete step
two of the transitional goodwill impairment test for that reporting unit as
soon as possible, but no later than the end of the year of adoption. If the
implied fair value of the reporting unit's goodwill is less than its recorded
goodwill, a transitional goodwill impairment loss will be recognized and
reported as the cumulative effect of a change in accounting principle in
accordance with Accounting Principles Board Opinion No. 20 "Accounting
Changes". Any subsequent impairment losses resulting from events or
circumstances that occur after the first day of the fiscal year in which SFAS
No. 142 is adopted will be reported as a component of income from continuing or
discontinued operations, as appropriate.
Management has determined each of the Company's operating segments to be a
reporting unit. Upon adoption of SFAS No. 142, the Company assigned all the
assets and liabilities to the reporting units and has recorded an impairment
charge relating to the Company's outdoor operating segment of approximately
$46.2 million, net of taxes of $13.4 million. The write-down, which is due to
the carrying value of our outdoor advertising assets exceeding their current
fair value, is reflected on a separate line item in the statement of
operations, titled "cumulative effect of a change in accounting principle."
This is primarily due to the effects of the national economic slowdown on the
New York advertising market. The Company is in the process of completing its
initial assessment of the adoption of SFAS No. 142, by corroborating its
initial assessment of the fair value of the Company's indefinite life
intangible assets and reporting unit fair values by obtaining a valuation of
the fair values from an independent appraisal firm. This valuation may result
in an additional impairment charge, and that charge may be material. In
determining the impairment charge, the fair value of the reporting units was
estimated using a discounted cash flow method.
A reconciliation of previously reported net loss applicable to common stock
and basic loss per share to the amounts adjusted for the exclusion of goodwill
amortization and the amortization of our indefinite life intangible assets, net
of the related income tax, follow (in thousands, except per share amounts):
Three Months Period
Ended March 31,
------------------
2002 2001
-------- --------
Reported net loss applicable to common stock........... $(53,224) $(20,968)
Add back:
Goodwill amortization............................... -- 6,741
Other identified indefinite life intangible asset
amortization...................................... -- 8,027
-------- --------
Adjusted net loss applicable to common stock........... $(53,224) $ (6,200)
======== ========
Basic loss per share applicable to common stock:
Reported net loss applicable to common stock........... $ (0.45) $ (0.18)
Add back:
Goodwill amortization............................... -- 0.06
Other identified indefinite life intangible asset
amortization...................................... -- 0.07
-------- --------
Adjusted net loss applicable to common stock........... $ (0.45) $ (0.05)
======== ========
8
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 2002
The changes in the carrying amount of goodwill for the three month period
ended March 31, 2002 are as follows (in thousands):
Television Radio Outdoor Publishing Total
---------- -------- -------- ---------- --------
Balance as of January 1, 2002............... $34,034 $176,720 $150,925 $ -- $361,679
Reclassification of customer base intangible
asset subject to amortization............. -- -- (90,400) -- (90,400)
Impairment losses........................... -- -- (59,591) -- (59,591)
Other....................................... 37 (409) -- -- (372)
------- -------- -------- ---- --------
Balance as of March 31, 2002................ $34,071 $176,311 $ 934 $ -- $211,316
======= ======== ======== ==== ========
The composition of the Company's intangible assets and associated
accumulated amortization is as follows as of March 31, 2002 (in thousands):
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
-------- ------------ --------
Intangible assets not subject to amortization:
FCC licenses................................. $622,162
Television network affiliation agreements.... 30,564
Time brokerage agreements.................... 56,751
Radio network................................ 160,063
--------
Total...................................... $869,540
========
Intangible assets subject to amortization:
Customer base................................ $143,472 $19,240 $124,232
Other........................................ 54,209 26,357 27,852
-------- ------- --------
Total...................................... $197,681 $45,597 $152,084
======== ======= ========
The aggregate amount of amortization expense for the three month periods
ended March 31, 2002 and 2001 totaled $1.2 million and $26.3 million,
respectively. Estimated amortization expense for each of the years ending
December 31, 2002 through 2006 is approximately $11 million per year.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This statement is effective for us
beginning January 1, 2003. We do not expect that adoption of this standard will
have a material impact on our financial statements.
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
was effective for us on January 1, 2002. Adoption of this standard did not have
a material effect on our results of operations or financial position.
