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Entravision Communications Corp – ‘10-Q’ for 6/30/04

On:  Monday, 8/9/04, at 12:46pm ET   ·   For:  6/30/04   ·   Accession #:  1193125-4-135552   ·   File #:  1-15997

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/09/04  Entravision Communications Corp   10-Q        6/30/04    8:856K                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    499K 
 2: EX-3.1      Second Amendment Restated Certificate of            HTML    119K 
                          Incorporation                                          
 3: EX-10.1     Equity Incentive Plan                               HTML     98K 
 4: EX-10.2     Fifth Amendment to Credit Agreement                 HTML     29K 
 5: EX-10.3     Share Purchase Agreement                            HTML     43K 
 6: EX-31.1     Section 302 Certification of CEO                    HTML     12K 
 7: EX-31.2     Section 302 Certification of CFO                    HTML     12K 
 8: EX-32       Section 906 Certification for CEO & CFO             HTML      9K 

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

OR

FOR THE TRANSITION PERIOD FROM                      TO                     

COMMISSION FILE NUMBER 1-15997

ENTRAVISION COMMUNICATIONS CORPORATION

(Exact name of registrant as specified in its charter)

2425 Olympic Boulevard, Suite 6000 West

Santa Monica, California 90404

(Address of principal executive offices) (Zip Code)

(310) 447-3870

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES  x    NO  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  x    No  ¨

As of August 4, 2004, there were 59,505,093 shares, $0.0001 par value per share, of the registrant’s Class A common stock outstanding, 27,678,533 shares, $0.0001 par value per share, of the registrant’s Class B common stock outstanding and 36,926,600 shares, $0.0001 par value per share, of the registrant’s Class U common stock outstanding.

Table of Contents

ENTRAVISION COMMUNICATIONS CORPORATION

TABLE OF CONTENTS

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Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2003.

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PART I

FINANCIAL INFORMATION

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

See Notes to Consolidated Financial Statements

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ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

See Notes to Consolidated Financial Statements

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ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

See Notes to Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 2004

1. BASIS OF PRESENTATION

Presentation

The condensed consolidated financial statements included herein have been prepared by Entravision Communications Corporation, or the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2003 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The unaudited information contained herein has been prepared on the same basis as the Company’s audited consolidated financial statements and, in the opinion of the Company’s management, includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2004 or any other future period.

Reclassification of discontinued operations

On July 3, 2003, the Company sold substantially all of the assets and certain specified liabilities related to its publishing segment to CPK NYC, LLC for aggregate consideration of approximately $19.9 million. The Company’s consolidated financial statements for the three- and six-month periods ended June 30, 2003 and related disclosures have been adjusted to reflect the publishing operations as discontinued operations in accordance with SFAS No. 144 (see Note 3).

2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Related party

Univision Communications Inc. currently owns approximately 28% of the Company’s common stock on a fully converted basis. In connection with Univision’s merger with Hispanic Broadcasting Corporation, or HBC, in September 2003, Univision entered into an agreement with the U.S. Department of Justice, or DOJ, pursuant to which Univision agreed, among other things, to sell enough of its holdings of the Company’s stock so that its ownership of the Company will not exceed 15% by March 26, 2006 and 10% by March 26, 2009.

Also pursuant to Univision’s agreement with DOJ, in September 2003 Univision exchanged all 36,926,623 of its shares of the Company’s Class A and Class C common stock that it previously owned (14,943,231 shares of Class A common stock and 21,983,392 shares of Class C common stock) for 369,266 shares of the Company’s new Series U preferred stock. The Series U preferred stock was mandatorily convertible into common stock when and if the Company created a new class of common stock that generally has the same rights, preferences, privileges and restrictions as the Series U preferred stock (other than a nominal liquidation preference). The Company created such a new class of common stock, its new Class U common stock, during the second quarter of 2004, and the 369,266 shares of the Company’s Series U preferred stock held by Univision were converted into 36,926,600 shares of the Company’s new Class U common stock effective as of July 1, 2004. Neither the original exchange of Univision’s Class A and Class C common for Series U preferred stock, nor the subsequent conversion of such Series U preferred stock into Class U common stock, changed Univision’s overall equity interest in the Company, nor did either have any impact on the Company’s existing television station affiliation agreements with Univision.

