ENTRAVISION COMMUNICATIONS CORP - 10-Q Quarterly Report

(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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨

As of November 3, 2004, there were 59,563,243 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 36,926,600 shares, $0.0001 par value per share, of the registrant’s Class U common stock outstanding.

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; 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,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

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. The factors impacting these risks and uncertainties include, but are not limited to:

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2003.

The condensed consolidated financial statements included herein have been prepared by Entravision Communications Corporation, or the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, or 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, 2003 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. 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, 2004 or any other future period.

On July 3, 2003, the Company sold substantially all of the assets and certain specified liabilities related to its publishing segment to CPK NYC, LLC for aggregate consideration of approximately $19.9 million. The Company’s consolidated financial statements for the three- and nine-month periods ended September 30, 2003 and related disclosures have been adjusted to reflect the publishing operations as discontinued operations in accordance with SFAS No. 144 (see Note 3).

Univision Communications Inc. currently owns approximately 30% of the Company’s common stock on a fully converted basis. In connection with Univision’s merger with Hispanic Broadcasting Corporation, or HBC, in September 2003, Univision entered into an agreement with the U.S. Department of Justice, or DOJ, pursuant to which Univision agreed, among other things, to sell enough of its holdings of the Company’s stock so that its ownership of the Company will not exceed 15% by March 26, 2006 and 10% by March 26, 2009.

Also pursuant to Univision’s agreement with DOJ, in September 2003 Univision exchanged all 36,926,623 of its shares of the Company’s Class A and Class C common stock that it previously owned (14,943,231 shares of Class A common stock and 21,983,392 shares of Class C common stock) for 369,266 shares of the Company’s new Series U preferred stock. The Series U preferred stock was mandatorily convertible into common stock when and if the Company created a new class of common stock that generally has the same rights, preferences, privileges and restrictions as the Series U preferred stock (other than a nominal liquidation preference). The Company’s stockholders approved the creation of such a new class of common stock, the Class U common stock, during the second quarter of 2004, and the 369,266 shares of the Company’s Series U preferred stock held by Univision were converted into 36,926,600 shares of the Company’s new Class U common stock effective as of July 1, 2004. Neither the original exchange of Univision’s Class A and Class C common for Series U preferred stock, nor the subsequent conversion of such Series U preferred stock into Class U common stock, changed Univision’s overall equity interest in the Company, nor did either have any impact on the Company’s existing television station affiliation agreements with Univision.

The Class U common stock has limited voting rights and does not include the right to elect directors. However, as the holder of all of the Company’s issued and outstanding Class U common stock, Univision currently has the right to approve any merger, consolidation or other business combination involving the Company, any dissolution of the Company and any assignment of the FCC licenses for any of the Company’s Univision-affiliated television stations. Each share of Class U common stock is automatically convertible into one share (subject to adjustment for stock splits, dividends or combinations) of the Company’s Class A common stock in connection with any transfer to a third party that is not an affiliate of Univision.

Univision acts as the Company’s exclusive sales representative for the sale of all national advertising aired on Univision-affiliate television stations. During the three- and nine-month periods ended September 30, 2004, the amounts paid by the Company to Univision in this capacity were $2.6 million and $6.9 million, respectively. In addition, the Company received reimbursements from Univision for corporate expenses the Company incurred in connection with Univision’s merger with HBC in amounts of $0 and $2.0 million for the three- and nine-month periods ended September 30, 2003, respectively.

Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock option plans. As allowed by SFAS No. 123, the Company has elected to continue to account for its employee stock-based compensation plan using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations, which does not require compensation to be recorded if the consideration to be received is at least equal to the fair value of the common stock to be issued at the measurement date. Under the requirements of SFAS No. 123, nonemployee stock-based transactions require compensation to be recorded based on the fair value of the securities issued or the services received, whichever is more reliably measurable.

The following table illustrates the effect on net income (loss) and net income (loss) per share had employee compensation costs for the stock-based compensation plan been determined based on grant date fair values of awards under the provisions of SFAS No. 123, for the three- and nine-month periods ended September 30, 2004 and 2003 (unaudited; in thousands, except per share data):

The Company granted 2,305,000 stock options for employees and directors and 79,000 stock options for non-employees during the nine-month period ended September 30, 2004. These stock options have a weighted average exercise price of $9.99 and a weighted average fair value of $6.09.

Basic earnings (loss) per share is computed as net income (loss) less accretion of preferred stock redemption value, premium paid on early redemption and accrued dividends on Series A mandatorily redeemable convertible preferred stock divided by the weighted average number of shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution, if any, that could occur from shares issuable through stock options and convertible securities.

For the three- and nine-month periods ended September 30, 2004 and 2003, all dilutive securities have been excluded as their inclusion would have had an anti-dilutive effect on loss per share. For the nine-month period ended September 30, 2004, 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 anti-dilutive is as follows: 284,073 equivalent shares of stock options and 5,027,078 equivalent shares of Series A mandatorily redeemable convertible preferred stock.

As discussed above, the Series U preferred stock held by Univision was converted into shares of the Company’s new Class U common stock on July 1, 2004. If the Series U preferred stock had been treated as common stock outstanding, the basic weighted average common shares outstanding would have been 124,103,535 for the nine-month period ended September 30, 2004. The basic net loss per share would have changed from $(0.12) to $(0.10) for the nine-month period ended September 30, 2004.

On July 2, 2004, the Company repurchased 2,542,006 shares of its Series A mandatorily redeemable convertible preferred stock from TSG Capital Fund III, L.P. for $55 million. The Company repurchased the remaining 3,323,096 shares of Series A preferred stock from TSG Capital on September 30, 2004, for approximately $73 million. The $55 million and approximately $73 million

payments included premiums of approximately $3.7 million and $3.6 million to such shares’ carrying value (or $1.3 million and $1.5 million premiums to the liquidation value) on July 2, 2004 and September 30, 2004, respectively. These premiums have been included in accretion of preferred stock redemption value and are reflected as a reduction in the Company’s net income applicable to common stockholders and the related earnings per share for the three- and nine-month periods ending September 30, 2004.

In September 2004, the Company acquired all of the outstanding capital stock of Diamond Radio, Inc., the owner and operator of radio station KBMB-FM in the Sacramento, California market for an aggregate purchase price of $17.6 million.

Statement of Financial Accounting Standards (SFAS) No. 141, “Accounting for Business Combinations,” prescribes accounting and reporting standards for all business combinations in which an entity acquires net assets that constitute a business or acquires equity interests of one or more other entities and obtains control over that entity or entities. As prescribed by SFAS No. 141, the Company has accounted for this acquisition, which is included in the Company’s radio segment, using the “Purchase Method” of accounting. As a result of the acquisition, the Company expects to achieve efficiencies through economies of scale and an increased presence in the Sacramento market. The operating results of KBMB-FM have not been included in the consolidated financial statements as the Company made the acquisition on September 30, 2004. The operations of Diamond Radio, Inc. for the three- and nine-month periods ending September 30, 2004 and 2003 are not considered to be material.

The preliminary purchase price allocation for radio station KBMB-FM in the Sacramento market, which remains subject to change pending review of the value of intangible assets and the related tax effects, is as follows (unaudited; in thousands):

The only change in the carrying amount of goodwill for the three- and nine-month periods ended September 30, 2004 and 2003 is $6.1 million from the acquisition described above. This increase in goodwill is not expected to be deductible for income tax purposes.

In February 2004, the Company sold the assets of radio station KZFO-FM in the Fresno, California market to Univision for approximately $8.0 million.

In May 2004, the Company sold the assets of radio stations WNDZ-AM, WRZA-FM and WZCH-FM in the Chicago, Illinois market for an aggregate amount of approximately $28.8 million.

In August 2004, the Company sold the assets of radio station KRVA-AM in the Dallas, Texas market for approximately $3.5 million.

As of September 30, 2004, the Company’s remaining assets held for sale consist of land in the San Jose, California market, valued at approximately $4.9 million.

None of the 2004 dispositions qualifies as a sale of a business, nor do they qualify for discontinued operations presentation, as they are not a component of an entity.

In October 2004, the Company, in combination with certain of its Mexican affiliates and subsidiaries, entered into a definitive agreement to acquire all of the outstanding capital stock of the licensee of television station XHRIO-TV in Matamoros, Tamaulipas, Mexico, serving the McAllen, Texas market, as well as substantially all of the assets related to such station, for an aggregate of $13 million.

