Initial Public Offering (IPO): Pre-Effective Amendment to Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1/A Form S-1/A Amendment No. 1 211 1.08M
2: EX-2.4 Acquisition Agreement and Plan of Merger 69 280K
3: EX-2.5 Exchange Agreement 32 121K
4: EX-5.1 Opinion of Zevnick Horton Guibord McGovern Palmer 2 10K
5: EX-10.1 2000 Omnibus Equity Incentive Plan 18 74K
9: EX-10.10 SEC Agr Dtd 4/20/2000 Lcg & Union Bank 28 120K
10: EX-10.11 Pledge Agr Dtd 4/20/2000 Ulloa-Wilkinson & Union 20 83K
Bk
11: EX-10.18 Form of Indemnification Agreement 13 60K
12: EX-10.19 Convertible Subordinated Purchase Agrmnt 27 92K
6: EX-10.2 Form of Voting Agrmt Ulloa, Wilkinson, Zevnik 6 26K
13: EX-10.20 Convertible Promissory Note 17 73K
14: EX-10.21 Investor Rights Agreement 24 98K
15: EX-10.22 Form of Certificate of Designations 14 56K
16: EX-10.23 Form of Investor Rights Agreement 21 73K
17: EX-10.25 Office Lease Dated August 19, 1999 58 264K
7: EX-10.6 3rd Amdmt to Amended & Restated 4/18/2000 22 91K
8: EX-10.9 Term Loan Agr Dtd 4/20/2000 Lcg - Union Bank 68 318K
18: EX-23.2 Consent of McGladrey & Pullen, LLP 1 8K
19: EX-23.3 Consent of Ernst & Young LLP 1 8K
20: EX-23.4 Consent of Deloitte & Touche LLP 1 8K
As filed with the Securities and Exchange Commission on June 14, 2000
Registration No. 333-35336
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 1
to
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
Entravision Communications Corporation
(Exact name of registrant as specified in charter)
[Download Table]
Delaware 4833 95-4783236
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Walter F. Ulloa
Entravision Communications Corporation
2425 Olympic Boulevard, Suite 6000 West
Santa Monica, California 90404
(310) 447-3870
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
[Download Table]
Kenneth D. Polin, Esq. Richard M. Jones, Esq.
Zevnik Horton Guibord McGovern O'Melveny & Myers LLP
Palmer & Fognani, L.L.P. 1999 Avenue of the Stars, 7th Floor
101 West Broadway, 17th Floor Los Angeles, California 90067
San Diego, California 92101 (310) 553-6700
(619) 515-9600
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
[Enlarge/Download Table]
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Proposed maximum Amount of
Title of each class of securities to be registered aggregate offering price (1)(2) registration fee
-------------------------------------------------------------------------------------------------------
Class A common stock,
$0.0001 par value......... $736,000,000 $194,304
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
(1) Includes shares issuable upon exercise of an over-allotment option granted
to the underwriters.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
---------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall hereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to such Section 8(a), may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the Securities and Exchange Commission relating +
+to these securities has been declared effective by the Securities and +
+Exchange Commission. This prospectus is not an offer to sell these securities +
+or our solicitation of your offer to buy these securities in any jurisdiction +
+where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--JUNE 14, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Prospectus
, 2000
[LOGO OF ENTRAVISION COMMUNICATIONS CORPORATION]
40,000,000 Shares of Class A Common Stock
--------------------------------------------------------------------------------
[Download Table]
Proposed Market and
Symbol:
. We have applied . Of the 40,000,000
for listing on shares for sale
the New York in this offering,
Stock Exchange we have offered
under the symbol 6,250,000 shares
EVC. to Univision
Communications
The Offering: Inc., one of our
principal
. We are offering stockholders,
40,000,000 shares which has
of our Class A expressed an
common stock. interest in
acquiring shares
. The underwriters of our common
have an option to stock. If this
purchase an offer is
additional accepted, we
6,000,000 shares would sell these
from us to cover shares directly
over-allotments. to Univision at
the initial
. This is our offering price,
initial public less the
offering, and no underwriting
public market discount. As a
currently exists result, we are
for our shares. offering
We anticipate 33,750,000 shares
that the initial for sale to the
public offering public through
price for our the underwriters.
Class A common
stock will be
between $15.00
and $17.00 per
share.
[Download Table]
------------------------------------------------------------------------
Per Share Per Share
(for shares sold (for shares sold
by the directly to
underwriters) Univision) Total
------------------------------------------------------------------------
Public offering price.......... $ $ $
Underwriting fees..............
Proceeds to Entravision........
------------------------------------------------------------------------
This investment involves risk. See "Risk Factors."
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has determined whether this prospectus is truthful or complete. Nor
have they made, nor will they make, any determination as to whether anyone
should buy these securities. Any representation to the contrary is a criminal
offense.
--------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette Credit Suisse First Boston Merrill Lynch & Co.
-----------
Salomon Smith Barney Bear, Stearns & Co. Inc. DLJdirect Inc.
[INSIDE FRONT COVER]
[ARTWORK]
[FRONT GATEFOLD]
[A MAP OF THE UNITED STATES IDENTIFYING THE LOCATION OF EACH OF OUR MEDIA
PROPERTIES AND THE CALL LETTERS AND CHANNEL OF EACH OF OUR STATIONS]
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different.
This prospectus may only be used where it is legal to sell these securities.
The information in this prospectus may only be accurate on the date of this
prospectus.
TABLE OF CONTENTS
[Download Table]
Page
----
Prospectus Summary....................................................... 4
Risk Factors............................................................. 12
Forward-Looking Statements............................................... 19
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 23
Selected Historical Financial Data....................................... 24
Selected Unaudited Pro Forma Financial Data.............................. 27
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 31
Business................................................................. 62
Management............................................................... 86
Principal Stockholders................................................... 93
Certain Relationships and Related Transactions........................... 95
Description of Capital Stock............................................. 99
Shares Eligible for Future Sale.......................................... 104
Underwriting............................................................. 106
Legal Matters............................................................ 109
Experts.................................................................. 109
Where You Can Find More Information...................................... 110
Index to Financial Statements............................................ F-1
3
PROSPECTUS SUMMARY
This summary contains general discussions of our business and this offering.
We encourage you to read the entire prospectus, including "Risk Factors" and
the financial statements.
ENTRAVISION
Entravision is a leading diversified media company utilizing a combination
of television, radio, outdoor and publishing operations to reach Hispanic
consumers in the United States. The description of our business presented in
this prospectus includes our recent acquisition of Latin Communications Group
Inc., or LCG, and our pending acquisitions of Z-Spanish Media Corporation and
certain outdoor advertising assets of Infinity Broadcasting Corporation. The
majority of the proceeds of this offering will finance our acquisition of Z-
Spanish Media and refinance our acquisition of LCG.
Television. We are the largest Univision-affiliated television group in the
United States. We own and operate television stations in 18 U.S. markets. We
own Univision-affiliated stations in 17 of the top 50 Hispanic markets in the
United States. Through our 25-year network affiliation agreements, Univision
makes available to these stations 24 hours a day of Spanish-language
programming. Univision's prime time schedule is all first-run programming
(i.e., no reruns) throughout the year. We combine this programming with our
local news programming to brand our stations with a local identity. As a
result, all but one of our Univision-affiliated stations rank first in Spanish-
language television viewership in their markets. Univision has invested $120
million in Entravision and has expressed an interest in investing an additional
$100 million in this offering. Univision will own an approximately 26% equity
interest in us after the offering, assuming Univision accepts our offer to
purchase 6,250,000 shares being sold in this offering.
Radio. We operate the largest centrally programmed Spanish-language radio
network in the United States, which broadcasts via satellite to our 64 owned
and operated radio stations and 47 affiliates. Sixty-one of our owned and
operated stations are in the top 50 Hispanic markets. Our radio operations
combine national programming with local time slots available for advertising,
news, traffic, weather, promotions and community events. This strategy allows
us to provide quality programming with significantly lower costs of operations
than we could otherwise deliver solely with independent programming. We produce
seven primary formats to appeal to the diverse musical tastes of the listeners
in the markets we serve.
Outdoor. Our approximately 11,200 billboards are concentrated in high-
density Hispanic communities in Los Angeles and New York, the two largest
Hispanic markets in the United States. Because of its repetitive impact and
relatively low cost, outdoor advertising attracts national, regional and local
advertisers. We offer the ability to target specific demographic groups on a
cost-effective basis compared to other advertising media. In addition, we
provide businesses with marketing opportunities in locations near their stores
or outlets.
Publishing. Our publishing operations, through El Diario/La Prensa, the
leading Spanish-language daily newspaper in New York, and VEA New York, a
tourist publication, offer advertisers another medium targeting consumers in
the second largest Hispanic market in the United States.
4
Market Opportunity and Strategy
While Hispanics represent approximately 11% of the U.S. population and the
Hispanic population is growing approximately six times faster than the non-
Hispanic population, they are currently targeted by less than 3% of total
advertising dollars. Advertisers have recently begun to direct more advertising
dollars toward Hispanics and, consequently, Spanish-language advertising is
currently growing at more than four times the rate of total advertising. We
believe that we have benefited and will continue to benefit from these trends
surrounding the attractive demographic profile of the Hispanic consumer.
We seek to increase our advertising revenue through the following
strategies:
. using our Univision network affiliation and our radio network and station
brands to maximize our market share;
. investing in media research to provide advertisers with accurate measures
of our audience;
. continuing to build and retain strong management teams;
. emphasizing and investing in our local news and radio formats and
supporting community events to enhance our audience recognition, loyalty
and ratings;
. capitalizing on cross-promotional opportunities created by our diverse
portfolio of media properties to maximize audience share and increase
advertising revenue; and
. continuing to seek acquisitions and investment opportunities in high-
growth Hispanic markets.
----------------
Our principal executive offices are located at 2425 Olympic Boulevard, Suite
6000 West, Santa Monica, California 90404, and our telephone number is (310)
447-3870. We operate a number of websites, including www.entravision.com,
www.zspanish.com, www.zmegahits.com, www.labonita.com, www.labuena.com,
www.casademusica.com and www.vistamediagroup.com. The information on our
websites is not a part of this prospectus.
5
The Offering
[Download Table]
Class A common stock offered......... 40,000,000 shares
Common stock to be outstanding after
this offering....................... 53,847,312 shares of Class A common stock
27,678,533 shares of Class B common stock
21,983,392 shares of Class C common stock
-----------
103,509,237 total shares of common stock
Shares offered to Univision.......... We have offered 6,250,000 shares for
sale in this offering to Univision, one
of our principal stockholders. If this
offer is accepted, we would sell these
shares directly to Univision. As a
result, we will offer 33,750,000 shares
for sale to the public through the
underwriters.
Voting rights........................ Holders of our Class A common stock are
entitled to one vote per share. Holders
of our Class B common stock are entitled
to ten votes per share. Holders of our
Class C common stock are entitled to one
vote per share, are entitled to vote as
a separate class to elect two directors
and have the right to vote as a separate
class on material decisions involving
Entravision. After this offering, our
executive officers will have
approximately 79% voting control of our
outstanding shares of common stock.
Use of proceeds...................... We intend to use the net proceeds of
this offering:
. to acquire Z-Spanish Media;
. to repay the existing loan on LCG;
. to repay the debt of Z-Spanish Media;
. to pay the balance of the purchase
price to acquire two radio stations
from Citicasters Co.;
. to repay a portion of Entravision's
bank debt; and
. for working capital and general
corporate purposes.
Proposed New York Stock Exchange
symbol.............................. EVC
Unless indicated otherwise, the information in this prospectus:
. reflects the completion of our reorganization in which direct and
indirect ownership interests in our predecessor and Univision's
subordinated note and option will be exchanged for shares of our common
stock;
. includes the issuance of 7,187,902 shares of Class A common stock to
acquire Z-Spanish Media;
. excludes shares of Class A common stock issuable upon the exercise of
the underwriters' over-allotment option;
. excludes 6,048,387 shares of Class A common stock reserved for issuance
upon conversion of our Series A preferred stock; and
. excludes 12,000,000 shares of Class A common stock reserved for issuance
under our omnibus equity incentive plan.
6
Summary Historical and Unaudited Pro Forma Financial Data
(In thousands, except per share data)
The following tables present:
. our summary historical financial data as of March 31, 2000 and for the
years ended December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 and 2000;
. our summary unaudited pro forma financial data as of March 31, 2000 and
for the year ended December 31, 1999 and for the three months ended
March 31, 1999 and 2000, giving effect to our completed 1999 and 2000
acquisitions and our pending acquisition of Z-Spanish Media as if such
transactions had been completed January 1, 1999, the conversion of TSG
Capital Fund III, L.P.'s convertible subordinated note into preferred
stock, the issuance of 15,437,500 shares of Class A common stock in this
offering at $16.00 per share used to finance the cash portion of the
purchase price of Z-Spanish Media and the exchange of Univision's
subordinated note and option for common stock; and
. our summary unaudited pro forma as adjusted financial data giving
further effect to the sale of the 40,000,000 shares of Class A common
stock less 15,437,500 shares of Class A common stock used to finance the
cash portion of the purchase price of Z-Spanish Media that we are
offering, assuming an initial public offering price of $16.00 per share,
and the application of the net proceeds of this offering, as described
in "Use of Proceeds."
The summary unaudited pro forma and pro forma as adjusted financial data are
not necessarily indicative of the operating results or the financial condition
that would have been achieved if we had completed these transactions as of the
date indicated and should not be construed as representative of future
operating results or financial condition. The financial data as of and for the
three months ended March 31, 1999 and 2000 were derived from our unaudited
financial statements included elsewhere in this prospectus. Such unaudited
financial statements were prepared by us on a basis consistent with our annual
audited financial statements and, in the opinion of our management, contain all
normal recurring adjustments necessary for a fair presentation of the financial
position and the results of operations for the applicable periods. Operating
results in the three months ended March 31, 2000 are not necessarily indicative
of the results that may be expected in the year ending December 31, 2000 or any
subsequent period. The summary historical and unaudited pro forma financial
data should be read in conjunction with the audited financial statements and
related notes, with "Selected Unaudited Pro Forma Financial Data" and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
7
[Download Table]
Historical
-----------------------------------------------------
Three Months Ended
Year Ended December 31, March 31,
---------------------------- -----------------------
1997 1998 1999 1999 2000
------- -------- --------- ----------- -----------
(Unaudited) (Unaudited)
Statement of Operations
Data:
Gross revenue:
Television............. $32,701 $ 48,689 $ 63,842 $12,558 $ 18,178
Radio.................. 718 1,183 2,362 455 1,162
Outdoor and
publishing............ -- -- -- -- --
------- -------- --------- ------- --------
Total gross revenue.... 33,419 49,872 66,204 13,013 19,340
Less agency commissions.. 2,963 5,052 7,205 1,284 2,076
------- -------- --------- ------- --------
Net revenue.............. 30,456 44,820 58,999 11,729 17,264
------- -------- --------- ------- --------
Expenses:
Direct operating....... 9,184 15,794 24,441 4,672 7,883
Selling, general and
administrative
(excluding non-cash
stock-based
compensation) ........ 5,845 8,877 11,611 2,510 3,749
Corporate.............. 3,899 3,963 5,809 1,304 1,848
Depreciation and
amortization.......... 8,847 9,565 14,613 2,979 4,535
Non-cash stock-based
compensation (1)...... 900 500 29,143 7,286 --
------- -------- --------- ------- --------
Total expenses........... 28,675 38,699 85,617 18,751 18,015
------- -------- --------- ------- --------
Operating income (loss).. 1,781 6,121 (26,618) (7,022) (751)
Interest expense, net.... (5,107) (8,244) (9,591) (2,023) (3,897)
Non-cash interest expense
relating to Univision
conversion option (2)... -- -- (2,500) -- (31,600)
Income tax (expense)
benefit (3)............. 7,531 (210) 121 74 6
------- -------- --------- ------- --------
Income (loss).......... $ 4,205 $ (2,333) $ (38,588) $(8,971) $(36,242)
======= ======== ========= ======= ========
Pro forma net loss (4)... $(2,683) $ (1,801) $ (36,210) $(8,423) $(34,471)
======= ======== ========= ======= ========
Pro forma basic and
diluted loss per share:
Net loss (4)........... $ (0.08) $ (0.05) $ (1.12) $ (0.26) $ (1.06)
======= ======== ========= ======= ========
8
[Download Table]
Pro Forma
-----------------------------------------------
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
----------------------- -----------------------
Pro Forma Pro Forma
Pro Forma As Adjusted Pro Forma As Adjusted
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Statement of Operations Data:
Gross revenue:
Television.................. $ 68,938 $ 68,938 $ 18,256 $ 18,256
Radio....................... 67,261 67,261 16,107 16,107
Outdoor and publishing...... 35,134 35,134 7,476 7,476
-------- -------- -------- --------
Total gross revenue......... 171,333 171,333 41,839 41,839
Less agency commissions....... 16,009 16,009 4,185 4,185
-------- -------- -------- --------
Net revenue................... 155,324 155,324 37,654 37,654
-------- -------- -------- --------
Expenses:
Direct operating............ 59,938 59,938 15,866 15,866
Selling, general and
administrative (excluding
non-cash stock-based
compensation).............. 47,702 47,702 11,107 11,107
Corporate................... 12,639 12,639 4,045 4,045
Depreciation and
amortization............... 86,245 86,245 21,885 21,885
Non-cash stock-based
compensation (1)........... 31,931 31,931 893 893
Gain on sale of assets...... (4,442) (4,442) -- --
-------- -------- -------- --------
Total expenses................ 234,013 234,013 53,796 53,796
-------- -------- -------- --------
Operating income (loss)....... (78,689) (78,689) (16,142) (16,142)
Interest expense, net and
other........................ (35,134) (5,636) (9,510) (2,135)
Non-cash interest expense
relating to Univision
conversion option (2)........ (2,500) (2,500) (31,600) (31,600)
Income tax benefit (3)........ 28,867 17,068 8,785 5,835
-------- -------- -------- --------
Loss from continuing
operations................. (87,456) (69,757) (48,467) (44,042)
Preferred stock dividends..... 7,650 7,650 1,913 1,913
-------- -------- -------- --------
Loss from continuing
operations applicable to
common stock................. $(95,106) $(77,407) $(50,380) $(45,955)
======== ======== ======== ========
Pro forma basic and diluted
loss per share:
Net loss from continuing
operations applicable to
common stock (4)........... $ (1.23) $ (0.76) $ (0.65) $ (0.45)
======== ======== ======== ========
9
[Download Table]
Historical
-----------------------------------------------------
Three Months Ended
Year Ended December 31, March 31,
---------------------------- -----------------------
1997 1998 1999 1999 2000
-------- -------- -------- ----------- -----------
(Unaudited) (Unaudited)
Other Financial Data:
Broadcast cash flow
(5).................... $ 15,427 $ 20,149 $ 22,947 $ 4,547 $ 5,632
EBITDA (adjusted for
non-cash stock-based
compensation) (6)...... 11,528 16,186 17,138 3,243 3,784
Non-cash stock-based
compensation (1)....... 900 500 29,143 7,286 --
Cash flows from
operating activities... 6,509 7,658 6,128 899 1,028
Cash flows from
investing activities... (61,908) (25,586) (59,063) (17,045) (63,826)
Cash flows from
financing activities... 54,763 19,339 51,631 15,570 63,954
[Download Table]
Pro Forma
----------------------------------------
Three Months Ended
Year Ended March 31,
December 31, -----------------------
1999 1999 2000
------------ ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
Other Financial Data:
Broadcast cash flow (5).............. $ 47,684 $ 6,008 $ 10,681
EBITDA (adjusted for non-cash stock-
based compensation) (6)............. 35,045 3,660 6,636
Non-cash stock-based compensation
(1)................................. 31,931 7,983 893
Cash flows from operating
activities.......................... 6,955 (399) 2,070
Cash flows from investing
activities.......................... (724,675) (8,936) (621,537)
Cash flows from financing
activities.......................... 720,992 18,527 612,112
[Download Table]
As of March 31, 2000
----------------------------------
Pro Forma
Historical Pro Forma As Adjusted
---------- ----------- -----------
(Unaudited) (Unaudited)
Balance Sheet Data:
Cash and cash equivalents................... $ 3,513 $ 6,457 $ 16,457
Total assets................................ 252,892 1,243,597 1,253,597
Long-term debt, including current portion... 234,601 433,401 90,401
Redeemable preferred stock.................. -- 90,000 90,000
Total stockholders' equity (7).............. 7,171 488,401 841,401
--------
(1) For 1999, non-cash stock-based compensation represents management's
estimate of the fair value of our employee stock award and our employee
stock option grant based on the estimated price of this offering.
(2) During 1999, conditions restricting the exchange of Univision's $10
million convertible subordinated note were eliminated and we recorded non-
cash interest expense of $2.5 million. In March 2000, the subordinated
note was amended and increased to $120 million, and the option exchange
feature was increased to 40%. The estimated fair value of the $110 million
amendment to the convertible subordinated note and option feature was
$141.6 million based on an estimated initial public offering price. This
resulted in a $31.6 million non-cash charge to interest expense in the
quarter ended March 31, 2000.
10
(3) Included in the 1997 income tax expense is a $7.8 million tax benefit that
resulted from the reversal of previously recorded deferred tax liabilities
that were established in our 1997 acquisition of KNVO, McAllen, Texas.
This entity was converted from a C-corporation to an S-corporation in
1997. As a result, deferred taxes were reduced.
(4) Pro forma net loss from continuing operations applicable to common stock
and pro forma basic and diluted loss applicable to common stock per share
give effect to our conversion from a limited liability company to a
corporation for federal and state income tax purposes and assume that we
were subject to corporate income taxes at an effective combined federal
and state income tax rate of 40% before the effect of non-tax deductible
goodwill and non-cash stock-based compensation for each period presented.
(5) Broadcast cash flow means operating income (loss) before corporate
expenses, depreciation and amortization, non-cash stock-based compensation
and gain on sale of assets. We have presented broadcast cash flow which we
believe is comparable to the data provided by other companies in the
broadcast industry, because such data is commonly used as a measure of
performance for companies in our industry. However, broadcast cash flow
should not be construed as an alternative to operating income (as
determined in accordance with generally accepted accounting principles) as
an indicator of operating performance or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) as a measure of liquidity.
(6) EBITDA means broadcast cash flow less corporate expenses (adjusted for
non-cash stock-based compensation) and is commonly used in the broadcast
industry to analyze and compare broadcast companies on the basis of
operating performance, leverage and liquidity. EBITDA, as presented above,
may not be comparable to similarly titled measures of other companies
unless such measures are calculated in substantially the same fashion.
EBITDA should not be construed as an alternative to operating income (as
determined in accordance with generally accepted accounting principles) as
an indicator of operating performance or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) as a measure of liquidity.
(7) The stockholders' equity data gives effect to our reorganization in which
direct and indirect ownership interests in our predecessor.
11
RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before buying shares in
this offering.
Risks Related to Our Business
We have a history of losses that if continued into the future could adversely
affect the market price of our Class A common stock and our ability to raise
capital.
We had net losses of approximately $2.3 million and $38.6 million for the
years ended December 31, 1998 and 1999, and $9.0 million and $36.2 million for
the quarters ended March 31, 1999 and 2000. In addition, we had a pro forma net
loss of $95.1 million for the year ended December 31, 1999, and a pro forma net
loss of $50.4 million for the three months ended March 31, 2000, after giving
effect to our 1999 and 2000 acquisitions, including our acquisition of LCG and
our pending acquisition of Z-Spanish Media. We believe losses may continue
while we pursue our acquisition strategy. If we cannot generate profits in the
future, it could adversely affect the market price of our Class A common stock,
which in turn could adversely affect our ability to raise additional equity
capital or to incur additional debt.
If we cannot successfully integrate our recent, pending and future
acquisitions, it could decrease our revenue or increase our costs.
We acquired LCG on April 20, 2000, and we have agreed to acquire Z-Spanish
Media and certain outdoor advertising assets of Infinity Broadcasting
Corporation. As a result of these acquisitions, our number of full-time
employees grew from 544 as of December 31, 1999 to approximately 1,100 as of
March 31, 2000. To integrate these and other pending and future acquisitions,
we need to:
. retain key management and personnel of acquired companies;
. successfully merge corporate cultures and business processes;
. realize sales efficiencies and cost reduction benefits; and
. operate successfully in markets in which we may have little or no prior
experience.
In addition, after we have completed an acquisition, our management must be
able to assume significantly greater responsibilities, and this in turn may
cause them to divert their attention from our existing operations. If we are
unable to completely integrate into our business the operations of the
companies that we have recently acquired or that we may acquire in the future,
our revenue could decrease or our costs could increase.
The consummation of our acquisition of Z-Spanish Media requires regulatory
approvals and the satisfaction of other customary closing conditions that may
delay or prevent the acquisition or require us to divest some assets.
The consummation of the acquisition of Z-Spanish Media requires the approval
of the Federal Communications Commission, or FCC, with respect to the transfer
of the broadcast licenses of Z-Spanish Media to us. This process could delay
the acquisition and will require us to divest some assets. In addition, the
definitive merger agreement entered into between Z-Spanish Media and us
contains customary closing conditions. Should any of these conditions not be
met, one or both parties
12
could terminate the agreement. If this acquisition is not completed, our
business would differ materially from that described in this prospectus. In
addition, if this acquisition is not completed, we will retain broad discretion
over the use of the proceeds from this offering that would otherwise have been
used to finance the Z-Spanish Media acquisition. You may not agree with how we
spend the proceeds, and our use of the proceeds may not yield a significant
return or any return at all.
If we cannot raise required capital, we may have to curtail existing operations
and our future growth through acquisitions.
We may require significant additional capital for future acquisitions and
general working capital needs. If our cash flow and existing working capital
are not sufficient to fund future acquisitions and our general working capital
requirements and debt service, we will have to raise additional funds by
selling equity, refinancing some or all of our existing debt or selling assets
or subsidiaries. None of these alternatives for raising additional funds may be
available on acceptable terms to us or in amounts sufficient for us to meet our
requirements. Our failure to obtain any required new financing may prevent
future acquisitions and have a material adverse effect on our ability to grow
through acquisitions.
Our substantial level of debt could limit our ability to grow and compete.
After repaying some of our outstanding indebtedness with a portion of the
proceeds from this offering, and after the consummation of our pending
acquisitions described elsewhere in this prospectus, we expect to have
approximately $366 million of debt outstanding under our proposed new bank
credit facility. We expect to obtain a portion of our required capital through
debt financing that bears or is likely to bear interest at a variable rate,
subjecting us to interest rate risk. A significant portion of our cash flow
from operations will be dedicated to servicing our debt obligations and our
ability to obtain additional financing may be limited.
We may not have sufficient future cash flow to meet our debt payments, or we
may not be able to refinance any of our debt at maturity. We have pledged
substantially all of our assets to our lenders as collateral. Our lenders could
proceed against the collateral granted to them to repay outstanding
indebtedness if we are unable to meet our debt service obligations. If the
amounts outstanding under our bank credit facilities are accelerated, our
assets may not be sufficient to repay in full the money owed to such lenders.
The terms of our current bank credit facilities restrict, and our proposed new
bank credit facility will restrict, our ability to make acquisitions or
investments and to obtain additional financing.
Our bank credit facilities contain, and our proposed new bank credit
facility will contain, covenants that restrict, among other things, our ability
to:
. incur additional indebtedness;
. pay dividends;
. make acquisitions or investments; and
. merge, consolidate or sell assets.
Our bank credit facilities also require, and our proposed new bank credit
facility will require, us to maintain specific financial ratios. A breach of
any of the covenants contained in our bank credit facilities, or our proposed
new bank credit facility, could allow our lenders to declare all amounts
outstanding under such facilities to be immediately due and payable.
13
Following this offering, our executive officers will have control over our
business, which may discourage a merger or sale of our company.
Following this offering, Walter F. Ulloa, our Chairman and Chief Executive
Officer, Philip C. Wilkinson, our President and Chief Operating Officer, and
Paul A. Zevnik, our Secretary, will own all of the shares of our Class B common
stock, and will have approximately 79% of the combined voting power of our
outstanding shares of common stock. The holders of our Class B common stock are
entitled to ten votes per share on any matter subject to a vote of the
stockholders. Accordingly, Messrs. Ulloa, Wilkinson and Zevnik will have the
ability to elect each of the remaining members of our board of directors, other
than the two members of our board of directors to be appointed by Univision,
and will have control of our policies, affairs and all other aspects of our
business and future direction. Messrs. Ulloa, Wilkinson and Zevnik have agreed
contractually to elect themselves, Amador S. Bustos, the President of our Radio
Group, and a representative of TSG Capital Fund III, L.P. as directors of our
company. This control may discourage certain types of transactions involving an
actual or potential change of control of our company, such as a merger or sale
of our company.
Univision will have significant influence over our business and could make
certain transactions more difficult or impossible to complete.
Univision, as the holder of all of our Class C common stock upon
consummation of this offering, will have significant influence over material
decisions relating to our business, including the right to elect two of our
directors, and the right to approve material decisions involving our company,
including any merger, consolidation or other business combination, any
dissolution of our company and any transfer of the FCC licenses for any of our
Univision-affiliated television stations. Univision's ownership interest may
have the effect of delaying, deterring or preventing a change in control of our
company and may make some transactions more difficult or impossible to complete
without its support.
Our television ratings and revenue could decline significantly if our
relationship with Univision or if Univision's success changes in an adverse
manner.
If our relationship with Univision changes in an adverse manner, or if
Univision's success diminishes, it could have a material adverse effect on our
ability to generate television advertising revenue on which our television
business depends. The ratings of Univision's network programming might decline
or Univision might not continue to provide programming, marketing, available
advertising time and other support to its affiliates on the same basis as
currently provided. Additionally, by aligning ourselves closely with Univision,
we might forego other opportunities that could diversify our television
programming and avoid dependence on any one television network. Univision's
relationships with Grupo Televisa, S.A. de C.V. and Corporacion Venezolana de
Television, C.A., or Venevision, are important to Univision's, and consequently
our, continued success. For example, we could be adversely affected by the
current dispute between Univision and Televisa. Under its program license
agreements with Televisa, Univision has the first right to air Televisa's
Spanish-language programming in the United States through 2017. Televisa now
asserts that it can directly broadcast that same programming into the United
States through a direct satellite venture in Mexico.
14
Cancellations or reductions of advertising could cause our quarterly results to
fluctuate, which could adversely affect the market price of our Class A common
stock.
We do not obtain long-term commitments from our advertisers, and advertisers
may cancel, reduce or postpone orders without penalty. Cancellations,
reductions or delays in purchases of advertising could adversely affect our
revenue, especially if we are unable to replace such purchases. Our expense
levels are based, in part, on expected future revenue and are relatively fixed
once set. Therefore, unforeseen fluctuations in advertising sales could
adversely impact our operating results. These factors could cause our quarterly
results to fluctuate, which could adversely effect the market price of our
Class A common stock.
Risks Related to the Television, Radio,
Outdoor Advertising and Publishing Industries
If we are unable to maintain our FCC license at any station, we may have to
cease operations at that station.
The success of our television and radio operations depends, in part, on
acquiring and maintaining broadcast licenses issued by the FCC, which are
typically issued for a maximum term of eight years and are subject to renewal.
Pending or future renewal applications submitted by us may not be approved, and
renewals may include conditions or qualifications that could restrict our
television and radio operations. In addition, third parties may challenge our
renewal applications. If the FCC were to issue an order denying a license
renewal application or revoking a license, we could be required to cease
operating the broadcast station covered by the license.
Our failure to maintain our FCC broadcast licenses could cause a default under
our credit facilities and cause an acceleration of our indebtedness.
Our bank credit facilities require us to maintain our FCC licenses. If the
FCC were to revoke any of our material licenses, our lenders could declare all
amounts outstanding under the bank credit facilities to be immediately due and
payable. If our indebtedness is accelerated, we may not have sufficient funds
to pay the amounts owed.
Displacement of any of our low-power television stations could cause our
ratings and revenue for any such station to decrease.
Our low-power television stations in Washington, D.C. and San Diego are
subject to displacement by digital frequencies assigned to full-power stations
in those markets. If we are unable to find suitable replacements without a loss
in coverage, our ratings and advertising revenue in these markets may decrease.
The required conversion to digital television could impose significant costs on
us which may not be balanced by consumer demand.
The FCC requires us to provide a digitally transmitted signal by May 1, 2002
for all of our U.S. television stations and, generally, to stop broadcasting
analog signals by 2006. Our costs to convert our television stations to digital
television could be significant, and there may not be any consumer demand for
digital television services. The imposition of digital television and the
removal of Channels 60-69 from use for television broadcasting have reduced
available channels, which may affect our continued ability to operate certain
of our low-power television stations.
15
Changes in federal laws could result in increased competition for our broadcast
stations that could lead to decreased market share and a corresponding decrease
in advertising revenue.
Recent and prospective actions by Congress, the FCC and the courts could
cause us to face significant competition in the future. The changes include:
. relaxation of restrictions on television and radio station ownership;
. relaxation of restrictions on the participation by regional telephone
operating companies in cable television and other direct-to-home audio
and video technologies;
. increased restrictions on the use of local marketing agreements;
. the establishment of a Class A television service for low-power stations
that makes such stations primary stations and gives them protection
against full-service stations;
. plans to license low-power FM radio stations that will be designed to
serve small localized areas and niche audiences; and
. permission for direct broadcast satellite television to provide the
programming of traditional over-the-air stations, including local and
out-of-market network stations.
Because our full-power television stations rely on "must carry" rights to
obtain cable carriage, new laws or regulations that eliminate or limit the
scope of our cable carriage rights could have a material adverse impact on our
television operations.
Pursuant to the "must carry" provisions of the Cable Television Consumer
Protection and Competition Act of 1992, a broadcaster may demand carriage on a
specific channel on cable systems within its market. However, the future of
those "must carry" rights is uncertain, especially as they relate to the
carriage of digital television stations. The current FCC rules relate only to
the carriage of analog television signals. It is not clear what, if any, "must
carry" rights television stations will have after they make the transition to
digital television. New laws or regulations that eliminate or limit the scope
of our cable carriage rights could have a material adverse impact on our
television operations.
Our low-power television stations do not have "must carry" rights. In seven
markets where we currently hold only a low-power license we may face future
uncertainty with respect to the availability of cable carriage. With the
exception of the San Angelo market, all of our low-power stations reach a
substantial portion of the Hispanic cable households in their respective
markets.
If we are unable to compete effectively for advertising revenue against other
stations and other media companies, some of which have greater resources than
we do, we could suffer a decrease in advertising revenue.
We compete with Spanish-language and general market media in each of our
business segments. Some of our competitors are larger and have significantly
greater resources than we do. In addition, the Telecommunications Act
facilitates the entry of other broadcasting companies into the markets in which
we operate stations or may operate stations in the future. If we are unable to
compete successfully in the markets we serve, we may suffer a decrease in
advertising revenue, which could adversely affect our business and financial
condition.
16
If regulation of outdoor advertising increases, we could suffer decreased
revenue from our outdoor operations.
Our outdoor operations are significantly impacted by federal, state and
local government regulation of the outdoor advertising business. These
regulations impose restrictions on, among other things, the location, size and
spacing of billboards. If we are required to remove our existing billboards, or
are unable to construct new billboards or reconstruct damaged billboards, our
outdoor business could be harmed. In addition, we may not receive compensation
for billboards that we may be required to remove in the future.
Additional regulations may be imposed on outdoor advertising in the future.
Legislation regulating the content of billboard advertisements has been
introduced and passed in Congress from time to time in the past. Additional
regulations or changes in the current laws regulating and affecting outdoor
advertising at the federal, state or local level may harm the results of our
outdoor operations.
Strikes, work stoppages and slowdowns by our employees could disrupt our
publishing operations.
Our publishing business depends to a significant degree on our ability to
avoid strikes and other work stoppages by our employees. The Newspaper and Mail
Deliverers' Union of New York and Vicinity and the Newspaper Guild of New York
represent our publishing employees. Our collective bargaining agreement with
the Newspaper and Mail Deliverers' Union of New York and Vicinity expires on
March 30, 2004. Our collective bargaining agreement with the Newspaper Guild of
New York expires on June 30, 2002. Future collective bargaining agreements may
not be negotiated without service interruptions, and the results of these
negotiations may result in decreased revenue in our publishing operations.
Risks Related to this Offering
Future sales by existing stockholders could depress the market price of our
Class A common stock.
Upon completion of this offering, we will have outstanding 53,847,312 shares
of Class A common stock. Of these shares, 33,750,000 shares sold in this
offering will be freely tradeable. This will leave 20,097,312 shares of Class A
common stock outstanding, 11,795,774 of which will be eligible for sale in the
public market after the "lock-up" period expires, or 180 days after the date of
this prospectus. There will also be outstanding 27,678,533 shares of Class B
common stock and 21,983,392 shares of Class C common stock, all of which will
be convertible at any time at the option of the holder, and all of which will
be eligible for sale in the public market after the "lock-up" period expires,
or 180 days after the date of this prospectus. If our existing stockholders
sell a large number of shares, the market price of our Class A common stock
could decline dramatically. Moreover, the perception in the public market that
these stockholders might sell shares of Class A common stock could depress the
market price of our Class A common stock.
Our investors will pay a price for our Class A common stock that was not
determined in a competitive market.
Before this offering, there has not been any market for our Class A common
stock. We do not know the extent to which investor interest in our business
will lead to the development of a trading market or how liquid that market
might be. If you purchase shares of Class A common stock in this offering, you
will pay a price that was not established in a competitive market. Rather, you
will pay a price that was negotiated between us and our underwriters. The price
of our Class A common stock that will prevail in the market after this offering
may be higher or lower than the price you pay. For a description of the factors
we considered in negotiating the public offering price, see "Underwriting."
17
Stockholders who desire to change control of our company may be prevented from
doing so by provisions of our charter, applicable law and our credit agreement.
Our charter could make it more difficult for a third party to acquire us,
even if doing so would benefit our stockholders. Our charter provisions could
diminish the opportunities for a stockholder to participate in tender offers.
In addition, under our charter, our board of directors may issue preferred
stock that could have the effect of delaying or preventing a change in control
of our company. The issuance of preferred stock could also negatively affect
the voting power of holders of our common stock. The provisions of our charter
may have the effect of discouraging or preventing an acquisition or sale of our
business. In addition, Section 203 of the Delaware General Corporation Law
imposes restrictions on mergers and other business combinations between us and
any holder of 15% or more of our common stock.
The transfer restrictions imposed on the broadcast licenses we own also
restrict the ability of third parties to acquire us. Our licenses may only be
transferred with prior approval by the FCC. Accordingly, the number of
potential transferees of our licenses is limited, and any acquisition, merger
or other business combination involving Entravision would be subject to
regulatory approval.
In addition, the documents governing our indebtedness contain limitations on
our ability to enter into a change of control transaction. Under these
documents, the occurrence of a change of control transaction, in some cases
after notice and grace periods, would constitute an event of default permitting
acceleration of our outstanding indebtedness.
18
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including statements
under the captions "Prospectus Summary," "Risk Factors," "Selected Unaudited
Pro Forma Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this
prospectus, concerning our expectations of future revenue, expenses, the
outcome of our growth and acquisition strategy and the projected growth of the
U.S. Hispanic population. Forward-looking statements often include words or
phrases such as "will likely result," "expect," "will continue," "anticipate,"
"estimate," "intend," "plan," "project," "outlook," "seek" or similar
expressions. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and other factors, some of which are
beyond our control, are difficult to predict and could cause actual results to
differ materially from those expressed in the forward-looking statements.
Factors which could cause actual results to differ from expectations include
those in the "Risk Factors" section of this prospectus. Our results of
operations may be adversely affected by one or more of these factors. We
caution you not to place undue reliance on these forward-looking statements,
which reflect our management's view only as of the date of this prospectus.
19
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of 40,000,000 shares
of Class A common stock in this offering will be approximately $600 million,
based on an assumed initial public offering price of $16.00 per share and after
deducting the estimated underwriting fees and offering expenses. If the
underwriters exercise their over-allotment in full, we estimate that the net
proceeds will be $690 million. We intend to use the net proceeds from this
offering as follows:
[Download Table]
. to acquire Z-Spanish Media.................................. $247 million
. to repay the existing loan on LCG........................... 115 million
. to repay the debt of Z-Spanish Media........................ 110 million
. to pay the balance of the purchase of two radio stations
from Citicasters............................................ 68 million
. to repay part of the balance on Entravision's credit
facility.................................................... 50 million
. for working capital and general corporate purposes.......... 10 million
------------
$600 million
============
For a description of our acquisitions of LCG, Z-Spanish Media and two radio
stations from Citicasters, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
On April 19, 2000, we entered into a $115 million term loan to partially
finance our acquisition of LCG. We expect to repay this debt in full with
proceeds from this offering. The interest rate on this debt was 10.5% as of the
date of this prospectus. This debt must be repaid in full by April 18, 2001 and
can be prepaid without penalty.
Z-Spanish Media has several credit facilities with borrowings outstanding of
approximately $110 million as of the date of this prospectus. The interest
rates on these facilities range from 8.9% to 10% and the facilities can be
prepaid without penalty. The maturity dates of these facilities range from
December 31, 2000 to September 30, 2006. We expect to repay $110 million of
this debt with proceeds from this offering.
We have a $158 million revolving line of credit with a group of lenders
which expires November 10, 2006 and contains scheduled quarterly reductions in
the available borrowings through such date. At March 31, 2000, the borrowings
outstanding were approximately $96.9 million with an interest rate of 8.165%.
We expect to repay $50 million of this debt with proceeds from this offering.
Until we use the net proceeds of this offering as described above, we will
invest them in short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. Our
predecessor, Entravision Communications Company, L.L.C., made cash
distributions to its members to pay income taxes. We intend to retain future
earnings for use in our business and do not anticipate declaring or paying any
cash or stock dividends on shares of our common stock for the foreseeable
future. In addition, our bank credit facilities and the terms of our
outstanding preferred stock restrict our ability to pay dividends.
20
CAPITALIZATION
(In thousands, except per share data)
The following table shows our cash and cash equivalents and capitalization
on:
. an actual basis as of March 31, 2000;
. a pro forma basis to reflect acquisitions we made or have agreed to make
after March 31, 2000, and a $90 million investment made by TSG Capital
Fund III, L.P. in 2000 in a convertible subordinated note and its
conversion to Series A manditorily redeemable convertible preferred
stock; and
. a pro forma as adjusted basis to further reflect the sale of the
40,000,000 shares of Class A common stock we are offering at an estimated
initial public offering price of $16.00 per share, after deducting the
underwriting fees and estimated offering expenses and the application of
the net proceeds of this offering.
This table should be read together with our audited consolidated financial
statements and unaudited pro forma consolidated financial statements and the
related notes included elsewhere in this prospectus.
[Download Table]
As of March 31, 2000
------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
Cash and cash equivalents.................. $ 3,513 $ 6,457 $ 16,457
======== ========== ==========
Current maturities of long-term debt ...... $ 525 $ 23,329 $ 23,329
Notes payable, less current maturities..... 114,076 410,072 67,072
Subordinated note--Univision (1)........... 120,000 -- --
Convertible subordinated note--TSG Capital
Fund III, L.P. (1)........................ -- -- --
-------- ---------- ----------
Total long-term debt...................... 234,601 433,401 90,401
-------- ---------- ----------
Series A mandatorily redeemable convertible
preferred stock, $0.0001 par value,
11,000,000 shares authorized; 2000 actual:
no shares issued or outstanding; pro forma
and pro forma as adjusted: 6,048,387
shares issued and outstanding (1)(2)...... -- 90,000 90,000
-------- ---------- ----------
Stockholders' equity
Class A common stock, $0.0001 par value,
260,000,000 shares authorized; 2000
actual: 4,937,854 shares issued and
outstanding; pro forma: 29,284,812 shares
issued and outstanding; pro forma as
adjusted: 53,847,312 shares issued and
outstanding (2).......................... 1 3 5
Class B common stock, $0.0001 par value,
40,000,000 shares authorized; 2000
actual, pro forma and pro forma as
adjusted: 27,678,553 shares issued and
outstanding.............................. 5 5 5
Class C common stock, $0.0001 par value,
25,000,000 shares authorized; 2000
actual: no shares issued and outstanding;
pro forma and pro forma as adjusted:
21,983,392 shares issued and
outstanding (1).......................... -- 1 1
Additional paid-in capital................ 107,898 600,275 953,273
Deferred compensation..................... -- (11,150) (11,150)
Accumulated deficit....................... (100,143) (100,143) (100,143)
Stock subscription notes receivable (3)... (590) (590) (590)
-------- ---------- ----------
Total stockholders' equity................ 7,171 488,401 841,401
-------- ---------- ----------
Total capitalization....................... $241,772 $1,011,802 $1,021,802
======== ========== ==========
21
--------
(1) The unaudited pro forma data reflect the exchange of the $120 million
subordinated note and option from Univision for shares of Class C common
stock in connection with our reorganization and the conversion of the $90
million subordinated note from TSG Capital Fund III, L.P. to Series A
mandatorily redeemable convertible preferred stock.
(2) The unaudited pro forma financial information assumes that $247 million of
proceeds from this offering are used to finance our pending acquisition of
Z-Spanish Media. In the event the offering has not closed by September 30,
2000, we would be required to issue $247 million of redeemable preferred
stock with a dividend of LIBOR plus 7%.
(3) Represents unsecured loans made to two of our officers to purchase equity.
These loans are further described in "Certain Relationships and Related
Transactions."
22
DILUTION
Purchasers of our Class A common stock offered by this prospectus will
suffer an immediate and substantial dilution in pro forma net tangible book
value per share. Dilution is the amount by which the initial public offering
price paid by the purchasers of the shares of Class A common stock will exceed
the pro forma net tangible book value per share of our common stock after this
offering. The pro forma net tangible book value per share of common stock is
determined by subtracting total liabilities from the total tangible assets and
dividing the difference by the pro forma number of shares of our common stock
deemed to be outstanding on the date the tangible book value is determined. As
of March 31, 2000, we had a deficit tangible book value of $(168) million or
$(5.19) per share. Our pro forma deficit tangible book value per share at March
31, 2000 after giving effect to our pending acquisitions and the exchange of
the $120 million subordinated note and option from Univision for shares of
Class C common stock is a deficit of $(604) million or $(7.65) per share.
Assuming the sale of 40,000,000 shares at an initial public offering price of
$16 per share and deducting the underwriters' discounts and commissions and
estimated offering expenses, our pro forma net tangible book value as of March
31, 2000 would have been $(251) million or $(2.42) per share. This represents
an immediate increase in pro forma net tangible book value to existing
stockholders of $(5.23) per share and an immediate dilution to new investors of
$(18.42) per share. The following table illustrates this per share dilution:
[Download Table]
Per Share
---------
Assumed initial public offering price..................... $16.00
------
Deficit tangible book value per share of March 31, 2000... (5.19)
Pro forma effect of the transactions referenced above..... (2.46)
-----
Pro forma deficit tangible book value as of March 31,
2000..................................................... (7.65)
Increase attributable to new investors.................... 5.23
Pro forma deficit tangible book value after this
offering................................................. (2.42)
------
Dilution per share to new investors....................... $18.42
======
The following table summarizes, on a pro forma as adjusted basis, the number
of shares of Class A common stock (and Class B and Class C common stock
convertible into Class A common stock) purchased from us, the estimated value
of the total consideration paid for or attributed to the Class A common stock
(and Class B and Class C common stock convertible into Class A common stock)
and the average price per share paid by or attributable to existing
stockholders and the new investors purchasing shares in this offering at an
assumed initial offering price of $16.00 per share before deducting estimated
underwriters' fees and offering expenses (and assuming that the underwriters do
not exercise the over-allotment option):
[Download Table]
Shares Purchased Total Consideration Average
------------------- -------------------- Price Per
Number Percent Amount Percent Share
----------- ------- ------------ ------- ---------
Existing stockholders.... 63,509,237 61.4% $227,311,442 26.2% $ 3.58
----------- ------ ------------ ------ ------
New investors ........... 40,000,000 38.6 640,000,000 73.8 $16.00
----------- ------ ------------ ------ ------
Total.................... 103,509,237 100.0% $867,311,442 100.0%
=========== ====== ============ ======
23
SELECTED HISTORICAL FINANCIAL DATA
(In thousands, except per share data)
Presented below are our summary historical financial data. The data as of
December 31, 1998 and 1999 and for the years ended December 31, 1997, 1998 and
1999 were derived from our audited financial statements and related notes
included elsewhere in this prospectus, and should be read in conjunction with
this information as well as "Entravision Management's Discussion and Analysis
of Financial Condition and Results of Operations." The data as of December 31,
1995, 1996 and 1997 and for the years ended December 31, 1995 and 1996 were
derived from our audited financial statements and related notes, which are not
included in this prospectus. The data as of March 31, 2000 and for the three
months ended March 31, 1999 and 2000 were derived from our unaudited financial
statements and related notes, which are included in this prospectus. The
unaudited financial statements were prepared by us on substantially the same
basis as the audited financial statements and, in the opinion of management,
include all normal recurring adjustments that we consider necessary for a fair
presentation of such data.
[Enlarge/Download Table]
Three Months Ended
Year Ended December 31, March 31,
--------------------------------------------- -----------------------
1995(1) 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- -------- ----------- -----------
(Unaudited) (Unaudited)
Statement of Operations
Data:
Gross revenue........... $ 7,797 $13,555 $33,419 $49,872 $ 66,204 $13,013 $19,340
Less agency
commissions............ 688 1,481 2,963 5,052 7,205 1,284 2,076
------- ------- ------- ------- -------- ------- --------
Net revenue............. 7,109 12,074 30,456 44,820 58,999 11,729 17,264
------- ------- ------- ------- -------- ------- --------
Expenses:
Direct operating...... 1,846 3,819 9,184 15,794 24,441 4,672 7,883
Selling, general and
administrative
(excluding non-cash
stock-based
compensation)........ 2,295 4,667 5,845 8,877 11,611 2,510 3,749
Corporate............. -- 564 3,899 3,963 5,809 1,304 1,848
Depreciation and
amortization......... 673 1,479 8,847 9,565 14,613 2,979 4,535
Non-cash stock-based
compensation (2)..... -- -- 900 500 29,143 7,286 --
------- ------- ------- ------- -------- ------- --------
Total expenses.......... 4,814 10,529 28,675 38,699 85,617 18,751 18,015
------- ------- ------- ------- -------- ------- --------
Operating income
(loss)................. 2,295 1,545 1,781 6,121 (26,618) (7,022) (751)
Interest expense, net... (265) (1,035) (5,107) (8,244) (9,591) (2,023) (3,897)
Non-cash interest
expense relating to
Univision conversion
option (3)............. -- -- -- -- (2,500) -- (31,600)
------- ------- ------- ------- -------- ------- --------
Income (loss) before
income taxes ........ 2,030 510 (3,326) (2,123) (38,709) (9,045) (36,248)
Income tax (expense)
benefit (4)............ (369) (145) 7,531 (210) 121 74 6
------- ------- ------- ------- -------- ------- --------
Net income (loss)..... 1,661 365 4,205 (2,333) (38,588) (8,971) (36,242)
======= ======= ======= ======= ======== ======= ========
Pro forma income tax
(expense) benefit (5).. (812) (204) 643 322 2,499 622 1,777
======= ======= ======= ======= ======== ======= ========
Pro forma net income
(loss) (5)............. $ 1,218 $ 306 $(2,683) $(1,801) $(36,210) $(8,423) $(34,471)
======= ======= ======= ======= ======== ======= ========
Pro forma basic and
diluted earnings per
share:
Pro forma net income
(loss) (5)........... $ 0.04 $ 0.01 $ (0.08) $ (0.05) $ (1.12) $ (0.26) $ (1.06)
Weighted average
common shares
outstanding.......... 33,519 32,046 32,972 32,895 32,402 32,431 32,367
24
[Enlarge/Download Table]
Three Months Ended
Year Ended December 31, March 31,
--------------------------------------------- -----------------------
1995(1) 1996 1997 1998 1999 1999 2000
------- ------ ------- -------- -------- ----------- -----------
(Unaudited) (Unaudited)
Other Financial Data:
Broadcast cash flow
(6).................... $2,968 $3,588 $15,427 $ 20,149 $ 22,947 $ 4,547 $ 5,632
EBITDA (adjusted for
non-cash stock-based
compensation) (7)...... 2,968 3,024 11,528 16,186 17,138 3,243 3,784
Non-cash stock-based
compensation (2)....... -- -- 900 500 29,143 7,286 --
Cash flows from
operating activities... 2,147 2,001 6,509 7,658 6,128 899 1,028
Cash flows from
investing activities... (1,635) (3,396) (61,908) (25,586) (59,063) (17,045) (63,826)
Cash flows from
financing activities... (750) 3,556 54,763 19,339 51,631 15,570 63,954
Capital expenditures.... 902 935 2,366 3,094 12,825 4,642 2,693
As of December 31, As of
--------------------------------------------- March 31,
1995(1) 1996 1997 1998 1999 2000
------- ------ ------- -------- -------- -----------
(Unaudited)
Balance Sheet Data:
Cash and cash
equivalents............ $ 726 $2,886 $ 2,250 $ 3,661 $ 2,357 $ 3,513
Total assets............ 8,630 28,767 93,017 113,724 188,819 252,892
Long-term debt,
including current
portion................ 5,265 17,449 74,781 99,938 167,537 234,601
Total stockholders'
equity (8)............. 2,322 9,743 13,122 7,304 11,813 7,171
-------
(1) The 1995 financial data presents the combined financial statements of our
broadcast properties prior to the 1996 formation of our holding company
structure.
(2) For 1999, non-cash stock-based compensation represents management's
estimate of the fair value of our employee stock award and our employee
stock option grant based on the estimated price of this offering.
(3) During 1999, conditions restricting the exchange of Univision's $10
million convertible subordinated note were eliminated and we recorded non-
cash interest expense of $2.5 million. In March 2000, the subordinated
note was amended and increased to $120 million, and the option exchange
feature was increased to 40%. The estimated fair value of the $110 million
amendment to the convertible subordinated note and option feature was
$141.6 million based on an estimated initial public offering price. This
resulted in a $31.6 million non-cash charge to interest expense in the
quarter ended March 31, 2000.
(4) Included in the 1997 income tax expense is a $7.8 million tax benefit that
resulted from the reversal of previously recorded deferred tax liabilities
that were established in our 1997 acquisition of KNVO, McAllen, Texas. This
entity was converted from a C-corporation to an S-corporation in 1997. As a
result, deferred tax liabilities were reduced.
(5) Pro forma net income (loss) and pro forma basic and diluted net income
(loss) per share give effect to our conversion from a limited liability
company to a corporation for federal and state income tax purposes and
assume that we were subject to corporate income taxes at an effective
combined federal and state income tax rate of 40% before the effect of non-
tax deductible goodwill, non-cash stock-based compensation and non-cash
interest expense relating to the Univision conversion option for each
period presented.
(6) Broadcast cash flow means operating income (loss) before corporate
expenses, depreciation and amortization and non-cash stock-based
compensation. We have presented broadcast cash flow, which we believe is
comparable to the data provided by other companies in the broadcast
industry, because such data is commonly used as a measure of performance in
our industry. However, broadcast cash flow should not be construed as an
alternative to operating income (as determined in accordance with generally
accepted accounting principles) as an indicator of operating performance or
to cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) as a measure of liquidity.
25
(7) EBITDA means broadcast cash flow less corporate expenses (adjusted for non-
cash stock-based compensation) and is commonly used in the broadcast
industry to analyze and compare broadcast companies on the basis of
operating performance, leverage and liquidity. EBITDA, as presented above,
may not be comparable to similarly titled measures of other companies
unless such measures are calculated in substantially the same fashion.
EBITDA should not be construed as an alternative to operating income (as
determined in accordance with generally accepted accounting principles) as
an indicator of operating performance or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) as a measure of liquidity.
(8) The stockholders' equity data gives effect to our reorganization in which
direct and indirect ownership interests in our predecessor will be
exchanged for shares of our common stock before the closing of this
offering.
26
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
(In thousands)
Our selected unaudited pro forma financial data as of March 31, 2000 and for
the year ended December 31, 1999 and for the three months ended March 31, 1999
and 2000 presents:
. our summary historical financial data;
. the historical financial data of our completed and pending acquisitions;
. our summary unaudited pro forma financial data, giving effect to
acquisitions completed in 1999 and 2000 and our pending acquisition of Z-
Spanish Media as if such transactions had been completed January 1, 1999,
the effect of conversion of TSG Capital Fund III, L.P.'s $90 million
convertible subordinated note into preferred stock, the issuance of
15,437,500 shares of Class A common stock in this offering assuming an
initial public offering price of $16.00 per share used to finance the
cash portion of the purchase price of Z-Spanish Media and the exchange of
Univision's $120 million subordinated note and option for common stock;
and
. our unaudited pro forma as adjusted financial data, giving further effect
to the sale of the 40,000,000 shares of common stock less 15,437,500
shares used to finance the cash portion of the purchase price of Z-
Spanish Media that we are offering, assuming an initial public offering
price of $16.00 per share and the application of the net proceeds of this
offering.
The summary unaudited pro forma and pro forma as adjusted financial data are
not necessarily indicative of the operating results or the financial condition
that would have been achieved if we had owned these businesses for all of 1999
and should not be construed as representative of future operating results or
financial condition. The summary historical and unaudited pro forma financial
data should be read in conjunction with the audited consolidated financial
statements and related notes and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus. The financial data as of and for the three months ended March 31,
2000 are derived from our unaudited financial statements included elsewhere in
this prospectus. Such unaudited financial statements have been prepared by us
on a basis consistent with our annual audited financial statements and, in the
opinion of our management, contain all normal recurring adjustments necessary
for a fair presentation of the financial position and the results of operations
for the applicable periods. Operating results in the three months ended March
31, 2000 are not necessarily indicative of the results that may be expected in
the year ending December 31, 2000 or any subsequent period.
27
[Download Table]
Year Ended December 31, 1999
------------------------------------------------
Completed
Entravision and Pending Pro Forma
Historical Acquisitions Pro Forma As Adjusted
----------- ------------ ----------- -----------
(Unaudited) (Unaudited)
Statement of Operations Data:
Gross revenue:
Television................. $ 63,842 $ 5,096 $ 68,938 $ 68,938
Radio...................... 2,362 64,899 67,261 67,261
Outdoor and publishing..... -- 35,134 35,134 35,134
-------- -------- -------- --------
Total gross revenue........ 66,204 105,129 171,333 171,333
Less agency commissions...... 7,205 8,804 16,009 16,009
-------- -------- -------- --------
Net revenue.................. 58,999 96,325 155,324 155,324
Expenses:
Direct operating........... 24,441 35,497 59,938 59,938
Selling, general and
administrative
(excluding non-cash stock-
based compensation)....... 11,611 36,091 47,702 47,702
Corporate.................. 5,809 6,830 12,639 12,639
Depreciation and
amortization.............. 14,613 14,681 86,245 86,245
Non-cash stock-based
compensation.............. 29,143 -- 31,931 31,931
Gain on sale of assets..... -- (4,442) (4,442) (4,442)
-------- -------- -------- --------
Total expenses............... 85,617 88,657 234,013 234,013
-------- -------- -------- --------
Operating income (loss)...... (26,618) 7,668 (78,689) (78,689)
Interest expense, net and
other....................... (9,591) (14,657) (35,134) (5,636)
Non-cash interest expense
relating to Univision
conversion option (1)....... (2,500) -- (2,500) (2,500)
Income tax benefit .......... 121 1,872 28,867 17,068
-------- -------- -------- --------
Loss from continuing
operations................ (38,588) (5,117) (87,456) (69,757)
Preferred stock dividends
(2)....................... -- -- 7,650 7,650
-------- -------- -------- --------
Net loss from continuing
operations applicable to
common stock.............. $(38,588) $ (5,117) $(95,106) $(77,407)
======== ======== ======== ========
28
[Enlarge/Download Table]
Three Months
Ended
Three Months Ended March 31, 2000 March 31, 1999
------------------------------------------------ --------------
Completed
Entravision and Pending Pro Forma
Historical Acquisitions Pro Forma As Adjusted Pro Forma
----------- ------------ ----------- ----------- --------------
(Unaudited) (Unaudited) (Unaudited)
Statement of Operations
Data:
Gross revenue:
Television............ $ 18,178 $ 78 $ 18,256 $ 18,256 $ 13,664
Radio................. 1,162 14,945 16,107 16,107 12,309
Outdoor and
publishing........... -- 7,476 7,476 7,476 6,857
-------- ------- -------- -------- --------
Total gross revenue... 19,340 22,499 41,839 41,839 32,830
Less agency
commissions............ 2,076 2,109 4,185 4,185 2,893
-------- ------- -------- -------- --------
Net revenue............. 17,264 20,390 37,654 37,654 29,937
Expenses:
Direct operating...... 7,883 7,983 15,866 15,866 12,297
Selling, general and
administrative
(excluding non-cash
stock-based
compensation)........ 3,749 7,358 11,107 11,107 11,632
Corporate............. 1,848 2,197 4,045 4,045 2,348
Depreciation and
amortization......... 4,535 4,323 21,885 21,885 21,550
Non-cash stock-based
compensation......... -- 196 893 893 7,983
Gain on sale of
assets............... -- -- -- -- (2,223)
-------- ------- -------- -------- --------
Total expenses.......... 18,015 22,057 53,796 53,796 53,587
-------- ------- -------- -------- --------
Operating income
(loss)................. (751) (1,667) (16,142) (16,142) (23,650)
Interest expense, net... (3,897) (4,054) (9,510) (2,135) (8,491)
Non-cash interest
expense relating to
Univision conversion
option (1)............. (31,600) -- (31,600) (31,600) --
Income tax benefit ..... 6 1,858 8,785 5,835 8,481
-------- ------- -------- -------- --------
Loss from continuing
operations........... (36,242) (3,863) (48,467) (44,042) (23,660)
Preferred stock
dividends (2)........ -- -- 1,913 1,913 1,913
-------- ------- -------- -------- --------
Net loss from
continuing operations
applicable to common
stock................ $(36,242) $(3,863) $(50,380) $(45,955) $(25,573)
======== ======= ======== ======== ========
[Download Table]
Year Ended Three Months Ended
December 31, 1999 March 31,
----------------- -----------------------
Pro Forma Pro Forma
Pro Forma 1999 2000
----------------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
Other Financial Data:
Broadcast cash flow (3)............. $ 47,684 $ 6,008 $ 10,681
EBITDA (adjusted for non-cash stock-
based compensation) (4)............ 35,045 3,660 6,636
Cash flows from operating
activities......................... 6,955 (399) 2,070
Cash flows from investing
activities......................... (724,675) (8,936) (621,537)
Cash flows from financing
activities......................... 720,992 18,527 612,112
29
[Download Table]
As of
March 31, 2000
Pro Forma
As Adjusted
--------------
(Unaudited)
Balance Sheet Data:
Cash and cash equivalents....................................... $ 16,457
Total assets.................................................... 1,253,597
Long-term debt, including current portion....................... 90,401
Series A mandatorily redeemable convertible preferred stock..... 90,000
Total stockholders' equity (5).................................. 841,401
--------
(1) During 1999, conditions restricting the exchange of Univision's $10
million convertible subordinated note were eliminated and we recorded non-
cash interest expense of $2.5 million. In March 2000, the subordinated
note was amended and increased to $120 million, and the option exchange
feature was increased to 40%. The estimated fair value of the $110 million
amendment to the convertible subordinated note and option feature was
$141.6 million based on an estimated initial public offering price. This
resulted in a $31.6 million non-cash charge to interest expense in the
quarter ended March 31, 2000.
