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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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.
jurisdiction Employer Identification
of incorporation or No.)
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)
-----------------
N/A
(Former name, former address and former fiscal year, if changed since last
report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_]
As of August 8, 2002, there were 70,108,384 shares, $0.0001 par value per
share, of the registrant's Class A common stock outstanding, 27,678,533 shares,
$0.0001 par value per share, of the registrant's Class B common stock
outstanding and 21,983,392 shares, $0.0001 par value per share, of the
registrant's Class C common stock outstanding.
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ENTRAVISION COMMUNICATIONS CORPORATION
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2002 (UNAUDITED)
AND DECEMBER 31, 2001............................................ 3
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND JUNE 30, 2001 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX
MONTH PERIODS ENDED JUNE 30, 2002 AND JUNE 30, 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....... 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................ 26
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................ 26
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................. 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 26
ITEM 5. OTHER INFORMATION................................................ 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 27
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)
June 30, December 31,
2002 2001
----------- ------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents................................... $ 9,054 $ 19,013
Receivables:
Trade, net of allowance for doubtful accounts of 2002
$4,617; 2001 $4,851 (including amounts due from
Univision of 2002 $1,172; 2001 $599)..................... 50,112 44,143
Prepaid expenses and other current assets (including
amounts due from related parties of 2002 $968; 2001
$1,189)................................................... 8,983 6,308
Deferred taxes.............................................. 5,256 4,487
---------- ----------
Total current assets.................................... 73,405 73,951
Property and equipment, net.................................. 182,606 181,135
Intangible assets subject to amortization, net............... 143,089 59,805
Intangible assets not subject to amortization, net........... 916,326 851,935
Goodwill, net................................................ 233,732 361,679
Other assets, including amounts due from related parties of
2002 $331; 2001 $322; and deposits on acquisitions of 2002
$2,624; 2001 $431........................................... 15,747 7,012
---------- ----------
$1,564,905 $1,535,517
========== ==========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt........................ $ 1,374 $ 3,341
Advances payable, related parties........................... 118 118
Accounts payable and accrued expenses (including related
parties of 2002 $2,300; 2001 $1,699 which includes
amounts due to Univision of 2002 $1,488; 2001 $1,145)..... 29,519 25,210
---------- ----------
Total current liabilities............................... 31,011 28,669
Notes payable, less current maturities....................... 273,767 249,428
Other long-term liabilities.................................. 2,114 2,313
Deferred taxes............................................... 186,407 176,992
---------- ----------
Total liabilities....................................... 493,299 457,402
---------- ----------
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....... 95,684 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 70,113,487, 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.................................. 1,141,526 1,097,617
Deferred compensation....................................... (2,005) (3,175)
Accumulated deficit......................................... (163,611) (107,059)
---------- ----------
975,922 987,395
Treasury stock, Class A common stock, $0.0001 par value,
2002 5,101; 2001, 3,684 shares............................ -- --
---------- ----------
Total stockholders' equity.............................. 975,922 987,395
---------- ----------
$1,564,905 $1,535,517
========== ==========
3
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except share
and per share data)
Three Month Period Six Month Period
Ended June 30, Ended June 30,
-------------------------- --------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net revenue (including amounts from Univision
of $246, $610, $470 and $786)................... $ 62,160 $ 56,864 $ 111,288 $ 100,818
------------ ------------ ------------ ------------
Expenses:
Direct operating expenses (including
related parties representation fees of
$2,007, $1,255, $3,626 and $2,202)........... 28,552 25,486 54,318 48,551
Selling, general and administrative
expenses (excluding non-cash stock-
based compensation of $621, $795,
$1,602 and $1,754)........................... 13,002 10,901 24,141 21,040
Corporate expenses (including related
parties of $0, $95, $0 and $157)............. 3,770 3,603 7,485 7,143
Non-cash stock-based compensation.............. 621 795 1,602 1,754
Depreciation and amortization.................. 7,870 29,193 14,486 59,780
------------ ------------ ------------ ------------
53,815 69,978 102,032 138,268
------------ ------------ ------------ ------------
Operating income (loss).................... 8,345 (13,114) 9,256 (37,450)
Interest expense.................................. (5,975) (5,952) (12,630) (12,767)
Gain (loss) on sale of assets..................... (358) 1,596 (358) 1,668
Interest income................................... 68 388 126 1,039
------------ ------------ ------------ ------------
Income (loss) before income taxes.......... 2,080 (17,082) (3,606) (47,510)
Income tax (expense) benefit...................... (6,104) 6,181 (5,004) 17,062
------------ ------------ ------------ ------------
Net loss before equity in earnings of
nonconsolidated affiliates............... (4,024) (10,901) (8,610) (30,448)
Equity in net earnings of nonconsolidated
affiliates...................................... 18 -- -- --
------------ ------------ ------------ ------------
Net loss before cumulative effect of a
change in accounting principle........... (4,006) (10,901) (8,610) (30,448)
Cumulative effect of a change in accounting
principle....................................... 3,193 -- (42,978) --
------------ ------------ ------------ ------------
Net loss................................... (813) (10,901) (51,588) (30,448)
Accretion of preferred stock redemption value..... 2,515 1,541 4,964 2,962
------------ ------------ ------------ ------------
Net loss applicable to common stock............... $ (3,328) $ (12,442) $ (56,552) $ (33,410)
============ ============ ============ ============
Net loss per share, basic and diluted............. $ (0.03) $ (0.11) $ (0.48) $ (0.29)
============ ============ ============ ============
Weighted average common shares outstanding,
basic and diluted............................... 119,471,433 115,144,312 118,581,890 114,990,182
============ ============ ============ ============
See Notes to Consolidated Financial Statements
4
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Month Period
Ended June 30,
-------------------
2002 2001
--------- --------
Cash Flows from Operating Activities:
Net (Loss)........................................................ $ (51,588) $(30,448)
Adjustments to reconcile net (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization................................... 14,486 59,780
Deferred income taxes........................................... 3,807 (17,276)
Cumulative effect of write-down of intangibles due to
impairment..................................................... 42,978 --
Amortization of debt issue costs................................ 3,860 643
Amortization of syndication contracts........................... 314 536
Non-cash stock-based compensation............................... 1,602 1,754
Loss (gain) on sale of media property and other assets.......... 358 (1,668)
Loss on sale of assets.......................................... 129 --
Changes in assets and liabilities, net of effect of business
combinations:
(Increase) in accounts receivable.............................. (6,870) (7,134)
(Increase) in prepaid expenses and other assets................ (2,713) (2,732)
Increase (decrease) in accounts payable, accrued expenses
and other..................................................... 9,092 (6,584)
--------- --------
Net cash provided by (used in) operating activities........... 15,455 (3,129)
--------- --------
Cash Flows from Investing Activities:
Proceeds from disposal of equipment............................. 16 2,743
Purchases of property and equipment............................. (11,286) (14,998)
Cash deposits and purchase price on acquisitions................ (68,944) (31,942)
--------- --------
Net cash (used) in investing activities....................... (80,214) (44,197)
--------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock............................ 2,831 3,897
Principal payments on notes payable............................... (200,189) (1,192)
