EVC

Business Context and Reporting Period

Company: Entravision Communications Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2002
Business Overview: Entravision operates in four segments: television broadcasting (42 stations), radio broadcasting (54 stations), outdoor advertising (approx. 11,400 billboards), and newspaper publishing. The company targets the Hispanic market in the United States. Univision Communications Inc. owns approximately 31% of the company's common stock.

Key Financial Metrics

Note: Total Debt calculated as Notes Payable ($308,682) plus Current Maturities ($1,363). EBITDA is a non-GAAP measure defined by the company as broadcast cash flow less corporate expenses.

Material Changes vs. Prior Period

• Revenue Growth: Net revenue increased 19% ($10.2M) for the quarter and 13% ($20.7M) for the nine-month period compared to 2001. Growth was driven by increased inventory sold and higher rates in television and radio segments, partially offset by a 10% decline in outdoor revenue for the nine-month period.
• Profitability Improvement: The company reported an operating income of $2.5M for the quarter and $11.7M for the nine-month period, a significant turnaround from operating losses of $16.1M and $53.6M, respectively, in the prior year periods.
• Accounting Change Impact: The adoption of SFAS No. 142 (Goodwill and Other Intangible Assets) on January 1, 2002, eliminated the amortization of goodwill and indefinite-life intangible assets. This resulted in a $17.7M reduction in amortization expense for the quarter and $58.7M for the nine-month period, which was the primary driver of the improved operating income.
• Segment Performance:
  • Television: Revenue up 28% (quarter) and 23% (nine-month).
  • Radio: Revenue up 19% (quarter) and 15% (nine-month).
  • Outdoor: Revenue up 2% (quarter) but down 10% (nine-month) due to lower rates and inventory in the first half of the year.

Guidance, Outlook, and Risks

• Outlook: Management anticipates continued increases in net revenue and EBITDA as ratings and demand for advertising inventory rise. They expect direct operating expenses and corporate expenses to decrease as a percentage of net revenue in future periods.
• Acquisitions: The company acquired four TV stations and three radio stations in the first nine months of 2002 for approximately $102.7 million. Pending acquisitions include a Las Vegas radio station (expected to close Dec 2002) and five low-power TV stations in Santa Barbara (expected to close Dec 2002).
• Liquidity and Debt: The company issued $225 million in Senior Subordinated Notes in March 2002. It maintains a $400 million bank credit facility ($250M revolver, $150M uncommitted). As of September 30, 2002, $70 million was outstanding under the credit facility. Management believes cash flow from operations and available borrowings are sufficient for foreseeable needs.
• Risks:
  • Intangible Asset Impairment: Approximately 83% of total assets are intangible. Future impairment charges could be material if projected cash flows are not realized.
  • Economic Sensitivity: Advertising revenues are sensitive to general economic downturns and advertiser cancellations.
  • Debt Covenants: The company is subject to financial covenants regarding debt-to-operating cash flow ratios (max 7.0 to 1 under the credit facility).
  • Preferred Stock Redemption: Series A mandatorily redeemable convertible preferred stock may be redeemed by holders on or after April 19, 2006, at a price of approximately $143.5 million.

Investor Verification Checklist

• Verify SFAS 142 Impact: Confirm that the reported profitability improvement is primarily due to the cessation of goodwill amortization rather than operational cash generation.
• Debt Service Capacity: Review the company's ability to meet interest payments on the new $225M Notes and the $70M credit facility draw, given the history of operating losses.
• Outdoor Segment Recovery: Monitor the outdoor advertising segment for signs of sustained recovery, as it declined 10% year-over-year for the nine-month period.
• Acquisition Integration: Assess the integration costs and revenue contribution of the $102.7M in acquisitions completed in 2002.
• Preferred Stock Obligation: Evaluate the company's long-term liquidity plan regarding the potential $143.5M redemption of Series A preferred stock in 2006.