Business Context and Reporting Period
Entravision Communications Corporation filed a Form 8-K on March 25, 2010, announcing a decision by its Audit Committee to restate consolidated financial information. The restatement covers the year ended December 31, 2008, and interim periods ending March 31, June 30, and September 30, 2009, as well as the three- and nine-month periods ended September 30, 2008.
Key Financial Metrics and Impact
The filing details a correction regarding the computation of non-cash deferred income tax assets, income tax benefits, and related valuation allowances. The filing explicitly states that the restatement will have no effect on net revenue, operating expenses, operating income, income before taxes, or cash flows from operating, investing, or financing activities.
- 2008 Full Year Impact: Income tax benefit will decrease by $40.6 million, resulting in an increase in net loss and accumulated deficit. Long-term deferred income tax liability will increase by $42.5 million, and current deferred tax assets will increase by $1.9 million.
- 2008 Interim Periods (Q3): Income tax benefit will decrease by $16.0 million, increasing net loss and long-term deferred income tax liability.
- 2009 Interim Periods (Q1-Q3): The correction will increase current deferred tax assets, long-term deferred tax liabilities, and accumulated deficit, while decreasing stockholders' equity. There will be no effect on the statements of operations for these periods.
Material Changes Versus Prior Periods
The material change is the identification of an accounting error during 2009 related to the tax effect of adjustments to the carrying value of indefinite-lived intangible assets due to impairment charges recorded in 2008. This error involved the origination and reversal of deferred tax differences and their effect on the valuation allowance. Consequently, previously issued financial statements for the affected periods are no longer reliable.
Guidance, Outlook, and Risks
The Company intends to correct the error by restating the affected financial statements in its Annual Report on Form 10-K for the year ended December 31, 2009. The filing includes standard forward-looking statements regarding the timing of the restatement and the effects of the corrections, noting that actual results may differ materially. The Audit Committee has discussed these matters with both the current auditor (McGladrey & Pullen LLP) and the former auditor (PricewaterhouseCoopers LLP).
Investor Verification Checklist
- Verify the specific restated figures in the upcoming Form 10-K for the year ended December 31, 2009.
- Confirm that the $40.6 million reduction in tax benefit for 2008 is accurately reflected in the restated net loss.
- Review the updated balance sheet to ensure the $42.5 million increase in long-term deferred tax liability is recorded.
- Monitor for any further disclosures regarding the internal controls review that led to the discovery of this error.