Proceeds from borrowing on notes payable.......................... 260,011 --
Payments of deferred debt and offering costs...................... (7,853) --
--------- --------
Net cash provided by financing activities..................... 54,800 2,705
--------- --------
Net (decrease) in cash and cash equivalents................... (9,959) (44,621)
Cash and Cash Equivalents:
Beginning......................................................... 19,013 69,224
--------- --------
Ending............................................................ $ 9,054 $ 24,603
========= ========
Supplemental Disclosures of Cash Flow Information:
Cash Payments for:
Interest........................................................ $ 4,245 $ 10,458
========= ========
Income taxes.................................................... $ 568 $ 338
========= ========
Supplemental Disclosures of Non-Cash Investing and Financing
Activities:
Property and equipment acquired under capital lease obligations
and included in accounts payable................................ $ 241 $ 878
========= ========
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:
Other assets.................................................... $ 9 $ --
Property and equipment.......................................... 2,856 2,053
Intangible assets............................................... 64,285 120,316
Current liabilities............................................. (27) --
Deferred taxes.................................................. -- (73,498)
Estimated fair value of properties exchanged.................... -- (14,528)
Less cash deposits from prior year.............................. (711) (2,476)
--------- --------
Net cash paid................................................. $ 66,412 $ 31,867
========= ========
Exercise of options granted in business combinations.............. $ 783 $ 1,014
========= ========
See Notes to Consolidated Financial Statements
5
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 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 Annual Report Form
10-K for the year ended December 31, 2001. Certain items in the December 31,
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 six month period ended June 30, 2002, all dilutive securities have
been excluded because their inclusion would have had an antidilutive effect on
earnings per share. As of June 30, 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: 6,956,390 stock options, 161,574
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 six month period ended June 30, 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 approximately
$18.3 million. Additionally, the Company acquired substantially all of the
assets of two radio stations in Denver, Colorado and Aspen, Colorado for an
aggregate purchase price of approximately $48.3 million. None of these
acquisitions was considered a business.
On June 5, 2002, the Company entered into a definitive agreement to acquire
substantially all of the assets of radio station KTCY-FM in Dallas, Texas for
approximately $35 million. Concurrently with the execution of the agreement,
the Company began operating this station under a time brokerage agreement.
On June 27, 2002, the Company entered into a definitive agreement to acquire
substantially all of the assets of radio station KRCY-FM in Las Vegas, Nevada
for approximately $6 million in cash. The Company has agreed to pay an
additional $6 million to the seller if the station's city of license is
upgraded.
6
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 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 Six Month
Period Ended Period Ended
June 30, 2001 June 30, 2001
------------- -------------
Net revenue......................... $ 56.9 $100.8
Net loss............................ (12.6) (33.6)
Basic and diluted net loss per share $(0.11) $(0.29)
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.
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 1,890,108 stock options in the first six
months of 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. 142, "Goodwill and Other
Intangible Assets." 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 and six
month periods ended June 30, 2001 was $13.7 million and $27.4 million,
respectively, net of tax.
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, January 1, 2002. 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
7
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 2002
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
had until June 30, 2002, 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
2002 fiscal year. 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 January 1, 2002, 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 preliminarily recorded an
estimated impairment charge relating to the Company's outdoor advertising
segment goodwill of approximately $43 million, substantially all of which was
not tax deductible. The write-down, which is a result of the carrying value of
the outdoor advertising segment 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." The estimated
impairment charge is primarily due to the effects of the national economic
slowdown on the New York advertising market. The Company has completed step one
of its adoption of SFAS No. 142, and has until the end of the 2002 fiscal year
to complete step two of the assessment. Management has retained an independent
appraisal firm to prepare a valuation of the outdoor advertising segment assets
and liabilities to assist in determining the final measurement of the
transitional outdoor goodwill impairment charge. Management has received a
preliminary valuation that indicates a significant portion of the preliminary
estimated impairment charge recorded in the first quarter of 2002 will likely
be reversed once the final measurement of the loss is completed. While the fair
value of the outdoor advertising segment is less than the carrying value of the
assigned assets and liabilities as of January 1, 2002, the fair value of the
customer base reported in the valuation is significantly less than the fair
value initially estimated by management and used to determine the implied fair
value of goodwill. Accordingly, it appears that the implied fair value of
goodwill to be used in the final measurement of the impairment loss will be
significantly greater than initially estimated and, as such, a significant
portion of the impairment charge recorded in the first quarter will likely be
reversed. 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 earnings (loss) per share to the amounts adjusted for the exclusion
of the amortization of goodwill and the Company's indefinite life intangible
assets, net of the related income tax, follows (in thousands, except per share
amounts):
Three Month Period Six Month Period
Ended June 30, Ended June 30,
----------------- ------------------
2002 2001 2002 2001
------- -------- -------- --------
Reported net loss applicable to common stock....................... $(3,328) $(12,442) $(56,552) $(33,410)
Add back:
Goodwill amortization........................................... -- 3,827 -- 7,809
Other identified indefinite life intangible asset amortization.. -- 9,842 -- 19,634
------- -------- -------- --------
Adjusted net earnings (loss) applicable to common stock............ $(3,328) $ 1,227 $(56,552) $ (5,967)
======= ======== ======== ========
Basic earnings (loss) per share applicable to common stock:
Reported net loss applicable to common stock....................... $ (0.03) $ (0.11) $ (0.48) $ (0.29)
Add back:
Goodwill amortization........................................... -- 0.03 -- 0.07
Other identified indefinite life intangible asset amortization.. -- 0.09 -- 0.17
------- -------- -------- --------
Adjusted net earnings (loss) applicable to common stock............ $ (0.03) $ 0.01 $ (0.48) $ (0.05)
======= ======== ======== ========
8
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 2002
The change in the carrying amount of goodwill for the six month period ended
June 30, 2002 is 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.................. -- -- (42,978) -- (42,978)
Other.............................. 186 5,245 -- -- 5,431
------- -------- -------- ---- --------
Balance as of June 30, 2002........ $34,220 $181,965 $17,547 $ -- $233,732
======= ======== ======== ==== ========
The composition of the Company's intangible assets and associated
accumulated amortization is as follows as of June 30, 2002 (in thousands):
Gross
Carrying Accumulated Net Carrying
Amount Amortization Amount
-------- ------------- --------------
Intangible assets not subject to amortization:
FCC licenses............................... $ 668,947
Television network affiliation agreements.. 46,517
Time brokerage agreements.................. 40,798
Radio network.............................. 160,064
--------------
Total.................................. $ 916,326
==============
Intangible assets subject to amortization:
Customer base.............................. $144,190 $ 21,448 $ 122,742
Other...................................... 48,039 27,692 20,347
-------- ------------- --------------
Total.................................. $192,229 $ 49,140 $ 143,089
======== ============= ==============
The aggregate amount of amortization expense for the six month periods ended
June 30, 2002 and 2001 totaled $3.4 million and $50.8 million, respectively.