9
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 2002
5. SEGMENT INFORMATION
Management has 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.
Information about each of the operating segments follows:
Television Broadcasting
The Company owns and/or operates 38 primary television stations located
primarily in the southwestern United States, consisting primarily of Univision
Communications Inc. ("Univision") affiliates.
Radio Broadcasting
The Company owns and/or 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
The Company's newspaper publishing operation consists of a publication in
New York.
10
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 2002
RESULTS OF OPERATIONS
Separate financial data for each of the Company's operating segments is
provided below. Segment operating profit (loss) is defined as operating profit
(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 month periods ended March 31, 2002 and 2001. The Company
evaluates the performance of its operating segments based on the following (in
thousands):
Three Month Period
Ended March 31,
----------------------
2002 2001
---------- ----------
Net Revenue
Television............................... $ 24,021 $ 19,829
Radio.................................... 14,788 12,976
Outdoor.................................. 5,739 6,498
Publishing............................... 4,580 4,651
---------- ----------
Consolidated............................. 49,128 43,954
---------- ----------
Direct Expenses
Television............................... 11,029 8,986
Radio.................................... 6,497 5,852
Outdoor.................................. 4,697 4,729
Publishing............................... 3,543 3,426
---------- ----------
Consolidated............................. 25,766 22,993
---------- ----------
Selling, General and Administrative Expenses
Television............................... 5,114 4,414
Radio.................................... 4,272 3,947
Outdoor.................................. 947 871
Publishing............................... 806 907
---------- ----------
Consolidated............................. 11,139 10,139
---------- ----------
Depreciation and Amortization
Television............................... 2,897 7,143
Radio.................................... 1,497 18,022
Outdoor.................................. 2,087 4,805
Publishing............................... 135 617
---------- ----------
Consolidated............................. 6,616 30,587
---------- ----------
Segment Operating Profit (Loss)
Television............................... 4,981 (714)
Radio.................................... 2,522 (14,845)
Outdoor.................................. (1,992) (3,907)
Publishing............................... 96 (299)
---------- ----------
5,607 (19,765)
Corporate Expenses.......................... (3,715) (3,540)
Non-Cash Stock-Based Compensation........... (981) (959)
---------- ----------
Consolidated Operating Income (Loss)........ $ 911 $ (24,264)
========== ==========
Total Assets
Television............................... $ 461,623 $ 372,314
Radio.................................... 820,867 850,315
Outdoor.................................. 207,970 285,045
Publishing............................... 7,185 8,241
---------- ----------
Consolidated............................. $1,497,645 $1,515,915
========== ==========
Capital Expenditures
Television............................... $ 4,040 $ 7,484
Radio.................................... 1,504 582
Outdoor.................................. 357 194
Publishing............................... 3 14
---------- ----------
Consolidated............................. $ 5,904 $ 8,274
========== ==========
11
ENTRAVISION COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
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 and outdoor
advertising services 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. Univision
currently owns approximately 31% of our common stock.
We operate in four reportable segments based upon the types of advertising
medium which consist of television broadcasting, radio broadcasting, outdoor
advertising and newspaper publishing. We own and/or operate 38 primary
television stations that are located primarily in the southwestern U.S. We own
and/or operate 54 radio stations (39 FM and 15 AM) located primarily in
Arizona, California, Colorado, Florida, Illinois, Nevada, New Mexico and Texas.
Our outdoor advertising segment consists substantially of approximately 11,200
owned billboards in Los Angeles and New York. Our newspaper publishing
operation consists of a publication in New York.
Our primary expenses are employee compensation, including commissions paid
to our sales staff and our national representative firms, marketing, promotion
and selling, technical, local programming, engineering and general and
administrative. Our local programming costs for television consist of costs
related to producing local newscasts in most of our markets.
Prior to our initial public offering, which was completed on August 2, 2000,
we were organized as a Delaware limited liability company and 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 anticipate that our future effective
income tax rate will vary from 40% due to a portion of our purchase price for
the Latin Communications Group Inc. and Z-Spanish Media Corporation
acquisitions being allocated to non-tax deductible goodwill.
In 2001, we began the process of combining television and radio operations
to create synergies and achieve cost savings and are continuing that process in
2002.