(2) Includes dividends on the 8.5% redeemable preferred stock issuable to TSG
Capital Fund III, L.P. upon conversion of its $90 million convertible
subordinated note.
(3) Broadcast cash flow means operating income (loss) from continuing
operations before corporate expenses, depreciation and amortization, non-
cash stock-based compensation and gain on sale of assets. We have presented
broadcast cash flow which we believe is comparable to the data provided by
other companies in the broadcast industry, because such data is commonly
used as a measure of performance in our industry. However, broadcast cash
flow should not be construed as an alternative to operating income (as
determined in accordance with generally accepted accounting principles) as
an indicator of operating performance or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) as a measure of liquidity.
(4) EBITDA means broadcast cash flow less corporate expenses (adjusted for non-
cash stock-based compensation) and is commonly used in the broadcast
industry to analyze and compare broadcast companies on the basis of
operating performance, leverage and liquidity. EBITDA, as presented above,
may not be comparable to similarly titled measures of other companies
unless such measures are calculated in substantially the same fashion.
EBITDA should not be construed as an alternative to operating income (as
determined in accordance with generally accepted accounting principles) as
an indicator of operating performance or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) as a measure of liquidity.
(5) The stockholders' equity data gives effect to our reorganization in which
direct and indirect ownership interests in our predecessor and Univision's
subordinated note and option will be exchanged for shares of our common
stock before the closing of this offering.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Unless we indicate otherwise, all of the text of this prospectus describes
us giving effect to all of our pending and completed acquisitions. In addition,
our unaudited pro forma financial information shows how we would look as if we
had owned all of the businesses, licenses and assets that we have recently
acquired or agreed to acquire (other than certain outdoor advertising assets
from Infinity Broadcasting Corporation, two radio stations from Citicasters Co.
and two television stations in Hartford, Connecticut and Orlando, Florida) for
all of 1999 and for the three months ended March 31, 1999 and March 31, 2000.
Our unaudited financial statements and summary and selected historical
financial data, however, show the actual performance of each group's changes,
except for our reorganization described elsewhere in this prospectus.
We have included Management's Discussion and Analysis of Financial Condition
and Results of Operations for each of Entravision, LCG and Z-Spanish Media. The
words "we" and "our" as used in each of these sections refer to Entravision,
LCG or Z-Spanish Media individually and not as a combined entity. You should
read these sections together with the historical audited financial statements
of Entravision, LCG and Z-Spanish Media and the related notes contained
elsewhere in this prospectus.
The acquisitions of the following businesses are included in the financial
portion of this prospectus:
. We acquired all of the outstanding capital stock of LCG on April 20,
2000 for approximately $252 million. The acquisition was accounted for
as a purchase business combination and the excess purchase price over
tangible net assets and identifiable intangible assets was allocated to
goodwill, which will be amortized over 15 years.
. We agreed to acquire all of the outstanding capital stock of Z-Spanish
Media on April 20, 2000 for $475 million including the assumption of
approximately $110 million in debt. The consideration to be paid
consists of approximately $247 million in cash and 7,187,902 shares of
Class A common stock, valued at a price of $14.74 per share. The
acquisition will be accounted for as a purchase business combination and
the excess purchase price over tangible net assets and identifiable
intangible assets will be allocated to goodwill, which will be amortized
over 15 years. The closing of the acquisition is subject to conditions,
including the receipt of required regulatory approvals.
. We have agreed to acquire four radio stations in McAllen, Texas for a
total of $55 million (including a deposit of $2 million). The
acquisition will be accounted for under the purchase method of
accounting. The closing of this acquisition is subject to conditions,
including the receipt of required regulatory approvals. We expect to
close this acquisition in the third quarter of 2000.
The following acquisitions represent our purchases of broadcasting,
television and outdoor advertising assets that do not represent business
acquisitions and therefore historical financial information is not included in
the financial portion of the prospectus:
. We have agreed to acquire certain outdoor advertising assets from
Infinity Broadcasting Corporation for a total of $166.6 million. The
entire purchase price for this acquisition will be allocated to tangible
and intangible assets and will be amortized over five to 15 years. The
closing of this acquisition is subject to conditions, including the
receipt of required regulatory approvals. We expect to close this
acquisition in the third quarter of 2000.
31
. We have agreed to acquire substantially all of the assets related to two
radio stations in the Los Angeles market from Citicasters Co. for $85
million, of which $17 million was previously placed in escrow as a
deposit. We expect to close this acquisition in the third quarter of
2000.
. We have agreed to acquire two television stations in Hartford,
Connecticut and Orlando, Florida for a total of approximately $41
million (including deposits already paid). The entire purchase price for
these two acquisitions will be allocated to intangible assets and will
be amortized over 15 years. The closing of these acquisitions is subject
to conditions, including the receipt of required regulatory approvals.
We expect to close these acquisitions in the third quarter of 2000.
We expect that the combined company will have revenue from television of
37%, from radio of 35%, from outdoor advertising of 19% and from publishing of
9%.
Sources and Uses
[Download Table]
(In millions)
Sources Uses
-------- ------
Offering proceeds............................................. $ 600.0
Proposed new bank credit facility............................. 600.0
Acquire Z-Spanish Media....................................... $247.0
Repay existing loan on LCG.................................... 115.0
Repay Z-Spanish Media debt.................................... 110.0
Pay balance of purchase price for two radio stations from
Citicasters.................................................. 68.0
Repay Entravision bank debt................................... 157.0
Purchase:
McAllen radio stations...................................... 53.0
Orlando television station.................................. 21.5
Hartford television station................................. 17.4
Infinity Broadcasting outdoor advertising assets............ 166.6
Working capital and general corporate......................... 10.0
-------- ------
$1,200.0 $965.5
======== ======
Excess borrowing capacity..................................... $ 234.5
Liquidity and Capital Resources Overview
Our primary sources of liquidity are cash provided by operations, available
borrowings under our bank credit facilities and investments made by Univision
and TSG Capital Fund III, L.P. in 2000. We intend to enter into a new $600
million credit facility which will be comprised of a $200 million revolver and
a $400 million term loan expiring in 2008. After consummation of all of the
transactions set forth in the Sources and Uses table above, we expect to have
approximately $366 million of debt outstanding under our proposed new bank
credit facility. The new facility has been committed to and we intend that it
will be in place by the time this offering becomes effective and that it will
replace all of the current credit facilities for both Entravision and Z-Spanish
Media. Our obligations under this facility will be secured by all of our assets
as well as a pledge of the stock of several of our subsidiaries, including our
special purpose subsidiaries formed to hold our FCC licenses. The facility will
contain financial covenants, including a requirement not to exceed a maximum
debt to cash flow ratio and interest and fixed charge coverage ratios. The
facility will require us to maintain our FCC licenses for our broadcast
properties and will contain other operating covenants, including restrictions
on our ability to incur additional indebtedness and pay dividends.
32
During 2000, we anticipate our capital expenditures will be approximately
$23 million, including the building of two studio facilities, the transition to
digital television for three stations and upgrades and maintenance on
broadcasting equipment and facility improvements to radio stations in some of
our markets, including Denver and Phoenix. We anticipate paying for these
capital expenditures out of net cash flow from operating activities. The amount
of these capital expenditures may change based on future changes in business
plans, our financial conditions and general economic conditions.
We currently anticipate that funds generated from operations and available
borrowings under our credit facilities, together with the net proceeds from
this offering, will be sufficient to meet our anticipated cash requirements for
the foreseeable future.
We continuously review, and are currently reviewing, opportunities to
acquire additional television and radio stations as well as billboards and
other opportunities targeting the U.S. Hispanic market. We expect to finance
any future acquisitions through funds generated from operations and borrowings
under our proposed new credit facility and through additional debt and equity
financings. Any additional financings, if needed, might not be available to us
on reasonable terms or at all. Failure to raise capital when needed could
seriously harm our business and our acquisition strategy. If additional funds
were raised through the issuance of equity securities, the percentage of
ownership of our stockholders would be reduced. Furthermore, these equity
securities might have rights preferences or privileges senior to our Class A
common stock.
33
ENTRAVISION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We operate 31 television stations (and have three additional television
stations that are not yet operational) and 14 radio stations primarily in the
Southwestern United States where the majority of U.S. Hispanics live,
including the U.S./Mexican border markets. Our television stations consist
primarily of Univision affiliates serving 17 of the top 50 U.S. Hispanic
markets. Our radio stations consist of ten FM and four AM stations serving
portions of the California and Texas markets.
We were organized as a Delaware limited liability company in January 1996
to combine the operations of our predecessor entities. We currently conduct
operations through a group of affiliated limited liability companies and S-
corporations. Before the closing of this offering we will complete a
reorganization in which all of the outstanding membership interests of our
predecessor and Univision's subordinated note and option will be exchanged for
shares of our common stock. This reorganization is described in "Certain
Relationships and Related Transactions--Reorganization."
We generate revenue from sales of national and local advertising time on
television and radio stations. Advertising rates are, in large part, based on
each station's ability to attract audiences in demographic groups targeted by
advertisers. We recognize advertising revenue when the commercials are
broadcast. We incur commissions from agencies on local, regional and national
advertising. Our revenue reflects deductions from gross revenue for
commissions to these agencies.
Our primary expenses are employee compensation, including commissions paid
to our sales staffs, marketing, promotion and selling costs, technical, local
programming, engineering costs and general and administrative expenses. Our
local programming costs consist of costs related to producing a local newscast
in each of our markets.
During 1999, we recorded an operating expense of $29.1 million for non-cash
stock-based compensation incurred in connection with an employee stock award
and option grant. We expect to continue to make stock-based awards in the
future.
We have historically not had material income tax expense or benefit
reflected in our statement of operations as the majority of our subsidiaries
have been non-taxpaying entities. Federal and state income taxes attributable
to income during such periods were incurred and paid directly by the members
of our predecessor. Accordingly, no discussion of income taxes is included in
this section. Before the closing of this offering we will become a taxpaying
organization. We have included in our historical financial statements a pro
forma provision for income taxes and a pro forma net loss to show what our net
income or loss would have been if we were a taxpaying entity. We anticipate
that our future effective income tax rate will vary from 40% due to a portion
of our purchase price for the LCG and Z-Spanish Media acquisitions being
allocated to non-tax deductible goodwill.
34
Three Months Ended March 31, 2000 Compared to the Three Months Ended March 31,
1999
The following table sets forth selected data from our operating results for
the three months ended March 31, 1999 and 2000 (dollars in thousands):
[Download Table]
Three Months Ended
-------------------
March 31, March 31,
1999 2000 % Change
--------- --------- --------
Statement of Operations Data:
Gross revenue................................ $13,013 $ 19,340 48.6%
Less agency commissions...................... 1,284 2,076 61.7
------- --------
Net revenue.................................. 11,729 17,264 47.2
Direct operating expenses.................... 4,672 7,883 68.7
Selling, general and administrative
expenses.................................... 2,510 3,749 49.4
Corporate expenses........................... 1,304 1,848 41.7
Depreciation and amortization................ 2,979 4,535 52.2
Non-cash stock-based compensation............ 7,286 -- n/a
------- --------
Operating (loss)............................. (7,022) (751) 89.3
Interest expense, net........................ (2,023) (3,897) (92.6)
Non-cash interest expense relating to
Univision conversion option................. -- (31,600) n/a
------- --------
Loss before income tax....................... (9,045) (36,248) (300.8)
Income tax benefit........................... 74 6 (91.9)
------- --------
Net loss..................................... $(8,971) $(36,242) (304.0)
======= ========
Other Data:
Broadcast cash flow.......................... $ 4,547 $ 5,632 23.9%
EBITDA (adjusted for non-cash stock-based
compensation)............................... 3,243 3,784 16.7
Net Revenue. Net revenue increased to $17.3 million for the quarter ended
March 31, 2000 from $11.7 million for the quarter ended March 31, 1999, an
increase of $5.5 million. This increase was primarily attributable to the
acquisition of six television stations and the benefit of operating and
integrating our 1999 acquisitions. On a same station basis for stations we
owned or operated for the entire first quarter of 1999, net revenue increased
$3.7 million, or 31.3%. This increase is attributable to an increase in
advertising rates and an increase in the number of commercials sold.
Direct Operating Expenses. Direct operating expenses increased to $7.9
million for the quarter ended March 31, 2000 from $4.7 million for the quarter
ended March 31, 1999, an increase of $3.2 million. This increase was primarily
attributable to the additional operations of six television stations. On a same
station basis, for stations owned or operated for the entire first quarter of
1999, direct operating expenses increased $1.6 million, or 33.7%. This increase
was due to an increase of approximately $0.8 million in sales management and
sales tools at our stations and $0.3 million to implement local news
programming in our McAllen, Texas and Las Vegas, Nevada markets. As a
percentage of net revenue, direct operating expenses increased to 45.7% for the
quarter ended March 31, 2000 from 39.8% for the quarter ended March 31, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $3.7 million for the quarter ended March
31, 2000 from $2.5 million for the quarter ended March 31, 1999, an increase of
$1.2 million. This increase was primarily attributable to the additional
operations of six television stations. On a same station basis, for stations
owned and operated for the entire first quarter of 1999, selling, general and
administrative expenses increased
35
$0.5 million, or 19.3%. The increase was primarily due to increased rent costs
for our new facility in Denver, Colorado and the associated moving costs. As a
percentage of net revenue, selling, general and administrative expenses
increased to 21.7% for the quarter ended March 31, 2000 from 21.4% for the
quarter ended March 31, 1999.
Corporate Expenses. Corporate expenses increased to $1.8 million for the
quarter ended March 31, 2000 from $1.3 million for the quarter ended March 31,
1999, an increase of $0.5 million. This increase was primarily due to
additional staffing as a result of our growth, increase in rent associated with
moving into a larger facility, and additional costs associated with our
acquisitions. As a percentage of net revenue, corporate expenses decreased to
10.7% for the quarter ended March 31, 2000 from 11.1% for the quarter ended
March 31, 1999. We expect corporate expenses to continue to increase as we hire
additional corporate personnel due to our growth and the costs associated with
being a public company.
Depreciation and Amortization. Depreciation and amortization increased to
$4.5 million for the quarter ended March 31, 2000 from $3.0 million for the
quarter ended March 31, 1999, an increase of $1.6 million. This increase was
primarily attributable to the acquisition of additional television stations. On
a same station basis, for stations we owned or operated for the entire first
quarter of 1999, depreciation and amortization increased $0.5 million.
Non-Cash Stock-Based Compensation. We have an employment agreement with an
executive vice president in which the employee was awarded 922,828 shares of
Class A common stock, which vested through January 2000. As December 31, 1999,
the estimated fair value of this award was fully recorded.
Operating Loss. As a result of the above factors, we recognized an operating
loss of $0.8 million for the quarter ended March 31, 2000 compared to an
operating loss of $7.0 million for the quarter ended March 31, 1999. Excluding
non-cash stock-based compensation, operating income decreased by $1.0 million
for the quarter ended March 31, 2000, primarily attributable to additional
depreciation and amortization of $1.6 million.
Interest Expense, Net. Interest expense increased to $3.9 million for the
quarter ended March 31, 2000 from $2.0 million for the quarter ended March 31,
1999, an increase of $1.9 million. This increase is primarily due to borrowings
to finance an additional acquisition and an increase in the subordinated note
with Univision. The non-cash interest expense of $31.6 million relating to the
Univision conversion option represents the estimated fair value of the option
feature based on an estimated public offering price of $16.00 per share. This
resulted in interest expense of $31.6 million during the quarter ended March
31, 2000.
Net Loss. We recognized a net loss of $36.2 million for the quarter ended
March 31, 2000 compared to a net loss of $9.0 million for the quarter ended
March 31, 1999. As a percentage of net revenue, our net loss, excluding non-
cash stock-based compensation and interest expense relating to the estimated
intrinsic value of the option feature of our additional $110.0 million
subordinated note payable to Univision, increased to 26.9% for the quarter
ended March 31, 2000 from 14.4% for the quarter ended March 31, 1999.
Broadcast Cash Flow. Broadcast cash flow increased to $5.6 million for the
quarter ended March 31, 2000 from $4.5 million for the quarter ended March 31,
1999, an increase of $1.1 million. On a same station basis, for stations we
owned or operated for the entire first quarter of 1999, broadcast cash flow
increased $1.0 million. As a percentage of net revenue, broadcast cash flow
decreased to 32.6% for the quarter ended March 31, 2000 from 38.8% for the
quarter ended March 31, 1999.
36
EBITDA. EBITDA increased to $3.8 million for the quarter ended March 31,
2000 from $3.2 million for the quarter ended March 31, 1999, an increase of
$0.5 million. As a percentage of net revenue, EBITDA decreased to 21.9% for the
quarter ended March 31, 2000 from 27.6% for the quarter ended March 31, 1999.
The decrease in EBITBA was primarily due to the increase in direct operating
expenses offset by the increase in net revenue.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
The following table sets forth selected data from our operating results for
the years ended December 31, 1998 and 1999 (dollars in thousands):
[Download Table]
Historical
-----------------
1998 1999 % Change
------- -------- --------
Statement of Operations Data:
Gross revenue................................. $49,872 $ 66,204 32.7%
Less agency commissions....................... 5,052 7,205 42.6
------- --------
Net revenue................................... 44,820 58,999 31.6
Direct operating expenses..................... 15,794 24,441 54.7
Selling, general and administrative expenses.. 8,877 11,611 30.8
Corporate expenses............................ 3,963 5,809 46.6
Depreciation and amortization................. 9,565 14,613 52.8
Non-cash stock-based compensation............. 500 29,143 5,728.6
------- --------
Operating income (loss)....................... 6,121 (26,618) (534.9)
Interest expense, net......................... (8,244) (9,591) (16.3)
Non-cash interest expense relating to
Univision conversion option.................. -- (2,500) n/a
------- --------
Loss before income tax........................ (2,123) (38,709) (1,723.3)
Income tax benefit (expense).................. (210) 121 157.6
------- --------
Net loss...................................... $(2,333) $(38,588) (1,554.0)
======= ========
Other Data:
Broadcast cash flow........................... $20,149 $ 22,947 13.9%
EBITDA (adjusted for non-cash stock-based
compensation)................................ 16,186 17,138 5.9
Net Revenue. Net revenue increased to $59.0 million in 1999 from $44.8
million in 1998, an increase of $14.2 million. This increase was primarily
attributable to the acquisition of television stations in 1999 and the benefit
of 12 months of our 1998 acquisitions. On a same station basis, for stations we
owned or operated for all of 1998, net revenue increased $1.2 million, or 2.7%.
This increase is attributable to an increase in advertising rates of
approximately 20% in certain of our markets, offset by a $2.2 million decrease
in network compensation from Univision.
Direct Operating Expenses. Direct operating expenses increased to $24.4
million in 1999 from $15.8 million in 1998, an increase of $8.6 million. The
increase was primarily attributable to the additional operations of five
television stations in 1999. On a same station basis, for stations owned or
operated for all of 1998, direct operating expenses increased $1.9 million, or
12.0%. This increase was due to approximately $1.4 million in technical and
news costs to implement local news programming in our McAllen, Texas and Las
Vegas, Nevada markets and an additional newscast at our station in San Diego,
California. The addition of local newscasts to our television stations is
consistent with our strategy of increasing advertising revenue and viewership
by producing news programming specifically designed for each of our markets. As
a percentage of net revenue, direct operating expenses increased to 41.4% in
1999 from 35.2% in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $11.6 million in 1999 from $8.9 million in
1998, an increase of $2.7 million. The increase was primarily attributable to
the acquisition of television stations in 1999. On a same station
37
basis, for stations owned or operated for all of 1998, selling, general and
administrative expenses decreased $1.4 million, or 15.7%. The decrease was due
to the elimination of duplicative costs in integrating our 1998 acquisitions as
well as volume discounts obtained due to the increase in the number of stations
and employees. This decrease was partially offset by the increase in selling
costs associated with increased sales, management and staff levels and
increased market research costs, all of which are consistent with our strategy
of investing in sales, management and market research. As a percentage of net
revenue, selling, general and administrative expenses decreased to 19.7% in
1999 from 19.8% in 1998.
Corporate Expenses. Corporate expenses increased to $5.8 million in 1999
from $4.0 million in 1998, an increase of $1.8 million. The increase was
primarily due to additional staffing as a result of our growth and additional
costs associated with our acquisitions. As a percentage of net revenue,
corporate expenses increased by 1% to 9.8% in 1999.
Depreciation and Amortization. Depreciation and amortization increased to
$14.6 million in 1999 from $9.6 million in 1998, an increase of $5.0 million.
The increase was primarily attributable to the acquisition of television
stations in 1999. On a same station basis, for stations we owned or operated
for all of 1998, depreciation and amortization decreased $1.0 million. This
decrease was due primarily to a decrease in amortization relating to presold
advertising contracts.
Non-Cash Stock-Based Compensation. We have an employment agreement with an
executive vice president in which the employee was awarded 922,828 shares of
Class A common stock, which vested through January 2000. At December 31, 1999,
the estimated fair value of this award was $27.7 million, of which $0.9
million, $0.5 million and $26.3 million were recorded as non-cash stock-based
compensation for the years ended December 31, 1997, 1998 and 1999 respectively.
In January 1999, we entered into an employment agreement with a senior vice
president. As amended, the agreement allowed the employee to purchase 82,195
restricted shares of Class A common stock at $0.01 per share. The shares vest
ratably over three years. Non-cash stock-based compensation associated with
both of the awards was determined using an estimate by management and based
primarily on the estimated offering price of this offering. With respect to the
restricted shares, we recorded $2.8 million in non-cash stock-based
compensation during 1999. Total non-cash stock-based compensation was $29.1
million for 1999.
Operating Income (Loss). As a result of the above factors, we recognized an
operating loss of $26.6 million in 1999 compared to operating income of $6.1
million in 1998. Excluding non-cash stock-based compensation, operating income
decreased to $2.5 million in 1999 from $6.6 million in 1998, a decrease of $4.1
million. As a percentage of net revenue, operating income, excluding non-cash
stock-based compensation, decreased to 4.3% in 1999 from 14.8% in 1998.
Interest Expense, Net. Interest expense increased to $9.6 million in 1999
from $8.2 million in 1998, an increase of $1.3 million. The increase is due to
additional borrowings to fund our acquisitions, higher interest rates due to
our increased debt to cash flow ratio.
Net Loss. We recognized a net loss of $38.6 million in 1999, compared to a
net loss of $2.3 million in 1998. Excluding non-cash stock-based compensation
and interest expense relating to the estimated intrinsic value of the option
feature of our original $10.0 million subordinated note payable to Univision,
our net loss increased to $6.9 million in 1999 from $1.8 million in 1998, an
increase of $5.1 million. As a percentage of net revenue, our net loss,
excluding non-cash stock-based compensation and non-cash interest expense
relating to Univision's conversion option, increased to 11.8% in 1999 from 4.1%
in 1998.
38
Broadcast Cash Flow. Broadcast cash flow increased to $22.9 million in 1999
from $20.1 million in 1998, an increase of $2.8 million. The increase was
primarily attributable to the additional operations of five television stations
in 1999. On a same station basis, for stations we owned or operated for all of
1998, broadcast cash flow increased $0.8 million. The increase was attributable
to an increase in advertising rates of approximately 20% in some of our
markets, offset by a $2.2 million decrease in network compensation from
Univision and our investment in local news programming in our McAllen, Texas
and Las Vegas, Nevada markets, and additional costs to implement an additional
newscast at our station in San Diego, California. As a percentage of net
revenue, broadcast cash flow decreased to 38.9% in 1999 from 45% in 1998.
EBITDA. EBITDA increased to $17.1 million in 1999 from $16.2 million in
1998, an increase of $1.0 million. As a percentage of net revenue, EBITDA
decreased to 29% in 1999 from 36.1% in 1998.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
The following table sets forth selected data from our operating results for
the years ended December 31, 1997 and 1998 (dollars in thousands):
[Download Table]
Historical
----------------
1997 1998 % Change
------- ------- --------
Statement of Operations Data:
Gross revenue................................... $33,419 $49,872 49.2%
Less agency commissions......................... 2,963 5,052 70.5
------- -------
Net revenue..................................... 30,456 44,820 47.2
Direct operating expenses....................... 9,184 15,794 72.0
Selling, general and administrative expenses.... 5,845 8,877 51.9
Corporate expenses.............................. 3,899 3,963 1.6
Depreciation and amortization................... 8,847 9,565 8.1
Non-cash stock-based compensation............... 900 500 (44.4)
------- -------
Operating income................................ 1,781 6,121 243.7
Interest expense, net........................... (5,107) (8,244) (61.4)
------- -------
Loss before income tax.......................... (3,326) (2,123) 36.2
Income tax benefit (expense).................... 7,531 (210) (102.8)
------- -------
Net income (loss)............................... $ 4,205 $(2,333) (155.5)
======= =======
Other Data:
Broadcast cash flow............................. $15,427 $20,149 30.6%
EBITDA (adjusted for non-cash stock-based
compensation).................................. 11,528 16,186 40.4
Net Revenue. Net revenue increased to $44.8 million in 1998 from $30.5
million in 1997, an increase of $14.4 million. The increase was primarily
attributable to the benefit of a full year of our 1997 acquisitions of KINT and
KNVO. These acquisitions accounted for $5.5 million of the increase in 1998. In
addition, the increase was due to a rate shift from local to national
advertising and an increase in the average rate charged for national
advertising. The acquisition of television stations in 1998 accounted for $2.6
million of the increase. On a same station basis, for stations owned or
operated for all of 1997, net revenue increased $2.0 million, or 6.7%.
39
Direct Operating Expenses. Direct operating expenses increased to $15.8
million in 1998 from $9.2 million in 1997, an increase of $6.6 million. The
increase was partially attributable to a full year of operations from our 1997
acquisitions of KINT and KNVO. These acquisitions accounted for $2.2 million of
the increase in 1998. The acquisition of television stations in 1998 accounted
for $1.2 million of the increase. On a same station basis, for stations owned
or operated for all of 1997, direct operating expenses increased $1.1 million,
or 12.2%. As a percentage of net revenue, direct operating expenses increased
to 35.2% in 1998 from 30.2% in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $8.9 million in 1998 from $5.8 million in
1997, an increase of $3.0 million. The increase is partially attributable to a
full year of operations from our 1997 acquisitions of KINT and KNVO. These
acquisitions accounted for $0.6 million of the increase in 1998. Additional
costs of sales and research tools associated with our strategy to improve our
sales efforts accounted for an additional $0.5 million of this increase. The
acquisition of two television stations in 1998 accounted for $1.0 million of
the increase. On a same station basis, for stations owned or operated for all
of 1997, selling, general and administrative expenses increased $0.7 million,
or 11.4%. As a percentage of net revenue, selling, general and administrative
expenses increased to 19.8% in 1998 from 19.2% in 1997.
Corporate Expenses. Corporate expenses increased to $4.0 million in 1998
from $3.9 million in 1997, an increase of $0.1 million. The increase was
primarily associated with our acquisitions. As a percentage of net revenue,
corporate expenses decreased to 8.8% in 1998 from 12.8% in 1997.
Depreciation and Amortization. Depreciation and amortization increased to
$9.6 million in 1998 from $8.8 million in 1997, an increase of $0.7 million.
The increase was primarily attributable to a full year of operations from our
1997 acquisitions of KINT and KNVO and a partial year of depreciation and
amortization from our 1998 acquisitions.
Operating Income. As a result of the above factors, our operating income was
$6.1 million in 1998 compared to operating income of $1.8 million in 1997, an
increase of $4.3 million. Excluding non-cash stock-based compensation,
operating income increased to $6.6 million in 1998 from $2.7 million in 1997,
an increase of $3.9 million. As a percentage of net revenue, operating income,
excluding non-cash stock-based compensation, increased to 14.8% in 1998 from
8.8% in 1997.
Interest Expense, Net. Interest expense increased to $8.2 million in 1998
from $5.1 million in 1997, an increase of $3.1 million. The increase is due to
additional borrowings to fund our acquisitions.
Net Income (Loss). As a result of the above factors, we had a net loss of
$2.3 million in 1998 compared to net income of $4.2 million in 1997. Excluding
the tax benefit of $7.8 million related to KNVO's change in tax status in 1997,
the net loss decreased to $2.3 million in 1998 from $3.6 million in 1997, a
decrease of $1.2 million.
Broadcast Cash Flow. Broadcast cash flow increased to $20.1 million in 1998
from $15.4 million in 1997, an increase of $4.7 million. The increase was
partially attributable to a full year of operations from our 1997 acquisitions
of KINT and KNVO. These acquisitions accounted for $2.8 million of the increase
in 1998. In addition, the increase was due to a rate shift from local to
40
national advertising and an increase in the average rate charged for national
advertising of approximately 20% in some of our markets. The acquisition of
television stations in 1998 accounted for $0.4 million of the increase. On a
same station basis, for stations owned or operated for all of 1997, broadcast
cash flow remained relatively constant. As a percentage of net revenue,
broadcast cash flow decreased to 45% in 1998 from 50.7% in 1997.
EBITDA. EBITDA increased to $16.2 million in 1998 from $11.5 million in
1997, an increase of $4.7 million. The increase was partially attributable to a
full year of operations from our 1997 acquisitions of KINT and KNVO. These
acquisitions accounted for $2.8 million of the increase in 1998. The
acquisition of television stations in 1998 accounted for $0.4 million of the
increase. On a same station basis, for stations owned or operated for all of
1997, EBITDA increased $4.3 million, or 37.3%. The increase was offset by
additional technical, programming and local news costs. As a percentage of net
revenue, EBITDA decreased to 36.1% in 1998 from 37.9% in 1997.
Liquidity and Capital Resources
On March 2, 2000, Univision invested $110 million in the form of a
subordinated note. From these proceeds, we used approximately $33 million for
our investment in a San Diego television station, $17 million to make a deposit
toward our acquisition of two FM radio stations in the Los Angeles market and
$60 million to reduce outstanding borrowings on our revolving bank credit
facility.
On April 19, 2000, we entered into a $115 million term loan to partially
finance our acquisition of LCG. Amounts outstanding under this facility are due
April 18, 2001 and bear interest at LIBOR plus 4%. The facility is secured by a
pledge of all of the stock of LCG, a pledge of all of the stock of LCG's
special purpose entity formed to hold its FCC licenses, a lien on all of LCG's
assets and a secondary lien on all of our assets. This credit facility contains
a covenant that requires us to maintain a minimum level of EBITDA measured on a
quarterly basis. As of the date of this prospectus, borrowings outstanding
under this facility were $115 million, which we expect to repay in full using
proceeds from this offering.
On April 20, 2000, we acquired LCG for $252 million. We financed the balance
of the purchase price remaining after our previous deposit of $7 million using
advances of $50 million on our revolving line of credit and $105 million on our
term loan and $90 million from the issuance to TSG Capital Fund III, L.P. of a
convertible subordinated note.
Net cash flow from operating activities increased to approximately $1.0
million for the three months ended March 31, 2000, from approximately $0.9
million for the three months ended March 31, 1999. Net cash flow from operating
activities decreased to approximately $6.1 million for 1999, from approximately
$7.7 million for 1998.
Net cash flow used in investing activities increased to approximately $63.8
million for the three months ended March 31, 2000, from approximately $17.0
million for the three months ended March 31, 1999. During the three months
ended March 31, 2000, we acquired broadcast properties for a total of
approximately $46.0 million, made a deposit of $17.0 million for an acquisition
and made capital expenditures totaling approximately $2.7 million. During the
three months ended March 31, 1999, we acquired broadcast properties for a total
of approximately $12.4 million, made capital expenditures totaling
approximately $4.6 million, which included the purchase of two parcels of land
for $0.9 million, and started construction of a new facility in McAllen, Texas
for
41
$2.6 million. Net cash flow used in investing activities increased to
approximately $59.1 million for 1999, compared to approximately $25.6 million
for 1998. During 1999, we acquired broadcast properties for a total of
approximately $46.0 million (including deposits of $8.7 million for
acquisitions closed in 2000) and made capital expenditures totaling
approximately $13.0 million, which included the purchases of two parcels of
land for $1.0 million, the building of a new facility in McAllen, Texas the
upgrade of broadcasting equipment at all of our stations totaling $12.0
million. During 1998, we acquired broadcast properties for a total of
approximately $23 million and made purchases of capital equipment totaling
approximately $3.0 million.
Net cash from financing activities increased to approximately $64.0 million
for the three months ended March 31, 2000, from approximately $15.6 million for
the three months ended March 31, 1999. During the three months ended March 31,
2000, we increased our subordinated debt by $110.0 million. We used the
proceeds to complete the acquisition of two radio stations in El Paso, Texas
and an investment in a time brokerage arrangement for a television station in
Tijuana, Mexico, and put a deposit on two radio stations in Los Angeles,
California. We also paid down our revolving credit facility by $46.0 million.
During the three months ended March 31, 1999, we drew on our bank credit
facility to acquire television stations from LCG and radio stations in El
Centro, California. Net cash flow from financing activities was approximately
$52.0 million for 1999. During 1999, we drew on our bank credit facility to
acquire television stations from LCG and a television station in Venice
(Sarasota), Florida. In 1998, we completed acquisitions totaling $15.6 million,
which were financed with borrowings under our revolving credit facility. These
acquisitions included KORO and KVYE.
Seasonality
Seasonal net broadcast revenue fluctuations are common in the broadcasting
industry and are due primarily to fluctuations in advertising expenditures by
local and national advertisers. Our first fiscal quarter generally produces the
lowest net broadcast revenue for the year.
Segments
In accordance with FASB Statement No. 131, Disclosures About Segments of an
Enterprise and Related Information, we have determined that we have one
reportable segment. Furthermore, we have determined that all of our broadcast
properties are subject to the same regulatory environment because they target
similar classes of viewers and listeners through similar distribution methods.
New Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, or the Statement,
which is required to be adopted in all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. We will be required to
adopt the Statement effective January 1, 2001. The Statement will require that
we recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities or firm commitment through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will
be immediately recognized in earnings. Because of our minimal use of
derivatives, we do not anticipate that the adoption of the Statement will have
a significant effect on our or our acquired companies' earnings or financial
position.
42
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, or
SAB 101. SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the Securities and
Exchange Commission. This accounting bulletin, as amended in March 2000, is
effective for us beginning in the second quarter of our fiscal year beginning
January 1, 2000. We do not believe that the adoption of SAB 101 will have a
material impact on our or our acquired companies' financial statements.
Quantitative and Qualitative Disclosures About Market Risk
General
Market risk represents the potential loss that may impact our financial
position, results of operations or cash flows due to adverse changes in the
financial markets. We are exposed to market risk from changes in the base rates
on our variable rate debt. We periodically enter into derivative financial
instrument transactions such as swaps or interest rate caps, in order to manage
or reduce our exposure to risk from changes in interest rates. Under no
circumstances do we enter into derivatives or other financial instrument
transactions for speculative purposes. Our credit facilities require us to
maintain an interest rate protection agreement.
Interest Rates
Our bank revolving line of credit bears interest at a variable rate of LIBOR
(6.5% at March 31, 2000) plus 1.625%, and our term loan used to finance the LCG
acquisition bears interest at LIBOR plus 4% at April 19, 2000. At March 31,
2000 we had $96.9 million of variable rate bank debt. We currently hedge a
portion of our outstanding variable rate debt by using an interest rate cap.
This interest rate cap effectively converts $50 million of our variable rate
debt to a LIBOR fixed rate of 7% for a two-year period. Based on the current
level of borrowings under our credit facilities at our interest rate cap
agreements, an increase in LIBOR from the rates at March 31, 2000 to the cap
rates would not materially change our interest expense. The estimated fair
value of this interest rate cap agreement was not material and we expect to
continue to use similar types of interest rate protection agreements in the
future.
43
LCG MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
LCG has 17 radio stations, all but two of which are programmed with one of
our three formats delivered via satellite to all of our stations.
The principal source of our revenue is the sale of broadcasting time on our
radio stations to local and national advertisers. Our advertisers pay rates
that are primarily affected by our ability to attract audiences in the
demographic groups targeted by those advertisers. Ratings are measured
principally by Arbitron Radio Market Reports. Our revenue is recognized when
commercials are run.
Operating expenses primarily consist of programming expenses, salaries and
commissions and advertising and promotion expenses.
In February 1999, we sold our television broadcasting business to
Entravision. As a result, related net assets at December 27, 1998 and the
results of television broadcasting operations for the three years ended
December 26, 1999 were classified as discontinued operations. The following
discussion focuses on the continuing radio broadcasting and newspaper
publishing operations. On April 20, 2000, Entravision acquired all of our
outstanding capital stock for $252 million, and all of our outstanding debt was
paid out of the proceeds.
Three Months Ended March 31, 2000 Compared to the Three Months Ended March 28,
1999
The following table sets forth selected data from our operating results for
the three months ended March 28, 1999 and March 31, 2000 (dollars in
thousands):
[Download Table]
Three Months Ended
-------------------
March 28, March 31,
1999 2000 % Change
--------- --------- --------
Statement of Operations Data:
Gross revenue................................. $ 9,473 $12,036 27.1%
Less agency commissions....................... 814 1,194 46.7
------- -------
Net revenue................................... 8,659 10,842 25.2
Direct operating expenses..................... 3,775 4,212 11.6
Selling, general and administrative expenses.. 4,093 4,734 15.7
Corporate expenses............................ 204 429 110.3
Depreciation and amortization................. 1,243 1,229 (1.1)
------- -------
Operating income (loss)....................... (656) 238 136.3
Interest expense and other, net............... (1,644) (1,384) 15.8
------- -------
Loss from continuing operations before income
tax benefit.................................. (2,300) (1,146) 50.2
Income tax benefit............................ 690 344 (50.1)
------- -------
Loss from continuing operations............... $(1,610) $ (802) 50.2
======= =======
Other Data:
Broadcast cash flow........................... $ 791 $ 1,896 139.7%
EBITDA........................................ 587 1,467 149.9%
Net Revenue. Net revenue increased to $10.8 million for the quarter ended
March 31, 2000 from $8.7 million in the same period in 1999, an increase of
$2.2 million. Radio advertising accounted for about $1.7 million of the
increase. The increase can be primarily attributed to a strong demand for
advertising, which allowed for rate increases.
44
Direct Operating Expenses. Direct operating expenses increased to $4.2
million during the quarter ended March 31, 2000 from $3.8 million in the same
period in 1999, an increase of $0.4 million. The increase was primarily due to
increases in radio engineering and programming costs. For newspaper publishing,
direct operating costs remained relatively flat. As a percentage of net
revenue, direct operating expenses decreased to 38.8% during the first quarter
of 2000 from 43.6% in the same period in 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $4.7 million during the quarter ended
March 31, 2000 from $4.1 million during the quarter ended March 28, 1999, an
increase of $0.6 million. The increase was primarily the result of increased
sales commissions and general and administrative costs in the radio division. A
portion of the increase is also due to the start-up of operations of two radio
stations in Nevada in December 1999. As a percentage of net revenue, selling,
general and administrative expenses decreased to 43.7% during the quarter ended
March 31, 2000 from 47.3% during the same period in 1999.
Corporate Expenses. Corporate expenses increased to $0.4 million for the
quarter ended March 31, 2000 from $0.2 million during the three months ended
March 28, 1999, an increase of $0.2 million.
Depreciation and Amortization. Depreciation and amortization remained
relatively flat at $1.2 million for each of the quarters ended March 31, 2000
and March 28, 1999.
Operating Income (Loss). As a result of the above factors, operating income
increased to $0.2 million during the first quarter of 2000 from an operating
loss of $0.7 million in the same period in 1999, an increase of $0.9 million.
Radio operations accounted for $0.7 million of the increase.
Interest Expense and Other, Net. Interest expense and other, net decreased
to $1.4 million during the quarter ended March 31, 2000 from $1.6 million
during the quarter ended March 28, 1999, a decrease of $0.2 million.
Loss from Continuing Operations. As a result of the above factors, the loss
from continuing operations decreased to $0.8 million during the three month
period ended March 31, 2000 from $1.6 million during the three months ended
March 28, 1999, a decrease of $0.8 million.
Broadcast Cash Flow. Broadcast cash flow increased to $1.9 million during
the quarter ended March 31, 2000 from $0.8 million during the quarter ended
March 28, 1999, an increase of $1.1 million. Radio operations accounted for
$0.7 million of the increase. As a percentage of net revenue, broadcast cash
flow increased to 17.5% during the quarter ended March 31, 2000 from 9.1% in
the same period in 1999.
EBITDA. EBITDA increased to $1.5 million during the quarter ended March 31,
2000 from $0.6 million in the three months ended March 28, 1999, an increase of
$0.9 million. The radio operations accounted for $0.7 million of the increase.
As a percentage of net revenue, EBITDA increased to 13.5% during the quarter
ended March 31, 2000 from 6.8% during the same quarter of 1999.
45
Year Ended December 26, 1999 Compared to the Year Ended December 27, 1998
The following table sets forth selected data from our operating results for
the years ended December 27, 1998 and December 26, 1999 (dollars in thousands):
[Download Table]
Historical
----------------
1998 1999 % Change
------- ------- --------
Statement of Operations Data:
Gross revenue................................... $41,588 $48,868 17.5%
Less agency commissions......................... 3,692 4,623 25.2
------- -------
Net revenue..................................... 37,896 44,245 16.8
Direct operating expenses....................... 15,196 15,560 2.4
Selling, general and administrative expenses.... 17,677 18,910 7.0
Corporate expenses.............................. 2,901 1,795 (38.1)
Depreciation and amortization................... 4,593 4,907 6.8
------- -------
Operating income (loss)......................... (2,471) 3,073 224.4
Interest expense and other, net................. (6,449) (5,527) 14.3
------- -------
Loss from continuing operations before income
tax benefit.................................... (8,920) (2,454) 72.5
Income tax benefit.............................. 2,570 736 (71.4)
------- -------
Loss from continuing operations................. $(6,350) $(1,718) 72.9
======= =======
Other Data:
Broadcast cash flow............................. $ 5,023 $ 9,775 94.6%
EBITDA.......................................... 2,122 7,980 276.1
Net Revenue. Net revenue increased to $44.2 million in 1999 from $37.9
million in 1998, an increase of $6.3 million. Radio advertising accounted for
about $5.8 million of the increase. The increase can be primarily attributed to
favorable ratings and a strong demand for advertising, which allowed for an
increase in advertising rates and an increase in the number of commercials
sold.
Direct Operating Expenses. Direct operating expenses increased to $15.6
million in 1999 from $15.2 million in 1998, an increase of $0.4 million. The
increase was primarily due to increases in radio engineering and programming
costs. As a percentage of net revenue, direct operating expenses decreased to
35.2% in 1999 from 40.1% in 1998. For newspaper publishing, direct operating
costs remained relatively flat.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $18.9 million in 1999 from $17.7 million
in 1998, an increase of $1.2 million. The increase was primarily the result of
increased general and administrative costs related to newspaper publishing and
increased radio sales commissions. As a percentage of net revenue, selling,
general and administrative expenses decreased to 42.6% in 1999 from 46.6% in
1998.
Corporate Expenses. Corporate expenses decreased to $1.8 million in 1999
from $2.9 million in 1998, a decrease of $1.1 million. The decrease related
primarily to a one-time 1998 charge for executive severance and increased
professional fees. As a percentage of net revenue, corporate expenses decreased
to 4.1% in 1999 from 7.7% in 1998.
Depreciation and Amortization. Depreciation and amortization increased to
$4.9 million in 1999 from $4.6 million in 1998, an increase of $0.3 million.
Depreciation accounted for 77% of the increase due to the purchase of a new
fully-automated publishing system.
46
Operating Income (Loss). As a result of the above factors, operating income
increased to $3.1 million in 1999 from an operating loss of $2.5 million in
1998, an increase of $5.5 million. Radio operations accounted for $4.7 million
of the increase.
Interest Expense and Other, Net. Interest expense and other decreased to
$5.5 million in 1999 from $6.4 million in 1998, a decrease of $0.9 million. The
decrease in interest expense was due primarily to a decrease in outstanding
debt resulting from the sale of our television business in February 1999.
Loss from Continuing Operations. As a result of the above factors, the loss
from continuing operations decreased to $1.7 million in 1999 from $6.4 million
in 1998, an decrease of $4.7 million.
Broadcast Cash Flow. Broadcast cash flow increased to $9.8 million in 1999
from $5.0 million in 1998, an increase of $4.8 million. Radio operations
accounted for $4.7 million of the increase. As a percentage of net revenue,
broadcast cash flow increased to 22.1% in 1999 from 13.3% in 1998.
EBITDA. EBITDA increased to $8.0 million in 1999 from $2.1 million in 1998,
an increase of $5.9 million. The radio operations accounted for $4.7 million of
the increase. As a percentage of net revenue, EBITDA increased to 18% in 1999
from 5.6% in 1998.
Year Ended December 27, 1998 Compared to the Year Ended December 28, 1997
The following table sets forth selected data from our operating results for
the years ended December 28, 1997 and December 27, 1998 (dollars in thousands):
[Download Table]
Historical
----------------
1997 1998 % Change
------- ------- --------
Statement of Operations Data:
Gross revenue................................... $40,467 $41,588 2.8%
Less agency commissions......................... 3,472 3,692 6.3
------- -------
Net revenue..................................... 36,995 37,896 2.4
Direct operating expenses....................... 15,131 15,196 0.4
Selling, general and administrative expenses.... 17,535 17,677 0.8
Corporate expenses.............................. 1,713 2,901 69.4
Depreciation and amortization................... 3,762 4,593 22.1
------- -------
Operating loss.................................. (1,146) (2,471) (115.6)
Interest expense and other, net................. (4,511) (6,449) (43.0)
------- -------
Loss from continuing operations before income
tax benefit.................................... (5,657) (8,920) (57.7)
Income tax benefit.............................. 2,213 2,570 16.1
------- -------
Loss from continuing operations................. $(3,444) $(6,350) (84.4)
======= =======
Other Data:
Broadcast cash flow............................. $ 4,329 $ 5,023 16.0%
EBITDA.......................................... 2,616 2,122 (18.9)
Net Revenue. Net revenue increased to $37.9 million in 1998 from $37.0
million in 1997, an increase of $0.9 million. Newspaper publishing accounted
for $0.8 million of the increase.
Direct Operating Expenses. Direct operating expenses were relatively flat
compared to 1997 with an increase of $0.1 million.
47
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $17.7 million in 1998 from $17.5 million
in 1997, an increase of $0.2 million. Radio operations accounted for the
majority of the increase. The increase primarily resulted from increased sales,
marketing and promotion expenses. As a percentage of net revenue, selling,
general and administrative expenses decreased to 46.6% in 1998 from 47.4% in
1997.
Corporate Expenses. Corporate expenses increased to $2.9 million in 1998
from $1.7 million in 1997, an increase of $1.2 million. The increase was
related primarily to one-time charges for executive severance and increased
professional fees. As a percentage of net revenue, corporate expenses increased
to 7.7% in 1998 from 4.6% in 1997.
Depreciation and Amortization. Depreciation and amortization increased to
$4.6 million in 1998 from $3.8 million in 1997, an increase of $0.8 million.
Radio operations accounted for $0.7 million of the increase. The increase
represented increased amortization associated with the 1997 acquisition of
eight radio stations.
Operating Loss. As a result of the above factors, the operating loss
increased to $2.5 million in 1998 from $1.1 million in 1997, an increase of
$1.4 million.
Interest Expense and Other, Net. Interest expense increased to $6.4 million
in 1998 from $4.5 million in 1997, an increase of $1.9 million. The increase
was due primarily to higher interest rates in 1998 compared to 1997 and
increases in outstanding debt incurred in connection with our acquisitions.
Loss from Continuing Operations. As a result of the above factors, the loss
from continuing operations increased to $6.4 million in 1998 from $3.4 million
in 1997, an increase of $3.0 million.
Broadcast Cash Flow. Broadcast cash flow increased to $5.0 million in 1998
from $4.3 million in 1997, an increase of $0.7 million. As a percentage of net
revenue, broadcast cash flow increased to 13.3% in 1998 from 11.7% in 1997.
EBITDA. EBITDA decreased to $2.1 million in 1998 from $2.6 million in 1997,
a decrease of $0.5 million. The decline is due to the increase in corporate
expense. As a percentage of net revenue, EBITDA decreased to 5.6% in 1998 from
7.1% in 1997.
Segment Operations
We operate in two reportable segments, radio broadcasting and newspaper
publishing. The radio broadcasting segment has operations in the San Francisco-
San Jose, Monterey-Salinas-Santa Cruz, Riverside-San Bernardino, Sacramento,
Albuquerque-Santa Fe, Denver-Boulder and Washington D.C. The publishing segment
consists of two Spanish-language publications in New York City. Each segment is
managed separately. We evaluate performance based on several factors, of which
the primary financial measure is segment operating profit. Total revenue of
each segment represents sales to unaffiliated customers. There are no inter-
segment sales. No single customer provides more than 10% of our revenue. The
accounting policies of the segments are the same as those described in Note 2
to our audited financial statements. Corporate expenses include general and
administrative costs that are not directly related to the reportable segments.
48
Financial information for these business segments includes (in thousands):
[Download Table]
Historical Three Months Ended
---------------------------- --------------------
March 28, March 31,
1997 1998 1999 1999 2000
-------- -------- -------- --------- ---------
Net Revenue:
Radio Broadcasting........ $ 19,200 $ 19,345 $ 25,136 $ 4,536 $ 6,228
Newspaper Publishing...... 17,795 18,551 19,109 4,123 4,614
-------- -------- -------- -------- --------
$ 36,995 $ 37,896 $ 44,245 $ 8,659 $ 10,842
======== ======== ======== ======== ========
Operating Profit (loss):
Radio Broadcasting........ $ (98) $ (974) $ 3,718 $ (240) $ 456
Newspaper Publishing...... 672 1,411 1,150 (211) 212
-------- -------- -------- -------- --------
Total Reportable
Segments................ 574 437 4,868 (451) 668
Corporate expenses........ (1,720) (2,908) (1,795) (205) (430)
-------- -------- -------- -------- --------
$ (1,146) $ (2,471) $ 3,073 $ (656) $ 238
======== ======== ======== ======== ========
Identifiable Assets:
Radio Broadcasting........ $130,863 $131,887 $130,909 $128,847 $129,150
Newspaper Publishing...... 23,308 23,827 24,563 23,916 24,363
-------- -------- -------- -------- --------
Total Reportable
Segments................ 154,171 155,714 155,472 152,763 153,513
Corporate................. 4,335 5,476 2,014 4,842 695
Discontinued operations... 4,500 4,832 -- -- --
-------- -------- -------- -------- --------
$163,006 $166,022 $157,486 $157,605 $154,208
======== ======== ======== ======== ========
Depreciation and
Amortization:
Radio Broadcasting........ $ 3,023 $ 3,777 $ 3,862 $ 1,001 $ 958
Newspaper Publishing...... 739 816 1,044 242 271
-------- -------- -------- -------- --------
$ 3,762 $ 4,593 $ 4,906 $ 1,243 $ 1,229
======== ======== ======== ======== ========
Capital Expenditures:
Radio Broadcasting........ $ 672 $ 187 $ 1,061 $ 99 $ 1,040
Newspaper Publishing...... 263 868 1,230 420 116
-------- -------- -------- -------- --------
Total Reportable
Segments................ 935 1,055 2,291 519 1,156
Discontinued Operations.... 75 216 -- -- --
-------- -------- -------- -------- --------
$ 1,010 $ 1,271 $ 2,291 $ 519 $ 1,156
======== ======== ======== ======== ========
Liquidity and Capital Resources
Net cash flow provided by operating activities increased to approximately
$0.8 million for the three months ended March 31, 2000, from approximately zero
cash flow for the three months ended March 28, 1999. For 1999, net cash flow
provided by operating activities was $1.1 million compared to $0.6 million for
1998 and $2.3 million for 1997. The change from 1998 to 1999 can be attributed
primarily to an increase in operating income. The change from 1997 to 1998
related primarily to a decline in operating income.
Net cash flow used in investing activities increased to approximately $2.7
million for the three months ended March 31, 2000, compared to net cash flow
provided by investing activities of
49
approximately $14.1 million for the three months ended March 28, 1999. During
the three months ended March 31, 2000, we made a deposit of $1.6 million for an
acquisition and made capital expenditures totaling approximately $1.1 million.
During the three months ended March 28, 1999, we received $12.9 million from
the sale of our television stations to Entravision and $1.7 million from
disposals of other assets, offset by capital expenditures totaling
approximately $0.5 million. Net cash flow provided by investing activities was
$16.7 million during 1999 as compared to $2.5 million used in 1998 and $66.6
million used in 1997. During 1999, we sold our television stations to
Entravision for approximately $12.9 million and sold other assets including a
tower site in Portland, Oregon for approximately $6.6 million. We had capital
expenditures of $2.3 million for 1999, including the purchase of a new fully-
integrated publishing system for our newspaper business. During 1997, we
acquired eight radio stations for approximately $70 million.
Net cash flow used in financing activities decreased to approximately $2.5
million for the three months ended March 31, 2000, from approximately $14.2
million for the three months ended March 28, 1999. During the three months
ended March 31, 2000, we drew $1.5 million on our existing debt facilities and
made payments of $4.0 million on those same debt facilities. During the three
months ended March 28, 1999, we used some of the proceeds from the sale of the
television stations to Entravision to pay down our debt facilities by $14.2
million. Net cash flow used in financing activities was $14.1 million during
1999 compared to cash provided by financing activities of $2.0 million in 1998
and $37.7 million in 1997. The change in net cash flow provided by financing
activities in 1999 relates to a net reduction in our debt using the proceeds
from the sale of our television stations. The increase in net cash flow
provided by financing activities in 1997 can be attributed to the borrowings
associated with our acquisition of eight radio stations during 1997.
50
Z-SPANISH MEDIA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Z-Spanish Media was formed to combine national radio programming with a
local presence. Through our four formats, which are delivered via satellite to
our stations and our affiliates, we provide a national quality radio sound with
local time slots available for news, traffic, weather, promotions and community
events.
On December 31, 1999, Z-Spanish Media merged with Vista Media Group, Inc.,
or Vista, whereby Vista became a wholly owned subsidiary of Z-Spanish Media. Z-
Spanish Media and Vista have shared a common controlling stockholder group
since August 29, 1997. As such, the business combination has been accounted for
as a common control business combination, and the accounts of Vista are
included in the accompanying combined financial statements from August 29,
1997.
The principal source of our revenue is the sale of broadcasting time on our
radio stations and network and the sale of outdoor display contracts for our
billboard operations. As a result, our revenue is affected primarily by the
advertising rates our radio stations and network charge, and the rates charged
for billboard contracts. For our radio operations, the rates are based upon a
station's and the network's ability to attract audiences in the demographic
groups targeted by its advertisers, as measured principally by Arbitron Radio
Market Reports. We recognize revenue when advertising or network programming is
broadcast. For our billboard operations, the rates are based on the particular
display's exposure in relation to the demographic of a particular market and
the location of the particular display. We recognize billboard advertising
revenue over the life of the advertising contract. Our operating expenses
primarily consist of salaries and commissions and advertising and promotional
expenses.
On April 20, 2000, we agreed to sell all of our outstanding capital stock to
Entravision for $475 million.
51
Three Months Ended March 31, 2000 Compared to the Three Months Ended March 31,
1999
The following table sets forth selected data from our operating results for
the three months ended March 31, 1999 and March 31, 2000 (dollars in
thousands):
[Download Table]
Three months ended
-------------------
March 31, March 31,
1999 2000 % Change
--------- --------- --------
Statement of Operations Data:
Gross revenue.................................... $ 7,177 $ 8,740 21.8%
Less agency and broker commissions............... 425 581 36.7
------- -------
Net revenue...................................... 6,752 8,159 20.8
Direct operating expenses........................ 2,763 3,425 24.0
Selling, general and administrative expenses..... 2,056 2,034 (1.1)
Corporate expenses............................... 774 1,701 119.8
Depreciation and amortization.................... 1,415 2,843 100.9
Non-cash stock based compensation................ -- 196 n/a
Gain on sale of assets, net...................... (2,223) -- n/a
------- -------
Operating income (loss).......................... 1,967 (2,040) (203.7)
Interest expense, net............................ (1,196) (2,339) (95.6)
------- -------
Income (loss) before income tax and extraordinary
loss............................................ 771 (4,379) (668.0)
Minority interest................................ 58 2 (96.6)
Income tax benefit (expense)..................... (470) 1,514 422.1
Extraordinary loss on debt extinguishment........ (1,132) -- n/a
------- -------
Net loss......................................... $ (773) $(2,863) (270.4)
======= =======
Other Data:
Broadcast/billboard cash flow.................... $ 1,933 $ 2,700 39.7%
EBITDA (adjusted for non-cash stock-based
compensation)................................... 1,159 999 (13.8)
Net Revenue. Net revenue increased to $8.2 million for the three months
ended March 31, 2000 from $6.8 million for the three months ended March 31,
1999, an increase of $1.4 million. Approximately $0.9 million of this increase
was due to the inclusion of Seaboard Outdoor Advertising Co. Inc., or Seaboard,
which we purchased on September 30, 1999. Additionally, the increase in net
revenue was attributable to growth in our radio network, which increased 139%,
and a turnaround in the Chicago market where our net revenue increased 62.4%.
The increase in net revenue was partially offset by the exclusion of radio
station WYPA in Chicago, Illinois, which was sold on September 20, 1999.
Direct Operating Expenses. Direct operating expenses increased to
$3.4 million for the three months ended March 31, 2000 from $2.8 million for
the three months ended March 31, 1999, an increase of $0.6 million. The
increase in direct operating expenses is mainly attributable to the inclusion
of operating expenses of Seaboard. As a percentage of net revenue, direct
operating expenses increased to 42.0% for the three months ended March 31, 2000
from 40.9% for the three months ended March 31, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained essentially flat for the three months ended
March 31, 2000 as compared to the three months ended March 31, 1999. As a
percentage of net revenue, selling, general and administrative expenses
decreased to 24.9% for the three months ended March 31, 2000 from 30.5% for the
three months ended March 31, 1999.
52
Corporate Expenses. Corporate expenses increased to $1.7 million for the
three months ended March 31, 2000 from $0.8 million for the three months ended
March 31, 1999, an increase of $0.9 million. Approximately $0.5 million was the
result of non-recurring corporate expenses. Additionally, the increase in
corporate expenses was attributable to increases in the number of employees,
transferring traffic operations to corporate and higher salary expense. As a
percentage of net revenue, corporate expenses increased to 20.8% for the three
months ended March 31, 2000 from 11.5% for the three months ended March 31,
1999.