Estimated amortization expense for each of the years ending December 31, 2002
through 2006 is approximately $8 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 the
Company beginning January 1, 2003. The Company does not expect that adoption of
this standard will have a material impact on its 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 the Company on January 1, 2002. Adoption of this standard did
not have a material effect on the Company's results of operations or financial
position.
As a result of the carrying amount of the outdoor advertising segment
customer base significantly exceeding the estimated fair value, management
reviewed the outdoor advertising segment as an asset group for recoverability
in accordance with SFAS No. 144. Management has determined that no impairment
of the outdoor advertising segment assets currently exists other than as
determined regarding goodwill as measured under SFAS No. 142 and described
above.
9
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 2002
5. SEGMENT INFORMATION
Management has determined that the Company operates in four reportable
segments: television broadcasting, radio broadcasting, outdoor advertising and
newspaper publishing.
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 56 radio stations (41 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 located primarily 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)
June 30, 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 and six month periods ended June 30, 2002 and 2001. The
Company evaluates the performance of its operating segments based on the
following (in thousands):
Three Month Period Six Month Period
Ended June 30, Ended June 30,
---------------------- ----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net Revenue
Television............................... $ 29,225 $ 24,418 $ 53,246 $ 44,247
Radio.................................... 20,357 18,134 35,145 31,110
Outdoor.................................. 7,435 9,265 13,174 15,763
Publishing............................... 5,143 5,047 9,723 9,698
---------- ---------- ---------- ----------
Consolidated............................. 62,160 56,864 111,288 100,818
---------- ---------- ---------- ----------
Direct Expenses
Television............................... 12,056 9,969 23,085 18,955
Radio.................................... 7,735 6,844 14,232 12,768
Outdoor.................................. 5,050 5,201 9,747 9,930
Publishing............................... 3,711 3,472 7,254 6,898
---------- ---------- ---------- ----------
Consolidated............................. 28,552 25,486 54,318 48,551
---------- ---------- ---------- ----------
Selling, General and Administrative Expenses
Television............................... 4,797 4,693 9,911 9,107
Radio.................................... 6,251 4,065 10,523 8,012
Outdoor.................................. 1,032 1,198 1,979 2,069
Publishing............................... 922 945 1,728 1,852
---------- ---------- ---------- ----------
Consolidated............................. 13,002 10,901 24,141 21,040
---------- ---------- ---------- ----------
Depreciation and Amortization
Television............................... 3,130 7,302 6,027 14,445
Radio.................................... 1,652 16,760 3,149 34,782
Outdoor.................................. 2,952 4,836 5,039 9,641
Publishing............................... 136 295 271 912
---------- ---------- ---------- ----------
Consolidated............................. 7,870 29,193 14,486 59,780
---------- ---------- ---------- ----------
Segment Operating Profit (Loss)
Television............................... 9,242 2,454 14,223 1,740
Radio.................................... 4,719 (9,535) 7,241 (24,452)
Outdoor.................................. (1,599) (1,970) (3,591) (5,877)
Publishing............................... 374 335 470 36
---------- ---------- ---------- ----------
12,736 (8,716) 18,343 (28,553)
---------- ---------- ---------- ----------
Corporate Expenses.......................... 3,770 3,603 7,485 7,143
Non-Cash Stock-Based Compensation........... 621 795 1,602 1,754
---------- ---------- ---------- ----------
Consolidated Operating Income (Loss)........ $ 8,345 $ (13,114) $ 9,256 $ (37,450)
========== ========== ========== ==========
Total Assets
Television............................... $ 391,557 $ 439,779 $ 391,557 $ 439,779
Radio.................................... 942,689 846,635 942,689 846,635
Outdoor.................................. 223,442 282,651 223,442 282,651
Publishing............................... 7,217 7,738 7,217 7,738
---------- ---------- ---------- ----------
Consolidated............................. $1,564,905 $1,576,803 $1,564,905 $1,576,803
========== ========== ========== ==========
Capital Expenditures
Television............................... $ 3,772 $ 6,343 $ 7,812 $ 13,156
Radio.................................... 1,742 1,213 3,246 2,466
Outdoor.................................. 94 1 451 195
Publishing............................... 15 45 18 59
---------- ---------- ---------- ----------
Consolidated............................. $ 5,623 $ 7,602 $ 11,527 $ 15,876
========== ========== ========== ==========
11
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: 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 United States. We own and/or operate 56 radio stations (41 FM and
15 AM) located primarily in Arizona, California, Colorado, Florida, Illinois,
Nevada, New Mexico and Texas. Our outdoor advertising segment consists of
approximately 11,200 billboards located primarily 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 had 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 that portion of purchase price for the non-taxable
business acquisitions that are 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 133% 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.
Basic earnings (loss) per share for the three and six month periods ended
June 30, 2001, as adjusted to reflect the adoption of SFAS No. 142 as if it had
been adopted in 2001, would have been $0.01 and $(0.05) per share,
respectively. Pro forma basic 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 $(0.05) and $(0.11) per share for the three and six month
periods ended June 30, 2002, respectively.
12
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.
On June 5, 2002, the Company entered into a definitive agreement to acquire
substantially all of the assets of radio station KTCY-FM in Dallas, Texas for
approximately $35 million. Concurrently with the execution of the agreement,
the Company began operating this station under a time brokerage agreement.
On June 27, 2002, the Company entered into a definitive agreement to acquire
substantially all of the assets of radio station KRCY-FM in Las Vegas, Nevada
for approximately $6 million in cash. The Company has agreed to pay an
additional $6 million to the seller if the station's city of license is
upgraded.
Application of Critical Accounting Policies
Critical accounting policies are defined as those that are the most
important to the accurate portrayal of our financial condition and results.
Critical accounting policies require management's subjective judgment, and may
produce materially different results under different assumptions and
conditions. The following are our critical accounting policies:
Goodwill and Other Intangible Assets
Effective January 1, 2002 we adopted the provisions of SFAS No. 142 and
determined each of our operating segments to be a reporting unit. Upon
adoption, we assigned all of our assets and liabilities to our reporting units
and ceased amortizing goodwill and our indefinite life intangible assets. We
believe that our broadcast licenses, television network affiliation agreements,
time brokerage agreements and radio network are indefinite life intangible
assets.