As a result of the businesses and other assets we acquired in recent years,
approximately 83% of our total assets and 126% of our net assets are
intangible. We review our tangible long-lived assets, intangibles related to
those assets and goodwill periodically to determine potential impairment. To
date, we have determined that no impairment of long-lived tangible assets and
intangible assets exists. In making this determination, the assumptions about
future cash flows on the assets under evaluation are critical. Some stations
under evaluation have had limited cash flow due to planned conversion of format
or station power. The assumptions about cash flows after conversion reflect
management's estimates of how these stations are expected to perform based on
similar stations and markets and possible proceeds from the sale of the assets.
If these expected increases or sale proceeds are not realized, impairment
losses may be recorded in the future. See Note 4 to Notes to Consolidated
Financial Statements regarding the effects of our adoption of SFAS No 142.
12
Loss per share for the three months ended March 31, 2001 as adjusted to
reflect the adoption of SFAS No. 142 as if it had been adopted in 2001 would
have been ($0.05) per share. Pro forma loss per share as adjusted to reverse
the effect of the impairment charge recorded as a result of the adoption of
SFAS No. 142 would have been ($0.06) per share.
On March 18, 2002, we issued $225 million of Senior Subordinated Notes (the
"Notes") and subsequently amended our bank credit facility.
On May 1, 2002, the Company acquired substantially all of the assets of
radio station KXPK-FM in Denver, Colorado, for approximately $47.7 million.
Three Month Period Ended March 31, 2002
Compared to the Three Month Period Ended March 31, 2001
The following table sets forth selected data from our operating results for
the three month periods ended March 31, 2002 and 2001 (in thousands):
Three Month Period
Ended
------------------
March 31, March 31, %
2002 2001 Change
--------- --------- ------
Statement of Operations Data:
Net revenue.............................................. $ 49,128 $ 43,954 12 %
Direct operating expenses................................ 25,766 22,993 12 %
Selling, general and administrative expenses............. 11,139 10,139 10 %
Corporate expenses....................................... 3,715 3,540 5 %
Depreciation and amortization............................ 6,616 30,587 (78)%
Non-cash stock-based compensation........................ 981 959 2 %
-------- --------
Operating income (loss).................................. 911 (24,264) *
Interest expense, net.................................... 6,597 6,164 7 %
-------- -------- ---
Loss before income taxes................................. (5,686) (30,428) (81)%
Income tax benefit....................................... 1,100 10,881 (90)%
-------- --------
Net loss before equity in earnings of nonconsolidated
affiliates............................................. (4,586) (19,547) (77)%
Equity in net loss of nonconsolidated affiliates......... (18) -- *
-------- --------
Net loss before cumulative effect of a change in
accounting principle................................... (4,604) (19,547) (76)%
Cumulative effect of a change in accounting principle,
net of taxes
of $13,420............................................. (46,171) -- *
-------- --------
Net loss................................................. $(50,775) $(19,547)
======== ========
Other Data:
Broadcast cash flow...................................... $ 12,223 $ 10,822 13 %
EBITDA................................................... 8,508 7,282 17 %
Cash flows provided by (used in) operating activities.... 9,586 (1,228) *
Cash flows used in investing activities.................. (31,003) (30,378) 2 %
Cash flows provided by financing activities.............. 21,669 1,066 *
Capital expenditures..................................... 5,904 8,274 (29)%
- --------
* not meaningful
13
Broadcast cash flow means operating income (loss) before corporate expenses,
depreciation and amortization and non-cash stock-based compensation. 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 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
U.S.) as an indicator of operating performance or to cash flows from operating
activities (as determined in accordance with accounting principles generally
accepted in the U.S.) as a measure of liquidity.
EBITDA means broadcast cash flow less corporate expenses 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 U.S.) as an indicator of operating performance or to cash flows from
operating activities (as determined in accordance with accounting principles
generally accepted in the U.S.) as a measure of liquidity.
Consolidated Operations
Net Revenue. Net revenue increased to $49.1 million for the three month
period ended March 31, 2002 from $44 million for the three month period ended
March 31, 2001, an increase of $5.1 million. This increase was primarily
attributable to the net revenue increase in the television and radio stations
that we owned or operated during the entire three month periods ended March 31,
2002 and 2001. On a same station basis for broadcast properties we owned or
operated for the three month periods ended March 31, 2002 and 2001, there was
an increase of $5 million, or 15%. This increase was primarily attributable to
increased advertising sold (referred to as "inventory" in our industry) and
increased rates for that inventory.