In August 2004, the Company entered into a definitive agreement to acquire radio station KAIQ-FM in the Lubbock, Texas market for approximately $1.7 million. This acquisition currently is expected to close in the fourth quarter of 2004.

On July 3, 2003, the Company sold substantially all of the assets and certain specified liabilities related to its publishing segment to CPK NYC, LLC for aggregate consideration of approximately $19.9 million. In the sale, the Company received $18.0 million in cash and an unsecured, subordinated promissory note in the principal amount of $1.9 million. The note bears interest at a rate of 8.0% per annum compounded annually, and all principal and accrued interest on the note are due and payable on July 3, 2008. The Company used the cash proceeds from this disposition to repay a portion of the indebtedness then outstanding under its bank credit facility.

The cash portion of the purchase price was subject to adjustment based on the working capital of the publishing segment as of the closing date. This adjustment was finalized during the third quarter of 2004 and resulted in an additional gain on disposal of discontinued operations of $0.5 million, net of taxes of $0.3 million.

As a result of the Company’s decision to sell its publishing segment, the Company’s consolidated financial statements for the three- and nine-month periods ended September 30, 2003 and related disclosures have been adjusted to reflect the publishing operations as discontinued operations in accordance with SFAS No. 144. The Company has not made any allocation of interest expense or corporate expense to discontinued operations.

Summarized Statements of Operations data for the discontinued publishing operations is as follows (unaudited; in thousands):

The Company operates in three reportable segments: television broadcasting, radio broadcasting and outdoor advertising.

The Company owns and/or operates 45 primary television stations located primarily in the southwestern United States, consisting primarily of Univision affiliates.

The Company owns and/or operates 54 radio stations (41 FM and 13 AM) located primarily in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas.

The Company owns approximately 10,900 outdoor advertising faces located primarily in Los Angeles and New York.

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 were no significant sources of revenue generated outside the United States during the three- and nine-month periods ended September 30, 2004 and 2003. The Company evaluates the performance of its operating segments based on the following (unaudited, in thousands):

The Company is subject to various outstanding claims and other legal proceedings that arose in the ordinary course of business. The Company is a party to one dispute, which management does not believe is material, from plaintiffs seeking unspecified damages for certain employment-related claims. An appropriate accrual has been made in the consolidated financial statements. While the Company’s legal counsel cannot express an opinion on this matter, management believes that any liability of the Company that may arise out of or with respect to this matter will not materially adversely affect the financial position, results of operations or cash flows of the Company.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a diversified Spanish-language media company with a unique portfolio of television, radio and outdoor advertising assets, reaching approximately 75% of all Hispanics in the United States. We operate in three reportable segments: television broadcasting, radio broadcasting and outdoor advertising. Our net revenue for the nine-month period ended September 30, 2004 was $191 million. Of that amount, revenue generated by our television segment accounted for 52%, revenue generated by our radio segment accounted for 36% and revenue generated by our outdoor segment accounted for 12%.

As of the date of filing this report, we own and/or operate 45 primary television stations that are located primarily in the southwestern United States. We own and/or operate 54 radio stations (41 FM and 13 AM) located primarily in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas. Our outdoor advertising segment consists of approximately 10,900 advertising faces located primarily in Los Angeles and New York. The comparability of our results between the three- and nine-month periods ended September 30, 2004 and 2003 is significantly affected by acquisitions and dispositions in those periods.

We generate revenue from sales of national and local advertising time on television and radio stations and advertising on our billboards. Advertising rates are, in large part, based on each medium’s ability to attract audiences in demographic groups targeted by advertisers. We recognize advertising revenue when commercials are broadcast and when outdoor advertising services are provided. We do not obtain long-term commitments from our advertisers and, consequently, they may cancel, reduce or postpone orders without penalties. We pay commissions to agencies for local, regional and national advertising. For contracts directly with agencies, we record commissions as deductions from gross revenue. Seasonal revenue fluctuations are common in the broadcasting and outdoor advertising industries and are due primarily to variations in advertising expenditures by both local and national advertisers.

Our primary expenses are employee compensation, including commissions paid to our sales staffs and our national representative firms, marketing, promotion and selling, technical, local programming, engineering and general and administrative. Our local programming costs for television consist primarily of costs related to producing a local newscast in most of our markets.

Despite the war with Iraq and a relatively weak economic environment, we experienced growth for the year ended December 31, 2003, with net revenue of $238 million. Of that amount, revenue generated by our television segment accounted for 51%, revenue generated by our radio segment accounted for 36% and revenue generated by our outdoor segment accounted for 13%.

We made several key acquisitions during 2003, most notably the three FM radio stations in the Los Angeles market that we acquired from Big City Radio, Inc. Those stations were successfully integrated into our existing Los Angeles radio operations, and by mid-year we had already exceeded the Arbitron ratings that we originally had only hoped to reach by year-end in the market. Our radio division as a whole also posted strong results despite the departure from our company of a popular Spanish-language radio personality, and we successfully moved the headquarters of our radio network from Campbell, California to Los Angeles, the nation’s largest Hispanic market and the heart of the U.S. entertainment industry.

Consistent with our strategy of focusing on core media assets, we completed the sale of our publishing operations in July 2003. We also finished the year with a ratio of net debt (which we define as total debt less cash exceeding $5 million) to EBITDA as adjusted of 5.4 to 1, despite our acquisition of the Los Angeles radio assets earlier in the year. In addition, we made improvements in managing our expenses in 2003 by completing a rigorous budgeting process to reduce operating costs and overhead.

On the other hand, there were factors that limited our growth in 2003, and which represent both challenges and opportunities for the current year. Foremost among these factors was the weak economy for most of 2003, but we are encouraged by the national recovery that appeared to take hold during the later part of 2003. We were also relatively disappointed by the performance by our outdoor segment in 2003. We have responded to this challenge by making high-level changes in our outdoor management and sales staff, and we intend to monitor developments closely during this transitional period. In addition, although we experienced significant ratings gains in the Los Angeles radio market during 2003, one of our key goals for 2004 is to accelerate revenue growth in that market commensurate with our ratings success.

In February 2004, we sold the assets of radio station KZFO-FM in the Fresno, California market to Univision for approximately $8.0 million.

In May 2004, we sold the assets of radio stations WNDZ-AM, WRZA-FM and WZCH-FM in the Chicago, Illinois market for an aggregate amount of approximately $28.8 million.

In August 2004, we sold the assets of radio station KRVA-AM in the Dallas, Texas market for approximately $3.5 million.

Also in August 2004, we also entered into a definitive agreement to acquire the assets of radio station KAIQ-FM in the Lubbock, Texas market for approximately $1.7 million. We currently expect this acquisition to close in the fourth quarter of 2004.

In September 2004, we acquired all of the outstanding capital stock of Diamond Radio, Inc., the owner and operator of radio station KBMB-FM in the Sacramento, California market for an aggregate purchase price of approximately $17.6 million.

In October 2004, in combination with certain of our Mexican affiliates and subsidiaries, we entered into a definitive agreement to acquire all of the outstanding capital stock of the licensee of television station XHRIO-TV in Matamoros, Tamaulipas, Mexico, serving the McAllen, Texas market, as well as substantially all of the assets related to such station, for an aggregate purchase price of $13 million.

Univision currently owns approximately 30% of our common stock on a fully converted basis. In connection with its merger with Hispanic Broadcasting Corporation in September 2003, Univision entered into an agreement with the U.S. Department of Justice, or DOJ, pursuant to which Univision agreed, among other things, to sell enough of its holdings of our stock so that its ownership of our company will not exceed 15% by March 26, 2006 and 10% by March 26, 2009.

Also pursuant to Univision’s agreement with DOJ, in September 2003 Univision exchanged all of its shares of our Class A and Class C common stock that it previously owned for shares of our new Series U preferred stock. The Series U preferred stock was mandatorily convertible into common stock when and if we created a new class of common stock that generally has the same rights, preferences, privileges and restrictions as the Series U preferred stock (other than a nominal liquidation preference). Our stockholders approved the creation of such a new class of common stock, our Class U common stock, during the second quarter of 2004, and the shares of our Series U preferred stock held by Univision were converted into 36,926,600 shares of our new Class U common stock effective as of July 1, 2004. Neither the original exchange of Univision’s Class A and Class C common for our Series U preferred stock, nor the subsequent conversion of such Series U preferred stock into our new Class U common stock, changed Univision’s overall equity interest in our company, nor did either have any impact on our existing television station affiliation agreements with Univision.