In performing our transitional goodwill impairment test we recorded an
estimated goodwill impairment charge related to our outdoor advertising segment
as the cumulative effect of a change in accounting principle. While we are in
the process of finalizing the determination and measurement of the transitional
impairment charge, we anticipate reversal of a significant portion of our
initial estimated charge. See Note 4 to Notes to Consolidated Financial
Statements for the six months ended June 30, 2002 included herein.
We believe that the accounting estimates related to fair value and goodwill
and other intangible asset impairment is a "critical accounting estimate"
because: (1) goodwill and other intangible assets are our most significant
assets; and (2) the impact that recognizing an impairment would have on the
assets reported on our balance sheet as well as our net loss could be material.
The assumptions about future cash flows on the assets under evaluation are
critical. Our assumptions about future revenue and cash flows require
significant judgment because of the current state of the economy and the
fluctuation of actual revenue. Additionally, 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 our 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 the expected cash
flows are not realized, impairment losses may be recorded in the future. We
have discussed the development and selection of these critical accounting
estimates with the Audit Committee of our Board of Directors, and the Audit
Committee has reviewed our related disclosure in Management's Discussion and
Analysis of Financial Condition and Results of Operations.
We develop our future revenue estimates based on projected rating increases,
planned timing of signal strength increases, planned timing of promotional
events, customer commitments and available advertising time.
13
Our estimates of future cash flows and EBITDA assume that our revenue will grow
at rates consistent with historical rates.
Allowance for Doubtful Accounts
We evaluate the collectibility of our trade accounts receivable based on a
number of factors. In circumstances where we are aware of a specific customer's
inability to meet its financial obligations to us, a specific reserve for bad
debts is estimated and recorded which reduces the recognized receivable to the
estimated amount we believe will ultimately be collected. In addition to
specific customer identification of potential bad debts, bad debt charges are
recorded based on our recent past loss history and an overall assessment of
past due trade accounts receivable amounts outstanding.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on accelerated
and straight-line methods over the estimated useful lives of such assets.
Change in circumstances such as technological advances, changes to our business
model or changes in our capital strategy could result in the actual useful
lives differing from our estimates. In those cases where we determine that the
useful life of property and equipment should be shortened, we would depreciate
the net book value in excess of the estimated salvage value over its revised
remaining useful life. Factors such as changes in the planned use of equipment
or mandated regulatory requirements could result in shortened useful lives.
We review long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of such asset may not be
recoverable. The estimate of future cash flow is based upon, among other
things, certain assumptions about expected future operating performance. Our
estimate of undiscounted cash flow may differ from actual cash flow due to,
among other things, technological changes, economic conditions, changes to our
business model or changes in our operating performance. If the sum of the
projected undiscounted cash flows (excluding interest) is less than the
carrying value of the asset, the asset will be written down to its estimated
fair value.
Deferred Taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when it is determined to be more likely than not that some portion or
all of the deferred tax assets will not be realized. We have considered future
taxable income resolution of tax uncertainties and prudent and feasible tax
planning strategies in the need for a valuation allowance. In the event we
determine we would not be able to realize all or part of our deferred tax
assets in the future, an adjustment to the carrying value of the deferred tax
assets would be charged to income in the period in which such determination was
made.
Additional Information
For additional information on our significant accounting policies, see Note
1 to Notes to Consolidated Financial Statements included in our Annual Report
on Form 10-K for the year ended December 31, 2001.
14
Three and Six Month Periods Ended June 30, 2002 Compared to the Three and Six
Month Periods Ended June 30, 2001
The following table sets forth selected data from our operating results for
the three and six month periods ended June 30, 2002 and 2001 (in thousands):
Three Month Period Ended Six Month Period Ended
------------------------- -------------------------
June 30, June 30, % June 30, June 30, %
2002 2001 Change 2002 2001 Change
-------- -------- ------ -------- -------- ------
Statement of Operations Data:
Net revenue................................ $ 62,160 $ 56,864 9 % $111,288 $100,818 10 %
Direct operating expenses.................. 28,552 25,486 12 % 54,318 48,551 12 %
Selling, general and administrative
expenses................................. 13,002 10,901 19 % 24,141 21,040 15 %
Corporate expenses......................... 3,770 3,603 5 % 7,485 7,143 5 %
Depreciation and amortization.............. 7,870 29,193 (73)% 14,486 59,780 (76)%
Non-cash stock-based compensation.......... 621 795 (22)% 1,602 1,754 (9)%
-------- -------- -------- --------
Operating income (loss).................... 8,345 (13,114) (164)% 9,256 (37,450) (125)%
Interest expense, net...................... (5,907) (5,564) 6 % (12,504) (11,728) 7 %
Gain (loss) on sale of assets.............. (358) 1,596 (122)% (358) 1,668 (121)%
-------- -------- -------- --------
Income (loss) before income tax............ 2,080 (17,082) (112)% (3,606) (47,510) (92)%
Income tax benefit (expense)............... (6,104) 6,181 (199)% (5,004) 17,062 (129)%
-------- -------- -------- --------
Net (loss) before equity in earnings of
nonconsolidated affiliates............... (4,024) (10,901) (63)% (8,610) (30,448) (72)%
Equity in net earnings of nonconsolidated
affiliates.................................. 18 -- * -- -- -
-------- -------- -------- --------
Net (loss) before cumulative effect of a
change in accounting principle........... (4,006) (10,901) (63)% (8,610) (30,448) (72)%
Cumulative effect of a change in accounting
principle................................... 3,193 -- * (42,978) -- *
-------- -------- -------- --------
Net (loss)................................. $ (813) $(10,901) $(51,588) $(30,448)
======== ======== ======== ========
Other data:
Broadcast cash flow........................ $ 20,606 $ 20,477 1 % $ 32,829 $ 31,227 5 %
EBITDA (adjusted for non-cash stock-
based compensation)...................... $ 16,836 $ 16,874 - $ 25,344 $ 24,084 5 %
Cash flows provided by (used in) operating
activities............................... $ 5,869 $ (1,901) * $ 15,455 $ (3,129) *
Cash flows (used in) investing activities.. $(49,211) $(13,819) * $(80,214) $(44,197) 81 %
Cash flows provided by financing
activities............................... $ 33,131 $ 1,639 * $ 54,800 $ 2,705 *
Capital expenditures....................... $ 5,623 $ 7,602 (26)% $ 11,527 $ 15,876 (27)%
- --------
* not meaningful
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 are
commonly used as a measure of performance in our industry.
15
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.
Neither broadcast cash flow nor EBITDA should be construed as an alternative
to operating income (as determined in accordance with accounting principles
generally accepted in the United States of America) as an indicator of
operating performance or to cash flows from operating activities (as determined
in accordance with accounting principles generally accepted in the United
States of America) as a measure of liquidity.