Direct Operating Expenses. Direct operating expenses increased to $25.8
million for the three month period ended March 31, 2002 from $23 million for
the three month period ended March 31, 2001, an increase of $2.8 million. On a
same station basis, for the properties we owned or operated during the entire
three month periods ended March 31, 2002 and 2001, direct operating expenses
increased $2.1 million or 9%. This increase was primarily attributable to
increases in commissions and national representation fees associated with the
increase in net revenue and increase in the cost of rating services. The
increase was also partially attributable to a full three months of operations
of our 2001 acquisitions and our Telefutura affiliates, which together
accounted for $0.7 million of the increase. As a percentage of net revenue,
direct operating expenses remained constant at 52% for the three month periods
ended March 31, 2002 and 2001. The decrease in direct operating expense as a
percentage of net revenue from the properties we owned or operated during the
entire three month periods ended March 31, 2002 and 2001 was offset by the
increase in direct expenses for the 2001 acquisitions and our Telefutura
affiliates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $11.1 million for the three month period
ended March 31, 2002 from $10.1 million for the three month period ended March
31, 2001, an increase of $1 million. On a same station basis, for the
properties we owned or operated during the entire three month periods ended
March 31, 2002 and 2001, selling, general and administrative expenses increased
$0.6 million or 6%. This increase was primarily attributable to increases in
marketing, promotion and insurance costs. The increase was also partially
attributable to a full three months of operations of our 2001 acquisitions,
which accounted for approximately $0.4 million of the increase. As a percentage
of net revenue, selling, general and administrative expenses remained constant
at 23% for the three month periods ended March 31, 2002 and 2001. The decrease
in selling, general and administrative expense as a percentage of net revenue
from the properties we owned or operated during the entire three month periods
ended March 31, 2002 and 2001 was offset by the increase in selling, general
and administrative expenses for the 2001 acquisitions and our Telefutura
affiliates.
14
Depreciation and Amortization. Depreciation and amortization decreased to
$6.6 million for the three month period ended March 31, 2002 from $30.6 million
for the three month period ended March 31, 2001, a decrease of $24 million.
This decrease was primarily due to the adoption of SFAS No. 142, which resulted
in a decrease of approximately $22.2 million of amortization expense. The
decrease was also partially attributable to no amortization expense of
intangibles that were completely amortized in 2001. These decreases were
partially offset by increased depreciation as a result of additional assets
from our 2001 acquisitions and our Telefutura affiliates.
Corporate Expenses. Corporate expenses increased to $3.7 million for the
three month period ended March 31, 2002 from $3.5 million for the three month
period ended March 31, 2001, an increase of $0.2 million. The increase was
primarily attributable to increased insurance costs.
Non-Cash Stock-Based Compensation. Non-cash stock-based compensation was $1
million for the three month periods ended March 31, 2002 and 2001. Non-cash
stock-based compensation consists primarily of compensation expense relating to
stock awards granted to our employees and consultants. We expect to continue to
make stock-based awards to our employees and consultants in the future.
Operating Income (Loss). As a result of the above factors, we had operating
income of $0.9 million for the three month period ended March 31, 2002 compared
to an operating loss of $24.3 million for the three month period ended March
31, 2001, an increase of $25.2 million. The increase was primarily due to the
decrease in amortization expense as a result of adopting SFAS No. 142.
Interest Expense, Net. Net interest expense increased to $6.6 million for
the three month period ended March 31, 2002 from $6.2 million for the three
month period ended March 31, 2001, an increase of $0.4 million. The increase
was primarily a result of an increase in interest expense of approximately $2.7
million relating to the write-off of deferred debt costs as a result of the
repayment of the outstanding balances under our bank credit facility with the
proceeds of our Notes issued on March 18, 2002. This increase was offset
primarily by lower interest rates and our reduced debt due to the retirement of
a $37.5 million note payable with the issuance of approximately 3.6 million
shares of Class A common stock and a cash payment of approximately $0.3 million.