The Class U common stock has limited voting rights and does not include the right to elect directors. However, as the holder of all of our issued and outstanding Class U common stock, Univision currently has the right to approve any merger, consolidation or other business combination involving our company, any dissolution of our company and any assignment of the FCC licenses for any of our company’s Univision-affiliated television stations. Each share of Class U common stock is automatically convertible into one share (subject to adjustment for stock splits, dividends or combinations) of our Class A common stock in connection with any transfer to a third party that is not an affiliate of Univision.

The following table sets forth selected data from our operating results for the three- and nine-month periods ended September 30, 2004 and 2003 (in thousands):

Our calculation of EBITDA as adjusted included herein is substantially similar to the measures used in the financial covenants included in our bank credit facility and in the indenture governing our senior subordinated notes. In those instruments, EBITDA as adjusted is referred to as “operating cash flow” and “consolidated cash flow,” respectively. Under our bank credit facility, we cannot incur additional indebtedness if the incurrence of such indebtedness would result in our ratio of debt to operating cash flow having exceeded 7.5 to 1 on a pro forma basis for the prior full four quarters. Under the indenture, the corresponding ratio of indebtedness to consolidated cash flow cannot exceed 7.1 to 1 on the same basis. The actual ratios of indebtedness to each of operating cash flow and consolidated cash flow as of September 30, 2004 and 2003 were 6.5 to 1 and 5.8 to 1, respectively. We entered into our new bank credit facility in August 2004 and issued our senior subordinated notes in March 2002, so we were not subject to the same calculations and covenants in prior years. For consistency of presentation, however, the foregoing historical ratios assume that our current definitions had been applied for all periods.

While we and many in the financial community consider broadcast cash flow and EBITDA as adjusted to be important, they should be considered in addition to, but not as a substitute for or superior to, other measures of liquidity and financial performance prepared in accordance with accounting principles generally accepted in the United States of America, such as cash flows from operating activities, operating income and net income. In addition, our definitions of broadcast cash flow and EBITDA as adjusted differ from those of many companies reporting similarly named measures.

Broadcast cash flow and EBITDA as adjusted are non-GAAP measures. The most directly comparable GAAP financial measure to each of broadcast cash flow and EBITDA as adjusted is net income. A reconciliation of these non-GAAP measures to net income follows (unaudited; in thousands):

Net Revenue. Net revenue increased to $70.0 million for the three-month period ended September 30, 2004 from $64.4 million for the three-month period ended September 30, 2003, an increase of $5.6 million. The overall increase came mainly from our television and radio segments, which together accounted for an increase of $5.0 million. The increase from these segments was attributable to increased advertising sold (referred to as “inventory” in our industry) and increased rates for that inventory. The increase in net revenue also came from an increase in net revenue from our outdoor segment, which accounted for $0.6 million of the overall increase.

Net revenue increased to $191.0 million for the nine-month period ended September 30, 2004 from $176.8 million for the nine-month period ended September 30, 2003, an increase of $14.2 million. The overall increase came mainly from our television and radio segments, which together accounted for an increase of $14.1 million. The increase from these segments was attributable to increased inventory sold, increased rates for that inventory and increased revenue due to a full nine-month period of operations of our 2003 acquisitions. The increase in net revenue also came from an increase in net revenue from our outdoor segment, which accounted for $0.1 million of the overall increase.

We currently anticipate that the number of advertisers purchasing Spanish-language advertising will continue to rise and will result in greater demand for our inventory. We expect that this increased demand will, in turn, allow us to continue to increase our rates, resulting in continued increases in net revenue in future periods.

Direct Operating Expenses. Direct operating expenses increased to $28.8 million for the three-month period ended September 30, 2004 from $27.9 million for the three-month period ended September 30, 2003, an increase of $0.9 million. The overall increase came mainly from our television and radio segments, which together accounted for $0.7 million of the increase. The increase from these segments was primarily attributable to an increase in commissions and national representation fees associated with the increase in net revenue and an increase in news costs due to the addition or expansion of newscasts in certain markets. The overall increase also came from an increase in outdoor direct operating expenses, which accounted for $0.2 million of the overall increase. As a percentage of net revenue, direct operating expenses decreased to 41% for the three-month period ended September 30, 2004 from 43% for the three-month period ended September 30, 2003. Direct operating expenses as a percentage of net revenue decreased because direct operating expense increases were outpaced by increases in net revenue.

Direct operating expenses increased to $83.5 million for the nine-month period ended September 30, 2004 from $79.5 million for the nine-month period ended September 30, 2003, an increase of $4.0 million. The overall increase came mainly from our

television and radio segments, which together accounted for $3.2 million of the increase. The increase from these segments was primarily attributable to an increase in commissions and national representation fees associated with the increase in net revenue, an increase in news costs due to the addition or expansion of newscasts in certain markets and a full nine-month period of operations of our 2003 acquisitions. The overall increase also came from an increase in outdoor direct operating expenses, which accounted for $0.8 million of the overall increase. As a percentage of net revenue, direct operating expenses decreased to 44% for the nine-month period ended September 30, 2004 from 45% for the nine-month period ended September 30, 2003. Direct operating expenses as a percentage of net revenue decreased because direct operating expense increases were outpaced by increases in net revenue.

We currently anticipate that, as our net revenue increases in future periods, our direct operating expenses correspondingly will continue to increase. However, on a long-term basis, we expect that net revenue increases will continue to outpace direct operating expense increases such that direct operating expenses as a percentage of net revenue will continue to decrease in future periods.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $13.3 million for the three-month period ended September 30, 2004 from $13.0 million for the three-month period ended September 30, 2003, an increase of $0.3 million. The overall increase came entirely from our radio segment. The increase was primarily attributable to an increase in salaries and rent expense. As a percentage of net revenue, selling, general and administrative expenses decreased to 19% for the three-month period ended September 30, 2004 from 20% for the three-month period ended September 30, 2003. Selling, general and administrative expenses as a percentage of net revenue decreased because selling, general and administrative expense increases were outpaced by increases in net revenue.

Selling, general and administrative expenses increased to $37.3 million for the nine-month period ended September 30, 2004 from $37.2 million for the nine-month period ended September 30, 2003, an increase of $0.1 million. Our radio and outdoor segments accounted for an increase of $1.7 million. The increase from these segments was primarily attributable to an increase in salaries, an increase in rent expense, a full nine-month period of operations of our 2003 acquisitions and severance amounts paid to the former president of our outdoor division. The overall increase was offset by a decrease from our television segment of $1.6 million. That decrease was attributable primarily to a one-time recovery of prior year expenses of $1.0 million in accordance with the terms of an amendment to our marketing and sales agreement with Univision and a reduction of losses incurred by our TeleFutura stations under the marketing and sales agreement. As a percentage of net revenue, selling, general and administrative expenses decreased to 20% for the nine-month period ended September 30, 2004 from 21% for the nine-month period ended September 30, 2003. Selling, general and administrative expenses as a percentage of net revenue decreased because selling, general and administrative expense increases were outpaced by increases in net revenue.

On a long-term basis, although we currently anticipate that selling, general and administrative expenses will increase in future periods, we expect that net revenue increases will continue to outpace selling, general and administrative expense increases such that selling, general and administrative expenses as a percentage of net revenue will continue to decrease in future periods.

Corporate Expenses. Corporate expenses increased to $4.4 million for the three-month period ended September 30, 2004 from $4.1 million for the three-month period ended September 30, 2003, an increase of $0.3 million. The increase was attributable to higher legal expenses related to financing the repurchase of our Series A preferred stock, partially offset by lower insurance expenses. As a percentage of net revenue, corporate expenses remained unchanged at 6% for each of the three-month periods ended September 30, 2004 and 2003.

Corporate expenses increased to $12.6 million for the nine-month period ended September 30, 2004 from $10.3 million for the nine-month period ended September 30, 2003, an increase of $2.3 million. The increase was mainly attributable to a $2.0 million reimbursement from Univision during the nine-month period ended September 30, 2003 (offset by $0.5 million of Univision-related expenses in that same period) for legal and other costs associated with the third-party information request that we received in connection with the merger between Univision and Hispanic Broadcasting Corporation. The increase was also attributable to higher legal expenses related to financing the repurchase of our Series A preferred stock, partially offset by lower insurance expenses. As a percentage of net revenue, corporate expenses increased to 7% for the nine-month period ended September 30, 2004 from 6% for the nine-month period ended September 30, 2003. Excluding the prior year Univision reimbursement and related expenses, corporate expenses as a percentage of net revenue remained unchanged at 7% for each of the nine-month periods ended September 30, 2004 and 2003.

