EVC

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2000, for Entravision Communications Corporation. The Company operates in four segments: television broadcasting (31 stations), radio broadcasting (56 stations), newspaper publishing, and outdoor advertising. The reporting period is defined by a major corporate transformation: the Company completed an Initial Public Offering (IPO) on August 9, 2000, raising approximately $813 million in net proceeds, and reorganized from a limited liability company to a C-corporation on August 3, 2000.

Key Financial Metrics

Note: Net loss includes significant non-cash charges related to stock-based compensation and the intrinsic value of beneficial conversion options on debt.

Material Changes vs. Prior Period

• Revenue Growth: Net revenues increased 186% for the quarter and 135% for the nine months compared to 1999. This growth is primarily driven by the acquisitions of Latin Communications Group (LCG) and Z-Spanish Media Corporation.
• Expense Increases: Direct operating expenses rose 171% (quarter) and 127% (nine months), while Selling, General, and Administrative (SG&A) expenses surged 269% (quarter) and 172% (nine months) due to acquisitions and the costs of becoming a public company.
• Depreciation and Amortization: Increased 434% for the quarter and 222% for the nine months, largely due to the amortization of intangible assets from recent acquisitions.
• Non-Cash Charges: Non-cash stock-based compensation decreased significantly (86% for the quarter) compared to 1999. However, non-cash interest expense related to beneficial conversion options spiked to $39.7 million for the nine months ended September 30, 2000.
• Liquidity: Cash and cash equivalents increased from $2.4 million at year-end 1999 to $291.6 million at September 30, 2000, fueled by the IPO and financing activities.

Guidance, Outlook, and Risks

Outlook and Capital Resources: Management anticipates that net proceeds from the IPO, operating cash flows, and a new $600 million credit facility (entered into September 26, 2000) will be sufficient to meet future requirements. The Company plans to use remaining IPO proceeds to acquire television stations in Orlando and Hartford and for working capital. Capital expenditures for the remainder of 2000 are estimated at $12.0 million.

Risks and Contingencies:

• Litigation: The Company is involved in a dispute with Hispanic Broadcasting regarding a station exchange (potential $2 million liquidated damages). It is also a defendant in a lawsuit by First Millennium Communications seeking over $60 million related to a brokerage fee dispute. Additionally, Telemundo has filed an action regarding the Company's investment in XHAS-TV in Mexico. Management does not believe these matters will have a material adverse effect.
• Acquisition Integration: The Company is integrating multiple large acquisitions (LCG, Z-Spanish, Citicasters, Sunburst) which impacts comparability of results.
• Market Risk: The Company is exposed to interest rate risk on variable rate debt ($200 million outstanding), partially hedged with an interest rate cap.

Investor Verification Checklist

• Acquisition Accounting: Verify the preliminary allocation of purchase prices for LCG and Z-Spanish Media, specifically the valuation of intangible assets and goodwill, which drives high amortization expenses.
• Non-Cash Adjustments: Review the $39.7 million non-cash interest expense related to beneficial conversion options to understand its impact on reported net loss versus cash flow.
• Debt Covenants: Confirm compliance with the new $600 million credit facility covenants, specifically the maximum debt-to-cash flow ratio and interest coverage ratios.
• Legal Exposure: Monitor the status of the First Millennium Communications lawsuit and the Telemundo dispute for potential future accruals or settlements.
• Pro Forma Results: Compare reported results against the pro forma data provided in the filing to assess the normalized performance of the combined entity.