Net Loss. Net loss increased to $50.8 million for the three month period
ended March 31, 2002 from $19.5 million for the three month period ended March
31, 2001, an increase of $31.3 million. This increase was primarily the result
of a write-down relating to our outdoor segment in accordance with SFAS No. 142
in the amount of $46.2 million net of taxes of $13.4 million, offset by a
reduction in our amortization expense in the amount of $22.2 million.
Broadcast Cash Flow. Broadcast cash flow increased to $12.2 million for the
three month period ended March 31, 2002 from $10.8 million for the three month
period ended March 31, 2001, an increase of $1.4 million. As a percentage of
net revenue, broadcast cash flow remained constant at 25% for the three month
periods ended March 31, 2002 and 2001. On a same station basis, for the
properties we owned or operated during the entire three month periods ended
March 31, 2002 and 2001, broadcast cash flow increased $1.5 million or 14%. As
a percentage of net revenue for properties we owned or operated during the
entire three month periods ended March 31, 2002 and 2001, broadcast cash flow
increased to 26% for the three month period ended March 31, 2002 from 25% for
the three month period ended March 31, 2001.
EBITDA. EBITDA increased to $8.5 million for the three month period ended
March 31, 2002 from $7.3 million for the three month period ended March 31,
2001, an increase of $1.2 million. As a percentage of net revenue, EBITDA
remained constant at 17% for the three month periods ended March 31, 2002 and
2001. On a same station basis, for the properties we owned or operated during
the entire three month periods ended March 31, 2002 and 2001, EBITDA increased
$1.3 million or 18%. As a percentage of net revenue for properties we owned or
operated during the entire three month periods ended March 31, 2002 and 2001,
EBITDA increased to 18% for the three month period ended March 31, 2002 from
17% for the three month period ended March 31,
15
2001. The increase in EBITDA as a percentage of revenue was primarily due to
the increase of net revenue partially offset by the increase of direct
operating and selling, general and administrative expenses.
Segment Operations
Television
Net Revenue. Net revenue in our television segment increased to $24 million
for the three month period ended March 31, 2002 from $19.8 million for the
three month period ended March 31, 2001, an increase of $4.2 million. This
increase was partially attributable to a full three months of operations of our
2001 acquisitions, which accounted for $1.1 million of the increase, and our
Telefutura affiliates in markets where we currently operate a Univision
station, which accounted for $0.2 million of the increase. On a same station
basis, for the stations we owned or operated during the entire three month
periods ended March 31, 2002 and 2001, net revenue increased $2.9 million. This
increase was attributable to a combination of an increase in rates and
inventory sold.
Direct Operating Expenses. Direct operating expenses in our television
segment increased to $11 million for the three month period ended March 31,
2002 from $9 million for the three month period ended March 31, 2001, an
increase of $2 million. This increase was partially attributable to a full
three months of operations of our 2001 acquisitions, which accounted for $0.5
million of the increase, and our Telefutura affiliates, which accounted for
$0.3 million of the increase. On a same station basis, for the stations we
owned or operated during the entire three month periods ended March 31, 2002
and 2001, direct operating expenses increased $1.2 million. This increase was
primarily attributable to an increase in commissions and national
representation fees associated with the increase in net revenue and an increase
in the cost of rating services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our television segment increased to $5.1 million for
the three month period ended March 31, 2002 from $4.4 million for the three
month period ended March 31, 2001, an increase of $0.7 million. This increase
was primarily attributable to a full three months of operations of our 2001
acquisitions, which accounted for $0.5 million of the increase. On a same
station basis, for the stations we owned or operated during the entire three
month periods ended March 31, 2002 and 2001, selling, general and
administrative expenses increased $0.2 million. This increase was primarily
attributable to increased insurance costs.
Radio
Net Revenue. Net revenue in our radio segment increased to $14.8 million
for the three month period ended March 31, 2002 from $13 million for the three
month period ended March 31, 2001, an increase of $1.8 million. On a same
station basis, for the stations we owned or operated during the entire three
month periods ended March 31, 2002 and 2001, net revenue increased $2.1
million. This increase was primarily attributable to increased ratings and
sales incentive programs. The increase was partially offset by a reduction in
net revenue as a result of stations that were sold in 2001.