Consolidated Operations
Net Revenue. Net revenue increased to $62.2 million for the three month
period ended June 30, 2002 from $56.9 million for the three month period ended
June 30, 2001, an increase of $5.3 million. This increase was primarily
attributable to increased advertising sold (referred to as "inventory" in our
industry) and increased rates for that inventory sold on the television and
radio stations we owned or operated during the entire three month periods ended
June 30, 2002 and 2001. These same television and radio stations resulted in a
net revenue increase of $6 million, or 14%. 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 $1.4 million of the
increase, and increased print net revenue, which accounted for $0.1 million of
the increase. The increases were partially offset by reductions of $1.8 million
as a result of reduced outdoor net revenue and $0.4 million as a result of
radio stations that were sold in the second half of 2001.
Net revenue increased to $111.3 million for the six month period ended June
30, 2002, from $100.8 million for the six month period ended June 30, 2001, an
increase of $10.5 million. This increase was primarily attributable to
increased advertising sold and increased rates for that inventory sold on the
television and radio stations we owned or operated during the entire six month
periods ended June 30, 2002 and 2001. These same television and radio stations
resulted in a net revenue increase of $11 million, or 15%. The increase was
also partially attributable to a full six months of operations of our 2001
acquisitions and our Telefutura affiliates, which together accounted for
$2.8 million of the increase. The increases were partially offset by reductions
of $2.6 million as a result of reduced outdoor net revenue and $0.7 million as
a result of radio stations that were sold in 2001.
Direct Operating Expenses. Direct operating expenses increased to $28.6
million for the three month period ended June 30, 2002 from $25.5 million for
the three month period ended June 30, 2001, an increase of $3.1 million. This
increase was primarily attributable to increases in commissions and national
representation fees associated with the increase in net revenue for the
television and radio stations we owned or operated during the entire three
month periods ended June 30, 2002 and 2001. These same stations resulted in an
increase in direct operating expenses of $2.4 million, or 15%. 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
$0.8 million of the increase, and increased print direct operating expenses,
which accounted for $0.2 million of the increase. The increases were partially
offset by reductions of $0.1 million as a result of reduced outdoor direct
operating expenses and $0.2 million as a result of radio stations that were
sold in 2001. As a percentage of net revenue, direct operating expenses
increased to 46% for the three month period ended June 30, 2002 from 45% for
the three month period ended June 30, 2001. The increase in direct operating
expenses as a percentage of net revenue was primarily due to lower outdoor
segment revenue with relatively fixed direct operating expenses.
Direct operating expenses increased to $54.3 million for the six month
period ended June 30, 2002, from $48.5 million for the six month period ended
June 30, 2001, an increase of $5.8 million. This increase was primarily
attributable to increases in commissions and national representation fees
associated with the increase in net revenue for the television and radio
stations we owned or operated during the entire six month periods ended June
30, 2002 and 2001. These same stations resulted in an increase in direct
operating expenses of $4.4 million, or 14%. The increase was also partially
attributable to a full six months of operations of our 2001 acquisitions and
our Telefutura affiliates, which together accounted for $1.6 million of the
increase, and increased print direct
16
operating expenses, which accounted for $0.4 million of the increase. The
increases were partially offset by reductions of $0.2 million as a result of
reduced outdoor direct operating expenses and $0.4 million as a result of radio
stations that were sold in 2001. As a percentage of net revenue, direct
operating expenses increased to 49% for the six month period ended June 30,
2002 from 48% for the six month period ended June 30, 2001. The increase in
direct operating expenses as a percentage of net revenue was primarily due to
lower outdoor segment revenue with relatively fixed direct operating expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $13 million for the three month period
ended June 30, 2002 from $10.9 million for the three month period ended June
30, 2001, an increase of $2.1 million. This increase was primarily attributable
to the settlement of a contract dispute with our former radio national
representation firm, Interep National Radio Sales, Inc. ("Interep"), which
accounted for approximately $1.6 million of the increase. The increase was also
attributable to a full three months of operations of our 2001 acquisitions,
which accounted for $0.2 million of the increase. The increases were partially
offset by reductions of $0.2 million as a result of reduced outdoor selling,
general and administrative expenses and $0.1 million as a result of radio
stations that were sold in 2001. On a same station basis, excluding the Interep
settlement, for the properties we owned or operated during the entire three
month periods ended June 30, 2002, and 2001, selling, general and
administrative expenses increased $0.6 million, or 8%. This increase was
primarily attributable to increased insurance costs and higher bonuses
associated with the increase in net revenue. As a percentage of net revenue,
selling, general and administrative expenses increased to 21% for the three
month period ended June 30, 2002 from 19% for the three month period ended June
30, 2001. The increase in selling, general and administrative expenses as a
percentage of net revenue was primarily due to the Interep settlement, which
was partially offset by our increased revenue and cost reduction strategies. On
a same station basis, excluding the Interep settlement, selling, general and
administrative expenses as a percentage of net revenue decreased to 19% for the
three month period ended June 30, 2002 from 20% for the three month period
ended June 30, 2001.
Selling, general and administrative expenses increased to $24.1 million for
the six month period ended June 30, 2002 from $21 million for the six month
period ended June 30, 2001, an increase of $3.1 million. This increase was
primarily attributable to the Interep settlement, which accounted for
approximately $1.6 million of the increase. The increase was also partially
attributable to a full six months of operations of our 2001 acquisitions and
our Telefutura affiliates, which together accounted for $0.7 million of the
increase. The increases were partially offset by reductions of $0.2 million as
a result of reduced outdoor and print selling, general and administrative
expenses and $0.2 million as a result of radio stations that were sold in 2001.
On a same station basis, excluding the Interep settlement, for the properties
we owned or operated during the entire six month periods ended June 30, 2002,
and 2001, selling general and administrative expenses increased by
$1.2 million, or 7%. This increase was primarily attributable to increased
marketing and promotions in two large radio markets, increased insurance costs
and higher bonuses associated with the increase in net revenue. As a percentage
of net revenue, selling, general and administrative expenses increased to 22%
for the six month period ended June 30, 2002 from 21% for the six month period
ended June 30, 2001. The increase in selling, general and administrative
expenses as a percentage of net revenue was primarily due to the Interep
settlement, which was partially offset by our increased revenue and cost
reduction strategies. On a same station basis, excluding the Interep
settlement, selling, general and administrative expenses as a percentage of net
revenue decreased to 21% for the six month period ended June 30, 2002 from 22%
for the six month period ended June 30, 2001.
Corporate Expenses. Corporate expenses increased to $3.8 million for the
three month period ended June 30, 2002 from $3.6 million for the three month
period ended June 30, 2001, an increase of $0.2 million. Corporate expenses
increased to $7.5 million for the six month period ended June 30, 2002 from
$7.1 million for the six month period ended June 30, 2001, an increase of $0.4
million. These increases were primarily attributable to increased insurance
costs and bonuses associated with the increase in EBITDA.