Depreciation and Amortization. Depreciation and amortization increased to
$2.8 million for the three months ended March 31, 2000 from $1.4 million for
the three months ended March 31, 1999, an increase of $1.4 million. The
increase in depreciation and amortization was due to the acquisitions of radio
stations and billboards during 1999.
Non-Cash Stock-Based Compensation. Non-cash stock-based compensation relates
to stock options granted under an employee stock option plan. The expense
represents the difference between the grant price and the estimated fair value
of the related stock.
Net Gain on Sale of Assets. Net gain on sale of assets for the three months
ended March 31, 1999 was $2.2 million, which resulted from the sale of radio
station WBPS in Cambridge, Massachusetts.
Operating Income. Operating income decreased to a loss of $2.0 million for
the three months ended March 31, 2000 from income of $2.0 million for the three
months ended March 31, 1999, a decrease of $4.0 million. The decrease was
primarily the result of an increase in depreciation and amortization expense of
$1.4 million and additional corporate charges for the three months ended March
31, 2000. Also, the company recorded gains on the sale of assets of
$2.2 million for the three months ended March 31, 1999. Excluding gains on the
sale of radio stations, operating loss for the three months ended March 31,
1999 would have been $0.2 million for the three months ended March 31, 1999
compared to an operating loss of $2.0 million for the three months ended March
31, 2000.
Interest Expense, Net. Net interest expense increased to $2.3 million for
the three months ended March 31, 2000 from $1.2 million for the three months
ended March 31, 1999, an increase of $1.1 million. The increase was due
primarily to higher borrowings to fund acquisitions in 1999 and 2000.
Net Loss. As a result of the above factors, we had a net loss of
$2.9 million for the three months ended March 31, 2000 compared to a net loss
of $0.8 million for the three months ended March 31, 1999, an increase in net
loss of $2.1 million. As a percentage of net revenue, net loss increased to
35.1% for the three months ended March 31, 2000 from 11.4% for the three months
ended March 31, 1999. Excluding our 1999 extraordinary loss of $1.1 million
related to early extinguishment of debt, net income for the three months ended
March 31, 1999 would have been $0.4 million. As a percentage of net revenue,
our net income, excluding extraordinary loss, was 5.3% for the three months
ended March 31, 1999.
Broadcast/Billboard Cash Flow. Broadcast/billboard cash flow increased to
$2.7 million for the three months ended March 31, 2000 from $1.9 million for
the three months ended March 31, 1999, an increase of $0.8 million. This
increase was primarily attributable to revenue growth and effective management
of operating expenses. Approximately $0.3 million of the increase in
broadcast/billboard cash flow was attributable to the inclusion of Seaboard. As
a percentage of net revenue,
53
broadcast/billboard cash flow increased to 33.1% for the three months ended
March 31, 2000 from 28.6% for the three months ended March 31, 1999.
EBITDA. EBITDA decreased to $1.0 million for the three months ended March
31, 2000 from $1.2 million for the three months ended March 31, 1999, a
decrease of $0.2 million. As a percentage of net revenue, EBITDA decreased to
12.2% for the three months ended March 31, 2000 from 17.2% for the three months
ended March 31, 1999. The decrease was primarily due to $0.5 million of non-
recurring corporate expenses. Excluding these non-recurring corporate expenses,
EBITDA for the three months ended March 31, 2000 was $1.5 million. As a
percentage of net revenue, our EBITDA, excluding these non-recurring corporate
expenses, increased to 18.3% for the three months ended March 31, 2000 from
17.2% for the three months ended March 31, 1999.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
The following table sets forth selected data from our operating results for
the years ended December 31, 1998 and 1999 (dollars in thousands):
[Download Table]
Historical
----------------
1998 1999 % Change
------- ------- --------
Statement of Operations Data:
Gross revenue.................................... $27,598 $38,561 39.7%
Less agency and broker commissions............... 1,740 2,523 45.0
------- -------
Net revenue...................................... 25,858 36,038 39.4
Direct operating expenses........................ 10,108 14,183 40.3
Selling, general and administrative expenses..... 6,459 8,382 29.8
Corporate expenses............................... 3,669 4,773 30.1
Depreciation and amortization.................... 6,736 8,670 28.7
Gain on sale of assets, net...................... (5,685) (4,442) 21.9
------- -------
Operating income................................. 4,571 4,472 (2.2)
Interest expense, net............................ (5,324) (6,471) (21.5)
------- -------
Loss before income tax and extraordinary loss.... (753) (1,999) (165.5)
Minority interest................................ (86) 182 311.6
Income tax benefit (expense)..................... (394) 102 125.9
Extraordinary loss on debt extinguishment........ -- (1,047) n/a
------- -------
Net loss......................................... $(1,233) $(2,762) (124.0)
======= =======
Other Data:
Broadcast/billboard cash flow.................... $ 9,291 $13,619 46.6%
EBITDA........................................... 5,622 8,846 57.3
Net Revenue. Net revenue increased to $36.0 million in 1999 from $25.9
million in 1998, an increase of $10.1 million. Approximately $6.3 million of
this increase was due to the inclusion of the full year of results of the
operations of Z-Spanish Radio which we acquired on May 29, 1998. The increase
in net revenue also resulted from an increase of $5.4 million from radio
station acquisitions. Additionally, billboard sales increased $1.8 million, a
portion of which was due to the inclusion of Seaboard Outdoor Advertising Co.
Inc., or Seaboard, which we purchased on September 30, 1999. The increase in
net revenue was partially offset by a decrease of $3.4 million due to the sale
of stations in 1999 and 1998.
Direct Operating Expenses and Selling, General and Administrative
Expenses. Direct operating expenses increased to $14.2 million in 1999 from
$10.1 million in 1998, an increase of $4.1 million.
54
Selling, general and administrative expenses increased to $8.4 million in 1999
from $6.5 million in 1998, an increase of $1.9 million. Approximately $4.8
million of the increase in direct operating expenses and selling, general and
administrative expenses was caused by the inclusion of the full year of Z-
Spanish Radio's operations. Additional radio stations acquired in 1999 resulted
in an increase in direct operating expenses and selling, general and
administrative expenses of $2.1 million. Also, $1.7 million of the direct
operating expense increase was caused by a loss on the disposal of assets from
our billboard operations. These increases in direct operating expenses and
selling, general and administrative expenses were partially offset by a
decrease of $2.6 million due to the sale of stations in 1998 and 1999. As a
percentage of net revenue, direct operating expenses increased from 39.1% in
1998 to 39.4% in 1999. As a percentage of net revenue, selling, general and
administrative expenses decreased to 23.3% in 1999 from 25% in 1998.
Corporate Expenses. Corporate expenses increased to $4.8 million in 1999
from $3.7 million in 1998, an increase of $1.1 million. The increase in
corporate expenses resulted primarily from increases in the number of
employees, higher salary expense and higher professional fees associated with
potential acquisitions and related financings. As a percentage of net revenue,
corporate expenses decreased to 13.2% in 1999 from 14.2% in 1998.
Depreciation and Amortization. Depreciation and amortization increased to
$8.7 million in 1999 from $6.7 million in 1998, an increase of $2.0 million.
The increase in depreciation and amortization was due to the acquisitions of
radio stations and billboards.
Net Gain on Sale of Assets. Net gain on sale of assets decreased to $4.4
million in 1999 from $5.7 million in 1998, a decrease of $1.3 million. Net gain
recorded in 1999 included gain on sale of radio stations WBPS in Cambridge,
Massachusetts and WYPA in Chicago, Illinois of $2.2 million and $2.3 million,
partially offset by a loss on sale of KZNO in Nogales, Arizona of $0.1 million.
The aggregate net gain recorded in 1998 of $5.7 million resulted from the
disposition of radio stations WNJR in Newark, New Jersey, KYPA in Los Angeles,
California, KWPA in Pomona, California, KXPA in Bellevue, Washington, KOBO in
Yuba City, California, KEST in San Francisco, California, KSJX in San Jose,
California and KKMO in Seattle, Washington, as well as the disposition of
certain assets and liabilities of PAR Holdings, Inc. As a percentage of net
revenue, net gain on sale of assets decreased to 12.3% in 1999 from 22% in
1998.
Operating Income. Operating income decreased to $4.5 million in 1999 from
$4.6 million in 1998, a decrease of $0.1 million. The decrease was primarily
the result of gains on the sale of assets of $4.4 million in 1999 as compared
to $5.7 million in 1998. Excluding our 1999 and 1998 gains from sales of radio
stations, operating income for 1999 would have been $30,000 and our operating
loss for 1998 would have been $1.1 million.
Interest Expense, Net. Net interest expense increased to $6.5 million in
1999 from $5.3 million in 1998, an increase of $1.2 million. The increase was
due primarily to higher borrowings to fund acquisitions in 1999.
Net Loss. As a result of the above factors, we had a net loss of $2.8
million in 1999 compared to a net loss of $1.2 million in 1998, an increase in
net loss of $1.6 million. As a percentage of net revenue, net loss increased to
7.7% in 1999 from 4.8% in 1998. Excluding our 1999 extraordinary loss of $1.0
million related to early extinguishment of debt, net loss for 1999 would have
been $1.8 million. As a percentage of net revenue, our net loss, excluding
extraordinary loss, was 4.8% in 1999 and 4.8% in 1998.
55
Broadcast/Billboard Cash Flow. Broadcast/billboard cash flow increased to
$13.6 million in 1999 from $9.3 million in 1998, an increase of $4.3 million.
The inclusion of the full year of results of Z-Spanish Radio and the effect of
station purchases accounted for an increase of $5.4 million of
broadcast/billboard cash flow, which was partially offset by a loss of $1.7
million due to the disposal of some of our billboard assets. The increase in
broadcast/billboard cash flow was also attributable to our billboard
operations, a portion of which was due to the inclusion of Seaboard. As a
percentage of net revenue, broadcast/billboard cash flow increased to 37.8% in
1999 from 35.9% in 1998.
EBITDA. EBITDA increased to $8.8 million in 1999 from $5.6 million in 1998,
an increase of $3.2 million. The inclusion of the full year of results of Z-
Spanish Radio, three months of operations of Seaboard plus the effect of
purchases of stations during the year accounted for an increase of
$5.0 million, offset by a decrease of $1.7 million due to the loss on the
disposal of assets from our billboard operations. As a percentage of net
revenue, EBITDA increased to 24.5% in 1999 from 21.7% in 1998.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
The following table sets forth selected data from our operating results for
the years ended December 31, 1997 and 1998 (dollars in thousands):
[Download Table]
Historical
----------------
1997 1998 % Change
------- ------- --------
Statement of Operations Data:
Gross revenue.................................... $13,339 $27,598 106.9%
Less agency and broker commissions............... 297 1,740 485.9
------- -------
Net revenue...................................... 13,042 25,858 98.3
Direct operating expenses........................ 4,391 10,108 130.2
Selling, general and administrative expenses..... 5,105 6,459 26.5
Corporate expenses............................... 2,975 3,669 23.3
Depreciation and amortization.................... 2,747 6,736 145.2
Gain on sale of assets, net...................... (2,671) (5,685) (112.8)
------- -------
Operating income................................. 495 4,571 823.4
Interest expense, net............................ (2,069) (5,324) (157.3)
------- -------
Loss before income tax and extraordinary items... (1,574) (753) 52.2
Minority interest................................ (31) (86) (177.4)
Income tax benefit (expense)..................... 538 (394) (173.2)
Extraordinary loss on debt extinguishment........ (568) -- 100.0
------- -------
Net loss......................................... $(1,635) $(1,233) 24.6
======= =======
Other Data:
Broadcast/billboard cash flow.................... $ 3,546 $ 9,291 162.0%
EBITDA........................................... 571 5,622 884.6
Net Revenue. Net revenue increased to $25.9 million in 1998 from $13.0
million in 1997, an increase of $12.9 million. Approximately $7.4 million of
the increase was due to the inclusion of a full year of results of Vista, and
approximately $9.2 million of the increase was due to the inclusion of seven
months of results of Z-Spanish Radio. The increase in net revenue was partially
offset by a decrease of $3.7 million due to the sale of nine radio stations in
1998 and the sale of two radio stations in 1997.
56
Direct Operating Expenses and Selling, General and Administrative
Expenses. Direct operating expenses increased to $10.1 million in 1998 from
$4.4 million in 1997, an increase of $5.7 million. Selling, general and
administrative expenses increased to $6.5 million in 1998 from $5.1 million in
1997, an increase of $1.4 million. Approximately $4.1 million of the increase
in direct operating expenses and selling, general and administrative expenses
was caused by the inclusion of the full year of results of Vista, and
approximately $4.8 million of the increase was due to the inclusion of seven
months of results of Z-Spanish Radio. The increase in direct operating expenses
and selling, general and administrative expenses was partially offset by a
decrease of $1.8 million due to the sale of nine stations in 1998 and two
stations in 1997. As a percentage of net revenue, direct operating expenses
increased to 39.1% in 1998 from 33.7% in 1997. As a percentage of net revenue,
selling, general and administrative expenses decreased to 25.0% in 1998 from
39.1% in 1997.
Corporate Expenses. Corporate expenses increased to $3.7 million in 1998
from $3.0 million in 1997, an increase of $0.7 million. The increase in
corporate expenses was caused by higher salary expense and professional fees
associated with acquisitions and related financings. As a percentage of net
revenue, corporate expenses decreased to 14.2% in 1998 from 22.8% in 1997.
Depreciation and Amortization. Depreciation and amortization increased to
$6.7 million in 1998 from $2.7 million in 1997, an increase of $4.0 million.
The increase in depreciation and amortization was due primarily to the
additional fixed and intangible assets from the acquisition of radio stations
and billboards.
Net Gain on Sale of Assets. Net gain on sale of assets increased to $5.7
million in 1998 from $2.7 million in 1997, an increase of $3.0 million. The
aggregate net gain recorded in 1998 of $5.7 million consisted of the
disposition of radio stations WNJR in Newark, New Jersey, KYPA in Los Angeles,
California, KWPA in Pomona, California, KXPA in Bellevue, Washington, KOBO in
Yuba City, California, KEST in San Francisco, California, KSJX in San Jose,
California and KKMO in Seattle, Washington, as well as the disposition of
certain assets and liabilities of PAR Holdings, Inc. Net gain recorded in 1997
included gain on sale of radio stations WEJM in Chicago, Illinois and WVVX in
Chicago, Illinois of $1.9 million and $0.8 million, respectively. As a
percentage of net revenue, net gain on sale of assets increased to 22% in 1998
from 20.5% in 1997.
Operating Income. Operating income increased to $4.6 million in 1998 from
$0.5 million in 1997, an increase of $4.1 million. The increase was primarily
the result of gains on the sale of assets of $5.7 million in 1998, as compared
to $2.7 million in 1997. The inclusion of the full year results of Vista
accounted for $1.6 million of the increase, which was partially offset by
higher expenses from the acquisition of radio stations. As a percentage of net
revenue, operating income increased to 17.7% in 1998 from 3.8% in 1997.
Excluding our 1998 and 1997 gains from sales of radio stations, operating
losses for 1998 would have been $1.1 million and for 1997 would have been
$2.2 million.
Interest Expense. Net interest expense increased to $5.3 million in 1998
from $2.1 million in 1997, an increase of $3.2 million. The increase was due
primarily to higher borrowings to fund acquisitions in 1998.
Net Loss. As a result of the above factors, we had a net loss of $1.2
million in 1998 compared to a net loss of $1.6 million in 1997, a decrease in
net loss of $0.4 million. As a percentage of net revenue, net loss decreased to
4.8% in 1998 from 12.5% in 1997. Excluding our 1997 extraordinary loss of $0.5
million related to early extinguishment of debt, net loss for 1997 would have
been
57
$1.1 million. As a percentage of net revenue, our net loss, excluding
extraordinary loss, decreased to 4.8% in 1998 from 8.2% in 1997.
Broadcast/Billboard Cash Flow. Broadcast/billboard cash flow increased to
$9.3 million in 1998 from $3.5 million in 1997, an increase of $5.8 million.
The inclusion of the full year results of Vista accounted for $3.2 million of
the increase. The remainder of the increase was due to the inclusion of Z-
Spanish Radio operations, offset by the station sales during 1998 and 1997. As
a percentage of net revenue, broadcast/billboard cash flow increased to 35.9%
in 1998 from 27.2% in 1997.
EBITDA. EBITDA increased to $5.6 million in 1998 from $0.6 million in 1997,
an increase of $5.0 million. The inclusion of the full year results of Vista
accounted for $2.9 million of the increase. The remainder of the increase was
due to the inclusion of Z-Spanish Radio operations, offset by the station sales
during 1998 and 1997. As a percentage of net revenue, EBITDA increased to 21.7%
in 1998 from 4.4% in 1997.
58
Segment Operations
Z-Spanish Media provides services through the following two reportable
segments:
. Radio Group--the Radio Group's portfolio consisted of 33 radio stations
(20 FM and 13 AM) at March 31, 2000, including one station operated under
a local marketing agreement.
. Outdoor Advertising--the Outdoor Advertising Group owned and operated
approximately 10,000 outdoor billboards at March 31, 2000.
The factors for determining reportable segments were based on services
provided. Each segment is responsible for executing a segment-specific business
strategy. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. We evaluate
performance based on profit or loss of operations before income taxes. The
following table summarizes the net revenue, operating income, total assets,
depreciation and amortization and capital expenditures by segment:
[Download Table]
Three Months
Historical Ended March 31,
--------------------------- ------------------
1997 1998 1999 1999 2000
------- -------- -------- -------- --------
Net Revenue:
Radio Broadcasting.......... $ 9,812 $ 15,391 $ 23,811 $ 4,786 $ 5,331
Outdoor Advertising......... 3,230 10,467 12,227 1,966 2,828
------- -------- -------- -------- --------
$13,042 $ 25,858 $ 36,038 $ 6,752 $ 8,159
======= ======== ======== ======== ========
Operating Income:
Radio Broadcasting.......... $ 2,448 $ 5,394 $ 8,376 $ 2,780 $ 279
Outdoor Advertising......... 1,022 2,846 869 (39) (422)
------- -------- -------- -------- --------
Total Reportable Segments.. 3,470 8,240 9,245 2,741 (143)
Corporate................... (2,975) (3,669) (4,773) (774) (1,897)
------- -------- -------- -------- --------
$ 495 $ 4,571 $ 4,472 $ 1,967 $ (2,040)
======= ======== ======== ======== ========
Total Assets:
Radio Broadcasting.......... $68,076 $169,664 $218,231 $186,401 $219,419
Outdoor Advertising......... 28,279 27,610 70,812 27,199 62,645
------- -------- -------- -------- --------
$96,355 $197,274 $289,043 $213,600 $282,064
======= ======== ======== ======== ========
Depreciation and
Amortization:
Radio Broadcasting.......... $ 2,130 $ 4,785 $ 5,983 $ 902 $ 1,713
Outdoor Advertising......... 617 1,951 2,687 513 1,130
------- -------- -------- -------- --------
$ 2,747 $ 6,736 $ 8,670 $ 1,415 $ 2,843
======= ======== ======== ======== ========
Capital Expenditures:
Radio Broadcasting.......... $ -- $ 695 $ 4,926 $ 298 $ 599
Outdoor Advertising......... 855 1,346 535 82 82
------- -------- -------- -------- --------
$ 855 $ 2,041 $ 5,461 $ 380 $ 681
======= ======== ======== ======== ========
Segment income from operations excludes interest income, interest expense
and provision for income tax.
59
Liquidity and Capital Resources
Our primary source of liquidity is cash provided by broadcasting and
billboard operations, and to the extent necessary, undrawn commitments
available under our bank credit facilities. We have both term and revolving
lines of credit totaling $143.9 million, of which $106.2 million was
outstanding as of March 31, 2000.
We have a $30.0 million revolving line of credit and a $43.9 million term
facility with a group of lenders. The facilities expire on January 20, 2006 and
are secured by substantially all of the assets and stock of Z-Spanish Media,
except for radio stations KLNZ-FM, Phoenix, and KZMP-FM, Dallas. The term
facility contains scheduled quarterly repayments which began March 31, 2000.
The revolving facility contains scheduled quarterly reductions in availability
beginning March 31, 2001. Both facilities contain financial covenants including
a requirement not to exceed a maximum debt to EBITDA ratio and interest and
fixed charge coverage ratios. The facilities contain other operating covenants,
including limits or our capital expenditures and restrictions on our ability to
incur additional indebtedness and pay dividends. The facilities require us to
maintain our FCC licenses for our broadcast properties. As of March 31, 2000,
the balance outstanding on the revolving credit facility was $6.0 million and
the balance outstanding on the term facility was $43.9 million. The interest
rate on these facilities was 9.0% at March 31, 2000.
Our acquisitions of KLNZ-FM and KZMP-FM were financed by a separate $20.0
million term facility with a group of lenders. This facility expires in full on
December 31, 2000, and is secured by the assets KLNZ-FM and KZMP-FM.
Outstanding borrowings under this facility were $18.1 million at March 31, 2000
bearing interest at 10.0%. The facility contains covenants, including
restrictions on our ability to incur additional indebtedness and pay dividends
and limits on capital expenditures. The terms of the facility also require us
to maintain the FCC licenses on the two stations.
Vista has a separate $15.0 million revolving credit facility and a $35.0
million term facility with a single lender. Both of these facilities expire
September 30, 2006 and are secured by substantially all of the assets and stock
of Vista. Vista's revolving facility contains scheduled quarterly reductions in
availability beginning March 31, 2001, and the term facility requires quarterly
repayments of principal beginning June 30, 2001. These facilities contain
financial covenants including a requirement not to exceed a maximum debt to
cash flow ratio, interest and fixed charge coverage ratios, and also limit
Vista's corporate overhead expenditures. The facilities also contain operating
covenants, including restrictions on Vista's ability to incur additional
indebtedness and pay dividends. As of March 31, 2000, the balance outstanding
on the revolving facility was $3.2 million, and the balance outstanding on the
term facility was $35.0 million. The interest rate on these facilities was 9.1%
at March 31, 2000.
Net cash flow provided by operating activities was $0.3 million for the
three months ended March 31, 2000 compared to net cash flow used in operating
activities of $1.3 million for the three months ended March 31, 1999. Changes
in our net cash flow from operating activities are primarily a result of
changes in advertising revenues and station operating expenses, which are
affected by the acquisition and disposition of stations during those periods.
Net cash flow used in operating activities during 1999 decreased to $0.3
million compared to $4.4 million in 1998. The decrease was primarily due to
acquisitions made in 1999 along with the inclusion of a full year of operations
from acquisitions made in 1998.
Net cash flow used in investing activities for the three months ended March
31, 2000 decreased to $1.0 million compared to $6.0 million for the three
months ended March 31, 1999. During the
60
three months ended March 31, 1999, we made radio acquisitions totaling
approximately $27.7 million. We funded these acquisitions through proceeds from
the issuance of common stock. The funding of these acquisitions was partially
offset by proceeds of approximately $20.5 million from radio station sales
during the three months ended March 31, 1999. Net cash flow used in investing
activities was $79.1 million in 1999 compared to net cash flow provided by
investing activities of $32.3 million in 1998. During 1999, we made radio
acquisitions totaling approximately $56.7 million, and Vista made acquisitions
of billboard and outdoor advertising properties totaling approximately $36.9
million. We funded these acquisitions through a combination of proceeds from
the issuance of common and preferred stock. The funding of these acquisitions
was partially offset by proceeds of approximately $23.7 million from radio
station sales during 1999.
Additionally, capital expenditures, which included broadcast equipment for
our radio stations, advertising displays, building, land, leasehold
improvements and computer and telecommunications equipment, totaled $0.7
million for the three months ended March 31, 2000, compared to $0.6 million for
the three months ended March 31, 1999. Capital expenditures totaled $5.5
million in 1999 and $2.0 million in 1998. The capital expenditures in 1999
included approximately $3.0 million in purchases of land for transmitter sites
and studio/office buildings.
Net cash flow used in financing activities was $3.3 million for the three
months ended March 31, 2000 compared to net cash flow provided by financing
activities of $17.1 million for the three months ended March 31, 1999. During
the three months ended March 31, 2000, we made a scheduled debt repayment on
our term loan of $1.1 million. We also made payments on our revolving lines of
credit of $1.9 million. During the three months ended March 31, 1999, we
received proceeds of $25.0 million from the issuance of common stock. A portion
of these proceeds was used for acquisitions of radio stations. Net cash flow
from financing activities was approximately $80.2 million during 1999. During
1999, we entered into new credit facilities totaling $130.0 million, of which
approximately $70.6 million was used to repay the existing debt facilities.
61
BUSINESS
Overview
We are a leading diversified media company utilizing a combination of
television, radio, outdoor and publishing operations to reach Hispanic
consumers in the United States. We operate in 32 of the top 50 U.S. Hispanic
markets. We currently own and operate television stations in 18 U.S. markets.
We are the largest Univision-affiliated station group in the United States.
Univision is a key source of programming for our television broadcasting
business and is a valuable strategic partner of ours. We also operate 64 radio
stations in 23 markets, including leading Spanish-language stations in
Los Angeles, San Francisco, Phoenix and Dallas-Ft. Worth. Our outdoor
operations consist of approximately 11,200 billboards concentrated in high-
density Hispanic communities in Los Angeles and New York. We also own two
publications, El Diario/La Prensa, the oldest major Spanish-language daily
newspaper in the United States, and VEA New York, a tourist publication.
The LCG Acquisition. Through our acquisition of LCG on April 20, 2000 for
$252 million, we added 17 radio stations to our 14 existing radio stations and
LCG's publishing operations. LCG's radio stations are located in nine radio
markets, including Los Angeles and San Francisco, which are two of the top ten
U.S. Hispanic markets.
The Z-Spanish Media Acquisition. Through our pending acquisition of Z-
Spanish Media, we will become the largest group of Spanish-language radio
stations and the largest centrally programmed radio network in the United
States targeting primarily Hispanic listeners. Z-Spanish Media also operates
one of the largest outdoor advertising companies in the United States focusing
on the Hispanic market. We have agreed to purchase Z-Spanish Media for $475
million, which includes approximately $110 million of debt.
The Infinity Broadcasting Outdoor Advertising Acquisition. We have agreed to
acquire certain outdoor advertising assets from Infinity Broadcasting
Corporation for $166.6 million consisting of approximately 1,200 billboards
located in high-density communities in New York City. This acquisition is an
asset purchase and we will acquire no new employees.
Other Acquisitions. We have agreed to acquire two television stations in the
Hartford and Orlando markets, two radio stations in the Los Angeles market and
four radio stations in the McAllen, Texas market for an aggregate of
approximately $181 million.
The Hispanic Market Opportunity
While Hispanics represent approximately 11% of the U.S. population and the
U.S. Hispanic population is growing six times faster than the non-Hispanic
population, they are currently targeted by less than 3% of total advertising
dollars. Advertisers have recently begun to direct more advertising dollars
toward U.S. Hispanics and, consequently, Spanish-language advertising is
currently growing at more than four times the rate of total advertising. We
believe that we have benefited and will continue to benefit from the following
industry trends and attributes in the United States:
Spanish-Language Use. Approximately 68% of all Hispanics, regardless of
income or educational level, speak Spanish at home. This percentage is expected
to remain relatively constant through 2010. The number of Hispanics who speak
Spanish in the home is expected to grow from 22.1 million in 2000 to 27.8
million in 2010. We believe that the strong Spanish-language use among
Hispanics indicates that Spanish-language media will continue to be an
important source of news, sports and entertainment for Hispanics and an
important vehicle for our marketing and advertising.
62
Hispanic Population Growth and Concentration. Our audience consists
primarily of Hispanics, one of the fastest growing segments of the U.S.
population. In 2000, the Hispanic population is estimated to grow to 32.4
million in the United States (11.8% of the total population), an increase of
36.4% from 23.7 million (9.5% of the total population) in 1990. The overall
Hispanic population is growing at approximately six times the rate of the non-
Hispanic U.S. population and is expected to grow to 42.4 million (14.2% of the
total U.S. population) by 2010.
Source: Standard & Poor's DRI.
[HISPANIC POPULATION CHART]
Greater Hispanic Buying Power. The Hispanic population accounted for total
consumer expenditures of $380 billion in 1998, an increase of 76% since 1990.
Hispanics are expected to account for $443 billion in consumer expenditures in
2000, and $939 billion by 2010. We believe these factors make Hispanics an
attractive target audience for many major U.S. advertisers.
Source: Standard & Poor's DRI.
[HISPANIC CONSUMER SPENDING CHART]
63
Increased Spanish-Language Advertising. According to published sources,
$1.9 billion of total advertising expenditures in the United States were placed
in Spanish-language media in 1999. Approximately 58% of that $1.9 billion was
placed in Spanish-language television advertising. We believe that major
advertisers have found that Spanish-language media is a more cost-effective
means to target the growing Hispanic audience than English-language broadcast
media.
Attractive Profile of Hispanic Consumers. We believe the demographic profile
of the Hispanic audience makes it attractive to advertisers. The larger size
and younger age of Hispanic households (averaging 3.4 persons and 27.5 years of
age as compared to the general public's average of 2.5 persons and 36.5 years
of age) lead Hispanics to spend more per household on many categories of goods
and services. The average U.S. Hispanic household spends 27% more per year than
the average non-Hispanic U.S. household on food at home, 100% more on
children's clothing, 35% more on footwear, 12% more on phone services and 23%
more on laundry and household cleaning products. We expect Hispanics to
continue to account for a disproportionate share of growth in spending
nationwide in many important consumer categories as the Hispanic population and
its disposable income continue to grow.
Business Strategy
We seek to increase our advertising revenue through the following
strategies:
Effectively Use Our Network and Media Brands. We are the largest Univision
television affiliate group, the largest operator of Spanish-language radio
stations and the largest centrally programmed Spanish-language radio network in
the United States. Univision reaches 92% of all Hispanic households and has an
approximately 86% household share of the U.S. Spanish-language network
television prime-time audience. Univision makes available to our television
stations 24 hours a day of Spanish-language programming including a prime time
schedule of substantially all first-run programming (i.e., no reruns)
throughout the year. We operate our radio networks using seven primary formats
designed to appeal to different listener tastes. We format the programming of
our network and radio stations to capture a substantial share of the U.S.
Hispanic audience.
Invest in Media Research and Sales. We believe that continued use of
reliable ratings and surveys will allow us to further increase our advertising
rates and narrow the gap which has historically existed between our audience
share and our share of advertising revenue. We use industry ratings and
surveys, including Nielsen, Arbitron, the Traffic Audit Bureau and the Audit
Bureau of Circulation, to provide a more accurate measure of consumers that we
reach with our operations. We believe that our focused research and sales
efforts will enable us to continue to achieve significant revenue growth.
Continue to Build and Retain Strong Management Teams. We believe we have one
of the most experienced management teams in the industry. Walter F. Ulloa, our
Chairman and Chief Executive Officer, Philip C. Wilkinson, our President and
Chief Operating Officer, Jeanette Tully, our Chief Financial Officer, Amador S.
Bustos, the President of our Radio Division, and Glenn Emanuel, the President
of our Outdoor Division, have an average of 20 years of media experience. We
intend to continue to build and retain our key management personnel and to
capitalize on their knowledge and experience in the Spanish-language markets.
Emphasize Local Content, Programming and Community Involvement. We believe
that local content in each market we serve is an important part of building our
brand identity within the community. By combining our local news and quality
network programming, we believe we have a
64
significant competitive advantage. We also believe that our active community
involvement, including station remote broadcasting appearances at client and
customer events, concerts and tie-ins to major events, helps to build station
awareness and identity as well as viewer and listener loyalty.
Increase In-Market Cross Promotion. Our strategy is to cross-promote our
television and radio stations, outdoor and publishing properties. In addition,
we believe we will add significant value to our advertisers by providing
attractive media packages to target the Hispanic consumer.
Target Other Attractive Hispanic Markets and Fill-In Acquisitions. We
believe our knowledge of, and experience with, the Hispanic marketplace will
enable us to continue to identify acquisitions in the television, radio,
outdoor and publishing markets. Since our inception, we have used our
management expertise, programming and brand identity to improve our acquired
media properties.
Television
Overview
We own and operate Univision-affiliated stations in 17 of the top 50
Hispanic markets in the United States. Our television operations are the
largest affiliate group of Univision stations. Univision is the leading
Spanish-language broadcaster in the United States, reaching more than 92% of
all Hispanic households, which represents an approximately 86% market share of
the U.S. Spanish-language network television audience as of December 1999.
Univision is the most watched television network (English- or Spanish-language)
among Hispanic households and makes available to our Univision-affiliated
stations 24 hours a day of Spanish-language programming. Univision's prime time
schedule is all first-run programming (i.e., no reruns) through the year. We
believe that the breadth and diversity of Univision's programming, combined
with our local news and community-oriented segments, provide us with an
advantage over other Spanish-language and English-language broadcasters in
reaching Hispanic viewers. Our local content is designed to brand each of our
stations as the best source for relevant community information that accurately
reflects local interests and needs. As a result, all but one of our Univision-
affiliated stations rank first in Spanish-language television viewership in
their markets.
Television Programming
Univision Network Programming. Univision directs its programming primarily
toward its young, family-oriented audience. It begins daily with Despierta
America and other talk and information shows, Monday through Friday, followed
by novelas. In the late afternoon and early evening, Univision offers a talk
show, a news-magazine and national news, in addition to local news produced by
our television stations. During prime time, Univision airs novelas, variety
shows, a talk show, comedies, news magazines and lifestyle shows, as well as
specials and movies. Prime time is followed by late news and a late night talk
show. Overnight programming consists primarily of repeats of programming aired
earlier in the day. Weekend daytime programming begins with children's
programming, followed by sports, variety, teen lifestyle shows and movies.
Approximately eight to ten hours of programming per weekday, including a
substantial portion of weekday prime time, are currently programmed with
novelas supplied primarily by Grupo Televisa and Venevision. Although novelas
have been compared to daytime soap operas on ABC, NBC or CBS, the differences
are significant. Novelas, originally developed as serialized books, have a
beginning, middle and end, generally run five days per week and conclude four
to eight months
65
after they begin. Novelas also have a much broader audience appeal than soap
operas, delivering audiences that contain large numbers of men, children and
teens in addition to women.
Entravision Local Programming. We produce and broadcast local news in all
but two of our markets. We believe that our local news brands each of our
stations in the market. We shape our local news to relate to our target
audiences. In seven of our television markets, our local news is ranked first
among viewers 18-34 in any language. We have made substantial investments in
people and equipment in order to provide our local communities with quality
newscasts. Our local newscasts have won numerous awards, and we strive to be
the most important community voice in each of our local markets.
Network Affiliation Agreements. All but four of our television stations have
entered into network affiliation agreements with Univision that provide each
station with the exclusive right to broadcast the Univision network programming
in its respective market. These affiliation agreements have initial terms of 25
years expiring in 2021. Under the affiliation agreements, Univision retains the
right to sell approximately six minutes per hour of the advertising time
available during the Univision schedule, with the remaining six minutes per
hour available for sale by our stations.
Our network affiliation agreement with the United Paramount Network, or UPN,
gives us the right to provide UPN network programming for a ten-year period on
XUPN-TV serving the Tecate/San Diego market. A related participation agreement
grants UPN a 20% interest in the appreciation of XUPN-TV above $35 million.
XHAS-TV broadcasts Telemundo network programming serving the Tijuana/San Diego
market pursuant to a network affiliation agreement which expires on December
31, 2000. We intend to renegotiate this contract when it expires.
66
Our Television Station Portfolio
The following table lists information concerning each of our television
stations and its respective market:
[Enlarge/Download Table]
Market Rank
(by Hispanic Total Hispanic % Hispanic
Market Households)(1) Households(1) Households(1) Households(1) Call Letters, Channel
--------------------------------------------------------------------------------
Harlingen-Weslaco- 9 254,460 206,720 81.2% KNVO-TV, Channel 48
Brownsville-McAllen,
Texas
------------------------------------------------------------------------------------------------------------------
San Diego, California 11 980,620 189,110 19.3% KBNT-LP, Channel 19
KTCD-LP, Channel 46 (2)
KHAX-LP, Channel 49 (2)
------------------------------------------------------------------------------------------------------------------
Albuquerque-Santa Fe, 12 568,650 189,050 33.2% KLUZ-TV, Channel 41
New Mexico K48AM, Channel 48
------------------------------------------------------------------------------------------------------------------
El Paso, Texas 13 276,980 177,980 64.3% KINT-TV, Channel 26
------------------------------------------------------------------------------------------------------------------
Denver-Boulder, Colorado 16 1,268,230 137,780 10.9% KCEC-TV, Channel 50
K43DK, Channel 43
K03EM, Channel 3
------------------------------------------------------------------------------------------------------------------
Washington, D.C. 18 1,999,870 103,340 5.2% WMDO-LP, Channel 30
------------------------------------------------------------------------------------------------------------------
Corpus Christi, Texas 19 184,900 98,970 53.5% KORO-TV, Channel 28
------------------------------------------------------------------------------------------------------------------
Tampa-St. Petersburg 19 1,485,980 98,970 6.7% WBSV-TV, Channel 62
(Sarasota), Florida WVEA-LP, Channel 61
------------------------------------------------------------------------------------------------------------------
Orlando-Daytona Beach- 24 1,101,920 79,000 7.2% WNTO-TV, Channel 26 (3)
Melbourne, Florida WVEN-LP, Channel 63
------------------------------------------------------------------------------------------------------------------
Las Vegas, Nevada 25 521,200 72,460 13.9% KINC-TV, Channel 15
K27AF, Channel 27
K47EG, Channel 47
------------------------------------------------------------------------------------------------------------------
Monterey-Salinas-Santa Cruz, 26 228,630 60,820 26.6% KSMS-TV, Channel 67
California
------------------------------------------------------------------------------------------------------------------
Hartford-New Haven, 28 915,940 53,740 5.9% WHCT-TV, Channel 18 (3)
Connecticut
------------------------------------------------------------------------------------------------------------------
Laredo, Texas 31 54,540 50,350 92.3% KLDO-TV, Channel 27
------------------------------------------------------------------------------------------------------------------
Colorado Springs-Pueblo, 33 290,830 45,400 15.6% KGHB-LP, Channel 27
Colorado
------------------------------------------------------------------------------------------------------------------
Santa Barbara-Santa 34 228,350 44,590 19.5% KPMR-TV, Channel 38 (3)(4)
Maria-San Luis Obispo,
California
------------------------------------------------------------------------------------------------------------------
Yuma, Arizona-El Centro, 36 86,960 43,000 49.5% KVYE-TV, Channel 7
California
------------------------------------------------------------------------------------------------------------------
Odessa-Midland, Texas 37 138,510 41,890 30.2% KUPB-TV, Channel 18 (4)
------------------------------------------------------------------------------------------------------------------
Lubbock, Texas 39 147,570 39,700 26.9% KBZO-LP, Channel 51
------------------------------------------------------------------------------------------------------------------
Palm Springs, California 42 115,070 34,260 29.8% KVER-LP, Channel 4
K05JY, Channel 5
K28ET, Channel 28
------------------------------------------------------------------------------------------------------------------
Amarillo, Texas 43 191,450 31,460 16.4% K22FP, Channel 48 (4)
------------------------------------------------------------------------------------------------------------------
San Angelo, Texas 66 51,460 13,920 27.1% K31DM, Channel 31
------------------------------------------------------------------------------------------------------------------
Tecate, Baja California, -- -- -- -- XUPN-TV, Channel 49 (5)
Mexico
------------------------------------------------------------------------------------------------------------------
Tijuana, Mexico -- -- -- -- XHAS-TV, Channel 33 (6)
(1) Source: Nielsen Media Research year 2000 population estimates.
(2) We own a 47.5% equity interest in the entity that holds the FCC license to
this station, with an option to acquire an additional 47.5%. We provide
substantially all of the programming and related services available on
this station pursuant to a time brokerage agreement.
(3) Pending acquisition.
(4) Regular broadcast operations not yet commenced.
(5) We hold a minority, limited voting interest (neutral investment stock) in
the entity that holds the broadcast license for this station. We provide
substantially all of the programming and related services available on
this station under a time brokerage agreement.
(6) We hold a minority, limited voting interest (neutral investment stock) in
the entity that has applied for the broadcast license for this station. We
will provide substantially all of the programming and related services
available on this station under a time brokerage agreement.
67
Television Advertising
In 1998, 47% of our television revenue consisted of national television
advertising sales and 52% of our television revenue consisted of local
television advertising sales. National television advertising revenue accounted
for 42% of our total television advertising revenue for 1999, with 57% being
local television advertising revenue. In 1999, no single advertiser accounted
for a significant portion of our gross revenue.
National Advertising. National advertising revenue represents commercial
time sold to a national advertiser within a specific market by Univision, our
national representative firm. For these sales, Univision is paid a 15%
commission on the net revenue from each sale (gross revenue less agency
commission). We target the largest national Spanish-language advertisers that
collectively purchase the greatest share of national advertisements through
Univision. The Univision representative works closely with each station's
national sales manager. This has enabled us to secure major national
advertisers, including Ford Motor Company, General Motors, Southwestern Bell,
McDonald's, Burger King and Anheuser-Busch.
Local Advertising. Local advertising revenue is generated from commercial
air time and is sold directly by the station to an in-market advertiser or its
agency.
Television Audience Research
We derive our revenue primarily from selling advertising time. The relative
advertising rates charged by competing stations within a market depend
primarily on four factors:
. the station's ratings (households or people viewing its programs as a
percentage of total television households or people in the viewing
area);
. audience share (households or people viewing its programs as a
percentage of households or people actually watching television at a
specific time);
. the time of day the advertising will run; and
. the demographic qualities of a program's viewers (primarily age and
gender).
Nielsen ratings provide advertisers with the industry-accepted measure of
Hispanic audience television viewership and have been important in allowing us
to demonstrate to advertisers our ability to reach the Hispanic audience. We
believe that continued use of accurate, reliable ratings will allow us to
further increase our advertising rates and narrow the gap which has
historically existed between our audience share and our share of advertising
revenue. We have made significant investments in experienced sales managers and
account executives and have provided our sales professionals with research
tools to continue to attract major advertisers.
The various Nielsen rating services that we use are described below:
Nielsen Hispanic Station Index. This service measures Hispanic household
viewing at the local market level. Each sample also reflects the varying levels
of language usage by Hispanics in each market in order to more accurately
reflect the Hispanic household population in the relevant market. Nielsen
Hispanic Station Index only measures the audience viewing of Hispanic
households, that is, households where the head of the household is of Hispanic
descent or origin. Although this offers improvements over previous measurement
indices, we believe it still underreports the number of viewers watching
Entravision programming because we have viewers who do not live in Hispanic
households.
68
Nielsen Station Index. This service measures local station viewing of all
households in a specific market. We buy these reports in all of our markets to
measure our viewing against both English- and Spanish-language competitors.
This rating service, however, is not language-stratified and generally
underrepresents Spanish-speaking households. As a result, we believe that this
typically underreports viewing of Spanish-language television. Despite this
limitation, the Nielsen Station Index demonstrates that many of our full-power
broadcast stations achieve total market ratings that are fully comparable with
their English-language counterparts, with five of our full-power television
stations ranking as the top station in their respective markets.
Television Competition
We compete for viewers and revenues with other Spanish-language and English-
language television stations and networks, including the four principal
English-language television networks, ABC, CBS, NBC and Fox, and in certain
cities, UPN and WB. Certain of these English-language networks and others have
begun producing Spanish-language programming and simulcasting certain
programming in English and Spanish. Several cable broadcasters have recently
commenced, or announced their intention to commence, Spanish-language services
as well.
Telemundo is a large competitor that broadcasts Spanish-language television
programming. As of December 31, 1999, Telemundo served 64 markets in the United
States and Puerto Rico, and reached approximately 85% of all Hispanic
households in those areas. In some of our markets, we compete directly with a
station owned by or affiliated with Telemundo. We also compete for viewers and
revenues with independent television stations, other video media, suppliers of
cable television programs, direct broadcast systems, newspapers, magazines,
radio and other forms of entertainment and advertising.
Radio
Overview
We currently own and operate 64 radio stations in 23 markets. Our radio
stations cover in aggregate approximately 60% of the Hispanic audience and 61
of our stations are located in the top 50 Hispanic markets. We also provide
programming to 47 affiliate stations in 46 markets. Our radio operations
combine national programming with local time slots available for advertising,
news, traffic, weather, promotions and community events. This strategy allows
us to provide quality programming with significantly lower costs of operations
than we could otherwise deliver solely with independent programming.
Radio Programming
Radio Networks. Through our radio network, we have created the single
largest U.S. Hispanic radio market, currently with over 17 million potential
listeners. Our networks allow listeners to call a toll-free number and
communicate with family and friends across our markets. Our networks also allow
clients with national product distribution to deliver a uniform advertising
message to the fast growing Hispanic market around the country in an efficient
manner and at a cost that is generally lower than our English-language
counterparts.
69
Although our networks have a broad reach across the United States,
technology allows our stations to offer the necessary local feel and to be
responsive to local clients and community needs. Designated time slots are used
for local advertising, news, traffic, weather, promotions and community events.
The audience gets the benefit of a national radio sound along with local
content. To further enhance this effect, our on-air personalities frequently
travel to participate in local promotional events. For example, in selected key
markets our on-air personalities appear at special shows on location for
network-wide broadcast. We promote these events as "broadcasting live from" to
bond the national personalities to local listeners. Furthermore, all of our
stations can disconnect from the networks and operate independently in the case
of a local emergency or a problem with the central satellite transmission.
Our network formats are currently used by 47 affiliates located in 46
markets across the United States. Our affiliates receive our programming in
exchange for two minutes per hour for network commercials. Affiliates are
allowed up to 16 minutes per hour for local advertisements and content. Our
affiliates receive quality programming at a significantly lower cost than they
could produce themselves. We benefit by having extended national coverage
without the capital expenditures necessary to buy and manage stations in those
markets. The extended coverage also allows the network to charge higher rates
as its delivery of the U.S. Hispanic market grows.
Radio Formats. We produce programming in a variety of music formats that are
simultaneously distributed via satellite with a digital CD-quality sound to our
owned and affiliate stations. We offer seven primary formats which appeal to
different listener preferences:
. Radio Romantica is an adult-contemporary, romantic ballads/current hits
format, targeting Hispanics 18-49 (primarily females).
. Radio Tricolor is a personality-driven, Mexican country-style format,
targeting Hispanics 18-49 (primarily males).
. Super Estrella is a music-driven, pop and alternative Spanish rock
format, targeting Hispanics 18-34 (males and females).
. La Zeta is a top hits Spanish format with recognizable radio
personalities. The music is primarily from the northern and central
regions of Mexico, targeting Hispanics 18-49 (primarily males).
. La Bonita is an international Spanish classic hits/nostalgia format,
targeting Hispanics 25-54 (primarily females).
. La Buena is a Spanish version of an English format called "young
country." This music-intensive format features music primarily from
central and northern Mexico, targeting Hispanics 18-34 (males and
females).
. Z MegaHits is an English-language rhythmic oldies format consisting of
70's and early 80's top 40 hits geared to second and third generation
Hispanics, targeting Hispanics 25-54 (primarily females).
70
Our Radio Station Portfolio
The following table lists information concerning each of our owned and
operated radio stations and its respective market:
[Enlarge/Download Table]
Market Rank
(by Hispanic
Market Households)(1) Station Frequency Format
-------------------------------------------------------------------------------------------------
Los Angeles, California 1 KACD-FM 103.1 MHz Super Estrella (2)
KBCD-FM 103.1 MHz Super Estrella (2)
KSSE-FM 97.5 MHz Super Estrella
Riverside-San Bernardino, KCAL-AM 1410 kHz Radio Tricolor
California KSZZ-AM 590 kHz Radio Tricolor
-------------------------------------------------------------------------------------------------
Miami-Ft. Lauderdale- 3 WLQY-AM 1320 kHz Time Brokered (3)
Hollywood, Florida
-------------------------------------------------------------------------------------------------
San Francisco-San Jose, 4 KBRG-FM 100.3 MHz Radio Romantica
California
KLOK-AM 1170 kHz Radio Tricolor
KZSF-AM 1370 kHz La Zeta
-------------------------------------------------------------------------------------------------
Chicago, Illinois 5 WRZA-FM 99.9 MHz La Zeta
WZCH-FM 103.9 MHz La Zeta
WNDZ-AM 750 kHz Time Brokered (3)
-------------------------------------------------------------------------------------------------
Houston-Galveston, Texas 6 KGOL-AM 1180 kHz Time Brokered (3)
-------------------------------------------------------------------------------------------------
Dallas-Ft. Worth, Texas 8 KRVA-FM (4) 106.9 MHz La Buena
KRVF-FM (4) 107.1 MHz La Buena
KZMP-FM 101.7 MHz La Zeta
KRVA-AM 1600 kHz La Buena
KZMP-AM 1540 kHz La Bonita
-------------------------------------------------------------------------------------------------
Harlingen-Weslaco-
Brownsville-McAllen, 9 KFRQ-FM (5) 94.5 MHz Classic Rock
Texas KKPS-FM (5) 99.5 MHz Tejano
KVLY-FM (5) 107.9 MHz Adult Contemporary
KVPA-FM (5) 101.1 MHz International Spanish Hits
-------------------------------------------------------------------------------------------------
Phoenix, Arizona 10 KLNZ-FM 103.5 MHz La Zeta
KVVA-FM 107.1 MHz Spanish Contemporary
KUET-AM (6) 710 kHz --
-------------------------------------------------------------------------------------------------
Albuquerque-Santa Fe, New
Mexico 12 KRZY-FM 105.9 MHz Radio Romantica
KRZY-AM 1450 kHz Radio Tricolor
-------------------------------------------------------------------------------------------------
El Paso, Texas 13 KINT-FM 93.9 MHz La Caliente (top 40)
KATH-FM 94.7 MHz Country (English)
KOFX-FM 92.3 MHz Oldies (English)
KSVE-AM 1150 kHz Radio Unica
KBIV-AM (7) 1650 kHz --
-------------------------------------------------------------------------------------------------
Fresno, California 14 KZFO-FM 92.1 MHz La Zeta
KHOT-AM 1250 kHz La Bonita
-------------------------------------------------------------------------------------------------
Sacramento, California 15 KHZZ-FM 104.3 MHz Z MegaHits
KRCX-FM 99.9 MHz Radio Tricolor
KRRE-FM 101.9 MHz Radio Romantica
KZSA-FM 92.1 MHz La Zeta
KSQR-AM 1240 kHz La Bonita
Stockton, California KMIX-FM 100.9 MHz La Buena
KCVR-AM 1570 kHz La Bonita
Modesto, California KTDO-FM 98.9 MHz Z MegaHits
KZMS-FM 97.1 MHz La Zeta
KLOC-AM (8) 920 kHz La Bonita
-------------------------------------------------------------------------------------------------
Denver-Boulder, Colorado 16 KJMN-FM 92.1 MHz Radio Romantica
KMXA-AM 1090 kHz Radio Tricolor
-------------------------------------------------------------------------------------------------
Washington, D.C. 18 WACA-AM (9) 1540 kHz Time Brokered (3)
-------------------------------------------------------------------------------------------------
Tucson, Arizona 21 KZLZ-FM 105.3 MHz La Zeta
-------------------------------------------------------------------------------------------------
Las Vegas, Nevada 25 KVBC-FM 105.1 MHz Radio Romantica
-------------------------------------------------------------------------------------------------
Monterey-Salinas-Santa 26 KLOK-FM 99.5 MHz Radio Tricolor
Cruz, California KHMZ-FM (4)(8) 97.9 MHz Z MegaHits
KHNZ-FM (4) 106.3 MHz Z MegaHits
KRAY-FM 103.5 MHz La Buena
KSES-FM 107.1 MHz Super Estrella
KZSL-FM 93.9 MHz La Zeta
KCTY-AM (8) 980 kHz La Bonita
KSES-AM 700 kHz Super Estrella
KTGE-AM (8) 1570 kHz Regional Mexican
-------------------------------------------------------------------------------------------------
Brawley, California 36 KWST-FM 94.5 MHz Country (English)
El Centro, California KAMP-AM 1430 kHz News/Talk
Imperial, California KMXX-FM 99.3 MHz Radio Tricolor
-------------------------------------------------------------------------------------------------
Lubbock, Texas 39 KBZO-AM 1460 kHz La Zeta
-------------------------------------------------------------------------------------------------
Palm Springs, California 42 KLOB-FM 94.7 MHz Radio Tricolor
-------------------------------------------------------------------------------------------------
Reno, Nevada 51 KRNV-FM 101.7 MHz Radio Tricolor
-------------------------------------------------------------------------------------------------
Chico, California 69 KZCO-FM 97.7 MHz Z MegaHits
KEWE-AM 1340 kHz Time Brokered (3)
71
(1) Source: Nielsen Media Research year 2000 population estimates.
(2) Pending acquisition--intended format.
(3) Operated pursuant to a local marketing agreement under which we grant to
the operator the right to program the station.
(4) Simulcast station.
(5) Pending acquisition.
(6) Under an FCC construction permit.
(7) Not yet operating--expanded band for Station KSVE-AM.
(8) We intend to divest this station in order to comply with FCC rules.
(9) We have agreed to sell this station, the closing of which we expect will
take place after the closing of this offering.
Radio Advertising
Substantially all of the revenue from our radio operations is derived from
local, national and network advertising.
Local. This form of revenue refers to advertising usually purchased by a
local client or agency directly from the station's sales force. In 1999, local
radio revenue comprised 64% of our total radio revenue.
National. This form of revenue refers to advertising purchased by a national
client targeting a specific market. Usually this business is placed by a
national advertising agency or media buyer and ordered through one of the
offices of our national sales representative, Caballero Spanish Media. The
national accounts are handled locally by the station's general sales manager.
In 1999, 26% of our total radio revenue was from national radio advertising.
Network. This form of revenue refers to advertising that is placed on our
entire network of stations. This business is placed as a single order and is
broadcast from the network's central location. The network advertising can be
placed by a local account executive that has a client in its market that wants
national exposure. Network inventory can also be sold by corporate executives,
by our national representative or by two other entities with whom we have
network sales agreements, the Jones Radio Network and the Hispanic Broadcasting
Company Radio Network. In 1999, network radio revenue accounted for 10% of our
total radio revenue.
Radio Marketing/Audience Research
We believe that radio is an efficient means for advertisers to reach
targeted demographic groups. Advertising rates charged by our radio stations
are based primarily on the following factors:
. the station's ability to attract listeners in a given market;
. the demand for available air time;
. the attractiveness of the demographic qualities of the listeners
(primarily age and purchasing power);
. the time of day that the advertising runs;
. the program's popularity with listeners; and
. the availability of alternative media in the market.
72
In the smaller and mid-sized markets, Spanish-language radio continues to be
more of a concept sale. In the larger markets, Arbitron provides advertisers
with the industry-accepted measure of listening audience classified by
demographic segment and time of day that the listeners spend on particular
radio stations. Radio advertising rates generally are highest during the
morning and afternoon drive-time hours which are the peak times for radio
audience listening.
We believe that having multiple stations in a market is desirable to enable
the broadcaster to provide alternatives and to command higher advertising rates
and budget share. Historically, advertising rates for Spanish-language radio
stations have been lower than those of English-language stations with similar
audience levels. We believe we will be able to increase our rates as new and
existing advertisers recognize the growing desirability of targeting the
Hispanic population in the United States.
Each station broadcasts an optimal number of advertisements each hour,
depending upon its format, in order to maximize the station's revenue without
jeopardizing its audience listenership. Our owned stations have up to
15 minutes per hour for commercial inventory and local content. Our network has
up to four additional minutes of commercial inventory per hour. The pricing is
based on a rate card and negotiations subject to the supply and demand for the
inventory in each particular market and the network.
Radio Competition
Radio broadcasting is a highly competitive business. The financial success
of each of our radio stations and markets depends in large part on our audience
ratings, our ability to increase our market share of the overall radio
advertising revenue and the economic health of the market. In addition, our
advertising revenue depends upon the desire of advertisers to reach our
audience demographic. Each of our radio stations competes for audience share
and advertising revenue directly with both Spanish-language and English-
language radio stations in its market, and with other media within their
respective markets, such as newspapers, broadcast and cable television,
magazines, billboard advertising, transit advertising and direct mail
advertising. Our primary competitors in our markets in Spanish-language radio
are Hispanic Broadcasting Corporation, Radio Unica Communications Corp. and
Spanish Broadcasting System, Inc. Several of the companies with which we
compete are large national or regional companies that have significantly
greater resources and longer operating histories than we do.
Factors that are material to competitive position include management
experience, the station's rank in its market, signal strength and audience
demographics. If a competing station within a market converts to a format
similar to that of one of our stations, or if one of our competitors upgrades
its stations, we could suffer a reduction in ratings and advertising revenue in
that market. The audience ratings and advertising revenue of our individual
stations are subject to fluctuation and any adverse change in a particular
market could have a material adverse effect on our operations.
The radio industry is subject to competition from new media technologies
that are being developed or introduced, such as:
. audio programming by cable television systems, direct broadcast
satellite systems, Internet content providers and other digital audio
broadcast formats;
. satellite digital audio service, which could result in the introduction
of new satellite radio services with sound quality comparable to that of
compact disks; and
. in-band on-channel digital radio, which could provide multi-channel,
multi-format digital radio services in the same bandwidth currently
occupied by traditional AM and FM radio services.
73
Outdoor Advertising/Publishing
Overview
Our outdoor and publishing operations complement our television and radio
businesses and will allow for cross-promotional opportunities. Because of its
repetitive impact and relatively low cost, outdoor advertising attracts
national, regional and local advertisers. We offer the ability to target
specific demographic groups on a cost-effective basis as compared to other
advertising media. In addition, we provide businesses with advertising
opportunities in locations near their stores or outlets.
Our outdoor portfolio adds to our television and radio reach by providing
local advertisers with significant coverage of the Hispanic communities in Los
Angeles and New York. Our outdoor advertising strategy is designed to
complement our existing television and radio businesses by allowing us to
capitalize on our Hispanic market expertise. The primary components of our
strategy are to leverage the strengths of our inventory, continue to focus on
ethnic communities and increase market penetration.
Outdoor Advertising Markets
We own approximately 11,200 billboards concentrated in high-density Hispanic
communities in Los Angeles and New York, the two largest markets in the United
States. According to the Outdoor Advertising Association of America, Inc., an
industry trade association, outdoor advertising in the United States generated
total revenue of approximately $4.8 billion in 1999, compared to $4.4 billion
in 1998. We believe our outdoor advertising appeals to both large and small
businesses.
Los Angeles. The greater Los Angeles market has a population of
approximately 15.3 million, of which approximately six million or 39% are
Hispanic. As such, Los Angeles ranks as the largest Hispanic advertising market
in the United States. Approximately 87% of our billboard inventory in Los
Angeles is located in neighborhoods where Hispanics represent at least 30% of
the local population, based on the 1990 Census Report. We believe that this
coverage of the Hispanic population has increased significantly since 1990 as
the Hispanic community continues to grow into communities previously populated
by other demographic groups. The Los Angeles metropolitan area has miles of
freeways and surface streets where the average commuter spends in excess of
75 minutes per day in the car.
New York. The greater New York City area has a population of approximately
18.3 million, of which approximately 3.2 million or 17.6% are Hispanic. As
such, New York ranks as the second largest Hispanic advertising market in the
United States.
Billboard Inventory
[Download Table]
Inventory Type Los Angeles New York
-------------- ----------- --------
8-sheet posters............................................ 6,000 3,500
City-Lights................................................ 250 0
30-sheet posters........................................... 0 1,075
Wall-Scapes................................................ 5 187
Bulletins.................................................. 20 164
----- -----
Total...................................................... 6,275 4,926
===== =====
74
Our inventory consists of the following types of billboards that are
typically located on sites that we have leased or have a permanent easement:
8-sheet posters are generally 6 feet high by 12 feet wide. Due to the
smaller size of this type of billboard, 8-sheet posters are often located in
densely populated or fast growing areas where larger signs do not fit or are
not permitted, such as parking lots and other tight areas. Accordingly, most of
our 8-sheet posters are concentrated on city streets, targeting both pedestrian
and vehicular traffic and are sold to advertisers for periods of four weeks.
City-Lights is a product we created in 1998 to serve national advertisers
with a new advertising format visible both during the day and night. The format
is typically used by national fashion, entertainment and consumer products
companies desiring to target consumers within proximity of local malls or
retail outlets. A City-Lights structure is approximately 7 feet by 10 feet set
vertically on a single pole structure. The advertisement is usually housed in
an illuminated glass casing for greater visibility at night and is sold to
advertisers for a period of four weeks.
30-sheet posters are generally 12 feet high by 25 feet wide and are the most
common type of billboard. Lithographed or silk-screened paper sheets that are
supplied by the advertiser are pre-pasted and packaged in airtight bags by the
outdoor advertising company and applied, like wallpaper, to the face of the
display. The 30-sheet posters are concentrated on major traffic arteries and
space is usually sold to advertisers for periods of four weeks.
Wall-Scapes generally consist of advertisements ranging in a variety of
sizes (from 120 to 800 square feet) which are displayed on the sides of
buildings in densely populated locations. Advertising formats can include
either vinyl prints or painted artwork. Because of a Wall-Scape's greater
impact and higher cost relative to other types of billboards, space is usually
sold to advertisers for periods of six to 12 months.
