EVC

Business Context and Reporting Period

Company: Entravision Communications Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2003
Business Overview: Entravision is a diversified Spanish-language media company operating in three segments: television broadcasting (45 stations, primarily Univision affiliates), radio broadcasting (57 stations), and outdoor advertising (~10,900 faces). The company targets the U.S. Hispanic market, reaching approximately 80% of all Hispanics in the United States.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net revenue increased 9% to $238 million, driven by growth in television (up 8%) and radio (up 14%) segments. The outdoor segment remained flat (down 0.1%).
• Profitability: The company returned to net profitability ($2.3 million) in 2003, reversing a net loss of $10.6 million in 2002. This was aided by a $9.3 million gain on the disposal of discontinued operations (publishing segment).
• Acquisitions: Significant acquisition of three FM radio stations in Los Angeles from Big City Radio for $100 million cash and ~3.77 million shares of Class A common stock. Also acquired five low-power TV stations in Santa Barbara and a permit for a station in San Diego.
• Dispositions: Sold the publishing segment (El Diario/la Prensa) in July 2003 for approximately $19.9 million. Proceeds were used to repay bank debt.
• Debt: Total debt increased to $377.6 million, primarily due to $100 million in borrowings to fund the Los Angeles radio acquisition, partially offset by debt repayment from the publishing sale.

Guidance, Outlook, Risks, and Unusual Items

• Outlook: Management anticipates continued revenue growth in 2004 driven by a full year of operations from 2003 acquisitions and increased demand for Spanish-language advertising. They expect net revenue increases to outpace expense growth.
• Unusual Items:
  • Discontinued Operations: A $9.3 million gain on the sale of the publishing segment significantly impacted 2003 net income.
  • Preferred Stock Accretion: $11.3 million charge for the accretion of Series A preferred stock redemption value reduced net income applicable to common stockholders.
• Risks and Contingencies:
  • Debt Covenants: The company carries substantial debt ($144 million bank facility, $225 million senior subordinated notes). Covenants restrict additional borrowing, dividends, and asset sales. Failure to meet financial ratios could trigger acceleration of debt.
  • Univision Relationship: Univision owns ~28% of the company (on a fully converted basis) and is the exclusive national sales representative for TV. Univision is required to divest its stake to 15% by 2006 and 10% by 2009 due to DOJ agreements, which could impact stock price.
  • Regulatory: FCC ownership rules are under appeal; changes could affect acquisition strategies. Digital TV transition costs are estimated at $17 million between 2004-2006.
  • Advertising Volatility: Revenue is dependent on advertisers who can cancel orders without penalty.

Investor Verification Checklist

• Debt Service Capacity: Verify the company's ability to service $377.6 million in debt and meet the 5.4x net debt-to-EBITDA covenant ratio given the high leverage.
• Preferred Stock Redemption: Confirm the funding strategy for the Series A preferred stock redemption, which becomes exercisable by holders in April 2006 at a price of approximately $143.5 million.
• Univision Divestiture: Monitor the timeline and method of Univision's required divestiture of its equity stake and the potential impact on stock price and corporate control.
• Outdoor Segment Performance: Assess the turnaround plan for the outdoor advertising segment, which posted an operating loss of $16.3 million and flat revenue in 2003.
• Acquisition Integration: Evaluate the revenue contribution and integration success of the Los Angeles radio stations acquired in April 2003.