The Class U common stock has limited voting rights and does not include the right to elect directors. However, as the holder of all of the Company’s issued and outstanding Class U common stock, Univision currently has the right to approve any merger, consolidation or other business combination involving the Company, any dissolution of the Company and any assignment of the FCC licenses for any of the Company’s Univision-affiliated television stations. Each share of Class U common stock is automatically convertible into one share (subject to adjustment for stock splits, dividends or combinations) of the Company’s Class A common stock in connection with any transfer to a third party that is not an affiliate of Univision.

The Company received reimbursements from Univision for corporate expenses the Company incurred in connection with Univision’s merger with HBC in amounts of $0.5 million and $2.0 million for the three- and six-month periods ended June 30, 2003, respectively.

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Stock-based compensation

Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock option plans. As allowed by SFAS No. 123, the Company has elected to continue to account for its employee stock-based compensation plan using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations, which does not require compensation to be recorded if the consideration to be received is at least equal to the fair value of the common stock to be issued at the measurement date. Under the requirements of SFAS No. 123, nonemployee stock-based transactions require compensation to be recorded based on the fair value of the securities issued or the services received, whichever is more reliably measurable.

The following table illustrates the effect on net income (loss) and net income (loss) per share had employee compensation costs for the stock-based compensation plan been determined based on grant date fair values of awards under the provisions of SFAS No. 123, for the three- and six-month periods ended June 30, 2004 and 2003 (unaudited; in thousands, except per share data):

The Company granted 2,025,000 stock options for employees and directors and 78,000 stock options for non-employees during the six-month period ended June 30, 2004. These stock options have an average exercise price of $10.24 and an average fair value of $6.26.

Earnings (loss) per share

The following table illustrates the reconciliation of the basic and diluted earnings (loss) per share computations required by Statement of Financial Accounting Standards (SFAS) No. 128, “Earnings Per Share” (unaudited; in thousands, except share and per share data):

Basic earnings (loss) per share is computed as net earnings (loss) less accretion of the discount which includes accrued dividends on Series A mandatorily redeemable convertible preferred stock divided by the weighted average number of shares

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outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution, if any, that could occur from shares issuable through stock options and convertible securities.

For the three-month period ended June 30, 2003 and six-month periods ended June 30, 2004 and 2003, all dilutive securities have been excluded as their inclusion would have had an anti-dilutive effect on loss per share. For the six-month period ended June 30, 2004, the securities whose conversion would result in an incremental number of shares that would be included in determining the weighted average shares outstanding for diluted earnings per share if their effect was not anti-dilutive is as follows: 438,845 equivalent shares of stock options, 36,926,600 equivalent shares of Series U convertible preferred stock and 5,865,102 equivalent shares of Series A mandatorily redeemable convertible preferred stock.

The Series A preferred stock and 7,576,040 stock options were not included in the computation of diluted income per share for the three-month period ended June 30, 2004, because the effect of the Series A preferred stock was anti-dilutive and the exercise prices of the options were greater than the average market price of the common shares during this period.

As discussed above, the Series U preferred stock was mandatorily convertible into common stock when and if the Company created a new class of common stock that generally has the same rights, preferences, privileges and restrictions as the Series U preferred stock (other than a nominal liquidation preference). The Company created such a new class of common stock, its new Class U common stock, during the second quarter of 2004, and all of the Company’s Series U preferred stock held by Univision was converted into shares of the Company’s new Class U common stock effective as of July 1, 2004. If the Series U preferred stock had been treated as common stock outstanding, the basic weighted average common shares outstanding would have been 124,086,068 for the six-month period ended June 30, 2004. The basic net loss per share would have changed from $(0.07) to $(0.05) for the six-month period ended June 30, 2004, and earnings per share for the three-month period ended June 30, 2004 would have remained unchanged at $0.02.

Disposition of assets

In February 2004, the Company sold the assets of radio station KZFO-FM in the Fresno, California market to Univision for approximately $8.0 million.

In May 2004, the Company sold the assets of radio stations WNDZ-AM, WRZA-FM and WZCH-FM in the Chicago, Illinois market for an aggregate amount of approximately $28.8 million.

