EVC

Business Context and Reporting Period

Company: Entravision Communications Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2004
Business Overview: Entravision is a diversified Spanish-language media company operating in three segments: television broadcasting (45 primary stations), radio broadcasting (57 stations), and outdoor advertising (approx. 10,900 faces). The company reaches approximately 80% of all Hispanics in the United States.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net revenue increased 8% year-over-year, driven by the television (up 8%) and radio (up 13%) segments. The outdoor segment declined 6% due to weakened demand in the Los Angeles market.
• Improved Operating Performance: Operating loss narrowed significantly by 78% to $0.4 million, aided by a $1.0 million gain on the sale of radio station KZFO-FM and improved segment operating profits.
• Expense Trends: Corporate expenses rose 65% to $4.0 million, primarily due to the absence of a $1.5 million reimbursement from Univision recorded in the prior year. Direct operating expenses increased 6%, outpaced by revenue growth, improving the margin to 50% of revenue.
• Cash Flow: Operating cash flow surged 486% to $5.6 million, largely due to a $7.3 million decrease in accounts receivable.

Outlook, Risks, and Unusual Items

• Asset Dispositions: The company sold KZFO-FM (Fresno) for $8.0 million in February 2004. Pending sales include KRVA-AM (Dallas) for $3.5 million and three Chicago stations (WNDZ-AM, WRZA-FM, WZCH-FM) for $29.0 million, expected to close in Q2 2004.
• Preferred Stock Repurchase: A subsequent event disclosed a Share Repurchase Agreement to buy back all Series A mandatorily redeemable convertible preferred stock. The price ranges from $126.2 million to $127.7 million depending on the closing date (May–July 2004). Financing for this repurchase is sought via external sources and credit facility amendments.
• Univision Relationship: Univision Communications Inc. owns approx. 28% of the company on a fully converted basis. Due to a DOJ agreement, Univision must reduce its ownership to 15% by 2006 and 10% by 2009. Univision recently exchanged common stock for Series U preferred stock.
• Liquidity and Debt: The company maintains a $400 million bank credit facility ($126 million outstanding as of March 31, 2004). The net debt to EBITDA ratio was 5.4 to 1. The company anticipates capital expenditures of $13 million for the remainder of 2004, including digital television conversion costs.
• Risks: Key risks include the ability to raise capital for the preferred stock repurchase, potential cancellations of advertising due to economic downturns, and regulatory developments affecting operations.

Investor Verification Checklist

• Preferred Stock Repurchase Financing: Verify the status of the external financing required to fund the $126+ million Series A preferred stock buyback and the associated amendment to the bank credit facility.
• Asset Sale Closings: Confirm the closing dates and final proceeds for the pending radio station sales in Dallas and Chicago (expected Q2 2004).
• Outdoor Segment Turnaround: Monitor the performance of the outdoor advertising segment following management changes, as it continues to show revenue declines.
• Debt Covenants: Review compliance with financial covenants (net debt to operating cash flow ratio) given the high leverage and upcoming debt repayments.
• Univision Ownership Reduction: Track Univision's progress in reducing its equity stake to comply with the DOJ settlement terms.