Depreciation and Amortization. Depreciation and amortization decreased to
$7.9 million for the three month period ended June 30, 2002 from $29.2 million
for the three month period ended June 30, 2001, a decrease of $21.3 million.
This decrease was primarily due to the adoption of SFAS No. 142, which resulted
in a decrease of approximately $20.4 million of amortization expense.
17
Depreciation and amortization decreased to $14.5 million for the six month
period ended June 30, 2002 from $59.8 million for the six month period ended
June 30, 2001, a decrease of $45.3 million. The decrease was primarily due to
the adoption of SFAS No. 142, which resulted in a decrease of approximately $41
million of amortization expense.
Non-Cash Stock-Based Compensation. Non-cash stock-based compensation
decreased to $0.6 million for the three month period ended June 30, 2002 from
$0.8 million for the three month period ended June 30, 2001, a decrease of $0.2
million. Non-cash stock-compensation decreased to $1.6 million for the six
month period ended June 30, 2002 from $1.8 million for the six month period
ended June 30, 2001, a decrease of $0.2 million. Non-cash stock-based
compensation consists primarily of compensation expense relating to restricted
and unrestricted stock awards granted to our employees and consultants during
the second quarter of 2000.
Operating Income (Loss). As a result of the above factors, we had operating
income of $8.3 million for the three month period ended June 30, 2002 compared
to an operating loss of $13.1 million for the three month period ended June 30,
2001. We had operating income of $9.3 million for the six month period ended
June 30, 2002 compared to an operating loss of $37.5 million for the six month
period ended June 30, 2001. The increases in operating income were primarily
due to the decrease in amortization expenses as a result of adopting SFAS
No. 142.
Interest Expense, Net. Interest expense increased to $5.9 million for the
three month period ended June 30, 2002, from $5.6 million for three month
period ended June 30, 2001, an increase of $0.3 million. The increase was
primarily due to the increased debt level compared to the prior year, as well
as the higher rate of interest on the Notes.
Interest expense increased to $12.5 million for the six month period ended
June 30, 2002, from $11.7 million for the six month period ended June 30, 2001,
an increase of $0.8 million. The increase was primarily due to higher interest
income from the remaining initial public offering proceeds in the prior year,
as well as the higher rate of interest on the Notes.
Net Loss. Net loss decreased to $3.3 million for the three month period
ended June 30, 2002 from $12.4 million for the three month period ended June
30, 2001, a decrease of $9.1 million. This decrease was primarily the result of
the reduction of amortization expense in the amount of $13.7 million due to the
implementation of SFAS No. 142 and the partial reversal of the impairment
charge recorded in our outdoor advertising segment in accordance with SFAS
No. 142 in the amount of $3.2 million. Net loss increased to $56.6 million for
the six month period ended June 30, 2002 from $33.4 million for the six month
period ended June 30, 2001, an increase of $23.2 million. This increase was
primarily the result of a write-down relating to our outdoor advertising
segment in accordance with SFAS No. 142 in the amount of $43 million. The
increases were partially offset by a reduction of the tax effected amortization
expense in the amount of $27.4 million due to the implementation of SFAS No.
142.
Broadcast Cash Flow. Broadcast cash flow increased to $20.6 million for the
three month period ended June 30, 2002 from $20.5 million for the three month
period ended June 30, 2001, an increase of $0.1 million. On a same station
basis, excluding the Interep settlement, for the properties we owned or
operated during the entire three month periods ended June 30, 2002 and 2001,
broadcast cash flow increased $2.9 million, or 17%. As a percentage of net
revenue, broadcast cash flow decreased to 33% for the three month period ended
June 30, 2002 from 36% for the three month period ended June 30, 2001. On a
same station basis, excluding the Interep settlement, for the properties we
owned or operated during the entire three month periods ended June 30, 2002 and
2001, broadcast cash flow as a percentage of net revenue increased to 42% for
the three month period ended June 30, 2002 from 41% for the three month period
ended June 30, 2001.
Broadcast cash flow increased to $32.8 million for the six month period
ended June 30, 2002 from $31.2 million for the six month period ended June 30,
2001, an increase of $1.6 million. On a same station basis,
18
excluding the Interep settlement, for the properties we owned or operated
during the entire six month periods ended June 30, 2002 and 2001, broadcast
cash flow increased $5.3 million, or 20%. As a percentage of net revenue,
broadcast cash flow decreased to 30% for the six month period ended June 30,
2002 from 31% for the six month period ended June 30, 2001. On a same station
basis, excluding the Interep settlement, for the properties we owned or
operated during the entire six month periods ended June 30, 2002 and 2001,
broadcast cash flow as a percentage of net revenue increased to 38% from the
six month period ended June 30, 2002 from 36% for the six month period ended
June 30, 2001.
EBITDA. EBITDA decreased to $16.8 million for the three month periods ended
June 30, 2002 from $16.9 for the three month period ended June 30, 2001, a
decrease of $0.1 million. On a same station basis, excluding the Interep
settlement, for the properties we owned or operated during the entire three
month periods ended June 30, 2002 and 2001, EBITDA increased $2.8 million, or
20%. As a percentage of net revenue, EBITDA decreased to 27% for the three
month period ended June 30, 2002 from 30% for the three month period ended June
30, 2001. On a same station basis, excluding the Interep settlement, for the
properties we owned or operated during the entire three month periods ended
June 30, 2002 and 2001, EBITDA as a percentage of net revenue increased to 34%
for the three month period ended June 30, 2002 from 33% for the three month
period ended June 30, 2001.
EBITDA increased to $25.3 million for the six month period ended June 30,
2002 from $24.1 million for the six month period ended June 30, 2001, an
increase of $1.2 million. On a same station basis, excluding the Interep
settlement, for the properties we owned or operated during the entire six month
periods ended June 30, 2002 and 2001, EBITDA increased $5 million, or 25%. As a
percentage of net revenue, EBITDA decreased to 23% for the six month period
ended June 30, 2002 from 24% for the six month period ended June 30, 2001. On a
same station basis, excluding the Interep settlement, for the properties we
owned or operated during the entire six month periods ended June 30, 2002 and
2001, EBITDA as a percentage of net revenue increased to 29% for the six month
period ended June 30, 2002 from 27% for the six month period ended June 30,
2001.
Segment Operations
Television
Net Revenue. Net revenue in our television segment increased to $29.2
million for the three month period ended June 30, 2002 from $24.4 million for
the three month period ended June 30, 2001, an increase of $4.8 million. This
increase was primarily attributable to a combination of an increase in rates
and inventory sold on the stations we owned or operated during the entire three
month periods ended June 30, 2002 and 2001. These same stations resulted in a
net revenue increase of $3.4 million, or 14%. The increase was also
attributable to a full three months of operations of our 2001 acquisitions,
which accounted for $0.9 million of the increase, and our Telefutura affiliates
in markets where we currently operate a Univision station, which accounted for
$0.5 million of the increase.