Bulletins are generally 14 feet high and 48 feet wide and consist of panels
or a single sheet of vinyl that are hand painted at the facilities of the
outdoor advertising company or computer painted in accordance with design
specifications supplied by the advertiser and mounted to the face of the
display. Because of painted bulletins' greater impact and higher cost relative
to other types of billboards, they are usually located near major highways and
are sold for periods of six to 12 months.
Outdoor Advertising Revenue
Advertisers usually contract for outdoor displays through advertising
agencies, which are responsible for the artistic design and written content of
the advertising. Advertising contracts are negotiated on the basis of monthly
rates published in our "rate card." These rates are based on a particular
display's exposure (or number of "impressions" delivered) in relation to the
demographics of the particular market and its location within that market. The
number of "impressions" delivered by a display (measured by the number of
vehicles passing the site during a defined period and weighted to give effect
to such factors as its proximity to other displays and the speed and viewing
angle of approaching traffic) is determined by surveys that are verified by the
Traffic Audit Bureau, an independent agency which is the outdoor advertising
industry's equivalent of television's Nielsen ratings and radio's Arbitron
ratings.
In each of our markets, we employ salespeople who sell both local and
national advertising. Our 1999 outdoor advertising revenue mix consisted of
approximately 60% national advertisers and 40% local advertisers. We believe
that our local sales force is crucial to maintaining relationships with key
advertisers and agencies and identifying new advertisers.
75
Outdoor Advertising Competition
We compete in each of our outdoor markets with other outdoor advertisers
including Infinity Broadcasting Corporation, Clear Channel Communications,
Inc., J.C. Decaux, Medallion Financial Corp., Ackerley Communications, Inc.,
Regency Outdoor, and PNE Media, LLC. Many of these competitors have a larger
national network and may have greater total resources than we have. In
addition, we also compete with a wide variety of out-of-home media, including
advertising in shopping centers, airports, stadiums, movie theaters and
supermarkets, as well as on taxis, trains and buses. In competing with other
media, outdoor advertising relies on its relative cost efficiency and its
ability to reach a segment of the population with a particular set of
demographic characteristics within that market.
Publishing
We publish El Diario/La Prensa, which is the oldest major Spanish-language
daily newspaper in the United States and the largest Spanish-language newspaper
in the Northeast. El Diario/La Prensa has a daily paid circulation of
approximately 50,000. El Diario/La Prensa won the award for "Outstanding
Spanish-Language Daily" from the National Association of Hispanic Publications
in 1994 and 1996.
We also own VEA New York, a quarterly tourist publication with a current
circulation of approximately 105,000. VEA New York serves visitors to New York
from Latin America, Spain and other Spanish-language markets.
The majority of revenues come from classified advertising and circulation
sales. The top ten advertisers by dollar volume in 1999 accounted for 10% of
the newspaper's total advertising revenues.
Material Trademarks, Trade Names and Service Marks
In the course of our business, we use various trademarks, trade names and
service marks, including our logos, in our advertising and promotions. We
believe the strength of our trademarks, trade names and service marks are
important to our business and intend to protect and promote them as
appropriate. We do not hold or depend upon any material patent, government
license, franchise or concession, except our broadcast licenses granted by the
FCC.
Employees
As of March 31, 2000, giving effect to our acquisitions of LCG and Z-Spanish
Media, we had approximately 1,100 full-time employees, including 544 full-time
employees in television, 354 full-time employees in radio, 46 full-time
employees in outdoor and 156 full-time employees in publishing. As of March 31,
2000, 146 of our publishing employees were represented by labor unions that
have entered into collective bargaining agreements with us. As of March 31,
2000, five of our outdoor employees were represented by labor unions that have
entered into or are currently in negotiations for collective bargaining
agreements with us. We believe our relations with our employees are good.
76
Regulation of Television and Radio Broadcasting
General. The FCC regulates television and radio broadcast stations pursuant
to the Communications Act. Among other things, the FCC:
. determines the particular frequencies, locations and operating power of
stations;
. issues, renews, revokes and modifies station licenses;
. regulates equipment used by stations; and
. adopts and implements regulations and policies that directly or
indirectly affect the ownership, changes in ownership, control,
operation and employment practices of stations.
A licensee's failure to observe the requirements of the Communications Act
or FCC rules and policies may result in the imposition of various sanctions,
including admonishment, fines, the grant of renewal terms of less than eight
years, the grant of a license with conditions or, in the case of particularly
egregious violations, the denial of a license renewal application, the
revocation of an FCC license or the denial of FCC consent to acquire additional
broadcast properties.
Congress and the FCC have had under consideration or reconsideration, and
may in the future consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that could, directly or indirectly, affect
the operation, ownership and profitability of our television and radio
stations, result in the loss of audience share and advertising revenue for our
television and radio broadcast stations or affect our ability to acquire
additional television and radio broadcast stations or finance such
acquisitions. Such matters may include:
. changes to the license authorization and renewal process;
. proposals to impose spectrum use or other fees on FCC licensees;
. changes to the FCC's equal employment opportunity regulations and other
matters relating to involvement of minorities and women in the
broadcasting industry;
. proposals to change rules relating to political broadcasting including
proposals to grant free air time to candidates, and other changes
regarding program content;
. proposals to restrict or prohibit the advertising of beer, wine and
other alcoholic beverages;
. technical and frequency allocation matters, including creation of a new
Class A television service for existing low-power television stations
and a new low-power FM radio broadcast service;
. the implementation of digital audio broadcasting on both satellite and
terrestrial bases;
. the implementation of rules governing the transmission of local
television signals by direct broadcast satellite services in their local
areas;
. changes in broadcast multiple ownership, foreign ownership, cross-
ownership and ownership attribution policies; and
. proposals to alter provisions of the tax laws affecting broadcast
operations and acquisitions.
We cannot predict what changes, if any, might be adopted, nor can we predict
what other matters might be considered in the future, nor can we judge in
advance what impact, if any, the implementation of any particular proposal or
change might have on our business.
FCC Licenses. Television and radio stations operate pursuant to licenses
that are granted by the FCC for a term of eight years, subject to renewal upon
application to the FCC. During the periods
77
when renewal applications are pending, petitions to deny license renewal
applications may be filed by interested parties, including members of the
public. The FCC is required to hold hearings on renewal applications if it is
unable to determine that renewal of a license would serve the public interest,
convenience and necessity, or if a petition to deny raises a "substantial and
material question of fact" as to whether the grant of the renewal applications
would be inconsistent with the public interest, convenience and necessity.
However, the FCC is prohibited from considering competing applications for a
renewal applicant's frequency, and is required to grant the renewal application
if it finds:
. that the station has served the public interest, convenience and
necessity;
. that there have been no serious violations by the licensee of the
Communications Act or the rules and regulations of the FCC; and
. that there have been no other violations by the licensee of the
Communications Act or the rules and regulations of the FCC that, when
taken together, would constitute a pattern of abuse.
If as a result of an evidentiary hearing, the FCC determines that the
licensee has failed to meet the requirements for renewal and that no mitigating
factors justify the imposition of a lesser sanction, the FCC may deny a license
renewal application. Historically, FCC licenses have generally been renewed. We
have no reason to believe that our licenses will not be renewed in the ordinary
course, although there can be no assurance to that effect. The non-renewal of
one or more of our stations' licenses could have a material adverse effect on
our business.
Ownership Matters. The Communications Act requires prior approval of the FCC
for the assignment of a broadcast license or the transfer of control of a
corporation or other entity holding a license. In determining whether to
approve an assignment of a television or radio broadcast license or a transfer
of control of a broadcast licensee, the FCC considers a number of factors
pertaining to the licensee including compliance with various rules limiting
common ownership of media properties, the "character" of the licensee and those
persons holding "attributable" interests therein, and the Communications Act's
limitations on foreign ownership and compliance with the FCC rules and
regulations.
To obtain the FCC's prior consent to assign or transfer a broadcast license,
appropriate applications must be filed with the FCC. If the application to
assign or transfer the license involves a substantial change in ownership or
control of the licensee, for example, the transfer or acquisition of more than
50% of the voting stock, the application must be placed on public notice for a
period of 30 days during which petitions to deny the application may be filed
by interested parties, including members of the public. If an assignment
application does not involve new parties, or if a transfer of control
application does not involve a "substantial change" in ownership or control, it
is a pro forma application, which is not subject to the public notice and 30
day petition to deny procedure. The regular and pro forma applications are
nevertheless subject to informal objections that may be filed any time until
the FCC acts on the application. If the FCC grants an assignment or transfer
application, interested parties have 30 days from public notice of the grant to
seek reconsideration of that grant. The FCC has an additional ten days to set
aside such grant on its own motion. When ruling on an assignment or transfer
application, the FCC is prohibited from considering whether the public interest
might be served by an assignment or transfer to any party other than the
assignee or transferee specified in the application.
78
Under the Communications Act, a broadcast license may not be granted to or
held by persons who are not U.S. citizens, by any corporation that has more
than 20% of its capital stock owned or voted by non-U.S. citizens or entities
or their representatives, by foreign governments or their representatives or by
non-U.S. corporations. Furthermore, the Communications Act provides that no FCC
broadcast license may be granted to or held by any corporation directly or
indirectly controlled by any other corporation of which more than 25% of its
capital stock is owned of record or voted by non-U.S. citizens or entities or
their representatives, or foreign governments or their representatives or by
non-U.S. corporations, if the FCC finds the public interest will be served by
the refusal or revocation of such license. Thus, the licenses for our stations
could be revoked if more than 25% of our outstanding capital stock is issued to
or for the benefit of non-U.S. citizens in excess of these limitations. Our
first restated certificate of incorporation restricts the ownership and voting
of our capital stock to comply with these requirements.
The FCC generally applies its other broadcast ownership limits to
"attributable" interests held by an individual, corporation or other
association or entity. In the case of a corporation holding broadcast licenses,
the interests of officers, directors and those who, directly or indirectly,
have the right to vote 5% or more of the stock of a licensee corporation are
generally deemed attributable interests, as are positions as an officer or
director of a corporate parent of a broadcast licensee.
Stock interests held by insurance companies, mutual funds, bank trust
departments and certain other passive investors that hold stock for investment
purposes only become attributable with the ownership of 20% or more of the
voting stock of the corporation holding broadcast licenses.
A time brokerage agreement with another television or radio station in the
same market creates an attributable interest in the brokered television or
radio station as well for purposes of the FCC's local television or radio
station ownership rules, if the agreement affects more than 15% of the brokered
television or radio station's weekly broadcast hours.
Debt instruments, non-voting stock, options and warrants for voting stock
that have not yet been exercised, insulated limited partnership interests where
the limited partner is not "materially involved" in the media-related
activities of the partnership and minority voting stock interests in
corporations where there is a single holder of more than 50% of the outstanding
voting stock whose vote is sufficient to affirmatively direct the affairs of
the corporation generally do not subject their holders to attribution.
However, the FCC recently adopted a new rule, known as the equity-debt-plus
rule, that causes certain creditors or investors to be attributable owners of a
station, regardless of whether there is a single majority stockholder or other
applicable exception to the FCC's attribution rules. Under this new rule, a
major programming supplier (any programming supplier that provides more than
15% of the station's weekly programming hours) or a same-market media entity
will be an attributable owner of a station if the supplier or same-market media
entity holds debt or equity, or both, in the station that is greater than 33%
of the value of the station's total debt plus equity. For purposes of the
equity-debt-plus rule, equity includes all stock, whether voting or nonvoting,
and equity held by insulated limited partners in limited partnerships. Debt
includes all liabilities, whether long-term or short-term.
79
Generally, the FCC only permits an owner to have one television station per
market. A single owner is permitted to have two stations with overlapping
signals so long as they are assigned to different markets. Recent changes to
the FCC's rules regarding ownership now permit an owner to operate two
television stations assigned to the same market so long as either:
. the television stations do not have overlapping broadcast signals; or
. there will remain after the transaction eight independently owned, full
power noncommercial or commercial operating television stations in the
market and one of the two commonly-owned stations is not ranked in the
top four based upon audience share.
The FCC will consider waiving these ownership restrictions in certain cases
involving failing or failed stations or stations which are not yet built.
The FCC permits a television station owner to own one radio station in the
same market as its television station. In addition, a television station owner
is permitted to own additional radio stations, not to exceed the local
ownership limits for the market, as follows:
. in markets where 20 media voices will remain, an owner may own an
additional five radio stations, or, if the owner only has one television
station, an additional six radio stations; and
. in markets where ten media voices will remain, an owner may own an
additional three radio stations.
A "media voice" includes each independently-owned and operated full-power
television and radio station and each daily newspaper that has a circulation
exceeding 5% of the households in the market, plus one voice for all cable
television systems operating in the market.
The FCC has eliminated the limitation on the number of radio stations a
single individual or entity may own nationwide and increased the limits on the
number of stations an entity or individual may own in a market as follows:
. In a radio market with 45 or more commercial radio stations, a party may
own, operate or control up to eight commercial radio stations, not more
than five of which are in the same service (AM or FM).
. In a radio market with between 30 and 44 (inclusive) commercial radio
stations, a party may own, operate or control up to seven commercial
radio stations, not more than four of which are in the same service (AM
or FM).
. In a radio market with between 15 and 29 (inclusive) commercial radio
stations, a party may own, operate or control up to six commercial radio
stations, not more than four of which are in the same service (AM or
FM).
. In a radio market with 14 or fewer commercial radio stations, a party
may own, operate or control up to five commercial radio stations, not
more than three of which are in the same service (AM or FM), except that
a party may not own, operate, or control more than 50% of the radio
stations in such market.
The FCC staff has notified the public of its intention to review
transactions that comply with these numerical ownership limits but that might
involve undue concentration of market share.
Because of these multiple and cross-ownership rules, if a stockholder,
officer or director of Entravision holds an "attributable" interest in
Entravision, such stockholder, officer or director may
80
violate the FCC's rules if such person or entity also holds or acquires an
attributable interest in other television or radio stations or daily
newspapers, depending on their number and location. If an attributable
stockholder, officer or director of Entravision violates any of these ownership
rules, we may be unable to obtain from the FCC one or more authorizations
needed to conduct our broadcast business and may be unable to obtain FCC
consents for certain future acquisitions.
In connection with our acquisitions of LCG and Z-Spanish Media, we are
required to comply with the FCC rules governing multiple ownership of radio and
television stations. The addition of the Z-Spanish Media radio stations to the
LCG radio stations being acquired in the Monterey-Salinas-Santa Cruz,
California radio market, together with our existing ownership of a television
station in that market, will result in our owning up to three more radio
stations than are permitted by the FCC's radio multiple ownership rules. In
order to comply with these rules, we intend to divest of up to three stations
in the Monterey-Salinas-Santa Cruz market. In addition, the Z-Spanish Media
radio stations, when combined with the LCG radio stations in the Modesto,
California market, may result in our owning one more radio station than is
permitted by the FCC's rules. In order to comply with these rules, we may be
required to divest of one station in this market.
The Communications Act requires broadcasters to serve the "public interest."
The FCC has relaxed or eliminated many of the more formalized procedures it
developed to promote the broadcast of certain types of programming responsive
to the needs of a broadcast station's community of license. Nevertheless, a
broadcast licensee continues to be required to present programming in response
to community problems, needs and interests and to maintain certain records
demonstrating its responsiveness. The FCC will consider complaints from the
public about a broadcast station's programming when it evaluates the licensee's
renewal application, but complaints also may be filed and considered at any
time. Stations also must pay regulatory and application fees, and follow
various FCC rules that regulate, among other things, political broadcasting,
the broadcast of obscene or indecent programming, sponsorship identification,
the broadcast of contests and lotteries and technical operation.
The FCC requires that licensees must not discriminate in hiring practices,
and shall develop and implement programs designed to promote equal employment
opportunities and submit reports to the FCC on these matters periodically and
in connection with each license renewal application.
The FCC rules also prohibit a broadcast licensee from simulcasting more than
25% of its programming on another radio station in the same broadcast service
(that is, AM/AM or FM/FM). The simulcasting restriction applies if the licensee
owns both radio broadcast stations or owns one and programs the other through a
local marketing agreement, provided that the contours of the radio stations
overlap in a certain manner.
"Must Carry" Rules. FCC regulations implementing the Cable Television
Consumer Protection and Competition Act of 1992 require each television
broadcaster to elect, at three year intervals beginning October 1, 1993, to
either:
. require carriage of its signal by cable systems in the station's market,
which is referred to as "must carry" rules; or
. negotiate the terms on which such broadcast station would permit
transmission of its signal by the cable systems within its market which
is referred to as "retransmission consent."
We have elected "must carry" with respect to each of our full-power
stations.
81
Time Brokerage Agreements. We have, from time to time, entered into local
marketing agreements, generally in connection with pending station
acquisitions. By using local marketing agreements, we can provide programming
and other services to a station proposed to be acquired before we receive all
applicable FCC and other governmental approvals.
FCC rules and policies generally permit time brokerage agreements if the
station licensee retains ultimate responsibility for and control of the
applicable station. We cannot be sure that we will be able to air all of our
scheduled programming on a station with which we have local marketing
agreements or that we will receive the anticipated revenue from the sale of
advertising for such programming.
Stations may enter into cooperative arrangements known as joint sales
agreements. Under the typical joint sales agreement, a station licensee
obtains, for a fee, the right to sell substantially all of the commercial
advertising on a separately-owned and licensed station in the same market. It
also involves the provision by the selling party of certain sales, accounting
and services to the station whose advertising is being sold. Unlike a local
marketing agreement, the typical joint sales agreement does not involve
programming.
As part of its increased scrutiny of radio and television station
acquisitions, the Department of Justice has stated publicly that it believes
that local marketing agreements and joint sales agreements could violate the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 if such agreements take
effect prior to the expiration of the waiting period under such Act.
Furthermore, the Department of Justice has noted that joint sales agreements
may raise antitrust concerns under Section 1 of the Sherman Antitrust Act and
has challenged them in certain locations. The Department of Justice also has
stated publicly that it has established certain revenue and audience share
concentration benchmarks with respect to television and radio station
acquisitions, above which a transaction may receive additional antitrust
scrutiny.
Digital Television Services. The FCC has adopted rules for implementing
digital television service in the United States. Implementation of digital
television will improve the technical quality of television signals and provide
broadcasters the flexibility to offer new services, including high-definition
television and data broadcasting.
The FCC has established service rules and adopted a table of allotments for
digital television. Under the table, certain eligible broadcasters with a full-
power television station are allocated a separate channel for digital
television operation. Stations will be permitted to phase in their digital
television operations over a period of years after which they will be required
to surrender their license to broadcast the analog, or non-digital television
signal. Our stations must be on the air with a digital signal by May 1, 2002.
We must return one of our paired channels for each station to the government by
2006.
Equipment and other costs associated with the transition to digital
television, including the necessity of temporary dual-mode operations and the
relocation of stations from one channel to another, will impose some near-term
financial costs on television stations providing the services. The potential
also exists for new sources of revenue to be derived from digital television.
We cannot predict the overall effect the transition to digital television might
have on our business.
Digital Radio Services. The FCC currently is considering standards for
evaluating, authorizing and implementing terrestrial digital audio broadcasting
technology, including In-Band On-Channel(TM) technology for FM radio stations.
Digital audio broadcasting's advantages over traditional analog broadcasting
technology include improved sound quality and the ability to offer a greater
variety of
82
auxiliary services. In-Band On-Channel(TM) technology would permit an FM
station to transmit radio programming in both analog and digital formats, or in
digital only formats, using the bandwidth that the radio station is currently
licensed to use. It is unclear what regulations the FCC will adopt regarding
digital audio broadcasting or In-Band On-Channel(TM) technology and what effect
such regulations would have on our business or the operations of our radio
stations.
Radio Frequency Radiation. The FCC has adopted rules limiting human exposure
to levels of radio frequency radiation. These rules require applicants for
renewal of broadcast licenses or modification of existing licenses to inform
the FCC whether the applicant's broadcast facility would expose people or
employees to excessive radio frequency radiation. We believe that all of our
stations are in compliance with the FCC's current rules regarding radio
frequency radiation.
Satellite Digital Audio Radio Service. The FCC has allocated spectrum to a
new technology, satellite digital audio radio service, to deliver satellite-
based audio programming to a national or regional audience. The nationwide
reach of the satellite digital audio radio service could allow niche
programming aimed at diverse communities that we are targeting. Two companies
that hold licenses for authority to offer multiple channels of digital,
satellite-delivered radio could compete with conventional terrestrial radio
broadcasting. These potential competitors are expected to begin operations no
later than 2001.
Low-Power Radio Broadcast Service. On January 20, 2000, the FCC adopted
rules creating a new low-power FM radio service. The rules have been published
in the Federal Register and became effective on April 17, 2000. The new low-
power FM service will consist of two classes of radio stations, with maximum
power levels of either 10 watts or 100 watts. The 10 watt stations will reach
an area with a radius of between one and two miles and the 100 watt stations
will reach an area with a radius of approximately three and one-half miles. The
new low-power FM stations will not be required to protect other existing FM
stations on frequencies three channels away, as currently required of full-
powered FM stations.
The new low-power FM service will be exclusively non-commercial. Current
broadcast licensees or parties with interests in cable television or newspapers
will not be eligible to hold low-power FM licenses. It is difficult to predict
what impact, if any, the new low-power FM service will have on technical
interference with our stations' signals or competition for our stations'
audiences. The new FCC rules for low-power FM services are the subject of court
challenges and Congress is considering legislation which would substantially
modify the rules adopted by the FCC.
Other Pending FCC and Legislative Proceedings. The Satellite Home Viewer Act
allows satellite carriers to deliver broadcast programming to subscribers who
are unable to obtain television network programming over the air from local
television stations. Congress in 1999 enacted legislation to amend the
Satellite Home Viewer Improvement Act to facilitate the ability of satellite
carriers to provide subscribers with programming from local television
stations. These policies do not achieve "must-carry" status until January 1,
2002, when any satellite company that has chosen to provide local-into-local
service must provide subscribers with all of the local broadcast television
signals that are assigned to the market and where television licensees ask to
be carried on the satellite system.
On November 29, 1999, Congress enacted the Community Broadcasters Protection
Act of 1999, which provides for a new Class A television service, consisting of
certain low-power television stations. Low-power television stations that
qualify for Class A status will no longer be secondary in
83
nature and will be protected against certain full-power stations. In turn, the
existence of Class A stations may impact the ability of full-power stations to
modify their facilities. The FCC has recently completed a rulemaking proceeding
to implement these rules. As the owner of both full-power and low-power
stations, we are not certain as to whether the creation of the Class A service
will, on balance, be beneficial or detrimental to us.
Regulation of Outdoor Advertising
Outdoor advertising is subject to governmental regulation at the federal,
state and local levels. Federal law, principally the Highway Beautification Act
of 1965 regulates outdoor advertising on federally aided primary and interstate
highways. As a condition to federal highway assistance, the Highway
Beautification Act requires states to restrict billboards on such highways to
commercial and industrial areas and imposes certain additional size, spacing
and other limitations. All states have passed state billboard control statutes
and regulations at least as restrictive as the federal requirements, including
removal of any illegal signs on such highways at the owner's expense and
without compensation. We believe that the number of our billboards that may be
subject to removal as illegal is immaterial. No state in which we operate has
banned billboards, but some have adopted standards more restrictive than the
federal requirements. Municipal and county governments generally also have sign
controls as part of their zoning laws. Some local governments prohibit
construction of new billboards and some allow new construction only to replace
existing structures, although most allow construction of billboards subject to
restrictions on zones, size, spacing and height.
Federal law does not require the removal of existing lawful billboards, but
does require payment of compensation if a state or political subdivision
compels the removal of a lawful billboard along a federally aided primary or
interstate highway. State governments have purchased and removed legal
billboards for beautification in the past, using federal funding for
transportation enhancement programs, and may do so in the future. Governmental
authorities from time to time use the power of eminent domain to remove
billboards. Thus far, we have been able to obtain satisfactory compensation for
any of our billboards purchased or removed as a result of governmental action,
although there is no assurance that this will continue to be the case in the
future. Local governments do not generally purchase billboards for
beautification, but some have attempted to force the removal of legal but
nonconforming billboards (billboards which conformed with applicable zoning
regulations when built but which do not conform to current zoning regulations)
after a period of years under a concept called "amortization," by which the
governmental body asserts that just compensation is earned by continued
operation over time. Although there is some question as to the legality of
amortization under federal and many state laws, amortization has been upheld in
some instances. We generally have been successful in negotiating settlements
with municipalities for billboards required to be removed. Restrictive
regulations also limit our ability to rebuild or replace nonconforming
billboards.
Under the terms of a settlement agreement among U.S. tobacco companies and
46 states, tobacco companies discontinued all advertising on billboards and
buses in the 46 participating states as of April 23, 1999. The remaining four
states had already reached separate settlements with the tobacco industry. We
removed all tobacco billboards and advertising in these states in compliance
with the settlement deadlines.
In addition to the above settlement agreements, state and local governments
are also considering regulating the outdoor advertising of alcohol products.
Alcohol related advertising represented
84
approximately 8.4% of the total revenue of our outdoor billboard business in
1999. As a matter of both company policy and industry practice (on a voluntary
basis), we do not post any alcohol advertisements within a 500 square foot
radius of any school, church or hospital.
Legal Proceedings
We currently and from time to time are involved in litigation incidental to
the conduct of our business, but we are not currently a party to any lawsuit or
proceeding which, in the opinion of management, is likely to have a material
adverse effect on us.
Since September 8, 1999, we have been a party to a proceeding before the
American Arbitration Association in Phoenix, Arizona with Hispanic Broadcasting
Corporation regarding a dispute over an agreement to exchange radio stations
KLNZ-FM, Glendale, Arizona, and KRTX-FM, Winnie , Texas, with one another. The
agreement provides for liquidated damages of $2 million in the case of a
breach. We could also be required as a result of the arbitration to exchange
stations in accordance with the agreement.
Since March 24, 2000, we have been defending against a lawsuit filed in the
Superior Court of the District of Columbia by First Millenium Communications,
Inc. to resolve certain contract disputes arising out of a terminated
brokerage-type arrangement with First Millenium. The litigation primarily
concerns the payment of a brokerage fee alleged to be due in connection with
our acquisition of television station WBSV in Sarasota, Florida for $17
million. Nevertheless, in addition to its various contractual claims, First
Millenium also has asserted claims for fraud, RICO, misappropriation, breach of
fiduciary duty, defamation and intentional infliction of emotional distress.
First Millenium is seeking in excess of $60 million including the right to a
10% ownership interest in WBSV and the right to exchange such interest in the
reorganization described elsewhere in this prospectus. First Millenium has made
similar claims relating to our pending acquisitions of television stations
WHCT, Hartford, Connecticut, and WNTO, Orlando, Florida.
A prior lawsuit was filed by us in the Superior Court of the District of
Columbia against First Millenium seeking declaratory relief to determine the
final rights of the parties pursuant to the brokerage arrangement, asserting
that First Millenium made an irrevocable election under the agreement to
receive $250,000 instead of a 10% ownership interest in WBSV. The court
dismissed this action finding that there is no language regarding any election
by the parties and further found that while we have the ability to force a sale
of First Millenium's 10% interest, the time for such a forced sale has not yet
occurred.
We intend to vigorously defend against these claims and we do not believe
that any resolution of these matters is likely to have a material adverse
effect on us.
Properties and Facilities
Our corporate headquarters are located in Santa Monica, California. We lease
approximately 9,307 square feet of space in the building housing our corporate
headquarters under a lease expiring in 2006. The types of properties required
to support each of our television and radio stations typically include offices,
broadcasting studios and antenna towers where broadcasting transmitters and
antenna equipment are located. The majority of our office, studio and tower
facilities are leased pursuant to long-term leases. We also own the buildings
and/or land used for office, studio and tower facilities at two of our
television stations. We own substantially all of the equipment used in our
television and radio broadcasting business. We believe that all of our
facilities and equipment are adequate to conduct our present operations.
85
MANAGEMENT
Executive Officers and Directors
The following table sets forth information about our executive officers and
directors upon completion of this offering. Each of our directors serves until
his or her successor is elected and is qualified.
[Download Table]
Name Age Position
---- --- --------
Walter F. Ulloa....... 51 Chairman and Chief Executive Officer
Philip C. Wilkinson... 44 President, Chief Operating Officer and Director
Executive Vice President, Treasurer and Chief
Jeanette Tully........ 53 Financial Officer
Paul A. Zevnik........ 49 Secretary and Director
Amador S. Bustos (1).. 49 President of Radio Division and Director
Glenn Emanuel......... 47 President of Outdoor Division
Darryl B. Thompson.... 38 Director
Andrew W. Hobson...... 38 Director
Michael D. Wortsman... 53 Director
Walter F. Ulloa. Mr. Ulloa, the Chairman and Chief Executive Officer of
Entravision since its inception in 1996, has over 24 years of experience in
Spanish-language television and radio in the United States. Mr. Ulloa will be
elected as a member of our board of directors pursuant to a voting agreement
among Messrs. Ulloa, Wilkinson and Zevnik. From 1989 to 1996, Mr. Ulloa was
involved in the development, management or ownership of the predecessor
entities to Entravision. From 1976 to 1989, he worked at KMEX, Los Angeles,
California, as operations manager, production manager, news director, local
sales manager and an account executive.
Philip C. Wilkinson. Mr. Wilkinson, the President and Chief Operating
Officer of Entravision since its inception in 1996, has over 19 years of
experience in Spanish-language television and radio in the United States. Mr.
Wilkinson will be elected as a member of our board of directors pursuant to a
voting agreement among Messrs. Ulloa, Wilkinson and Zevnik. From 1990 to 1996,
Mr. Wilkinson was involved in the development, management or ownership of the
predecessor entities to Entravision. From 1982 to 1990, he worked at the
Univision television network and served in the positions of account executive,
Los Angeles national sales manager and West Coast sales manager.
Jeanette Tully. Ms. Tully, an Executive Vice President and the Chief
Financial Officer and Treasurer of Entravision since September 1996, has over
22 years of experience in the media industry. Ms. Tully was the Executive Vice
President and Chief Financial Officer of Alliance Broadcasting from 1994 until
early 1996, when the company was sold to Infinity Broadcasting. From May 1986
until she joined Alliance Broadcasting, Ms. Tully was a Vice President of
Communications Equity Associates, where she advised a variety of broadcast
companies on financial matters.
Paul A. Zevnik. Mr. Zevnik has been the Secretary of Entravision since its
inception in 1996. Mr. Zevnik will be elected as a member of our board of
directors pursuant to a voting agreement among Messrs. Ulloa, Wilkinson and
Zevnik. From 1989 to 1996, Mr. Zevnik was involved in the development,
management or ownership of the predecessor entities to Entravision. Mr. Zevnik
is a partner in the Washington, D.C. office of the law firm of Zevnik Horton
Guibord McGovern Palmer & Fognani, L.L.P.
Amador S. Bustos. Mr. Bustos will be the President of our Radio Division
upon completion of this offering and our acquisition of Z-Spanish Media. Mr.
Bustos will also be elected as a member of
86
our board of directors pursuant to a voting agreement among Messrs. Ulloa,
Wilkinson and Zevnik. From November 1992 until our acquisition of Z-Spanish
Media, Mr. Bustos served as Chairman, Chief Executive Officer and President of
Z-Spanish Media or one of its predecessors. From December 1979 until September
1992, Mr. Bustos held various positions, including general sales manager,
senior account executive and community affairs coordinator, at several radio
stations and a television station in the San Francisco Bay area.
Glenn Emanuel. Mr. Emanuel will be the President of our Outdoor Division
upon completion of this offering and our acquisition of Z-Spanish Media. Mr.
Emanuel has over 20 years of experience in the outdoor advertising industry.
From 1997 until our acquisition of Z-Spanish Media, Mr. Emanuel served as the
President of Vista, Z-Spanish Media's outdoor advertising group. Before joining
Vista, he served as general manager of Regency Outdoor Advertising's operations
in Los Angeles for ten years.
Darryl B. Thompson. Mr. Thompson will serve on our board of directors as a
representative of TSG Capital Fund III, L.P. upon completion of this offering
and our acquisition of Z-Spanish Media, and will be elected pursuant to a
voting agreement among Messrs. Ulloa, Wilkinson and Zevnik. Mr. Thompson has
been a partner of TSG Capital Group, L.L.C. since 1993. Mr. Thompson serves on
the boards of directors of several public and private companies, including
LuminaAmericas, Inc., Telscape International, Inc. and Millennium Digital Media
Holdings, L.L.C.
Andrew W. Hobson. Mr. Hobson, who will be a member of our board of directors
as a representative of Univision upon completion of this offering, has been an
Executive Vice President of the Univision Network since 1993. From 1990 through
1993 he was a principal at Chartwell Partners, Univision's majority owner.
Before joining Chartwell, Mr. Hobson was a Vice President in the investment
banking group of Bankers Trust Corp., where he was employed from 1984 to 1990.
Michael D. Wortsman. Mr. Wortsman, who will be a member of our board of
directors as a representative of Univision upon completion of this offering, is
the Co-President of Univision Television Group Inc. Before holding this
position, Mr. Wortsman served as the Executive Vice President of corporate
development for the Univision Television Group from 1993 to 1996.
--------
(1) In an application filed with the FCC on June 9, 2000, Z-Spanish Media
Licensing Company, LLC requested consent to assign the licenses of three of
its radio stations to Salinas Holdings Partnership, a newly-formed
partnership whose purpose is to own and operate such radio stations pending
FCC consent to assign the licenses for these radio stations to The Z-
Spanish Trust, Charles Giddens, Trustee. Mr. Bustos is one of three equal
partners of Salinas Holdings. To comply with FCC requirements, Mr. Bustos
will not hold a position as an officer or director of us during any period
in which Salinas Holdings is the licensee of the stations. We expect that
this will be a short period of time as, also on June 9, 2000, an
application was filed with the FCC requesting its consent to the assignment
of licenses for these radio stations to The Z-Spanish Trust, Charles
Giddens, Trustee.
Board Committees
The board of directors intends to establish an audit committee and a
compensation committee. Univision, as the holder of our Class C common stock,
will have the right to appoint one member to each of these committees, as well
as any other committee established by our board of directors.
The audit committee will recommend to the board of directors the selection
of independent auditors, review the results and scope of audit and other
services provided by our independent auditors and review and evaluate our audit
and control functions.
87
The compensation committee will review and recommend to the board of
directors the compensation and benefits of all of our officers and will
establish and review general policies relating to compensation and benefits of
our employees.
Compensation Committee Interlocks and Insider Participation
At the completion of this offering, the members of our compensation
committee will consist of Messrs. Hobson and Thompson, neither of whom has ever
been an officer or employee of Entravision. None of our executive officers
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers who serve on our board or
compensation committee.
Director Compensation
We intend to establish fees for all non-employee directors within six months
after the date of this prospectus, which will include grants of stock options
to our directors. We also expect to reimburse our non-employee directors for
reasonable expenses they may incur in attending board of directors or committee
meetings.
Executive Compensation
The following table sets forth all compensation earned in the fiscal year
ended December 31, 1999 by our Chief Executive Officer and the four other most
highly compensated officers whose annual salary and bonus exceeded $100,000.
Summary Compensation Table
[Download Table]
Annual Compensation(1)
------------------------------
Other Annual All Other
Name and Principal Position Year Salary Bonus(2) Compensation Compensation
--------------------------- ---- -------- -------- ------------ ------------
Walter F. Ulloa................ 1999 $360,000 $429,938 -- --
Chairman and Chief Executive
Officer
Philip C. Wilkinson............ 1999 360,000 429,938 -- --
President and Chief Operating
Officer
Jeanette Tully................. 1999 225,000 -- -- --
Chief Financial Officer
Amador S. Bustos............... 1999 168,000 7,560 -- --
President of Radio Division
Glenn Emanuel.................. 1999 225,000 75,000 -- --
President of Outdoor Division
--------
(1) Excludes perquisites and other personal benefits, securities or property
which aggregate the lesser of $50,000 or 10% of the total of annual salary
and bonus.
(2) Represents bonuses earned in 1998 and paid in 1999.
Employee Benefit Plans
2000 Omnibus Equity Incentive Plan
We have adopted our 2000 Omnibus Equity Incentive Plan to provide an
additional means to attract, motivate, reward and retain key personnel. The
plan gives the administrator the authority to grant different types of stock
incentive awards and to select participants. Our employees, officers, directors
and consultants may be selected to receive awards under the plan.
88
Share Limits. A maximum of 12,000,000 shares of our Class A common stock may
be issued under the plan, or approximately 10% of our outstanding shares on a
fully-diluted basis after giving effect to this offering. The aggregate number
of shares subject to stock options and stock appreciation rights granted under
the plan to any one person in a calendar year cannot exceed one million shares.
Each share limit and award under the plan is subject to adjustment for
certain changes in our capital structure, reorganizations and other
extraordinary events. Shares subject to awards that are not paid or exercised
before they expire or are terminated are available for future grants under the
plan.
Awards. Awards under the plan may be in the form of:
. incentive stock options;
. nonqualified stock options;
. stock appreciation rights;
. restricted stock; or
. stock units.
Awards may be granted individually or in combination with other awards.
Certain types of stock-based performance awards under the plan will depend upon
the extent to which performance goals set by the administrator are met during
the performance period.
Awards under the plan generally will be nontransferable, subject to
exceptions such as a transfer to a family member or to a trust, as authorized
by the administrator.
Nonqualified stock options and other awards may be granted at prices below
the fair market value of the common stock on the date of grant. Restricted
stock awards can be issued for nominal or the minimum lawful consideration.
Incentive stock options must have an exercise price that is at least equal to
the fair market value of the common stock, or 110% of fair market value of the
common stock for any owner of more than 10% of our common stock, on the date of
grant. These and other awards may also be issued solely or in part for
services.
Administration. The plan will be administered by a committee of directors
appointed by our board of directors.
The administrator of the plan has broad authority to:
. designate recipients of awards;
. determine or modify, subject to any required consent, the terms and
provisions of awards, including the price, vesting provisions, terms of
exercise and expiration dates;
. approve the form of award agreements;
. determine specific objectives and performance criteria with respect to
performance awards;
. construe and interpret the plan; and
. reprice, accelerate and extend the exercisability or term, and establish
the events of termination or reversion of outstanding awards.
89
Change of Control. Upon a change of control event, any award may become
immediately vested and/or exercisable, unless the administrator determines to
the contrary. Generally speaking, a change of control event will be triggered
under the plan:
. in connection with certain mergers or consolidations of Entravision with
or into another entity where our stockholders before the transaction own
less than 50% of the surviving entity;
. if a majority of our board of directors changes over a period of two
years or less; or
. upon a sale of all or substantially all of our assets if a change in
ownership of more than 50% of our outstanding voting securities occurs.
The administrator of the plan may also provide for alternative settlements
of awards, the assumption or substitution of awards or other adjustments of
awards in connection with a change of control or other reorganization of
Entravision.
Plan Amendment, Termination and Term. Our board of directors may amend,
suspend or discontinue the plan at any time, but no such action will affect any
outstanding award in any manner materially adverse to a participant without the
consent of the participant. Plan amendments will generally not be submitted to
stockholders for their approval unless such approval is required by applicable
law.
The plan will remain in existence as to all outstanding awards until such
awards are exercised or terminated. The maximum term of options, stock
appreciation rights and other rights to acquire common stock under the plan is
ten years after the initial date of award, subject to provisions for further
deferred payment in certain circumstances. No award can be granted ten years
after adoption of the plan by our board of directors.
Payment for Shares. The exercise price of options or other awards may
generally be paid in cash or, subject to certain restrictions, shares of common
stock. Subject to any applicable limits, we may finance or offset shares to
cover any minimum withholding taxes due in connection with an award.
Federal Tax Consequences. The current federal income tax consequences of
awards authorized under the plan follow certain basic patterns. Generally,
awards under the plan that are includable in the income of the recipient at the
time of exercise, vesting or payment, such as nonqualified stock options, stock
appreciation rights and restricted stock awards, are deductible by us, and
awards that are not required to be included in the income of the recipient,
such as incentive stock options, are not deductible by us.
Generally speaking, Section 162(m) of the Internal Revenue Code provides
that a public company may not deduct compensation, except for compensation that
is commission or performance-based paid to its chief executive officer or to
any of its four other highest compensated officers to the extent that the
compensation paid to such person exceeds $1 million in a tax year. The
regulations exclude from these limits compensation that is paid pursuant to a
plan in effect before the time that a company is publicly held. We expect that
compensation paid under the plan will not be subject to Section 162(m) in
reliance on this transition rule, as long as such compensation is paid or stock
options, stock appreciation rights and/or restricted stock awards are granted
before the earlier of a material amendment to the plan or our annual
stockholders meeting in the year 2004.
In addition, we may not be able to deduct certain compensation attributable
to the acceleration of payment and/or vesting of awards in connection with a
change of control event should that compensation exceed certain threshold
limits under Section 280G of the Internal Revenue Code.
90
Non-Exclusive Plan. The plan is not exclusive. Our board of directors (or
its delegate), under Delaware law, may grant stock and performance incentives
or other compensation, in stock or cash, under other plans or authority.
401(k) Plan
We offer a 401(k) savings and retirement plan to all of our employees.
Participants in the 401(k) plan may elect to contribute up to 15% of their
annual salary but may not exceed the annual maximum contribution limits
established by the Internal Revenue Service. We currently match 25% of the
amounts contributed up to a maximum of $1,000 per year by each participant. The
401(k) plan is intended to qualify under the Internal Revenue Code, so that
contributions by employees or by us to the plan and income earned on plan
contributions are not taxable to employees until distributed to them, and
contributions by us will be deductible by us when made. The trustees under the
401(k) plan, at the direction of each participant, invest such participant's
assets in the 401(k) plan in selected investment options.
As a result of our acquisition of LCG and our pending acquisition of Z-
Spanish Media, we are (or will be) the successor-in-interest to the 401(k)
plans of LCG and Z-Spanish Media. To the extent permissible, we intend to
terminate all such plans, and each of the employees covered by such plans will
have the opportunity to roll-over their investment accounts into our 401(k)
plan.
Indemnification of Directors and Executive Officers and Limitation of Liability
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit indemnification for
liabilities, including reimbursement for expenses incurred, arising under the
Securities Act. This indemnification may, however, be unenforceable as against
public policy.
As permitted by Delaware law, our first restated certificate of
incorporation, which will become effective upon the closing of this offering,
includes a provision that eliminates the personal liability of our directors
for monetary damages for breach of fiduciary duty as a director, except for
liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware law regarding unlawful dividends and
stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
As permitted by Delaware law, our first restated certificate of
incorporation provides that:
. we are required to indemnify our directors and officers to the fullest
extent permitted by Delaware law, so long as the person being indemnified
acted in good faith and in a manner the person reasonably believed to be
in or not opposed to our best interests, and with respect to any criminal
action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful;
. we are permitted to indemnify our other employees and agents to the
extent that we indemnify our officers and directors, unless otherwise
required by law;
91
. we are required to advance expenses to our directors and officers
incurred in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions; and
. the rights conferred in our first restated certificate of incorporation
are not exclusive.
Before the closing of this offering, we intend to enter into indemnity
agreements with each of our current directors and officers to give such
directors and officers additional contractual assurances regarding the scope of
the indemnification set forth in our first restated certificate of
incorporation and to provide additional procedural protections. At present,
there is no pending litigation or proceeding involving any of our directors,
officers or employees regarding which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
We have obtained directors' and officers' liability insurance.
92
PRINCIPAL STOCKHOLDERS
The following table summarizes information regarding the beneficial
ownership of our outstanding common stock as of the date of this prospectus
based on an estimated initial public offering price of $16.00 and giving effect
to our reorganization described elsewhere in this prospectus for:
. each person or entity known by us to beneficially own 5% or more of our
outstanding common stock;
. our executive officers noted in the Summary Compensation Table;
. each of our directors; and
. all executive officers and directors as a group.
[Download Table]
Percentage of Shares
Beneficially Owned (2)
--------------------------
Name and Address of Class of Number of Shares Before After
Beneficial Owner (1) Shares Beneficially Owned Offering Offering
-------------------- -------- ------------------ ----------- -----------
Walter F. Ulloa......... B 11,489,365(3) 16.5% 10.5%
Philip C. Wilkinson..... B 11,489,365(4) 16.5% 10.5%
Paul A. Zevnik.......... A 90,321(5) * *
B 4,699,803(6) 6.8% 4.3%
Univision Communications
Inc. (7)............... C 21,983,392 31.6% 20.1%
TSG Capital Group (8)... A 9,359,894 13.5% 8.5%
Jeanette Tully.......... A 247,537(9) * *
Amador S. Bustos........ A 1,881,571 2.7% 1.7%
Glenn Emanuel........... A 308,368 * *
Darryl B. Thompson...... A 9,243,322(10) 13.3% 8.4%
Andrew W. Hobson (11)... -- -- -- --
Michael D. Wortsman
(12)................... -- -- -- --
All executive officers
and directors as a
group (nine persons)... A 11,771,119 16.9% 10.7%
B 27,678,533 39.8% 25.3%
--------
* Represents beneficial ownership of less than 1%.
(1) Unless otherwise noted, the address for each person or entity named below
is c/o Entravision Communications Corporation, 2425 Olympic Boulevard,
Suite 6000 West, Santa Monica, California 90404. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table below have
sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them.
(2) Assumes no exercise of the underwriters' over-allotment option.
(3) Includes 897,886 shares held by The Walter F. Ulloa Irrevocable Trust of
1996.
(4) Includes 1,081,549 shares held by The Wilkinson Family Trust and 897,886
shares held by The 1994 Wilkinson Children's Gift Trust.
(5) Represents shares held by The Zevnik Charitable Foundation. Mr. Zevnik
has shared voting power in The Zevnik Charitable Foundation.
(6) Includes 800,666 shares held by The Paul A. Zevnik Irrevocable Trust of
1996 and 1,736,516 shares held by The Zevnik Family L.L.C.
93
(7) The address for Univision Communications Inc. is 1999 Avenue of the
Stars, Suite 3050, Los Angeles, California 90067. Univision has indicated
that it may purchase 6,250,000 shares of Class A common stock directly
from us in the offering. The price paid for such shares will be the price
per share to the public, less the underwriting discount. At the
conclusion of this offering, assuming the underwriters do not exercise
the over-allotment option and 40,000,000 shares are issued, Univision
will beneficially own approximately 20% of the shares outstanding after
the offering if it does not purchase any shares in this offering and
approximately 26% if it purchases 6,250,000 shares in this offering.
(8) TSG Capital Group includes TSG Capital Fund II, L.P., TSG Capital Fund
III, L.P., TSG Associates II Inc., TSG Associates III, LLC and TSG
Ventures, L.P. The address for each of these entities is 177 Broad
Street, 12th Floor, Stamford, Connecticut 06901. Includes
6,048,387 shares of Class A common stock reserved for issuance upon
conversion of Series A preferred stock held by TSG Capital Fund III, L.P.
(9) Represents shares held by The Jeanette Tully 1996 Revocable Trust.
(10) Represents 9,359,894 shares held by TSG Capital Group, excluding 116,572
shares held by TSG Ventures, L.P. Mr. Thompson is a principal in each of
the TSG Capital Group entities, except for TSG Ventures, L.P.
Mr. Thompson may be deemed to exercise voting and investment power over
such shares. Mr. Thompson disclaims beneficial ownership of such shares,
except to the extent of his proportionate interest therein.
(11) Mr. Hobson is an executive officer of an affiliate of Univision
Communications Inc.
(12) Mr. Wortsman is an executive officer of an affiliate of Univision
Communications Inc.
94
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reorganization. Before the closing of this offering, we will complete a
reorganization. As a result of this reorganization, the beneficial ownership of
Entravision will be virtually identical to the beneficial ownership of
Entravision Communications Company, L.L.C., our predecessor, immediately before
the reorganization. This reorganization will occur as follows:
. Walter F. Ulloa, Philip C. Wilkinson and Paul A. Zevnik and each of
their trusts and other controlled entities will exchange their direct
and indirect ownership interests in our predecessor for newly-issued
shares of our Class B common stock;
. each of the stockholders in the seven corporate member entities of our
predecessor (other than Messrs. Ulloa, Wilkinson and Zevnik and their
trusts and related entities) will exchange their shares in such
corporate members for newly-issued shares of our Class A common stock;
. each of the remaining individuals, trusts and other entities holding
direct membership interests in our predecessor will exchange such
interests for newly-issued shares of our Class A common stock; and
. Univision will exchange its subordinated note and option in our
predecessor for shares of our Class C common stock.
Relationship with Univision. In December 1996, Univision invested $10
million in our predecessor in exchange for a subordinated note and an option to
acquire an approximately 25% ownership interest in our predecessor. The note is
due December 30, 2021 and bears interest at 7.01% per year, for which Univision
has agreed to compensate us in an amount equal to the amount of annual interest
due, in exchange for running Univision's programming.
In April 1999, we acquired television stations KLUZ and K48AM in
Albuquerque, New Mexico from Univision in exchange for $1 million in cash and a
2% increase in Univision's option to acquire an ownership interest in our
predecessor. In March 2000, Univision invested an additional $110 million in
our predecessor, which increased the subordinated note to an aggregate of
$120 million, and increased its option to the right to acquire a 40% ownership
interest in our predecessor.
In connection with our reorganization, Univision will exchange its
subordinated note and option for 21,983,392 shares of our Class C common stock,
or an approximately 20% ownership interest in us after this offering. As long
as Univision owns at least 30% of its initial Class C shares, it will have the
right to vote as a separate class to elect two directors, to appoint a member
to any board committee and to approve material decisions involving our company,
including any merger consolidation or any other business combination, any
dissolution and any transfer of the FCC licenses for any of our Univision-
affiliated television stations.
Also, pursuant to our Univision network affiliation agreements, Univision
acts as our national advertising sales representative for our Univision-
affiliated television stations. Our director-nominee, Andrew W. Hobson, is an
Executive Vice President of the Univision Network and our director-nominee,
Michael D. Wortsman, is the Co-President of Univision Television Group Inc.
We have also offered Univision the opportunity to purchase 6,250,000 shares
of our Class A common stock directly from us in this offering, representing
approximately 26% of our outstanding capital stock after the offering.
Voting Agreement. On the closing of this offering, we will enter into a
voting agreement with Walter F. Ulloa, our Chairman and Chief Executive
Officer, Philip C. Wilkinson, our President and Chief Operating Officer, and
Paul A. Zevnik, our Secretary, under which they will agree to vote all
95
of their shares of Class B common stock in favor of such director-nominees as
Messrs. Ulloa and Wilkinson may nominate. Mr. Zevnik will further agree to vote
his shares on all other matters in the same manner as both Mr. Ulloa and
Mr. Wilkinson, unless they vote differently, in which case Mr. Zevnik will be
free to vote his shares however he may choose. Messrs. Ulloa and Wilkinson will
irrevocably designate themselves and Mr. Zevnik as director-nominees. In
addition, Messrs. Ulloa and Wilkinson will agree to nominate as directors
Amador S. Bustos, the President of our Radio Division, and a representative of
TSG Capital Fund III, L.P. as long as Mr. Bustos and the TSG representative
continue to have a contractual right to be elected to our board of directors.
This agreement will remain in effect with respect to each of Messrs. Ulloa,
Wilkinson and Zevnik as long as he owns 30% of his initial Class B shares.
Registration Rights. We will enter into investor rights agreements with all
of our existing stockholders and with all of the stockholders receiving Class A
common stock in connection with our acquisition of Z-Spanish Media. The
investor rights agreements provide these stockholders with rights to require us
to register their stock with the Securities and Exchange Commission. These
rights do not apply to this offering.
Transactions with Walter F. Ulloa and Philip C. Wilkinson
Employment agreements between our predecessor and Messrs. Ulloa and
Wilkinson entitle each of them to receive an annual bonus in an amount equal to
1% of our predecessor's annual net revenue. For the period from January 1, 2000
through June 30, 2000, we will pay bonuses under these agreements of
approximately $300,000 to each of Mr. Ulloa and Mr. Wilkinson. These employment
agreements will be terminated before the closing of this offering.
Mr. Ulloa is the sole shareholder of Las Tres Campanas Television, Inc., the
FCC licensee of low-power television stations K27AF and K47EG in Las Vegas,
Nevada. In 1997, Las Tres Campanas issued a note to a former shareholder in the
principal amount of $262,500. We have assumed the payment obligations of Las
Tres Campanas under the note in exchange for Las Tres Campanas's agreement to
contribute to us all of its assets, including the licenses to stations K27AF
and K47EG. As of December 31, 1999, the unpaid balance of principal and
interest under the note was approximately $231,000.
In 1996, Cabrillo Broadcasting Corporation, one of the member entities of
our predecessor, made a loan in the principal amount of $159,000 to Mr.
Wilkinson, which was used by Mr. Wilkinson to purchase equity in KSMS, Inc.,
another of our predecessor entities. When the roll-up of our predecessor was
consummated in 1997, all of the assets and liabilities of Cabrillo were
contributed to our predecessor. As payment for this obligation, Mr. Wilkinson
has agreed to transfer to us his ownership interest in the FCC license for
radio station KPVW, Aspen, Colorado.
Transactions with Paul A. Zevnik
Mr. Zevnik is a partner of Zevnik Horton Guibord McGovern Palmer & Fognani,
L.L.P., which has regularly represented us as our legal counsel and will
continue to do so.
In October 1996, we made a loan to Mr. Zevnik evidenced by a promissory note
in the principal amount of $360,366, which bears interest at a rate of 5.625%
per year and is due and payable in full in October 2001. Mr. Zevnik used the
loan to purchase 10,313 Class A units of our predecessor. As of December 31,
1999, the aggregate outstanding principal and interest amount on this loan was
$425,366.
96
Transactions with TSG Entities and Darryl B. Thompson
Our director-nominee, Darryl B. Thompson, is an equityholder, officer and
director of TSG Capital Fund II, L.P., TSG Capital Fund III, L.P., TSG
Associates II, Inc. and TSG Associates III, L.P.
On April 20, 2000, TSG Capital Fund III, L.P. invested $90 million in our
predecessor in the form of a convertible subordinated note, which was used to
fund a portion of the purchase price to acquire LCG. Assuming an initial public
offering price of $16.00 per share, the note will automatically convert upon
the closing of this offering into shares of our Series A preferred stock at a
conversion price of the lower of:
. $16.95 per share; or
. the greater of 93% of the price per share of the Class A common stock
sold in this offering or $14.74 per share.
Assuming an initial public offering price of $16.00 per share, the Series A
preferred stock would convert into 6,048,387 shares of Class A common stock.
In connection with our acquisition of Z-Spanish Media, TSG Capital Fund II,
L.P., TSG Capital Fund III, L.P. and their affiliates will receive
approximately $189 million in cash and 3,311,507 shares of our Class A common
stock.
On March 31, 1998, TSG Ventures, L.P., an affiliate of TSG Capital Fund III,
L.P., issued a promissory note to KZSF Broadcasting, Inc., a wholly owned
subsidiary of Z-Spanish Media, in the principal amount of approximately $1.1
million with an interest rate of 12% per year, which was paid in full in
January 1999. On March 31, 1998, TSG Ventures, L.P. issued a promissory note to
Z-Spanish Radio Network, Inc., a wholly owned subsidiary of Z-Spanish Media, in
the principal amount of $1.8 million with an interest rate of 15% per year,
which was paid in full in January 1999.
In December 1999, Z-Spanish Media and Vista agreed to provide an aggregate
of $2.5 million in advertising to LuminaAmericas, Inc., a provider of e-
business services to corporations seeking to use the Internet to serve
Hispanics in the United States and Latin America, in exchange for 1,666,666
shares of Series A preferred stock. Mr. Thompson is a director, and TSG Capital
Fund III, L.P. is a stockholder, of LuminaAmericas, Inc.
Transactions with Amador S. Bustos
In connection with our acquisition of Z-Spanish Media, Amador S. Bustos, the
President of our Radio Division, and his affiliates will receive approximately
1,881,571 shares of our Class A common stock.
In October 1999, Z-Spanish Media acquired all of the outstanding capital
stock of JB Broadcasting, Inc., an entity owned by Mr. Bustos and his brother
John Bustos, for $3.4 million, of which $0.4 million was paid in cash and the
remainder was paid in shares of Z-Spanish Media's Class B common stock. From
1996 until October 1999, Z-Spanish Media operated radio station KZMS in
Modesto, California, which was owned by JB Broadcasting, under a local
marketing agreement. Total fees of $0.7 million due under this agreement were
included in the consideration paid to acquire JB Broadcasting.
During 1998, Z-Spanish Media operated radio station KZSJ in San Jose under a
local marketing agreement with KZSJ Radio LLC, an entity owned by Mr. Bustos,
pursuant to which KZSJ Radio
97
LLC received a monthly fee of $10,000. The local marketing agreement was
terminated by mutual agreement between the parties in December 1998, and
$0.1 million was paid to KZSJ Radio LLC in the first quarter of 2000.
Pursuant to a lease that expires in 2009, Z-Spanish Media rents a studio
building from Mr. Bustos for $42,000 per year. Pursuant to a lease that expires
in 2019, Z-Spanish Media leases a corporate office building from Mr. Bustos for
$63,000 a year. Rent increases annually by 5% per year for the term of both
leases.
Transactions with Glenn Emanuel
In connection with our acquisition of Z-Spanish Media, Glenn Emanuel, the
President of our Outdoor Division, will receive approximately 308,368 shares of
our Class A common stock.
In August 1997, Mr. Emanuel executed a promissory note in favor of Vista in
the principal amount of $198,315 with an interest rate of 9.75% per year, which
is due and payable in full on August 9, 2002. Mr. Emanuel used the loan to
purchase shares of Vista's common and preferred stock. The loan will be secured
by the shares of Class A common stock to be received by Mr. Emanuel in
connection with our acquisition of Z-Spanish Media. As of December 31, 1999,
the outstanding balance of principal and interest under the loan was $243,548.
Class D Membership Units in Predecessor
Our predecessor granted to each of Messrs. Ulloa and Wilkinson 6,050 Class D
membership units for nominal consideration, which will be exchanged for 102,850
shares of Class B common stock at the closing of this offering. The Class B
common stock will be held pursuant to Restricted Stock Agreements that allow
for repurchase of the shares for nominal consideration if Messrs. Ulloa and
Wilkinson do not remain employed with us, with such restriction lapsing in one-
third increments over three years. Such restriction also lapses upon a change
in control affecting us.
Our predecessor also granted to Mr. Zevnik 2,560 Class D membership units
for nominal consideration, which will be exchanged for 43,520 shares of Class B
common stock at the closing of this offering. The Class B common stock will be
held pursuant to a Restricted Stock Agreement that allows for repurchase of the
shares for nominal consideration if Mr. Zevnik does not remain as an officer or
director of Entravision, with such restriction lapsing in one-third increments
over three years. Such restriction also lapses on a change in control affecting
us.
Our predecessor also granted to Ms. Tully 400 Class D membership units for
nominal consideration, which will be exchanged for 6,800 shares of Class A
common stock at the closing of this offering. The Class A common stock will be
held pursuant to a Restricted Stock Agreement that allows for repurchase of the
shares for nominal consideration if Ms. Tully does not remain employed with us,
with such restriction lapsing in one-third increments over three years. Such
restriction also lapses on a change in control affecting us.
98
DESCRIPTION OF CAPITAL STOCK
Set forth below is a summary of the material provisions of our capital stock
as set forth in our first restated certificate of incorporation. For a more
detailed description, see our first restated certificate of incorporation, a
copy of which we have filed as an exhibit to the registration statement, and
the applicable provisions of Delaware law.
Our first restated certificate of incorporation provides for authorized
capital stock of:
. 325 million authorized shares of common stock, $0.0001 par value per
share, which consists of 260 million shares of Class A common stock, 40
million shares of Class B common stock and 25 million of Class C common
stock; and
. 50 million authorized shares of preferred stock, $0.0001 par value per
share, which consists of 11 million shares of Series A preferred stock
to be authorized pursuant to a certificate of designations, preferences
and rights and 39 million undesignated shares.
As of the date of this prospectus, assuming our reorganization described
elsewhere in this prospectus, there will be outstanding 13,847,312 shares of
Class A common stock held of record by 87 stockholders, 27,678,533 shares of
Class B common stock held of record by eight stockholders, 21,983,392 shares of
Class C common stock held of record by one stockholder and 6,048,387 shares of
Series A preferred stock held of record by one stockholder.
All of the shares of Class A common stock being issued pursuant to this
offering will be fully-paid and non-assessable.
Common Stock
General. The holders of our Class A common stock, Class B common stock and
Class C common stock have the same rights except with respect to voting,
conversion and transfer.
Dividends. Subject to the right of the holders of any class of our preferred
stock, holders of shares of our common stock are entitled to receive dividends
that may be declared by our board of directors out of legally available funds.
No dividend may be declared or paid in cash or property on any share of any
class of our common stock unless simultaneously the same dividend is declared
or paid on each share of that and every other class of our common stock; except
with respect to the payment of stock dividends, in which case holders of a
specific class of our common stock are entitled to receive only additional
shares of that class. We may not reclassify, subdivide or combine shares of any
class of our common stock without, at the same time, proportionally
reclassifying, subdividing or combining shares of the other classes.
