EVC

Business Context and Reporting Period

Company: Entravision Communications Corp.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: Entravision is a diversified Spanish-language media company operating 53 primary television stations and 48 radio stations across the United States. The company generates revenue primarily through national and local advertising sales and retransmission consent agreements.

Key Financial Metrics

Note: Debt figures reflect the balance as of June 30, 2010, prior to the subsequent refinancing event described below.

Material Changes vs. Prior Period

• Revenue Growth: Net revenue increased 10% year-over-year for the quarter and 7% for the six-month period. Growth was driven by World Cup advertising, census-related advertising, and increased retransmission consent revenue.
• Profitability Improvement: Operating income surged 80% for the quarter and 124% for the six-month period compared to 2009. This was aided by revenue growth outpacing expense increases and the absence of a $2.7 million impairment charge recorded in the prior year.
• Interest Expense Reduction: Interest expense decreased significantly (38% for the quarter, 20% for six months) primarily due to a non-cash decrease in interest expense related to the fair value adjustment of interest rate swap agreements ($4.1 million for the quarter; $8.0 million for six months).
• Segment Performance: Television revenue grew 10% and radio revenue grew 10% for the quarter. Both segments saw improved operating profits due to cost controls implemented in 2009 and revenue increases.

Guidance, Outlook, and Material Events

Subsequent Event: Debt Refinancing

On July 27, 2010, subsequent to the reporting period, Entravision completed a major capital restructuring:

• New Notes: Issued $400 million of 8.75% Senior Secured First Lien Notes due 2017.
• Debt Repayment: Used proceeds to repay all amounts outstanding under the previous syndicated bank credit facility ($358.5 million term loan) and terminate related interest rate swap agreements.
• New Facility: Entered into a new $50 million revolving credit facility.

Outlook and Commentary

• Revenue Outlook: Management anticipates full-year 2010 net revenue will increase, driven by World Cup, census, and political advertising, as well as continued growth in retransmission consent revenue.
• Capital Expenditures: Anticipated to be approximately $7 million for the full year 2010.
• Liquidity: The company expects cash on hand and operating cash flows to be sufficient to meet requirements for the next 12 months.

Risks and Contingencies

• Internal Control Weakness: The company disclosed a material weakness in internal control over financial reporting related to the accounting for income taxes (valuation allowance). Management is implementing a remediation plan.
• Debt Covenants: As of June 30, 2010, the company was compliant with its leverage ratio covenant (5.9 to 1 vs. a maximum of 6.5 to 1). The new debt instruments contain restrictive covenants regarding additional indebtedness, asset dispositions, and mergers.
• Market Risks: Exposure to advertising cancellations due to economic conditions and competition in the Spanish-language media market.

Investor Verification Checklist

• Debt Structure: Verify the terms and covenants of the new $400 million 8.75% Notes issued in July 2010 and the new $50 million revolving facility.
• Internal Controls: Monitor the progress of the remediation plan for the material weakness in income tax accounting.
• Revenue Sustainability: Assess the sustainability of revenue growth driven by one-time events (World Cup, Census) versus organic growth in retransmission consent and local advertising.
• Interest Rate Exposure: Confirm the elimination of variable rate exposure following the termination of interest rate swaps and the shift to fixed-rate notes.
• Univision Relationship: Review the ongoing impact of the exclusive sales representation and retransmission consent proxy agreements with Univision Communications Inc.