We currently anticipate that corporate expenses will continue to increase in future periods, primarily due to higher accounting and other costs associated with our compliance with the Sarbanes-Oxley Act of 2002. Nevertheless, we expect that these increases will be outpaced by net revenue increases such that corporate expenses as a percentage of net revenue will decrease in future periods.

Gain (Loss) on Sale of Assets. Loss on sale of assets was $0.2 million for the three-month period ended September 30, 2004. The loss was primarily due to the sale of the assets of radio station KRVA-AM in the Dallas, Texas market. Gain on sale of assets was $3.2 million for the nine-month period ended September 30, 2004. The gain was primarily due to the sale of the assets of radio stations WRZA-FM, WZCH-FM and WNDZ-AM in the Chicago, Illinois market and KZFO-FM in the Fresno, California market.

Depreciation and Amortization. Depreciation and amortization decreased to $10.4 million for the three-month period ended September 30, 2004 from $10.9 million for the three-month period ended September 30, 2003, a decrease of $0.5 million. The decrease was primarily due to the sale of the assets of radio stations WRZA-FM, WZCH-FM and WNDZ-AM in the Chicago, Illinois market and KZFO-FM in the Fresno, California market. Depreciation and amortization decreased to $32.4 million for the nine-month period ended September 30, 2004 from $32.8 million for the nine-month period ended September 30, 2003, a decrease of $0.4 million. The decrease was primarily due to the sale of the assets of radio stations WRZA-FM, WZCH-FM and WNDZ-AM in the Chicago, Illinois market and KZFO-FM in the Fresno, California market.

Non-Cash Stock-Based Compensation. Non-cash stock-based compensation was $0.1 million for the three-month period ended September 30, 2004 compared to a credit of $0.1 million for the three-month period ended September 30, 2003. Non-cash stock-based compensation decreased to $0 for the nine-month period ended September 30, 2004 from $1.0 million for the nine-month period ended September 30, 2003, a decrease of $1.0 million. Non-cash stock-based compensation consists primarily of compensation expense relating to restricted and unrestricted stock awards granted to our employees during the second quarter of 2000. As of May 2003, all non-cash stock-based compensation expense related to the restricted and unrestricted stock awards made in 2000 has been fully recognized. However, there may continue to be non-cash stock-based compensation costs in the future for any equity instruments that have been or may be granted to non-employees.

Operating Income. As a result of the above factors, operating income increased to $12.8 million for the three-month period ended September 30, 2004 from $7.6 million for the three-month period ended September 30, 2003, an increase of $5.2 million. As a result of the above factors, operating income increased to $28.4 million for the nine-month period ended September 30, 2004 from $15.1 million for the nine-month period ended September 30, 2003, an increase of $13.3 million.

Interest Expense. Interest expense increased to $6.9 million for the three-month period ended September 30, 2004 from $6.8 million for the three-month period ended September 30, 2003, an increase of $0.1 million. The increase was primarily attributable to additional borrowings under our bank credit facility in April 2003 to finance the acquisition of the radio stations we bought from Big City Radio, partially offset by a reduction of indebtedness paid from the proceeds of the disposal of our publishing operations in July 2003, the sale of our radio assets in the Fresno, Chicago and Dallas markets in the first nine months of 2004 and cash flow generated from operations.

Interest expense increased to $20.4 million for the nine-month period ended September 30, 2004 from $20.2 million for the nine-month period ended September 30, 2003, an increase of $0.2 million. The increase was primarily attributable to additional borrowings under our bank credit facility in April 2003 to finance the acquisition of the radio stations we bought from Big City Radio, partially offset by a reduction of indebtedness paid from the proceeds of the disposal of our publishing operations in July 2003, the sale of our radio assets in the Fresno, Chicago and Dallas markets in the first nine months of 2004 and cash flow generated from operations.

Income Tax Expense. Our expected tax rate is approximately 40% of pre-tax income or loss, adjusted for permanent tax differences. The tax expense was greater than the expected 40% of the pre-tax income because of the non-deductible portion of certain items, including non-cash stock-based compensation for financial statement purposes that will not be deductible for tax purposes, state taxes, foreign taxes, the expected disallowance of state net operating loss carryforward amounts and meals and entertainment. We currently have approximately $128 million in net operating loss carryforwards expiring through 2023 that we expect will be utilized prior to their expiration.

Income (Loss) Before Discontinued Operations. As a result of the above factors, income before discontinued operations was $3.2 million for the three-month period ended September 30, 2004 compared to a loss before discontinued operations of $0.1 million for the three-month period ended September 30, 2003. As a result of the above factors, income before discontinued operations was $3.0 million for the nine-month period ended September 30, 2004 compared to a loss before discontinued operations of $5.3 million for the nine-month period ended September 30, 2003.

Gain on Disposal of Discontinued Operations, Net of Tax. In July 2003, we sold substantially all of the assets and certain specified liabilities related to our publishing segment. That sale resulted in a gain on disposal of discontinued operations, net of tax, of $9.3 million for the three-month period ended September 30, 2003. During the third quarter of 2004, we finalized the purchase price adjustment for the sale, which was based on the working capital of the publishing segment as of the closing date. This working capital adjustment resulted in an additional gain on disposal of discontinued operations, net of tax, of $0.5 million for the three-month period ended September 30, 2004.

Net Revenue. Net revenue in our television segment increased to $36.4 million for the three-month period ended September 30, 2004 from $32.3 million for the three-month period ended September 30, 2003, an increase of $4.1 million. Of the overall increase, $3.6 million was attributable to our Univision stations and $0.5 million was attributable to our other stations. The overall increase was primarily attributable to an increase in both local and national advertising sales due to an increase in rates.

Net revenue in our television segment increased to $100.1 million for the nine-month period ended September 30, 2004 from $90.1 million for the nine-month period ended September 30, 2003, an increase of $10.0 million. Of the overall increase, $8.4 million was attributable to our Univision stations and $1.6 million was attributable to our other stations. The overall increase was primarily attributable to an increase in both local and national advertising sales due to a combination of an increase in rates and inventory sold.

Direct Operating Expenses. Direct operating expenses in our television segment increased to $14.4 million for the three-month period ended September 30, 2004 from $13.1 million for the three-month period ended September 30, 2003, an increase of $1.3 million. The increase was primarily attributable to an increase in national representation fees, commissions and bonuses associated with the increase in net revenue and an increase in news costs due to the addition of newscasts in the Santa Barbara and San Diego markets.

Direct operating expenses in our television segment increased to $41.0 million for the nine-month period ended September 30, 2004 from $37.5 million for the nine-month period ended September 30, 2003, an increase of $3.5 million. The increase was primarily attributable to an increase in national representation fees and commissions associated with the increase in net revenue, an increase in the cost of ratings services and an increase in news costs due to the addition or expansion of newscasts in the San Diego, Santa Barbara and Boston markets.

Selling, General and Administrative Expenses. Selling, general and administrative expenses in our television segment decreased to $5.8 million for the three-month period ended September 30, 2004 from $5.9 million for the three-month period ended September 30, 2003, a decrease of $0.1 million. The decrease was primarily attributable to a reduction of losses incurred by our TeleFutura stations under our marketing and sales agreement with Univision, which were partially offset by increases in salaries.

Selling, general and administrative expenses in our television segment decreased to $15.8 million for the nine-month period ended September 30, 2004 from $17.4 million for the nine-month period ended September 30, 2003, a decrease of $1.6 million. The decrease was primarily attributable to a one-time recovery of prior year expenses of $1.0 million in accordance with the terms of an amendment to our marketing and sales agreement with Univision. Additionally, the decrease was primarily attributable to a reduction of losses incurred by our TeleFutura stations under the marketing and sales agreement, which were partially offset by increases in salaries.

Net Revenue. Net revenue in our radio segment increased to $25.3 million for the three-month period ended September 30, 2004 from $24.5 million for the three-month period ended September 30, 2003, an increase of $0.8 million. Excluding the radio stations that we sold in the Chicago and Fresno markets during 2004, revenue would have increased $1.7 million during the same period. The increase was primarily attributable to a combination of an increase in local advertising sales rates and inventory sold, primarily from our Los Angeles market.