Voting Rights. Holders of our Class A common stock and Class C common stock
are entitled to one vote per share on all matters to be voted on by
stockholders, while holders of our Class B common stock are entitled to ten
votes per share. Generally, all matters to be voted on by stockholders must be
approved by a majority of the votes entitled to be cast by all holders of our
common stock present in person or represented by proxy, voting together as a
single class, subject to any voting rights granted to holders of any class of
our preferred stock. Univision, as the holder of all of our Class C common
stock upon completion of this offering, is entitled to vote as a separate class
to elect two of our directors, and will have the right to vote as a class on
certain material decisions involving Entravision, including any merger,
consolidation or other business combination, any dissolution of Entravision and
any transfer of the FCC licenses for any of our Univision-affiliated
99
stations. These special voting rights will terminate upon Univision selling
below 30% of its initial ownership level of our Class C common stock.
Messrs. Ulloa, Wilkinson and Zevnik, as the holders of all of the Class B
common stock upon completion of this offering, will enter into a voting
agreement in which each of such individuals will agree, in any election of our
directors, to vote the shares of our Class B common stock held by such
individual in favor of the director-nominees designated by Messrs. Ulloa and
Wilkinson. Under the voting agreement, Messrs. Ulloa, Wilkinson and Zevnik will
contractually agree to elect themselves, Amador S. Bustos and a representative
of TSG Capital Fund III, L.P. as directors of Entravision.
Liquidation Rights. The holders of each class of our common stock will share
equally on a per share basis upon liquidation or dissolution of all of our
assets available for distribution to common stockholders.
Conversion. Shares of our Class B common stock will be convertible into
shares of our Class A common stock on a share-for-share basis at the option of
the holder at any time, or automatically:
. upon the transfer to a person or entity which is not a permitted
transferee;
. upon the death of such holder;
. when such holder is no longer actively involved in the business of
Entravision; or
. if such holder owns less than 30% of his, her or its initial ownership
level.
In general, permitted transferees will include Messrs. Ulloa, Wilkinson and
Zevnik, and any of their respective spouses, legal descendants, adopted
children, minor children supported by such holder and controlled entities. In
addition, each share of our Class B common stock shall automatically convert
into Class A common stock on a share-for-share basis upon the death of the
second of Mr. Ulloa and Mr. Wilkinson or when the second of Mr. Ulloa and
Mr. Wilkinson ceases to be actively involved in the business of Entravision.
Shares of our Class C common stock will be convertible into shares of our
Class A common stock on a share-for-share basis at the option of the holder at
any time or automatically upon the transfer to a person or entity which is not
a permitted transferree or if such holder owns less than 30% of its initial
ownership level.
Other Rights. The holders of our common stock have no preemptive or other
subscription rights, and there are no redemption or sinking fund provisions
with respect to these shares.
Preferred Stock
Series A Mandatorily Redeemable Convertible Preferred Stock
Dividends. The holders of the Series A preferred stock shall have
dividends declared at the rate of 8.5% per annum compounded annually. Such
dividends accrue and are only payable upon liquidation of Entravision or
redemption of the Series A preferred stock, payable in cash. Accrued but unpaid
dividends are waived and forgiven upon conversion of the Series A preferred
stock into Class A common stock.
Liquidation Preference. The Series A preferred stock is senior to the
rights of each class of our common stock upon liquidation or distribution of
our assets in dissolution.
100
Voting Rights. The affirmative vote of a majority of the holders of the
Series A preferred stock is required to:
. issue any equity security that is senior to the Series A preferred
stock;
. amend our first restated certificate of incorporation or first amended
and restated bylaws in a manner that adversely affects the rights of the
Series A preferred stock; or
. enter into or engage in any transaction with an affiliate of Entravision
or its stockholders not at arms length.
Redemption. The Series A preferred stock is subject to redemption at par
value plus accrued dividends at the option of the holder of the Series A
preferred stock for a period of 90 days beginning five years after its issuance
and must be redeemed in full ten years after its issuance. The Series A
preferred stock which does not elect to convert into our common stock is also
fully redeemable at par value plus accrued dividends upon a change in control
of Entravision. We have the right to redeem the Series A preferred stock at our
option at any time one year after its issuance, provided that the trading price
of our Class A common stock equals or exceeds 130% of the initial public
offering price of our Class A common stock for 15 consecutive trading days
immediately before such redemption.
Conversion. The Series A preferred stock is convertible into our Class A
common stock on a share-for-share basis at the option of the holder at any
time.
Blank-Check Preferred Stock
Our board of directors is empowered, without approval of the stockholders,
to cause additional shares of preferred stock to be issued from time to time in
one or more series, and the board of directors may fix the number of shares of
each series and the designation, powers, privileges, preferences and rights and
the qualifications, limitations and restrictions of the shares of each series.
The specific matters that our board of directors may determine with respect
to additional series of preferred stock include the following:
. the number of shares of each series;
. the designation of each series;
. the rate of any dividends;
. whether any dividends shall be cumulative or non-cumulative;
. any voting rights;
. rights and terms of any conversion or exchange;
. the terms of any redemption, or any sinking fund with respect to any
redemption of each series;
. the amount payable in the event of any voluntary liquidation,
dissolution or winding up of the affairs of Entravision; and
. any other relative rights, privileges and limitations of each series.
101
The issuance of additional shares of preferred stock, or the issuance of
rights to purchase additional shares of preferred stock, could be used to
discourage an unsolicited acquisition proposal. For example, a business
combination could be impeded by issuing a series of preferred stock containing
class voting rights that would enable the holder or holders of this series to
block the transaction. Alternatively, a business combination could be
facilitated by issuing a series of preferred stock having sufficient voting
rights to provide a required percentage vote of the stockholders. In addition,
under certain circumstances, the issuance of additional shares of preferred
stock could adversely affect the voting power and other rights of the holders
of our common stock. Although our board of directors is required to make any
determination to issue any additional shares of preferred stock based on its
judgment as to the best interests of our stockholders, it could act in a manner
that would discourage an acquisition attempt or other transaction that some, or
a majority, of the stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock over prevailing
market prices of the stock. Our board of directors does not, at present, intend
to seek stockholder approval prior to any issuance of currently authorized
stock, unless otherwise required by law or applicable stock exchange
requirements.
Alien Ownership
Our first restated certificate of incorporation restricts the ownership of
our capital stock in accordance with the Communications Act and the rules of
the FCC that prohibit direct ownership of more than 20% of our outstanding
capital stock (or beneficial ownership of more than 25% of our capital stock
through others) by or for the account of aliens, foreign governments or non-
U.S. corporations or corporations otherwise subject to control by those persons
or entities. Our first restated certificate of incorporation also prohibits any
transfer of our capital stock which would cause us to violate this prohibition.
In addition, our first restated certificate of incorporation authorizes our
board of directors to adopt other provisions that it deems necessary to enforce
these prohibitions.
Delaware Anti-Takeover Law and Charter Provisions
Provisions of our first restated certificate of incorporation are intended
to enhance continuity and stability in our board of directors and in our
policies, but might have the effect of delaying or preventing a change in
control of Entravision and may make the removal of incumbent management more
difficult even if the transactions could be beneficial to the interests of
stockholders. A summary description of these provisions follows:
Change in Control. We are subject to the provisions of Section 203 of the
Delaware General Corporation Law, an anti-takeover law. In general, the statute
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. For purposes of Section 203, a "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior, did own) 15%
or more of a corporation's voting stock.
The provisions of Section 203, together with the ability of our board of
directors to issue preferred stock without further stockholder action, could
delay or frustrate the removal of incumbent directors or a change in control of
Entravision. The provisions also could discourage, impede or prevent a merger,
tender offer or proxy contest, even if this event would be favorable to the
interests
102
of stockholders. Our stockholders, by adopting an amendment to our first
restated certificate of incorporation or our first amended and restated bylaws,
may elect not to be governed by Section 203 effective 12 months after adoption.
Neither our first restated certificate of incorporation nor our first amended
and restated bylaws currently exclude us from the restrictions imposed by
Section 203.
Limitation of Director Liability. Section 102(b)(7) of the Delaware General
Corporation Law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. Although Section
102(b) does not change directors' duty of care, it enables corporations to
limit available relief to equitable remedies such as injunction or rescission.
Our first restated certificate of incorporation limits the liability of
directors to Entravision or its stockholders to the fullest extent permitted by
Section 102(b). Specifically, our directors will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director,
except for liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
Indemnification. To the maximum extent permitted by law, our first restated
certificate of incorporation provides for mandatory indemnification of
directors and officers and discretionary indemnification of our employees and
agents against all expense, liability and loss to which they may become subject
or which they may incur as a result of being or having been our director,
officer, employee or agent, as the case may be.
Registration Rights
All of our stockholders before the closing of this offering and all of the
stockholders receiving our Class A common stock in connection with the
acquisition of Z-Spanish Media are entitled to certain rights with respect to
registration of their shares under the Securities Act, which do not apply to
this offering.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
Listing
We have applied for listing of our Class A common stock on the New York
Stock Exchange under the trading symbol "EVC."
103
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no market for our common stock. Future
sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this
offering because of contractual restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
or are released could adversely affect the prevailing market price and impair
our ability to raise equity capital in the future.
Upon completion of the offering, we will have 53,847,312 outstanding shares
of Class A common stock, 27,678,533 outstanding shares of Class B common stock
and 21,983,392 outstanding shares of Class C common stock. Of the shares of
Class A common stock, 33,750,000 shares sold in this offering, plus any shares
issued upon exercise of the underwriters' over-allotment option, will be freely
tradable without restriction under the Securities Act, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act. In
general, affiliates include officers, directors or 10% stockholders.
The remaining 20,097,312 shares of Class A common stock and all of the
shares of Class B and Class C common stock outstanding will be "restricted
securities" within the meaning of Rule 144. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption
from registration under Rules 144 or 701 promulgated under the Securities Act,
which are summarized below. Sales of the restricted securities in the public
market, or the availability of such shares for sale, could adversely affect the
market price of our common stock.
Each of our officers, directors and existing stockholders (including, with
respect to Univision, the 6,250,000 shares of Class A common stock that may be
issued to Univision in this offering) has entered into a "lock-up" agreement
with Donaldson, Lufkin & Jenrette Securities Corporation in connection with
this offering generally providing that they will not offer, sell, contract to
sell or grant any option to purchase or otherwise dispose of our common stock
or any securities exercisable for or convertible into our common stock without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. The "lock-up" restrictions will expire on the date which is 180
days after the date of this prospectus. Notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144 and 701, shares subject
to "lock-up" agreements will not be salable until such agreements expire or are
waived by Donaldson, Lufkin & Jenrette Securities Corporation. Taking into
account the "lock-up" agreements, and assuming Donaldson, Lufkin & Jenrette
Securities Corporation does not release stockholders from these agreements, the
following shares will be eligible for sale in the public market at the
following times:
. beginning on the date of this prospectus, only the shares of Class A
common stock sold in the offering will be immediately available for sale
in the public market; and
. beginning 180 days after the date of this prospectus, an additional
61,457,699 shares of common stock will be freely tradeable pursuant to
Rule 144(k), and an additional shares will be eligible for sale
subject to volume limitations, as explained below, pursuant to Rules 144
and 701, including, in both cases, shares of Class A common stock
issuable upon conversion of Class B common stock or Class C common
stock.
104
In general, under Rule 144 as currently in effect, after the expiration of
the "lock-up" agreements with Donaldson, Lufkin & Jenrette Securities
Corporation, a person who has beneficially owned restricted securities for at
least one year would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding which will
equal approximately 1,035,000 shares immediately after the offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice and the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been our affiliate at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to a written compensatory plan or
contract to resell such shares in reliance upon Rule 144 but without compliance
with specific restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirement and that non-affiliates may sell such shares in reliance on Rule
144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.
In addition, we intend to file a registration statement on Form S-8 under
the Securities Act within 180 days following the date of this prospectus to
register shares to be issued pursuant to our omnibus equity incentive plan. As
a result, any options or rights exercised under our omnibus equity incentive
plan or any other benefit plan after the effectiveness of the registration
statement will also be freely tradable in the public market. However, such
shares held by affiliates will still be subject to the volume limitation,
manner of sale, notice and public information requirements of Rule 144 unless
otherwise resaleable under Rule 701.
All of our stockholders before the closing of this offering and all of the
stockholders receiving our Class A common stock in connection with the
acquisition of Z-Spanish Media are entitled to certain rights with respect to
registration of their shares under the Securities Act, which do not apply to
this offering.
105
UNDERWRITING
Subject to terms and conditions of an underwriting agreement dated as of
, 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston
Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith
Barney Inc., Bear, Stearns & Co. Inc. and DLJdirect Inc., have severally agreed
to purchase from us the respective number of shares of Class A common stock
shown opposite their names below.
[Download Table]
Number
of
Underwriters: Shares
Donaldson, Lufkin & Jenrette Securities Corporation...................
Credit Suisse First Boston Corporation................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated ...................
Salomon Smith Barney Inc..............................................
Bear, Stearns & Co. Inc...............................................
DLJdirect Inc.........................................................
Total...............................................................
====
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of Class A common
stock included in this offering are subject to approval of legal matters by
their counsel and to customary conditions, including the effectiveness of the
registration statement, the continuing correctness of our representations, the
listing of the Class A common stock on the New York Stock Exchange and no
occurrence of an event that would have a material adverse effect on us. The
underwriters are obligated to purchase and accept delivery of all the shares of
Class A common stock, other than those covered by the over-allotment option
described below and 6,250,000 shares of Class A common stock that may be issued
directly to Univision by us, if they purchase any of the shares of Class A
common stock.
The underwriters initially propose to offer some of the shares of Class A
common stock directly to the public at the initial public offering price on the
cover page of this prospectus and some of the shares of Class A common stock to
dealers, including the underwriters, at the initial public offering price less
a concession not in excess of $ per share. The underwriters may allow, and
these dealers may re-allow, a concession not in excess of $ per share to
other dealers. After the initial offering of the Class A common stock to the
public, the representatives of the underwriters may change the public offering
price and these concessions. The underwriters do not intend to confirm sales to
any accounts over which they exercise discretionary authority.
If Univision purchases any shares in this offering, it will purchase them
directly from us at a purchase price equal to the per share price to the
public, less the underwriting discount. The underwriters would not participate
in the sale of any shares to Univision.
The following table shows the underwriting fees to be paid to the
underwriters by us in this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of Class A common stock.
[Download Table]
No Exercise Full Exercise
Entravision:
Per share........................................ $ $
Total............................................ $ $
We estimate expenses related to this offering will be $ .
106
We have granted to the underwriters an option, exercisable within 30 days
after the date of the underwriting agreement, to purchase up to 6,000,000
additional shares of Class A common stock at the initial public offering price
less underwriting fees. The underwriters may exercise this option solely to
cover over-allotments, if any, made in connection with the offering. To the
extent that the underwriters exercise this option, each underwriter will become
obligated, subject to conditions, to purchase a number of additional shares
approximately proportionate to that underwriter's initial purchase commitment.
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the underwriters may be required to make in respect of any of those
liabilities.
Our executive officers and directors and all of our stockholders (including,
with respect to Univision, the 6,250,000 shares of Class A common stock that
may be issued to Univision in this offering) before the closing of the offering
have agreed, for a period of 180 days from the date of this prospectus, they
will not, without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, do either of the following:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Class A common stock or any
securities convertible into or exercisable or exchangeable for common
stock; or
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any Class
A common stock.
Either of the foregoing transfer restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of Class A
common stock or such other securities, in cash or otherwise. In addition,
during this 180 day period and subject to specified exceptions, we have agreed
not to file any registration statement with respect to, and each of our
executive officers and directors and all of our stockholders have agreed not to
exercise any right with respect to, the registration of any shares of Class A
common stock or any securities convertible into or exercisable for Class A
common stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.
At our request, the underwriters have reserved for sale up to 2,000,000
shares of Class A common stock offered by this prospectus for sale at the
initial public offering price to our employees, officers and directors and
other persons designated by us. The number of shares of Class A common stock
available for sale to the general public in this offering will be reduced to
the extent these persons purchase or confirm for purchase, orally or in
writing, these reserved shares. Any reserved shares not purchased or confirmed
for purchase will be offered by the underwriters to the general public on the
same basis as the other shares offered by this prospectus.
We have applied for listing of our Class A common stock on the New York
Stock Exchange under the symbol "EVC."
Other than in the United States, no action has been taken by the
underwriters or us that would permit a public offering of the shares of Class A
common stock offered by this prospectus in any jurisdiction where action for
that purpose is required. The shares of Class A common stock offered through
this prospectus may not be offered or sold, directly or indirectly, nor may
this prospectus or any other offering material or advertisements associated
with the offer and sale of any of the shares
107
of Class A common stock offered through this prospectus be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that jurisdiction. You
should inform yourself and observe any restrictions relating to the offering of
the Class A common stock and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any shares of Class A common stock included in this offering in any
jurisdiction where that would not be permitted or legal.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation, is facilitating the distribution of the shares sold in this
offering over the Internet. An electronic prospectus will be available on the
web site maintained by DLJdirect Inc. Other than the prospectus in electronic
format, the information on this web site relating to the offering is not part
of this prospectus and has not been approved or endorsed by us or the
underwriters, and should not be relied on by prospective investors.
Stabilization
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A common
stock. Specifically, the underwriters may over-allot the offering, creating a
syndicate short position. The underwriters may bid for and purchase shares of
Class A common stock in the open market to cover a syndicate short position or
to stabilize the price of the Class A common stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members
and selected dealers if Donaldson, Lufkin & Jenrette Securities Corporation
repurchases previously distributed Class A common stock in syndicate covering
transactions, in stabilization transactions or otherwise or if Donaldson,
Lufkin & Jenrette Securities Corporation receives a report that indicates that
the clients of such syndicate members have purchased the Class A common stock
and immediately resold the shares for a profit. These activities may stabilize
or maintain the market price of the Class A common stock above independent
market levels. The underwriters are not required to engage in these activities,
may end any of these activities at any time, and in any event will discontinue
these activities no later than 30 days after the closing of this offering.
Pricing of the Class A Common Stock
Prior to this offering, there has been no established trading market for our
Class A common stock. The initial public offering price of our Class A common
stock will be determined by negotiation among the representatives of the
underwriters and us. The factors to be considered in determining the initial
public offering price include:
. the history of and the prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future earnings;
. the recent market prices of securities of generally comparable
companies; and
. the general condition of the securities markets at the time of this
offering.
108
LEGAL MATTERS
The validity of the Class A common stock being offered by this prospectus
will be passed upon for us by Zevnik Horton Guibord McGovern Palmer & Fognani,
L.L.P., San Diego, California. Paul A. Zevnik, a partner of Zevnik Horton
Guibord McGovern Palmer & Fognani, L.L.P., will be a member of our board of
directors upon completion of this offering and will own 4,699,803 shares of our
Class B common stock upon completion of this offering. In addition, upon
completion of this offering, certain partners of Zevnik Horton Guibord McGovern
Palmer & Fognani, L.L.P. will own an aggregate of 19,550 shares of our Class A
common stock. Other legal matters will be passed upon for the underwriters by
O'Melveny & Myers LLP, Los Angeles, California.
EXPERTS
The financial statements of Entravision Communications Corporation as of
December 31, 1998 and 1999, and for each of the years ended December 31, 1997,
1998, 1999, DeSoto-Channel 62 Associates, Ltd. for the period from January 1,
1999 through September 24, 1999, and the financial statements of radio stations
KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM) (stations owned by Sunburst Media,
L.P.) as of and for the year ended December 31, 1999 included in this
prospectus and registration statement have been audited by McGladrey & Pullen,
LLP, independent accountants, to the extent and for the periods indicated in
their reports included elsewhere herein, and are included in reliance upon such
reports and upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Latin Communications Group Inc. as of December
27, 1998 and December 26, 1999, and for each of the three years in the period
ended December 26, 1999, included in this prospectus and registration statement
have been audited by Ernst & Young LLP, independent auditors, as indicated in
their report with respect thereto, and are included herein in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The combined financial statements of Z-Spanish Media Corporation and its
predecessor as of December 31, 1998 and 1999, and for each of the years ended
December 31, 1997, 1998 and 1999 included in this prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as indicated in their report
with respect thereto, and are included herein in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
109
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits, schedules and amendments thereto)
under the Securities Act with respect to the shares of our Class A common stock
to be sold in this offering. This prospectus does not contain all the
information set forth in the registration statement. Certain parts of the
registration statement are omitted as allowed by the rules and regulations of
the Securities and Exchange Commission. We refer you to the registration
statement and the exhibits to such registration statement for further
information with respect to us and the shares of our Class A common stock to be
sold in this offering.
You may read and copy all or any portion of the registration statement or
any other information we file at the public reference room at the Securities
and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549 and at the regional offices of the Securities and
Exchange Commission located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. Our filings with the Securities
and Exchange Commission, including the registration statement, are also
available to you on the Securities and Exchange Commission's website
(http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act, and, in accordance with
those requirements, we will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission.
We intend to furnish our stockholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing unaudited interim financial information.
110
INDEX TO FINANCIAL STATEMENTS
[Download Table]
Page
----
ENTRAVISION COMMUNICATIONS CORPORATION (PRO FORMA)
Unaudited Pro Forma Financial Information, Basis of Presentation......... F-2
Unaudited Pro Forma Condensed Consolidated Statement of Operations....... F-5
Unaudited Pro Forma Condensed Consolidated Balance Sheet................. F-7
Notes to Unaudited Pro Forma Financial Statements........................ F-8
ENTRAVISION COMMUNICATIONS CORPORATION (HISTORICAL)
INDEPENDENT AUDITOR'S REPORT............................................... F-11
FINANCIAL STATEMENTS
Consolidated Balance Sheets.............................................. F-12
Consolidated Statements of Operations.................................... F-13
Consolidated Statements of Stockholders' Equity.......................... F-14
Consolidated Statements of Cash Flows.................................... F-15
Notes to Consolidated Financial Statements............................... F-16
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS............................................. F-37
FINANCIAL STATEMENTS
Consolidated Balance Sheets.............................................. F-38
Consolidated Statements of Operations.................................... F-39
Consolidated Statements of Stockholders' Equity.......................... F-40
Consolidated Statements of Cash Flows.................................... F-41
Notes to Consolidated Financial Statements............................... F-42
Z-SPANISH MEDIA CORPORATION
INDEPENDENT AUDITOR'S REPORT............................................... F-54
FINANCIAL STATEMENTS
Combined Balance Sheets.................................................. F-55
Combined Statements of Operations........................................ F-56
Combined Statements of Stockholders' Equity.............................. F-57
Combined Statements of Cash Flows........................................ F-58
Notes to Combined Financial Statements................................... F-59
DESOTO-CHANNEL 62 ASSOCIATES, LTD.
INDEPENDENT AUDITOR'S REPORT............................................... F-78
FINANCIAL STATEMENTS
Statement of Operations and Partners' Deficit............................ F-79
Statement of Cash Flows.................................................. F-80
Notes to Financial Statements............................................ F-81
KFRQ(FM), KKPS(FM), KVPA(FM) AND KVLY(FM) RADIO STATIONS
(STATIONS OWNED BY SUNBURST MEDIA, L.P.)
INDEPENDENT AUDITOR'S REPORT............................................... F-85
FINANCIAL STATEMENTS
Statements of Assets to be Acquired...................................... F-86
Statements of Revenues and Direct Operating Expenses..................... F-87
Notes to the Financial Statements........................................ F-88
F-1
UNAUDITED PRO FORMA FINANCIAL INFORMATION
BASIS OF PRESENTATION
The following unaudited pro forma financial information is based on our
historical financial statements and those of LCG, Z-Spanish Media and other
acquired or to be acquired companies and has been prepared to illustrate the
effects of the acquisitions described below and the related financing
transactions.
The unaudited pro forma condensed consolidated statement of operations for
the year ended December 31, 1999 and the three months ended March 31, 1999 and
March 31, 2000 gives effect to acquisitions completed between January 1, 1999
and the date of this prospectus, including our acquisition of LCG, and our
pending acquisition of Z-Spanish Media, as if such transactions had been
completed January 1, 1999.
The unaudited pro forma condensed consolidated balance sheet as of March 31,
2000 has been prepared as if our acquisitions that occurred after March 31,
2000 had occurred as of March 31, 2000.
These acquisitions will be accounted for using the purchase method of
accounting. The total purchase costs of these acquisitions will be allocated to
the tangible and intangible assets and liabilities acquired based upon their
respective fair values. The allocation of the aggregate purchase price
reflected in the unaudited pro forma financial information is preliminary,
however, management does not expect the final allocation to differ materially
from its estimate. The unaudited pro forma financial information is not
necessarily indicative of either future results of operations or the results
that might have occurred if the foregoing transactions had been consummated on
the indicated dates.
The unaudited pro forma financial information should be read in conjunction
with our audited consolidated financial statements and notes thereto and those
of LCG, Z-Spanish Media and Desoto-Channel 62 Associates, Ltd. and radio
stations KVPA(FM), KVLY(FM), KFRQ(FM) and KKPS(FM) included elsewhere in this
prospectus.
Recently Completed and Pending Acquisitions
Recently Completed Acquisitions
1999 Acquisitions
El Centro/Brawley/Imperial, California Acquisition. On January 6, 1999, we
acquired certain assets of Brawley Broadcasting Company and KAMP Radio, Inc.,
which include the radio stations KAMP (AM) El Centro, California; KWST (FM)
Brawley, California; KMXX (FM) Imperial, California for approximately
$2.5 million. This was financed with an advance under our existing bank line of
credit.
Orlando/Tampa, Florida and Washington, D.C. Acquisition. On February 4,
1999, we purchased all of the assets of Latin Communications Group Television,
Inc. relating to television stations WVEN-LP, in Orlando, Florida and WVEA-LP
in Tampa, Florida. In addition, we purchased all of the outstanding capital
stock of Los Cerezos Television Company, which operates television station
WMDO-LP in Washington, D.C. The aggregate purchase price was approximately
$14.3 million including the assumption of certain liabilities totaling $1.1
million. This was financed with an advance under our existing bank line of
credit.
F-2
Albuquerque, New Mexico Acquisition. On April 1, 1999, we acquired certain
assets of Univision affiliate television stations KLUZ and K48AM from Univision
for a purchase price of approximately $14.9 million. We provided a 2% increase
in Univision's option under its note agreement and $1 million cash.
Venice (Sarasota), Florida Acquisition. On September 20, 1999, we acquired
certain assets of DeSoto Broadcasting, Inc., DeSoto Channel 62 Associates, and
Omni Investments, Inc. for a purchase price of $17.0 million. These companies
collectively own the assets and licenses to operate television station WBSV in
Venice, Florida. This was financed with an advance under our existing bank line
of credit.
Lubbock/San Angelo/Amarillo, Texas Acquisition. On December 20, 1999, we
acquired certain assets of Paisano Communications, which includes low-power
television stations KBZO-LP, Lubbock, Texas; K31DM, San Angelo, Texas; K48FR,
Amarillo, Texas and radio station KBZO (AM), Lubbock, Texas for $2.3 million.
This was financed with an advance under our existing bank line of credit.
2000 Acquisitions
El Paso, Texas Acquisition. On January 14, 2000, we acquired substantially
all of assets relating to the operations of radio stations KATH (FM) and KOFX
(FM) from Magic Media, Inc. for approximately $14 million. This was financed
with an advance under our existing bank line of credit.
Tijuana, Mexico Acquisition. In March 2000, Televisora Alco S.A. de C.V.
(ALCO), the Mexican entity in which we own a 40% limited voting interest
(neutral investment stock) pursuant to a special authorization obtained from
the Mexican Foreign Investment General Bureau, executed a stock purchase
agreement to acquire the outstanding capital stock of a Mexican corporation
which holds the necessary authorizations from the Mexican government to own and
operate television station XHAS, Channel 33, Tijuana, Baja California, Mexico.
This transaction is subject to the approval of the Mexican Secretaria de
Comunicaciones y Transportes. Additionally, we acquired a 47.5% interest in
Vista Television, Inc., and Channel 57, Inc. for approximately $35.2 million.
Additionally, we will enter into a time brokerage agreement in connection with
this acquisition. This was financed with proceeds from the $110.0 million
Univision investment.
California, Colorado, New Mexico and Washington D.C. Acquisition. On April
20, 2000, we acquired all of the outstanding capital stock of LCG for
approximately $252 million. LCG operates 17 radio stations in California,
Colorado, New Mexico and Washington D.C. and also owns two Spanish-language
publications. This acquisition was financed using our bank credit facilities
and TSG Capital Fund III, L.P.'s investment of $90 million.
Pending Acquisitions
California, Texas, Illinois, Arizona, New York and Florida Acquisition. On
April 20, 2000, we agreed to acquire all of the outstanding capital stock of Z-
Spanish Media for a purchase price of approximately $475 million including the
assumption of approximately $110 million of debt. Z-Spanish Media owns 33 radio
stations and an outdoor billboard business. These pro forma financial
statements also give effect to Z-Spanish Media's September 30, 1999 acquisition
of Seaboard Outdoor Advertising, as if Z-Spanish Media had owned these
operations for all of 1999. The acquisition of Z-Spanish Media will be financed
with the issuance of 7,187,902 shares of Class A common stock valued at $108
million and $247 million cash from offering proceeds. If this offering is not
completed, the agreement provides for the issuance of $247 million of
redeemable preferred stock with a dividend at LIBOR plus 7%.
F-3
Harlingen-Weslaco-Brownsville-McAllen Acquisition
In May 2000, we agreed to acquire substantially all of the assets relating
to the operations of radio stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM)
from Sunburst Media, L.P. for approximately $55 million. This will be financed
through our proposed new bank credit facility.
Other Pending Transactions
The following transactions represent our purchases of broadcasting and
outdoor advertising assets. For purposes of these pro forma financial
statements, these transactions do not represent business acquisitions and
therefore historical financial information is not meaningful. As a result,
these transactions are not included in our pro forma financial information.
Hartford, Connecticut Acquisition. In February 2000, we agreed to acquire
the FCC license of television station WHCT in Hartford, Connecticut for
$18 million.
Santa Monica/Newport Beach, California Acquisition. In March 2000, we agreed
to acquire from Citicasters Co., a subsidiary of Clear Channel Communications,
Inc., the FCC licenses relating to the operations of radio stations KACD (FM)
Santa Monica, California and KBCD (FM) Newport Beach, California for $85
million of which $17 million was placed into escrow as a deposit.
Orlando/Daytona Beach/Melbourne, Florida Acquisition. On April 14, 2000, we
agreed to acquire certain assets of television station WNTO-TV for $23 million.
Outdoor Advertising Acquisition. We have agreed to acquire certain outdoor
advertising assets from Infinity Broadcasting Corporation for $166.6 million,
consisting of approximately 1,200 billboards in high-density communities in New
York City. This acquisition is an asset purchase, and we will acquire no new
employees. This will be financed with an advance under our proposed new bank
credit facility.
F-4
ENTRAVISION COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(In thousands, except per share data)
[Enlarge/Download Table]
Other
Historical Completed Pro Forma
Historical Historical Z-Spanish and Pending Adjust- Offering Pro Forma
Entravision LCG Media Acquisitions ments Pro Forma Adjustments As Adjusted
----------- ---------- ---------- ------------ ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Gross revenue:
Television............ $ 63,842 $ -- $ -- $ 5,096 $ -- $ 68,938 $ -- $ 68,938
Radio................. 2,362 29,759 26,334 8,806 -- 67,261 -- 67,261
Outdoor and
publishing........... -- 19,109 12,227 3,798 -- 35,134 -- 35,134
-------- ------- ------- ------- -------- -------- -------- --------
Total gross revenue.... 66,204 48,868 38,561 17,700 -- 171,333 -- 171,333
Less agency
commissions........... 7,205 4,623 2,523 1,658 -- 16,009 -- 16,009
-------- ------- ------- ------- -------- -------- -------- --------
Net revenue............ 58,999 44,245 36,038 16,042 -- 155,324 -- 155,324
-------- ------- ------- ------- -------- -------- -------- --------
Expenses:
Direct operating...... 24,441 15,560 14,183 5,754 -- 59,938 -- 59,938
Selling, general and
administrative
(excluding non-cash
stock-based
compensation)........ 11,611 18,910 8,382 8,799 -- 47,702 -- 47,702
Corporate............. 5,809 1,795 4,773 262 -- 12,639 -- 12,639
Depreciation and
amortization......... 14,613 4,907 8,670 1,104 56,951 (1) 86,245 -- 86,245
Non-cash stock-based
compensation......... 29,143 -- -- -- 2,788 (8) 31,931 -- 31,931
Gain on sale of
assets............... -- -- (4,442) -- -- (4,442) -- (4,442)
-------- ------- ------- ------- -------- -------- -------- --------
Total expenses......... 85,617 41,172 31,566 15,919 59,739 234,013 -- 234,013
-------- ------- ------- ------- -------- -------- -------- --------
Operating income
(loss)................ (26,618) 3,073 4,472 123 (59,739) (78,689) -- (78,689)
Interest expense, net
and other............. (9,591) (5,527) (6,471) (2,659) (26,601)(2)
(335)(3)
16,050 (4) (35,134) 29,498 (14) (5,636)
Non-cash interest
expense related to
Univision conversion
option................ (2,500) -- -- -- -- (2,500) -- (2,500)
Income tax benefit
(expense)............. 121 736 284 852 24,375 (5)
2,499 (6) 28,867 (11,799)(15) 17,068
-------- ------- ------- ------- -------- -------- -------- --------
Loss from continuing
operations............ (38,588) (1,718) (1,715) (1,684) (43,751) (87,456) (17,699) (69,757)
Preferred stock
dividends............. -- -- -- -- 7,650 (7) 7,650 -- 7,650
-------- ------- ------- ------- -------- -------- -------- --------
Loss from continuing
operations applicable
to common stock....... $(38,588) $(1,718) $(1,715) $(1,684) $(51,401) $(95,106) $(17,699) $(77,407)
======== ======= ======= ======= ======== ======== ======== ========
Basic and diluted
earnings per share:
Net loss from
continuing operations
applicable to common
stock................ $(1.23) $(0.76)
======== ========
Weighted average
common shares
outstanding.......... 77,011 101,574
======== ========
F-5
ENTRAVISION COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
[Enlarge/Download Table]
Three Months Ended March 31, 2000
----------------------------------------------------------------------------------------------------
Other
Historical Completed Pro Forma
Historical Historical Z-Spanish and Pending Adjust- Offering Pro Forma
Entravision LCG Media Acquisitions ments Pro Forma Adjustments As Adjusted
----------- ---------- ---------- ------------ ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Gross revenue:
Television...... $ 18,178 $ -- $ -- $ 78 $ -- $ 18,256 $ -- $ 18,256
Radio........... 1,162 7,427 5,873 1,645 -- 16,107 -- 16,107
Outdoor and
publishing..... -- 4,609 2,867 -- -- 7,476 -- 7,476
-------- ------- ------- ------ -------- -------- ------ --------
Total gross
revenue......... 19,340 12,036 8,740 1,723 -- 41,839 -- 41,839
Less agency
commissions..... 2,076 1,194 581 334 -- 4,185 -- 4,185
-------- ------- ------- ------ -------- -------- ------ --------
Net revenue...... 17,264 10,842 8,159 1,389 -- 37,654 -- 37,654
-------- ------- ------- ------ -------- -------- ------ --------
Expenses:
Direct
operating...... 7,883 4,212 3,425 346 -- 15,866 -- 15,866
Selling, general
and
administrative.. 3,749 4,734 2,034 590 -- 11,107 -- 11,107
Corporate
(excluding non-
cash stock-
based
compensation).. 1,848 429 1,701 67 -- 4,045 -- 4,045
Depreciation and
amortization... 4,535 1,229 2,843 251 13,027 (1) 21,885 -- 21,885
Non-cash stock-
based
compensation... -- -- 196 -- 697 (8) 893 -- 893
Gain on sale of
assets......... -- -- -- -- -- -- -- --
-------- ------- ------- ------ -------- -------- ------ --------
Total expenses... 18,015 10,604 10,199 1,254 13,724 53,796 -- 53,796
-------- ------- ------- ------ -------- -------- ------ --------
Operating income
(loss).......... (751) 238 (2,040) 135 (13,724) (16,142) -- (16,142)
Interest expense,
net and other... (3,897) (1,384) (2,337) (333) (5,489)(2)
(83)(3)
4,013 (4) (9,510) 7,375 (14) (2,135)
Non-cash interest
expense related
to Univision
conversion
option.......... (31,600) -- -- -- -- (31,600) -- (31,600)
Income tax
benefit
(expense)....... 6 344 1,514 -- 5,144 (5)
1,777 (6) 8,785 (2,950)(15) 5,835
-------- ------- ------- ------ -------- -------- ------ --------
Loss from
continuing
operations...... (36,242) (802) (2,863) (198) (8,362) (48,467) 4,425 (44,042)
Preferred stock
dividends....... -- -- -- -- 1,913 (7) 1,913 -- 1,913
-------- ------- ------- ------ -------- -------- ------ --------
Loss from
continuing
operations
applicable to
common stock.... $(36,242) $ (802) $(2,863) $ (198) $(10,275) $(50,380) $4,425 $(45,955)
======== ======= ======= ====== ======== ======== ====== ========
Basic and diluted
earnings per
share:
Net loss from
continuing
operations
applicable to
common stock... $ (0.65) $ (0.45)
======== ========
Weighted average
common shares
outstanding.... 76,976 101,538
======== ========
Three
Months
Ended
March 31,
1999
-----------
Pro Forma
-----------
(Unaudited)
Gross revenue:
Television...... $ 13,664
Radio........... 12,309
Outdoor and
publishing..... 6,857
-----------
Total gross
revenue......... 32,830
Less agency
commissions..... 2,893
-----------
Net revenue...... 29,937
-----------
Expenses:
Direct
operating...... 12,297
Selling, general
and
administrative.. 11,632
Corporate
(excluding non-
cash stock-
based
compensation).. 2,348
Depreciation and
amortization... 21,550
Non-cash stock-
based
compensation... 7,983
Gain on sale of
assets......... (2,223)
-----------
Total expenses... 53,587
-----------
Operating income
(loss).......... (23,650)
Interest expense,
net and other...
(8,491)
Non-cash interest
expense related
to Univision
conversion
option..........
Income tax
benefit
(expense).......
8,481
-----------
Loss from
continuing
operations...... (23,660)
Preferred stock
dividends....... 1,913
-----------
Loss from
continuing
operations
applicable to
common stock.... $(25,573)
===========
Basic and diluted
earnings per
share:
Net loss from
continuing
operations
applicable to
common stock... $ (0.33)
===========
Weighted average
common shares
outstanding.... 77,504
===========
F-6
ENTRAVISION COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 2000
(In thousands)
[Enlarge/Download Table]
Other
Historical Completed
Historical Historical Z-Spanish and Pending Pro Forma Offering Pro Forma As
Entravision LCG Media Acquisitions Adjustments Pro Forma Adjustments Adjusted
----------- ---------- ---------- ------------ ----------- ----------- ----------- ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Current assets:
Cash and cash
equivalents....... $ 3,513 $ 2,236 $ 441 $ 267 $ -- $ 6,457 $ 10,000 (16) $ 16,457
Receivables....... 12,229 7,711 15,270 907 -- 36,117 -- 36,117
Prepaid expenses
and taxes......... 1,310 2,163 1,390 19 -- 4,882 -- 4,882
-------- -------- -------- ------ --------- ---------- --------- ----------
Total current
assets.......... 17,052 12,110 17,101 1,193 -- 47,456 10,000 57,456
Property and
equipment.......... 28,736 7,759 34,240 1,244 -- 71,979 -- 71,979
Intangible assets.. 173,870 129,923 223,831 6,403 553,093 (9) 1,087,120 -- 1,087,120
Other assets....... 33,234 4,416 6,892 -- (7,500)(13) 37,042 -- 37,042
-------- -------- -------- ------ --------- ---------- --------- ----------
Total assets.... $252,892 $154,208 $282,064 $8,840 $ 545,593 $1,243,597 $ 10,000 $1,253,597
======== ======== ======== ====== ========= ========== ========= ==========
Current
liabilities:
Accounts payable,
accrued
liabilities and
other............. $ 9,130 $ 5,933 $ 12,078 $ 372 $ -- $ 27,513 $ -- $ 27,513
Long-term debt,
current portion... 525 25 22,779 -- -- 23,329 -- 23,329
-------- -------- -------- ------ --------- ---------- --------- ----------
Total current
liabilities..... 9,655 5,958 34,857 372 -- 50,842 -- 50,842
Long-term debt..... 114,076 39,780 86,021 -- 260,195 (10)
(90,000)(11) 410,072 (343,000)(16) 67,072
Subordinated
notes.............. 120,000 -- -- -- 90,000 (11)
(210,000)(11) -- -- --
Deferred taxes and
other.............. 1,990 20,304 26,988 -- 155,000 (10) 204,282 -- 204,282
-------- -------- -------- ------ --------- ---------- --------- ----------
Total
liabilities..... 245,721 66,042 147,866 372 205,195 665,196 (343,000) 322,196
-------- -------- -------- ------ --------- ---------- --------- ----------
Series A
mandatorily
redeemable
convertible
preferred stock.... -- -- -- -- 90,000 (12) 90,000 -- 90,000
Common stock put
options............ -- -- 54,182 -- (54,182)(13) -- -- --
-------- -------- -------- ------ --------- ---------- --------- ----------
-- -- 54,182 -- 35,818 90,000 -- 90,000
-------- -------- -------- ------ --------- ---------- --------- ----------
Stockholders'
equity:
Class A common
stock............. 1 92 251 -- 2 (10)
(343)(13) 3 2 (16) 5
Class B common
stock............. 5 -- -- -- -- 5 -- 5
Class C common
stock............. -- -- -- -- 1 (12) 1 -- 1
Additional paid-
in capital........ 107,898 94,485 100,271 -- (177,376)(13)
119,999 (12)
354,998 (10) 600,275 352,998 (16) 953,273
Deferred
compensation and
other............. -- -- (5,637) -- (5,513)(13) (11,150) -- (11,150)
Accumulated
deficit........... (100,143) (6,411) (14,869) 8,468 12,812 (13) (100,143) -- (100,143)
Stock
subscriptions
notes
receivable........ (590) -- -- -- -- (590) -- (590)
-------- -------- -------- ------ --------- ---------- --------- ----------
Total
stockholders'
equity.......... 7,171 88,166 80,016 8,468 304,580 488,401 353,000 841,401
-------- -------- -------- ------ --------- ---------- --------- ----------
Total
liabilities and
stockholders'
equity.......... $252,892 $154,208 $282,064 $8,840 $ 545,593 $1,243,597 $ 10,000 $1,253,597
======== ======== ======== ====== ========= ========== ========= ==========
F-7
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS ADJUSTMENTS
(1) These adjustments reflect additional depreciation and amortization expense
resulting from the allocation of our purchase price of the assets
acquired, including increases in property and equipment and identifiable
intangible assets, to their estimated fair market values and the goodwill
associated with the acquisitions.
[Download Table]
Year Ended December 31, 1999
-----------------------------------------------
Amortization Depreciation Less Pro Forma
Expense Expense Historical Adjustment
------------ ------------ ---------- ----------
LCG......................... $22,430 $1,108 $ (4,907) $18,631
Z-Spanish Media............. 34,924 4,891 (8,670) 31,145
Other....................... 8,279 -- (1,104) 7,175
------- ------ -------- -------
$65,633 $5,999 $(14,681) $56,951
======= ====== ======== =======
Three Months Ended March 31, 2000
-----------------------------------------------
Amortization Depreciation Less Pro Forma
Expense Expense Historical Adjustment
------------ ------------ ---------- ----------
LCG......................... $ 5,608 $ 277 $ (1,229) $ 4,656
Z-Spanish Media............. 8,731 1,223 (2,843) 7,111
Other....................... 1,511 -- (251) 1,260
------- ------ -------- -------
$15,850 $1,500 $ (4,323) $13,027
======= ====== ======== =======
Goodwill and other specifically identified intangibles are amortized over
15 years and fixed assets over 7 years.
(2) These adjustments conform historical interest expense to pro forma
interest expense associated with our borrowings under our existing credit
facility prior to our adjustments for our subordinated notes and LCG
credit facility which were used to finance the completed and pending
acquisitions. The pro forma interest expense adjustment is as follows:
[Download Table]
Year Ended December 31, 1999
-------------------------------------------
Debt After Interest Less Pro Forma
Acquisitions Expense Historical Adjustment
------------ -------- ---------- ----------
LCG............................. $245,000 $21,070 $ (5,527) $15,543
Z-Spanish Media................. 108,800 9,357 (6,471) 2,886
Other........................... 104,000 10,831 (2,659) 8,172
------- -------- -------
$41,258 $(14,657) $26,601
======= ======== =======
Three Months Ended March 31, 2000
-------------------------------------------
Debt After Interest Less Pro Forma
Acquisitions Expense Historical Adjustment
------------ -------- ---------- ----------
LCG............................. $245,000 $5,268 $ (1,384) $3,884
Z-Spanish Media................. 108,800 2,339 (2,337) 2
Other........................... 90,000 1,936 (333) 1,603
------- -------- -------
$9,543 $ (4,054) $5,489
======= ======== =======
The assumed interest rate under our existing revolving credit facility was
8.6%, which represents our current rate.
F-8
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
(3) These adjustments represent the reduction or increase in interest expense
on the borrowings under our existing credit facility due to the reduced
rate associated with our 8.5% $90 million convertible subordinated note
from TSG Capital Fund III, L.P., Univision's 7% $110 million subordinated
note and option and the increase in interest rate to 10.5% associated with
our $115 million term loan for our acquisition of LCG.
[Download Table]
Year Ended
December 31,
1999
Interest
Expense
------------
TSG Capital Fund III, L.P...................................... $ 90
Univision...................................................... 1,760
Term loan for acquisition of LCG............................... (2,185)
------
$ (335)
======
Three Months
Ended
March 31,
2000
Interest
Expense
------------
TSG Capital Fund III, L.P...................................... $ 23
Univision...................................................... 440
Term loan for acquisition of LCG............................... (546)
------
$ (83)
======
(4) These adjustments represent the interest savings on the exchange of
Univision's 7% subordinated note and option of $120 million to Class C
common stock and the conversion of TSG Capital Fund III, L.P.'s 8.5%
convertible subordinated note of $90 million to preferred stock.
(5) To provide for the tax effect of pro forma adjustments using an estimated
effective rate of 40%. Our acquisitions of LCG and Z-Spanish Media and our
acquisitions of stations KORO and KNVO will include non-tax deductible
goodwill which is estimated to be $6.9 million for the year ended
December 31, 1999 and $1.7 million for the three months ended March 31,
2000.
(6) These adjustments represent the provision for income taxes on pro forma
net loss of historical Entravision to give effect to our conversion from a
limited liability company to a C-corporation. An effective combined tax
rate of 40% was used after giving effect to non-tax deductible goodwill of
$0.8 million and non-cash stock-based compensation of $31.9 million for
the year ended December 31, 1999 and non-tax deductible goodwill of $0.2
million for the three months ended March 31, 2000.
(7) These adjustments represent the non-cash 8.5% dividend on TSG Capital Fund
III, L.P.'s mandatorily redeemable convertible preferred stock.
[Download Table]
Three Months
Year Ended Ended
December 31, March 31,
1999 2000
------------ ------------
Series A mandatorily redeemable convertible
preferred stock............................... $7,650 $1,913
====== ======
(8) These adjustments represent the amortization of $11.1 million of deferred
compensation related to the exchange of Z-Spanish Media stock options for
Entravision stock options.
F-9
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(Continued)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENTS
(9) These adjustments represent the allocation of purchase price of our 2000
acquisitions to the estimated fair market value of the assets acquired and
liabilities assumed, and the recording of goodwill and FCC license
intangibles associated with the acquisitions.
[Download Table]
FCC Licenses
and Other Less Total
Intangibles Goodwill Historical Intangibles
------------ -------- ---------- -----------
LCG............................ $302,452 $34,000 $(129,923) $206,529
Z-Spanish Media................ 470,863 53,000 (223,831) 300,032
Other.......................... 52,935 -- (6,403) 46,532
-------- ------- --------- --------
$826,250 $87,000 $(360,157) $553,093
======== ======= ========= ========
(10) These adjustments represent the issuance of our common stock in this
offering necessary to finance the Z-Spanish Media acquisition and common
stock to selling stockholders of Z-Spanish Media and borrowings under
credit facilities to finance other acquisitions and to record related
deferred tax liabilities.
[Download Table]
Borrowings
Under Common
Credit Stock Deferred
Facilities Issued Taxes
---------- -------- --------
LCG............................................ $205,195 $ -- $ 82,000
Z-Spanish Media................................ -- 355,000 73,000
Other.......................................... 55,000 -- --
-------- -------- --------
$260,195 $355,000 $155,000
======== ======== ========
(11) This adjustment represents TSG Capital Fund III, L.P.'s $90 million
investment in the Company which is presented as a reduction of our
existing bank debt.
(12) These adjustments represent the exchange of Univision's 7% subordinated
note and option of $120 million to Class C common stock and the conversion
of TSG Capital Fund III, L.P.'s 8.5% convertible subordinated note of
$90 million into shares of Series A mandatorily redeemable convertible
preferred stock.
(13) This adjustment represents the elimination of our deposit related to our
acquisition of LCG, common stock put options and deferred compensation
related to our Z-Spanish Media acquisition, historical stockholders'
equity of our acquisitions pending at March 31, 2000 and the estimated
fair value related to compensation related to the exchange of Z-Spanish
Media stock options for Entravision stock options, as these acquisitions
were accounted for as purchase business combinations.
UNAUDITED PRO FORMA OFFERING ADJUSTMENTS
(14) This adjustment represents the interest savings from using the estimated
net proceeds we receive from this offering for the repayment of $343,000
of the pro forma borrowings.
(15) This adjustment represents the tax effect of offering adjustments using an
estimated statutory tax rate of 40%.
(16) This adjustment represents our issuance of 40,000,000 shares of our Class
A common stock at a public offering price of $16 per share, net of $40,000
in estimated offering expenses less $247 million in proceeds allocated for
our acquisition of Z-Spanish Media.
F-10
The accompanying consolidated financial statements of Entravision
Communications Corporation and its subsidiaries have been prepared to give
effect to an exchange transaction of the Company from a limited liability
company (LLC) to a corporation and contemporaneously with the closing of the
public offering contemplated by this prospectus the conversion of all LLC
membership units to Class A, B and C common stock as described in Note 1. On
the effective date of the registration statement covering the shares of Class A
common stock to be sold in the public offering, we will issue the following
report:
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Entravision Communications Corporation
Santa Monica, California
We have audited the accompanying consolidated balance sheets of Entravision
Communications Corporation and its subsidiaries as of December 31, 1998 and
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Entravision
Communications Corporation and its subsidiaries as of December 31, 1998 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
As described in Note 1, the accompanying consolidated financial statements
of Entravision Communications Corporation and its subsidiaries have been
prepared to give effect to the exchange transaction as discussed in Note 1,
before the closing of the public offering contemplated by this prospectus.
/s/ McGladrey & Pullen, LLP
Pasadena, California
March 18, 2000, except Note 12, as
to which the date is June 13, 2000
F-11
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999 and March 31, 2000 (Unaudited)
(In thousands, except share and per share data)
[Download Table]
December 31, March 31,
------------------ -----------
1998 1999 2000
-------- -------- -----------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents..................... $ 3,661 $ 2,357 $ 3,513
Receivables:
Trade, net of allowance for doubtful accounts
of 1998 $790; 1999 $979; 2000 $941.......... 9,143 12,392 11,956
Related parties.............................. 284 273 273
Prepaid expenses and taxes.................... 268 355 1,310
-------- -------- --------
Total current assets........................ 13,356 15,377 17,052
Property and equipment, net.................... 16,788 27,230 28,736
Intangible assets, net......................... 77,891 136,189 173,870
Other assets, including deposits on
acquisitions of 1998 $5,533; 1999 $8,742;
2000 $24,733.................................. 5,689 10,023 33,234
-------- -------- --------
$113,724 $188,819 $252,892
======== ======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of notes and advances
payable, related parties..................... $ 201 $ 231 $ 231
Current maturities of long-term debt.......... 943 1,389 294
Accounts payable and accrued expenses
(including related parties of 1998 $71; 1999
$280; 2000 $230)............................. 6,199 7,479 9,130
-------- -------- --------
Total current liabilities................... 7,343 9,099 9,655
-------- -------- --------
Long-term debt
Subordinated note payable to Univision........ 10,000 10,000 120,000
Notes payable, less current maturities........ 88,794 155,917 114,076
-------- -------- --------
98,794 165,917 234,076
Deferred taxes................................. 283 1,990 1,990
-------- -------- --------
Total liabilities........................... 106,420 177,006 245,721
-------- -------- --------
Commitments and Contingencies
Series A mandatorily redeemable convertible
preferred stock, $0.0001 par value, 11,000,000
shares authorized; no shares issued or
outstanding in 1998 or 1999................... -- -- --
Stockholders' equity
Class A common stock, $0.0001 par value,
260,000,000 shares authorized; shares issued
and outstanding 1998 5,002,114, 1999 and 2000
4,937,854.................................... 1 1 1
Class B common stock, $0.0001 par value,
40,000,000 shares authorized; shares issued
and outstanding 1998, 1999 and 2000
27,429,313................................... 5 5 5
Class C common stock, $0.0001 par value,
25,000,000 shares authorized; no shares
issued or outstanding........................ -- -- --
Additional paid-in capital.................... 30,711 76,292 107,898
Accumulated deficit........................... (22,852) (63,901) (100,143)
-------- -------- --------
7,865 12,397 7,761
Less: stock subscription notes receivable..... (561) (584) (590)
-------- -------- --------
7,304 11,813 7,171
-------- -------- --------
$113,724 $188,819 $252,892
======== ======== ========
See Notes to Consolidated Financial Statements.
F-12
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1997, 1998 and 1999 and Three Months Ended March 31,
1999 (Unaudited) and 2000 (Unaudited)
(In thousands, except share and per share data)
[Enlarge/Download Table]
Three Months Ended
Year Ended December 31, March 31,
------------------------------------- ------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Gross revenue (including
network compensation
from Univision of
$2,947, $4,922, $2,748,
$740 and $1,046)....... $ 33,419 $ 49,872 $ 66,204 $13,013 $19,340
Less agency
commissions............ 2,963 5,052 7,205 1,284 2,076
----------- ----------- ----------- ----------- -----------
Net revenue........... 30,456 44,820 58,999 11,729 17,264
----------- ----------- ----------- ----------- -----------
Expenses:
Direct operating
(including Univision
national
representation fees
of $1,220, $2,379,
$3,149, $594, and
$922)................ 9,184 15,794 24,441 4,672 7,883
Selling, general and
administrative
(excluding non-cash
stock-based
compensation of $900,
$500, $29,143, $7,286
and $0).............. 5,845 8,877 11,611 2,510 3,749
Corporate expenses
(including related
parties of $321,
$453, $522, $81, and
$69)................. 3,899 3,963 5,809 1,304 1,848
Non-cash stock-based
compensation......... 900 500 29,143 7,286 --
Depreciation and
amortization......... 8,847 9,565 14,613 2,979 4,535
----------- ----------- ----------- ----------- -----------
28,675 38,699 85,617 18,751 18,015
----------- ----------- ----------- ----------- -----------
Operating income
(loss)............. 1,781 6,121 (26,618) (7,022) (751)
Interest expense
(including amounts to
Univision of $701,
$701, $701, $175 and
$816)................ (5,222) (8,386) (9,690) (2,043) (4,106)
Non-cash interest
expense relating to
Univision conversion
option............... -- -- (2,500) -- (31,600)
Interest income....... 115 142 99 20 209
----------- ----------- ----------- ----------- -----------
Loss before income
taxes.............. (3,326) (2,123) (38,709) (9,045) (36,248)
Income tax (expense)
benefit................ (254) (210) 121 74 6
Effect of change in tax
status................. 7,785 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)... $ 4,205 $ (2,333) $ (38,588) $(8,971) $(36,242)
=========== =========== =========== =========== ===========
Pro forma provision for
income taxes benefit... 643 322 2,499 622 1,777
----------- ----------- ----------- ----------- -----------
Pro forma net loss...... $ (2,683) $ (1,801) $ (36,210) $ (8,423) $ (34,471)
=========== =========== =========== =========== ===========
Pro forma per-share
data:
Net loss per share:
Basic and diluted.... $ (0.08) $ (0.05) $ (1.12) $ (0.26) $ (1.06)
=========== =========== =========== =========== ===========
Weighted average common
shares outstanding:
Basic and diluted.... 32,972,425 32,894,802 32,402,378 32,431,427 32,367,167
=========== =========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
F-13
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1998 and 1999 and Three Months Ended March 31,
2000 (Unaudited)
(In thousands, except share and per share data)
[Enlarge/Download Table]
Stock
Number of Common Shares Common Stock Additional Subscription
Preferred ----------------------------- ----------------------- Paid-in Accumulated Notes
Stock Class A Class B Class C Class A Class B Class C Capital (Deficit) Receivable Total
--------- --------- ---------- ------- ------- ------- ------- ---------- ----------- ------------ --------
Balance,
December 31,
1996............ $ -- 2,924,127 15,335,080 -- $ 1 $ 3 $ -- $ 14,312 $ (4,054) $(519) $ 9,743
Issuance of
Class A common
stock in
connection with
employee stock
award........... -- 922,828 -- -- -- -- -- 900 -- -- 900
Issuance of
Class A and
Class B common
stock upon
merger with
entity under
common control.. -- 1,465,023 9,856,637 -- -- 2 -- 117 -- -- 119
Issuance of
Class A common
stock upon
conversion of
stockholder note
payable......... -- 234,889 -- -- -- -- -- 240 -- -- 240
Interest earned
on subscription
receivables..... -- -- -- -- -- -- -- 21 -- (21) --
Repurchase and
retirement of
Class A common
stock........... -- (193,613) -- -- -- -- -- -- (587) -- (587)
Net income...... -- -- -- -- -- -- -- -- 4,205 -- 4,205
Dividends ($0.02
per share) paid
to members for
income taxes.... -- -- -- -- -- -- -- -- (1,498) -- (1,498)
----- --------- ---------- ----- ----- ----- ----- -------- --------- ----- --------
Balance,
December 31,
1997............ -- 5,353,254 25,191,717 -- 1 5 -- 15,590 (1,934) (540) 13,122
Issuance of
Class A and
Class B common
stock upon
merger with
entity under
common control.. -- 268,391 2,237,596 -- -- -- -- 14,600 (14,600) -- --
Interest earned
on subscription
receivables..... -- -- -- -- -- -- -- 21 -- (21) --
Repurchase and
retirement of
Class A common
stock........... -- (619,531) -- -- -- -- -- -- (1,000) -- (1,000)
Compensation
expense
attributable to
employee stock
award........... -- -- -- -- -- -- -- 500 -- -- 500
Net loss........ -- -- -- -- -- -- -- -- (2,333) -- (2,333)
Dividends ($0.04
per share) paid
to members for
income taxes.... -- -- -- -- -- -- -- -- (2,985) -- (2,985)
----- --------- ---------- ----- ----- ----- ----- -------- --------- ----- --------
Balance,
December 31,
1998............ -- 5,002,114 27,429,313 -- 1 5 -- 30,711 (22,852) (561) 7,304
Increase in
conversion
option on
subordinated
note agreement
relating to
acquisition of
business........ -- -- -- -- -- -- -- 13,915 -- -- 13,915
Intrinsic value
of subordinated
note conversion
option.......... -- -- -- -- -- -- -- 2,500 -- -- 2,500
Interest earned
on subscription
receivables..... -- -- -- -- -- -- -- 23 -- (23) --
Repurchase and
retirement of
Class A common
stock........... -- (64,260) -- -- -- -- -- -- (61) -- (61)
Compensation
expense
attributable to
employee stock
award and stock
options......... -- -- -- -- -- -- -- 29,143 -- -- 29,143
Net loss........ -- -- -- -- -- -- -- -- (38,588) -- (38,588)
Dividends ($0.04
per share) paid
to members for
income taxes.... -- -- -- -- -- -- -- -- (2,400) -- (2,400)
----- --------- ---------- ----- ----- ----- ----- -------- --------- ----- --------
Balance,
December 31,
1999............ -- 4,937,854 27,429,313 -- 1 5 -- 76,292 (63,901) (584) 11,813
Interest earned
on subscription
receivables
(Unaudited)..... -- -- -- -- -- -- -- 6 -- (6) --
Intrinsic value
of subordinated
note conversion
option
(Unaudited)..... -- -- -- -- -- -- -- 31,600 -- -- 31,600
Net loss
(Unaudited)..... -- -- -- -- -- -- -- -- (36,242) -- (36,242)
----- --------- ---------- ----- ----- ----- ----- -------- --------- ----- --------
Balance March
31, 2000
(Unaudited)..... $ -- 4,937,854 27,429,313 -- $ 1 $ 5 $ -- $107,898 $(100,143) $(590) $ 7,171
===== ========= ========== ===== ===== ===== ===== ======== ========= ===== ========
See Notes to Consolidated Financial Statements.