Subsequent event

On July 2, 2004, the Company repurchased 2,542,006 shares of its Series A mandatorily redeemable convertible preferred stock from TSG Capital Fund III, L.P. for $55 million, funded by additional borrowings of $50 million under the Company’s bank credit facility and available cash on hand of $5 million. Under a revised Share Repurchase Agreement with TSG Capital, the Company agreed to repurchase the remaining 3,323,096 shares of Series A preferred stock from TSG Capital by June 30, 2005, subject to the approval of the Company’s Board of Directors and subject to the Company’s having entered into, by September 30, 2004, a senior bank refinancing transaction of at least $400 million on terms acceptable to the Company in its sole discretion. The revised Share Repurchase Agreement replaced in its entirety the prior Share Repurchase Agreement described in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.

The $55 million repurchase price for the 2,542,006 shares of Series A preferred stock repurchased by the Company represented a premium of approximately $3.7 million to such shares’ carrying value (or $1.3 million to the liquidation value) on July 2, 2004. This premium will be reflected as a reduction in the Company’s net income applicable to common stockholders and the related earnings per share for the three-month period ending September 30, 2004. The premium associated with the remaining 3,323,096 outstanding shares of Series A preferred stock will be reflected as a reduction in the Company’s net income applicable to common stockholders and the related earnings per share over the period from July 1, 2004 through June 30, 2005.

Pending transactions

In December 2003, the Company entered into a definitive agreement to sell radio station KRVA-AM in the Dallas, Texas market for approximately $3.5 million in cash. This disposition is currently expected to close in the third quarter of 2004.

In June 2004, the Company entered into a definitive agreement to acquire radio station KBMB-FM in the Sacramento, California market for an aggregate of approximately $17.4 million in cash. This acquisition is currently expected to close in the third or fourth quarter of 2004.

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Summarized balance sheet data regarding the Company’s assets held for sale in the Dallas, Texas market and land in the San Jose, California market is as follows as of June 30, 2004 (unaudited; in thousands):

None of the 2004 dispositions or planned dispositions qualifies as a sale of a business, nor do they qualify for discontinued operations presentation as they are not a component of an entity.

3. DISCONTINUED OPERATIONS

On July 3, 2003, the Company sold substantially all of the assets and certain specified liabilities related to its publishing segment to CPK NYC, LLC for aggregate consideration of approximately $19.9 million. In the sale, the Company received $18.0 million in cash and an unsecured, subordinated promissory note in the principal amount of $1.9 million. The note bears interest at a rate of 8.0% per annum compounded annually, and all principal and accrued interest on the note are due and payable on July 3, 2008. The Company used the cash proceeds from this disposition to repay a portion of the indebtedness then outstanding under its bank credit facility.

The cash portion of the purchase price is subject to adjustment based on the working capital of the publishing segment as of the closing date. The Company currently anticipates that this favorable adjustment will be finalized during the third quarter of 2004 and that such adjustment will not have a material effect on the Company’s consolidated financial statements.

As a result of the Company’s decision to sell its publishing segment, the Company’s consolidated financial statements for the three- and six-month periods ended June 30, 2003 and related disclosures have been adjusted to reflect the publishing operations as discontinued operations in accordance with SFAS No. 144. The Company has not made any allocation of interest expense or corporate expense to discontinued operations.

Summarized Statements of Operations data for the discontinued publishing operations is as follows (unaudited; in thousands):

4. SEGMENT INFORMATION

The Company operates in three reportable segments: television broadcasting, radio broadcasting and outdoor advertising.

Television broadcasting

The Company owns and/or operates 45 primary television stations located primarily in the southwestern United States, consisting primarily of Univision affiliates.

Radio broadcasting

The Company owns and/or operates 54 radio stations (40 FM and 14 AM) located primarily in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas.

Outdoor advertising

The Company owns approximately 10,900 outdoor advertising faces located primarily in Los Angeles and New York.

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Separate financial data for each of the Company’s operating segments is provided below. Segment operating profit (loss) is defined as operating profit (loss) before corporate expenses and non-cash stock-based compensation. There were no significant sources of revenue generated outside the United States during the three- and six-month periods ended June 30, 2004 and 2003. The Company evaluates the performance of its operating segments based on the following (unaudited, in thousands):