Net revenue in our radio segment increased to $68.3 million for the nine-month period ended September 30, 2004 from $64.2 million for the nine-month period ended September 30, 2003, an increase of $4.1 million. Excluding the radio stations that we sold in the Chicago and Fresno markets during 2004, revenue would have increased by $5.6 million during the same period. The increase was primarily attributable to a combination of an increase in local advertising sales rates and inventory sold and increased revenue due to a full nine-month period of operations of our 2003 acquisitions.

Direct Operating Expenses. Direct operating expenses in our radio segment decreased to $8.9 million for the three-month period ended September 30, 2004 from $9.5 million for the three-month period ended September 30, 2003, a decrease of $0.6 million. Excluding the radio stations that we sold in the Chicago and Fresno markets during 2004, direct operating expenses would have decreased $0.3 million during the same period. The decrease was primarily attributable to a decline in national representation fees due to a contractual decrease in the commission rate.

Direct operating expenses in our radio segment decreased to $26.2 million for the nine-month period ended September 30, 2004 from $26.4 million for the nine-month period ended September 30, 2003, a decrease of $0.2 million. Excluding the radio stations that

we sold in the Chicago and Fresno markets during 2004, direct operating expenses would have increased $0.3 million during the same period. The increase was primarily attributable to an increase in commissions and other sales related expenses associated with the increase in net revenue.

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 September 30, 2004 from $6.0 million for the three-month period ended September 30, 2003, an increase of $0.3 million. Excluding the radio stations that we sold in the Chicago and Fresno markets during 2004, selling, general and administrative expenses would have increased $0.6 million during the same period. The increase was primarily attributable to an increase in salaries and rent expense.

Selling, general and administrative expenses in our radio segment increased to $17.6 million for the nine-month period ended September 30, 2004 from $16.5 million for the nine-month period ended September 30, 2003, an increase of $1.1 million. Excluding the radio stations that we sold in the Chicago and Fresno markets during 2004, selling, general and administrative expenses would have increased $1.5 million during the same period. The increase was primarily attributable to an increase in salaries and rent expense.

Net Revenue. Net revenue in our outdoor segment increased to $8.3 million for the three-month period ended September 30, 2004 from $7.7 million for the three-month period ended September 30, 2003, an increase of $0.6 million. The increase was attributable to an increase in both local and national advertising sales.

Net revenue in our outdoor segment increased to $22.6 million for the nine-month period ended September 30, 2004 from $22.5 million for the nine-month period ended September 30, 2003, an increase of $0.1 million. The increase was attributable to an increase in local advertising sales, partially offset by a decrease in national advertising sales.

We currently anticipate that net revenue from our outdoor segment will increase moderately in the short term due to increased market demand, which will, in turn, allow us to increase rates for advertising sales on our billboards.

Direct Operating Expenses. Direct operating expenses in our outdoor segment increased to $5.4 million for the three-month period ended September 30, 2004 from $5.3 million for the three-month period ended September 30, 2003, an increase of $0.1 million. The increase was primarily attributable to higher lease rents for our billboard locations.

Direct operating expenses in our outdoor segment increased to $16.3 million for the nine-month period ended September 30, 2004 from $15.5 million for the nine-month period ended September 30, 2003, an increase of $0.8 million. The increase was primarily attributable to higher lease rents for our billboard locations.

Selling, General and Administrative Expenses. Selling, general and administrative expenses in our outdoor segment were flat at $1.2 million for each of the three-month periods ended September 30, 2004 and 2003.

Selling, general and administrative expenses in our outdoor segment increased to $3.8 million for the nine-month period ended September 30, 2004 from $3.3 million for the nine-month period ended September 30, 2003, an increase of $0.5 million. The increase was primarily attributable to severance amounts paid to the former president of our outdoor division.

While we have a history of operating losses, we also have a history of generating significant positive cash flow from our operations. We expect to fund anticipated cash requirements (including acquisitions, anticipated capital expenditures, payments of principal and interest on outstanding indebtedness and share repurchases) with cash flow from operations and externally generated funds, such as proceeds from any debt or equity offering and our bank credit facility. We currently anticipate that funds generated from operations and available borrowings under our bank credit facility will be sufficient to meet our anticipated cash requirements for the foreseeable future.

Recently, we have taken the following actions with respect to matters affecting our liquidity and capital resources:

Please see “Bank Credit Facility” and “Repurchase of Series A Mandatorily Redeemable Convertible Preferred Stock” below.

As we announced on August 25, 2004, we refinanced our former bank credit facility with a new $400 million senior secured facility consisting of a 7¹/2-year $250 million term loan and a 6¹/2-year $150 million revolving facility. The term loan under the new facility has been drawn in full, the proceeds of which were used to refinance outstanding borrowings under our former bank credit facility, to fund the repurchase of the remaining shares of our Series A preferred stock and for general corporate purposes.

The term loan matures in 2012 and is subject to automatic quarterly reductions starting on December 31, 2005. The revolving facility expires in 2011 and is subject to automatic quarterly reductions starting on December 31, 2008. Our ability to make additional borrowings under the bank credit facility is subject to compliance with certain financial ratios and other conditions set forth in the bank credit facility.

Our bank credit facility is secured by substantially all of our assets, as well as the pledge of the stock of substantially all of our subsidiaries, including our special purpose subsidiary formed to hold our Federal Communications Commission, or FCC, licenses.

The term loan bears interest at LIBOR (1.9% at September 30, 2004) plus a margin of 1.75%. The revolving facility bears interest at LIBOR plus a margin ranging from 1% to 2% based on our leverage. In addition, we pay a quarterly unused commitment fee ranging from 0.25% to 0.50% per annum, depending on the level of facility usage. As of September 30, 2004, $250 million was outstanding under our bank credit facility and $147 million was available for future borrowings. We had approximately $3 million in outstanding letters of credit as of that date, which reduced the amount otherwise available for future borrowings.

Our bank credit facility contains customary events of default. If an event of default occurs and is continuing, we might be required to repay all amounts then outstanding under the bank credit facility. Lenders holding more than 50% of the loans and commitments under the bank credit facility may elect to accelerate the maturity of loans upon the occurrence and during the continuation of an event of default.

Our bank credit facility contains a mandatory prepayment clause, triggered in the event that we liquidate any assets if the proceeds are not utilized to acquire assets of the same type within 540 days, receive insurance or condemnation proceeds which are not fully utilized toward the replacement of such assets within 180 days or have excess cash flow, as defined in our bank credit facility, 100% of which excess cash flow shall be used to reduce our outstanding loan balance.

Our bank credit facility contains certain financial covenants relating to maximum total debt ratio, minimum total interest coverage ratio and fixed charge coverage ratio. The covenants become increasingly restrictive in the later years of the bank credit facility. Our bank credit facility also requires us to maintain our FCC licenses for our broadcast properties and contains restrictions on the incurrence of additional debt, the payment of dividends, the making of 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.

We can draw on our revolving facility without prior approval for working capital needs and for acquisitions having an aggregate maximum consideration of $25 million or less. Acquisitions having an aggregate maximum consideration of greater than $25 million but less than or equal to $100 million are conditioned upon our delivery to the agent bank of a covenant compliance certificate showing pro forma calculations assuming such acquisition had been consummated and revised revenue projections for the acquired properties. For acquisitions having an aggregate maximum consideration in excess of $100 million, majority lender consent of the bank group is required.

On April 16, 2003, we issued 3,766,478 shares of our Class A common stock as a portion of the purchase price for the three radio stations we acquired from Big City Radio.

On May 9, 2002, we filed a shelf 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 shelf registration statement has been declared effective by the SEC. We have not yet issued any securities under the shelf registration statement. We intend to use the proceeds of any issuance of securities under the shelf registration statement to fund acquisitions or capital expenditures, to reduce or refinance debt or other obligations and for general corporate purposes.

On March 18, 2002, we issued $225 million of our senior subordinated notes due 2009. The senior subordinated notes bear interest at 8¹/8% per year, payable semi-annually on March 15 and September 15 of each year. The net proceeds from our senior subordinated notes were used to repay all indebtedness then outstanding under our bank credit facility and for general corporate purposes.

