-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JI4BZiaSvGxT5WaNiXM975u74iB+NkOxYkMFtHlZ+Jn92i9p4yhbmsfTLbqy/SiJ t2JTHitVabIT1kv8uyq6pw== 0000898430-01-503434.txt : 20020410 0000898430-01-503434.hdr.sgml : 20020410 ACCESSION NUMBER: 0000898430-01-503434 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTRAVISION COMMUNICATIONS CORP CENTRAL INDEX KEY: 0001109116 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 954783236 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15997 FILM NUMBER: 1784048 BUSINESS ADDRESS: STREET 1: 2425 OLYMPIC BLVD STREET 2: STE 6000 WEST CITY: SANTA MONICA STATE: CA ZIP: 90404 BUSINESS PHONE: 3104473870 MAIL ADDRESS: STREET 1: 2425 OLYMPIC BLVD STREET 2: STE 6000 WEST CITY: SANTA MONICA STATE: CA ZIP: 90404 10-Q 1 d10q.txt FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q (MARK ONE) [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED 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 ---------------- 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 18 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 19 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. 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. 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. 21 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 22 -----END PRIVACY-ENHANCED MESSAGE-----