Entravision Communications Corporation — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; the filing also reports fourth-quarter results. Amounts are in U.S. dollars. The company operates television and radio broadcasting businesses focused on Hispanic audiences, with 53 primary television stations and 48 radio stations. Television generated 68% of annual revenue and radio 32%.
Financial performance and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $194.4 million | $200.5 million |
| Operating income | $35.0 million | $3.9 million |
| Net loss | $8.2 million | $18.1 million |
| Operating cash flow | $17.6 million | $37.1 million |
| Adjusted EBITDA (non-GAAP) | $55.5 million | $63.6 million |
| Cash and cash equivalents at year-end | $58.7 million | $72.4 million |
| Debt carrying value at year-end | $379.7 million | $396.1 million |
- Revenue fell 3%; operating margin improved to approximately 18.0% from 1.9%, primarily because 2011 had no impairment charge, compared with $36.1 million in 2010. Net losses continued despite the improvement in operating income.
- Adjusted EBITDA declined 13%, and its margin declined to 29% from 32%. Interest expense rose to $37.7 million from $24.4 million; 2010 included favorable changes in the fair value of interest-rate swaps that had been terminated in July 2010.
- Television revenue was $131.5 million, down 1%; radio revenue was $62.9 million, down 7%. Television retransmission-consent revenue increased to $17.1 million from $13.7 million.
- Fourth-quarter 2011 revenue was $50.0 million and net loss was $2.0 million. Fourth-quarter 2010 revenue was $50.6 million and net loss was $29.3 million, including the $36.1 million impairment charge.
- Operating cash flow decreased by $19.5 million year over year. Investing activities used $9.1 million and financing activities used $22.2 million in 2011; financing outflows included $17.1 million of debt payments and $5.1 million of dividends. Year-end stockholders’ equity was a deficit of $0.6 million, with an accumulated deficit of $939.0 million.
- Year-end current assets were $108.9 million and current liabilities $39.9 million. The company reported $58.7 million cash and no borrowings under its $50 million revolving facility, although it had $0.7 million of outstanding letters of credit.
Material changes and unusual items
- 2011 revenue declined from 2010, when results benefited from World Cup and political advertising and a large Los Angeles promotional event. Those sources were absent or not material in 2011. Higher retransmission-consent revenue partly offset weaker television advertising.
- Direct operating expenses rose 4% to $88.6 million, partly reflecting restored salaries and costs associated with LER; selling, general and administrative expenses fell 4% to $36.5 million. The 2010 comparison also included a $3.0 million reserve for a note receivable from the 2003 publishing-segment sale.
- In January 2011, Entravision acquired the remaining 50% of LER for $1.1 million, bringing its ownership to 100%. Remeasurement of its existing stake generated $0.7 million of other income.
- In the fourth quarter, the company repurchased Notes with $16.2 million principal amount and recorded a $0.4 million debt-extinguishment loss. The $8.75% senior secured Notes mature August 1, 2017; approximately $383.8 million principal remained outstanding at year-end.
- The company paid a $0.06-per-share dividend in 2011. The filing says debt agreements restrict future dividends and stock repurchases.
Outlook, risks and contingencies
- Management anticipated higher full-year 2012 revenue, mainly from increased political advertising and retransmission-consent revenue, while cautioning that the advertising environment would remain challenging. It expected positive operating cash flow and estimated 2012 capital expenditures of approximately $9 million. These are management expectations, not guarantees.
- Management stated that cash on hand, operating cash flow and available revolver capacity were expected to cover anticipated cash needs for at least the next 12 months. However, the company had substantial debt, negative equity, a history of losses, and a year-end total leverage ratio of 6.9x against a stated 7.0x maximum.
- A February 2012 credit-agreement amendment retained the 7.0x leverage limit and provided that, on or after March 31, 2012, financial covenants would not apply unless loans were outstanding on the relevant date. The filing also describes a $25 million borrowing cap if leverage exceeds 6.5x.
- Key risks include dependence on Univision for substantially all television network programming and national ad sales; advertising cancellations and economic weakness; debt service, covenant and refinancing risks; FCC license, ownership and spectrum changes; retransmission-consent negotiations; competition from other media and technologies; and potential future impairment of goodwill or broadcast licenses.
- Goodwill and indefinite-lived assets depend on forecasts and valuation assumptions. No impairment was recorded in 2011; prior-year impairment charges were $36.1 million in 2010 and $50.6 million in 2009. The company maintained a full valuation allowance against deferred tax assets it believed would not be realized.
- Management said ordinary-course litigation was not expected to materially affect the company. The independent auditor gave an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- Whether 2012 revenue and cash-flow expectations were achieved, and how much growth came from political advertising versus retransmission consent.
- Debt principal, interest burden, leverage calculations, covenant status and the availability and conditions of the revolving credit facility.
- Whether operating cash flow can support debt service, planned capital spending and dividends, given the decline in 2011 cash flow and year-end cash.
- Assumptions underpinning broadcast-license and goodwill valuations, and the sensitivity of those valuations to advertising trends, discount rates and market conditions.
- The continuing terms and economics of the Univision affiliation, sales and retransmission-consent arrangements, and any resulting concentration or related-party exposure.