Broadcast cash flow (as defined below) increased to $28.0 million for the three-month period ended September 30, 2004 from $23.5 million for the three-month period ended September 30, 2003, an increase of $4.5 million, or 19%. As a percentage of net revenue, broadcast cash flow increased to 40% for the three-month period ended September 30, 2004 from 37% for the three-month period ended September 30, 2003.

Broadcast cash flow increased to $70.3 million for the nine-month period ended September 30, 2004 from $60.1 million for the nine-month period ended September 30, 2003, an increase of $10.2 million, or 17%. As a percentage of net revenue, broadcast cash flow increased to 37% for the nine-month period ended September 30, 2004 from 34% for the nine-month period ended September 30, 2003.

We currently anticipate that broadcast cash flow will continue to increase in future periods, both in absolute dollars and as a percentage of net revenue, as we believe that net revenue increases will continue to outpace increases in direct operating and selling, general and administrative expenses.

EBITDA as adjusted (as defined below) increased to $23.6 million for the three-month period ended September 30, 2004 from $19.4 million for the three-month period ended September 30, 2003, an increase of $4.2 million, or 22%. As a percentage of net revenue, EBITDA as adjusted increased to 34% for the three-month period ended September 30, 2004 from 30% for the three-month period ended September 30, 2003.

EBITDA as adjusted increased to $57.7 million for the nine-month period ended September 30, 2004 from $49.9 million for the nine-month period ended September 30, 2003, an increase of $7.8 million, or 16%. As a percentage of net revenue, EBITDA as adjusted increased to 30% for the nine-month period ended September 30, 2004 from 28% for the nine-month period ended September 30, 2003.

We currently anticipate that EBITDA as adjusted will continue to increase in future periods, both in absolute dollars and as a percentage of net revenue, as we believe that net revenue increases will continue to outpace increases in direct operating, selling, general and administrative and corporate expenses.

Broadcast cash flow means operating loss before corporate expenses, gain on sale of assets, depreciation and amortization and non-cash stock-based compensation. EBITDA as adjusted means broadcast cash flow less corporate expenses. We use the term EBITDA as adjusted because that measure does not include non-cash stock-based compensation. We evaluate and project the liquidity and cash flows of our business using several measures, including broadcast cash flow and EBITDA as adjusted. We consider these measures as important indicators of liquidity relating to our operations, as they eliminate the effects of non-cash gain on sale of assets, non-cash depreciation and amortization and non-cash stock-based compensation awards. We use these measures to evaluate liquidity and cash flow improvement from year to year as they eliminate non-cash expense items. We believe that our investors should use these measures because they may provide a better comparability of our liquidity to that of our competitors.

Broadcast cash flow and EBITDA as adjusted are non-GAAP measures. For a reconciliation of each of broadcast cash flow and EBITDA as adjusted to net loss, their most directly comparable GAAP financial measure, please see page 15.

Net cash flow provided by operating activities increased to $29.6 million for the nine-month period ended September 30, 2004 from $22.5 million for the nine-month period ended September 30, 2003.

Net cash flow provided by investing activities was $13.8 million for the nine-month period ended September 30, 2004 compared to net cash flow used in investing activities of $98.3 million for the nine-month period ended September 30, 2003. During the nine-month period ended September 30, 2004, we received proceeds of $41.5 million from the sale of assets, primarily radio stations WNDZ-AM, WRZA-FM and WZCH-FM in the Chicago, Illinois market and KZFO-FM in the Fresno, California market. We also received a refund of a deposit of $0.5 million, received a return of capital of $0.3 million, spent $17.6 million on the acquisition of all of the outstanding capital stock of Diamond Radio, Inc., the owner and operator of radio station KBMB-FM in the Sacramento, California market, and spent $10.9 million on capital expenditures and acquisition of intangibles.

Net cash flow used in financing activities was $26.4 million for the nine-month period ended September 30, 2004 compared to net cash flow provided by financing activities of $74.9 million for the nine-month period ended September 30, 2003. During the nine-month period ended September 30, 2004, we borrowed $334.3 million and paid $229.1 million under our bank credit facilities. We spent an aggregate of $128.1 million to repurchase all 5,865,102 shares of our Series A mandatorily redeemable convertible preferred stock from TSG Capital Fund III, L.P. We received net proceeds of $0.9 million from the exercise of stock options issued under our 2000 Omnibus Equity Incentive Plan and from the sale of shares issued under our 2001 Employee Stock Purchase Plan.

During the remainder of 2004, we anticipate that our capital expenditures will be approximately $5 million, including approximately $0.3 million in digital television capital expenditures. We anticipate paying for these capital expenditures out of net cash flow from operations.

As part of the transition from analog to digital television, full-service television station owners may be required to stop broadcasting analog signals and to relinquish their analog channels to the FCC by 2006 if the market penetration of digital television receivers reaches certain levels by that time. We currently expect that the cost to complete construction of digital television facilities for our full-service television stations between the remainder of 2004 and 2006 will be approximately $17 million. In addition, we will be required to broadcast both digital and analog signals through this transition period, but we do not expect those incremental costs to be significant. We intend to finance the conversion to digital television out of cash flow from operations. The amount of our anticipated capital expenditures may change based on future changes in business plans, our financial condition and general economic conditions.

We continually review, and are currently reviewing, opportunities to acquire additional television and radio stations, as well as other broadcast or media opportunities targeting the Hispanic market in the United States. We expect to finance any future acquisitions through funds generated from operations, borrowings under our bank credit facility and additional debt and equity financing. Any additional financing, if needed, might not be available to us on reasonable terms or at all. Any failure to raise capital when needed could seriously harm our business and our acquisition strategy. If additional funds are raised through the issuance of equity securities, the percentage of ownership of our existing stockholders will be reduced. Furthermore, these equity securities might have rights, preferences or privileges senior to those of our Class A common stock.

As noted above under “Preferred Stock Repurchase” in Note 2 to Consolidated Financial Statements, in two separate transactions during the third quarter of 2004 we repurchased all 5,865,102 shares of our Series A mandatorily redeemable convertible preferred stock from TSG Capital Fund III, L.P. for an aggregate of approximately $128 million. The first 2,542,006 shares were repurchased in July 2004 for $55 million, funded by additional borrowings of $50 million under our then existing bank credit facility and available cash on hand of $5 million. The final 3,323,096 shares were repurchased in September 2004 for approximately $73 million, funded by activating the multiple-draw term loans available under our new bank credit facility, which loans were included in the facility specifically for the purpose of repurchasing the remaining shares of Series A preferred stock. The price of each repurchase reflected a small premium to the liquidation value at the time of such repurchase. Having now consummated the final repurchase, no shares of our Series A preferred stock remain issued and outstanding, and we have retired this series of preferred stock.

We have agreements with certain media research and ratings providers, expiring at various dates through December 2006, to provide television and radio audience measurement services. We lease facilities and broadcast equipment under various operating lease agreements with various terms and conditions, expiring at various dates through December 2025.

Our material contractual obligations at September 30, 2004 are as follows (unaudited; in thousands):

We have also entered into employment agreements with certain of our key employees, including Walter F. Ulloa, Philip C. Wilkinson, Jeffery A. Liberman and John F. DeLorenzo. Our obligations under these agreements are not reflected in the table above.

Other than lease commitments, legal contingencies incurred in the normal course of business, employment contracts for key employees and the interest rate swap agreements described more fully in Item 3 below, we do not have any off-balance sheet financing arrangements or liabilities. We do not have any majority-owned subsidiaries or any interests in or relationships with any special-purpose entities that are not included in the consolidated financial statements.

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. To date, 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 2001 Employee Stock Purchase Plan. Our stockholders approved the Employee Stock Purchase Plan on May 10, 2001 at our 2001 Annual Meeting of Stockholders. Subject to adjustments in our capital structure, as defined in the Employee Stock Purchase Plan, the maximum number of shares of our Class A common stock that will be made available for sale under the Employee Stock Purchase Plan is 600,000, plus an annual increase of up to 600,000 shares on the first day of each of the ten calendar years beginning on January 1, 2002. All of our employees are eligible to participate in the Employee Stock Purchase Plan, provided that they have completed six months of continuous service as employees as of an offering date. There are two offering periods annually under the Employee Stock Purchase Plan, one which commences on February 15 and concludes on August 14, and the other which commences on August 15 and concludes on the following February 14. As of September 30, 2004, approximately 328,486 shares had been purchased under the Employee Stock Purchase Plan.