Net revenue increased to $53.2 million for the six month period ended June
30, 2002, from $44.2 million for the six month period ended June 30, 2001, an
increase of $9 million. This increase was primarily attributable to a
combination of an increase in rates and inventory sold on the stations we owned
or operated during the entire six month periods ended June 30, 2002 and 2001.
These same stations resulted in a net increase of $6.3 million, or 14%. The
increase was also attributable to a full six months of operations of our 2001
acquisitions, which accounted for $2 million of the increase and our Telefutura
affiliates, which accounted for $0.7 million of the increase.
Direct Operating Expenses. Direct operating expenses in our television
segment increased to $12.1 million for the three month period ended June 30,
2002 from $10 million for the three month period ended June 30, 2001, an
increase of $2.1 million. This increase was primarily attributable to an
increase in commissions and national representation fees associated with the
increase in net revenue, an increase in the cost of ratings
19
services and an increase in the amortization of syndication contracts for the
stations we owned or operated during the entire three month periods ended
June 30, 2002 and 2001. These same stations resulted in an increase in direct
operating expenses of $1.3 million. The increase was also attributable to a
full three months of operations of our 2001 acquisitions, which accounted for
$0.4 million of the increase, and our Telefutura affiliates, which accounted
for $0.4 million of the increase.
Direct operating expenses in our television segment increased to $23.1
million for the six month period ended June 30, 2002 from $19 million for the
six month period ended June 30, 2001, an increase of $4.1 million. This
increase was primarily attributable to an increase in commissions and national
representation fees associated with the increase in net revenue, an increase in
the cost of ratings services and an increase in the amortization of syndication
contracts for the stations we owned or operated during the entire six month
periods ended June 30, 2002 and 2001. These same stations resulted in an
increase in direct operating expenses of $2.5 million. The increase was also
attributable to a full six months of operations of our 2001 acquisitions, which
accounted for $1 million of the increase and our Telefutura affiliates, which
accounted for $0.6 million of the increase.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our television segment increased to $4.8 million for
the three month period ended June 30, 2002 from $4.7 million for the three
month period ended June 30, 2002, an increase of $0.1 million. This increase
was primarily attributable to a full three months of operations of our 2001
acquisitions, 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 June 30, 2002 and June 30, 2001, selling, general and
administrative expenses decreased $0.1 million. This decrease was primarily
attributable to reduced expenses as a result of our joint marketing and
programming agreement with Televisa in San Diego, which was partially offset by
increased insurance costs.
Selling, general and administrative expenses in our television segment
increased to $9.9 million for the six month period ended June 30, 2002 from
$9.1 million for the six month period ended June 30, 2001, an increase of $0.8
million. This increase was attributable to a full six months of operations of
our 2001 acquisitions, which accounted for $0.7 million of the increase and our
Telefutura affiliates, which accounted for $0.1 million of the increase. On a
same stations basis, for the stations we owned or operated during the entire
six month periods ended June 30, 2002 and 2001, selling, general and
administrative expenses were flat.
Radio
Net Revenue. Net revenue in our radio segment increased to $20.3 million
for the three months ended June 30, 2002 from $18.1 million for the three month
period ended June 30, 2001, an increase of $2.2 million. This increase was
primarily attributable to the efforts of our new national radio sales
representative, Lotus/Entravision Reps, for the stations we owned or operated
during the entire three month periods ended June 30, 2002 and 2001. These same
stations resulted in a net revenue increase of $2.6 million, or 15%. This
increase was partially offset by a reduction in net revenue of $0.4 million as
a result of stations that were sold in the second half of 2001.
Net revenue in our radio segment increased to $35.1 million for the six
months ended June 30, 2002 from $31.1 million for the six month period ended
June 30, 2001, an increase of $4 million. This increase was primarily
attributable to the efforts of our new national radio sales representative,
Lotus/Entravision Reps, for the stations we owned or operated during the entire
six month periods ended June 30, 2002 and 2001. These same stations resulted in
a net revenue increase of $4.7 million, or 15%. This increase was partially
offset by a reduction in net revenue of $0.7 million as a result of stations
that were sold in 2001.
Direct Operating Expenses. Direct operating expenses in our radio segment
increased to $7.7 million for the three month period ended June 30, 2002 from
$6.8 million for the three month period ended June 30, 2001, an increase of
$0.9 million. This increase was primarily attributable to the commission
expense and national representation fees associated with the increase in net
revenue for the stations we owned or operated during the
20
entire three month periods end June 30, 2002 and 2001. These same stations
resulted in an increase in direct operating expense of $1.1 million. This
increase was partially offset by a reduction in direct operating expenses of
$0.2 million as a result of stations that were sold in 2001.
Direct operating expenses in our radio segment increased to $14.2 million
for the six month period ended June 30, 2002 from $12.7 million for the six
month period ended June 30, 2001, an increase of $1.5 million. This increase
was primarily attributable to the commission expense and national
representation fees associated with the increase in net revenue for the
stations we owned or operated during the entire six month periods end June 30,
2002 and 2001. These same stations resulted in an increase in direct operating
expenses of $1.9 million. This increase was partially offset by a reduction in
direct operating expenses of $0.4 million 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 $6.3 million for the
three month period ended June 30, 2002 from $4.1 million for the three month
period ended June 30, 2001, an increase of $2.2 million. This increase was
primarily attributable to the Interep settlement, which accounted for
$1.6 million of the increase. On a same station basis, excluding the Interep
settlement, for the stations we owned or operated during the entire three month
periods ended June 30, 2002 and 2001, selling, general and administrative
expenses increased $0.7 million, which was primarily attributable to increased
insurance costs and higher bonuses associated with the increase in net revenue.
These increases were partially offset by a reduction in selling, general and
administrative expenses of $0.1 million as a result of stations that were sold
in 2001.
Selling, general and administrative expenses in our radio segment increased
to $10.5 million for the six month period ended June 30, 2002 from $8 million
for the six month period ended June 30, 2001, an increase of $2.5 million. This
increase was primarily attributable to the Interep settlement, which accounted
for $1.6 million of the increase. On a same station basis, excluding the
Interep settlement, for the stations we owned or operated during the entire six
month periods ended June 30, 2002 and 2001, selling, general and administrative
expenses increased $1.1 million. The increase was primarily attributable to
increased marketing and promotions in two large markets facing new competition,
increased insurance costs and higher bonuses. These increases were offset by a
reduction in selling, general and administrative expenses of $0.2 million as a
result of stations that were sold in 2001.
Outdoor
Net Revenue. Net revenue for our outdoor segment decreased to $7.4 million
for the three month period ended June 30, 2002 from $9.2 million for the three
month ended June 30, 2001, a decrease of $1.8 million. This decrease was
primarily attributable to a decline in the number of billboards sold and a
decrease in average rates during the period. We believe that revenue from our
billboards will increase during the second half of 2002.