F-14
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1998 and 1999
and Three Months Ended March 31, 1999 (Unaudited) and 2000 (Unaudited)
(In thousands)
[Download Table]
Three Months Ended
Year Ended December 31, March 31,
---------------------------- -----------------------
1997 1998 1999 1999 2000
-------- -------- -------- ----------- -----------
(Unaudited) (Unaudited)
Cash Flows from Operating
Activities
Net income (loss)....... $ 4,205 $ (2,333) $(38,588) $(8,971) $(36,242)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization........... 8,847 9,565 14,354 2,912 4,466
Deferred tax expense
(benefit).............. 149 (83) 406 -- --
Effect of change in tax
status................. (7,785) -- -- -- --
Amortization of debt
issue costs............ 373 1,295 258 65 69
Intrinsic value of
subordinated note
exchange option........ -- -- 2,500 -- 31,600
Non-cash stock-based
compensation........... 900 500 29,143 7,286 --
Loss on disposal of
property and
equipment.............. 35 15 100 -- 3
Changes in assets and
liabilities, net of
effect of business
combinations:
(Increase) in accounts
receivable............ (3,525) (2,446) (3,249) 1,043 436
(Increase) in prepaid
expenses and other
assets................ (64) (119) (87) 9 (955)
Increase in accounts
payable, accrued
expenses and other.... 3,374 1,264 1,291 (1,445) 1,651
-------- -------- -------- ------- --------
Net cash provided by
operating
activities........... 6,509 7,658 6,128 899 1,028
-------- -------- -------- ------- --------
Cash Flows from Investing
Activities
Proceeds from sale of
equipment.............. 7 19 116 -- 25
Purchases of property
and equipment.......... (2,366) (3,094) (12,825) (4,642) (2,693)
Cash deposits and
purchase price on
acquisitions........... (59,549) (22,511) (46,354) (12,403) (61,158)
-------- -------- -------- ------- --------
Net cash (used in)
investing
activities........... (61,908) (25,586) (59,063) (17,045) (63,826)
-------- -------- -------- ------- --------
Cash Flows from Financing
Activities
Proceeds from issuance
of common stock........ 119 -- -- -- --
Principal payments on
notes payable.......... (1,227) (288) (352) (83) (61,706)
Proceeds from borrowings
on notes payable....... 58,079 24,407 54,913 15,914 125,660
Dividends paid to
members for income
taxes.................. (1,498) (2,985) (2,400) (261) --
Purchase and retirement
of common stock........ (587) (500) (530) -- --
Payments of deferred
debt costs............. (123) (1,295) -- -- --
-------- -------- -------- ------- --------
Net cash provided by
financing
activities........... 54,763 19,339 51,631 15,570 63,954
-------- -------- -------- ------- --------
Net increase
(decrease) in cash
and cash
equivalents.......... (636) 1,411 (1,304) (576) 1,156
Cash and Cash Equivalents
Beginning............... 2,886 2,250 3,661 3,661 2,357
-------- -------- -------- ------- --------
Ending.................. $ 2,250 $ 3,661 $ 2,357 $ 3,085 $ 3,513
======== ======== ======== ======= ========
Supplemental Disclosures
of Cash Flow Information
Cash payments for:
Interest................ $ 3,672 $ 6,744 $ 10,542 $ 1,125 $ 2,772
======== ======== ======== ======= ========
Income taxes (refunds),
1997 $88; 1998 $274;
1999 $308.............. $ (36) $ 51 $ 96 $ 39 $ 225
======== ======== ======== ======= ========
Supplemental Disclosures
of Non-cash Investing
and Financing Activities
Conversion of note
payable for Class A
common stock........... $ 240 $ -- $ -- $ -- $ --
======== ======== ======== ======= ========
Issuance of note payable
in connection with
redemption of common
stock.................. $ -- $ 500 $ 30 $ -- $ --
======== ======== ======== ======= ========
Assets Acquired and Debt
Issued in Business
Combinations
Current assets.......... $ 636 $ 99 $ 86 $ 86 $ 7,751
Broadcast equipment and
furniture and
fixtures............... 12,001 1,343 4,477 1,636 626
Intangible assets....... 55,991 16,733 67,533 16,145 40,636
Current liabilities..... -- (164) -- -- --
Deferred taxes.......... (7,974) -- (2,112) (2,112) --
Notes payable........... (84) (350) (12,000) -- --
Increase in
subordinated debt
exchange option........ -- -- (13,915) -- --
Estimated fair value
allocated to option
agreement.............. -- -- -- -- (3,015)
Less cash deposits from
prior year............. (1,521) (500) (5,533) (1,700) (1,500)
-------- -------- -------- ------- --------
Net cash paid......... $ 59,049 $ 17,161 $ 38,536 $14,055 $ 44,498
======== ======== ======== ======= ========
See Notes to Consolidated Financial Statements.
F-15
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, REORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Entravision Communications Corporation (the Company or ECC), a Delaware
corporation, primarily owns and operates Spanish-language television stations
serving predominantly the Southwestern United States. Each of the Spanish-
language stations is a Univision Communications Inc. (Univision) affiliate.
Univision is the leading Spanish-language television broadcaster in the United
States and makes available to its affiliates 24-hour Spanish-language
programming. Additionally, the Company owns and operates an English-language
United Paramount Network (UPN) affiliate television station in San Diego. The
Company also operates a television station in Las Vegas under a local marketing
agreement.
The Company also owns and operates Spanish-language radio stations in the
Southwest United States. The television and radio stations are collectively
referred to as the "broadcast properties." The revenue associated with the
radio stations was $2.4 million, or approximately 4%, for the year ended
December 31, 1999. See Note 11 for a discussion of acquisitions of additional
broadcast properties subsequent to December 31, 1999.
Pursuant to Univision network affiliation agreements, Univision acts as the
Company's exclusive sales representative for the sale of all national
advertising aired on Univision television stations. National sales represent
time sold on behalf of the Company's stations by sales representatives employed
by Univision. Proceeds of national sales are remitted to the Company by
Univision, net of an agency commission and a network representative fee. The
affiliation agreements expire at various dates through December 2021.
Reorganization
On February 11, 2000, ECC was formed. The First Restated Certificate of
Incorporation authorizes both preferred and common stock. The common stock has
three classes identified as A, B and C which have similar rights and privileges
except the Class B common stock provides ten votes per share as compared to one
vote per share for all other classes of common stock. Additionally, Univision,
as the holder of all Class C common stock, is entitled to vote as a separate
class to elect two directors, and will have the right to vote as a separate
class on certain material transactions. Class B and C common stock is
convertible at the holder's option into one fully paid and nonassessable share
of Class A common stock and is required to be converted into one share of Class
A common stock upon certain events as defined in the First Restated Certificate
of Incorporation. The Series A mandatorily redeemable convertible preferred
stock has limited voting rights, and accrues an 8.5% dividend.
The purpose of the formation of ECC is to effect an exchange transaction
whereby direct and indirect ownership interests in Entravision Communications
Company, L.L.C. (ECC LLC) will be exchanged for Class A or Class B common stock
of ECC. The Class B common stock will be issued to Walter F. Ulloa, Philip C.
Wilkinson and Paul A. Zevnik (and their controlled entities). In addition, the
stockholders of Cabrillo Broadcasting Corporation (KBNT), Golden Hills
Broadcasting Corporation (KCEC), Las Tres Palmas Corporation (KVER), Tierra
Alta Broadcasting, Inc. (KINC),
F-16
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
KSMS-TV, Inc. (KSMS), Valley Channel 48, Inc. (KNVO) and Telecorpus, Inc.
(KORO) (collectively, the Affiliates) will exchange their common shares of the
respective corporations for Class A common shares in ECC. Additionally,
Univision will exchange its subordinated note for Class C common stock. The
number of common shares of ECC to be issued to the members of ECC LLC and the
stockholders of the Affiliates will be determined in such a manner that the
ownership interest in ECC will equal the direct and indirect ownership interest
in ECC LLC immediately prior to the exchange.
This exchange transaction will become effective immediately prior to the
effective date of the Initial Public Offering of ECC expected to be consummated
during 2000. ECC LLC and Affiliates are considered to be under common control
and as such, the exchange will be accounted for in a manner similar to a
pooling of interests. Accordingly, these consolidated financial statements,
including share data and the stock option exercise price, have been presented
as if ECC LLC was incorporated and the exchange transaction took place in the
earliest period presented.
Formation of Entravision Communications Company, L.L.C.
Entravision Communications Company, L.L.C., a Delaware limited liability
company, was formed on January 11, 1996. ECC LLC was established to own and
operate broadcast properties.
ECC LLC assumed the operations of television stations KVER, KINC, KBNT, KCEC
and KSMS on November 1, 1996 under local marketing agreements (LMAs) whereby
the operating revenue and expenses of these companies accrued to the benefit of
ECC LLC. Each of these companies received membership interests in ECC LLC in
exchange for the LMAs and asset contribution agreements. These LMAs were in
effect through May 31, 1997, at which time, upon Federal Communications
Commission (FCC) approval, each of these companies and KNVO transferred their
operations and all of their operating assets and liabilities except for
acquisition debt to ECC LLC in accordance with the asset contribution
agreements. The operating assets, liabilities and operations of KORO were
transferred to ECC LLC in exchange for membership interests in ECC LLC on April
21, 1998.
KBNT, KCEC, KVER and KINC operated under common control prior to the
formation of ECC LLC. Accordingly, effective upon the execution of the local
marketing agreements and asset contribution agreements, the assets and
liabilities of these companies were recorded at their fair value to the extent
of the ownership interest of each respective company owned by minority
stockholders and at historical cost for the ownership interest under common
control.
KSMS, KNVO and KORO were each acquired subsequent to January 1996 through
newly formed thinly capitalized acquisition companies owned directly by the
member corporation's stockholders in proportion to their direct and indirect
membership interest in ECC LLC prior to each acquisition. Each of these
acquisitions was with unrelated parties at fair value. Subsequent to the
signing of the original ECC LLC Formation Agreement in January 1996, each of
the members of ECC LLC and all of the individual stockholders of the
corporations have been considered members of a control group. Accordingly,
effective upon the execution of the LMAs and asset contribution agreements, the
assets and liabilities of these companies were recorded at their historical
cost which approximated fair value at the time.
F-17
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The actual exchange of ECC common stock for the common stock of KSMS, KNVO
and KORO will result in a distribution of shares to the individual stockholders
and has been presented in the statement of stockholders' equity as a stock
dividend, stock split, and stock dividend, respectively. In determining
weighted average common shares outstanding for earnings per share purposes, the
stock dividends and stock split have been accounted for as if they had occurred
as of the beginning of the earliest period presented.
Significant accounting policies
Basis of consolidation
The consolidated financial statements include the accounts of ECC and its
subsidiaries, substantially all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
The interim financial information of the Company for the three months ended
March 31, 1999 and 2000 is unaudited. The unaudited interim financial
information has been prepared on the same basis as the annual financial
statements and, in the opinion of management, reflect all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial position, results of operations and cash flows as of and for the
three months ended March 31, 1999 and 2000.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company's operations are affected by numerous factors including changes
in audience acceptance (i.e., ratings), priorities of advertisers, new laws and
governmental regulations and policies, and technological advances. The Company
cannot predict if any of these factors might have a significant impact on the
television and radio industries in the future, nor can it predict what impact,
if any, the occurrence of these or other events might have on the Company's
operations. Significant estimates and assumptions made by management are used
for, but not limited to, the allowance for doubtful accounts, the carrying
value of long-lived and intangible assets and the fair value of the Company's
common stock used to determine interest and compensation expense.
Cash and cash equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Interest rate cap agreements
Interest rate cap agreements are principally used by the Company in the
management of interest rate exposure. The differential to be paid or received
is accrued as interest rates change and is recorded in the statement of
operations.
F-18
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided using accelerated and straight-line methods over the following
estimated useful lives:
[Download Table]
Years
-----------------
Buildings and land improvements............................ 39
Transmission, studio and broadcast equipment............... 5-10
Office and computer equipment.............................. 5-7
Transportation equipment................................... 5
Leasehold improvements..................................... Lesser of the
life of the lease
or economic
life of the asset
Intangible assets
Intangible assets consisting of the following items are amortized on a
straight-line method over the following estimated useful lives:
[Download Table]
Years
-----
FCC licenses........................................................... 15
Univision affiliation agreements....................................... 15
Goodwill............................................................... 15
Time brokerage agreements.............................................. 15
Noncompete agreements.................................................. 2-5
Construction rights and permits........................................ 15
Other.................................................................. 1-10
Deferred debt costs related to the Company's credit facility are amortized
on a method that approximates the interest method over the respective life of
the credit facility.
Impairment of long-lived assets
The Company reviews its long-lived assets and intangibles related to those
assets periodically to determine potential impairment by comparing the carrying
value of the long-lived assets and identified goodwill with the estimated
future net undiscounted cash flows expected to result from the use of the
assets, including cash flows from disposition. Should the sum of the expected
future net cash flows be less than the carrying value, the Company would
recognize an impairment loss at that date. An impairment loss would be measured
by comparing the amount by which the carrying value exceeds the fair value
(estimated discounted future cash flows) of the long-lived assets and
identified goodwill.
Goodwill not identified with impaired assets is evaluated to determine
whether events or circumstances warrant a write-down or revised estimates of
useful lives. The Company determines impairment by comparing the carrying value
of goodwill with the estimated future net undiscounted cash flows expected to
result from the use of the assets, including cash flows from disposition.
Should the sum of the expected future net cash flows be less than the carrying
value, the Company would recognize an impairment loss at that date. Impairment
losses are measured by comparing the amount by which the carrying value exceeds
the fair value (estimated discounted future cash flows) of the goodwill.
F-19
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
To date, management has determined that no impairment of long-lived assets
and goodwill exists.
Concentrations of credit risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company from time to time may have bank deposits in excess of
the FDIC insurance limits. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on cash
and cash equivalents.
The Company routinely assesses the financial strength of its customers and,
as a consequence, believes that their trade receivable credit risk exposure is
limited. Credit losses for bad debts are provided for in the financial
statements through a charge to the allowance, and aggregated $0.7 million,
$0.6 million and $0.8 million for the years ended December 31, 1997, 1998 and
1999, respectively. A valuation allowance is provided for known and
anticipated credit losses.
Disclosures about fair value of financial instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
Long-term debt
The carrying amount approximates the fair value of the Company's long-term
debt based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities with similar collateral requirements.
Income taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when it is determined to be more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Prior to the reorganization of the Company, as discussed above, the
organization included various taxpaying and non-taxpaying entities as
discussed below. Each of the entities files separate federal and state tax
returns.
F-20
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred taxes have not been provided for the difference between the book
and tax basis of intangible assets, broadcast equipment, and furniture and
fixtures for the non-taxpaying entities. As a result of the reorganization, the
Company will record a deferred tax liability with a corresponding charge to tax
expense of approximately $7.5 million. At December 31, 1999, the difference
between book and tax bases of assets is approximately $18.7 million.
Entravision Communications Company, L.L.C., Entravision Holdings, LLC,
Entravision, L.L.C.,Entravision-El Paso, L.L.C. and Entravision Communications
of Midland, LLC are limited liability companies and, as such, are taxed as
partnerships.
Cabrillo Broadcasting Corporation, Golden Hills Broadcasting Corporation,
Las Tres Palmas Corporation, Tierra Alta Broadcasting, Inc., KSMS-TV, Inc.,
Valley Channel 48, Inc. and Telecorpus, Inc. have elected to be taxed under
sections of federal and state income tax law which provide that, in lieu of
corporation income taxes, the stockholders separately account for their pro
rata share of the companies' items of income, deductions, losses and credits,
and the companies will pay state taxes at a reduced rate.
Los Cerezos Television Company is taxed as a C-corporation.
Prior to January 23, 1997 Valley Channel 48, Inc. was taxed as a C-
corporation and prior to January 1, 1996, Golden Hills Broadcasting Corporation
was a C-corporation. As a result of the Tax Reform Act of 1986, these companies
and Telecorpus, Inc. are subject to a tax on any unrecognized "built-in gains"
realized during the ten-year period after their respective conversion to S-
corporation status. The built-in gains tax is a corporate tax computed by
applying the corporate tax rate to any appreciation related to assets owned at
the date of conversion to S status. Upon the 1997 filing of the election by
Valley Channel 48, Inc. to be taxed as an S-corporation, the previously
recorded net deferred tax liability was reduced to an amount that represents
taxes that might be payable due to the built-in gains tax. As a result,
approximately $7.8 million was recorded as a tax benefit representing the
reversal of previously recorded deferred taxes. Each of these companies has
provided a deferred tax liability for built-in gains that represent the
estimated liability for built-in gains tax.
Pro forma income tax adjustments and pro forma earnings per share
The pro forma income tax information included in these financial statements
is to show what the significant effects might have been on the historical
statements of operations had the Company and its affiliates not been treated as
flow-through entities not subject to income taxes. The pro forma information
reflects a provision for income taxes at the assumed effective rate in the
years ended December 31, 1997, 1998 and 1999. The pro forma net income (loss)
per share is based on the weighted average number of shares of common stock
outstanding during the period.
Advertising costs
Advertising costs are expensed as incurred. Advertising expense totaled
approximately $0.2 million, $0.6 million and $0.9 million for the years ended
December 31, 1997, 1998 and 1999, respectively.
F-21
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue recognition
Revenue related to the sale of advertising is recognized at the time of
broadcast. Network compensation is recognized ratably over the period of the
agreement.
Segment information
In accordance with Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and Related Information,
management has determined that the Company has one reportable segment.
Furthermore, management has determined that all of its broadcast properties are
subject to the same regulatory environment with their respective programs
directed toward similar classes of viewers and listeners through similar
distribution methods.
Local marketing and time brokerage agreements
The Company operates certain stations under local marketing agreements and
time brokerage agreements whereby the Company sells and retains all advertising
revenue. The broadcast station licensee retains responsibility for ultimate
control of the station in accordance with all FCC rules and regulations. The
Company pays a fixed fee to the station owner, as well as all expenses of the
station, and performs other functions. The financial results of the local
marketing and time brokerage agreements operated stations are included in the
Company's statement of operations from the date of commencement of the
respective LMAs, and were not significant in any of the years presented.
Trade transactions
The Company exchanges broadcast time for certain merchandise and services.
Trade revenue and the related receivables are recorded when spots air at the
fair value of the goods or services received or time aired, whichever is more
readily determinable. Trade expense and the related liability are recorded when
the goods or services are used or received. Trade revenue and costs were
approximately $0.4 million, $0.9 million and $1.3 million for the years ended
December 31, 1997, 1998 and 1999, respectively.
Stock-based compensation
The Company accounts for stock-based employee compensation under the
requirements of Accounting Principles Board (APB) Opinion No. 25, which does
not require compensation to be recorded if the consideration to be received is
at least equal to fair value of the shares to be received at the measurement
date. Nonemployee stock-based transactions are accounted for under the
requirements of SFAS No. 123, Accounting for Stock-Based Compensation, which
requires compensation to be recorded based on the fair value of the securities
issued or the services received, whichever is more reliably measurable.
Earnings per share
Basic earnings per share (EPS) is computed as net income (loss) divided by
the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common stock
issuable through stock options and convertible securities.
F-22
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998 and 1999, all dilutive
securities have been excluded as their inclusion would have had an antidilutive
effect on EPS. If stock options and convertible debt securities had not been
excluded, 11,500,768, 11,473,693 and 12,211,234 shares respectively of
additional common shares would have been included in the denominator.
Comprehensive income
As of January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 established the requirements for the
reporting and presentation of comprehensive income and its components. For the
years ended December 31, 1997, 1998 and 1999, and for the three months ended
March 31, 1999 and 2000 the Company had no components of comprehensive income
and, therefore, net income is equal to comprehensive income.
New pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in all fiscal quarters of all fiscal years beginning after June
15, 2000. The Statement permits early adoption as of the beginning of any
fiscal quarter after its issuance. The Company will adopt the new Statement
effective January 1, 2001. The Statement will require the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities or firm commitment through earnings or recognized in
other comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. Because of the Company's minimal use of derivatives,
management does not anticipate that the adoption of the new Statement will have
a significant effect on the Company's earnings or financial position.
NOTE 2. BUSINESS COMBINATIONS
During the years ended December 31, 1997, 1998 and 1999, the Company
acquired the following companies, all of which were accounted for as purchase
business combinations with the operations of the businesses included subsequent
to their respective acquisition dates. The allocation of the respective
purchase prices are generally based upon management's estimates of the
discounted future cash flows to be generated from the broadcast properties for
intangible assets and replacement cost for tangible assets, and as it relates
to the 1999 acquisitions reflects management's preliminary allocation of
purchase price.
1997 acquisitions
Valley Channel 48, Inc. (KNVO)
On January 23, 1997, the Company acquired all of the issued and
outstanding common stock of Valley Channel 48, Inc. for approximately $24.6
million in cash plus the assumption of certain liabilities. Valley
Channel 48, Inc. operates a Univision affiliate in the McAllen,
Harlingen/Brownsville, Texas market.
F-23
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The excess purchase price over tangible net assets acquired of $28.8
million was allocated to specifically identifiable intangibles consisting
of $1.1 million to presold commercial advertising contracts, $1.7 million
to the FCC license, $13.9 million to the Univision affiliation agreement,
$0.3 million to a noncompete agreement. The remaining excess purchase price
of $11.8 million was recorded as goodwill.
KINT-TV
On June 4, 1997, the Company purchased substantially all of the assets
relating to television station KINT-TV which operates the El Paso, Texas
Univision affiliate and all of the stock of 26 de Mexico S.A. de C.V. (a
Mexican corporation) for approximately $25.2 million.
The excess of the purchase price over the tangible net assets of $19.0
million was allocated to specifically identifiable intangibles consisting
of $14.6 million to the Univision affiliation agreement, $3.0 million to
the FCC license, $1.1 million to presold commercial advertising contracts,
$0.2 million to the stock of the Mexican corporation and $0.1 million to
other identifiable intangibles.
KINT-FM and KSVE-AM
On September 24, 1997, the Company acquired substantially all of the
assets of KINT-FM and KSVE-AM, both Spanish-programmed radio stations
operating in El Paso, Texas, for $4.0 million. From June 4, 1997 through
September 24, 1997, ECC operated these stations under a local marketing
agreement.
The excess purchase price over the tangible assets acquired of $3.4
million was allocated to specifically identified intangibles consisting of
$2.9 million to the FCC license, $0.2 million to presold commercial
advertising contracts and $0.2 million to other identifiable intangibles.
The remaining excess purchase price of $0.1 million was recorded as
goodwill.
KLDO
On August 14, 1997, the Company acquired substantially all of the assets
of Panorama Broadcasting Co., which owned and operated the Laredo, Texas,
Univision affiliate, for $6.3 million.
The excess purchase price over tangible assets of $4.5 million was
allocated to specifically identified intangibles consisting of $3.5 million
to the Univision affiliation agreement, $0.3 million to the FCC license and
$0.2 million to presold commercial advertising contracts. The remaining
excess purchase price of $0.5 million was recorded as goodwill.
1998 acquisitions
Entravision Communications of Midland, LLC
On January 22, 1998, the Company entered into an agreement with an
unrelated third party and formed Entravision Communications of Midland, LLC
(Midland). The purpose of this new entity is to construct a new UHF
television station in Midland, Texas. The Company acquired an 80% interest
in Midland for $0.3 million and advanced Midland $2.6 million to obtain the
rights to a construction permit under an auction and settlement agreement
pursuant to an FCC application. As of December 31, 1999, construction of
the station had not commenced.
F-24
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The agreement also contains options whereby, commencing one year from
the date that the station begins program test operations, ECC may acquire
the remaining interest in Midland for a predetermined exercise price, as
defined in the agreement.
La Paz Wireless Corporation (KVYE)
On March 15, 1998, the Company acquired substantially all of the assets
of La Paz Wireless Corporation, which owned television station KVYE in El
Centro, California. The purchase price was $0.7 million, consisting of $0.1
million in cash, seller financing of $0.4 million and the assumption of
certain liabilities in the amount of $0.2 million. Prior to the
acquisition, the Company operated this station as a Univision affiliate
under a local marketing agreement.
The purchase price of $0.7 million was allocated to specifically
identifiable intangibles consisting of $0.5 million to the FCC license and
$0.2 million to goodwill.
Telecorpus, Inc. (KORO)
On April 21, 1998, the Company, acquired all of the outstanding capital
stock of Telecorpus, Inc. for approximately $14.6 million. Telecorpus, Inc.
operates a Univision affiliate in Corpus Christi, Texas.
The excess purchase price over tangible net assets acquired of $13.2
million was allocated to specifically identifiable intangibles consisting
of $0.4 million to presold advertising contracts, $1.9 million to the FCC
license, $4.5 million to the Univision affiliation agreement, $5.8 million
to noncompete agreements. The remaining purchase price of $0.6 million was
recorded as goodwill.
1999 acquisitions
Brawley Broadcasting Company and KAMP Radio, Inc.
On January 6, 1999, the Company acquired substantially all of the assets
of Brawley Broadcasting Company and KAMP Radio, Inc., which include the
radio stations KAMP (AM) El Centro, California; KWST (FM) Brawley,
California; and KMXX (FM) Imperial, California. The purchase price was $2.5
million of which $0.4 million was previously deposited in escrow with the
remainder being paid in cash at closing.
The excess purchase price over tangible net assets acquired of $2.0
million was allocated to specifically identifiable intangibles consisting
of $1.4 million to the FCC license, and $0.2 million to other identifiable
intangibles. The remaining excess purchase price of $0.4 million was
recorded as goodwill.
Latin Communications Group Television, Inc.
On February 4, 1999 the Company purchased all of the assets of Latin
Communications Group Television, Inc. relating to television station WVEN-
LP, in Orlando, Florida and WVEA-LP in Tampa Florida.
Additionally, the Company, through a newly formed acquisition
corporation, Los Cerezos Acquisition Co. with no other activities other
than to complete this purchase, purchased all of the outstanding capital
stock of Los Cerezos Television Company. Los Cerezos Television Company
F-25
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
operates television station WMDO-LP in Washington, D.C. The aggregate
purchase price paid in connection with these acquisitions was approximately
$15.3 million including the assumption of certain liabilities totaling $2.1
million.
The excess purchase price over tangible net assets acquired of $14.2
million was allocated to specifically identifiable intangible assets
consisting of $0.9 million to presold commercial advertising contracts,
$2.2 million to FCC licenses, $7.4 million to Univision affiliation
agreements, and $0.2 million to noncompete agreements. The remaining excess
purchase price of $3.5 million was recorded as goodwill.
The Company previously operated these stations under a local marketing
agreement beginning in November 1998.
KLUZ-TV
On April 1, 1999, the Company acquired substantially all of the assets
of Univision affiliate television stations KLUZ and K48AM in Albuquerque,
New Mexico from Univision. The purchase price was $14.9 million of which
$1.0 million was cash. As part of the acquisition consideration, the
Company provided Univision a 2% increase in its conversion exchange option
under the subordinated note agreement (see Note 5). The incremental
exchange option has been assigned a value of $13.9 million and has been
recorded as additional paid-in capital as a result of this acquisition.
The excess purchase price over tangible net assets acquired of $13.5
million was allocated to specifically identifiable intangibles consisting
of $7.3 million to the FCC license, $0.6 million to presold commercial
advertising contracts, and $5.6 million to the Univision affiliation
agreement.
Televisora ALCO, S.A. de C.V. (XUPN)
On June 9, 1999, pursuant to a special authorization obtained from the
Mexican Foreign Investment General Bureau, the Company acquired a 40% limited
voting interest (neutral investment stock) in Televisora Alco S.A. de C.V.
(ALCO), a Mexican corporation which operates XUPN-TV in Tecate, Baja
California, Mexico. The purchase price for the 40% interest was $0.5 million in
cash. The Company is accounting for this investment under the equity method of
accounting. This station began broadcasting in November 1999 which resulted in
insignificant revenue and expenses. ALCO's assets and liabilities were not
significant at December 31, 1999.
On June 9, 1999, the Company also acquired all of the outstanding voting
capital stock, and a majority of the limited voting capital stock, of
Comercializadora Frontera Norte S.A. de C.V. (CFN), a Mexican corporation,
which has a time brokerage agreement with Alco, providing it with substantial
broadcast and advertising rights. The aggregate consideration paid for this
acquisition and related transactions was approximately $19.5 million, of which
$7.5 million was in cash with the remaining $12 million payable over twelve
years. The entire purchase price was allocated to the intangible asset time
brokerage agreements.
On August 10, 1999, CFN assigned all of its rights and obligations under the
time brokerage agreement to ECC. As a result, all of the operations of this
broadcast property are accounted for as a division of the Company. The time
brokerage agreement provides for a ten-year term with successive 30-year
renewals.
F-26
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DeSoto Broadcasting (WBSV)
On September 20, 1999, the Company acquired substantially all of assets
of DeSoto Broadcasting, Inc., DeSoto Channel 62 Associates, and Omni
Investments, Inc. These companies collectively owned the assets and
licenses to operate WBSV in Venice (Sarasota), Florida. The purchase price
was $17.0 million of which $0.9 million was previously deposited in escrow
with the reminder paid in cash at closing.
The excess purchase price over tangible net assets acquired of $15.8
million was allocated to the FCC license.
Paisano Communications (KBZO)
On December 20, 1999, the Company acquired substantially all of the
assets of Paisano Communications which includes low power television
stations KBZO-LP, Lubbock, Texas; K31DM, San Angelo, Texas: K48FR,
Amarillo, Texas and radio station KBZO (AM), Lubbock, Texas. The purchase
price, was $2.3 million in cash.
The excess purchase price over tangible net assets acquired of $2.1
million was allocated to specifically identifiable intangible assets
consisting of $0.3 million to the FCC license, $1.3 million to Univision
affiliation agreement and $0.3 million to noncompete agreements. The
remaining excess purchase price of $0.2 million was recorded as goodwill.
See Note 11 for acquisitions subsequent to year end.
Pro Forma results (unaudited)
The following pro forma results of continuing operations assume the 1998 and
1999 acquisitions discussed above occurred on January 1, 1998. The unaudited
pro forma results have been prepared using the historical financial statements
of the Company and each acquired entity. The unaudited pro forma results give
effect to certain adjustments including amortization of goodwill, depreciation
of property and equipment, interest expense and the related tax effects.
[Download Table]
December 31,
-----------------------
1998 1999
(Unaudited) (Unaudited)
(In millions of dollars except per share) ----------- -----------
Net revenue.......................................... $ 61.2 $ 63.3
Net (loss)........................................... (4.4) (37.0)
Basic and diluted net (loss) per share............... $(0.07) $(0.57)
The above pro forma financial information does not purport to be indicative
of the results of operations had the 1998 and 1999 acquisitions actually taken
place on January 1, 1998, nor is it intended to be a projection of future
results or trends.
F-27
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consists of:
[Download Table]
1998 1999
(In millions of dollars) ----- -----
Buildings....................................................... $ 3.6 $ 5.3
Construction in progress........................................ 0.2 --
Land improvements............................................... 0.3 0.3
Leasehold improvements.......................................... 0.7 1.6
Transmission studio and other broadcast equipment............... 15.9 25.4
Office and computer equipment................................... 1.8 3.1
Transportation equipment........................................ 0.9 1.0
----- -----
23.4 36.7
Less accumulated depreciation and amortization.................. 7.6 11.6
----- -----
15.8 25.1
Land............................................................ 1.0 2.1
----- -----
$16.8 $27.2
===== =====
NOTE 4. INTANGIBLE ASSETS
At December 31, intangible assets consist of:
[Download Table]
March 31,
1998 1999 2000
(In millions of dollars) ----- ------ -----------
(Unaudited)
FCC licenses........................................ $17.0 $ 44.0 $ 54.7
Univision affiliation agreements.................... 38.1 52.5 52.5
Goodwill............................................ 22.4 27.1 29.3
Noncompete agreements............................... 6.3 6.8 7.3
Construction rights and permits..................... 3.7 4.0 4.0
Time brokerage agreement............................ -- 19.5 46.8
Deferred debt costs................................. 1.3 1.3 1.3
Other............................................... 1.2 3.3 3.5
----- ------ ------
90.0 158.5 199.4
Less accumulated amortization....................... 12.1 22.3 25.5
----- ------ ------
$77.9 $136.2 $173.9
===== ====== ======
NOTE 5. LONG-TERM DEBT, NOTES PAYABLE AND SUBSEQUENT EVENT
Notes payable at December 31 are summarized as follows:
[Download Table]
March 31,
1998 1999 2000
(In millions of dollars) ----- ------ -----------
(Unaudited)
Subordinated note with interest at 7.01%........... $10.0 $ 10.0 $120.0
Credit facility with bank.......................... 88.0 142.9 96.9
Time brokerage contract payable, due in annual
installments of $1,000, bearing interest at LIBOR
(6.5% at December 31, 1999) through June 2011..... -- 12.0 12.0
Other.............................................. 1.7 2.4 5.5
----- ------ ------
99.7 167.3 234.4
Less current maturities............................ 0.9 1.4 0.3
----- ------ ------
$98.8 $165.9 $234.1
===== ====== ======
F-28
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Subordinated note
On December 30, 1996, the Company issued a $10.0 million subordinated note
to Univision. This note is subordinated to all senior debt. The note is due
December 30, 2021 and bears interest at 7.01% per annum, for which Univision
has agreed to provide the Company with network compensation equal to the amount
of annual interest due. Under a separate option agreement, Univision may
exchange the note into Class C common stock, representing a 27.9% interest in
the Company, at the holder's option at any time prior to maturity. During 1999
certain conditions restricting the exchange of the note were eliminated and, as
such, the Company recorded interest expense of $2.5 million based on the
estimated intrinsic value of the option feature at the date the note was
entered into.
The note contains certain restrictions including the restriction on
dividends, acquisition of assets over a certain limit, the incurrence of debt
over certain leverage ratios, the merger or consolidation of the Company with a
third party or a sale of the Company's assets, the transfer or sale of any FCC
license for our Univision affiliate television stations, the issuance of
additional common stock and changes to the capital structure of the Company
without the consent of Univision.
On March 2, 2000 the Note was amended and increased to $120 million, and the
option exchange feature was increased from 27.9% to 40%, resulting in
additional interest expense of $31.6 million during the quarter ended March 31,
2000 (unaudited) based on the estimated intrinsic value of the option feature.
The intrinsic value of the option feature was determined using an estimate by
management based primarily on the estimated IPO price as the fair market value.
Credit facility with bank
The Company has a revolving credit facility with a bank in the amount of
$158.0 million, of which $142.9 million was outstanding at December 31, 1999.
On January 14, 2000, the Company entered into an amendment to increase the
credit facility to $158 million. Additionally, the Company has a letter of
credit outstanding at December 31, 1999 in the amount of $0.4 million. The
credit facility bears interest at LIBOR (6.5% at December 31, 1999) plus 1.625%
and expires on November 10, 2006. The facility is collateralized by
substantially all the Company's assets, as well as a nonrecourse guarantee of
certain stockholders and a pledge of ECC LLC membership units and corporate
ownership interest. The credit facility contains quarterly scheduled reductions
in the amount that is available under the revolving loan commitment commencing
December 31, 2000 through November 10, 2006. These quarterly reductions range
from $1.5 million to $10.5 million. In addition, the Company pays loan
commitment fees of from 0.275% to 0.5% (per annum). The credit facility also
contains a mandatory prepayment clause in the event the Company should
liquidate any assets in excess of $5.0 million if the proceeds are not utilized
to acquire assets of the same type and use within one year, receive insurance
or condemnation proceeds which are not fully utilized toward the replacement of
such assets, or have excess cash flows (as defined in the credit facility) in
any fiscal year subsequent to December 31, 1999. However, no prepayment due to
excess cash flow is required provided that the Company's maximum total debt
ratio is less than 4.5 to 1.
The credit facility contains certain financial covenants relating to maximum
total debt ratio, total interest coverage ratio, a fixed charge coverage ratio
and a ceiling on annual capital expenditures. The covenants become increasingly
restrictive in the later years of the facility. The credit facility also
F-29
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
contains restrictions on the incurrence of additional debt, the payment of
dividends, acquisitions over a certain limit and management fees or bonuses to
certain executives. The credit facility also states that the Company may not
make any equity offering without giving the bank 30 days written notice.
The Company has entered into interest rate cap agreements to reduce the
impact of changes in interest rates on its revolving credit facility. At
December 31, 1999, the Company had outstanding an interest rate cap agreement
with a bank, having a total notional principal amount of $50.0 million. The
agreement effectively changes the Company's interest rate exposure on $50.0
million of its revolving credit facility to a fixed 7%. The interest rate cap
agreements mature July 16, 2000.
The Company is exposed to credit loss in the event of nonperformance by the
counterparty to the interest rate cap agreement. However, the Company does not
anticipate nonperformance by the counterparty.
Aggregate maturities of long-term debt and notes payable as of December 31,
1999 are as follows:
[Download Table]
Years Ending December 31, Amount
------------------------- ------
(In millions of dollars)
2000................................................................. $ 1.4
2001................................................................. 9.2
2002................................................................. 16.2
2003................................................................. 22.2
2004................................................................. 28.2
Thereafter........................................................... 90.1
------
$167.3
======
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 consist of:
[Download Table]
1998 1999
(In millions of dollars) ---- ----
Accounts payable.................................................. $1.4 $2.4
Accrued payroll and payroll taxes................................. 1.0 1.1
Accrued interest.................................................. 0.9 0.1
Income taxes payable.............................................. 0.3 0.3
Executive employment agreement bonus.............................. 0.9 1.1
Professional fees................................................. 0.4 0.5
Syndication fees.................................................. -- 0.9
Other............................................................. 1.3 1.1
---- ----
$6.2 $7.5
==== ====
NOTE 7. INCOME TAXES
The provision for income taxes for the years ended December 31 is as
follows:
[Download Table]
1997 1998 1999
(In millions of dollars) ---- ---- -----
Current:
Federal.................................................. $ -- $0.1 $ 0.2
State.................................................... 0.1 0.2 0.1
Deferred................................................... 0.2 (0.1) (0.4)
---- ---- -----
$0.3 $0.2 $(0.1)
==== ==== =====
F-30
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The income tax provision differs from the amount of income tax determined by
applying the federal statutory income tax rate because substantially all of the
Company's operations are generated by non-taxpaying entities.
The components of the deferred tax assets and liabilities at December 31
consist of the following:
[Download Table]
1998 1999
(In millions of dollars) ----- -----
Deferred tax assets:
Intangible assets........................................... $ 0.2 $ --
----- -----
Deferred tax liabilities:
Change in accounting method................................. (0.1) --
Intangible assets........................................... -- (1.8)
Property and equipment...................................... (0.4) (0.2)
----- -----
(0.5) (2.0)
----- -----
Net long-term deferred tax liability.......................... $(0.3) $(2.0)
===== =====
NOTE 8. COMMITMENTS
The Company has agreements with Nielsen Media Research (Nielsen), expiring
at various dates through December 2004, to provide television audience
measurement services. Pursuant to these agreements, the Company is obligated to
pay Nielsen a total of $7.9 million in increasing annual amounts. The annual
commitments range from $1.4 million to $1.9 million.
Operating leases
The Company leases facilities and broadcast equipment under various
operating lease agreements with various terms and conditions, which expire at
various dates through May 2009.
The approximate future minimum lease payments under these operating leases
at December 31, 1999 are as follows:
[Download Table]
Years Ending December 31, Amount
------------------------- ------
(In millions of dollars)
2000................................................................. $2.4
2001................................................................. 1.8
2002................................................................. 1.5
2003................................................................. 1.2
2004................................................................. 0.9
Thereafter........................................................... 2.1
----
$9.9
====
Total rent expense under operating leases, including rent under month-to-
month arrangements, was approximately $1.0 million, $1.2 million and $2.0
million for the years ended December 31, 1997, 1998 and 1999, respectively.
F-31
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employment agreements
ECC LLC has entered into employment agreements (the Agreements) with two
executive officers and stockholders through October 2003. The Agreements
provide that a minimum annual base salary and a bonus of 1% of ECC LLC's annual
net revenue be paid to each of the executives, effective for years beginning
after January 1, 1997. ECC LLC accrued approximately $0.6 million, $0.9 million
and $1.1 million of bonuses payable to these executives for the years ended
December 31, 1997, 1998 and 1999, respectively.
Additionally, the Agreements provide for a continuation of each executive's
annual base salary and annual bonus through the end of the employment period if
the executive is terminated due to a permanent disability or without cause, as
defined in the Agreements. Management intends to modify these Agreements
subsequent to year end.
ECC LLC also has an employment agreement with its executive vice president
which provides for an annual base salary and bonus. Additionally, in 1997 the
employee was awarded 922,828 shares of Class A common stock in the Company,
which vested through January 2000.
At December 31, 1999, the estimated fair value associated with this award of
Class A common stock was $27.7 million. The Company has recorded $0.9 million,
$0.5 million and $26.3 million of compensation expense for the years ended
December 31, 1997, 1998 and 1999, respectively and $7.3 million for the three
months ended March 31, 1999. This award originally provided for a repurchase
option which has been eliminated. As such, the award was considered variable.
Compensation expense for 1999 was determined using an estimate by management
based primarily on the estimated IPO price as the fair market value.
In January 1999, the Company entered into an employment agreement with its
senior vice president which expires on January 4, 2002 and provides for an
annual base salary and bonus to be paid to the employee.
As part of this agreement, ECC LLC originally granted an option to the
employee to purchase Class D membership units. As amended in April 2000, ECC
LLC sold the employee 82,195 restricted shares of Class A common stock at $0.01
per share. The Company may repurchase the restricted shares at $0.01 per share.
The number of shares subject to the Company's repurchase option is eliminated
proportionately over three years from the original grant date. The intrinsic
value of the original option at the grant date was determined by management
using the estimated IPO price as the fair value of the underlying shares. In
accordance with APB No. 25, the Company recorded $2.8 million in compensation
expense during 1999 attributable to the original option grant which is
reflected as non-cash stock-based compensation in the statement of operations.
This amount approximates the total intrinsic value of the amended employee
restricted stock purchase. Accordingly, no amounts have been recorded for non-
cash stock-based compensation for this grant during the quarter ended March 31,
2000 (unaudited).
SFAS No. 123 requires the disclosure of pro forma net income and earnings
per share had the Company adopted the fair value method. Under SFAS No. 123,
the fair value of stock-based awards to employees is calculated through the use
of option-pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options with vesting
F-32
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
restrictions which significantly differ from the Company's stock option award.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
value. The Company's fair value calculation was made using the Black-Scholes
option-pricing model with the following assumptions: expected life of three
years following complete vesting; stock volatility of 50%; risk-free interest
rate of 6.17% and no dividends during the expected life.
If the computed fair value of the award had been amortized to expense over
the vesting period of the award, proforma net loss of the Company would have
been approximately $0.1 million higher in 1999.
NOTE 9. RELATED-PARTY TRANSACTIONS
Related-party transactions not discussed elsewhere consist of the following:
The Company has unsecured advances of $0.2 million payable to related
parties, which bear interest, and are due on demand at December 31, 1998 and
1999.
The Company has unsecured stock subscriptions due from officer/stockholders
of the Company amounting to $0.6 million at December 31, 1998 and 1999. The
advances are due on demand and have been recorded as a reduction of equity.
In addition, the Company has unsecured advance receivables from related
parties amounting to $0.3 million at December 31, 1998 and 1999.
The Company utilizes the services of a law firm, a partner of which is a
stockholder and director. Total legal fees incurred with this law firm
aggregated approximately $0.3 million, $0.5 million and $0.5 million for the
years ended December 31, 1997, 1998 and 1999, respectively.
NOTE 10. 401(K) SAVINGS PLAN
During 1999 the Company established a defined contribution 401(k) savings
plan covering substantially all its employees. The Company currently matches
25% of the amounts up to a maximum of $1,000 per year by each participant.
Employer matching contributions for the year ended December 31, 1999 aggregated
approximately $0.1 million.
NOTE 11. LITIGATION
The Company is a defendant to a lawsuit filed in the Superior Court of the
District of Columbia by First Millenium Communications, Inc. to resolve certain
contract disputes arising out of a terminated brokerage-type arrangement with
First Millenium. The litigation primarily concerns the payment of a brokerage
fee alleged to be due in connection with the acquisition of television station
WBSV in Sarasota, Florida for $17 million. In addition to its various
contractual claims, First Millenium also has asserted claims for fraud, RICO,
misappropriation, breach of fiduciary duty, defamation and intentional
infliction of emotional distress. First Millenium is seeking in excess of $60
million including the right to a 10% ownership interest in WBSV and the right
to exchange such interest in the reorganization described in Note 1. First
Millenium has made similar claims relating to other pending acquisitions.
F-33
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
No accrual has been recorded in the accompanying financial statements beyond
the amount management believes is the contractual obligation since the ultimate
liability in excess of the amount recorded, if any, cannot be reasonably
estimated. Management intends to vigorously defend against these claims and
does not believe that any resolution of this litigation is likely to have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
NOTE 12. SUBSEQUENT EVENTS
Subordinated note
On March 2, 2000, the Company received $110 million from Univision pursuant
to the existing subordinated note and option agreement (see Note 5). The note
was also amended increasing the option exchange feature from 27.90% to 40%
based on ownership prior to the additional issuance of common shares
anticipated in the IPO, and other contemplated equity transactions.
Acquisitions
The following business and/or assets were or will be acquired after December
31, 1999:
Magic Media, Inc.
On July 19 1999, the Company entered into an asset purchase agreement
with Magic Media, Inc. to acquire substantially all of the assets relating
to the operations of radio stations KATH (FM) and KOFX (FM) in El Paso,
Texas for approximately $14 million. At December 31, 1999 the Company had
on deposit $0.5 million in an escrow relating to this acquisition. The
acquisition closed on January 14, 2000 and was accounted for as a purchase
business combination. The purchase price has been allocated as follows:
$0.6 million to fixed assets, $10.7 million to the FCC license, $2.2
million to goodwill and $0.5 million to a non-competition agreement.
WHCT-TV
In February 2000, the Company entered into an agreement to acquire the
FCC license of television station WHCT in Hartford Connecticut, for $18
million. Management intends to close on this transaction upon receiving FCC
and bankruptcy court approval, which it anticipates receiving in the third
quarter of 2000.
Citicasters Co.
In March 2000, the Company entered into an asset purchase agreement with
Citicasters Co., a subsidiary of Clear Channel Communications, Inc., to
acquire the FCC licenses relating to the operations of radio stations KACD
(FM) Santa Monica, California and KBCD (FM) Newport Beach, California for
approximately $85 million. On March 3, 2000 the Company deposited
$17 million in escrow relating to this acquisition. Management intends to
close this transaction upon receiving FCC approval, which it anticipates
receiving in the third quarter of 2000.
F-34
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
XHAS-TV
In March 2000, the Company's 40% equity method investee, ALCO, executed
a stock purchase agreement to acquire the outstanding capital stock of a
Mexican corporation which holds the necessary authorizations from the
Mexican government to own and operate television station XHAS, Channel 33,
Tijuana, Mexico.
In March 2000, the Company entered into agreements to acquire a 47.5%
interest in each of Vista Television, Inc., and Channel 57, Inc. The
Company has an option, which must be exercised at the expiration of the
five year term, to acquire an additional 47.5% interest in each of these
companies for $3.5 million. Additionally, ECC entered into time brokerage
agreements in connection with these acquisitions.
The aggregate consideration to be paid in connection with these
transactions is approximately $35.0 million of which $1.0 million was
deposited into escrow at December 31, 1999. These transactions closed on
March 16, 2000. The purchase price has been preliminarily allocated as
follows: $1.0 million to fixed assets, $27.5 million to intangibles and
$6.7 million to other assets.
Latin Communications Group Inc. (LCG)
On April 20, 2000, the Company acquired all of the outstanding capital
stock of LCG for approximately $252 million. LCG operates radio stations in
California, Colorado, New Mexico, and Washington D.C. and also owns and
operates two Spanish-language publications. In connection with this
acquisition, the Company amended certain financial covenants related to its
credit facility to provide for this acquisition and the issuance of a $90
million convertible subordinated note. Additionally, the Company entered
into a $115 million term loan with its bank group, the proceeds from which
will be used to finance this acquisition. All amounts outstanding under
this term loan are due April 18, 2001 and bear interest at LIBOR plus 4%.
This term loan is secured by a pledge of the Company's stock and lien on
all of LCG's assets and a secondary pledge on all of the Company's assets.
Z-Spanish Media
On April 20, 2000, the Company agreed to acquire all of the outstanding
capital stock of Z-Spanish Media. Z-Spanish Media owns 33 radio stations
and an outdoor billboard business. The purchase price is approximately $475
million, including approximately $110 million of debt. The purchase price
will be paid 70% in cash and the remaining 30% in newly-issued Class A
common stock of the Company after the reorganization as discussed in Note
1. In connection with this acquisition, the Company will be issuing
approximately 1.1 million options of its Class A common stock in exchange
for Z-Spanish Media's previously outstanding stock options. In connection
with these stock options, the Company will record as additional purchase
price approximately $7 million for the excess of the estimated fair value
over the intrinsic value of the options. In addition, the Company will
recognize approximately $11 million as non-cash stock-based compensation
over the remaining three year vesting period. Management intends to close
on this transaction concurrently with the IPO.
F-35
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Radio Stations KFRQ(FM), KKPS(FM), KVPA(FM), and KVLY(FM)
On May 22, 2000 the Company agreed to acquire certain assets relating to
the operations of radio stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM)
from Sunburst Media, L.P., for approximately $55 million. Management
intends to close on this transaction upon receiving FCC approval, which it
anticipates receiving in the third quarter of 2000.
Infinity Broadcasting Corporation
On June 13, 2000 the Company agreed to acquire certain outdoor
advertising assets from Infinity Broadcasting Corporation for a total of
$166.6 million. The closing of this acquisition is subject to conditions,
including the receipt of required approvals. The Company will finance the
acquisition with proceeds from its credit facility.
2000 Omnibus Equity Incentive Plan
The Company adopted a 2000 Omnibus Equity Incentive Plan that allows for
the award of up to 12,000,000 shares of Class A common stock. Awards under
the plan may be in the form of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock or stock units. No
awards have been granted.
Stock Grants
In June 2000, ECC LLC granted stock awards to employees, directors and
consultants totaling 478,720 Class A shares of common stock. As a result of
these grants, the Company will record a non-cash stock-based compensation
charge of $7.7 million that will be recognized over the three year vesting
period beginning in the second quarter of 2000.
F-36
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Latin Communications Group Inc.
We have audited the accompanying consolidated balance sheets of Latin
Communications Group Inc. and Subsidiaries as of December 26, 1999 and December
27, 1998, and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended December
26, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Latin
Communications Group Inc. and Subsidiaries at December 26, 1999 and December
27, 1998 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 26, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
San Jose, California
March 30, 2000
F-37
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
[Download Table]
December 27, December 26, March 31,
1998 1999 2000
------------ ------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents............... $ 3,010 $ 6,695 $ 2,236
Accounts receivable, less allowance for
doubtful accounts of $1,965 in 1998,
$1,518 in 1999 and $1,496 in 2000...... 5,956 8,184 7,711
Prepaid expenses and other.............. 794 344 498
Deferred income taxes................... 1,278 1,288 1,665
-------- -------- --------
Total current assets..................... 11,038 16,511 12,110
Net assets of discontinued operations.... 4,831 -- --
Land held for sale....................... 4,000 -- --
Deferred finance costs, less accumulated
amortization of $1,316 in 1998, $751 in
1999 and $84 in 2000.................... 2,097 1,265 1,181
Property and equipment, at cost, less
accumulated depreciation of $2,337 in
1998, $3,618 in 1999 and $3,889 in
2000.................................... 6,487 7,259 7,759
Broadcast licenses and other intangible
assets, less accumulated amortization of
$8,054 in 1998, $11,583 in 1999 and
$12,456 in 2000......................... 137,349 131,162 129,923
Other assets (including notes receivable
of $366 in 1999 and $342 in 2000 from a
related party).......................... 220 1,289 3,235
-------- -------- --------
Total assets............................. $166,022 $157,486 $154,208
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses... $ 5,136 $ 5,366 $ 5,706
Accrued interest........................ 1,175 715 227
Current portion of long-term debt....... 4,318 69 25
-------- -------- --------
Total current liabilities................ 10,629 6,150 5,958
Long-term liabilities:
Debt.................................... 50,541 42,037 39,780
Deferred income taxes................... 17,471 18,889 18,890
Other................................... 1,492 1,442 1,414
-------- -------- --------
Total liabilities........................ 80,133 68,518 66,042
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value;
15,000,000 shares authorized; 9,235,468
shares issued and outstanding.......... 92 92 92
Additional paid-in capital.............. 94,485 94,485 94,485
Accumulated deficit..................... (8,688) (5,609) (6,411)
-------- -------- --------
Total stockholders' equity............... 85,889 88,968 88,166
-------- -------- --------
Total liabilities and stockholders'
equity.................................. $166,022 $157,486 $154,208
======== ======== ========
See notes to consolidated financial statements.
F-38
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
[Enlarge/Download Table]
Years Ended Three Months Ended
-------------------------------------- ------------------------
December 28, December 27, December 26, March 28, March 31,
1997 1998 1999 1999 2000
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
Gross revenue:
Advertising............ $ 33,710 $ 34,469 $ 41,814 $ 7,863 $ 10,414
Less agency
commissions........... 3,472 3,692 4,623 814 1,194
---------- ---------- ---------- ---------- ----------
30,238 30,777 37,191 7,049 9,220
Circulation............ 5,759 5,741 5,875 1,392 1,398
Other.................. 998 1,378 1,179 218 224
---------- ---------- ---------- ---------- ----------
Net revenue............ 36,995 37,896 44,245 8,659 10,842
---------- ---------- ---------- ---------- ----------
Expenses:
Direct operating....... 15,131 15,196 15,560 3,775 4,212
Selling, general and
administrative........ 17,535 17,677 18,910 4,093 4,734
Corporate.............. 1,713 2,901 1,795 204 429
Depreciation and
amortization.......... 3,762 4,593 4,907 1,243 1,229
---------- ---------- ---------- ---------- ----------
38,141 40,367 41,172 9,315 10,604
---------- ---------- ---------- ---------- ----------
Operating income (loss) (1,146) (2,471) 3,073 (656) 238
Interest expense
(including amounts
associated with
related parties of
$1,200 in 1997, $1,800
in 1998, $1,900 in
1999 and $286 in each
of the three month
periods ended March
28, 1999 and March 31,
2000)................. (4,176) (6,211) (4,895) (1,407) (1,009)
Interest income........ -- 138 115 16 28
Other finance costs and
related amortization
(including amounts
associated with
related parties of
$250 in 1999 and $63
in 2000).............. (335) (376) (626) (98) (146)
Gain (loss) on sale of
assets................ -- -- (121) (155) (257)
---------- ---------- ---------- ---------- ----------
Loss from continuing
operations before
income taxes........... (5,657) (8,920) (2,454) (2,300) (1,146)
Income tax benefits..... 2,213 2,570 736 690 344
---------- ---------- ---------- ---------- ----------
Loss from continuing
operations............. (3,444) (6,350) (1,718) (1,610) (802)
Income from discontinued
operations, net of
income taxes of $595 in
1997, $974 in 1998,
$271 in 1999 and $271
in the three months
ended March 28, 1999... 1,161 1,312 418 418 --
Gain on sale of
discontinued
operations, net of
income taxes of $3,123
in 1999................ -- -- 5,006 5,006 --
---------- ---------- ---------- ---------- ----------
Net income (loss) before
extraordinary item..... (2,283) (5,038) 3,706 3,814 (802)
Extraordinary loss from
early extinguishment of
debt, net of income tax
benefits of $153 in
1997 and $415 in 1999.. (222) -- (627) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ (2,505) $ (5,038) $ 3,079 $ 3,814 $ (802)
========== ========== ========== ========== ==========
Net income (loss) per
share:
Basic and diluted:
Loss from continuing
operations............ $ (0.39) $ (0.69) $ (0.19) $ (0.18) $ (0.09)
Discontinued
operations............ 0.13 0.14 0.59 0.59 --
Extraordinary loss..... (0.03) -- (0.07) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)...... $ (0.29) $ (0.55) $ 0.33 $ 0.41 $ (0.09)
========== ========== ========== ========== ==========
Weighted average common
shares outstanding:
Basic and diluted...... 8,761,301 9,165,468 9,235,468 9,235,468 9,235,468
========== ========== ========== ========== ==========
See notes to consolidated financial statements.
F-39
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
[Enlarge/Download Table]
Additional
Common Paid-in Accumulated Total
Shares Stock Capital Deficit Stockholders' Equity
--------- ------ ---------- ----------- --------------------
Balance at December 29,
1996................... 7,740,468 $78 $77,084 $(1,145) $76,017
Shares issued to
purchase a business... 700,000 7 8,743 -- 8,750
Shares issued with
senior subordinated
debt.................. 525,000 5 5,210 -- 5,215
Net loss............... -- -- -- (2,505) (2,505)
--------- --- ------- ------- -------
Balance at December 28,
1997................... 8,965,468 90 91,037 (3,650) 87,477
Shares issued with
senior subordinated
debt.................. 120,000 1 1,199 -- 1,200
Shares issued in
connection with
purchase of radio
station assets........ 150,000 1 2,249 -- 2,250
Net loss............... -- -- -- (5,038) (5,038)
--------- --- ------- ------- -------
Balance at December 27,
1998................... 9,235,468 92 94,485 (8,688) 85,889
Net income............. -- -- -- 3,079 3,079
--------- --- ------- ------- -------
Balance at December 26,
1999................... 9,235,468 92 94,485 (5,609) 88,968
Net loss (unaudited)... -- -- -- (802) (802)
--------- --- ------- ------- -------
Balance at March 31,
2000 (unaudited)....... 9,235,468 $92 $94,485 $(6,411) $88,166
========= === ======= ======= =======
See notes to consolidated financial statements.
F-40
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
[Enlarge/Download Table]
Years Ended Three Months Ended
-------------------------------------- -----------------------
December 28, December 27, December 26, March 28, March 31,
1997 1998 1999 1999 2000
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
Operating activities
Net income (loss)....... $ (2,505) $(5,038) $ 3,079 $ 3,814 $ (802)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization.......... 4,435 5,343 5,279 1,341 1,312
Provision for doubtful
accounts.............. 994 827 558 105 135
Provision for deferred
taxes................. (1,847) (1,741) 1,732 2,606 (376)
Gain on sale of
discontinued
operations............ -- -- (8,128) (8,128) --
Extraordinary loss on
early debt
extinguishments....... 375 -- 1,042 -- --
Loss on sale of
assets................ -- -- 121 155 257
Amortization of debt
discount.............. 477 733 749 187 206
Changes in assets and
liabilities, net of
amounts acquired and
net of disposals:
(Increase) decrease in
accounts receivable.. (1,095) 434 (2,786) 325 338
(Increase) decrease in
prepaid expenses and
other................ (921) 130 461 (844) (154)
(Decrease) increase in
accounts payable and
accrued expenses..... 2,372 (147) (554) 485 (176)
(Decrease) increase in
other assets and
liabilities.......... 46 57 (446) (85) 22
-------- ------- -------- ------- -------
Net cash provided by
operating activities... 2,331 598 1,107 (39) 762
-------- ------- -------- ------- -------
Investing activities
Capital expenditures.... (1,010) (1,272) (2,291) (519) (1,156)
Proceeds from sale of
discontinued
operations............. -- -- 12,949 12,949 --
Proceeds from disposal
of assets.............. -- -- 6,608 1,665 16
Payments for businesses
acquired, net of cash
received of, $404 in
1997 and for purchase
of intangibles in
1998................... (70,015) (1,218) -- -- --
Investments in companies
to be acquired......... 4,470 -- (603) -- (1,574)
-------- ------- -------- ------- -------
Net cash provided by
(used in) investing
activities............. (66,555) (2,490) 16,663 14,095 (2,714)
-------- ------- -------- ------- -------
Financing activities
Proceeds from debt...... 58,285 2,800 26,200 -- 1,500
Payments on debt........ (23,078) (1,634) (39,703) (14,160) (4,007)
Debt issuance costs..... (2,728) (344) (582) -- --
Net proceeds from sale
of common stock........ 5,215 1,200 -- -- --
-------- ------- -------- ------- -------
Net cash (used in)
provided by financing
activities............. 37,694 2,022 (14,085) (14,160) (2,507)
-------- ------- -------- ------- -------
Net increase in cash and
cash equivalents....... (26,530) 130 3,685 (104) (4,459)
Cash and cash
equivalents at
beginning of year...... 29,410 2,880 3,010 3,010 6,695
-------- ------- -------- ------- -------
Cash and cash
equivalents at end of
year................... $ 2,880 $ 3,010 $ 6,695 $ 2,906 $ 2,236
======== ======= ======== ======= =======
See notes to consolidated financial statements.