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. Under our bank credit facility, if we exceed certain leverage ratios we would 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 loan facility bears interest at a variable rate at LIBOR (1.9% as of September 30, 2004) plus a margin ranging from 1% to 2% based on our leverage. As of September 30, 2004, we had $250 million of variable rate bank debt outstanding. Our bank credit facility requires us to enter into interest rate agreements if our leverage exceeds certain limits as defined in the agreement. We have two interest rate swap agreements, each with a notional amount of $82.5 million. The first agreement provides for a LIBOR-based rate floor of 1% and rate ceiling of 6% and terminates on March 31, 2005. The second agreement, which begins after the first agreement expires, provides for a LIBOR-based rate floor of 1.78% and rate ceiling of 7% and terminates on March 31, 2006. Because this portion of our long-term debt is subject to interest at a variable rate, our earnings will be affected in future periods by changes in interest rates. In the event that the LIBOR rate falls below the floor rate, we would still have to pay the floor rate plus the margin based on our leverage at such time. If the LIBOR rate falls below the floor rate during or close to the swap agreement period we would record the fair market value as a liability on the balance sheet and interest expense on the income statement. In the event that the LIBOR rate rises above the ceiling rate, we would only have to pay the ceiling rate plus the applicable margin. The fair market value of the swap would be recorded as an asset on the balance sheet and a reduction of interest expense on the income statement. Due to the short-term nature of these agreements and our current anticipation that the interest rate floor or ceiling will not be reached during the term, the estimated fair value of these agreements is zero as of September 30, 2004.

We carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) that is required to be included in our periodic SEC reports. There was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

No repurchases of equity securities required to be disclosed by this item were consummated pursuant to our stock repurchase program during the period covered by this report, and no repurchases of our equity securities have been consummated pursuant to our stock repurchase program since it was approved by our Board of Directors on March 19, 2001. Our stock repurchase program was publicly announced on that same date, and authorizes us to repurchase up to $35 million of our outstanding Class A common stock.

We filed three Current Reports on Form 8-K with the SEC during the quarter ended September 30, 2004:

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


ENTRAVISION COMMUNICATIONS CORPORATION

By:		/s/ JOHN F. DELORENZO
		John F. DeLorenzo Executive Vice President, Treasurer and Chief Financial Officer


		Page Number
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2004 (UNAUDITED) AND DECEMBER 31, 2003	4

	CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003	5

	CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003	6

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	7

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23

ITEM 4.	CONTROLS AND PROCEDURES	24

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	25

ITEM 2.	CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES	25

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	25

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	25

ITEM 5.	OTHER INFORMATION	25

ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K


	September 30, 2004			December 31, 2003
	(Unaudited)
ASSETS

Current assets
Cash and cash equivalents	$	36,841		$	19,806
Trade receivables (including related parties of $706 and $795), net of allowance for doubtful accounts of $5,624 and $4,749		56,257			49,518
Assets held for sale		4,905			34,683
Prepaid expenses and other current assets (including related parties of $1,138 and $1,650)		5,907			5,823

Total current assets		103,910			109,830
Property and equipment, net		156,810			170,624
Intangible assets subject to amortization, net		131,187			144,903
Intangible assets not subject to amortization		879,405			862,670
Goodwill		385,622			379,545
Other assets (including related parties of $264 and $277)		21,565			19,396

	$	1,678,499		$	1,686,968

LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

Current liabilities
Current maturities of long-term debt	$	1,170		$	1,191
Advances payable, related parties		118			118
Accounts payable and accrued expenses (including related parties of $2,802 and $2,261)		25,063			26,568

Total current liabilities		26,351			27,877
Notes payable, less current maturities		481,342			376,424
Other long-term liabilities		1,285			397
Deferred taxes		134,591			124,000

Total liabilities		643,569			528,698

Commitments and contingencies
Series A mandatorily redeemable convertible preferred stock, $0.0001 par value, 11,000,000 shares authorized; shares issued and outstanding 2004 none and 2003 5,865,102 (liquidation value of $0 and $118,865)		—			112,269

Stockholders’ equity
Preferred stock, $0.0001 par value, 39,000,000 shares authorized; shares issued and outstanding Series U convertible preferred stock, 2004 none and 2003 369,266		—			—
Class A common stock, $0.0001 par value, 260,000,000 shares authorized; shares issued and outstanding 2004 59,563,243 and 2003 59,434,048		6			6
Class B common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2004 and 2003 27,678,533		3			3
Class U common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2004 36,926,600 and 2003 none		4			—
Additional paid-in capital		1,184,261			1,182,978
Accumulated deficit		(149,344	)		(136,986	)

		1,034,930			1,046,001
Treasury stock, Class A common stock, $0.0001 par value, 2004 and 2003 5,101 shares		—			—

Total stockholders’ equity		1,034,930			1,046,001

	$	1,678,499		$	1,686,968


	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2004			2003			2004			2003
				(As reclassified Note 1)						(As reclassified Note 1)
Net revenue (including related parties of $232, $221, $783 and $899)	$	70,024		$	64,419		$	191,019		$	176,838

Expenses:
Direct operating expenses (including related parties of $3,192, $3,136, $8,593 and $8,802)		28,755			27,858			83,490			79,500
Selling, general and administrative expenses		13,273			13,037			37,265			37,214
Corporate expenses (including related party reimbursements of $0, $0, $0 and $2,000) (Note 2)		4,442			4,141			12,574			10,266
Loss (gain) on sale of assets		240			945			(3,156	)		945
Non-cash stock-based compensation (includes direct operating of $0, $0, $0 and $113; selling, general and administrative of $0, $0, $0 and $149; and corporate of $79, $(106), $37 and $781)		79			(106	)		37			1,043
Depreciation and amortization (includes direct operating of $9,139, $9,371, $28,338 and $27,743; selling, general and administrative of $1,007, $1,206, $3,281 and $3,923; and corporate of $242, $372, $802 and $1,102)		10,388			10,949			32,421			32,768

		57,177			56,824			162,631			161,736

Operating income		12,847			7,595			28,388			15,102
Interest expense		(6,893	)		(6,796	)		(20,396	)		(20,218	)
Interest income		161			50			317			79

Income (loss) before income taxes		6,115			849			8,309			(5,037	)
Income tax expense		(3,006	)		(1,070	)		(5,292	)		(600	)

Income (loss) before equity in net earnings of nonconsolidated affiliates		3,109			(221	)		3,017			(5,637	)
Equity in net earnings of nonconsolidated affiliates		59			88			17			299

Income (loss) before discontinued operations		3,168			(133	)		3,034			(5,338	)
Gain on disposal of discontinued operations net of tax $350, $6,300, $350 and $6,300		521			9,346			521			9,346
Loss from discontinued operations, net of tax $0, $(5), $0 and $(13) (Note 1)		—			(203	)		—			(475	)

Net income		3,689			9,010			3,555			3,533
Accretion of preferred stock redemption value		(9,769	)		(2,874	)		(15,913	)		(8,397	)

Net income (loss) applicable to common stockholders	$	(6,080	)	$	6,136		$	(12,358	)	$	(4,864	)

Basic and diluted earnings per share:
Net loss per share from continuing operations applicable to common stockholders	$	(0.05	)	$	(0.02	)	$	(0.13	)	$	(0.11	)
Net income per share from discontinued operations	$	0.00		$	0.08		$	0.01		$	0.07

Net income (loss) per share applicable to common stockholders, basic and diluted	$	(0.05	)	$	0.05		$	(0.12	)	$	(0.04	)

Weighted average common shares outstanding, basic and diluted		124,138,087			120,388,734			99,575,647			121,205,552


	Nine-Month Period Ended September 30,
	2004			2003
Cash flows from operating activities:
Net income	$	3,555		$	3,533
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		32,421			32,768
Deferred income taxes		4,164			5,561
Amortization of debt issue costs		2,316			1,576
Amortization of syndication contracts		265			542
Equity in net earnings of nonconsolidated affiliates		(17	)		(299	)
Non-cash stock-based compensation		37			1,043
Gain on sale of media properties and other assets		(3,677	)		(8,179	)
Changes in assets and liabilities, net of effect of acquisitions and dispositions:
Increase in accounts receivable		(6,168	)		(2,280	)
Increase in prepaid expenses and other assets		(1,684	)		(8,024	)
Decrease in accounts payable, accrued expenses and other liabilities		(1,603	)		(4,225	)
Effect of discontinued operations		—			475