Direct Operating Expenses. Direct operating expenses in our radio segment
increased to $6.5 million for the three month period ended March 31, 2002 from
$5.9 million for the three month period ended March 31, 2001, an increase of
$0.6 million. On a same station basis, for the stations we owned or operated
during the entire three month periods ended March 31, 2002 and 2001, direct
operating expenses increased $0.8 million. This increase was primarily
attributable to an increase in commissions associated with the increase in net
revenue. The increase was partially offset by the reduction in direct operating
expenses as a result of stations that were sold in 2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our radio segment increased to $4.3 million for the
three month period ended March 31, 2002 from $3.9 million for the
16
three month period ended March 31, 2001, an increase of $0.4 million. On a same
station basis, for the stations we owned or operated during the entire three
month periods ended March 31, 2002 and 2001, selling, general and
administrative expenses increased $0.4 million. This increase was primarily
attributable to increases in marketing and promotion expenses in two large
markets.
Outdoor
Net Revenue. Net revenue in our outdoor segment decreased to $5.7 million
for the three month period ended March 31, 2002 from $6.5 million for the three
month period ended March 31, 2001, a decrease of $0.8 million. This decrease
was primarily attributable to a decline in the average monthly rate of boards
sold, partially offset by an increase in overall billboard occupancy during the
period.
Direct Operating Expenses. Direct operating expenses in our outdoor segment
remained constant at $4.7 million for the three month period ended March 31,
2002 compared to the three month period ended March 31, 2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our outdoor segment remained constant at $0.9
million for the three month period ended March 31, 2002 compared to the three
month period ended March 31, 2001.
Publishing
Net Revenue. Net revenue in our publishing segment decreased to $4.6
million for the three month period ended March 31, 2002 from $4.7 million for
the three month period ended March 31, 2001, a decrease of $0.1 million.
Direct Operating Expenses. Direct operating expenses in our publishing
segment increased to $3.5 million for the three month period ended March 31,
2002 from $3.4 million for the three month period ended March 31, 2001, an
increase of $0.1 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our publishing segment decreased to $0.8 million for
the three month period ended March 31, 2002 from $0.9 million for the three
month period ended March 31, 2001, a decrease of $0.1 million.
Liquidity and Capital Resources
Our primary sources of liquidity are cash provided by operations and
available borrowings under our bank credit facility. We have a $400 million
credit facility which is comprised of a $250 million revolver, and a
$150 million uncommitted loan facility expiring in 2007. Our bank 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 Federal Communications Commission ("FCC")
licenses. The revolving facility bears interest at LIBOR (1.88% at March 31,
2002) plus a margin ranging from 0.875% to 3.25% based on our leverage. 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. As
of March 31, 2002, there was no amount outstanding under our bank credit
facility, as described below.
Our bank 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 180 days, 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 excess cash
flow shall be used to reduce our outstanding loan balance.
17
Our bank credit facility contains certain financial covenants relating to
maximum total debt ratio, minimum total interest coverage ratio and a fixed
charge coverage ratio. The covenants become increasingly restrictive in the
later years of the bank credit facility. Our bank 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.
Our bank 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 million but less than or equal to $100
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 the credit
agreement in excess of $100 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 million.
On February 8, 2002, we retired a $37.5 million note payable with the
issuance of approximately 3.6 million shares of our Class A common stock and
approximately $0.3 million in cash.
On March 18, 2002, we issued the Notes, which bear interest at 8 1/8% per
year, payable semi-annually on March 15 and September 15 of each year,
commencing on September 15, 2002. The net proceeds from the Notes were used to
pay all indebtedness outstanding under our bank credit facility and for general
corporate purposes.
In connection with the issuance of the Notes, we amended our bank credit
facility as follows:
. to incorporate certain restrictions and covenants from the indenture
governing the Notes into our bank credit facility;
. to provide that in the event that we have excess cash flow at the end of
any of our fiscal years ending on or after December 31, 2003, we are
required to prepay the loans with 50% of our excess cash flow with
respect to such fiscal year (but only if our ratio of total debt to
operating cash flow, together with that of our subsidiaries on a
consolidated basis, is 4.5 to 1 or greater);
. to provide that for the revolving loans, the maximum margin above LIBOR
is 3.25% with respect to LIBOR loans and 2.25% above base rate with
respect to base rate loans;
. to pre-approve approximately $100 million of certain identified
acquisitions;
. to reset and increase the amount available for future acquisitions to
$100 million, in addition to the pre-approved acquisitions; and
. to permit the establishment of a new venture into which we may
contribute certain media assets in exchange for an equity interest in
such venture.