F-41
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Latin Communications Group Inc. (the "Company") is a Spanish language media
company that provides advertisers with radio broadcasting and newspaper
publishing for the Hispanic community. The Company operates 17 radio stations
in California, Colorado, New Mexico and Washington, D.C. Operations also
include a Spanish language newspaper in New York City. In February 1999, the
Company disposed of its Spanish language television operations (see Note 8).
On December 21, 1999, the Company entered into a plan of merger agreement
with Entravision Communications Company, L.L.C. ("ECC"), a Delaware limited
liability company engaged in the ownership and operation of television and
radio stations. The merger closed on April 20, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the Company and its wholly-
owned subsidiaries. Significant intercompany accounts and transactions have
been eliminated in consolidation.
Interim Financial Information
The interim financial information as of March 31, 2000 and for the three
months ended March 28, 1999 and March 31, 2000 is unaudited, but in the opinion
of management, has been prepared on the same basis as the annual financial
statements and includes all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of
its consolidated financial position at such dates and its consolidated results
of operations and cash flows for those periods. Operating results for the three
months ended March 31, 2000 are not necessarily indicative of results that may
be expected for any future periods.
Fiscal Year
The Company closes its year on the last Sunday in December. Effective in
2000, the Company adopted a calendar year reporting period.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable and accounts payable, are carried at cost which
approximates fair value due to the short maturity of these instruments. Senior
and subordinated debt bear interest at what is estimated to be current market
rates of interest. Accordingly, book values approximate fair value for these
instruments.
F-42
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Original Issue Discount and Debt Issuance Costs
Original issue discounts on debt are recorded as discounts against the face
value of the debt issued and are amortized on the effective interest method
over the life of the related debt. Debt issuance costs are recorded as finance
costs and are amortized over the life of the related debt.
Property and Equipment
Property and equipment are reported at cost. Depreciation of property and
equipment is calculated on the straight-line basis over the estimated useful
lives of the assets.
Broadcast Licenses and Other Intangible Assets
Intangible assets, which include broadcast licenses, goodwill, network
affiliation agreements and other intangibles arising from the Company's
acquisitions, are carried at cost, less accumulated amortization. These assets
are amortized on a straight-line basis, generally over 40 years.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long Lived Assets and Changes in Long Lived
Assets to be Disposed Of, the carrying value of intangible assets is reviewed
when events or changes in circumstances suggest that the recoverability of an
asset may be impaired. If this review indicates these intangible assets will
not be recoverable, as determined based on the undiscounted cash flows over the
remaining life, the carrying value of these assets will be reduced to their
respective fair values. The cash flow estimates that will be used will contain
management's best estimates, using appropriate and customary projections at the
time. No intangible assets were considered impaired at December 26, 1999.
Revenue Recognition
Advertising, publishing and other revenue is recognized as services are
provided. Uncollectible amounts are charged to expense in the period that
determination becomes reasonably estimable.
Trade and Barter Agreements
Trade and barter agreements are recorded as revenue at the fair value of the
goods or services to be received when advertising space or time is provided.
Barter expenses are recorded when merchandise or services are received. Barter
revenue and costs were approximately $1.5 million in 1999, $1.5 million in 1998
and $1.6 million in 1997.
Advertising Costs
These costs are expensed as incurred and amounted to $0.4 million in 1999,
$0.6 million in 1998 and $0.2 million in 1997.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
F-43
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risk
The Company provides advertising space and airtime to national, regional
and local advertisers within the geographic areas in which the Company
operates. In addition, the Company provides newspapers to wholesalers for
distribution to retail outlets, as well as directly to vendors. Credit is
extended based on an evaluation of the customer's financial condition and
generally advance payment or collateral is not required of creditworthy
customers. Credit losses are provided for in the financial statements and have
been within management's expectations.
Risks and Uncertainties
The Company is party to two collective bargaining agreements in connection
with its newspaper operations. The Company is due to renegotiate a labor
agreement with one of the unions whose agreement expired on March 30, 2000.
The Company intends to continue negotiations to reach a new labor agreement.
Accounting for Stock-Based Compensation
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB No. 25"), and has adopted the "disclosure only" alternative
described in Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ("SFAS No. 123").
The Company accounts for stock appreciation rights in accordance with
Financial Accounting Standards Board Interpretations No. 28, Accounting for
Stock Appreciation Rights and Other Variable Stock Option or Award Plans ("FIN
28").
Earnings Per Share
Basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding. Diluted earnings per
share is computed by dividing net income (loss) by the weighted average number
of common shares and dilutive securities outstanding (none for all years
presented). Antidilutive securities relating to stock options totaled 83,178
in 1999 and 73,045 in 1998 and 1997.
Reclassifications
Certain prior years' balances have been reclassified to conform to the
current year's presentation.
New Accounting Pronouncements
In December of 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial
Statements. SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. This SAB, as
amended in March 2000, is effective for us beginning in the second quarter of
our fiscal year beginning December 27, 1999. The adoption of SAB 101 will not
have a material impact on our financial statements.
F-44
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. DETAIL OF BALANCE SHEET ACCOUNTS AND SUPPLEMENTARY CASH FLOW INFORMATION
Property and equipment consists of the following:
[Download Table]
Estimated
Useful
Life in December 27, December 26,
Years 1998 1999
(in millions of dollars) ---------- ------------ ------------
Land....................................... $0.2 $0.2
Building................................... 25 0.1 0.1
Broadcast equipment........................ 5 5.4 4.8
Machinery and equipment.................... 3-5 1.9 3.1
Leasehold improvements..................... Lease-term 1.2 1.1
Construction in progress................... -- 1.6
---- ----
8.8 10.9
Less accumulated depreciation.............. 2.3 3.6
---- ----
$6.5 $7.3
==== ====
Broadcast licenses and other intangible assets consist of the following:
[Download Table]
December 27, December 26,
1998 1999
(in millions of dollars) ------------ ------------
Broadcasting licenses and other intangible assets.... $104.4 $101.7
Goodwill............................................. 41.0 41.0
------ ------
145.4 142.7
Less accumulated amortization........................ 8.1 11.5
------ ------
$137.3 $131.2
====== ======
In 1997, the Company acquired 100% of the stock of Embarcadero Media Inc.
(EMI), the owners and operators of eight radio stations. The acquisition was
accounted for under the purchase method. The total purchase price was allocated
to the fair market value of the net assets acquired. Included in those assets
were broadcast licenses and other intangibles totaling $83.5 million, which are
generally being amortized over forty years. Below is a summary of the
allocation of the purchase price relating to this acquisition, along with a
summary of intangible assets purchased in 1998.
[Download Table]
Years Ended
-------------------------
December 28, December 27,
1997 1998
------------ ------------
Purchase of businesses, net of cash acquired:
Working capital, other than cash and current portion
of long-term debt.................................. $ (0.7) $ --
Land held for sale.................................. (4.0) --
Property and equipment.............................. (3.2) --
Broadcast licenses and other intangible assets...... (83.5) (5.4)
Deferred income taxes............................... 13.1 --
Stock and notes payable issued for assets........... 8.3 4.2
------ -----
Net cash used to acquire businesses................. $(70.0) $(1.2)
====== =====
F-45
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. DEBT
Debt consists of the following:
[Download Table]
December 27, December 26, March 31,
1998 1999 2000
(in millions of dollars) ------------ ------------ -----------
(Unaudited)
Senior bank debt under a term loan
agreement that was extinguished in
October 1999............................ $36.5 $ -- $ --
Senior bank debt under a revolving line
of credit totaling $35 million, maturing
in October 2002 and bearing interest at
8.34% at December 26, 1999.............. -- 25.0 22.5
Senior subordinated debt maturing in
February 2005 and bearing interest at
5%...................................... 16.2 17.0 17.2
Other.................................... 2.1 0.1 0.1
----- ----- -----
Total debt............................... 54.8 42.1 39.8
Less current portion of long-term debt... 4.3 0.1 --
----- ----- -----
Long-term debt........................... $50.5 $42.0 $39.8
===== ===== =====
On October 22, 1999, the Company entered into a $35 million revolving bank
credit facility (the "Facility") for the purpose of refinancing its senior bank
debt. The Facility is secured by a first priority lien on the capital stock of
the Company's subsidiaries and bears interest at rates of either the London
Interbank Offered Rate (LIBOR) plus a margin ranging from 1.75% to 3.00%, or
the Prime Rate plus a margin ranging from 0.25% to 1.50% per annum depending on
the Company's total leverage ratio, as defined. The Facility contains
affirmative and negative covenants relating to the business and operations of
the Company. These include various financial and performance covenants with
respect to indebtedness, investments, liens, sale of assets, mergers,
consolidation and dividend payments, as well as leverage, cash flow and
interest coverage ratios. In connection with the refinancing, the Company also
repaid the note payable plus accrued interest, paid current amounts due for
interest on the senior subordinated debt and began accruing interest at stated
rates.
In October 1999, debt issuance costs totaling $1.0 million were recognized
as an extraordinary loss due to the early extinguishment of the term loan.
The previously outstanding senior bank debt under a term loan agreement was
secured and incurred interest at rates of either LIBOR plus a margin ranging
from 1.5% to 3.75%, or the Prime Rate plus a margin ranging from 0.50% to 4.75%
per annum depending on the Company's total leverage ratio. The rate on the
senior bank debt at December 27, 1998 was Prime plus 4.75% or approximately
12.5%. As a result of senior bank debt covenant violations beginning on July
15, 1998, the Company was restricted from paying interest and principal on any
other outstanding debt. The Company also began accruing penalty interest on its
senior bank loans and subordinated debt.
Senior subordinated debt consists of borrowings from certain stockholders
and officers of the Company (see Note 10). It is comprised of two issuances,
Tier I and Tier II (collectively, the "senior subordinated debt"). Tier 1, was
issued in February 1997, in the amount of $17.5 million. Tier II, in the amount
of $4.0 million, was issued in February 1998. Unamortized original issue
discount on the senior subordinated debt was approximately $4.5 million at
December 26, 1999 and $5.3 million at December 27, 1998.
F-46
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 26, 1999, scheduled maturities of long-term debt were as
follows:
[Download Table]
(in millions of dollars)
Year ending:
2002............................................................. $25.0
2005............................................................. 17.0
-----
$42.0
=====
Simultaneous with the closing of the merger transaction with ECC in April,
2000, the amounts outstanding under the Facility and the senior subordinated
debt were repaid (see Note 1).
For the years ended December 26, 1999, December 27, 1998 and December 28,
1997, interest paid was approximately $5.4 million, $5.5 million and $2.9
million, respectively.
5. STOCK OPTION AND EQUITY APPRECIATION INCENTIVE PLANS
The Company has adopted two stock option plans, which provide for the
issuance of options for the purchase of up to 835,000 shares of the Company's
common stock as incentive to key officers and employees. The term of the
options granted under the plans is generally ten years. Vesting generally
occurs on a prorated basis over a three year period.
Generally, all options become immediately exercisable in full should any of
the following events occur: termination of the optionee's employment by the
optionee for good reason, termination of the optionee's employment by the
Company without cause, death or permanent disability or the consummation of a
sale of all or substantially all of the assets of the Company. No compensation
cost has been recognized in connection with stock option grants because options
are issued with an exercise price equal to fair value on the date of grant.
Upon consummation of the merger with ECC in April, 2000, $3.4 million was paid
to the option holders in exchange for termination of all options.
Under SFAS No. 123, had grants been measured based on the fair market value
at the grant date for awards in 1999, 1998 and 1997, the Company's pro forma
net income in 1999 would have decreased by approximately $0.1 million, to $2.8
million, and the pro forma loss in 1998 and 1997 would have increased by
$0.1 million and $0.2 million, to $5.1 million and $2.7 million, respectively.
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted or forfeited in
future years. The fair value of these options was estimated at the date of
grant using the Black-Scholes minimum value method. The minimum value method
calculates the excess of the fair value of the stock at the date of grant over
the present value of both the exercise price and the expected dividend
payments, each discounted at the risk free interest rate, over the life of the
options. The following assumptions were used in the calculation:
[Download Table]
1997 1998 1999
------- ------- ---------
Expected dividend yield......................... 0% 0% 0%
Risk free interest rate......................... 6.31% 6.31% 7.00%
Expected life of options........................ 5 years 5 years 4-5 years
F-47
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average fair value of options granted during 1999, 1998 and
1997 was $1.71, $1.41 and $1.58, respectively.
Stock option activity is summarized as follows:
[Download Table]
Available Stock Weighted
for Options Average
Grant Outstanding Exercise Price
--------- ----------- --------------
Outstanding at December 29, 1996........ 605,000 230,000 $10.75
Granted................................ (300,000) 300,000 15.42
Forfeited.............................. 10,000 (10,000) 10.00
-------- -------- ------
Outstanding at December 28, 1997........ 315,000 520,000 13.46
Granted................................ -- -- --
Forfeited.............................. 133,332 (133,332) 16.25
-------- -------- ------
Outstanding at December 27, 1998........ 448,332 386,668 12.49
Granted................................ (133,332) 133,332 13.19
Forfeited.............................. 48,332 (48,332) 13.15
-------- -------- ------
Outstanding at December 26, 1999 and
March 31, 2000 (unaudited)............. 363,332 471,668 $12.62
======== ======== ======
Options for 347,446, 281,667 and 108,000 shares were exercisable at December
26, 1999, December 27, 1998 and December 28, 1997, respectively.
Following is a summary of the weighted-average exercise price and weighted-
average remaining contractual life for options outstanding at December 26,
1999:
[Download Table]
Weighted-
Weighted- # of Average
Average Options Contractual
Exercise Price Outstanding Life Remaining
-------------- ----------- --------------
$10.00--$15.00 438,334 4.6 years
$15.01--$20.00 33,334 1 year
In January 1998, the Company approved an Equity Appreciation Incentive Plan
(the "EAI Plan") for its key employees. Under the EAI Plan, key employees have
the opportunity to receive stock appreciation rights, which provide for cash
payments upon vesting amounting to the difference between the Company's common
stock value per share at the vesting date and $15.00 per share. Vesting is
automatically triggered by an initial public offering, merger of the Company,
sale of the Company or four years of continuous service by the employee. In
conjunction with the approval of the EAI Plan, the Company has 130,000
outstanding stock appreciation rights as of December 26, 1999 and March 31,
2000. In 1999, the Company recorded approximately $0.3 million of compensation
expense associated with this plan. Upon consummation of the merger with ECC in
April, 2000, a payment of $0.6 million was made to the holders of stock
appreciation rights.
6. INCOME TAXES
The Company accounts for income taxes using the liability method pursuant to
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under the liability method, deferred income taxes consist of the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial statement and income tax purposes, as determined
under enacted tax laws and rates.
F-48
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Federal, state and local income taxes (benefits) consist of the following:
[Download Table]
Years Ended
--------------------------------------------------
December 28, December 27, December 26,
1997 1998 1999
---------------- ---------------- ----------------
Current Deferred Current Deferred Current Deferred
(in millions of dollars) ------- -------- ------- -------- ------- --------
Federal (benefit).......... $0.1 $(1.4) $-- $(1.8) $0.2 $ 1.7
State and local (benefit).. 0.1 (0.6) 0.1 0.1 0.6 (0.3)
---- ----- ---- ----- ---- -----
Total...................... $0.2 $(2.0) $0.1 $(1.7) $0.8 $ 1.4
==== ===== ==== ===== ==== =====
Provisions for:
Continuing operations...... $0.2 $(2.4) $0.1 $(2.7) $0.3 $(1.0)
Discontinued operations.... -- 0.5 -- 1.0 0.1 0.2
Gain on sale of
discontinued operations... -- -- -- -- 0.4 2.6
Extraordinary loss from
early debt payment........ -- (0.1) -- -- -- (0.4)
---- ----- ---- ----- ---- -----
Total...................... $0.2 $(2.0) $0.1 $(1.7) $0.8 $ 1.4
==== ===== ==== ===== ==== =====
The differences between income tax expense for continuing operations shown
in the statements of operations and the amounts determined by applying the
federal statutory rate of 34% in each year are as follows:
[Download Table]
1997 1998 1999
----- ----- -----
Federal statutory income tax (benefit)............. (34.0)% (34.0)% (34.0)%
State and local income taxes, net of federal
benefit........................................... (8.6) 0.9 (6.0)
Nondeductible goodwill............................. 4.2 2.6 8.9
Others, net........................................ (0.8) 1.7 1.1
----- ----- -----
Total.............................................. (39.2)% (28.8)% (30.0)%
===== ===== =====
The deferred tax asset and liability at the fiscal year end consist of the
following components:
[Download Table]
1998 1999
(in millions of dollars) ------ ------
Deferred tax assets:
Accounts receivable....................................... $ 1.0 $ 0.9
Accrued compensation...................................... 1.1 1.3
Net operating loss carry forwards......................... 5.0 1.9
Other..................................................... -- 0.2
------ ------
Gross deferred tax asset.................................... 7.1 4.3
Deferred tax liability:
Depreciation and amortization............................. (23.3) (21.9)
------ ------
Net deferred tax liability.................................. $(16.2) $(17.6)
====== ======
Tax loss carryforwards totaling $5.4 million will expire by 2010 if not
utilized.
F-49
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of deferred taxes included in the consolidated balance sheet
are as follows:
[Download Table]
1998 1999
------ ------
Current asset............................................... $ 1.3 $ 1.3
Noncurrent liability........................................ (17.5) (18.9)
------ ------
Net deferred tax liability.................................. $(16.2) $(17.6)
====== ======
For the years ended December 26, 1999, December 27, 1998 and December 28,
1997, income taxes paid were approximately $0.3 million, $0.2 million and $0.3
million, respectively.
7. EXCHANGE OF BROADCASTING ASSETS
On May 27, 1998, the Company, exchanged radio broadcasting licenses, radio
broadcasting equipment and facilities in Portland and San Jose along with a
$2.0 million short term note payable and 150,000 shares of common stock valued
at $2.25 million for similar productive assets in Sacramento and San Francisco.
Acquired assets were not self-sustaining. Integrated sets of support activities
were not transferred in the exchange, nor were programming formats, or
broadcast personalities. Acquired assets were redeployed and integrated into
broadcasting and support activities originating from the San Jose area
headquarters. The exchange was accounted for as a non-monetary exchange of
similar productive assets. Acquired assets were recorded at the value of the
assets surrendered, plus the value of the note payable and the common stock.
8. DISCONTINUED OPERATIONS
In February 1999, the Company sold to ECC substantially all of its assets
relating to television stations WVEA, in Tampa, Florida, and WVEN, Orlando,
Florida. It also sold to ECC all of its capital stock in Los Cerezos Television
Company which operated television station WMDO in Washington, D.C. The net
proceeds in connection with these transactions was approximately $12.9 million.
9. BENEFIT PLANS
The Company sponsors two qualified 401(k) defined contribution plans, one
for the radio division and one for the print division. For all eligible
employees, the Company matches employee contributions within certain limits,
and for the print division plan, the Company also contributes a fixed minimum
annual contribution. Plan participants may make pretax contributions from their
salaries up to the maximum allowed by the Internal Revenue Code. The Company's
expense for both defined contribution plans for the years ended December 26,
1999 and December 27, 1998 was approximately $0.1 million.
The Company is obligated, through its agreement with the union that
represents employees who deliver El Diario/La Prensa, the Company's Spanish
language daily newspaper, to contribute amounts to the defined benefit pension,
welfare and 401(k) plans administered by the Publishers' Association of New
York City. The pension and welfare plans provide pension benefits and medical
insurance. The Company contributes approximately 9% and 11% of gross
compensation for each eligible employee per year to the pension plan and
welfare plan, respectively. The Company
F-50
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
contributes $23 per shift per eligible employee to the union's 401(k) plan. For
the years ended December 26, 1999, December 27, 1998 and December 28, 1997, the
Company's expense for these multi-employer plans was approximately
$0.3 million, $0.2 million and $0.2 million, respectively.
The Company is obligated under a union contract to make severance payments
to its union employees under certain circumstances. Non-union print division
severance pay is calculated in a similar manner. The Company does not fund
these commitments. The balance sheet accrual for severance is based on the net
present values of the projected vested benefit obligation and, accordingly,
provides for both vested and non-vested employees. The balance at December 26,
1999 and December 27, 1998 was approximately $1.4 million and $1.5 million,
respectively, and is included in other liabilities. The Company's severance
expense for the three years in the period ended December 26, 1999 was
approximately $0.2 million in each year.
10. RELATED PARTY TRANSACTIONS
During 1999, the Company paid other finance costs in the amount of $0.3
million to one of its stockholders and paid an additional $0.1 million in
January 2000.
Interest expense on senior subordinated debt held by certain stockholders
and officers of the Company amounted to $1.9 million in 1999, $1.8 million in
1998 and $1.2 million in 1997, see note 4 for a description of the terms of
this indebtedness.
During 1999, the Company assisted an officer with relocation costs by
advancing cash in exchange for two notes receivable of $0.2 million each. One
note specifies that no repayment is required if related employment continues
for four years. Both notes specify that no repayment is required if the company
is acquired and were forgiven upon closing of the merger with ECC in April,
2000. (See Note 1.) At December 26, 1999, the balance due on these notes
totaled $0.4 million.
11. COMMITMENTS AND CONTINGENCIES
The Company has entered into various leases for office space and broadcast
towers. Future minimum lease payments required at December 26, 1999 are:
[Download Table]
(in millions of dollars)
2000............................................................. $ 1.8
2001............................................................. 1.6
2002............................................................. 1.4
2003............................................................. 1.2
2004............................................................. 1.0
Thereafter....................................................... 3.9
-----
$10.9
=====
Rental expense relating to these leases totaled $1.9 million, $2.0 million
and $1.6 million for the years ended December 26, 1999, December 27, 1998 and
December 28, 1997, respectively.
During 1999, the Company purchased an option to acquire the land and
buildings housing its corporate operations for an option price of $0.1 million.
On January 12, 2000, the Company signed a letter of intent to exercise the
option for $5.3 million.
F-51
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In September of 1999, the Company entered a ten-year lease commitment for
facilities currently under construction in Campbell, California. The Company's
corporate headquarters will be relocated to the new facility upon its
completion. Minimum monthly rentals are subject to annual consumer price index
adjustments beginning in year three of the lease. The lease contains two five-
year renewal options.
On November 21, 1999, the Company entered into agreements to acquire the
assets and licenses to operate two radio stations in Las Vegas and Reno, Nevada
for aggregate purchase consideration of $17.5 million. The acquisition closed
on April 20, 2000, simultaneous with the merger of the Company with ECC. As of
March 31, 2000, the Company had deposited $2.0 million in escrow in connection
with these acquisitions.
In February 2000, the Company signed a letter of intent to sell its AM radio
station in Washington, D.C. for proceeds of $2.5 million. The sale is expected
to be completed by the third quarter of 2000 and the Company expects to record
a gain in connection with the sale of approximately $1.5 million.
The Company and its subsidiaries are parties to various legal proceedings
and claims incident to the normal conduct of its business. The Company believes
that it is unlikely that the outcome of all pending litigation in the aggregate
will have a material adverse effect on its consolidated financial condition or
results of operations.
12. SEGMENT INFORMATION
The Company operates in two reportable segments, radio broadcasting and
newspaper publishing. The radio broadcasting segment has operations in the San
Francisco/San Jose bay area of California, the Salinas/ Monterey area of
California, Riverside, California, Sacramento, California, Albuquerque, New
Mexico, Denver, Colorado and Washington, DC. The newspaper publishing segment
consists of two Spanish-language publications in New York City. Each segment is
managed separately. Management evaluates performance based on several factors,
of which the primary financial measure is segment operating profit. Total
revenue of each segment represents sales to unaffiliated customers. There are
no inter-segment sales. No single customer provides more than 10% of the
Company's revenue. The accounting policies of the segments are the same as
those described in Note 2. Corporate includes general and administrative costs
that are not directly related to the reportable segments.
F-52
LATIN COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial information for these business segments includes:
[Enlarge/Download Table]
Years Ended Three Months Ended
-------------------------------------- -----------------------
December 28, December 27, December 26, March 28, March 31,
1997 1998 1999 1999 2000
(in millions of dollars) ------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
Revenue:
Radio Broadcasting..... $ 19.2 $ 19.3 $ 25.1 $ 4.6 $ 6.2
Newspaper Publishing... 17.8 18.6 19.1 4.1 4.6
------ ------ ------ ------ ------
$ 37.0 $ 37.9 $ 44.2 $ 8.7 $ 10.8
====== ====== ====== ====== ======
Operating Profit (loss):
Radio Broadcasting..... $ (0.1) $ (1.0) $ 3.7 $ (0.3) $ 0.4
Newspaper Publishing... 0.7 1.4 1.2 (0.2) 0.2
------ ------ ------ ------ ------
Total Reportable
Segments............. 0.6 0.4 4.9 (0.5) 0.6
Corporate.............. (1.7) (2.9) (1.8) (0.2) (0.4)
------ ------ ------ ------ ------
$ (1.1) $ (2.5) $ 3.1 $ (0.7) $ 0.2
====== ====== ====== ====== ======
Identifiable Assets:
Radio Broadcasting..... $130.9 $131.9 $131.0 $128.9 $129.1
Newspaper Publishing... 23.3 23.8 24.5 23.9 24.4
------ ------ ------ ------ ------
Total Reportable
Segments............. 154.2 155.7 155.5 152.8 153.5
Corporate.............. 4.3 5.5 2.0 4.8 0.7
Discontinued
operations............ 4.5 4.8 -- -- --
------ ------ ------ ------ ------
$163.0 $166.0 $157.5 $157.6 $154.2
====== ====== ====== ====== ======
Depreciation and
Amortization:
Radio Broadcasting..... $ 3.0 $ 3.8 $ 3.9 $ 1.0 $ 0.9
Newspaper Publishing... 0.7 0.8 1.0 0.2 0.3
------ ------ ------ ------ ------
$ 3.7 $ 4.6 $ 4.9 $ 1.2 $ 1.2
====== ====== ====== ====== ======
Capital Expenditures:
Radio Broadcasting..... $ 0.7 $ 0.2 $ 1.1 $ 0.1 $ 1.1
Newspaper Publishing... 0.2 0.9 1.2 0.4 0.1
------ ------ ------ ------ ------
Total Reportable
Segments............. 0.9 1.1 2.3 0.5 1.2
Discontinued
Operations............. 0.1 0.2 -- -- --
------ ------ ------ ------ ------
$ 1.0 $ 1.3 $ 2.3 $ 0.5 $ 1.2
====== ====== ====== ====== ======
F-53
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Z-Spanish Media Corporation:
We have audited the accompanying combined balance sheets of Z-Spanish Media
Corporation and its Predecessor as of December 31, 1998 and 1999, and the
related combined statements of operations, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1999. The
combined financial statements include the accounts of Z-Spanish Media
Corporation and three related companies, Achievement Radio Holdings, Inc., PAR
Communications, Inc. and PAR Holdings, Inc., which collectively represent the
Predecessor to Z-Spanish Media Corporation. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Z-Spanish Media Corporation
and its Predecessor as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Sacramento, California
March 24, 2000
F-54
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
COMBINED BALANCE SHEETS
December 31, 1998, 1999 and March 31, 2000 (Unaudited)
(In thousands, except share and per share data)
[Download Table]
March 31,
1998 1999 2000
-------- -------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents................... $ 3,602 $ 4,493 $ 441
Accounts receivable, net of allowance for
doubtful accounts of $869, $1,233 and
$1,295 at December 31, 1998, 1999 and
March 31, 2000, respectively............... 5,717 8,471 7,617
Notes receivable............................ -- 7,500 7,653
Other current assets........................ 752 1,983 1,390
-------- -------- --------
Total current assets...................... 10,071 22,447 17,101
Property and equipment, net.................. 27,049 34,267 34,240
Investments.................................. -- 2,501 2,501
Intangible assets, net....................... 155,243 225,408 223,831
Other assets................................. 4,911 4,420 4,391
-------- -------- --------
Total assets................................. $197,274 $289,043 $282,064
======== ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK,
COMMON STOCK PUT OPTIONS AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............................ $ 1,090 $ 810 $ 618
Current portion of long-term debt........... 4,056 22,779 22,779
Accrued expenses............................ 3,854 4,636 4,049
Accrued interest............................ 1,163 1,160 889
Other liabilities........................... 2,732 5,020 5,949
Income taxes payable........................ 521 628 573
-------- -------- --------
Total current liabilities................. 13,416 35,033 34,857
Long-term debt............................... 62,251 89,066 86,021
Other long-term liabilities.................. 1,003 1,101 1,101
Deferred income taxes........................ 26,563 27,442 25,878
Minority interest............................ 225 11 9
Commitments and contingencies (note 9)
Redeemable preferred stock................... 3,870 -- --
Common stock put options..................... 24,984 37,591 54,182
Stockholders' equity:
Preferred stock--$0.01 par value, 105,000
shares authorized and 10,079 shares issued
and outstanding at December 31, 1998
($11,837 liquidation value at December 31,
1998) and 10,000 shares authorized and no
shares issued and outstanding at December
31, 1999................................... 10,523 -- --
Common stock--$0.01 par value; 62,000,000
shares authorized; 15,435,157, 25,090,000
and 25,090,000 issued and outstanding at
December 31, 1998, 1999 and March 31,
2000, respectively......................... 154 251 251
Additional paid-in capital.................. 59,813 115,751 100,271
Loans to stockholders....................... (570) (1,010) (1,019)
Deferred stock compensation................. -- (4,187) (4,618)
Accumulated deficit......................... (4,958) (12,006) (14,869)
-------- -------- --------
Total stockholders' equity................ 64,962 98,799 80,016
-------- -------- --------
Total liabilities, redeemable preferred
stock, common stock put options and
stockholders' equity........................ $197,274 $289,043 $282,064
======== ======== ========
See notes to combined financial statements.
F-55
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
COMBINED STATEMENTS OF OPERATIONS
Years Ended December 31, 1997, 1998 and 1999 and the Three Months Ended March
31, 1999 (Unaudited) and 2000 (Unaudited)
(In thousands)
[Download Table]
Years Ended Three Months Ended
December 31, March 31,
------------------------- -----------------------
1997 1998 1999 1999 2000
------- ------- ------- ----------- -----------
(Unaudited) (Unaudited)
Revenue:
Revenue................... $13,339 $27,598 $38,561 $ 7,177 $ 8,740
Less agency and broker
commissions.............. 297 1,740 2,523 425 581
------- ------- ------- ------- -------
Net revenue............. 13,042 25,858 36,038 6,752 8,159
------- ------- ------- ------- -------
Operating expenses:
Direct operating
expenses................. 4,391 10,108 14,183 2,763 3,425
Selling, general and
administrative........... 5,105 6,459 8,382 2,056 2,034
Depreciation and
amortization............. 2,747 6,736 8,670 1,415 2,843
Corporate expenses........ 2,975 3,669 4,773 774 1,897
------- ------- ------- ------- -------
Total operating
expenses............... 15,218 26,972 36,008 7,008 10,199
------- ------- ------- ------- -------
Gain on sale of assets,
net........................ 2,671 5,685 4,442 2,223 --
------- ------- ------- ------- -------
Operating income............ 495 4,571 4,472 1,967 (2,040)
Interest expense............ (2,425) (5,664) (7,485) (1,305) (2,641)
Interest and other income... 356 340 1,014 109 302
------- ------- ------- ------- -------
Income (loss) before
minority interest, income
taxes and extraordinary
item....................... (1,574) (753) (1,999) 771 (4,379)
Minority interest in (loss)
income of subsidiaries..... (31) (86) 182 58 2
Income taxes benefit
(provision)................ 538 (394) 102 (470) 1,514
------- ------- ------- ------- -------
Loss before extraordinary
loss....................... (1,067) (1,233) (1,715) 359 (2,863)
Extraordinary loss on debt
extinguishment
(Net of income tax benefit
of $378 in 1997 and $699 in
1999)...................... (568) -- (1,047) (1,132) --
------- ------- ------- ------- -------
Net loss................ $(1,635) $(1,233) $(2,762) $ (773) $(2,863)
======= ======= ======= ======= =======
See notes to combined financial statements.
F-56
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1998 and 1999 and Three Months Ended March 31,
2000 (Unaudited)
(In thousands except share data)
[Enlarge/Download Table]
Preferred Stock Common Stock
----------------- -----------------------------
Additional Deferred
Paid-in Loans to Stock Accumulated
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Total
------- -------- ---------- ------ ---------- ------------ ------------ ----------- --------
Balance at January 1,
1997................... -- -- 5,876,490 $ 59 $ 25,441 -- -- $ (1,824) $ 23,676
Issuance of common
stock.................. -- -- 4,723,814 47 20,453 -- -- -- 20,500
Issuance of stock--
Vista acquisition...... 10,079 $ 10,523 1,714,105 17 191 $ (504) -- -- 10,227
Net loss............... -- -- -- -- -- -- -- (1,635) (1,635)
------- -------- ---------- ---- -------- ------- ------- -------- --------
Balance at December 31,
1997................... 10,079 10,523 12,314,409 123 46,085 (504) -- (3,459) 52,768
Formation of Z-Spanish
Media Corporation and
acquisition of
subsidiaries........... -- -- 3,720,874 37 16,773 -- -- -- 16,810
Redeemable preferred
stock dividends........ -- -- -- -- -- -- -- (266) (266)
Purchase of common
stock.................. -- -- (600,126) (6) (3,045) -- -- -- (3,051)
Increase in loans to
stockholders........... -- -- -- -- -- (66) -- -- (66)
Net loss............... -- -- -- -- -- -- -- (1,233) (1,233)
------- -------- ---------- ---- -------- ------- ------- -------- --------
Balance at December 31,
1998................... 10,079 10,523 15,435,157 154 59,813 (570) -- (4,958) 64,962
Purchase of common
stock.................. -- -- (228,550) (2) (1,141) -- -- -- (1,143)
Issuance of common
stock.................. -- -- 5,212,120 52 29,448 -- -- -- 29,500
Stockholder common
stock purchase......... -- -- 103,618 1 517 (518) -- -- --
Issuance of stock--JB
Broadcasting
acquisition............ -- -- 681,264 7 3,350 -- -- -- 3,357
Issuance of preferred
stock.................. 11,400 11,456 -- -- -- -- -- -- 11,456
Deferred stock
compensation........... -- -- -- -- 4,333 -- (4,333) -- --
Amortization of
deferred stock
compensation........... -- -- -- -- -- -- 146 -- 146
Acquisition of minority
interests in
subsidiaries and
exchange of preferred
for common stock....... (21,479) (21,979) 3,886,391 39 32,038 -- -- (4,462) 5,636
Redeemable preferred
stock dividend
settlement............. -- -- -- -- -- -- -- 176 176
Increase in fair value
of common stock put
options................ -- -- -- -- (12,607) -- -- -- (12,607)
Decrease in loans to
stockholders........... -- -- -- -- -- 78 -- -- 78
Net loss............... -- -- -- -- -- -- -- (2,762) (2,762)
------- -------- ---------- ---- -------- ------- ------- -------- --------
Balance at December 31,
1999................... -- -- 25,090,000 251 115,751 (1,010) (4,187) (12,006) 98,799
Deferred stock
compensation
(Unaudited)............ -- -- -- -- 628 -- (628) -- --
Amortization of
deferred stock
compensation
(Unaudited)............ -- -- -- -- -- -- 679 -- 679
Increase in fair value
of common stock put
options (Unaudited).... -- -- -- -- (16,590) -- -- -- (16,590)
Interest on loans to
stockholders
(Unaudited)............ -- -- -- -- -- (9) -- -- (9)
Conversion of bonus to
options (Unaudited).... -- -- -- -- 482 -- (482) -- --
Net loss (Unaudited)... -- -- -- -- -- -- -- (2,863) (2,863)
------- -------- ---------- ---- -------- ------- ------- -------- --------
Balance at March 31,
2000 (Unaudited)....... -- $ -- 25,090,000 $251 $100,271 $(1,019) $(4,618) $(14,869) $ 80,016
======= ======== ========== ==== ======== ======= ======= ======== ========
See notes to combined financial statements.
F-57
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1998 and 1999 and Three Months Ended March 31,
1999 (Unaudited) and 2000 (Unaudited)
(In thousands)
[Download Table]
Years Ended Three Months Ended
December 31, March 31,
----------------------------- -----------------------
1997 1998 1999 1999 2000
-------- -------- --------- ----------- -----------
(Unaudited) (Unaudited)
Cash flows from
operating activities:
Net loss.............. $ (1,635) $ (1,233) $ (2,762) $ (773) $(2,863)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 2,747 6,736 8,670 1,415 2,843
Deferred income
taxes................ (1,223) (11,946) 879 (142) (1,564)
Minority interest..... 31 86 (182) (58) (2)
Loss on debt
extinguishment....... 568 -- 1,047 1,132 --
Gain on sale of
assets............... (2,671) (5,685) (4,442) (2,223) --
Loss on write-off of
advertising
displays............. -- -- 1,664 -- --
Amortization of
deferred stock
compensation......... -- -- -- -- 196
Changes in operating
assets and
liabilities, net of
effects of
acquisitions:
Accounts receivable.. (455) 567 (2,754) 767 854
Other current
assets.............. (531) 1,144 (1,539) (206) 588
Receivable from
affiliate and
other............... (12,929) 4,637 -- -- (153)
Other assets......... (6) 180 (29) (156) 73
Accounts payable and
accrued
liabilities......... 741 (1,109) (717) (1,078) (621)
Other liabilities.... (1,077) 2,227 (115) 63 929
-------- -------- --------- ------- -------
Net cash (used in)
from operating
activities......... (16,440) (4,396) (280) (1,259) 280
-------- -------- --------- ------- -------
Cash flows from
investing activities:
Proceeds from sale of
assets............... 19,396 43,600 23,710 20,500 --
Escrow deposits on
pending
acquisitions......... -- (4,335) 520 2,488 34
Purchase of property
and equipment and
intangible assets.... (40,042) (7,003) (103,305) (28,974) (1,031)
-------- -------- --------- ------- -------
Net cash (used in)
from investing
activities......... (20,646) 32,262 (79,075) (5,986) (997)
-------- -------- --------- ------- -------
Cash flows from
financing activities:
Repayment of notes
payable.............. (2,354) -- -- -- --
Issuance of notes
payable.............. 482 -- 7,100 3,100 (1,919)
Proceeds from long-
term debt............ 26,983 -- 109,100 45,250 --
Repayment of long-term
debt................. (15,000) (19,018) (70,662) (50,248) (1,126)
Debt issuance costs... (857) -- (1,313) (960) (281)
Issuance of common and
preferred stock...... 30,727 24,984 40,956 25,000 --
Repurchase of common
stock................ -- (3,051) (1,143) (1,143) --
Redemption of
redeemable preferred
stock................ -- -- (3,870) (3,870) --
Purchase of Z-Spanish
Radio Network net of
cash acquired........ -- (30,683) -- -- --
Loans to
stockholders......... -- (66) 78 (12) (9)
Minority interest in
subsidiary........... -- 56 -- -- --
-------- -------- --------- ------- -------
Net cash from (used
in) financing
activities......... 39,981 (27,778) 80,246 17,117 (3,335)
-------- -------- --------- ------- -------
Net increase (decrease)
in cash and cash
equivalents........... 2,895 88 891 9,872 (4,052)
Cash and cash
equivalents, beginning
of year............... 619 3,514 3,602 3,602 4,493
-------- -------- --------- ------- -------
Cash and cash
equivalents, end of
year.................. $ 3,514 $ 3,602 $ 4,493 $13,474 $ 441
======== ======== ========= ======= =======
Supplemental disclosure
of cash flow
information:
Interest paid......... $ 2,128 $ 6,221 $ 7,480 -- --
Income taxes paid..... 806 268 298 -- --
Non-cash investing and
financing activities:
Radio station property
and equipment
financed through
seller notes
payable.............. $ 120 -- -- -- --
FCC license and other
intangibles acquired
financed through
seller notes
payable.............. 6,150 -- -- -- --
Write off of
programming library
and offsetting
liability............ 575 -- -- -- --
Write off of network
costs................ 116 -- -- -- --
Reduction of debt
obligation........... 165 -- -- -- --
Outdoor advertising
assets and
liabilities assumed
through seller notes
payable.............. 2,176 -- -- -- --
Acquisition of net
assets of Z-Spanish
Radio, net of cash
acquired through
issuance of common
stock................ -- $ 16,810 -- -- --
Acquisition of radio
station assets
acquired through the
cancellation of debt
from seller, and
issuance of debt..... -- 13,292 -- -- --
Accrued dividends on
redeemable preferred
stock................ -- 266 -- -- --
Reversal of dividends
declared............. -- -- $ 176 $ 176 --
Sale of radio station
assets for a note
receivable........... -- -- 7,500 -- --
Purchase of land
through seller notes
payable.............. -- -- 2,250 -- --
Barter transaction.... -- -- 2,501 -- --
Reversal of accrued
dividends on
redeemable preferred
stock................ -- -- 176 -- --
Acquisition of radio
station assets
through issuance of
common stock,
cancellation of debt
from seller and
cancellation of LMA
payable.............. -- -- 3,357 -- --
Increase in value of
common stock put
option............... -- -- -- -- $16,591
Deferred stock
compensation......... -- -- 4,333 -- 628
Conversion of accrued
bonus to stock
option............... -- -- -- -- 482
See notes to combined financial statements.
F-58
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
For the years ended December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
1. DESCRIPTION OF BUSINESS
Basis of Presentation
The accompanying combined financial statements reflect the combined accounts
of Z-Spanish Media Corporation ("Z-Media") and its predecessor of Z-Media,
referred to as PAR, which was comprised of three companies under common
control, Achievement Radio Holdings, Inc. ("ARH"), PAR Communications, Inc.
("PARCOM") and PAR Holdings, Inc. ("Holdings").
Z-Media was incorporated on January 23, 1998 as a holding company and
subsequently obtained sole ownership of Z-Spanish Radio Network, Inc. ("Z-
Spanish") and ARH, pursuant to certain agreements entered into in May 1998.
On December 31, 1999, Z-Media acquired all the outstanding capital stock of
Vista Media Group, Inc. ("Vista"), whereby Vista became a wholly owned
subsidiary of Z-Media. Z-Media and Vista have shared a common controlling
stockholder group since August 29, 1997. As such, the business combination has
been accounted for as a common control business combination, and the accounts
of Vista are included in the accompanying combined financial statements from
August 29, 1997.
The Z-Spanish, ARH and Vista business combinations and related financial
accounting treatment are described in Note 3--Business Acquisitions and
Dispositions.
Z-Media, Vista and PAR are collectively referred to as the Company except
where otherwise noted.
Operations
Z-Media and ARH own and operate radio stations and distribute programming to
affiliates throughout the United States. Vista is engaged in operating outdoor
advertising displays and owns 10,060 billboards concentrated in the Los Angeles
and New York metropolitan areas. Vista formed Vista Joliet LLC ("Joliet"), a
80% owned subsidiary of Vista, in the state of Delaware on June 12, 1998 to
manage operations in the Chicago area.
As of December 31, 1999, the Company owned and operated 32 radio stations
including one station under a Local Marketing Agreement ("LMA"). Under an LMA,
the Company pays a fee to operate another company's radio station. The results
of operations of LMA stations are accounted for in the same manner that the
Company accounts for the operations of its owned and operated stations.
The Company's radio broadcasting operations cover five major geographic
areas: the West Coast (California), Midwest (Chicago), lower Midwest (Dallas),
Southeast (Miami) and Southwest (Phoenix). Owned and operated stations are
located in San Jose, Sacramento, Salinas/Monterey, Fresno, Stockton, Modesto,
and Chico, California; Houston and Dallas/Ft Worth, Texas; Chicago, Illinois;
Phoenix, Tucson, and Nogales, Arizona; and Miami, Florida.
F-59
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
As part of its radio broadcasting operations, the Company produces, controls
and distributes its own radio programs. Programming is distributed to owned and
operated stations via satellite transmission. The Company also transmits via
satellite its programming to 42 other stations ("affiliate stations")
throughout the U.S. and charges these stations network fees under affiliation
agreements. Revenue of the Company's broadcasting operations is principally
generated from the sale of advertising associated with its programming to
national accounts, local and regional retail advertisers. The Company's radio
stations are licensed by the Federal Communications Commission ("FCC").
Outdoor advertising revenue consists mainly of fees earned by selling
billboard space to advertisers.
Unaudited Interim Financial Information -- The unaudited interim financial
information for the three months ended March 31, 1999 and 2000 has been
prepared on the same basis as the audited financial statements. In the opinion
of management, such unaudited information includes all adjustments consisting
only of normal recurring accruals necessary for a fair presentation of this
interim information. Operating results for the three months ended March 31,
2000 are not necessarily indicative of the results that may be expected for any
other interim period or any other future fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combination
The accompanying combined financial statements include the accounts of
companies controlled by a common stockholder group ("Controlling
Stockholders"). All intercompany balances and transactions have been eliminated
in the combined financial statements.
Cash and Cash Equivalents
The Company considers cash investments with maturities of three months or
less at the time of purchase to be cash equivalents.
Property and Equipment, Net
The Company's property and equipment is recorded at cost less accumulated
depreciation. The Company depreciates property and equipment using the
straight-line method over their estimated useful lives. The Company amortizes
leasehold improvements using the straight-line method over the lesser of the
life of the lease or the estimated useful life of the leased asset. Estimated
useful lives are as follows:
[Download Table]
Buildings and improvements......................................... 30 years
Advertising displays............................................... 15 years
Station transmitter, towers and antennas........................... 7 years
Furniture, fittings and fixtures................................... 5 years
Motor vehicles..................................................... 5 years
Computer hardware and software..................................... 3-5 years
F-60
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
Investments
Investments are comprised of equity securities. These securities are
classified as available-for-sale and carried at historical value as market
prices are unavailable. There were no unrealized gains or losses on these
investments recorded for the year ended December 31, 1999.
Intangible Assets, Net
Intangible assets consist primarily of FCC licenses, goodwill, deferred
charges and non-compete agreements recorded at cost. Goodwill represents the
excess of the purchase price over the fair value of the net assets at the date
of acquisition. Amortization of intangible assets and other assets is provided
in amounts sufficient to allocate the asset cost to operations over the
estimated useful lives on a straight-line basis. The estimated useful lives are
as follows:
[Download Table]
FCC licenses..................................................... 40 years
Goodwill......................................................... 15-40 years
Deferred charges................................................. 7 years
Non-competition agreements....................................... 3-5 years
Revenue Recognition
Revenue from the sale of radio advertising time and from network operations
is recognized when the advertisement or network programming is broadcast.
Outdoor advertising revenue is recognized over the life of advertising
contracts and is recorded net of discounts.
Barter
The Company trades commercial airtime and outdoor advertising space for
goods and services used principally for promotional, sales and other business
activities. An asset and liability is recorded at the fair market value of the
goods and services received. Barter revenue is recorded and the liability
relieved when commercials are broadcast or outdoor advertising space is
utilized. Barter expense is recorded and the asset relieved when goods or
services are received or used.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. Advertising production costs are expensed at the first
use of the related advertising and costs of communicating an advertisement are
expensed as the communication occurs.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
F-61
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
Credit Risk
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers and the geographic
diversification of the Company's customer base. The Company performs credit
evaluations on new customers and believes adequate allowances for any
uncollectible trade receivables are maintained. During the years ended December
31, 1997, 1998 and 1999 and for the period ended March 31, 2000, no customer
accounted for more than 10% of net revenue.
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board No. 25, Accounting
for Stock Issued to Employees ("APB 25"). During the year ended 1999, and for
the period ended March 31, 2000, the Company recognized $0.1 and $0.7 million
of compensation expense related to stock options.
Income Taxes
The Company accounts for income taxes using the asset and liability method
under which deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement basis
of assets and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect
taxable earnings. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income during the period that includes the
enactment date.
Comprehensive Income
Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting
Comprehensive Income, became effective in 1998. This statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. During 1997,
1998, 1999, and for the period ended March 31, 2000, the Company had no items
of other comprehensive income. Accordingly, comprehensive income equals net
income.
Impairment of Long-Lived Assets
The Company accounts for the impairment of long-lived assets in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. As required by the statement, the Company
evaluates its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets or intangibles
may not be recoverable. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
F-62
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
The Company periodically evaluates the propriety of the carrying amount of
property and equipment, investments, intangible assets and other assets as well
as the depreciation or amortization period to determine whether current events
or circumstances warrant adjustments to the carrying value and/or revised
estimates of useful lives. This evaluation involves an assessment of the
recoverability of the asset by determining whether the depreciation or
amortization of the asset balance can be recovered through undiscounted future
operating cash flows over its remaining useful life. The assessment of the
recoverability of the intangible assets will be impacted if estimated future
operating cash flows are not achieved.
Derivative Financial Instruments
The Company does not use derivative financial instruments for trading
purposes. They are used to manage interest rate risks related to interest on
the Company's outstanding debt. As interest rates change, the differential to
be paid or received under interest rate swap agreements is recognized as an
adjustment to interest expense. The Company had interest rate swap agreements
with banks as of December 31, 1998, 1999, and for the period ended March 31,
2000 (see Note 7--Long-Term Debt).
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
receivables, accounts payable and certain other accrued liabilities. The
carrying amounts of these items approximate their fair values because of their
short duration to maturity.
The fair value of the interest rate swap contracts is estimated by obtaining
quotations from the counterparties. The fair value is an estimate of the
amounts that the Company would (receive) pay at the reporting date if the
contracts were transferred to other parties or cancelled by the counterparties.
Recently Issued Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
was issued in June 1998. The Standard defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. The requirements of SFAS No. 133 will be effective
for the Company in the first quarter of the fiscal year ending December 31,
2001. The Company is currently evaluating the impact SFAS No. 133 will have on
its financial statements.
Presentation of Common Shares and Per Share Amounts
On February 12, 1999, the Company authorized a 10,000-to-1 reverse stock
split for all its classes of common stock.
On December 23, 1999, the Company effected a 20,000-for-1 split of its
common stock.
3. BUSINESS ACQUISITIONS AND DISPOSITIONS
The Company has accounted for acquisitions using the purchase method of
accounting, except where disclosed otherwise, recording assets acquired and
liabilities assumed at their fair values at the
F-63
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
acquisition date. The excess of purchase prices over the fair values of net
tangible and intangible assets acquired has been recorded as goodwill. The
results of operations of acquired businesses are included in the combined
statements of operations from the date of each respective acquisition.
1997 Radio Station Transactions
On February 7, 1997, PAR acquired all of the outstanding stock of KAMT, Inc.
which operated radio station KKMO in Seattle, Washington, for $0.9 million. PAR
paid cash of $0.3 million, issued a note payable to the seller of $0.6 million,
and assumed a $0.3 million capital lease obligation. The note was paid off in
December 1997.
On May 29, 1997, PAR acquired the assets of KTNO in Dallas, Texas, for $2.4
million. The Company paid $0.5 million in cash and issued two notes payable for
$0.1 million and $1.8 million. The two notes were paid off in December 1997.
On August 7, 1997, PAR sold the assets of radio station WVVX in Chicago,
Illinois, resulting in a gain of $0.8 million. The $9.5 million proceeds of
this sale, plus $1.2 million of cash, were used to purchase the assets of two
other stations in separate transactions; WEJM, in Chicago, Illinois, for $7.5
million and KKSJ, in San Jose, California, for $3.2 million.
In December 1997, PAR sold the assets of radio station WEJM in Chicago,
Illinois for $9.9 million. PAR's gain on the sale of WEJM was $1.9 million.
A summary of the gains from sales transactions recorded in 1997 is as
follows (in millions):
[Download Table]
Gain on sale of WEJM.................................................... $1.9
Gain on sale of WVVX.................................................... 0.8
----
Total................................................................... $2.7
====
The allocation of purchase price to net assets of radio stations acquired in
1997 was as follows (in millions):
[Download Table]
KKMO KTNO WEJM KKSJ Total
---- ---- ---- ---- -----
Land, property and equipment..................... $0.2 $0.1 $1.2 $0.3 $ 1.8
Goodwill and FCC licenses........................ 1.0 2.3 6.3 2.9 12.5
Liabilities...................................... (0.3) -- -- -- (0.3)
---- ---- ---- ---- -----
Total............................................ $0.9 $2.4 $7.5 $3.2 $14.0
==== ==== ==== ==== =====
1998--PAR Dispositions and Reorganization
Pursuant to an agreement dated May 22, 1998, PAR sold the assets of radio
stations WNJR in New Jersey, KYPA in Los Angeles, KWPA in Pomona, California,
KXPA in Bellevue, Washington, KOBO in Yuba City, KEST in San Francisco and KSJX
in San Jose, California for $41.0 million consisting of $10.0 millon in cash
and a note receivable of $31.0 million. In addition, pursuant to an agreement
dated April 7, 1998, PAR sold the assets of radio station KKMO and other assets
and
F-64
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
liabilities remaining in Holdings, including the $31.0 million note receivable
and its investment in Douglas Broadcasting, Inc. ("DBI") through the sale of
the stock of Holdings for $34.5 million in cash. The aggregate net gain on
these dispositions was $5.7 million.
Subsequent to the PAR dispositions referred to above, and as a result of the
reorganization of certain operations within PAR earlier in 1998, the remaining
assets and liabilities and operations of PAR resided solely in ARH.
1998--Z-Spanish and ARH Business Combinations
Z-Media's ownership of Z-Spanish and ARH resulted from certain simultaneous
transactions between the former stockholders and warrant holders of Z-Spanish
and stockholders of ARH pursuant to the agreements dated May 29, 1998, the
Warrant Purchase and Contribution agreements. Under the Warrant Purchase
agreement, ARH acquired warrants ("Z-Spanish Warrants") to purchase Z-Spanish
common stock directly from Z-Spanish stockholders, for cash consideration of
$33.6 million. The Z-Spanish Warrants represented the majority of all such
warrants outstanding, except for a small number of warrants held by a lender to
Z-Spanish ("Lender"). Under the Contribution agreement, Z-Spanish and ARH
stockholders and the Lender contributed the operations of Z-Spanish and ARH to
Z-Media. The parties contributed their respective interests in ARH common
stock, Z-Spanish warrants and Z-Spanish common stock to Z-Media in exchange for
common stock of Z-Media.
For financial accounting purposes, these transactions resulted in a change
of control in Z-Spanish. As a result, the acquisition of Z-Spanish was recorded
using the purchase method of accounting. The accompanying combined financial
statements include the operations of Z-Spanish for the period from May 29, 1998
through December 31, 1999 and reflect the new basis of accounting for Z-Spanish
assets and liabilities based on their estimated fair values as of May 29, 1998.
The cost of acquiring Z-Spanish based on the purchase price was allocated to
estimated fair values of the assets and liabilities of Z-Spanish as follows (in
millions):
[Download Table]
Cash................................................................. $ 2.9
Other current assets................................................. 4.6
Property and equipment............................................... 1.6
Intangibles and other................................................ 133.0
Current liabilities.................................................. (3.3)
Long-term debt....................................................... (51.0)
Deferred income taxes................................................ (29.9)
Redeemable Preferred Stock........................................... (3.9)
------
Total costs.......................................................... $ 54.0
======
There was no change in control in ARH for financial accounting purposes as a
result of the transaction discussed above. Accordingly, Z-Media recorded ARH on
an "as pooled" basis because the contribution of ARH to Z-Media was a business
contribution between companies under common control (a "common control business
combination").
F-65
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
1998 Radio Station Transactions
On June 9, 1998, ARH acquired radio station WYPA-AM in Chicago, Illinois by
purchasing all of the outstanding stock of PAR of Illinois, Inc. (owner of
WYPA) from a stockholder by canceling $8.3 million of debt the affiliate had
borrowed from ARH to finance the original acquisition of WYPA-AM.
On July 31, 1998, Z-Media sold assets of Z-Spanish station KZWC-FM in Walnut
Creek, California for $4.5 million in cash. There was no significant gain or
loss on the sale since the assets sold had been recorded at fair value by Z-
Media on May 28, 1998.
On December 22, 1998, Z-Media acquired all of the assets of radio station
KHZZ-FM (formerly KQBR-FM) in Sacramento, California for $5.5 million,
consisting of $0.5 million in cash and notes payable totaling $5.0 million.
On December 31, 1998, Z-Media acquired the assets of two radio stations,
KZSL-FM and KTGE-AM, in Salinas, California for $1.6 million in cash.
The allocation of purchase price to net assets of radio stations acquired in
1998 was as follows (in millions):
[Download Table]
KTGE-AM
WYPA-AM KHZZ-FM KZSL-FM Total
------- ------- ------- -----
Land, property and equipment.................. $0.3 $0.2 $0.1 $ 0.6
Goodwill and FCC licenses..................... 8.0 5.3 1.5 14.8
---- ---- ---- -----
Total......................................... $8.3 $5.5 $1.6 $15.4
==== ==== ==== =====
1999 Radio Station Transactions with Third Parties
On January 8, 1999, the Company sold the assets of stations KZSF-FM and
KZSF-FM1 for $16.5 million in cash. There was no significant gain or loss on
the sale since the assets sold had been recorded at fair value by Z-Media.
On January 25, 1999, the Company purchased the assets of radio station WLQY-
AM in Miami, Florida for $5.7 million in cash.
On January 29, 1999, the Company sold the assets of station WBPS-AM,
licensed in Dedham, Massachusetts, for $4.0 million in cash. The gain on sale
of the related assets was $2.2 million.
On February 26, 1999, the Company purchased the assets of station KLNZ-FM in
Phoenix, Arizona for $22.0 million in cash.
On May 18, 1999, the Company purchased the assets of station KZMP-FM in
Dallas, Texas for $26.5 million in cash.
On May 24, 1999, the Company purchased the assets of three radio stations,
KCTY-AM, KRAY-FM and KLXM-FM, in Salinas, California for $4.5 million in cash.
F-66
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
On August 27, 1999, the Company sold the assets of station KZNO-AM, licensed
in Nogales, Arizona, for $0.2 million in cash. The loss on sale of the related
assets was recognized of $0.1 million.
On September 23, 1999, the Company sold the assets of station WYPA-AM,
licensed in Chicago, Illinois, for $10.5 million with $3.0 million in cash and
$7.5 million in notes receivable due on September 23, 2000. The gain on sale of
the related assets was $2.3 million.
A summary of the gains (loss) from sales transactions recorded in 1999 is as
follows (in millions):
[Download Table]
Gain on sale of WBPS-AM............................................... $ 2.2
Loss on sale of KZNO-AM............................................... (0.1)
Gain on sale of WYPA-AM............................................... 2.3
-----
Total................................................................. $ 4.4
=====
The allocation of purchase price to net assets of the radio stations
acquired in 1999 was as follows (in millions):
[Download Table]
KCTY-AM
KRAY-FM
and
WLQY-AM KLNZ-FM KZMP-FM KLXM-FM Total
------- ------- ------- ------- -----
Land, property and equipment......... $0.7 $ 0.9 $ 0.5 $0.3 $ 2.4
Goodwill and FCC licenses............ 5.0 21.1 26.0 4.2 56.3
---- ----- ----- ---- -----
Total................................ $5.7 $22.0 $26.5 $4.5 $58.7
==== ===== ===== ==== =====
1999 Radio Station Acquisition from Related Parties
On October 18, 1999, Z-Media acquired JB Broadcasting, Inc. ("JB"),
previously owned by two officers of the Company, for $3.4 million through the
issuance of 681,264 shares of Z-Media's Class B Common Stock pursuant to its
rights under an Option Agreement. The acquisition was accounted for using the
purchase method and the purchase price was allocated primarily to FCC licenses
and goodwill. As part of the transaction, the Company's note receivable and
accrued interest totaling $0.3 million was offset against the Company's note
payable for LMA fees and accrued interest totaling $0.7 million. The Company
had operated KZMS during 1998 and 1999 for a fee of $12,000 a month, under an
LMA. JB was owned by two officers of the Company. The Company also had $0.2
million in notes receivable with an interest rate of 12% compounded annually
from JB at December 31, 1998.
1999 Acquisitions of Outdoor Advertising Businesses
On September 30, 1999, Vista acquired all of the outstanding capital stock
of Seaboard Outdoor Advertising Co., Inc. ("Seaboard"), for $33.4 million. The
acquisition of Seaboard was recorded using the purchase method of accounting.
The accompanying combined financial statements include
F-67
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
the operations of Seaboard for the period from October 1, 1999 through December
31, 1999 and reflect the new basis of accounting for Seaboard assets and
liabilities based on their estimated fair values as of September 30, 1999.
The purchase price was allocated to estimated fair values of the assets and
liabilities of Seaboard as follows (in millions):
[Download Table]
Cash................................................................. $ 0.5
Other current assets................................................. 1.3
Property and equipment............................................... 4.1
Intangibles and other................................................ 30.2
Current liabilities.................................................. (0.8)
Deferred income taxes................................................ (1.9)
-----
Total costs.......................................................... $33.4
=====
On December 21, 1999, Vista acquired 18 billboards of Heywood Outdoor
Advertising, Inc. for $2.0 million cash and 180 signs having a net book value
of $0.3 million. Of the purchase price, $1.6 million was allocated to goodwill
and $0.7 million was allocated to the assets acquired.