Net cash provided by operating activities		29,609			22,491

Cash flows from investing activities:
Proceeds from sale of property and equipment and intangibles		41,485			18,141
Purchases of property and equipment and intangibles		(10,915	)		(116,455	)
Purchases of media properties		(17,592	)		—
Distribution from nonconsolidated affiliate		300			—
Refunds for acquisitions		501			—

Net cash provided by (used in) investing activities		13,779			(98,314	)

Cash flows from financing activities:
Proceeds from issuance of common stock		948			1,021
Principal payments on notes payable		(229,112	)		(28,540	)
Repurchase of Series A Preferred Stock		(128,182	)		—
Proceeds from borrowing on notes payable		334,302			103,000
Payments of deferred debt and offering costs		(4,309	)		(541	)

Net cash provided by (used in) financing activities		(26,353	)		74,940

Net increase (decrease) in cash and cash equivalents		17,035			(883	)

Cash and cash equivalents:
Beginning		19,806			12,201

Ending	$	36,841		$	11,318

Supplemental disclosures of cash flow information:
Cash payments for:
Interest	$	22,649		$	23,247

Income taxes	$	1,128		$	1,318

Supplemental disclosures of non-cash investing and financing activities:
Property and equipment included in accounts payable	$	51		$	211
Note receivable from disposal of discontinued operations	$	—		$	1,900
Issuance of Class A common shares for partial payment for Big City Radio stations	$	—		$	37,785


	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2004			2003			2004			2003
Net income (loss) applicable to common stockholders
As reported	$	(6,080	)	$	6,136		$	(12,358	)	$	(4,864	)
Deduct total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects		(2,400	)		(3,916	)		(7,224	)		(8,904	)

Pro forma	$	(8,480	)	$	2,220		$	(19,582	)	$	(13,768	)

Net income (loss) per share applicable to common stockholders, basic and diluted
As reported	$	(0.05	)	$	0.05		$	(0.12	)	$	(0.04	)

Pro forma	$	(0.07	)	$	0.02		$	(0.20	)	$	(0.11	)

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Trade receivables	$	569
Property and equipment		229
Other assets		7
FCC license, non-amortizable		16,890
Goodwill		6,077

Total assets acquired		23,772
Current liabilities		(103	)
Deferred taxes		(6,077	)

Total liabilities assumed		(6,180	)


Net assets acquired	$	17,592


	Three-Month Period Ended September 30,					Nine-Month Period Ended September 30,
	2004		2003			2004		2003
Net revenue	$	—	$	150		$	—	$	9,983
Loss from discontinued operations before income taxes		—		(208	)		—		(488	)


	Three-Month Period Ended September 30,								Nine-Month Period Ended September 30,
	2004			2003			% Change		2004			2003			% Change
Net Revenue
Television	$	36,428		$	32,270		13	%	$	100,052		$	90,118		11	%
Radio		25,303			24,458		3	%		68,334			64,195		6	%
Outdoor		8,293			7,691		8	%		22,633			22,525		0	%

Consolidated		70,024			64,419		9	%		191,019			176,838		8	%

Direct operating expenses
Television		14,410			13,077		10	%		40,991			37,540		9	%
Radio		8,902			9,513		(6	)%		26,243			26,446		(1	)%
Outdoor		5,443			5,268		3	%		16,256			15,514		5	%

Consolidated		28,755			27,858		3	%		83,490			79,500		5	%

Selling, general and administrative expenses
Television		5,806			5,876		(1	)%		15,845			17,410		(9	)%
Radio		6,285			5,982		5	%		17,632			16,459		7	%
Outdoor		1,182			1,179		0	%		3,788			3,345		13	%

Consolidated		13,273			13,037		2	%		37,265			37,214		0	%

Depreciation and amortization
Television		3,460			3,649		(5	)%		10,585			11,120		(5	)%
Radio		1,811			2,026		(11	)%		5,688			5,784		(2	)%
Outdoor		5,117			5,274		(3	)%		16,148			15,864		2	%

Consolidated		10,388			10,949		(5	)%		32,421			32,768		(1	)%

Segment operating profit (loss)
Television		12,752			9,668		32	%		32,631			24,048		36	%
Radio		8,305			6,937		20	%		18,771			15,506		21	%
Outdoor		(3,449	)		(4,030	)	(14	)%		(13,559	)		(12,198	)	11	%

Consolidated		17,608			12,575		40	%		37,843			27,356		38	%

Corporate expenses		4,442			4,141		7	%		12,574			10,266		22	%
Loss (gain) on sale of assets		240			945		(75	)%		(3,156	)		945		*
Non-cash stock-based compensation		79			(106	)	*			37			1,043		(96	)%

Operating income	$	12,847		$	7,595		69	%	$	28,388		$	15,102		88	%

Capital expenditures
Television	$	2,751		$	1,927				$	6,775		$	7,006
Radio		885			2,622					2,658			6,029
Outdoor		528			76					1,236			349

Consolidated	$	4,164		$	4,625				$	10,669		$	13,384

Total assets:
Television	$	405,786		$	390,383
Radio		1,048,085			1,060,559
Outdoor		219,723			238,922
Assets held for sale		4,905			—

Consolidated	$	1,678,499		$	1,689,864


	Three-Month Period Ended September 30,								Nine-Month Period Ended September 30,
	2004			2003			% Change		2004			2003			% Change
Statements of operations data:
Net revenue	$	70,024		$	64,419		9	%	$	191,019		$	176,838		8	%

Direct operating expenses		28,755			27,858		3	%		83,490			79,500		5	%
Selling, general and administrative expenses		13,273			13,037		2	%		37,265			37,214		0	%
Corporate expenses		4,442			4,141		7	%		12,574			10,266		22	%
Loss (gain) on sale of assets		240			945		(75	)%		(3,156	)		945		*
Non-cash stock-based compensation		79			(106	)	*			37			1,043		(96	)%
Depreciation and amortization		10,388			10,949		(5	)%		32,421			32,768		(1	)%

		57,177			56,824		1	%		162,631			161,736		1	%

Operating income		12,847			7,595		69	%		28,388			15,102		88	%
Interest expense		(6,893	)		(6,796	)	1	%		(20,396	)		(20,218	)	1	%
Interest income		161			50		222	%		317			79		*

Income (loss) before income taxes		6,115			849		*			8,309			(5,037	)	*
Income tax expense		(3,006	)		(1,070	)	181	%		(5,292	)		(600	)	*

Income (loss) before equity in net earnings of nonconsolidated affiliates		3,109			(221	)	*			3,017			(5,637	)	*
Equity in net earnings of nonconsolidated affiliates		59			88		(33	)%		17			299		(94	)%

Income (loss) before discontinued operations		3,168			(133	)	*			3,034			(5,338	)	*
Gain on disposal of discontinued operations		521			9,346		(94	)%		521			9,346		(94	)%
Loss from discontinued operations		—			(203	)	*			—			(475	)	*

Net income	$	3,689		$	9,010		(59	)%	$	3,555		$	3,533		1	%

Other Data:
Broadcast cash flow	$	27,996		$	23,524		19	%	$	70,264		$	60,124		17	%
EBITDA as adjusted (adjusted for non-cash stock-based compensation)	$	23,554		$	19,383		22	%	$	57,690		$	49,858		16	%
Cash flows provided by operating activities	$	12,989		$	8,159		59	%	$	29,609		$	22,491		32	%
Cash flows provided by (used in) investing activities	$	(17,231	)	$	11,759		*		$	13,779		$	(98,314	)	*
Cash flows provided by (used in) financing activities	$	28,196		$	(17,617	)	*		$	(26,353	)	$	74,970		*
Capital asset and intangible expenditures	$	4,102		$	6,378		(36	)%	$	10,915		$	116,455		(91	)%


	Payments Due by Period
Contractual Obligations	Total amounts committed		Less than 1 year		1-3 years		3-5 years		More than 5 years
Senior subordinated notes	$	225,000	$	—	$	—	$	225,000	$	—
Bank credit facility and other borrowings		257,512		1,170		7,250		7,092		242,000
Media research and ratings providers (1)		19,891		7,828		12,063		—		—
Operating leases (1)(2)		69,600		9,300		17,300		12,300		30,700

Total contractual obligations	$	572,003	$	18,298	$	36,613	$	244,392	$	272,700


31.1		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934

31.2		Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934

32		Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002