Net revenue for our outdoor segment decreased to $13.2 million for the six
month period ended June 30, 2002 from $15.8 million for the six month period
ended June 30, 2001, a decrease of $2.6 million. This decrease was primarily
attributable to a decline in the number of billboards sold and a decrease in
average rates during the period. We believe that revenue from our billboards
will increase during the second half of 2002.
Direct Operating Expenses. Direct operating expenses for our outdoor
segment decreased to $5 million for the three month period ended June 30, 2002
from $5.2 million for the three month period ended June 30, 2001, a decrease of
$ 0.2 million. The decrease was primarily attributable to the decline in
installation activity relating to lower occupancy during the period.
Direct operating expenses for our outdoor segment decreased to $9.7 million
for the six month period ended June 30, 2002 from $9.9 million for the six
month period ended June 30, 2001, a decrease of $0.2 million. The decrease was
primarily attributable to the decline in installation activity relating to
lower occupancy during the period.
21
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for our outdoor segment decreased to $1 million for the
three month period ended June 30, 2002 from $1.2 million for the three month
period ended June 30, 2001, a decrease of $0.2 million. This decrease was
primarily attributable to lower sales commission arising from lower revenue
during the period.
Selling, general and administrative expense for our outdoor segment
decreased to $2 million for the six month period ended June 30, 2002 from $2.1
million for the six month period ended June 30, 2001, a decrease of $0.1
million. This decrease was primarily attributable to lower sales commission
arising from lower revenue during the period.
Publishing
Net Revenue. Net revenue in our publishing segment increased to $5.1
million for the three month period ended June 30, 2002 from $5 million for the
three month period ended June 30, 2001, an increase of $0.1 million.
Net revenue in our publishing segment was $9.7 million for the six month
periods ended June 30, 2002 and June 30, 2001.
Direct Operating Expenses. Direct operating expenses in our publishing
segment increased to $3.7 million for the three month period ended June 30,
2002 from $3.5 million for the three month period ended June 30, 2001, an
increase of $0.2 million. This increase was primarily attributable to
contractual wage increases, insurance increases and higher distribution expense.
Direct operating expenses in our publishing segment increased to $7.3
million for the six month period ended June 30, 2002 from $6.9 million for the
six month period ended June 30, 2001, an increase of $0.4 million. This
increase was due to contractual wage increases, insurance increases and higher
distribution expense.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in our publishing segment were $0.9 million for the
three month periods ended June 30, 2002 and June 30, 2001.
Selling, general and administrative expenses in our publishing segment
decreased to $1.7 million for the six month period ended June 30, 2002 from
$1.8 million for the six month period ended June 30, 2001, a decrease of $0.1
million. This decrease was due to lower promotion expense.
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 June 30,
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 June 30, 2002, $35 million was 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.
22
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 our 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 8.125% 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 $15.5
million for the six month period ended June 30, 2002, from cash used of
approximately $3.1 million for the six month period ended June 30, 2001.
Net cash flow used in investing activities was approximately $80.2 million
for the six month period ended June 30, 2002, compared to $44.2 million for the
six month period ended June 30, 2001. During the six month period ended June
30, 2002, we acquired media properties for a total of approximately $67.1
million, consisting primarily of radio station KXPK-FM in Denver, Colorado for
$47.7 million and a television station in El Paso,
23
Texas for approximately $18 million. We made a deposit for radio station
KTCY-FM in Dallas, Texas for $1.8 million and made capital expenditures of
approximately $11.5 million.
Net cash flow from financing activities was approximately $54.8 million for
the six month period ended June 30, 2002 compared to $2.7 million for the six
month period ended June 30, 2001. During the six month period ended June 30,
2002, we received net proceeds from the sale of our Notes of $217.2 million and
used a portion of those proceeds to repay our indebtedness under our bank
credit facility in the amount of $199.1 million, and payments made on other
long-term liabilities in the amount of $1.1 million. Additionally, we borrowed
$35 million from our bank credit facility for acquisitions and 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 $2.8 million.
During the remainder of 2002, we anticipate our capital expenditures,
including digital, will be approximately $6 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 United States. 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 June 30, 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. That registration statement has been declared effective by the SEC. We
have not yet issued any securities under the registration statement.
24
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 bank 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 June 30, 2002) plus a margin ranging from 0.875% to 3.25% based on
our leverage. As of June 30, 2002, we had $35 million of variable rate bank
debt outstanding and we were not required to hedge any of our outstanding
variable rate debt by using an interest rate cap.
25
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We currently and from time to time are involved in litigation incidental to
the conduct of our business, but we are not currently a party to any lawsuit or
proceeding which, in the opinion of management, is likely to have a material
adverse effect on us.
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
We held our annual meeting of stockholders on May 16, 2002. At that meeting,
our stockholders:
1. Elected ten directors, consisting of eight directors elected by our
Class A and Class B stockholders and two directors elected by our Class C
stockholders:
Name For Withheld
---- ----------- ---------
Walter F. Ulloa (a)..................... 317,795,072 5,464,686
Philip C. Wilkinson (a)................. 317,794,922 5,464,836
Paul A. Zevnik (a)...................... 322,082,311 1,177,447
Darryl B. Thompson (a).................. 322,083,311 1,176,447
Amador S. Bustos (a).................... 322,067,911 1,191,847
Michael S. Rosen (a).................... 322,216,961 1,042,797
Esteban E. Torres (a)................... 322,216,941 1,042,817
Patricia Diaz Dennis (a)................ 322,175,111 1,084,647
Andrew W. Hobson (b).................... 21,983,392 0
Michael D. Wortsman (b)................. 21,983,392 0
-
(a) Messrs. Ulloa, Wilkinson, Zevnik, Thompson, Bustos, Rosen and Torres
and Ms. Diaz Dennis were elected by our Class A and Class B
stockholders, voting together as a class.
(b) Messrs. Hobson and Wortsman were elected by our Class C stockholder.
Messrs. Hobson and Wortsman resigned as Class C directors on August
5, 2002.
2. Ratified the appointment of McGladrey & Pullen, LLP, as our
independent auditors for the current fiscal year:
Votes For....... 346,006,891
Votes Against... 1,223,442
Abstentions..... 12,817
Broker Non-Votes 0
ITEM 5. OTHER INFORMATION
None.
26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are attached hereto and filed herewith:
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
(S)1350
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
(S)1350
(b) Reports on Form 8-K
After the end of the quarter ended June 30, 2002, the Company filed a
Current Report on Form 8-K with the SEC on August 5, 2002, announcing the
resignation of Messrs. Hobson and Wortsman as Class C directors.
27
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
COMMUNICATIONSCORPORATION
By: /s/ JEANETTE TULLY
-----------------------------------
Jeanette Tully
Executive Vice President, Treasurer
and Chief Financial Officer
Dated: August 14, 2002
28