1999--Merger of Vista into Z-Media
On December 31, 1999, Vista was combined with Z-Media pursuant to a
statutory merger agreement whereby Vista stockholders exchanged their common
shares of Vista for common shares of Z-Media. The merger of Vista into Z-Media
has been accounted for as a pooling of interests with Vista's net assets
carried over at historical cost to the extent Vista was previously under common
ownership with Z-Media. The portion of Vista's net assets acquired by Z-Media
that were previously owned by minority stockholders has been accounted for as a
purchase and recorded at fair value. Furthermore, the accompanying combined
financial statements include the accounts of Vista on the basis described
above, from the date such common control existed, August 29, 1997.
Pursuant to the merger agreement, Vista preferred stockholders, who were
also the previous holders of Vista common stock, exchanged their preferred
stockholdings for additional Z-Media common stock. The difference between the
fair value of Z-Media common stock received by the preferred stockholders and
the historical cost carrying amount of the preferred stock was approximately
$4.5 million and was recorded as an increase in the Company's accumulated
deficit as of December 31, 1999.
4. NOTES RECEIVABLE
The Company received two promissory notes as partial settlement of its sale
of the assets of one of its radio stations, WYPA-AM, during 1999 (see Note 3).
The notes in the amount of $7.0 million and $0.5 million are secured and mature
on September 20, 2000, with an interest rate of 9% paid quarterly.
F-68
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998, 1999
and for the three months ended March 31, 2000 (in millions):
[Download Table]
March 31,
1998 1999 2000
----- ----- -----------
(unaudited)
Land.............................................. $ 0.2 $ 0.3 $ 0.2
Buildings and improvements........................ 0.6 1.1 1.2
Furniture, fittings and fixtures.................. 0.9 0.4 0.4
Station, transmitters and antennas................ 1.4 0.9 1.1
Advertising displays.............................. 24.5 27.6 27.8
Machinery and equipment........................... 2.3 5.3 5.5
Motor vehicles.................................... 0.1 0.2 0.2
Computer hardware and software.................... 0.2 0.4 0.5
Construction-in-progress.......................... 0.3 3.8 3.9
----- ----- -----
Total........................................... 30.5 40.0 40.8
Less accumulated depreciation and amortization.... (3.5) (5.7) (6.6)
----- ----- -----
Property and equipment, net....................... $27.0 $34.3 $34.2
===== ===== =====
6. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1998, 1999 and
for the three months ended March 31, 2000 (in millions):
[Download Table]
March 31,
1998 1999 2000
------ ------ -----------
(unaudited)
FCC licenses..................................... $125.7 $158.5 $158.7
Goodwill......................................... 31.2 69.2 69.1
Deferred charges................................. 2.8 4.0 4.2
Non-competition agreements....................... 0.4 0.4 0.4
Other............................................ 1.0 2.6 2.6
------ ------ ------
Total.......................................... 161.1 234.7 235.0
Less accumulated amortization.................... (5.9) (9.3) (11.2)
------ ------ ------
Intangible assets, net........................... $155.2 $225.4 $223.8
====== ====== ======
F-69
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
7. LONG-TERM DEBT
Borrowing arrangements consist of the following at December 31, 1998, 1999,
and for the three months ended March 31, 2000 (in millions):
[Download Table]
March 31,
1998 1999 2000
----- ------ -----------
(unaudited)
1999 Credit Agreement
Revolving credit facility of $30.0 million,
interest payable quarterly at LIBOR plus
Applicable Margin, as defined (8.965% at
December 31, 1999), available through January
20, 2006........................................ -- $ 7.1 $ 6.0
Term facility of $43.9 million, interest payable
quarterly at LIBOR plus Applicable Margin, as
defined (8.965% at December 31, 1999), quarterly
principal repayments beginning March 31, 2000 at
$1.1 million, increasing to $1.7 million on
March 31, 2002 and $2.8 million on March 31,
2004 until maturity on January 20, 2006......... -- 45.0 43.9
1997 Credit Agreement
Revolving credit facility of $15.0 million, with
quarterly reductions of availability beginning
March 31, 2001, as defined, through maturity on
September 30, 2006, interest payable quarterly
at LIBOR plus Applicable Margin, as defined
(9.063% at December 31, 1999), secured by
substantially all of the Company's assets....... $ 1.2 4.0 3.2
Term facility of $35.0 million, interest payable
quarterly at LIBOR plus Applicable Margin, as
defined (9.063% at December 31, 1999), principal
repayment in quarterly installments of $0.8
million beginning June 30, 2001 increasing to
$1.1 million on March 31, 2002, $1.3 million on
March 31, 2003, $1.5 million on March 31, 2004,
$1.8 million on March 31, 2005 and $3.2 million
on March 31, 2006 until maturity on September
30, 2006, secured by substantially all of the
Company's assets................................ 14.3 35.0 35.0
Other Borrowings
Credit line of $20.0 million, interest payable
quarterly at LIBOR plus Applicable Margin, as
defined (10% at December 31, 1999), principal
due December 31, 2000........................... -- 18.1 18.1
Note payable, interest payable monthly at 9%,
monthly installments of principal and interest
of $0.03 million beginning December 1, 2004 and
ending November 1, 2014, secured by a deed of
trust........................................... -- 2.3 2.3
Senior notes at 8.34%, repaid in 1999............ 29.9 -- --
Subordinated notes for $10.9 million, due to a
former stockholder of the Company, $2.9 million
due to a stockholder of the Company and $6.0
million, at rates ranging from 12% to 13%,
repaid in 1999.................................. 19.8 -- --
Other............................................ 1.1 0.4 0.3
----- ------ ------
Total............................................ 66.3 111.9 108.8
Less current portion............................. (4.0) (22.8) (22.8)
----- ------ ------
Long-term debt................................... $62.3 $ 89.1 $ 86.0
===== ====== ======
F-70
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
The 1999 and 1997 credit agreements require the maintenance of specific
financial covenants, including leverage, fixed charge and interest expense
coverage ratios and certain limitations on indebtedness levels and overhead
expenses. The $20.0 million credit line also includes restrictive covenants,
which, among other things, require that the Company not incur additional debt.
The 1999 credit agreement requires under certain circumstances that the
Company enter into interest rate protection agreements to fix the Company's
floating rate debt on no less than 50% of the principal amount of total term
debt outstanding. At December 31, 1999, the Company had outstanding two
interest rate swap agreements with commercial banks, having a total notional
principal amount of $24.1 million. These outstanding swap agreements mature
August 7, 2000 and September 18, 2000, and require the Company to pay fixed
rates of 6.63% and 5.33%, respectively, while the counterparty pays floating
rate based on the three-month LIBOR. During the years ended December 31, 1997,
1998 and 1999, the Company recognized additional interest expense under its
interest rate swap agreements of $0.1 million, $0.1 million, and $0.1 million,
respectively. The aggregate fair value of the interest rate swap agreements at
December 31, 1999 was $18,000. The Company is exposed to credit loss in the
event of nonperformance by the counterparties to the interest rate swap
agreements. However, the Company does not anticipate nonperformance by the
counterparties.
As required by the 1997 credit agreement, at December 31, 1997 and 1998, the
Company had outstanding one interest rate swap agreement with a commercial
bank, having a total notional principal amount of $10.0 million. The
outstanding swap agreement matured on August 31, 1999, and required the Company
to pay a fixed rate of 6.08%, while the counterparty paid a floating rate based
on adjusted LIBOR. During the years ended December 31, 1997, 1998 and 1999, the
Company recognized additional interest expense under the interest rate swap
agreement of $7,000, $41,000, and $67,000, respectively.
Future minimum principal payments on long-term debt based on the credit
agreements and notes in place as of December 31, 1999 were as follows (in
millions):
[Download Table]
2000.................................................................. $ 22.8
2001.................................................................. 7.0
2002.................................................................. 11.0
2003.................................................................. 12.0
2004.................................................................. 17.4
Thereafter............................................................ 41.7
------
Total................................................................. $111.9
======
Company management believes that the fair value of its principal short and
long term borrowings are equal to the book value since the terms were recently
negotiated with the lenders.
F-71
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
8. INCOME TAXES
The Company's combined income tax (benefit) provision or the years ended
December 31, 1998, 1999, and for the three months ended March 31, 2000,
included the following (in millions):
[Download Table]
March 31,
1997 1998 1999 2000
----- ----- ----- -----------
(unaudited)
Current taxes:
Federal...................................... $ 0.1 $ 4.6 $ 0.1 $ --
State........................................ 0.2 1.3 0.1 0.1
----- ----- ----- -----
Total..................................... 0.3 5.9 0.2 0.1
----- ----- ----- -----
Deferred income taxes:
Federal...................................... (1.0) (4.5) (0.9) (1.3)
State........................................ (0.2) (1.0) (0.1) ( .3)
----- ----- ----- -----
Total..................................... (1.2) (5.5) (1.0) (1.6)
----- ----- ----- -----
Total income taxes........................... (0.9) 0.4 (0.8) (1.5)
Less income taxes related to extraordinary
items....................................... 0.4 -- 0.7 --
----- ----- ----- -----
Total........................................ $(0.5) $ 0.4 $(0.1) $(1.5)
===== ===== ===== =====
Deferred income tax assets (liabilities) resulting from tax effects of
temporary differences at December 31, 1998, 1999 and for the three months ended
March 31, 2000, are as follows (in millions):
[Download Table]
March 31,
1998 1999 2000
------ ------ -----------
(unaudited)
Deferred income tax assets:
Net operating loss and tax credit carryforwards.... $ 5.5 $ 7.5 $ 8.9
Allowance for doubtful accounts.................... 0.8 0.5 0.6
Other.............................................. 2.4 2.2 2.6
------ ------ ------
Total........................................... 8.7 10.2 12.1
------ ------ ------
Deferred income tax liabilities:
Property, equipment and intangible assets.......... (35.3) (37.6) (37.8)
Other.............................................. -- -- (0.2)
------ ------ ------
Total........................................... (35.3) (37.6) (38.0)
------ ------ ------
Net deferred income tax liability.................. $(26.6) $(27.4) $(25.9)
====== ====== ======
F-72
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:
[Download Table]
March 31,
1997 1998 1999 2000
----- ----- ----- -----------
(unaudited)
Federal tax at statutory rate.......... (35.0)% (35.0)% (35.0)% (35.0)%
State income taxes, net of federal
benefit............................... (4.2) (3.2) (3.5) (6.0)
Non-deductible goodwill amortization... 1.3 25.5 10.6 5.9
Non-deductible meals and
entertainment......................... 1.0 2.4 1.5 --
Other accruals......................... -- 57.3 -- 4.0
Other.................................. 1.0 -- 3.9 0.1
----- ----- ----- -----
Total.................................. (35.9)% 47.0 % (22.5)% (31.0)%
===== ===== ===== =====
Z-Media and its subsidiaries file their federal and state tax returns on a
consolidated basis. As of December 31, 1999, the Company has federal net
operating loss carryforward of $18.3 million which will begin to expire in
2009. The Company's state net operating loss carryforward is $11.2 million at
December 31, 1999 and will begin to expire in 2001. A portion of the Company's
net operating loss carryforward may be subject to annual limitations due to
ownership changes of the Company. In addition, the Company has federal and
state tax credits of $0.1 million and $23,000, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company leases various facilities and equipment under noncancelable
operating leases expiring through 2031. Certain operating leases are renewable
at the end of the contract term. Future minimum rental commitments for
operating leases with noncancelable terms in excess of one year are as follows
(in millions):
[Download Table]
Year ending December 31:
2000................................................................. $ 1.6
2001................................................................. 1.3
2002................................................................. 1.1
2003................................................................. 0.9
2004................................................................. 0.8
Thereafter........................................................... 5.0
-----
Total................................................................. $10.7
=====
Rent expense charged to operations in 1997, 1998, 1999 and for the three
months ended March 31, 2000 was $1.2 million, $1.9 million, $1.6 million and
$0.4 million, respectively.
The Company is subject to routine claims and litigation incidental to its
business operations. It is the Company's policy to accrue for amounts related
to these legal matters if it is probable that a liability has been incurred and
an amount is reasonably estimable. The management of the Company believes that
the ultimate resolutions of these matters will not have a material adverse
effect on the Company's financial statements.
F-73
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
10. REDEEMABLE PREFERRED STOCK
In March 1998, Z-Spanish acquired radio stations KMIX and KCVR located in
Stockton, California for $4.0 million by issuing 1,000 shares of Series A 9%
redeemable non-voting preferred stock with a fair value of $3.9 million and a
note payable with a face amount of $0.1 million. The terms of the stock
required that the Company redeem the stock by February 2001. The stock and note
were redeemed and paid by the Company at face amounts plus accrued dividends
and interest on January 20, 1999.
11. STOCKHOLDERS' EQUITY
Common Stock
As of December 31, 1999 and March 31, 2000, the Company had authorized the
issuance of 62,000,000 shares of Common Stock, consisting of 31,000,000 shares
of Class A Common Stock ("Class A Common"), 20,000,000 shares of Class B Common
Stock ("Class B Common") 5,000,000 shares of Class C Common Stock ("Class C
Common") and 6,000,000 shares of Class D Common Stock ("Class D Common").
As of December 31, 1999, and March 31, 2000 the Company had issued and
outstanding 25,090,000 shares of Common Stock, consisting of 1,068 shares of
Class A Common, 19,488,436 shares of Class B Common and 5,600,496 shares of
Class D Common.
In accordance with the Company's Amended and Restated Certificate of
Incorporation in the State of Delaware, each of the classes of Common Stock
have a par value of $0.01 and have identical rights and privileges, except as
discussed below.
Voting Rights--Class A Common stockholders are entitled to vote on matters
submitted to a vote of the stockholders, with each share of Class A Common
entitled to one vote, Class D Common has 4.45 votes for every 100,000 shares.
Class B and C Common stockholders have no voting rights.
Conversion Rights--The shares of Class B Common and Class C Common are
convertible into Class A Common on a one for one basis at any time at the
option of the stockholder.
The shares of Class A Common and Class D Common are also convertible into
either Class B Common or Class C Common on a one for one basis at any time at
the option of the stockholder.
Each share of Class C Common will convert automatically on a one for one
basis into Class A Common upon the sale, gift or other transfer to a person or
entity other than the Class C Common stockholder.
Dividends may be declared and paid at the discretion of the Company's Board
of Directors in cash, property, securities or rights or otherwise. If dividends
are declared, Common Stock stockholders of record will be entitled to
participate ratably, on a share for share basis as if all shares were of a
single class in determining the amount of the dividend payable to each
stockholder, except that any dividends payable in shares of Common Stock shall
be paid with the same class of Common stock as are held by the Class A, B, C
and D Common stockholders.
F-74
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
Put Options--At December 31, 1998, 1999 and March 31, 2000, the Company had
4,545,454 shares of Class C Common put options outstanding, which were issued
on October 9, 1998 for $25 million. The options are exercisable by notice to
the Company at a purchase price equal to the fair market value of the Company.
These options are recorded at fair value as of December 31, 1998, 1999, and
March 31, 2000. The options may be exercised at any time after February 9, 2005
and prior to the consummation of a public offering.
Preferred Stock
The Company has authorized the issuance of 10,000 shares of $0.01 par value
per share Preferred Stock that may be issued in one or more series subject to
the provisions of the Company's Amended and Restated Certificate of
Incorporation. At December 31, 1999 and March 31, 2000, no shares of Preferred
Stock had been issued.
Stock Option Plan
At December 31, 1999, the Company has reserved an aggregate of 3,292,828
shares of Class B Common stock for issuance, at the discretion of the Board of
Directors, to officers, employees, directors and consultants pursuant to its
1999 Stock Incentive Plan (the "Plan"). The option price is determined by the
Board of Directors. Options granted under the Plan generally vest ratably over
four years, and expire ten years from the date of grant.
Stock option activity under the plan is summarized as follows:
[Download Table]
Weighted Weighted
Average Average
Exercise Options Exercise
Options Price Exercisable Price
--------- -------- ----------- --------
Outstanding, January 1, 1999....... -- -- -- --
Granted (weighted average fair
value of $6.21)................... 1,696,806 $5.78 -- --
---------
Outstanding, December 31, 1999..... 1,696,806 $5.78 -- $5.78
=========
Additional information regarding options outstanding as of December 31, 1999
is as follows:
[Download Table]
Options Outstanding Options Vested
------------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Price Outstanding (Years) Price Vested Price
-------------- ----------- ----------- -------- -------- --------
$5.00 to $10.00 1,696,806 9.9 $5.78 -- --
Deferred Stock Compensation
The Company recorded deferred compensation of $4.3 million for the year
ended December 31, 1999 and $0.6 million for the three months ended March 31,
2000, to reflect the difference between the grant price and the estimated fair
value of the related stock. This amount is being amortized over the vesting
period of the individual options, generally four years. Compensation expense
was $0.1 million for the year ended December 31, 1999 and $0.2 million for the
three months ended March 31, 2000.
F-75
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
Additional Stock Plan Information--Since the Company continues to account
for its stock-based awards to employees using the intrinsic value method in
accordance with APB No. 25, SFAS No. 123, Accounting for Stock-Based
Compensation, requires the disclosure of pro forma net income (loss) had the
Company adopted the fair value method. The Company's calculations were made
using the minimum value pricing model which requires subjective assumptions,
including expected time to exercise, which affects the calculated values. The
following weighted average assumptions were used for 1999: expected life, four
years; no volatility; risk free interest rate of 6.5%; and no dividends during
the expected term. The Company's calculations are based on a single option
award valuation approach and forfeitures are recognized as they occur. If the
computed fair values of the 1999 awards had been amortized to expense over the
vesting period of the awards, the Company's pro forma net loss would have been
approximately $2.7 million in 1999.
12. EMPLOYEE BENEFIT PLANS
Z-Media initiated an employee 401(k) plan on September 1, 1999. Employees
can contribute 2% to 15% of their annual compensation, subject to IRC/ERISA
limitations. Eligibility requirements include three months of service and a
minimum of 1,000 hours of service per year, and the employee must be at least
21 years old. Matching is 50% of the amount of the compensation with a maximum
match of 3% of compensation with employer contributions vesting over a six-year
period. Z-Media's contributions to the plan totaled $47,000 for the year ended
December 31, 1999 and $0 for the three months ended March 31, 2000.
Vista has an employee 401(k) plan. Employees can contribute 2% to 15% of
their annual compensation, subject to IRC/ERISA limitations. Eligibility
requirements include one year of service and a minimum of 1,000 hours of
service per year, and the employee must be at least 21 years old. Matching is
discretionary with employer contributions vesting over a six-year period.
Vista's contributions to the plan totaled $39,000 for the year ended
December 31, 1998. There were no employer contributions in the years ended
December 31, 1997, 1999 and for the three months ended March 31, 2000.
13. SEGMENT DATA
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," in 1999. SFAS No. 131 establishes
standards for reporting information about operating segments and related
disclosures about products, geographic information and major customers.
Operating segment information for 1997 and 1998 is also presented in accordance
with SFAS No. 131.
Management has determined that there are two reportable segments consisting
of radio broadcasting and outdoor advertising. Such determination was based on
the level at which executive management reviews the results of operations in
order to make decisions regarding performance assessment and resource
allocation. Information about each of the operating segments follows:
Radio Group--The Company's Radio Group portfolio consisted of 32 radio
stations (19 FM and 13 AM) at December 31, 1999, including one station operated
under LMA.
F-76
Z-SPANISH MEDIA CORPORATION AND ITS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1997, 1998, 1999 and for the three months
ended March 31, 1999 and 2000
(Information for the three months ended March 31, 1999 and 2000 is unaudited)
Outdoor Advertising--The Company's Outdoor Advertising Group owned and
operated 10,060 outdoor advertising billboards and display faces in four states
at December 31, 1999, and for the period ended March 31, 2000.
Separate financial data for each of the Company's business segments is
provided below. The Company evaluates the performance of its segments based on
the following (in millions):
[Download Table]
March 31,
1997 1998 1999 2000
----- ------ ------ -----------
(unaudited)
Radio broadcasting:
Net revenue................................... $ 9.8 $ 15.4 $ 23.8 $ 5.3
Operating expenses............................ 7.9 10.9 13.9 5.1
Depreciation and amortization................. 2.1 4.8 6.0 1.7
Operating (loss) income....................... (0.3) 2.2 4.1 (1.5)
Total assets.................................. 68.1 169.7 218.2 219.0
Outdoor advertising:
Net revenue................................... $ 3.2 $ 10.5 $ 12.2 $ 2.8
Operating expenses............................ 1.6 5.7 8.7 2.2
Depreciation and amortization................. 0.6 1.9 2.7 1.1
Operating income.............................. 0.8 2.4 0.4 (0.5)
Total assets.................................. 28.3 27.6 70.8 63.0
14. OTHER RELATED PARTY TRANSACTIONS
During 1998 the Company operated station KZSJ-AM under an LMA with an
officer of the Company, and paid the officer $10,000 per month. The Company
also had an option to purchase KZSJ-AM from the officer pursuant to a purchase
option. The LMA and Option agreements were terminated on December 31, 1998 by
mutual consent of the parties. As of December 31, 1999, there was a payable due
to an officer of $0.1 million related to the LMA.
The Company's long-term debt at December 31, 1998 included $10.9 million of
notes payable to a former stockholder of the Company and $2.9 million to a
stockholder of the Company.
At December 31, 1999, the Company had a payable to a stockholder for $0.2
million.
Under leases that expire in 2019 and 2009, the Company rents its corporate
office building and a studio building from an officer of the Company for
$63,000 and $42,000 per year, respectively. Annual rents increase annually by
5% per year for the term of both leases.
15. SUBSEQUENT EVENTS
On February 14, 2000, the Company purchased the assets of a radio station in
Soledad, California for $0.3 million in cash.
On February 24, 2000, the Company entered into a letter of intent with
Entravision Communications Corporation ("ECC") whereby ECC will acquire
directly or thorough a merger of all of the outstanding stock of the Company.
******
F-77
INDEPENDENT AUDITOR'S REPORT
To the Partners
DeSoto -- Channel 62 Associates, Ltd.
(a Florida limited partnership)
Sarasota, Florida
We have audited the accompanying statements of operations, partners'
(deficit) and cash flows of DeSoto-- Channel 62 Associates, Ltd. (a Florida
limited partnership) for the period from January 1, 1999 to September 20, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of DeSoto --
Channel 62 Associates, Ltd. for the period from January 1, 1999 to September
20, 1999 in conformity with generally accepted accounting principles.
As explained in Note 6 to the financial statements, on September 20, 1999,
the Company sold substantially all assets of the Company to Entravision
Communications Company, L.L.C. No adjustments as a result of this transaction
are reflected in these financial statements.
/s/ McGladrey & Pullen, LLP
Pasadena, California
February 25, 2000
F-78
DESOTO -- CHANNEL 62 ASSOCIATES, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
STATEMENT OF OPERATIONS AND PARTNERS' DEFICIT
Period From January 1, 1999 through September 20, 1999
(In thousands)
[Download Table]
Gross revenue......................................................... $ 879
Less agency commissions............................................... (79)
-------
Net revenue.......................................................... 800
-------
Expenses:
Direct operating..................................................... 405
Selling, general and administrative (including related-party
management fee of $130)............................................. 934
Professional fees.................................................... 410
Depreciation and amortization........................................ 366
-------
2,115
-------
Operating (loss).................................................... (1,315)
-------
Interest (income)..................................................... (230)
Interest expense (including amounts to related parties of $106)....... 1,366
-------
Net (loss).......................................................... $(2,451)
=======
PARTNERS' DEFICIT
Period From January 1, 1999 through September 20, 1999
(In thousands)
[Download Table]
General Limited
Partner Partners Total
------- -------- -------
Balance, December 31, 1998......................... $(1,505) $(5,101) $(6,606)
Net (loss)........................................ $(1,348) (1,103) (2,451)
------- ------- -------
Balance, September 20, 1999........................ $(2,853) $(6,204) $(9,057)
======= ======= =======
See Notes to Financial Statements.
F-79
DESOTO -- CHANNEL 62 ASSOCIATES, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
Period From January 1, 1999 through September 20, 1999
(In thousands)
[Download Table]
Cash Flows from Operating Activities
Net (loss)........................................................... $(2,451)
Adjustments to reconcile net (loss) to net cash provided by operating
activities:
Depreciation and amortization....................................... 366
Changes in assets and liabilities:
Decrease in accounts receivable.................................... (221)
(Increase) in prepaid expenses and other assets.................... (134)
Increase in accounts payable, accrued expenses and other
liabilities....................................................... 1,123
-------
Net cash (used in) operating activities............................ (1,317)
-------
Cash Flows from Financing Activities
Net proceeds from borrowings on notes payable........................ 303
Due to affiliates.................................................... 932
-------
Net cash provided by financing activities........................... 1,235
-------
Net (decrease) in cash and cash equivalents......................... (82)
Cash and Cash Equivalents
Beginning............................................................ 93
-------
Ending............................................................... $ 11
=======
Supplemental Disclosures for Cash Flow Information
Cash payments for interest........................................... $ 125
=======
See Notes to Financial Statements.
F-80
DESOTO -- CHANNEL 62 ASSOCIATES, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
DeSoto -- Channel 62 Associates, Ltd. (the Company), a Florida limited
partnership, was formed in 1989. The Company was formed to purchase the
construction permit for and operate Channel 62, a commercial five million-watt
television station located in Venice (Sarasota), Florida. Funding for the
Company's acquisition and development of Channel 62 was obtained from DeSoto
Broadcasting, Inc. (DBI), the Company's general partner, and a $4.0 million
offering of limited partnership interests. The partnership is set to dissolve
December 31, 2025.
Significant accounting policies
Personal assets and liabilities and partners' salaries
In accordance with the generally accepted method of presenting partnership
financial statements, the financial statements do not include the personal
assets and liabilities of the partners, including their rights to refunds on
its net (loss). In addition, the expenses shown in the income statements do not
include any salaries to the partners.
Allocation of partnership income and loss
The partnership agreement requires operating cash flow available for
distribution to first be applied to the payment of any loans by the general
partner to the partnership. The remainder, if any, is then allocated and
distributed 55% to the general partner and 45% to the limited partners.
Allocation to the limited partners is based upon the number of units held
relative to the total units held by all limited partners.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company's operations are affected by numerous factors including changes
in audience acceptance (i.e., ratings), priorities of advertisers, new laws and
governmental regulations and policies, and technological advances. The Company
cannot predict if any of these factors might have a significant impact on the
television and radio industries in the future, nor can it predict what impact,
if any, the occurrence of these or other events might have on the Company's
operations.
Cash and cash equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Revenue recognition
Revenue related to the sale of advertising is recognized at the time of
broadcast.
F-81
DESOTO -- CHANNEL 62 ASSOCIATES, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Trade transactions
The Company enters into agreements in which advertising time is traded for
various products or services. Trade transactions are reported at the normal
advertising rates in effect. Revenue or expense and a corresponding asset or
liability are reported when advertisements are aired or when goods and services
are received. Trade revenue and costs were not significant for the period from
January 1 through September 20, 1999.
Depreciation and amortization of property and equipment
Property and equipment is stated at cost. Depreciation is computed
principally by the straight-line method over the estimated lives of the assets
which range from 5 to 31 years. Improvements to leased property are amortized
over the lesser of the term of the lease or the estimated life of the
improvements.
Intangible assets
Intangible assets are amortized on a straight-line basis as follows:
[Download Table]
Years
-----
Licenses, permits and associated costs................................. 40
Other intangible assets................................................ 1-5
Deferred debt costs related to the credit facility are amortized on a
straight-line basis over the respective life of the credit facility.
Television Programming
The Company has various contracts granting the Company the right to
broadcast television programs over a period of time for a specified fee. Each
contract is recorded as an asset and liability at an amount equal to the gross
contractual commitment. The capitalized costs of each contract are amortized on
a straight-line basis, based on the estimated number of future showings over
the length of the agreement for agreements with unlimited showings. The
capitalized costs of rights to program materials are recorded at the lower of
unamortized cost or estimated realized value.
Rent expense
The Company leases its office and studio space, the tower and various
equipment under various operating lease agreements with various terms and
conditions. Total rent expense was approximately $0.2 million for the period
ended September 20, 1999.
Income taxes
The Company is a partnership, and accordingly, is not a tax paying entity.
Instead, the partners are responsible for any tax liability or benefit, based
on their respective percentages of the Company's taxable income or loss.
F-82
DESOTO -- CHANNEL 62 ASSOCIATES, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Impairment of long-lived assets
The Company reviews its long-lived assets and intangibles related to those
assets periodically to determine potential impairment by comparing the
carrying value of the long-lived assets and identified goodwill with the
estimated future net undiscounted cash flows expected to result from the use
of the assets, including cash flows from disposition. Should the sum of the
expected future net cash flows be less than the carrying value, the Company
would recognize an impairment loss at that date. An impairment loss would be
measured by comparing the amount by which the carrying value exceeds the fair
value (estimated discounted future cash flows) of the long-lived assets. To
date, management has determined that no impairment of its long-lived assets
exists.
Segment information
In accordance with Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and Related Information,
management has determined that the Company has one reportable segment.
Comprehensive income
SFAS No. 130, Reporting Comprehensive Income, established the requirements
for the reporting and presentation of comprehensive income and its components.
For the period ended September 20, 1999, the Company had no components of
comprehensive income and, therefore, net income is equal to comprehensive
income.
Advertising
Advertising costs, which are principally included in sales expenses, are
expensed as incurred.
NOTE 2. LONG-TERM DEBT
The Company has a 12% credit agreement (Agreement) with a financial
institution which provides for a maximum extension of credit of $5.0 million.
At September 20, 1999 the outstanding balance was $4.3 million. The Agreement
expires September 30, 2000 and is collateralized by all of the Company's and
DBI's assets and is guaranteed by DBI and Omni Investments International, Inc.
(OMNI) (the parent company of DBI).
The Agreement provides for monthly interest only payments of 12% and
provides for additional deferred interest at the option of the Lender equal to
either (a) 10% or (b) an amount equal to 15% of the combined net equity value
of the Company and DBI as defined by the Agreement, which option may be
exercised upon certain events including sale of the borrowers. Subsequent to
September 20, 1999, the Lender exercised the net equity proceeds option in
connection with the sale of assets as described in Note 5 to these financial
statements.
The Company also has an advance from DBI in the amount of approximately
$0.6 million and bears interest at the rate of approximately 5% as of
September 20, 1999. There is no stated maturity on this advance. Approximately
$23,000 of interest expense has been included in the accompanying statement of
operations in connection with this debt.
F-83
DESOTO -- CHANNEL 62 ASSOCIATES, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3. RELATED-PARTY TRANSACTIONS
The Company recorded advertising revenue and incurred advertising, promotion
and certain administration expenses with vendors who are also subsidiaries of
Omni. For the period ended September 20, 1999, such income and expenses totaled
approximately $7,000.
DBI manages and administers the business and affairs of the Company.
Compensation to DBI as an annual management fee is $0.2 million plus 5% of
operating cash flows calculated monthly after deductions for interest and
depreciation. The management fee for the period ended September 20, 1999
totaled $0.1 million.
As of and during the period ended September 20, 1999, the Company had
amounts due to certain organizations related through common ownership. Interest
paid on these borrowings for the period from January 1, 1999 through September
20, 1999 was approximately $0.1 million.
NOTE 4. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan for all employees. Under the
terms of the plan, employees must be 21 years of age with one year of eligible
service to participate. The Company may make matching contributions equal to a
discretionary percentage, to be determined by the Company, of the participant's
salary reductions. There have been no matching contributions made by the
Company. The plan is currently in the process of being terminated in connection
with the sale of assets as described in Note 5.
NOTE 5. SALE LEASEBACK TRANSACTION
During 1998, the Company entered into a sale-leaseback transaction with an
unrelated entity. The gain from this transaction was approximately $0.9
million, recorded as deferred income and is being amortized over the subsequent
lease term of three years. Income of $0.2 million has been included in the
accompanying statement of operations during the period ended September 30,
1999.
NOTE 6. SUBSEQUENT EVENT AND SALES OF ASSETS
On September 20, 1999, the Company and DBI sold substantially all assets of
the Company and the FCC license held by DBI to Entravision Communications
Company, L.L.C. for $17.0 million in cash. Entravision did not assume any
liabilities with the exception of certain prorated expenses, leases material to
operations of the Company and liabilities associated with certain program
rights. The accompanying financial statements have been prepared without giving
effect to the transaction except for the payment or accrual of certain costs
totaling approximately $0.4 million.
F-84
INDEPENDENT AUDITOR'S REPORT
To the Partners
of Sunburst Media, L.P.
Dallas, Texas
We have audited the accompanying special purpose statement of assets to be
acquired of radio stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM)
(collectively, the Stations), which are owned by Sunburst Media, L.P. (the
Seller), as of December 31, 1999, and the related special purpose statement of
revenue and direct operating expenses for the year then ended. These financial
statements are the responsibility of the Stations' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, these special purpose
financial statements are prepared to reflect the assets to be acquired by
Entravision Communications Corporation in its proposed acquisition of the
Stations, as well as the Stations' revenue and direct operating expenses. The
special purpose financial statements are not intended to be a complete
presentation of Sunburst Media, L.P.'s assets and liabilities or results of its
operations, and accordingly, these special purpose financial statements are not
intended to be a presentation in accordance with generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets to be acquired of the Stations as of
December 31, 1999, and the results of their revenue and direct operating
expenses for the year then ended on the basis of accounting described in Note
1.
/s/ McGladrey & Pullen, LLP
Pasadena, California
June 9, 2000
F-85
RADIO STATIONS KFRQ(FM), KKPS(FM), KVPA(FM) AND KVLY(FM)
(STATIONS OWNED BY SUNBURST MEDIA, L.P.)
STATEMENTS OF ASSETS TO BE ACQUIRED
December 31, 1999 and March 31, 2000 (Unaudited)
(In thousands)
[Download Table]
December 31, March 31,
Assets To Be Acquired 1999 2000
--------------------- ------------ -----------
(Unaudited)
Property and equipment, net............................ $1,271 $1,244
Intangible assets, net................................. 6,847 6,661
------ ------
$8,118 $7,905
====== ======
See Notes to Financial Statements.
F-86
RADIO STATIONS KFRQ(FM), KKPS(FM), KVPA(FM) AND KVLY(FM)
(STATIONS OWNED BY SUNBURST MEDIA, L.P.)
STATEMENTS OF REVENUE AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1999 and Three Months Ended March 31, 1999 (Unaudited)
and 2000 (Unaudited)
(In thousands)
[Download Table]
Three Months Ended
Year Ended -----------------------
December 31, March 31, March 31,
1999 1999 2000
------------ ----------- -----------
(Unaudited) (Unaudited)
Gross revenue............................. $6,512 $1,276 $1,707
Less agency commissions................... 691 132 197
------ ------ ------
Net revenue........................... 5,821 1,144 1,510
------ ------ ------
Direct Operating Expenses:
Operating............................... 1,144 255 317
Selling, general and administrative..... 2,685 756 751
Depreciation and amortization........... 835 182 238
------ ------ ------
4,664 1,193 1,306
------ ------ ------
Excess of revenue over (under) direct
operating expenses .................. $1,157 $ (49) $ 204
====== ====== ======
See Notes to Financial Statements.
F-87
RADIO STATIONS KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM)
(STATIONS OWNED BY SUNBURST MEDIA, L.P.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Radio Stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM) (collectively, the
Stations) are owned by Sunburst Media, L.P. (Sunburst), a Delaware limited
partnership. The Stations operate Spanish-language adult contemporary and rock
format radio stations serving the Rio Grande Valley, Texas metropolitan area.
These Stations are not separate legal entities and are part of the operations
of Sunburst.
On May 22, 2000, Entravision Communications Corporation (Entravision)
entered into an agreement with Sunburst to purchase property and equipment, FCC
licenses and other intangibles related to the operations of the Stations. The
aggregate consideration to be paid in connection with this proposed transaction
is $55 million. Under the terms of the agreement Entravision will not acquire
cash and cash equivalents, accounts receivable or deposits nor will they assume
any liabilities. Entravision will assume the operating leases discussed in Note
4. The transaction is expected to close in the third quarter of 2000 upon
receiving FCC approval.
Significant accounting policies
Basis of presentation
The accompanying statements of assets to be acquired as of December 31, 1999
and revenue and direct operating expenses for the year then ended have been
prepared for the purpose of complying with rules and regulations of the
Securities and Exchange Commission. These financial statements may not be
indicative of the future financial condition or results of operations of these
Stations due to the anticipated changes in the business subsequent to the
proposed acquisition and the omission of various non-direct operating expenses.
Statement of cash flows information is not presented because primarily all
financing and investing activities are performed by Sunburst and not the
Stations.
The statements of assets to be acquired include the historical amounts of
the net tangible and intangible assets of the Stations to be acquired by
Entravision in its proposed acquisition of the Stations, presented in
accordance with generally accepted accounting principles applicable to the
Stations. Entravision plans to assume the operations of the Stations upon the
FCC approval of the sale. The estimated fair value of the net assets to be
assigned in the allocation of the purchase price by Entravision may differ
significantly from the reported values.
The statements of revenue and direct operating expenses include only revenue
and operating expenses directly related to the Stations. Sunburst provides
certain senior management, financing and treasury functions to the Stations.
However, all costs for managing the daily operations of the Stations are
reflected in direct operating expenses. Entravision anticipates its existing
corporate staff will provide these senior management financing and treasury
functions. The non-direct expenses for functions performed by Sunburst,
consisting of management fees and interest expense, have historically been
allocated to the Stations from Sunburst and have been excluded from the
accompanying financial statements.
F-88
RADIO STATIONS KFRQ(FM), KKPS(FM), KVPA(FM) AND KVLY(FM)
(STATIONS OWNED BY SUNBURST MEDIA, L.P.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Unaudited Interim Financial Information
The interim financial information presented herein as of and for the three
months ended March 31, 1999 and 2000 reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation for the periods
presented. Such adjustments are of a normal recurring nature. The financial
information is not intended to be a complete presentation in accordance with
generally accepted accounting principles. The March 31, 2000 interim financial
statements are not necessarily indicative of the results in the entire fiscal
year ending December 31, 2000, or any subsequent period.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Stations' operations are affected by numerous factors including changes
in audience acceptance (i.e., ratings), priorities of advertisers, new laws and
governmental regulations and policies, and technological advances. The Stations
cannot predict if any of these factors might have a significant impact on the
radio industry in the future, nor can it predict what impact, if any, the
occurrence of these or other events might have on the Stations' operations.
Significant estimates and assumptions made by management are used for, but are
not limited to, the carrying value of long-lived and intangible assets.
Property and equipment
Property and equipment are recorded at cost. Depreciation is provided using
straight-line methods over the following estimated useful lives:
[Download Table]
Years
-----
Building............................................................... 30
Transmission, studio and broadcast equipment........................... 5-15
Office and computer equipment.......................................... 5-7
Transportation equipment............................................... 5
Intangible assets
Intangible assets consisting of the following items are amortized on a
straight-line method over the following estimated useful lives:
[Download Table]
Years
-----
FCC licenses........................................................... 15
Goodwill............................................................... 15
Noncompete agreements.................................................. 1-6
Revenue recognition
Revenue related to the sale of advertising is recognized at the time of
broadcast.
F-89
RADIO STATIONS KFRQ(FM), KKPS(FM), KVPA(FM) AND KVLY(FM)
(STATIONS OWNED BY SUNBURST MEDIA, L.P.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Trade transactions
The Stations exchange broadcast time for certain merchandise and services.
Trade revenue and the related receivables are recorded when spots air at the
fair value of the goods or services received or time aired, whichever is more
readily determinable. Trade expense and the related liability are recorded when
the goods or services are used or received. Barter revenue and costs were
approximately $0.1 million for the year ended December 31, 1999.
Income Taxes
As a limited partnership, Sunburst does not pay income taxes at a company
level, accordingly there is no provision for income taxes to be allocated or
recorded.
Advertising costs
Advertising costs are expensed as incurred. Advertising expense totaled
approximately $0.1 million for the year ended December 31, 1999.
NOTE 2. PROPERTY AND EQUIPMENT
The composition of property and equipment at December 31, 1999 is as
follows:
[Download Table]
Amount
------
Land................................................................. $ 34
Building............................................................. 502
Transmission, studio and other broadcast equipment................... 939
Office and computer equipment........................................ 113
Transportation equipment............................................. 30
------
1,618
Less accumulated depreciation........................................ 347
------
$1,271
======
F-90
RADIO STATIONS KFRQ(FM), KKPS(FM), KVPA(FM) AND KVLY(FM)
(STATIONS OWNED BY SUNBURST MEDIA, L.P.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3. INTANGIBLE ASSETS
At December 31, 1999, intangible assets consist of:
[Download Table]
Amount
------
FCC licenses......................................................... $7,913
Noncompete agreements................................................ 738
Goodwill............................................................. 50
------
8,701
Less accumulated amortization........................................ 1,854
------
$6,847
======
NOTE 4. OPERATING LEASE COMMITMENTS
The Stations lease facilities and broadcast equipment under various
operating lease agreements with various terms and conditions, which expire at
various dates through July 2004.
The approximate future minimum lease payments under these operating leases
at December 31, 1999 are as follows:
[Download Table]
Years Ending December 31, Amount
------------------------- ------
2000.................................................................. $ 38
2001.................................................................. 34
2002.................................................................. 28
2003.................................................................. 22
2004.................................................................. 9
----
$131
====
Total rent expense under operating leases, including rent under month-to-
month arrangements, was approximately $0.1 million for the year ended December
31, 1999.
NOTE 5. ACQUISITION
On September 9, 1999, Sunburst acquired certain assets of Coast
Broadcasting, which includes the radio station KVPA(FM) in Port Isabel, Texas,
for $0.8 million. The acquisition was accounted for as a purchase business
combination. The excess purchase price over the tangible net assets to be
acquired of $0.7 million was allocated to specifically identifiable intangibles
consisting of $0.5 million to the FCC license and $0.2 million to noncompete
agreements.
F-91
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[LOGO OF ENTRAVISION COMMUNICATIONS CORPORATION]
Class A Common Stock
---------------------
PROSPECTUS
---------------------
, 2000
Donaldson, Lufkin & Jenrette
Credit Suisse First Boston
Merrill Lynch & Co.
----------------
Salomon Smith Barney
Bear, Stearns & Co. Inc.
DLJdirect Inc.
--------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You should not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Entravision
have not changed since the date hereof.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of common stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be paid by us in connection
with the sale and distribution of the securities being registered. All of the
amounts shown are estimated except the registration fee of the Securities and
Exchange Commission, the NASD filing fee and the New York Stock Exchange
listing fee.
[Download Table]
Securities and Exchange Commission registration fee.............. $ 194,304
NASD filing fee.................................................. 30,500
New York Stock Exchange listing fee.............................. 84,600
Legal fees and expenses.......................................... 1,475,000
Accounting fees and expenses..................................... 1,398,000
Printing expenses................................................ 400,000
Blue sky fees and expenses....................................... 7,500
Transfer agent and registrar fees and expenses................... 3,500
Miscellaneous.................................................... 250,000
----------
Total............................................................ $3,843,404
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We are incorporated under the laws of the State of Delaware. Section 145 of
the Delaware General Corporation Law, as the same exists or may hereafter be
amended, provides that a Delaware corporation may indemnify any persons who
were, are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the corporation's best interests and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe that his or her conduct was illegal. A Delaware corporation may
indemnify any persons who are, were or are threatened to be made, a party to
any threatened, pending or completed action or suit by or in the right of the
corporation by reasons of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorney's fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses which such officer or director has
actually and reasonably incurred.
II-1
Section 145 of the Delaware General Corporation Law further authorizes a
corporation to purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against any liability asserted
against him or her and incurred by him or her in any such capacity, arising
out of his or her status as such, whether or not the corporation would
otherwise have the power to indemnify him or her under Section 145.
Our first restated certificate of incorporation provides that, to the
fullest extent permitted by Delaware law, as it may be amended from time to
time, none of our directors will be personally liable to us or our
stockholders for monetary damages resulting from a breach of fiduciary duty as
a director, except for (i) liability resulting from a breach of the director's
duty of loyalty to us or our stockholders, (ii) acts or omissions which are
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) unlawful payment of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law or (iv) a transaction from which the director derived an
improper personal benefit.
Our first restated certificate of incorporation also provides mandatory
indemnification for the benefit of our directors and officers and
discretionary indemnification for the benefit of our employees and agents, in
each instance to the fullest extent permitted by Delaware law, as it may be
amended from time to time. In addition, we will enter into individual
indemnification agreements with each of our directors and officers providing
additional indemnification benefits. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors
or officers or persons controlling us pursuant to the foregoing provisions, we
have been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. We will also provide directors'
and officers' liability insurance coverage for our directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since our incorporation on February 11, 2000, we have issued unregistered
securities as follows:
On February 12, 2000, we issued 1,000 shares of our common stock to
Entravision Communications Company, L.L.C. for an aggregate purchase price of
$1,000, such shares to be held until and cancelled concurrently with the
reorganization described in the following paragraph. These shares were issued
in order for Entravision to be properly capitalized at all times from its
inception until the consummation of such reorganization. These shares were
issued pursuant to the exemption from registration provided by Section 4(2) of
the Securities Act.
On April 19, 2000, we entered into an Exchange Agreement with our
predecessor, certain exchanging members and stockholders and Univision in
which direct and indirect ownership interests in our predecessor and
Univision's subordinated note and option will be exchanged for newly-issued
shares of our common stock as part of our recapitalization from a limited
liability company to a C-corporation. This reorganization will be consummated
immediately prior to this offering. These shares will be issued pursuant to
the exemption from registration provided by Section 4(2) of the Securities
Act.
On April 20, 2000, we entered into an Acquisition Agreement and Plan of
Merger with our predecessor, ZSPN Acquisition Corporation, Z-Spanish Media and
certain of its stockholders pursuant to which we agreed to acquire all of the
outstanding capital stock of Z-Spanish Media for $475 million, including the
assumption of approximately $110 million in debt. The consideration to be paid
to the stockholders of Z-Spanish Media consists of approximately $247 million
in cash and 7,187,902 shares of our Class A common stock. These shares will be
issued pursuant to the exemption from registration provided by Section 4(2) of
the Securities Act.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits are attached hereto and incorporated herein by
reference.
[Download Table]
Exhibit Exhibit Description
Number -------------------
-------
1.1(3) Form of Underwriting Agreement.
2.1(1) Asset Purchase Agreement dated as of October 30, 1998 by and among
Univision Television Group, Inc., KLUZ License Partnership, G.P. and
Entravision Communications Company, L.L.C.
2.2(1) Agreement and Plan of Merger dated December 21, 1999 by and among
Entravision Communications Company, L.L.C., LCG Acquisition
Corporation, Latin Communications Group Inc. and certain of its
representatives.
2.3(1) Asset Purchase Agreement dated as of February 29, 2000 by and between
Citicasters Co. and the registrant.
2.4(2) Acquisition Agreement and Plan of Merger dated April 20, 2000 by and
among the registrant, Entravision Communications Company, L.L.C., ZSPN
Acquisition Corporation, Z-Spanish Media Corporation and certain of
its stockholders.
2.5(2) Exchange Agreement dated April 19, 2000 by and among the registrant,
Entravision Communications Company, L.L.C., certain exchanging members
and stockholders and Univision Communications Inc.
3.1(1) Certificate of Incorporation of the registrant as currently in effect.
3.2(1) Form of First Restated Certificate of Incorporation of registrant as
in effect immediately prior to the closing of the offering.
3.3(1) Form of First Amended and Restated Bylaws of the registrant as in
effect immediately prior to the closing of the offering.
4.1(3) Form of specimen Class A common stock certificate of the registrant.
5.1(2) Opinion of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P.
10.1(2) 2000 Omnibus Equity Incentive Plan of the registrant.
10.2(2) Form of Voting Agreement by and among Walter F. Ulloa, Philip C.
Wilkinson, Paul A. Zevnik and the registrant.
10.3(1) Amended and Restated Credit Agreement dated November 10, 1998 by and
among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc. Cabrillo
Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las
Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc.,
Entravision Communications Company, L.L.C., the lender parties thereto
and Union Bank of California, N.A., as agent.
10.4(1) First Amendment to Amended and Restated Credit Agreement dated as of
December 29, 1999 by and among KSMS-TV, Inc., Tierra Alta
Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills
Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel
48, Inc., Entravision Communications Company, L.L.C., the lender
parties thereto and Union Bank of California, N.A., as agent.
10.5(1) Second Amendment to Amended and Restated Credit Agreement dated as of
January 14, 2000 by and among KSMS-TV, Inc., Tierra Alta Broadcasting,
Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting
Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc.,
Telecorpus, Inc., Entravision Communications Company, L.L.C., the
lender parties thereto and Union Bank of California, N.A., as agent.
10.6(2) Third Amendment to Amended and Restated Credit Agreement dated April
18, 2000 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc.,
Cabrillo Broadcasting Corporation, Golden Hills Broadcasting
Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc.,
Telecorpus, Inc., Entravision Communications Company, L.L.C., the
lender parties thereto and Union Bank of California, N.A., as agent.
10.7(1) Amended and Restated Security Agreement dated as of November 10, 1998
by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo
Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las
Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc.,
Entravision Communications Company, L.L.C., the lender parties thereto
and Union Bank of California, N.A., as agent.
II-3
[Download Table]
Exhibit Exhibit Description
Number -------------------
-------
10.8(1) Amended and Restated Pledge Agreement dated as of November 10, 1998
by certain pledgors in favor of Union Bank of California, N.A., as
agent.
10.9(2) Term Loan Agreement dated April 20, 2000 by and among LCG Acquisition
Corporation, the lender parties thereto and Union Bank of California,
N.A.
10.10(2) Security Agreement dated April 20, 2000 by and between LCG
Acquisition Corporation and Union Bank of California, N.A.
10.11(2) Pledge Agreement dated April 20, 2000 by Walter F. Ulloa and Philip
C. Wilkinson in favor of Union Bank of California, N.A.
10.12(1) Univision Roll-Up Agreement dated March 2, 2000 by and between
Univision Communications Inc. and Entravision Communications Company,
L.L.C.
10.13(1) First Amended and Restated Non-Negotiable Subordinated Note dated
March 2, 2000 in the principal amount of $120 million from
Entravision Communications Company, L.L.C. in favor of Univision
Communications Inc.
10.14(1) Amended and Restated Subordinated Note Purchase and Option Agreement
dated as of December 30, 1996 by and among Univision Communications
Inc., Entravision Communications Company, L.L.C., its member
entities, Walter F. Ulloa and Philip C. Wilkinson.
10.15(1) First Amendment to Amended and Restated Subordinated Note Purchase
and Option Agreement dated as of March 31, 1999 by and among
Univision Communications Inc., Entravision Communications Company,
L.L.C., its member entities, Walter F. Ulloa and Philip C. Wilkinson.
10.16(1) Second Amendment to Amended and Restated Subordinated Note Purchase
and Option Agreement dated March 2, 2000 by and among Univision
Communications Inc., Entravision Communications Company, L.L.C., its
member entities, Walter F. Ulloa and Philip C. Wilkinson.
10.17(1) Secured Promissory Note and Pledge Agreement dated October 16, 1996
in the principal amount of $360,366.38 from Paul A. Zevnik in favor
of Entravision Communications L.L.C.
10.18(2) Form of Indemnification Agreement for officers and directors of the
registrant.
10.19(2) Convertible Subordinated Note Purchase Agreement dated as of April
20, 2000 by and among Entravision Communications Company, L.L.C., the
registrant and certain investors.
10.20(2) Subordinated Convertible Promissory Note dated April 20, 2000 in the
principal amount of $90 million from Entravision Communications
Company, L.L.C. in favor of TSG Capital Fund III, L.P.
10.21(2) Investor Rights Agreement dated April 19, 2000 by and among
Entravision Communications Company, L.L.C., the registrant and TSG
Capital Fund III, L.P.
10.22(2) Form of Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock of the registrant.
10.23(2) Form of Investor Rights Agreement by and among the registrant and
certain of its stockholders.
10.24(1) Form of Network Affiliation Agreement by and between Univision
Television Network and Entravision Communications Company, L.L.C.
10.25(2) Office Lease dated August 19, 1999 by and between Water Garden
Company, L.L.C. and Entravision Communications Company, L.L.C.
10.26(3) Asset Purchase Agreement dated June 13, 2000 by and between the
registrant and Infinity Broadcasting Corporation.
21.1(3) Schedule of subsidiaries of the registrant.
23.1(2) Consent of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P.
(included in Exhibit 5.1).
23.2(2) Consent of McGladrey & Pullen, LLP.
23.3(2) Consent of Ernst & Young LLP.
23.4(2) Consent of Deloitte & Touche LLP.
24.1(1) Power of Attorney.
--------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
(b) Financial Statement Schedules--None.
II-4
ITEM 17. UNDERTAKINGS.
The registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Monica, State of California, on June 14, 2000.
ENTRAVISION COMMUNICATIONS CORPORATION
By: /s/ Walter F. Ulloa
______________________________________
Walter F. Ulloa, Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed by the following persons in the
capacities indicated and on the dates indicated.
[Download Table]
Signature Title Date
--------- ----- ----
/s/ Walter F. Ulloa Chairman and Chief Executive June 14, 2000
____________________________________ Officer (principal
Walter F. Ulloa executive officer)
* President, Chief Operating June 14, 2000
____________________________________ Officer and Director
Philip C. Wilkinson
/s/ Jeanette Tully Executive Vice President, June 14, 2000
____________________________________ Treasurer and Chief
Jeanette Tully Financial Officer
(principal financial
officer and principal
accounting officer)
* Secretary and Director June 14, 2000
____________________________________
Paul A. Zevnik
* President of Radio Division June 14, 2000
____________________________________ and Director
Amador S. Bustos
* Director June 14, 2000
____________________________________
Darryl B. Thompson
* Director June 14, 2000
____________________________________
Andrew W. Hobson
* Director June 14, 2000
____________________________________
Michael D. Wortsman
*By: /s/ Jeanette Tully
___________________________
Jeanette Tully, Attorney-in-
fact
II-6
EXHIBIT INDEX
[Download Table]
Exhibit
Number Exhibit Description
------- -------------------
1.1(3) Form of Underwriting Agreement.
2.1(1) Asset Purchase Agreement dated as of October 30, 1998 by and among
Univision Television Group, Inc., KLUZ License Partnership, G.P. and
Entravision Communications Company, L.L.C.
2.2(1) Agreement and Plan of Merger dated December 21, 1999 by and among
Entravision Communications Company, L.L.C., LCG Acquisition
Corporation, Latin Communications Group Inc. and certain of its
representatives.
2.3(1) Asset Purchase Agreement dated as of February 29, 2000 by and between
Citicasters Co. and the registrant.
2.4(2) Acquisition Agreement and Plan of Merger dated April 19, 2000 by and
among the registrant, Entravision Communications Company, L.L.C., ZSPN
Acquisition Corporation, Z-Spanish Media Corporation and certain of
its stockholders.
2.5(2) Exchange Agreement dated April 19, 2000 by and among the registrant,
Entravision Communications Company, L.L.C., certain exchanging members
and stockholders and Univision Communications Inc.
3.1(1) Certificate of Incorporation of the registrant as currently in effect.
3.2(1) Form of First Restated Certificate of Incorporation of registrant as
in effect immediately prior to the closing of the offering.
3.3(1) Form of First Amended and Restated Bylaws of the registrant as in
effect immediately prior to the closing of the offering.
4.1(3) Form of specimen Class A common stock certificate of the registrant.
5.1(2) Opinion of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P.
10.1(2) 2000 Omnibus Equity Incentive Plan of the registrant.
10.2(2) Form of Voting Agreement by and among Walter F. Ulloa, Philip C.
Wilkinson, Paul A. Zevnik and the registrant.
10.3(1) Amended and Restated Credit Agreement dated November 10, 1998 by and
among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc. Cabrillo
Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las
Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc.,
Entravision Communications Company, L.L.C., the lender parties thereto
and Union Bank of California, N.A., as agent.
10.4(1) First Amendment to Amended and Restated Credit Agreement dated as of
December 29, 1999 by and among KSMS-TV, Inc., Tierra Alta
Broadcasting, Inc., Cabrillo Broadcasting Corporation, Golden Hills
Broadcasting Corporation, Las Tres Palmas Corporation, Valley Channel
48, Inc., Entravision Communications Company, L.L.C., the lender
parties thereto and Union Bank of California, N.A., as agent.
10.5(1) Second Amendment to Amended and Restated Credit Agreement dated as of
January 14, 2000 by and among KSMS-TV, Inc., Tierra Alta Broadcasting,
Inc., Cabrillo Broadcasting Corporation, Golden Hills Broadcasting
Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc.,
Telecorpus, Inc., Entravision Communications Company, L.L.C., the
lender parties thereto and Union Bank of California, N.A., as agent.
10.6(2) Third Amendment to Amended and Restated Credit Agreement dated April
18, 2000 by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc.,
Cabrillo Broadcasting Corporation, Golden Hills Broadcasting
Corporation, Las Tres Palmas Corporation, Valley Channel 48, Inc.,
Telecorpus, Inc., Entravision Communications Company, L.L.C., the
lender parties thereto and Union Bank of California, N.A., as agent.
10.7(1) Amended and Restated Security Agreement dated as of November 10, 1998
by and among KSMS-TV, Inc., Tierra Alta Broadcasting, Inc., Cabrillo
Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las
Tres Palmas Corporation, Valley Channel 48, Inc., Telecorpus, Inc.,
Entravision Communications Company, L.L.C., the lender parties thereto
and Union Bank of California, N.A., as agent.
[Download Table]
Exhibit Exhibit Description
Number -------------------
-------
10.8(1) Amended and Restated Pledge Agreement dated as of November 10, 1998
by certain pledgors in favor of Union Bank of California, N.A., as
agent.
10.9(2) Term Loan Agreement dated April 20, 2000 by and among LCG Acquisition
Corporation, the lender parties thereto and Union Bank of California,
N.A.
10.10(2) Security Agreement dated April 20, 2000 by and between LCG
Acquisition Corporation and Union Bank of California, N.A.
10.11(2) Pledge Agreement dated April 20, 2000 by Walter F. Ulloa and Philip
C. Wilkinson in favor of Union Bank of California, N.A.
10.12(1) Univision Roll-Up Agreement dated March 2, 2000 by and between
Univision Communications Inc. and Entravision Communications Company,
L.L.C.
10.13(1) First Amended and Restated Non-Negotiable Subordinated Note dated
March 2, 2000 in the principal amount of $120 million from
Entravision Communications Company, L.L.C. in favor of Univision
Communications Inc.
10.14(1) Amended and Restated Subordinated Note Purchase and Option Agreement
dated as of December 30, 1996 by and among Univision Communications
Inc., Entravision Communications Company, L.L.C., its member
entities, Walter F. Ulloa and Philip C. Wilkinson.
10.15(1) First Amendment to Amended and Restated Subordinated Note Purchase
and Option Agreement dated as of March 31, 1999 by and among
Univision Communications Inc., Entravision Communications Company,
L.L.C., its member entities, Walter F. Ulloa and Philip C. Wilkinson.
10.16(1) Second Amendment to Amended and Restated Subordinated Note Purchase
and Option Agreement dated March 2, 2000 by and among Univision
Communications Inc., Entravision Communications Company, L.L.C., its
member entities, Walter F. Ulloa and Philip C. Wilkinson.
10.17(1) Secured Promissory Note and Pledge Agreement dated October 16, 1996
in the principal amount of $360,366.38 from Paul A. Zevnik in favor
of Entravision Communications L.L.C.
10.18(2) Form of Indemnification Agreement for officers and directors of the
registrant.
10.19(2) Convertible Subordinated Note Purchase Agreement dated as of April
20, 2000 by and among Entravision Communications Company, L.L.C., the
registrant and certain investors.
10.20(2) Subordinated Convertible Promissory Note dated April 20, 2000 in the
principal amount of $90 million from Entravision Communications
Company, L.L.C. in favor of TSG Capital Fund III, L.P.
10.21(2) Investor Rights Agreement dated April 19, 2000 by and among
Entravision Communications Company, L.L.C., the registrant and TSG
Capital Fund III, L.P.
10.22(2) Form of Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock of the registrant.
10.23(2) Form of Investor Rights Agreement by and among the registrant and
certain of its stockholders.
10.24(1) Form of Network Affiliation Agreement by and between Univision
Television Network and Entravision Communications Company, L.L.C.
10.25(2) Office Lease dated August 19, 1999 by and between Water Garden
Company, L.L.C. and Entravision Communications Company, L.L.C.
10.26(3) Asset Purchase Agreement dated June 13, 2000 by and between the
registrant and Infinity Broadcasting Corporation.
21.1(3) Schedule of subsidiaries of the registrant.
23.1(2) Consent of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P.
(included in Exhibit 5.1).
23.2(2) Consent of McGladrey & Pullen, LLP.
23.3(2) Consent of Ernst & Young LLP.
23.4(2) Consent of Deloitte & Touche LLP.
24.1(1) Power of Attorney.
--------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
(b) Financial Statement Schedules--None.
Dates Referenced Herein and Documents Incorporated by Reference
4 Subsequent Filings that Reference this Filing
↑Top
Filing Submission 0000944209-00-001025 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Tue., Apr. 30, 5:24:16.2am ET 
