EVC

Business Context and Reporting Period

Company: Entravision Communications Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2001
Business Overview: Entravision is a diversified Spanish-language media company operating in four segments: television broadcasting (38 primary stations, primarily Univision affiliates), radio broadcasting (54 stations), outdoor advertising (~11,200 billboards in Los Angeles and New York), and publishing (El Diario/la Prensa newspaper). The company targets the U.S. Hispanic market, reaching approximately 80% of all Hispanics in the U.S.

Key Financial Metrics (Year Ended Dec 31, 2001)

Note: The company reported a net loss for the third consecutive year. However, the loss narrowed significantly compared to 2000, primarily due to the absence of large non-cash interest expenses related to conversion options that were present in the prior year.

Material Changes vs. Prior Period

• Revenue Growth: Net revenue increased 36% to $208.9 million, driven by a full year of operations for 2000 acquisitions (Z-Spanish Media, LCG) and new 2001 acquisitions. Same-station revenue grew 11%.
• Expense Increases: Total expenses rose to $281.7 million from $185.4 million. Depreciation and amortization increased 73% to $120.0 million due to acquired intangible assets. Direct operating expenses increased 65%.
• Segment Performance:
  • Television: Revenue up 12%; Operating profit declined 62% to $4.7 million due to increased network compensation costs and amortization.
  • Radio: Revenue up 51%; Operating loss widened to $(46.9) million due to significant amortization of acquired radio network intangibles.
  • Outdoor: Revenue up 142%; Operating loss of $(12.5) million (compared to a small profit in 2000) due to amortization of acquired billboard assets.
  • Publishing: Revenue up 31%; Operating profit remained stable at $0.7 million.
• Debt Restructuring: Subsequent to year-end (March 18, 2002), the company issued $225 million in Senior Subordinated Notes to repay its bank credit facility.

Guidance, Outlook, and Risks

• Outlook: Management does not expect the same rate of growth in 2002 as experienced in 2001, which was heavily influenced by acquisitions. Operations may be impacted by a weak economic environment and reduced advertising expenditures.
• Accounting Changes: Adoption of SFAS No. 142 (Goodwill and Other Intangible Assets) effective Jan 1, 2002, will eliminate amortization of goodwill and indefinite-lived intangibles. Management anticipates a decrease in amortization expense of approximately $87 million in 2002, which should significantly improve reported earnings.
• Capital Expenditures: Anticipated 2002 capital expenditures are approximately $12 million for maintenance and $5.5 million for digital television conversion.
• Key Risks:
  • Debt Servicing: Substantial indebtedness limits flexibility and requires significant cash flow for debt service. Failure to meet covenants could trigger acceleration of debt.
  • Univision Dependence: Univision holds Class C stock with significant voting rights and is the primary programming source for TV stations. Adverse changes in this relationship could materially harm the business.
  • Regulatory: FCC license renewals are critical; loss of licenses would cease operations. Digital TV transition costs and potential displacement of low-power stations pose risks.
  • Advertising Market: Revenue is discretionary and sensitive to economic downturns and advertiser budget cuts.

Investor Verification Checklist

• Debt Covenants: Verify compliance with financial covenants (leverage ratios, interest coverage) under the new $225 million Notes and amended credit facility.
• Goodwill Impairment: Monitor the impact of SFAS No. 142 adoption in 2002 and the annual impairment testing of the $1.2 billion in intangible assets.
• Univision Relationship: Review the status of network affiliation agreements and the strategic partnership with Univision Communications Inc.
• Digital TV Transition: Assess the progress and cost of converting stations to digital broadcasting by the May 1, 2002 deadline.
• Preferred Stock Redemption: Note the $90.7 million Series A mandatorily redeemable convertible preferred stock, which accrues dividends and may require redemption starting April 2006.