Net cash flow provided by operating activities was approximately $9.6
million for the three month period ended March 31, 2002, from cash used of
approximately $1.2 million for the three month period ended March 31, 2001.
Net cash flow used in investing activities was approximately $31 million for
the three month period ended March 31, 2002, compared to $30.4 million for
three month period ended March 31, 2001. During the three month period ended
March 31, 2002, we acquired media properties for a total of approximately $19.4
million, consisting primarily of a television station in El Paso, Texas for
approximately $18 million, made a deposit for
18
radio station KXPK-FM in Denver, Colorado for $5.9 million and made capital
expenditures of approximately $5.7 million.
Net cash flow from financing activities was approximately $21.7 million for
the three month period ended March 31, 2002 compared to $1.1 million for the
three month period ended March 31, 2001. During the three month period ended
March 31, 2002, we received net proceeds from the sale of our Notes of $218.7
million and used a portion of those proceeds to repay our indebtedness under
our bank credit facility in the amount of $199.1 million. Additionally, we
received net proceeds from the exercise of stock options and from shares issued
under the 2001 Employee Stock Purchase Plan (the "Purchase Plan") in the amount
of approximately $2.1 million.
During the remainder of 2002, we anticipate our maintenance capital
expenditures will be approximately $6.1 million, and our digital television
capital expenditures will be approximately $5.5 million. 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 condition and general economic conditions.
We currently anticipate that 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 continually review, and are currently reviewing, opportunities to acquire
additional television and radio stations as well as other opportunities
targeting the Hispanic market in the U.S. 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 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
have been repurchased under the stock repurchase program.
On April 4, 2001, our Board of Directors adopted the Purchase Plan. The
Purchase Plan was approved by our stockholders on May 10, 2001 at our 2001
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 up to 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 and concluded on February 14, 2002. As of March 31, 2002,
approximately 44,756 shares were purchased under the Purchase Plan.
On May 9, 2002, we filed a registration statement with the SEC to register
up to $500 million of equity and debt securities, which we may offer from time
to time.
19
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 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 revolving facility loan bears interest at a variable rate at LIBOR
(1.88% as of March 31, 2002) plus a margin ranging from 0.875% to 3.25% based
on our leverage. As of March 31, 2002, we had no variable rate bank debt
outstanding. As of March 31, 2002, we were not required to hedge any of our
outstanding variable rate debt by using an interest rate cap.
20
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.
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
Exhibit No. Description
4.1 Indenture, dated as of March 1, 2002, by and among Entravision Communications
Corporation, as Issuer, Union Bank of California, N.A., as Trustee, and the Guarantors
listed therein.
4.2 Entravision Communications Corporation 8.125% Senior Subordinated Note due 2009
dated March 18, 2002 in the principal amount of $221,120,000.
4.3 Entravision Communications Corporation 8.125% Senior Subordinated Regulation S
Temporary Global Note due 2009 dated March 18, 2002 in the principal amount of
$3,880,000.
10.1 Purchase Agreement, dated March 12, 2002, by and among Entravision
Communications Corporation and UBS Warburg, LLC, Credit Suisse First Boston
Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
representatives of the initial purchasers listed therein.
10.2 Exchange and Registration Rights Agreement dated as of March 12, 2002, by and
among Entravision Communications Corporation, as Issuer, and UBS Warburg, LLC,
Credit Suisse First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Initial Purchasers.
10.3 Second Amendment to Credit Agreement, dated as of March 29, 2002, among
Entravision Communications Corporation, the Lenders (as defined therein), Union
Bank of California, N.A, Credit Suisse First Boston, The Bank of Nova Scotia and
Fleet National Bank.
21
(b) Reports on Form 8-K
(i) Current Report on Form 8-K, announcing our Notes offering, filed with
the SEC on March 5, 2002.
(ii) Current Report on Form 8-K, announcing the sale of our Notes, filed
with the SEC on March 13, 2002.
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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
By: /s/ JEANETTE TULLY
-----------------------------
Jeanette Tully
Executive Vice President,
Treasurer
and Chief Financial Officer
Dated: May 14, 2002
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